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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-5519
ASSOCIATED BANC-CORP
(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1200 Hansen Road
Green Bay, Wisconsin 54304
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (920) 491-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common stock, par value - $0.01 per share
(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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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. [ ]
As of March 1, 2001, 66,172,712 shares of Common Stock were outstanding and the
aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $2,226,522,000. Excludes approximately $107,100,000
of market value representing the outstanding shares of the Registrant owned by
all directors and officers who individually, in certain cases, or collectively,
may be deemed affiliates. Includes approximately $182,708,000 of market value
representing 7.83% of the outstanding shares of the Registrant held in a
fiduciary capacity by the trust company subsidiary of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Portions of Documents are Incorporated
Proxy Statement for Annual Meeting of Part III
Shareholders on April 25, 2001
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ASSOCIATED BANC-CORP
2000 FORM 10-K TABLE OF CONTENTS
Page
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PART I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 39
Item 8. Financial Statements and Supplementary Data 40
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 70
PART III
Item 10. Directors and Executive Officers of the Registrant 70
Item 11. Executive Compensation 70
Item 12. Security Ownership of Certain Beneficial Owners and
Management 70
Item 13. Certain Relationships and Related Transactions 70
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 71
Signatures
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements have been made in this document, and in documents
that are incorporated by reference, that are subject to risks and uncertainties.
These forward-looking statements describe future plans or strategies and include
Associated Banc-Corp's expectations of future results of operations. The words
"believes," "expects," "anticipates," or similar expressions identify
forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that are incorporated by
reference, could affect the future financial results of Associated Banc-Corp and
could cause those results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document. These factors include the following:
- - operating, legal, and regulatory risks;
- - economic, political, and competitive forces affecting Associated
Banc-Corp's banking, securities, asset management, and credit services
businesses; and
- - the risk that Associated Banc-Corp's analyses of these risks and forces
could be incorrect and/or that the strategies developed to address them
could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. Associated Banc-Corp
undertakes no obligation to update or revise any forward looking statements,
whether as a result of new information, future events, or otherwise.
PART I
ITEM 1 BUSINESS
GENERAL
Associated Banc-Corp (the "Corporation") is a bank holding company registered
pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). It was
incorporated in Wisconsin in 1964 and was inactive until 1969 when permission
was received from the Board of Governors of the Federal Reserve System to
acquire three banks. At December 31, 2000, the Corporation owned nine commercial
banks located in Illinois, Minnesota, and Wisconsin (the "affiliates") serving
their local communities and, measured by total assets held at December 31, 2000,
was the third largest commercial bank holding company headquartered in
Wisconsin. The Corporation also owned 31 nonbanking subsidiaries (the
"subsidiaries") located in Arizona, California, Illinois, Missouri, Nevada, and
Wisconsin.
Effective in the second quarter of 2001, the Corporation will merge all of the
Wisconsin bank affiliates into a single national banking charter, headquartered
in Green Bay, Wisconsin, under the name Associated Bank, National Association.
Certain subsidiaries will also merge with and into the resultant bank, becoming
departments of the Wisconsin national bank. At the completion of the foregoing
mergers, the Corporation will have four commercial bank affiliates and 20
subsidiaries.
SERVICES
The Corporation provides advice and specialized services to its affiliates in
banking policy and operations, including auditing, data processing,
marketing/advertising, investing, legal/compliance, personnel services, trust
services, risk management, facilities management, security, purchasing,
treasury, finance, accounting, and other financial services functionally related
to banking.
Responsibility for the management of the affiliates remains with their
respective Boards of Directors and officers. Services rendered to the affiliates
by the Corporation are intended to assist the local management of these
affiliates to expand the scope of services offered by them. Bank affiliates of
the Corporation at December 31, 2000, provided services through 214 locations in
149 communities.
The Corporation, through its affiliates, provides a complete range of banking
services to individuals and businesses. These services include checking,
savings, and money market deposit accounts, business, personal,
3
educational, residential, and commercial mortgage loans, other consumer-oriented
financial services, including IRA and Keogh accounts, and safe deposit and night
depository facilities. Automated Teller Machines (ATMs), which provide 24-hour
banking services to customers of the affiliates, are installed in many locations
in the affiliates' service areas. The affiliates are members of an interstate
shared ATM network, which allows their customers to perform banking transactions
from their checking, savings, or credit card accounts at ATMs in a multi-state
environment. Among the services designed specifically to meet the needs of
businesses are various types of specialized financing, cash management services,
and transfer/collection facilities.
The affiliates provide lending, depository, and related financial services to
individual, commercial, industrial, financial, and governmental customers. Term
loans, revolving credit arrangements, letters of credit, inventory and accounts
receivable financing, real estate construction lending, and international
banking services are available.
Lending involves credit risk. Credit risk is controlled and monitored through
active asset quality management and the use of lending standards, thorough
review of potential borrowers, and active asset quality administration. Active
asset quality administration, including early problem loan identification and
timely resolution of problems, further ensures appropriate management of credit
risk and minimization of loan losses. The allowance for loan losses ("AFLL")
represents management's estimate of an amount adequate to provide for probable
losses inherent in the loan portfolio. Management's evaluation of the adequacy
of the AFLL is based on management's ongoing review and grading of the loan
portfolio, consideration of past loan loss experience, trends in past due and
nonperforming loans, risk characteristics of the various classifications of
loans, current economic conditions, the fair value of underlying collateral, and
other factors which could affect potential credit losses. Credit risk management
is discussed under sections "Loans," "Allowance for Loan Losses," and
"Nonperforming Loans, Potential Problem Loans, and Other Real Estate Owned" and
under Notes 1 and 5 in the notes to consolidated financial statements.
Additional emphasis is given to noncredit services for commercial customers,
such as advice and assistance in the placement of securities, corporate cash
management, and financial planning. The affiliates make available check
clearing, safekeeping, loan participations, lines of credit, portfolio analyses,
and other services to approximately 120 correspondent financial institutions.
A trust company subsidiary and an investment management subsidiary offer a wide
variety of fiduciary, investment management, advisory, and corporate agency
services to individuals, corporations, charitable trusts, foundations, and
institutional investors. They also administer (as trustee and in other fiduciary
and representative capacities) pension, profit sharing and other employee
benefit plans, and personal trusts and estates.
Investment subsidiaries provide discount and full-service brokerage services,
including the sale of fixed and variable annuities, mutual funds, and
securities, to the affiliates' customers and the general public. Insurance
subsidiaries provide commercial and individual insurance services and engage in
reinsurance. Various life, property, casualty, credit, and mortgage insurance
products are available to the affiliates' customers and the general public.
Seven investment subsidiaries located in Nevada hold, manage, and trade cash,
stocks, and securities transferred from the affiliates and reinvest investment
income. Three additional investment subsidiaries formed in Nevada and
headquartered and domiciled in the Cayman Islands provide investment services
for their parent bank, as well as provide management of their respective Real
Estate Investment Trust ("REIT") subsidiaries. A leasing subsidiary provides
lease financing for a variety of capital equipment for commerce and industry. An
appraisal subsidiary provides real estate appraisals for customers, government
agencies, and the general public.
The mortgage banking subsidiaries are involved in the origination, servicing,
and warehousing of mortgage loans, and the sale of such loans to investors. The
primary focus is on commercial and one- to four-family residential and
multi-family properties, which are generally salable into the secondary mortgage
market. The principal mortgage lending areas of these subsidiaries are Wisconsin
and Illinois. Nearly all long-term, fixed-rate real estate mortgage loans
generated are sold in the secondary market and to other financial institutions,
with the subsidiaries retaining the servicing of those loans.
4
In addition to real estate loans, the Corporation's affiliates and subsidiaries
originate and/or service consumer loans, business credit card loans, and student
loans. 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. In April 2000, the Corporation
entered into an agreement with Citibank USA ("Citi") for the acquisition of the
Corporation's retail credit card portfolio. That agreement, along with a
five-year agency agreement entered into contemporaneously with Citi, provides
for agent fees and other income on new and existing card business.
The Corporation, its affiliates, and subsidiaries are not dependent upon a
single or a few customers, the loss of which would have a material adverse
effect on the Corporation. No material portion of the business of the
Corporation, its affiliates, or its subsidiaries is seasonal.
FOREIGN OPERATIONS
The Corporation, its affiliates, and subsidiaries do not engage in any
operations in foreign countries, other than three investment subsidiaries all
formed under the General Corporation Law of the State of Nevada. These
investment subsidiaries are headquartered and commercially domiciled in the
Cayman Islands. Each subsidiary has at least one employee who is a resident of
the Cayman Islands. In addition, Associated Bank Green Bay, National
Association, a banking affiliate of the Corporation, has established a branch in
the Cayman Islands under a Class B Banking License issued by the Cayman Islands
Monetary Authority. It has at least one employee who is a resident of the Cayman
Islands.
EMPLOYEES
At December 31, 2000, the Corporation, its affiliates, and subsidiaries, as a
group, had 3,835 full-time equivalent employees.
COMPETITION
The financial services industry is highly competitive. The Corporation competes
for loans, deposits, and financial services in all of its principal markets. The
Corporation competes directly with other bank and nonbank institutions located
within its markets, with out-of-market banks and bank holding companies that
advertise or otherwise serve the Corporation's markets, money market and other
mutual funds, brokerage houses, and various other financial institutions.
Additionally, the Corporation competes with insurance companies, leasing
companies, regulated small loan companies, credit unions, governmental agencies,
and commercial entities offering financial services products. Competition
involves efforts to obtain new deposits, the scope and type of services offered,
interest rates paid on deposits and charged on loans, as well as other aspects
of banking. All of the affiliates also face direct competition from members of
bank holding company systems that have greater assets and resources than those
of the Corporation.
SUPERVISION AND REGULATION
Financial institutions are highly regulated both at the federal and state level.
Numerous statutes and regulations presently affect the business of the
Corporation, its affiliates, and its subsidiaries. Proposed comprehensive
statutory and regulatory changes could have an effect on the Corporation's
business.
As a registered bank holding company under the Act, the Corporation and its
nonbanking affiliates are regulated and supervised by the Board of Governors of
the Federal Reserve System (the "Board"). The affiliates of the Corporation with
a national charter are supervised and examined by the Comptroller of the
Currency. The affiliates with a state charter are supervised and examined by
their respective state banking agency, and either the Board, if such affiliate
is a member of the Federal Reserve System, or by the Federal Deposit Insurance
Corporation (the "FDIC"), if a nonmember. Currently, all affiliates with a state
charter are nonmember banks. All affiliates of the Corporation that accept
insured deposits are subject to examination by the FDIC.
5
The activities of the Corporation, its affiliates, and subsidiaries, are limited
by the Act to those activities that are banking or those nonbanking activities
that are closely related or incidental to banking. The Corporation is required
to act as a source of financial strength to each of its affiliates pursuant to
which it may be required to commit financial resources to support such
affiliates in circumstances when, absent such requirements, it might not do so.
The Act also requires the prior approval of the Board for the Corporation to
acquire direct or indirect control of more than five percent of any class of
voting shares of any bank or bank holding company. Further restrictions imposed
by the Act include capital requirements, restrictions on transactions with
affiliates, on issuances of securities, on dividend payments, on inter-affiliate
liabilities, on extensions of credit, and on expansion through merger and
acquisition.
The federal regulatory authorities have broad authority to enforce the
regulatory requirements imposed on the Corporation, its affiliates, and
subsidiaries. In particular, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), and their implementing regulations, carry
greater enforcement powers. Under FIRREA, all commonly controlled FDIC insured
depository institutions may be held liable for any loss incurred by the FDIC
resulting from a failure of, or any assistance given by the FDIC to, any
commonly controlled institutions. Pursuant to certain provisions under FDICIA,
the federal regulatory agencies have broad powers to take prompt corrective
action if a depository institution fails to maintain certain capital levels.
Prompt corrective action may include the inability of the Corporation to pay
dividends, restrictions in acquisitions or activities, limitations on asset
growth, and other restrictions.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 contains
provisions which amended the Act to allow an adequately-capitalized and
adequately-managed bank holding company to acquire a bank located in another
state as of September 29, 1995. Effective June 1, 1997, interstate branching was
permitted. The Riegle-Neal Amendments Act of 1997 clarifies the applicability of
host state laws to any branch in such state of an out-of-state bank.
The FDIC maintains the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF) by assessing depository institutions an insurance premium
twice a year. The amount each institution is assessed is based both on the
balance of insured deposits held during the preceding two quarters, as well as
on the degree of risk the institution poses to the insurance fund. FDIC assesses
higher rates on those institutions that pose greater risks to the insurance
funds. Effective April 1, 2000, the FDIC Board of Directors (FDIC Board) adopted
revisions to the FDIC's regulation governing deposit insurance assessments which
it believes enhance the present system by allowing institutions with improving
capital positions to benefit from the improvement more quickly while requiring
those whose capital is failing to pay a higher assessment sooner. The Federal
Deposit Insurance Act governs the authority of the FDIC Board to set BIF and
SAIF assessment rates and directs the FDIC Board to establish a risk-based
assessment system for insured depository institutions and set assessments to the
extent necessary to maintain the reserve ratio at 1.25%. The current BIF
assessment rate is 1.34% and the SAIF assessment rate is 1.44%.
The Gramm-Leach-Bliley Act of 1999, P.L. 106-102, enacted on November 12, 1999,
has made major amendments to the Act. The amendments, among other things, allow
certain qualifying bank holding companies to engage in activities that are
financial in nature and that explicitly include the underwriting and sale of
insurance. The amendments also amend the Act provisions governing the scope and
manner of the Board's supervision of bank holding companies, the manner in which
activities may be found to be financial in nature, and the extent to which state
laws on insurance will apply to insurance activities of banks and bank
affiliates. The Board has issued regulations implementing these provisions. The
amendments allow for the expansion of activities by banking organizations and
permit consolidation among financial organizations generally.
The laws and regulations to which the Corporation, its affiliates, and
subsidiaries are subject are constantly under review by Congress, the federal
regulatory agencies, and the state authorities. These laws and regulations could
be changed drastically in the future, which could affect the profitability of
the Corporation, its ability to compete effectively, or the composition of the
financial services industry in which the Corporation competes.
6
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the banking industry and the affiliates of the
Corporation are affected by the credit policies of monetary authorities,
including the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the national supply of bank credit in order to
combat recession and curb inflationary pressures. Among the instruments of
monetary policy used by the Federal Reserve to implement these objectives are
open market operations in U.S. government securities, changes in reserve
requirements against member bank deposits, and changes in the Federal Reserve
discount rate. These means are used in varying combinations to influence overall
growth of bank loans, investments, and deposits, and may also affect interest
rates charged on loans or paid for deposits. The monetary policies of the
Federal Reserve authorities have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to have
such an effect in the future.
In view of changing conditions in the national economy and in the money markets,
as well as the effect of credit policies by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels, and loan demand, or their
effect on the business and earnings of the Corporation and its affiliates.
ITEM 2 PROPERTIES
The Corporation's headquarters were relocated to the Village of Ashwaubenon,
Wisconsin, in a leased facility with approximately 30,000 square feet of office
space in September 1998. The space is subject to a five-year lease with two
consecutive five-year extensions.
At December 31, 2000, the affiliates occupied 214 offices in 149 different
communities within Illinois, Minnesota, and Wisconsin. All affiliate main
offices are owned, except Associated Bank Milwaukee, Associated Bank Chicago,
Associated Bank Illinois, and Associated Bank Minnesota. The affiliate main
offices in downtown Milwaukee, Chicago, Rockford, and Minneapolis are located in
the lobbies of multi-story office buildings. Most affiliate branch offices are
free-standing buildings that provide adequate customer parking, including
drive-in facilities of various numbers and types for customer convenience. Some
affiliates also have branch offices in various supermarket locations, as well as
offices in retirement communities. In addition, the Corporation owns other real
property that, when considered in the aggregate, is not material to its
financial position.
ITEM 3 LEGAL PROCEEDINGS
There are legal proceedings pending against certain affiliates and subsidiaries
of the Corporation which arose in the normal course of their business. Although
litigation is subject to many uncertainties and the ultimate exposure with
respect to these matters cannot be ascertained, management believes, based upon
discussions with counsel, that the Corporation has meritorious defenses, and any
ultimate liability would not have a material adverse effect on the consolidated
financial position or results of operations of the Corporation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ending December 31, 2000.
EXECUTIVE OFFICERS OF THE CORPORATION
Pursuant to General Instruction G of Form 10-K, the following list is included
as an unnumbered item in Part I of this report in lieu of being included in the
Proxy Statement for the Annual Meeting of Stockholders to be held April 25,
2001.
The following is a list of names and ages of executive officers of the
Corporation and affiliates indicating all positions and offices held by each
such person and each such person's principal occupation(s) or employment during
the past five years. The Date of Election refers to the date the person was
first elected an officer of the Corporation or its affiliates. Officers are
appointed annually by the Board of Directors at the meeting of
7
directors immediately following the Annual Meeting of Shareholders. There are no
family relationships among these officers nor any arrangement or understanding
between any officer and any other person pursuant to which the officer was
selected. No person other than those listed below has been chosen to become an
Executive Officer of the Corporation.
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
Harry B. Conlon Chairman of Associated Banc-Corp March 1, 1975
Age: 65
Prior to April 2000, Chairman and Chief
Executive Officer of Associated Banc-Corp
Prior to October 1998, Chairman, President,
and Chief Executive Officer of Associated
Banc-Corp
Robert C. Gallagher President, Chief Executive Officer, and April 28, 1982
Age: 62 Director of Associated Banc-Corp
Prior to April 2000, President, Chief
Operating Officer, and Director of
Associated Banc-Corp
Prior to October 1998, Vice Chairman of
Associated Banc-Corp; Chairman and Chief
Executive Officer of Associated Bank Green
Bay (affiliate)
Prior to April 1996, Executive Vice
President and Director of Associated
Banc-Corp; Chairman, President and Chief
Executive Officer of Associated Bank Green
Bay (affiliate)
Brian R. Bodager Chief Administrative Officer, General July 22, 1992
Age: 45 Counsel and Corporate Secretary of
Associated Banc-Corp
Prior to July 1997, Senior Vice President,
General Counsel, and Corporate Secretary of
Associated Banc-Corp
Joseph B. Selner Chief Financial Officer of Associated January 25, 1978
Age: 54 Banc-Corp
Arthur E. Olsen, III General Auditor of Associated Banc-Corp July 28, 1993
Age: 49
Mary Ann Bamber Director of Retail Banking of Associated January 22, 1997
Age: 50 Banc-Corp
From January 1996 to January 1997,
independent consultant
From January 1996 to January 1997, Senior
Officer of an Iowa-based bank
Robert J. Johnson Director of Human Resources of Associated January 22, 1997
Age: 55 Banc-Corp
Prior to January 1997, Officer of a
Wisconsin manufacturing company
8
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
Donald E. Peters Director of Systems and Operations of October 27, 1997
Age: 51 Associated Banc-Corp
From October 1997 to November 1998, Director
of Systems and Operations of Associated
Banc-Corp; Executive Vice President of First
Financial Bank (former affiliate)
Prior to October 1997, Executive Vice
President of First Financial Corporation
(former affiliate); Executive Vice President
of First Financial Bank (former affiliate)
Cindy K. Moon-Mogush Director of Marketing of Associated Banc-Corp April 20, 1998
Age: 39
From July 1997 to April 1998, Senior Vice
President of a Michigan-based bank holding
company
From March 1995 to July 1997, Officer of a
Michigan-based bank holding company
Teresa A. Rosengarten Treasurer of Associated Banc-Corp October 25, 2000
Age: 40
From March 1994 to August 2000, Treasurer
of a Tennessee-based bank holding company
David E. Cleveland President and Director of Associated Bank August 31, 1999
Age: 67 Minnesota (affiliate)
John P. Evans Chief Executive Officer and Director of August 16, 1993
Age: 51 Associated Bank North (affiliate)
David J. Handy President, Chief Executive Officer, and May 31, 1991
Age: 61 Director of Associated Bank, National
Association (affiliate)
Michael B. Mahlik President, Chief Operating Officer, and January 1, 1991
Age: 48 Director of Associated Trust Company
(affiliate);Director of Associated Bank,
National Association (affiliate)
Prior to July 1999, Executive Vice
President, Managing Trust Officer, and
Director of Associated Bank, National
Association (affiliate)
George J. McCarthy President, Chief Executive Officer, and November 11, 1983
Age: 50 Director of Associated Bank Chicago
(affiliate)
Mark J. McMullen Chairman and Chief Executive Officer of June 2, 1981
Age: 52 Associated Trust Company (affiliate)
Prior to July 1999, Senior Executive Vice
President and Director of Associated Bank
Green Bay (affiliate)
Prior to July 1996, Executive Vice President
and Director of Associated Bank Green Bay
(affiliate)
Randall J. Peterson President, Chief Executive Officer, and August 2, 1982
Age: 55 Director of Associated Bank Green Bay
(affiliate)
From July 1996 to October 1998, President
and Director of Associated Bank Green Bay
(affiliate)
Prior to July 1996, Executive Vice President
and Director of Associated Bank Green Bay
(affiliate)
Gary L. Schaefer President and Director of Associated Bank March 1, 1995
Age: 51 South Central (affiliate)
9
NAME OFFICES AND POSITIONS HELD DATE OF ELECTION
Thomas R. Walsh President, Chief Executive Officer, and January 1, 1994
Age: 43 Director of Associated Bank Illinois
(affiliate)
From January 1994 to November 12, 1998,
President, Chief Executive Officer, and
Director of Associated Bank Lakeshore
(affiliate)
Gordon J. Weber President, Chief Executive Officer, and December 15, 1993
Age: 53 Director of Associated Bank Milwaukee
(affiliate); Director of Associated Bank
South Central (affiliate)
Scott A. Yeoman President, Chief Executive Officer, and October 1, 1994
Age: 43 Director of Associated Bank Lakeshore
(affiliate)
From October 1, 1994, to September 15, 1998,
Senior Vice President of Associated Bank
Lakeshore (affiliate)
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information in response to this item is incorporated by reference to the table
"Market Information" on Page 70 and the discussion of dividend restrictions in
Note 11 "Stockholders' Equity" of the notes to consolidated financial statements
included under Item 8 of this document. The Corporation's common stock is
currently being traded on The Nasdaq Stock Market under the symbol ASBC.
The approximate number of equity security holders of record of common stock,
$.01 par value, as of March 1, 2001, was 10,000. Certain of the Corporation's
shares are held in "nominee" or "street" name and the number of beneficial
owners of such shares is approximately 23,700.
Payment of future dividends is within the discretion of the Corporation's Board
of Directors and will depend, among other factors, on earnings, capital
requirements, and the operating and financial condition of the Corporation. At
the present time, the Corporation expects that dividends will continue to be
paid in the future.
10
ITEM 6 SELECTED FINANCIAL DATA
TABLE 1: EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
% 5-YEAR
CHANGE COMPOUND
1999 TO GROWTH
YEARS ENDED DECEMBER 31, 2000 2000 1999 1998 1997 1996 1995 RATE
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 931,157 14.3% $ 814,520 $ 785,765 $ 787,919 $ 731,763 $ 696,858 6.0%
Interest expense 547,590 30.8 418,775 411,028 411,637 375,922 360,499 8.7
-------------------------------------------------------------------------------------------------
Net interest income 383,567 (3.1) 395,745 374,737 376,282 355,841 336,359 2.7
Provision for loan losses 20,206 5.0 19,243 14,740 31,668 13,695 14,029 7.6
-------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 363,361 (3.5) 376,502 359,997 344,614 342,146 322,330 2.4
Noninterest income 184,196 11.0 165,906 167,928 94,854 115,265 104,989 11.9
Noninterest expense 317,736 4.1 305,092 294,962 323,200 292,222 252,927 4.7
-------------------------------------------------------------------------------------------------
Income before income taxes and
extraordinary item 229,821 (3.2) 237,316 232,963 116,268 165,189 174,392 5.7
Income tax expense 61,838 (14.6) 72,373 75,943 63,909 57,487 62,381 (0.2)
Extraordinary item --- --- --- --- --- (686) --- N/M
-------------------------------------------------------------------------------------------------
NET INCOME $ 167,983 1.8% $ 164,943 $ 157,020 $ 52,359 $ 107,016 $ 112,011 8.4%
=================================================================================================
Basic earnings per share (1):
Income before extraordinary
item $ 2.46 4.2% $ 2.36 $ 2.26 $ 0.76 $ 1.55 $ 1.66 8.2%
Net income 2.46 4.2 2.36 2.26 0.76 1.54 1.66 8.2
Diluted earnings per share (1):
Income before extraordinary
item 2.46 5.1 2.34 2.24 0.74 1.52 1.63 8.6
Net income 2.46 5.1 2.34 2.24 0.74 1.51 1.63 8.6
Cash dividends per share (1) 1.11 5.0 1.05 0.95 0.81 0.69 0.59 13.4
Weighted average shares
outstanding:
Basic 68,186 (2.4) 69,858 69,438 69,172 69,526 67,525 0.2
Diluted 68,410 (2.9) 70,468 70,168 70,329 70,818 68,720 (0.1)
SELECTED FINANCIAL DATA
Year-End Balances:
Loans $ 8,913,379 6.8% $ 8,343,100 $ 7,272,697 $ 7,072,550 $ 6,654,914 $ 6,366,706 7.0%
Allowance for loan losses 120,232 6.2 113,196 99,677 92,731 71,767 68,560 11.9
Investment securities 3,260,205 (0.3) 3,270,383 2,907,735 2,940,218 2,753,938 2,266,895 7.5
Assets 13,128,394 4.9 12,519,902 11,250,667 10,690,442 10,120,413 9,393,609 6.9
Deposits 9,291,646 6.9 8,691,829 8,557,819 8,395,277 7,959,240 7,570,201 4.2
Long-term debt 122,420 404.1 24,283 26,004 15,270 33,329 36,907 27.1
Stockholders' equity 968,696 6.5 909,789 878,721 813,692 803,562 725,211 6.0
Book value per share (1) 14.65 12.0 13.09 12.70 13.35 14.74 13.57 1.5
---------------------------------------------------------------------------------------------------
Average Balances:
Loans $ 8,688,086 11.4% $ 7,800,791 $ 7,255,850 $ 6,959,018 $ 6,580,758 $ 6,157,655 7.1%
Investment securities 3,317,499 6.3 3,119,923 2,737,556 2,905,921 2,526,571 2,421,379 6.5
Assets 12,810,235 9.5 11,698,104 10,628,695 10,391,718 9,640,471 9,123,981 7.0
Deposits 9,102,940 5.5 8,631,652 8,430,701 8,121,945 7,778,177 7,409,409 4.2
Stockholders' equity 920,169 0.7 914,082 856,425 839,859 775,180 674,368 6.4
---------------------------------------------------------------------------------------------------
Financial Ratios:
Return on average equity (2) 18.26% 22bp 18.04% 18.33% 16.93% 16.64% 17.21%
Return on average assets (2) 1.31 (10) 1.41 1.48 1.37 1.35 1.27
Net interest margin
(tax-equivalent) 3.36 (38) 3.74 3.79 3.86 3.95 3.95
Average equity to average
assets 7.18 (63) 7.81 8.06 8.08 8.04 7.39
Dividend payout ratio (2)(3) 45.01 33 44.68 41.93 39.38 37.07 35.71
===================================================================================================
(1) Per share data adjusted retroactively for stock splits and stock dividends.
(2) Ratio is based upon income prior to merger integration and other one-time
charges or extraordinary items for 1997, 1996, and 1995.
(3) Ratio is based upon basic earnings per share.
N/M = not meaningful
11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is management's analysis to assist in the understanding
and evaluation of the consolidated financial condition and results of operations
of Associated Banc-Corp (the "parent company"), together with its affiliates and
subsidiaries (the "Corporation"). It should be read in conjunction with the
consolidated financial statements and footnotes and the selected financial data
presented elsewhere in this report.
The financial discussion that follows may refer to the impact of the
Corporation's business combination activity, detailed under section "Business
Combinations," and Note 2 of the notes to consolidated financial statements. The
detailed financial discussion focuses on 2000 results compared to 1999.
Discussion of 1999 results to 1998 is predominantly in section "1999 Compared to
1998."
PERFORMANCE SUMMARY
The Corporation recorded net income of $168.0 million for the year ended
December 31, 2000, an increase of $3.0 million or 1.8% over the $164.9 million
earned in 1999. Basic earnings per share for 2000 were $2.46, a 4.2% increase
over 1999 basic earnings per share of $2.36. Earnings per diluted share were
$2.46, a 5.1% increase over 1999 diluted earnings per share of $2.34. Return on
average assets ("ROA") and return on average equity ("ROE") for 2000 were 1.31%
and 18.26%, respectively, compared to 1.41% and 18.04%, respectively, for 1999.
Cash dividends paid in 2000 increased by 5.0% to $1.11 per share over the $1.05
per share paid in 1999. Key factors behind these results were:
- - Taxable equivalent net interest income was $405.3 million for 2000, $4.1
million or 1.0% lower than 1999. Taxable equivalent interest income
increased by $124.7 million, while interest expense increased $128.8
million. The volume of average earning assets increased $1.1 billion to
$12.0 billion, which exceeded the $1.0 billion increase in interest-bearing
liabilities. Although increases in the volume of earning assets and
interest-bearing liabilities, as well as changes in product mix, added
$32.4 million to taxable equivalent net interest income, changes in
interest rates resulted in a $36.5 million decrease.
- - Net interest income and net interest margin were also impacted in 2000 by
the rising interest rate environment, competitive pricing pressures, branch
deposit and credit card receivable sales, and funding of stock repurchases.
The Federal Reserve raised interest rates six times between July 1999 and
December 2000, producing an average Federal funds rate for 2000 that was
131 basis points ("bp") higher than the average for 1999.
- - The net interest margin was 3.36% for 2000, a 38 bp decline from 3.74% for
1999, the net result of the 45 bp decrease in interest rate spread, offset
by a 7 bp improvement in the net free funds contribution. Rates on
interest-bearing liabilities in 2000 were 80 bp higher than last year,
while the yield on earning assets increased 35 bp, bringing the interest
rate spread down by 45 bp.
- - Total loans were $8.9 billion at December 31, 2000, an increase of $570
million or 6.8% over December 31, 1999, predominantly in commercial loans.
Excluding the sale of $128 million of credit card loan receivables in 2000,
total loans were 8.4% higher at year-end 2000 than a year earlier. Total
deposits were $9.3 billion at December 31, 2000, $600 million higher than
December 31, 1999, despite the sale of six Illinois branch offices in 2000
with deposits totaling $109 million. The growth was predominantly in
brokered CDs.
- - Asset quality remained relatively strong. The provision for loan losses
("PFLL") increased to $20.2 million compared to $19.2 million in 1999. Net
charge-offs ("NCOs") decreased $4.8 million, primarily due to fewer NCOs on
credit cards between the years, given the sale of credit card receivables
in April 2000. NCOs were 0.10% of average loans compared to 0.18% in 1999.
The ratio of allowance for loan losses to loans was 1.35% and 1.36% at
December 31, 2000 and 1999, respectively. Nonperforming loans were $47.7
million, representing 0.54% of total loans at year-end 2000, compared to
$36.9 million or 0.44% of total loans last year.
12
- - Noninterest income was $184.2 million for 2000, $18.3 million or 11.0%
higher than 1999. Net gains on the sales of assets and investment
securities totaled $16.8 million in 2000 compared to net gains of $8.0
million in 1999. Key sales in 2000 included a $12.9 million gain on the
sale of the credit card receivables, the $11.1 million net premium on the
sales of deposits of six branches, and $7.6 million net losses on the sale
of investment securities. Excluding these asset and security sales,
noninterest income was $167.4 million, or $9.5 million (6.0%) higher than
1999. With the exception of mortgage banking, which was impacted by a
year-over-year slowdown in secondary mortgage production, all other
noninterest income categories collectively increased $20.0 million or 15.7%
in 2000 compared to 1999.
- - Noninterest expense was $317.7 million, up $12.6 million or 4.1% over 1999.
However, 1999 expenses were reduced by two large items totaling $12.0
million, namely the reversal of mortgage servicing rights ("MSR") valuation
allowance and a reduction in profit sharing expense. Not including these
items, noninterest expense was relatively unchanged (up $0.6 million or
0.2%), despite adding $10.9 million of incremental expenses in 2000 from
the 1999 purchase acquisitions. Excluding the acquisitions, as well as the
two 1999 items noted above, noninterest expense was $10.3 million (3.4%)
lower than 1999.
- - Income tax expense decreased to $61.8 million, down $10.5 million from
1999. The effective tax rate in 2000 was 26.9% compared to 30.5% for 1999,
due to the tax benefits of additional municipal securities, real estate
investment trusts, bank owned life insurance, and tax valuation allowance
adjustments.
BUSINESS COMBINATIONS
There were no completed or pending business combination transactions during
2000. During 1999, the Corporation acquired $591 million in assets through three
acquisition transactions. All were accounted for under the purchase method, and
therefore the financial position and results of operations of each entity were
included in the consolidated financial statements as of the consummation date of
each transaction. The Corporation's business combination activity is further
summarized in Note 2 of the notes to consolidated financial statements. Share
repurchase activity related to the acquisitions is described under the section
"Capital."
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income is the primary source of the Corporation's revenue. Net
interest income is the difference between interest income on earning assets
("EAs"), such as loans and securities, and the interest expense on
interest-bearing deposits and other borrowings, used to fund those and other
assets or activities. The amount of net interest income is affected by changes
in interest rates and by the amount and composition of EAs and interest-bearing
liabilities ("IBLs"). Additionally, net interest income is impacted by the
sensitivity of the balance sheet to changes in interest rates which factors in
characteristics such as the fixed or variable nature of the financial
instruments, contractual maturities, and repricing frequencies.
Net interest income in the consolidated statements of income (which excludes the
taxable equivalent adjustment on tax exempt assets) was $383.6 million, compared
to $395.7 million last year. The taxable equivalent adjustments (the adjustments
to bring tax-exempt interest to a level that would yield the same after-tax
income had that income been subject to taxation, using a 35% tax rate) of $21.7
million for 2000 and $13.7 million for 1999, resulted in fully taxable
equivalent ("FTE") net interest income of $405.3 million and $409.4 million,
respectively. The $8.0 million increase in the taxable equivalent adjustment
between years was in line with the 52% growth in average municipal securities
balances. The impact of carrying more tax exempt assets in 2000 is reflected in
the consolidated statements of income as a reduction to income tax expense
between the years.
FTE net interest income was $405.3 million for 2000, a decrease of $4.1 million
or 1.0% from 1999. The 1999 acquisitions, net of the cost to fund them,
contributed approximately $15 million more net interest income in 2000 than in
1999. For 2000 compared to 1999, the decrease in FTE net interest income was due
to the combination of a number of factors, including a rising interest rate
environment, an inverted yield curve during
13
the year, funding of stock repurchases, greater average bank owned life
insurance ("BOLI") balances, the sale of branch deposits and credit card
receivables, and continued competitive pressures for both loan and deposit
products.
Interest rate spread and net interest margin are utilized to measure and explain
changes in net interest income. Interest rate spread is the difference between
the yield on EAs and the rate paid for IBLs that fund those assets. The net
interest margin is expressed as the percentage of net interest income to average
EAs. The net interest margin exceeds the interest rate spread because
noninterest-bearing sources of funds (net free funds), principally demand
deposits and stockholders' equity, also support EAs. To compare tax-exempt asset
yields to taxable yields, the yield on tax-exempt loans and securities is
computed on an FTE basis. Net interest income, interest rate spread, and net
interest margin are discussed further on an FTE basis.
Table 2 provides average balances of EAs and IBLs, the associated interest
income and expense, and the corresponding interest rates earned and paid, as
well as net interest income, interest rate spread, and net interest margin on an
FTE basis for the three years ended December 31, 2000. Tables 3 through 5
present additional information to facilitate the review and discussion of FTE
net interest income, interest rate spread, and net interest margin.
As indicated in Tables 2 and 3, increases in volume and changes in the mix of
both EAs and IBLs added $32.4 million to FTE net interest income, whereas
changes in the rates resulted in a $36.5 million decline, for a net decrease of
$4.1 million.
The net interest margin for 2000 was 3.36%, compared to 3.74% in 1999. For 2000,
the yield on EAs rose 35 basis points, increasing interest earned by $35.8
million (with loans accounting for $28.1 million of the increase), while the
cost of IBLs increased 80 bp, raising interest expense by $72.3 million (with
interest-bearing deposits, principally brokered CDs, accounting for $46.3
million), for a net decline of $36.5 million in FTE net interest income. The
decline in net interest margin was unfavorably impacted by tighter credit
spreads in increasingly competitive markets and by increased reliance of funding
loan growth with market-rate sensitive liabilities in a rising rate environment,
particularly wholesale funding. In addition, the lower margin reflects the cost
of funding the Corporation's share repurchases during 2000 and funding more BOLI
(an asset whose earnings are recorded as fee income), as well as the sales of
branch deposits (replaced with higher-costing wholesale funds) and the sale of
higher-yielding credit card receivables. While these actions negatively impacted
the margin, they supported other corporate objectives, such as capital
management, revenue diversity, and streamlining strategies.
In combination, the growth and composition change of EAs contributed an
additional $88.9 million to FTE net interest income, while the growth and
composition of IBLs cost an additional $56.5 million, netting a $32.4 million
increase to FTE net interest income.
Average EAs were $12.0 billion in 2000, an increase of $1.1 billion, or 10.0%,
from 1999. On average, the acquisitions contributed approximately $275 million
to this increase, while the sale of the credit card receivables reduced average
EAs by approximately $96 million. Loans accounted for the majority of the growth
in EAs, increasing to 72.1% of average EAs, compared to 71.2% for 1999. Average
loans were $8.7 billion in 2000, up $887 million or 11.4% compared to 1999 (up
9.8% excluding the net impact from acquisitions and the sale of credit card
receivables). During 2000, the Corporation focused on shifting the composition
of its loan portfolio, growing the proportion of commercial loans, which
represented 36% of average EAs for 2000 compared to 31% for 1999. For 2000, FTE
interest income on loans increased $101.7 million over last year, with $73.5
million contributed from loan growth and $28.2 million added from the rate
environment impact on loans (See Table 3). The average loan yield for 2000 was
8.38%, up 35 bp over last year. The loan yield lagged the change in the market
rate in part due to repricing frequencies in the portfolio, competitive pricing
pressures on new production, the sale of the higher yielding credit card
receivables, and other loan mix changes. The increase seen in investment yields
was primarily a result of the rising rate environment.
Average IBLs were $10.7 billion in 2000, an increase of $1.0 billion or 10.5%
from 1999. Although the Corporation has been successful in attracting
transactional demand deposit accounts, loan growth outpaced
14
deposit growth, increasing the Corporation's reliance on brokered CDs and other
wholesale funding sources. The mix of IBLs shifted from lower-rate deposits
(which represented 75.1% of average IBLs for 2000 compared to 79.0% for 1999) to
higher-cost wholesale funding. Average interest-bearing deposits were $8.0
billion in 2000, up $388 million or 5.1% compared to 1999 (up 5.0% excluding the
net impact from acquisitions and branch deposit sales). For 2000, interest
expense on interest-bearing deposits increased $65.8 million, with $19.5 million
contributed from the growth in volume and $46.3 million added from the impact of
the rate environment. Brokered CDs were the predominant driver of the change in
interest-bearing deposits, up $599 million on average over last year, and
costing 112 bp more in 2000 than 1999. Total wholesale funds (including all
funding sources other than interest-bearing deposits) were $2.7 billion on
average for 2000, up $622 million or 30.6%. Total interest-bearing deposits cost
4.74% on average for 2000 (62 bp more than last year), while wholesale funding
on a combined basis cost 6.32% (117 bp higher than last year).
15
TABLE 2: AVERAGE BALANCES AND INTEREST RATES (INTEREST AND RATES ON A
TAX-EQUIVALENT BASIS)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
ASSETS
Earning assets:
Loans (1)(2)(3) $ 8,688,086 $ 728,128 8.38% $ 7,800,791 $ 626,407 8.03% $ 7,255,850 $ 603,423 8.32%
Investment securities:
Taxable 2,523,492 163,768 6.49 2,597,760 163,769 6.30 2,500,470 168,536 6.74
Tax exempt(1) 794,007 58,233 7.33 522,163 36,201 6.93 237,086 17,028 7.18
Short-term investments 41,309 2,775 6.72 34,110 1,806 5.29 68,776 3,479 5.06
---------------------------------------------------------------------------------------------------
Total earning assets $12,046,894 $ 952,904 7.91% $10,954,824 $ 828,183 7.56% $10,062,182 $ 792,466 7.88%
---------------------------------------------------------------------------------------------------
Allowance for loan losses (115,580) (105,488) (92,175)
Cash and due from banks 268,267 263,288 246,596
Other assets 610,654 585,480 412,092
---------------------------------------------------------------------------------------------------
Total assets $12,810,235 $11,698,104 $10,628,695
===================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $ 956,177 $ 19,704 2.06% $ 919,163 $ 14,998 1.63% $ 981,630 $ 20,812 2.12%
Interest-bearing demand
deposits 803,779 11,091 1.38 796,506 10,645 1.34 473,123 8,212 1.74
Money market deposits 1,407,502 65,702 4.67 1,373,010 52,478 3.82 1,377,503 45,430 3.30
Time deposits 4,848,900 283,395 5.84 4,539,286 235,954 5.20 4,753,959 270,938 5.70
---------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 8,016,358 379,892 4.74 7,627,965 314,075 4.12 7,586,215 345,392 4.55
Federal funds purchased and
securities sold under
agreements to repurchase 1,724,291 107,732 6.25 1,057,269 52,843 5.00 517,344 26,174 5.06
Other short-term borrowings 816,553 52,698 6.45 951,524 50,214 5.28 660,761 37,600 5.69
Long-term debt 114,374 7,268 6.35 24,644 1,643 6.67 27,055 1,862 6.88
---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $10,671,576 $ 547,590 5.13% $ 9,661,402 $ 418,775 4.33% $ 8,791,375 $ 411,028 4.68%
---------------------------------------------------------------------------------------------------
Demand deposits 1,086,582 1,003,687 844,486
Accrued expenses and other
liabilities 131,908 118,933 136,409
Stockholders' equity 920,169 914,082 856,425
---------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $12,810,235 $11,698,104 $10,628,695
===================================================================================================
Net interest income and rate
spread (1) $ 405,314 2.78% $ 409,408 3.23% $ 381,438 3.20%
===================================================================================================
Net interest margin (1) 3.36% 3.74% 3.79%
===================================================================================================
Taxable equivalent adjustment $ 21,747 $ 13,663 $ 6,701
===================================================================================================
(1) The yield on tax exempt loans and securities is computed on a
tax-equivalent basis using a tax rate of 35% for all periods presented and
is net of the effects of certain disallowed interest deductions.
(2) Nonaccrual loans and loans held for sale have been included in the average
balances.
(3) Interest income includes net loan fees.
16
TABLE 3: RATE/VOLUME ANALYSIS (1)
2000 COMPARED TO 1999 1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------------------------------------------------
VOLUME RATE NET VOLUME RATE NET
----------------------------------------------------------------------
($ IN THOUSANDS)
Interest income:
Loans (2) $ 73,540 $ 28,181 $101,721 $ 44,213 $(21,229) $ 22,984
Investment securities:
Taxable (4,907) 4,906 (1) 6,398 (11,165) (4,767)
Tax-exempt (2) 19,834 2,198 22,032 19,783 (610) 19,173
Short-term investments 455 514 969 (1,768) 95 (1,673)
-----------------------------------------------------------------------
Total earning assets (2) $ 88,922 $ 35,799 $124,721 $ 68,626 $(32,909) $ 35,717
-----------------------------------------------------------------------
Interest expense:
Savings deposits $ 662 $ 4,044 $ 4,706 $ (1,258) $ (4,556) $ (5,814)
Interest-bearing demand deposits 124 322 446 4,648 (2,215) 2,433
Money market deposits 1,425 11,799 13,224 (149) 7,197 7,048
Time deposits 17,319 30,122 47,441 (11,870) (23,114) (34,984)
-----------------------------------------------------------------------
Total interest-bearing deposits 19,530 46,287 65,817 (8,629) (22,688) (31,317)
Federal funds purchased and securities sold
under agreements to repurchase 39,307 15,582 54,889 26,989 (320) 26,669
Other short-term borrowings (8,058) 10,542 2,484 15,515 (2,901) 12,614
Long-term debt 5,707 (82) 5,625 (162) (57) (219)
-----------------------------------------------------------------------
Total interest-bearing liabilities $ 56,486 $ 72,329 $128,815 $ 33,713 $(25,966) $ 7,747
-----------------------------------------------------------------------
Net interest income (2) $ 32,436 $ (36,530) $ (4,094) $ 34,913 $ (6,943) $ 27,970
=======================================================================
(1) The change in interest due to both rate and volume has been allocated in
proportion to the relationship to the dollar amounts of the change in each.
(2) The yield on tax-exempt loans and securities is computed on an FTE basis
using a tax rate of 35% for all periods presented and is net of the effects
of certain disallowed interest deductions.
TABLE 4: INTEREST RATE SPREAD AND INTEREST MARGIN (ON A TAX-EQUIVALENT BASIS)
2000 AVERAGE 1999 AVERAGE 1998 AVERAGE
---------------------------------------------------------------------------------------------
% OF % OF % OF
EARNING YIELD EARNING YIELD EARNING YIELD
BALANCE ASSETS / RATE BALANCE ASSETS / RATE BALANCE ASSETS / RATE
---------------------------------------------------------------------------------------------
($ IN THOUSANDS)
Earning assets $12,046,894 100.0% 7.91% $10,954,824 100.0% 7.56% $10,062,182 100.0% 7.88%
---------------------------------------------------------------------------------------------
Financed by:
Interest-bearing funds 10,671,576 88.6% 5.13% 9,661,402 88.2% 4.33% 8,791,375 87.4% 4.68%
Noninterest-bearing
funds 1,375,318 11.4% 1,293,422 11.8% 1,270,807 12.6%
---------------------------------------------------------------------------------------------
Total funds sources $12,046,894 100.0% 4.55% $10,954,824 100.0% 3.82% $10,062,182 100.0% 4.09%
=============================================================================================
Interest rate spread 2.78% 3.23% 3.20%
Contribution from net
free funds .58% .51% .59%
----- ----- -----
Net interest margin 3.36% 3.74% 3.79%
=============================================================================================
Average prime rate* 9.23% 8.00% 8.35%
Average fed funds rate* 6.26% 4.95% 5.36%
Average spread 297bp 305bp 299bp
=============================================================================================
*Source: Bloomberg
17
TABLE 5: SELECTED AVERAGE BALANCES
2000 AS 1999 AS
PERCENT % OF % OF
2000 1999 CHANGE TOTAL ASSETS TOTAL ASSETS
-----------------------------------------------------------------------
($ IN THOUSANDS)
ASSETS
Loans $ 8,688,086 $ 7,800,791 11.4% 67.8% 66.7%
Investment securities
Taxable 2,523,492 2,597,760 (2.9) 19.7 22.2
Tax-exempt 794,007 522,163 52.1 6.2 4.4
Short-term investments 41,309 34,110 21.1 0.3 0.3
-----------------------------------------------------------------------
Total earning assets 12,046,894 10,954,824 10.0 94.0 93.6
Other assets 763,341 743,280 2.7 6.0 6.4
-----------------------------------------------------------------------
Total assets $12,810,235 $11,698,104 9.5% 100.0% 100.0%
=======================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing deposits $8,016,358 $7,627,965 5.1% 62.6% 65.2%
Short-term borrowings 2,540,844 2,008,793 26.5 19.8 17.2
Long-term debt 114,374 24,644 364.1 0.9 0.2
-----------------------------------------------------------------------
Total interest-bearing liabilities 10,671,576 9,661,402 10.5 83.3 82.6
Demand deposits 1,086,582 1,003,687 8.3 8.5 8.6
Accrued expenses and other liabilities 131,908 118,933 10.9 1.0 1.0
Stockholders' equity 920,169 914,082 0.7 7.2 7.8
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $12,810,235 $11,698,104 9.5% 100.0% 100.0%
=======================================================================
PROVISION FOR LOAN LOSSES
The PFLL in 2000 was $20.2 million. In comparison, the PFLL for 1999 was $19.2
million, and $14.7 million for 1998. The PFLL is predominantly a function of the
methodology used to determine the adequacy of the allowance for loan losses
which focuses on changes in the size and character of the loan portfolio,
changes in levels of impaired and other nonperforming loans, historical losses
on each portfolio category, the risk inherent in specific loans, concentrations
of loans to specific borrowers or industries, existing economic conditions, the
fair value of underlying collateral, and other factors which could affect
potential credit losses. The ratio of the allowance for loan losses to total
loans was 1.35%, down slightly from 1.36% at December 31, 1999, and down from
1.37% at December 31, 1998. See additional discussion under section, "Allowance
for Loan Losses."
NONINTEREST INCOME
Noninterest income was $184.2 million for 2000, $18.3 million or 11.0% higher
than 1999. Of the $18.3 million increase, $8.8 million was from increased net
gains on asset and investment sales. Thus, excluding asset and investment sales,
noninterest income was 6.0% higher than last year, despite a dramatic decrease
in mortgage banking income as discussed below. Excluding mortgage banking income
and the net gains on asset and investment sales, noninterest income increased by
$20.0 million or 15.7% in 2000, of which the 1999 acquisitions contributed
approximately $2.8 million. Fee income as a percentage of total revenues
(defined as total noninterest income less gains or losses on asset and
investment sales ("fee income") divided by taxable equivalent net interest
income plus fee income) was 29.2% for 2000 compared to 27.8% last year.
18
TABLE 6: NONINTEREST INCOME
% CHANGE
FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
-----------------------------------------------------------------
2000 1999 1998 2000 1999
-----------------------------------------------------------------
($ IN THOUSANDS)
Trust service fees $ 37,617 $ 37,996 $ 33,328 (1.0)% 14.0%
Service charges on deposit accounts 33,296 29,584 27,464 12.5 7.7
Mortgage banking income 19,944 30,417 46,105 (34.4) (34.0)
Credit card and other nondeposit fees 25,739 20,763 17,514 24.0 18.6
Retail commission income 20,187 18,372 14,823 9.9 23.9
BOLI income 12,377 9,456 1,174 30.9 N/M
Asset sale gains, net 24,420 4,977 7,166 N/M (30.5)
Other 18,265 11,315 13,523 61.4 (16.3)
-----------------------------------------------------------------
Subtotal 191,845 162,880 161,097 17.8% 1.1%
Investment securities gains (losses), net (7,649) 3,026 6,831 N/M (55.7)
------------------------------------------------------------------
Total noninterest income $184,196 $165,906 $167,928 11.0% (1.2)%
==================================================================
Subtotal, excluding asset sale gains ("fee
income") $167,425 $157,903 $153,931 6.0% 2.6%
==================================================================
Subtotal, excluding asset sale gains and mortgage
banking income $147,481 $127,486 $107,826 15.7% 18.2
==================================================================
N/M = not meaningful
Trust service fees for 2000 were $37.6 million, down 1% from last year. The
change was predominantly due to a decrease in the market value of assets under
management, a function of the declines in the stock and bond markets during 2000
compared to 1999, and competitive market conditions. Trust assets under
management totaled $4.6 billion and $5.2 billion at December 31, 2000 and 1999,
respectively.
Service charges on deposits were $33.3 million, $3.7 million (12.5%) higher than
1999 due to mid-year rate increases and initiatives to reduce the volume of
service charges waived.
Mortgage banking income consists of servicing fees, the gain or loss on sale of
mortgage loans to the secondary market, and production-related revenue
(origination, underwriting, and escrow waiver fees). Mortgage banking income was
$19.9 million in 2000, a decrease of $10.5 million or 34.4% from 1999. The
decrease was driven primarily by a 61% drop in secondary mortgage loan
production in response to the rising interest rate environment in 2000 compared
to 1999. The lower production levels adversely impacted gains on sales of
mortgages (down $8.1 million or 72%) and volume related fees (down $2.2 million
or 56%). The portfolio of loans serviced for others was relatively unchanged
($5.5 billion at December 31, 2000, down 1% from $5.6 billion at year-end 1999),
directly affecting servicing fees which were $14.9 million, down $0.2 million or
1% between the years.
Credit card and other nondeposit fees were $25.7 million for 2000, an increase
of $5.0 million or 24.0% over 1999, with $1.6 million in increased merchant
income, $2.8 million in all other credit card revenue, and $0.6 million in other
nondeposit charges. The other credit card revenue was enhanced by the April 2000
acquisition agreement and five-year agency agreement with Citibank USA ("Citi")
which provide for agent fees and other income on new and existing card business.
Retail commission income (which includes commissions from insurance and
brokerage product sales) was $20.2 million, up $1.8 million or 9.9% compared to
last year. The increase was led by higher insurance revenue, particularly from
fixed annuities and credit life production.
Asset sale gains for 2000 were $24.4 million, including the $12.9 million gain
recognized on the sale of $128 million credit card receivables to Citi and the
$11.1 million net premium on the sales of $109 million in
19
deposits from six branches during 2000. Asset sale gains in 1999 of $5.0 million
were primarily attributable to the net premium on deposits of three branches
sold in the fourth quarter of 1999.
BOLI income was $12.4 million, up $2.9 million or 30.9% over last year, in line
with the 20% increase in the average base investment and rate increases
effective in the first quarter of 2000. Other noninterest income was $18.3
million for 2000, up $7.0 million from 1999. The increase included $1.5 million
recognized in connection with an interim servicing agreement with Citi related
to the credit card receivable sale, and $3.6 million in connection with the
Corporation's mid-2000 change in data processing and management information
system vendors, both of which compensated for certain additional costs incurred
by the Corporation.
Investment securities losses for 2000 were $7.6 million. The net losses were
primarily from various securities sold and the proceeds either reinvested to
mitigate interest rate risk and enhance future yields or to pay down higher cost
borrowings. Investment securities gains for 1999 were $3.0 million, primarily
due to a $3.6 million gain on the partial sale of an agency security that
carried an other than temporary impairment amount reported in 1997. The
remaining portion of this security was sold during 2000 for a $1.5 million loss.
NONINTEREST EXPENSE
Total noninterest expense ("NIE") for 2000 was $317.7 million, a $12.6 million
or 4.1% increase over 1999 NIE. However, 1999 expenses were reduced by two large
items totaling $12.0 million (the $8.0 million reversal of MSR valuation
allowance and a $4.0 million reduction in profit sharing expense). Not including
these items, NIE was relatively unchanged between the years (up $0.6 million or
0.2%), despite adding approximately $10.9 million of incremental expenses in
2000 from the 1999 purchase acquisitions. Excluding the acquisitions, and the
two noted items from 1999, NIE decreased $10.3 million or 3.4% over 1999.
Primary categories impacting the change between 2000 and 1999 are noted below.
TABLE 7: NONINTEREST EXPENSE
% CHANGE
FROM PRIOR
YEARS ENDED DECEMBER 31, YEAR
------------------------------------------------------
2000 1999 1998 2000 1999
------------------------------------------------------
($ IN THOUSANDS)
Personnel expense $157,007 $151,644 $148,490 3.5% 2.1%
Occupancy 23,258 22,576 20,205 3.0 11.7
Equipment 15,272 15,987 13,250 (4.5) 20.7
Data processing 22,375 21,695 18,714 3.1 15.9
Business development and advertising 13,359 11,919 13,177 12.1 (9.5)
Stationery and supplies 7,961 8,110 6,858 (1.8) 18.3
FDIC expense 1,818 3,313 3,267 (45.1) 1.4
Amortization of mortgage servicing rights, net 9,406 1,668 13,823 N/M (87.9)
Intangible amortization 8,905 8,134 5,844 9.5 39.2
Legal and professional fees 7,595 8,051 11,889 (5.7) (32.3)
Other 50,780 51,995 39,445 (2.3) 31.8
------------------------------------------------------
Total noninterest expense $317,736 $305,092 $294,962 4.1% 3.4%
======================================================
N/M = not meaningful
Personnel expense increased $5.4 million or 3.5% over 1999, and represented
49.4% of total NIE in 2000 compared to 49.7% in 1999. Salary expenses remained
level, increasing only $0.8 million or 0.6% in 2000, principally due to
operational efficiencies. Merit increases between the years were offset by fewer
full-time equivalent employees ("FTEs") and lower temporary contract labor.
Average FTEs of 3,909 during 2000 were down 128 or 3.2% from the 4,037 FTEs
during 1999. FTEs were reduced throughout the year primarily in operational
areas as centralization of processes and other operational-related synergies
were achieved. Fringe benefits increased $4.6 million in 2000, primarily the
result of a $4.0 million increase in profit sharing expense.
20
Rising costs of health, dental, and life insurance coverages were nearly offset
by reductions in other fringe benefits (up $0.6 million or 2.1% on a combined
basis).
Occupancy and equipment expense on a combined basis was $38.5 million for 2000,
essentially unchanged from last year. Data processing costs increased to $22.4
million, up $680,000 or 3.1% over last year, attributable to increased costs for
software and system enhancements during 2000, partially offset by lower credit
card processing costs given the credit card receivables sale in 2000. Business
development and advertising increased to $13.4 million for 2000, up $1.4 million
compared to 1999, primarily in television advertising for a branding campaign in
2000.
FDIC expense decreased to $1.8 million, down $1.5 million, reflecting the net
rate reduction in the combined BIF and SAIF effective for 2000 on a minimally
changed deposit base. Amortization of MSRs includes the amortization of the MSR
asset and increases or decreases to the valuation allowance associated with the
MSR asset. Amortization of MSRs increased by $7.7 million between 2000 and 1999,
predominantly driven by the recovery of an $8.0 million valuation adjustment
during 1999 (see Note 6 of the notes to consolidated financial statements).
Intangible amortization was $8.9 million, up due to a full year of amortization
during 2000 on the intangibles added from the 1999 purchase acquisitions. Legal
and professional fees were down $456,000 compared to last year, primarily due to
Y2K consulting costs not recurring in 2000.
Other expense was $50.8 million for 2000, down $1.2 million compared to 1999,
most directly attributable to lower loan expenses (down $1.2 million and in line
with lower mortgage loan production in 2000 and lower credit card expenses
following the sale of the credit card receivables in April 2000).
INCOME TAXES
Income tax expense for 2000 was $61.8 million, down $10.5 million from 1999
income tax expense of $72.4 million. The Corporation's effective tax rate
(income tax expense divided by income before taxes) was 26.9% in 2000 compared
to 30.5% in 1999. This decrease was attributable to the tax benefits of
increased municipal securities (average balances of municipal securities were
52% higher than 1999), increased BOLI income, real estate investment trusts, and
tax valuation allowance adjustments.
BALANCE SHEET ANALYSIS
LOANS
Total loans were $8.9 billion at December 31, 2000, an increase of $570 million
or 6.8% over December 31, 1999, predominantly in commercial loans. Excluding the
sale of $128 million of credit card receivables in the second quarter of 2000,
total loans were 8.4% higher at year-end 2000 than a year ago. Commercial loans
were $4.6 billion, up $721 million or 18.5%. Commercial loans grew to represent
52% of total loans at the end of 2000, up from 47% at year-end 1999. Changing
the mix of loans to include more commercial loans continued to be a strategic
initiative during 2000.
21
TABLE 8: LOAN COMPOSITION
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------------------------------------------------------------------------------------------
($ IN THOUSANDS)
Commercial, financial,
and agricultural $1,657,322 19% $1,412,338 17% $ 962,208 13% $ 986,839 14% $ 841,145 13%
Real estate -
construction 660,732 7 560,450 7 461,157 7 335,978 5 235,478 3
Commercial real estate 2,287,946 26 1,903,633 23 1,384,524 19 1,273,174 18 1,175,992 18
Lease financing 14,854 -- 23,229 -- 19,231 -- 14,072 -- 10,449 --
-------------------------------------------------------------------------------------------
Commercial 4,620,854 52 3,899,650 47 2,827,120 39 2,610,063 37 2,263,064 34
Residential real estate 3,158,721 35 3,274,767 39 3,362,885 46 3,263,977 46 3,215,433 48
Home equity 508,979 6 408,577 5 331,861 5 405,086 6 362,542 6
-------------------------------------------------------------------------------------------
Residential mortgage 3,667,700 41 3,683,344 44 3,694,746 51 3,669,063 52 3,577,975 54
Consumer 624,825 7 760,106 9 750,831 10 793,424 11 813,875 12
-------------------------------------------------------------------------------------------
Total loans $8,913,379 100% $8,343,100 100% $7,272,697 100% $7,072,550 100% $6,654,914 100%
===========================================================================================
Commercial, financial, and agricultural loans were $1.7 billion at the end of
2000, up $245 million or 17.3% since year-end 1999, and comprised 19% of total
loans outstanding, up from 17% at the end of 1999. The commercial, financial,
and agricultural loan classification primarily consists of commercial loans to
middle market companies and small businesses. Loans of this type are in a broad
range of industries. The credit risk related to commercial loans is largely
influenced by general economic conditions and the resulting impact on a
borrower's operations. Within the commercial, financial, and agricultural
classification at December 31, 2000, loans to finance agricultural production
totaled $19.6 million or 0.2% of total loans.
Real estate construction loans grew $100 million or 17.9% to $661 million,
representing 7% of the total loan portfolio at the end of 2000, compared to $560
million or 7% at the end of 1999. Loans in this classification are primarily
short-term interim loans that provide financing for the acquisition or
development of commercial real estate, such as multi-family or other commercial
development projects. Real estate construction loans are made to developers and
project managers who are well known to the Corporation, have prior successful
project experience, and are well capitalized. Projects undertaken by these
developers are carefully reviewed by the Corporation to ensure that they are
economically viable. Loans of this type are primarily made in the Corporation's
tri-state market in which the Corporation has a thorough knowledge of the local
market economy. The credit risk associated with real estate construction loans
is generally confined to specific geographic areas. The Corporation controls the
credit risk on these types of loans by making loans in familiar markets to
developers, underwriting the loans to meet the requirements of institutional
investors in the secondary market, reviewing the merits of individual projects,
controlling loan structure, and monitoring project progress and construction
advances.
Commercial real estate includes loans secured by farmland, multifamily
properties, and nonfarm/nonresidential real estate properties. Commercial real
estate totaled $2.3 billion at December 31, 2000, up $384 million or 20.2% over
last year and comprised 26% of total loans outstanding versus 23% at year-end
1999. Commercial real estate loans involve borrower characteristics similar to
those discussed above for commercial loans and real estate-construction
projects. Loans of this type are mainly for business and industrial properties,
multi-family properties, community purpose properties, and similar properties.
Loans are primarily made to borrowers in Wisconsin, Illinois, and Minnesota.
Credit risk is managed in a similar manner to commercial loans and real estate
construction by employing sound underwriting guidelines, lending to borrowers in
known markets and businesses, and formally reviewing the borrower's financial
soundness and relationship on an ongoing basis.
Residential mortgage loans totaled $3.7 billion at the end of 2000 and 1999.
Loans in this classification include residential real estate, which consists of
conventional home mortgages, home equity lines, and second mortgages.
Residential real estate loans generally limit the maximum loan to 75%-80% of
collateral value. Residential real estate loans were $3.2 billion at December
31, 2000, down $116 million or 3.5% compared to
22
last year, principally due to lower production as a result of a higher rate
environment in 2000 compared to 1999 and strong price competition. Home equity
lines grew by $100 million, or 24.6%, to $509 million in 2000, in response to
promotional efforts in 2000.
TABLE 9: LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY (1)
MATURITY (2)
--------------------------------------------------------------
DECEMBER 31, 2000 WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS TOTAL
- ------------------------ --------------------------------------------------------------
($ IN THOUSANDS)
Commercial, financial, and agricultural $1,125,657 $ 436,365 $ 95,300 $1,657,322
Real estate-construction 413,954 183,569 63,209 660,732
--------------------------------------------------------------
Total $1,539,611 $ 619,934 $158,509 $2,318,054
==============================================================
Fixed rate $ 348,679 $ 532,468 $134,420 $1,015,567
Floating or adjustable rate 1,190,932 87,466 24,089 1,302,487
--------------------------------------------------------------
Total $1,539,611 $ 619,934 $158,509 $2,318,054
==============================================================
Percent 66% 27% 7% 100%
- --------------------------------------
(1) Based upon scheduled principal repayments.
(2) Demand loans, past due loans, and overdrafts are reported in the "Within 1
Year" category.
Consumer loans to individuals totaled $625 million at December 31, 2000, down
$135 million or 17.8% compared to 1999, with $128 million of retail credit card
receivables sold in April 2000. Installment loans include short-term installment
loans, direct and indirect automobile loans, recreational vehicle loans, credit
card loans (which are primarily business-oriented since the April 2000 sale),
student loans, and other personal loans. Individual borrowers may be required to
provide related collateral or a satisfactory endorsement or guaranty from
another person, depending on the specific type of loan and the creditworthiness
of the borrower. Credit risk for these types of loans is generally greatly
influenced by general economic conditions, the characteristics of individual
borrowers, and the nature of the loan collateral. Credit risk is primarily
controlled by reviewing the creditworthiness of the borrowers as well as taking
appropriate collateral and guaranty positions on such loans.
An active credit risk management process is used for commercial loans to ensure
that sound and consistent credit decisions are made. Credit risk is controlled
by detailed underwriting procedures, comprehensive loan administration, and
periodic review of borrowers' outstanding loans and commitments. Borrower
relationships are formally reviewed on an ongoing basis for early identification
of potential problems. Further analyses by customer, industry, and geographic
location are performed to monitor trends, financial performance, and
concentrations.
Factors that are critical to managing overall credit quality are sound loan
underwriting and administration, systematic monitoring of existing loans and
commitments, effective loan review on an ongoing basis, early identification of
potential problems, an adequate allowance for loan losses, and sound nonaccrual
and charge-off policies.
The loan portfolio is widely diversified by types of borrowers, industry groups,
and market areas. Significant loan concentrations are considered to exist for a
financial institution when there are amounts loaned to numerous borrowers
engaged in similar activities that would cause them to be similarly impacted by
economic or other conditions. At December 31, 2000, no concentrations existed in
the Corporation's portfolio in excess of 10% of total loans.
ALLOWANCE FOR LOAN LOSSES
The investment and loan portfolios are the Corporation's primary interest
earning assets. While the investment portfolio is structured with minimum credit
exposure to the Corporation, the loan portfolio is the primary asset subject to
credit risk. Credit risk is controlled and monitored through the use of lending
standards, thorough review of potential borrowers, and on-going review of loan
payment performance. Active asset quality
23
administration, including early problem loan identification and timely
resolution of problems, further ensures appropriate management of credit risk
and minimization of loan losses. Credit risk management for each loan type is
discussed briefly in the section entitled "Loans."
At December 31, 2000, the allowance for loan losses ("AFLL") was $120.2 million,
compared to $113.2 million at December 31, 1999. The $7.0 million increase was
the net result of $20.2 million provision for loan losses, offset by $9.0
million of NCOs and a $4.2 million decrease related to the sale of credit card
receivables in the second quarter of 2000. As of December 31, 2000, the AFLL to
total loans was 1.35% and covered 252% of nonperforming loans, compared to 1.36%
and 307%, respectively, at December 31, 1999. Tables 10 and 11 provide
additional information regarding activity in the AFLL and Table 12 provides
additional information regarding nonperforming loans.
TABLE 10: LOAN LOSS EXPERIENCE
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------
($ IN THOUSANDS)
AFLL, at beginning of year $113,196 $ 99,677 $ 92,731 $ 71,767 $ 68,560
Balance related to acquisitions --- 8,016 3,636 728 3,511
Decrease from sale of credit card receivables (4,216) --- --- --- ---
Provision for loan losses (PFLL) 20,206 19,243 14,740 31,668 13,695
Loans charged off:
Commercial, financial, and agricultural 1,679 2,222 3,533 1,327 2,916
Real estate - construction 38 --- 202 600 193
Real estate - mortgage 3,718 3,472 3,256 3,222 2,813
Consumer 5,717 10,925 9,839 9,900 11,693
Lease financing 3 2 209 --- 1
------------------------------------------------------
Total loans charged off 11,155 16,621 17,039 15,049 17,616
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 772 726 2,384 513 1,255
Real estate - construction --- 1 --- --- 3
Real estate - mortgage 450 655 1,582 1,312 837
Consumer 979 1,464 1,641 1,792 1,514
Lease financing --- 35 2 --- 8
------------------------------------------------------
Total recoveries 2,201 2,881 5,609 3,617 3,617
------------------------------------------------------
Net loans charged off (NCOs) 8,954 13,740 11,430 11,432 13,999
------------------------------------------------------
AFLL, at end of year $120,232 $113,196 $ 99,677 $ 92,731 $ 71,767
======================================================
Ratio of AFLL to NCOs 13.4 8.2 8.7 8.1 5.1
Ratio of NCOs to average loans outstanding .10% .18% .16% .16% .21%
Ratio of AFLL to total loans at end of period 1.35% 1.36% 1.37% 1.31% 1.08%
========== ========== =========== =========== =========
The AFLL represents management's estimate of an amount adequate to provide for
probable incurred credit losses in the loan portfolio at the balance sheet date.
Management's evaluation of the adequacy of the AFLL is based on management's
ongoing review and grading of the loan portfolio, consideration of past loan
loss experience, trends in past due and nonperforming loans, risk
characteristics of the various classifications of loans, existing economic
conditions, the fair value of underlying collateral, and other factors which
could affect potential credit losses.
In general, the change in the AFLL is a function of a number of factors,
including but not limited to changes in the loan portfolio (see Table 8), NCOs
(see Table 10), and nonperforming loans (see Table 12). First, total loan growth
from year-end 1999 to 2000 was up 6.8% (or 8.4% when factoring in the $128
million of credit card receivables sold during 2000). The growth was strongest
in the commercial portfolio (particularly commercial real estate; commercial,
financial, and agricultural loans; and construction loans), which grew
24
$721 million or 18.5% to represent 52% of total loans at year-end 2000 compared
to 47% last year-end. This segment of the loan portfolio carries greater
inherent credit risk (described under section "Loans"). While NCOs for 2000 have
decreased $4.8 million to $9.0 million, the decline is due to having sold the
credit card receivables and thus, no longer incurring related charge-offs.
Excluding NCOs on credit cards, NCOs would be relatively unchanged between 1999
and 2000. Finally, nonperforming loans to total loans grew to 0.54% for 2000
compared to 0.44% last year.
The allocation of the Corporation's AFLL for the last five years is shown in
Table 11. The allocation methodology applied by the Corporation, designed to
assess the adequacy of the AFLL, focuses on changes in the size and character of
the loan portfolio, changes in levels of impaired and other nonperforming loans,
the risk inherent in specific loans, concentrations of loans to specific
borrowers or industries, existing economic conditions, and historical losses on
each portfolio category. Because each of the criteria used is subject to change,
the allocation of the allowance for loan losses is made for analytical purposes
and is not necessarily indicative of the trend of future loan losses in any
particular loan category. The total allowance is available to absorb losses from
any segment of the portfolio. Management continues to target and maintain the
AFLL equal to the allocation methodology plus an unallocated portion, as
determined by economic conditions on the Corporation's borrowers. For both 1999
and 1998, estimation methods and assumptions included consideration of Year 2000
issues on significant customers. Management allocates the AFLL for credit losses
by pools of risk. The business loan (commercial real estate; commercial,
financial, and agricultural; leases; and real estate construction) allocation is
based on a quarterly review of individual loans, loan types, and industries. The
retail loan (residential mortgage, home equity, and consumer) allocation is
based on analysis of historical delinquency and charge-off statistics and
trends. Minimum loss factors used by the Corporation for criticized loan
categories are consistent with regulatory agency factors. Loss factors for
non-criticized loan categories are based primarily on historical loan loss
experience and peer group statistics. The mechanism used to address differences
between estimated and actual loan loss experience includes review of recent
nonperforming loan trends, underwriting trends, and external factors.
The allocation methods used for December 31, 2000 and 1999 were generally
comparable. For 2000, the amount allocated to commercial, financial, and
agricultural loans increased, representing 38% of the AFLL, compared to 28% last
year. The increase was a function of changes in the commercial, financial, and
agricultural loans category, including: a greater amount of these loans in
criticized loan categories and for which specific allocations were made for 2000
compared to 1999; increased loan balances, growing to represent 19% of total
loans at year-end 2000 versus 17% last year; and more of these loans in
nonperforming loan categories at year-end 2000 versus last year (28% versus 16%,
respectively). For 2000, the amount allocated to consumer loans decreased to
represent 5% of the AFLL versus 13% for 1999. This decrease was predominantly a
function of the sale of $128 million of credit card receivables in mid-2000. For
1999 compared to 1998, the allocation for credit card loans was reduced based on
delinquencies and charge-offs trending below national averages and the
maturation of the portfolio, which indicated lower risk of loss, and the
allocation factor for commercial real estate loans (included in real
estate-mortgage) was increased given the increased risk associated with a rising
interest rate environment on this loan category.
Management believes the AFLL to be adequate at December 31, 2000. While
management uses available information to recognize losses on loans, future
adjustments to the AFLL may be necessary based on changes in economic conditions
and the impact of such change on the Corporation's borrowers. As an integral
part of their examination process, various regulatory agencies also review the
AFLL. Such agencies may require that changes in the AFLL be recognized when
their credit evaluations differ from those of management, based on their
judgments about information available to them at the time of their examination.
25
TABLE 11: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AS OF DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
($ IN THOUSANDS)
Commercial, financial, and agricultural $ 45,571 $ 31,648 $ 25,385 $ 33,682 $ 27,943
Real estate - construction 6,531 5,605 3,369 2,016 1,047
Real estate - mortgage 51,161 50,267 40,216 30,360 19,116
Consumer 6,194 14,904 16,924 16,870 16,239
Lease financing 149 184 426 493 530
Unallocated 10,626 10,588 13,357 9,310 6,892
----------------------------------------------------
Total AFLL $120,232 $113,196 $ 99,677 $ 92,731 $ 71,767
====================================================
The PFLL in 2000 was $20.2 million. In comparison, the PFLL for 1999 was $19.2
million and $14.7 million in 1998.
NCOs were $9.0 million or 0.10% of average loans for 2000, compared to $13.7
million or 0.18% of average loans for 1999, and were $11.4 million or 0.16% of
average loans for 1998. The $4.8 million decrease in NCOs was primarily driven
by lower charge-offs of consumer loans in 2000 versus 1999 (down $5.2 million as
shown in Table 10). This decline is predominantly due to having sold the retail
credit card receivables in 2000 and, thus, no longer incurring related
charge-offs. Excluding NCOs on credit cards, NCOs would have been relatively
unchanged between 1999 and 2000. Loans charged off are subject to continuous
review, and specific efforts are taken to achieve maximum recovery of principal,
accrued interest, and related expenses.
NONPERFORMING LOANS, POTENTIAL PROBLEM LOANS, AND OTHER REAL ESTATE OWNED
Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is embodied through the ongoing
monitoring and reviewing of all pools of risk in the loan portfolio to ensure
that all problem loans are identified quickly and the risk of loss is minimized.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due but still accruing, and restructured loans. The Corporation specifically
excludes from its definition of nonperforming loans student loan balances that
are 90 days or more past due and still accruing and that have contractual
government guarantees as to collection of principal and interest. Such past due
student loans were approximately $19.5 million and $16.9 million at December 31,
2000 and 1999, respectively.
Loans are generally placed on nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact the
collectibility of principal or interest on loans, it is management's practice to
place such loans on nonaccrual status immediately, rather than delaying such
action until the loans become 90 days past due. Previously accrued and
uncollected interest on such loans is reversed, amortization of related loan
fees is suspended, and income is recorded only to the extent that interest
payments are subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible. If collectibility of the
principal is in doubt, payments received are applied to loan principal.
Loans past due 90 days or more but still accruing interest are also included in
nonperforming loans. Loans past due 90 days or more but still accruing are
classified as such where the underlying loans are both well secured (the
collateral value is sufficient to cover principal and accrued interest) and in
the process of collection. Also included in nonperforming loans are
"restructured" loans. Restructured loans involve the granting of some concession
to the borrower involving the modification of terms of the loan, such as changes
in payment schedule or interest rate.
26
TABLE 12: NONPERFORMING LOANS AND OTHER REAL ESTATE OWNED
DECEMBER 31,
------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------
($ IN THOUSANDS)
Nonaccrual loans $41,045 $32,076 $48,150 $32,415 $32,287
Accruing loans past due 90 days or more 6,492 4,690 5,252 1,324 1,801
Restructured loans 159 148 485 558 534
------------------------------------------------------
Total nonperforming loans $47,696 $36,914 $53,887 $34,297 $34,622
======================================================
Other real estate owned $ 4,032 $ 3,740 $ 6,025 $ 2,067 $ 1,939
======================================================
Ratio of nonperforming
loans to total loans at period end .54% .44% .74% .48% .52%
Ratio of the AFLL to nonperforming
loans at period end 252% 307% 185% 270% 207%
=======================================================
Nonperforming loans at December 31, 2000, were $47.7 million, an increase of
$10.8 million from December 31, 1999. The ratio of nonperforming loans to total
loans at the end of 2000 was 0.54%, as compared to 0.44% and 0.74% at December
31, 1999 and 1998, respectively. Nonaccrual loans accounted for $9.0 million of
the increase in nonperforming loans. Commercial nonaccrual loans (representing
approximately 67% of nonaccrual loans at year-end 2000 versus 44% at year-end
1999) increased $13.5 million, predominantly due to the addition of three large
commercial credits (totaling approximately $12.8 million). The Corporation's
AFLL to nonperforming loans was 252% at year-end 2000, down from 307% at
year-end 1999 and up from 185% at year-end 1998.
The following table shows, for those loans accounted for on a nonaccrual basis
and restructured loans for the years ended as indicated, the gross interest that
would have been recorded if the loans had been current in accordance with their
original terms and the amount of interest income that was included in interest
income for the period.
TABLE 13: FOREGONE LOAN INTEREST
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
------------------------------------
($ IN THOUSANDS)
Interest income in accordance with original terms $ 3,951 $ 3,074 $ 5,046
Interest income recognized (2,609) (1,637) (2,884)
-------------------------------------
Reduction in interest income $ 1,342 $ 1,437 $ 2,162
=====================================
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of management
to place loans in this category does not necessarily indicate that the
Corporation expects losses to occur, but that management recognizes that a
higher degree of risk is associated with these performing loans.
At December 31, 2000, potential problem loans totaled $137.8 million. The loans
that have been reported as potential problem loans are not concentrated in a
particular industry, but rather cover a diverse range of businesses. Management
does not presently expect significant losses from credits in the potential
problem loan category.
Other real estate owned ("OREO") increased to $4.0 million at December 31, 2000,
compared to $3.7 million and $6.0 million at year-end 1999 and 1998,
respectively. Net gains on sales of OREO were $116,000, $403,000, and $426,000
for 2000, 1999, and 1998, respectively. Management actively seeks to ensure
properties held are monitored to minimize the Corporation's risk of loss.
27
INVESTMENT SECURITIES PORTFOLIO
The investment securities portfolio is intended to provide the Corporation with
adequate liquidity, flexibility in asset/liability management, and a source of
stable income. Investment securities classified as held to maturity ("HTM") are
carried in the consolidated balance sheet at amortized cost while investment
securities classified as available for sale ("AFS") are carried at fair market
value. At December 31, 2000, the total carrying value of investment securities
represented 25% of total assets, compared to 26% at year-end 1999. On average,
the investment portfolio represented 28% of average earning assets for both 2000
and 1999.
TABLE 14: INVESTMENT SECURITIES PORTFOLIO
AT DECEMBER 31,
------------------------------------------
2000 1999 1998
------------------------------------------
($ IN THOUSANDS)
Investment Securities Held to Maturity (HTM):
Federal agency securities $ 25,055 $ 26,012 $ 66,204
Obligations of states and political subdivisions 110,182 128,833 153,663
Mortgage-related securities 182,299 204,725 262,111
Other securities (debt) 51,022 54,467 68,797
------------------------------------------
Total amortized cost and carrying value $ 368,558 $ 414,037 $ 550,775
==========================================
Total fair value $ 372,873 $ 413,107 $ 562,940
==========================================
Investment Securities Available for Sale (AFS):
U.S. Treasury securities $ 23,847 $ 47,092 $ 68,488
Federal agency securities 341,929 406,275 248,697
Obligations of state and political subdivisions 756,914 550,975 217,153
Mortgage-related securities 1,425,290 1,578,089 1,625,403
Other securities (debt and equity) 319,129 334,024 160,499
------------------------------------------
Total amortized cost $ 2,867,109 $ 2,916,455 $ 2,320,240
==========================================
Total fair value and carrying value $ 2,891,647 $ 2,856,346 $ 2,356,960
==========================================
Total Investment Securities:
Total amortized cost $ 3,235,667 $ 3,330,492 $ 2,871,015
Total fair value 3,264,520 3,269,453 2,919,900
Total carrying value 3,260,205 3,270,383 2,907,735
==========================================
At December 31, 2000 and 1999, mortgage-related securities represented 49.7% and
53.5%, respectively, of total investment securities based on amortized cost. The
fair value of mortgage-related securities are subject to inherent risks based
upon the future performance of the underlying collateral (i.e. mortgage loans)
for these securities, such as prepayment risk and interest rate changes. Tax
exempt securities grew to represent 26.8% of total securities based on amortized
cost, compared to 20.4% at year-end 1999, due to higher comparable yields
combined with tax advantages and additional call protection.
The aggregate fair value of total securities was approximately $3.26 billion
(100.1% of carrying value) and $3.27 billion (100.0% of carrying value) at
December 31, 2000 and 1999, respectively.
At December 31, 2000, the Corporation's securities portfolio did not contain
securities, other than U.S. Treasury and federal agencies, of any single issuer
that were payable from and secured by the same source of revenue or taxing
authority where the aggregate carrying value of such securities exceeded 10% of
stockholders' equity or $96.9 million.
The classification of securities as HTM or AFS is determined at the time of
purchase. Beginning in 1998, the Corporation began to classify most investment
purchases as AFS. This is consistent with the Corporation's investment
philosophy of maintaining flexibility to manage the investment portfolio,
particularly in light of asset/liability management strategies, including
possible securities sales in response to changes in interest
28
rates or prepayment risk, the need to manage regulatory capital, and other
factors. Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Investments and Hedging Activities," which was
adopted by the Corporation as required on January 1, 2001, provides for the
option, upon adoption, to change the classification of investments held. Thus,
effective January 1, 2001, the Corporation elected to reclassify all of the $369
million of HTM investments to the AFS classification. SFAS No. 133 is more fully
described under the section "Accounting Developments."
TABLE 15: INVESTMENT SECURITIES PORTFOLIO MATURITY DISTRIBUTION (1)
- AT DECEMBER 31, 2000
INVESTMENT SECURITIES HELD TO MATURITY - MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
--------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN FIVE WITHIN TEN AFTER TEN MORTGAGE-RELATED
WITHIN ONE YEAR YEARS YEARS YEARS SECURITIES TOTAL TOTAL
--------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD FAIR VALUE
--------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
Federal agency
securities $15,100 6.58% $ 9,955 6.73% $ --- --- $ --- --- $ --- --- $ 25,055 6.64% $ 25,141
Obligations of
states and
political
subdivisions (2) 22,801 7.50% 84,267 7.19% 3,114 7.36% --- --- --- --- 110,182 7.26% 111,223
Other debt
securities 5,786 7.00% 43,836 6.82% 1,400 6.63% --- --- --- --- 51,022 6.84% 51,346
Mortgage-related
securities --- --- --- --- --- --- --- --- 182,299 7.41% 182,299 7.41% 185,163
--------------------------------------------------------------------------------------------------------------
Total amortized cost $43,687 7.12% $138,058 7.04% $ 4,514 7.13% $ --- --- $ 182,299 7.41% $ 368,558 7.23% $ 372,873
==============================================================================================================
Total fair value $43,828 $139,306 $ 4,576 $ --- $ 185,163 $ 372,873
==============================================================================================================
INVESTMENT SECURITIES AVAILABLE FOR SALE - MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
--------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT MORTGAGE-RELATED
WITHIN FIVE WITHIN TEN AFTER TEN AND EQUITY
WITHIN ONE YEAR YEARS YEARS YEARS SECURITIES TOTAL TOTAL
--------------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD FAIR VALUE
--------------------------------------------------------------------------------------------------------------
($ IN THOUSANDS)
U. S. Treasury
securities $18,337 5.54% $ 4,993 6.20% $ 517 5.84% $ --- --- $ --- --- $ 23,847 5.68% $ 23,860
Federal agency
securities 39,544 5.84% 292,181 6.02% 10,052 6.45% 152 7.39% --- --- 341,929 6.01% 342,748
Obligations of
states and
political
subdivisions (2) 6,942 6.46% 62,902 6.68% 294,774 6.63% 392,296 7.87% --- --- 756,914 7.29% 764,941
Other debt
securities 20,748 5.44% 73,870 6.48% 123,534 6.13% --- --- --- --- 218,152 6.18% 214,574
Mortgage-related
securities --- --- --- --- --- --- --- --- 1,425,290 6.81% 1,425,290 6.81% 1,427,617
Equity securities --- --- --- --- --- --- --- --- 100,977 6.22% 100,977 6.22% 117,907
--------------------------------------------------------------------------------------------------------------
Total amortized cost $85,571 5.55% $433,946 6.25% $428,877 6.46% $392,448 7.87% $1,526,267 6.78% $2,867,109 6.76% $2,891,647
==============================================================================================================
Total fair value $85,494 $434,513 $424,698 $401,418 $1,545,524 $2,891,647
==============================================================================================================
(1) Expected maturities will differ from contractual maturities, as borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
(2) Yields on tax-exempt securities are computed on a tax-equivalent basis
using a tax rate of 35% and have not been adjusted for certain disallowed
interest deductions.
DEPOSITS
Deposits are the Corporation's largest source of funds. At December 31, 2000,
deposits were $9.3 billion, up $600 million or 6.9% over last year, primarily in
brokered certificates of deposit ("CDs") (up $579 million). Total deposits
excluding brokered CDs ("retail deposits") were essentially flat between
year-end periods. The sale of deposits of six branches during 2000 decreased
deposits by $109 million. Thus, without the branch sales, retail deposits were
up $130 million or 1.6% over year-end 1999.
One of the primary factors influencing the Corporation's retail deposit growth
has been competitive pressure from other financial institutions, as well as
other investment opportunities available to customers. During 2000, the
Corporation particularly marketed its money market accounts, which offer
competitive rates and greater customer flexibility, as well as business demand
deposits.
29
On average, deposits were $9.1 billion for 2000, up $471 million or 5.5% over
the average for 1999. However, excluding the increase in brokered CDs, deposits
were down 1.5%. As previously mentioned under section "Net Interest Income," the
decline in average deposits, excluding brokered CDs, increased the Corporation's
reliance on wholesale funding, as discussed under section " Other Funding
Sources."
Table 16 summarizes the distribution of average deposits. A maturity
distribution of certificates of deposits and other time deposits of $100,000 or
more at December 31, 2000, is shown in Table 17.
TABLE 16: AVERAGE DEPOSITS DISTRIBUTION
2000 1999 1998
---------------------------------------------------------------------------
% OF % OF
AMOUNT TOTAL AMOUNT % OF TOTAL AMOUNT TOTAL
---------------------------------------------------------------------------
($ IN THOUSANDS)
Noninterest-bearing demand deposits $1,086,582 12% $1,003,687 12% $ 844,486 10%
Interest-bearing demand deposits 803,779 9 796,506 9 473,123 6
Savings deposits 956,177 11 919,163 11 981,630 12
Money market deposits 1,407,502 15 1,373,010 16 1,377,503 16
Brokered certificates of deposit 840,518 9 241,309 3 117,011 1
Other time deposits 4,008,382 44 4,297,977 49 4,636,948 55
---------------------------------------------------------------------------
Total deposits $9,102,940 100% $8,631,652 100% $8,430,701 100%
===========================================================================
TABLE 17: MATURITY DISTRIBUTION-CERTIFICATES OF DEPOSIT AND OTHER TIME
DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 2000
----------------------------------
CERTIFICATES OF OTHER TIME
DEPOSIT DEPOSITS
----------------------------------
($ IN THOUSANDS)
Three months or less $410,854 $118,755
Over three months through six months 106,000 70,225
Over six months through twelve months 202,216 41,337
Over twelve months 252,093 2,821
----------------------------------
Total $971,163 $233,138
==================================
OTHER FUNDING SOURCES
Other funding sources, including both long-term debt and short-term borrowings
("wholesale funds"), were $2.7 billion at December 31, 2000, down $79 million
from $2.8 billion at December 31, 1999. Long-term debt at December 31, 2000, was
$122.4 million, up from $24.3 million at the end of last year. See Note 10 of
the notes to consolidated financial statements for additional information on
long-term debt. Short-term borrowings are primarily comprised of Federal funds
purchased, securities sold under agreements to repurchase, short-term Federal
Home Loan Bank ("FHLB") advances, notes payable to banks, treasury, tax, and
loan notes ("TT&L notes"), and commercial paper. Of note, the FHLB advances
included in short-term borrowings are those with original maturities of less
than one year and callable notes that have one-year call premiums which the
Corporation expects may be called, even if the notes have maturities exceeding
one year. The TT&L notes are demand notes representing secured borrowings from
the U.S. Treasury, collateralized by qualifying securities and loans. The funds
are placed with the subsidiary banks at the discretion of the U.S. Treasury and
may be called at any time. See Note 9 of the Notes to Consolidated Financial
Statements for additional information on short-term borrowings, and Table 18 for
specific disclosure required for major short-term borrowing categories.
Wholesale funds on average were $2.7 billion for 2000, up $622 million or 30.6%
over 1999. The reliance on wholesale funds increased during 2000 as mentioned
under both sections "Net Interest Income" and "Deposits." The mix of wholesale
funding shifted slightly toward longer-term instruments, with average
30
long-term debt representing 4.3% of wholesale funds from 1.2% last year, in
response to certain asset/liability objectives. Within the short-term borrowing
categories, average Federal funds purchased and securities sold under agreements
to repurchase were up $667 million.
TABLE 18: SHORT-TERM BORROWINGS
DECEMBER 31,
----------------------------------------
2000 1999 1998
----------------------------------------
($ IN THOUSANDS)
Federal funds purchased and securities sold
under agreements to repurchase:
Balance end of year $ 1,691,796 $ 1,344,396 $ 502,586
Average amounts outstanding during year 1,724,291 1,057,269 517,344
Maximum month-end amounts outstanding 2,012,529 1,640,043 704,113
Average interest rates on amounts outstanding
at end of year 6.59% 5.30% 4.72%
Average interest rates on amounts outstanding
during year 6.25% 5.00% 5.06%
Federal Home Loan Bank advances:
Balance end of year $ 750,000 $ 531,652 $ 937,021
Average amounts outstanding during year 541,909 778,245 564,166
Maximum month-end amounts outstanding 1,375,653 1,173,021 937,021
Average interest rates on amounts outstanding
at end of year 6.42% 6.37% 4.78%
Average interest rates on amounts outstanding
during year 6.39% 5.22% 5.52%
LIQUIDITY
Effective liquidity management ensures the cash flow requirements of depositors
and borrowers, as well as the operating cash needs of the Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, lines of credit with major banks, the ability
to acquire large and brokered deposits, and the ability to securitize or package
loans for sale. Additionally, liquidity is provided from loans and securities
repayments and maturities.
During 2000, the four largest subsidiary banks (Associated Bank Illinois,
National Association, Associated Bank Milwaukee, Associated Bank Green Bay,
National Association, and Associated Bank North) established a $2.0 billion bank
note program. Under this program, short-term and long-term debt may be issued.
As of December 31, 2000, there was $2.0 billion available under this program.
The parent company's primary funding sources to meet its liquidity requirements
are dividends and service fees from subsidiaries, borrowings with major banks,
commercial paper issuance, and proceeds from the issuance of equity. The parent
company manages its liquidity position to provide the funds necessary to pay
dividends to stockholders, service debt, invest in subsidiaries, repurchase
common stock, and satisfy other operating requirements. Dividends received in
cash from subsidiaries totaled $168.2 million in 2000 and represent a primary
funding source. At December 31, 2000, $148.5 million in dividends could be paid
to the parent by its subsidiaries and affiliates without obtaining prior
regulatory approval, subject to the capital needs of the banks. Additionally,
the parent company had $200 million of established lines of credit with
nonaffiliated banks, of which $83.7 million was outstanding at December 31,
2000. During 2000, a $200 million commercial paper program was initiated, of
which $34.3 million was outstanding at December 31, 2000.
As discussed in Item 1 of Form 10-K, subsidiary banks are subject to regulation
and, among other things, may be limited in their ability to pay dividends or
transfer funds to the parent company. Accordingly, consolidated cash flows as
presented in the Consolidated Statements of Cash Flows may not represent cash
immediately available for the payment of cash dividends to the Corporation's
stockholders.
31
Maintaining adequate credit ratings on debt issues is important to liquidity as
it affects the ability of the Corporation to attract funds from various sources
on a cost-competitive basis. The parent company and its four largest subsidiary
banks had the following agency ratings:
TABLE 19: CREDIT RATINGS AT DECEMBER 31, 2000
Moody's S&P Fitch Bankwatch
------- --- ----- ---------
Bank ST P1 A2 F1 TBW-1
Bank LT A2 A- A1 ---
Corporation ST P2 A2 F1 TBW-1
Corporation LT A3 BBB+ BBB+ ---
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk arises from exposure to changes in interest rates, exchange rates,
commodity prices, and other relevant market rate or price risk. The Corporation
faces market risk in the form of interest rate risk through other than trading
activities. Market risk from other than trading activities in the form of
interest rate risk is measured and managed through a number of methods. The
Corporation uses financial modeling techniques which measure the sensitivity of
future earnings due to changing rate environments to measure interest rate risk.
Policies established by the Corporation's Asset/Liability Committee and approved
by the Corporation's Board of Directors limit exposure of earnings at risk.
General interest rate movements are used to develop sensitivity, as the
Corporation feels it has no primary exposure to a specific point on the yield
curve. These limits are based on the Corporation's exposure to a 100 bp
immediate and sustained parallel rate move, either upward or downward.
INTEREST RATE RISK
In order to measure earnings sensitivity to changing rates, the Corporation uses
two different measurement tools: static gap analysis and simulation of earnings.
The static gap analysis starts with contractual repricing information for
assets, liabilities, and off-balance sheet instruments. These items are then
combined with repricing estimations for administered rate (interest-bearing
demand deposits, savings, and money market accounts) and non-rate related
products (demand deposit accounts, other assets, and other liabilities) to
create a baseline repricing balance sheet. In addition to the contractual
information, residential mortgage whole loan products and mortgage-backed
securities are adjusted based on industry estimates of prepayment speeds that
capture the expected prepayment of principal above the contractual amount based
on how far away the contractual coupon is from market coupon rates.
32
The following table represents the Corporation's consolidated static gap
position as of December 31, 2000.
TABLE 20: INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 2000
-------------------------------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD
TOTAL
181-365 WITHIN
0-90 DAYS 91-180 DAYS DAYS 1 YEAR OVER 1 YEAR TOTAL
-------------------------------------------------------------------------------------------
($ IN THOUSANDS)
Earning assets:
Loans, held for sale $ 24,593 $ --- $ --- $ 24,593 $ --- $ 24,593
Investment securities, at
amortized cost 436,142 97,154 198,231 731,527 2,504,140 3,235,667
Loans 3,067,675 631,138 1,254,978 4,953,791 3,959,588 8,913,379
Other earning assets 28,334 --- --- 28,334 --- 28,334
-------------------------------------------------------------------------------------------
Total earning assets $ 3,556,744 $ 728,292 $ 1,453,209 $ 5,738,245 $ 6,463,728 $ 12,201,973
===========================================================================================
Interest-bearing liabilities:
Interest-bearing deposits(1) $ 1,978,404 $1,190,810 $ 1,690,696 $ 4,859,910 $ 3,187,787 $ 8,047,697
Other interest-bearing liabilities 2,050,529 2,625 555,132 2,608,286 112,337 2,720,623
-------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 4,028,933 $1,193,435 $ 2,245,828 $ 7,468,196 $ 3,300,124 $ 10,768,320
===========================================================================================
Interest sensitivity gap $ (472,189) $ (465,143) $ (792,619) $(1,729,951) $ 3,163,604 $ 1,433,653
Cumulative interest sensitivity gap $ (472,189) $ (937,332) $(1,729,951)
Cumulative ratio of rate sensitive
assets to rate sensitive liabilities
at December 31, 2000 88.3% 82.1% 76.8%
===========================================================================================
(1) The interest rate sensitivity assumptions for demand deposits, savings
accounts, money market accounts, and interest-bearing demand deposit
accounts are based on current and historical experiences regarding
portfolio retention and interest rate repricing behavior. Based on these
experiences, a portion of these balances is considered to be long-term and
fairly stable and is therefore included in the "Over 1 Year" category.
The static gap analysis in Table 20 provides a representation of the
Corporation's earnings sensitivity to changes in interest rates. It is a static
indicator which does not reflect various repricing characteristics and may not
necessarily indicate the sensitivity of net interest income in a changing
interest rate environment.
Interest rate risk of embedded positions, including prepayment and early
withdrawal options, lagged interest rate changes, administered interest rate
products, and cap and floor options, within products require a more dynamic
measuring tool to capture earnings risk. Earnings simulation is used to create a
more complete assessment of interest rate risk.
Along with the static gap analysis, determining the sensitivity of future
earnings to a hypothetical plus or minus 100 and 200 basis point parallel rate
shock can be accomplished through the use of simulation modeling. In addition to
the assumptions used to create the static gap, simulation of earnings includes
the modeling of the balance sheet as an ongoing entity. Future business
assumptions involving administered rate products, prepayments for future rate
sensitive balances, and the reinvestment of maturing assets and liabilities are
included. These items are then modeled to project income based on a hypothetical
change in interest rates. The resulting net income for the next 12-month period
is compared to the net income amount calculated using flat rates. This
difference represents the Corporation's earnings sensitivity to a plus or minus
100 basis point parallel rate shock.
The resulting simulations for December 31, 2000, projected that net income would
decrease by approximately 5.5% of stable-rate net income if rates rose by a 100
basis point shock, and projected that net income would increase by approximately
4.1% if rates fell by a 100 basis point shock. At December 31, 1999, the 100
basis point shock up was projected to decrease net income by 6.6%, and the 100
basis point shock down projected that net income would increase by 5.9%. The
projected changes for both 2000 and 1999 were within the Corporation's interest
rate risk policy. According to the earnings simulation model, the Corporation's
sensitivity to interest rate changes decreased during 2000. In response to
higher rates in the first half of 2000, the Corporation's sensitivity was
decreased through the use of intermediate term borrowings.
33
These results are based solely on immediate and sustained parallel changes in
market rates and do not reflect the earnings sensitivity that may arise from
other factors, such as changes in the shape of the yield curve, the change in
spread between key market rates, or accounting recognition of the impairment of
certain intangibles. The above results are also considered to be conservative
estimates due to the fact that no management action to mitigate potential income
variances are included within the simulation process. This action could include,
but would not be limited to, delaying an increase in deposit rates, extending
liabilities, hedging, changing the pricing characteristics of loans, or changing
the growth rate of certain assets and liabilities.
CAPITAL
Stockholders' equity at December 31, 2000, increased to $968.7 million or $14.65
per share, compared with $909.8 million or $13.09 per share at the end of 1999.
Stockholders' equity is also described in Note 11, Stockholders' Equity, of the
Notes to Consolidated Financial Statements.
The increase in stockholders' equity in 2000 was primarily composed of retention
of earnings and the exercise of stock options. Offsetting increases to
stockholders' equity were the payment of cash dividends and the purchase of
treasury stock. Additionally, stockholders' equity at year-end 2000 included a
$15.6 million equity component (included in accumulated other comprehensive
income) related to unrealized gains on securities AFS, net of the tax effect,
predominately due to the impact of the rate environment at the end of 2000 on
that portfolio. At December 31, 1999, stockholders' equity included $38.8
million related to unrealized losses on securities AFS, net of the tax effect.
Stockholders' equity to assets at December 31, 2000 was 7.38%, compared to 7.27%
at the end of 1999. Excluding the unrealized gains (losses) on securities AFS,
net of the tax effect, stockholders' equity to assets would be 7.27% and 7.55%
at December 31, 2000 and 1999, respectively.
TABLE 21: CAPITAL
AT DECEMBER 31,
-----------------------------------------
2000 1999 1998
-------------- -------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total stockholders' equity $ 968,696 $ 909,789 $ 878,721
Tier 1 capital 846,371 831,907 815,069
Total capital 966,994 941,005 906,326
Market capitalization 2,008,274 2,164,623 2,149,828
-----------------------------------------
Book value per common share $ 14.65 $ 13.09 $ 12.70
Cash dividend per common share 1.11 1.05 0.95
Stock price at end of period 30.38 31.14 31.08
Low closing price for the period 20.29 27.56 24.32
High closing price for the period 30.63 39.15 39.82
-----------------------------------------
Total equity / assets 7.38% 7.27% 7.81%
Total equity / assets (1) 7.27 7.55 7.62
Tangible common equity / assets 6.62 6.39 7.48
Tier 1 leverage ratio 6.52 6.80 7.56
Tier 1 risk-based capital ratio 9.37 9.72 11.05
Total risk-based capital ratio 10.70 10.99 12.28
-----------------------------------------
Shares outstanding (period end) 66,116 69,520 69,175
Basic shares outstanding (average) 68,186 69,858 69,438
Diluted shares outstanding (average) 68,410 70,468 70,168
=========================================
(1) Ratio is based upon total equity and assets excluding the unrealized gains
(losses) arising during the year, net of income tax effect.
Cash dividends paid in 2000 were $1.11 per share, compared with $1.05 per share
in 1999, an increase of 5.0%. Cash dividends per share have increased at a 13.4%
compounded rate during the past five years.
34
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic condition in
markets served, and strength of management.
As of December 31, 2000 and 1999, the Corporation's Tier 1 risk-based capital
ratios, total risk-based capital (Tier 1 and Tier 2) ratios, and Tier 1 leverage
ratios were in excess of regulatory requirements. It is management's intent to
exceed the minimum requisite capital levels. Capital ratios are included in Note
17, Regulatory Matters, of the Notes to Consolidated Financial Statements.
The Corporation's Board of Directors ("BOD") has authorized management to
repurchase shares of the Corporation's common stock each quarter in the market,
to be made available for issuance in connection with the Corporation's employee
incentive plans and for other corporate purposes. The BOD authorized the
repurchase of up to 1.3 million shares (330,000 shares per quarter) in 2000 and
1999. Of these authorizations, approximately 418,000 shares were repurchased for
$10.6 million during 2000 (with 322,000 shares reissued in connection with stock
options exercised), and 429,000 shares were repurchased for $13.6 million in
1999 (with 277,000 shares reissued for 1999 options exercised). In March 2000,
the BOD also authorized the repurchase and cancellation of up to 5% of the
Corporation's outstanding shares, not to exceed approximately 3.5 million
shares. Under this authorization through December 31, 2000, 3.3 million shares
were repurchased and retired at a cost of $81.9 million. In October 2000, the
BOD authorized the repurchase and cancellation of an additional 3.2 million
shares. The repurchase of shares under this authorization is expected to begin
after repurchases under the March 2000 authorization are completed. The
repurchase of shares will be based on market opportunities, capital levels,
growth prospects, and other investment opportunities.
In connection with specific 1999 and 1998 purchase acquisition transactions, the
BOD authorized the repurchase and retirement of shares issued. During 1999,
approximately 3,061,000 shares were repurchased and 2,764,000 shares were
retired in connection with the Windsor and Riverside purchase acquisitions, with
the difference being reissued in connection with the consummation of Riverside.
In 1998, approximately 990,000 shares were repurchased and 493,000 shares were
retired in connection with the Citizens and Windsor acquisitions, with the
difference being reissued in connection with the February 1999 consummation of
Windsor.
Shares repurchased and not retired are held as treasury stock and, accordingly,
are accounted for as a reduction of stockholders' equity.
Management believes that a strong capital position is necessary to take
advantage of opportunities for profitable geographic and product expansion, and
to provide depositor and investor confidence. Management actively reviews
capital strategies for the Corporation and each of its subsidiaries in light of
perceived business risks, future growth opportunities, industry standards, and
regulatory requirements. It is management's intent to maintain an optimal
capital and leverage mix for growth and for shareholder return.
FOURTH QUARTER 2000 RESULTS
Net income for fourth quarter 2000 ("4Q00") was $39.7 million, $4.6 million
lower than the $44.3 million earned in the fourth quarter of 1999 ("4Q99"). ROE
was 16.95%, 210 bp lower than 4Q99, while ROA decreased 21 bp to 1.21%.
FTE net interest income for 4Q00 was $100.2 million, $5.8 million lower than
4Q99. Factors impacting net interest income and net interest margin include the
higher interest rate environment between the comparable quarters, as well as
competitive pricing pressures, branch deposit and credit card receivable sales,
and funding of stock repurchases. The $5.8 million decrease in net interest
income was a function of a 45 bp decline in net interest margin, which reduced
net interest income by approximately $13.5 million, offset by approximately $7.7
million of additional net interest income due to balance sheet growth and
changes in the mix of earning assets and interest-bearing liabilities. For 4Q00,
net interest margin was 3.20% compared to 3.65% in 4Q99. The average Fed funds
rate of 6.50% in 4Q00 was 113 bp higher than the comparable quarter last year.
The yield on earning assets, which are slower to reprice, rose 39 bp to 7.96% in
4Q00. The rate on interest-bearing
35
liabilities, on the other hand, increased 94 bp to 5.39% due to more frequent
repricing of deposit products, and wholesale funds. The net result was a 55 bp
decline in interest rate spread. The decline in spread was offset in part by a
10 bp improvement in net free funds contribution. Average earning asset growth
(up $746 million to $12.3 billion) and decreases in interest-bearing deposits
excluding brokered CDs (down $206 million) were funded primarily by
higher-costing brokered CDs and other wholesale funds (together up $897
million).
The provision for loan losses of $5.2 million in 4Q00 was down $0.5 million from
4Q99, as less was provided due to the sale of credit card balances in the second
quarter of 2000, but offset by additional provision made for the strong growth
in commercial real estate and other commercial loans between the comparable
quarters.
Noninterest income in 4Q00 was $2.0 million higher than the comparable quarter
in 1999. 4Q99 included net gains of $2.8 million on the sale of assets and
investment securities (due primarily to the sale of three branch locations in
4Q99), whereas losses of $0.5 million were recorded in 4Q00 (principally from
sales of investment securities). Excluding these gains and losses from both
periods, noninterest income rose $5.3 million or 13.6%. Credit card and other
nondeposit fees were up $1.0 million, due to increases in merchant interchange
income and other credit card revenue. Service charges on deposit accounts were
up $0.7 million, due primarily to mid-2000 rate increases. Other noninterest
income was up $4.2 million, attributable principally to $3.6 million recognized
in connection with the Corporation's mid-2000 change in data processing vendors,
which compensated for certain additional costs incurred by the Corporation.
Trust service fees declined $1.2 million, predominantly due to the impact of the
year-over-year change in market conditions on the market value of assets under
management. The remaining noninterest income categories collectively increased
$0.6 million or 4% over the same period last year.
Noninterest expense between the comparable quarters was impacted by two
significant items: 4Q99 included a $2.3 million MSR valuation reversal and
profit sharing expense was $2.2 million higher in 4Q00 than 4Q99. Excluding
these items, noninterest expense was $2.3 million (2.9%) lower in 4Q00 than
4Q99, reflecting the continued focus on expense control in 2000. Decreases were
seen in numerous expense items. Income tax expense was down $2.7 million between
the fourth quarters due to lower income before tax and a decrease in the
effective tax rate, at 27.3% for 4Q00 compared to 28.3% for 4Q99.
36
TABLE 22: SELECTED QUARTERLY FINANCIAL DATA:
The following is selected financial data summarizing the results of operations
for each quarter in the years ended December 31, 2000 and 1999:
2000 QUARTER ENDED
--------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
--------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income $ 242,194 $ 237,892 $ 228,298 $ 222,773
Interest expense 147,876 143,354 131,936 124,424
Provision for loan losses 5,203 4,122 5,166 5,715
Investment securities losses, net (455) (2) (5,490) (1,702)
Income before income tax expense 54,581 54,620 60,653 59,967
Net income 39,701 41,504 43,697 43,081
========================================================
Basic net income per share $ 0.60 $ 0.61 $ 0.63 $ 0.62
Diluted net income per share 0.60 0.61 0.63 0.62
Basic weighted average shares 66,314 68,031 68,918 69,504
Diluted weighted average shares 66,542 68,293 69,206 69,812
1999 QUARTER ENDED
--------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
-------------------------------------------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income $ 216,258 $ 205,185 $ 197,377 $ 195,700
Interest expense 114,432 105,615 99,826 98,902
Provision for loan losses 5,704 4,541 4,547 4,451
Investment securities gains
(losses), net (1,536) (50) 1,023 3,589
Income before income tax expense 61,874 60,101 57,371 57,970
Net income 44,334 41,782 39,876 38,951
=======================================================
Basic net income per share $ 0.63 $ 0.60 $ 0.57 $ 0.56
Diluted net income per share 0.63 0.59 0.57 0.55
Basic weighted average shares 70,034 70,183 69,670 69,535
Diluted weighted average shares 70,657 70,833 70,314 70,127
OUTLOOK FOR 2001
The following should be read in conjunction with the "Special Note Regarding
Forward-Looking Statements" section noted on page 3.
The Corporation currently estimates the first quarter of 2001 earnings per share
to be modestly higher than 4Q00 levels. The Corporation expects additional
improvements in each subsequent 2001 quarter, resulting in diluted earnings per
share for 2001 of $2.60 to $2.65. These expectations assume decreases in
interest rates and stable asset quality. The Corporation expects continued
strong commercial loan growth, modest deposit growth, and expanding margins.
Revenue is expected to grow approximately 8%, excluding asset sales. Noninterest
expense should continue to be well-controlled, with only modest increases.
1999 COMPARED TO 1998
The Corporation recorded net income of $164.9 million for the year ended
December 31, 1999, an increase of $7.9 million or 5.0% over the $157.0 million
earned in 1998. Basic earnings per share were $2.36, a 4.4% increase over 1998
basic earnings per share of $2.26. Earnings per diluted share were $2.34, a 4.5%
increase over 1998 diluted earnings per share of $2.24. Return on average assets
and return on average equity were 1.41% and 18.04% for 1999, compared to 1.48%
and 18.33%, respectively, for 1998. Cash dividends paid in 1999 increased by
10.5% to $1.05 per share over the $0.95 per share paid in 1998. Key factors
behind these results were:
37
Taxable equivalent net interest income was $409.4 million for 1999, up $28.0
million or 7.3% over 1998. Taxable equivalent interest income increased by $35.7
million, while interest expense increased $7.7 million. The volume of average
earning assets increased $892.6 million to $11.0 billion, which exceeded the
$870.0 million increase in interest-bearing liabilities. Increases in volume and
changes in product mix added $35.0 million to taxable equivalent net interest
income, whereas changes in the rate environment resulted in a $7.0 million
decline.
The net interest margin, net taxable equivalent interest income divided by
average interest-earning assets, was 3.74% for 1999, a 5 bp decline from 3.79%
in 1998. The contribution from net free funds decreased 8 bp, offset by a 3 bp
increase in interest spread, or the difference between the yield on earning
assets and the rate on IBLs, to 3.23% for 1999. The yield on earning assets
declined 32 bp to 7.56%, while the rate on IBLs decreased 35 bp to 4.33% for
1999, reflecting the year-over-year change in the interest rate environment. For
1999, the average prime rate of 8.00% was 35 bp lower than 1998 and the average
fed funds rate of 4.95% was 41 bp lower than the prior year.
Total loans and deposits were $8.3 billion and $8.7 billion, respectively, at
December 31, 1999, compared to $7.3 billion and $8.6 billion, respectively, at
December 31, 1998. These increases were from internal growth and acquisitions.
Provision for loan losses increased to $19.2 million compared to $14.7 million
in 1998. Net charge-offs increased $2.3 million, primarily due to lower
recoveries in 1999 than in 1998, and were 0.18% of average loans compared to
0.16% in 1998. The ratio of AFLL to loans was 1.36% and 1.37% at December 31,
1999 and 1998, respectively. Nonperforming loans were $36.9 million,
representing 0.44% of total loans at year-end 1999, compared to $53.9 million,
or 0.74% of total loans last year.
Noninterest income was $165.9 million for 1999, $2.0 million or 1.2% lower than
1998. A primary component impacting this decline was mortgage banking income,
down $15.7 million in 1999 versus 1998, driven primarily by a 46% drop in
secondary mortgage loan production (particularly refinancing activity) in
response to the rising interest rate environment in 1999 compared to 1998. Gains
on the sale of assets and investment securities were $6.0 million lower than the
$14.0 million recorded in 1998. Excluding mortgage banking income and gains on
asset and investment securities sales, noninterest income increased by $19.7
million or 18.2% in 1999, with increases in most other categories.
Noninterest expense increased $10.1 million or 3.4% over 1998. Most categories
of noninterest expense increased due to the acquisitions, which added $16.7
million. Partially offsetting the increases were lower expenses in MSR
amortization (which decreased $12.2 million, principally due to lower valuation
reserves during 1999) and professional fees (down $2.6 million from 1998, due
principally to the completion of Year 2000 consultant work in mid-1999). Salary
expenses increased $5.5 million or 4.6% in 1999, principally due to the
acquisitions and base merit increases between the years. Fringe benefits
decreased $2.3 million in 1999, the net result of a $7.7 million reduction in
profit sharing expense offset in part by rising costs of health, dental, life,
and other fringe benefits (up $5.4 million or 25.6%).
Income tax expense decreased to $72.4 million, down $3.6 million from 1998. The
1999 effective tax rate was 30.5% or 210 bp lower than the 32.6% rate for 1998,
due primarily to the tax benefit of increased municipal securities and BOLI
revenue, and the use of tax loss carryforwards.
SUBSEQUENT EVENTS
On January 24, 2001, the BOD declared a $0.29 per share dividend payable on
February 15, 2001, to shareholders of record as of February 1, 2001.
A continuing strategic objective of the Corporation has been to streamline and
simplify the Corporation. This has included review of the branch distribution
network (and certain branch sales during 1999 and 2000), as well as
centralization of functional and operational processes. As part of this
objective, the Corporation will reduce the number of legal subsidiaries,
including consolidating certain bank charters, particularly the Wisconsin bank
charters, under a single national bank charter. It is anticipated that this plan
will be completed during the second quarter of 2001.
38
These subsequent events have not been reflected in the accompanying consolidated
financial statements.
ACCOUNTING DEVELOPMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," (collectively referred to as "SFAS No. 133" or as the "statement")
requires derivative instruments, including derivative instruments embedded in
other contracts, to be carried at fair value on the balance sheet. The statement
continues to allow derivative instruments to be used to hedge various risks and
sets forth specific criteria to be used to determine when hedge accounting can
be used. For fair value hedges, the statement also provides for offsetting
changes in fair value of both the derivative and the hedged asset or liability
to be recognized in earnings in the same period. For cash flow hedges, the fair
value of the derivative is recorded in other comprehensive income, to the extent
it is effective. Any changes in fair value or cash flow that represent the
ineffective portion of a hedge are required to be recognized in earnings and
cannot be deferred. For derivative instruments not accounted for as hedges,
changes in fair value are required to be recognized in earnings.
The Corporation adopted the provisions of the statement, as required, beginning
January 1, 2001. The predominant activities affected by the statement include
the Corporation's use of interest rate swaps and certain mortgage banking
activities. The interest rate swaps disclosed in Note 14 of the Notes to
Consolidated Financial Statements were redesignated on January 1, 2001, and
qualify for hedge accounting. In addition, the Corporation enters into
commitments to sell groups of residential mortgage loans that it originates or
purchases as part of its mortgage banking business, as well as commitments to
originate loans. Both the commitments to sell, as well as the commitments to
originate loans, are considered derivatives under SFAS No. 133, and beginning
January 1, 2001, are carried at fair value on the balance sheet, with changes in
fair value recognized in earnings. Further, as allowed by the statement, the
Corporation transferred all HTM investment securities to the AFS category,
effective January 1, 2001. Given the derivatives existing at January 1, 2001,
the impact of adopting the provisions of this statement was not material to the
Corporation's financial position or results of operations.
The FASB continues to issue interpretive guidance which could require changes in
the Corporation's application of the standard or adjustments to the transition
amounts. SFAS No. 133, as applied to the Corporation's risk management
strategies, may increase or decrease reported net income and stockholders'
equity prospectively, depending on future levels of interest rates and other
variables affecting the fair values of derivative instruments and hedged items,
but will have no effect on cash flows or economic risk.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replaces SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and rescinds SFAS No. 127, "Deferral of the Effective Date of Certain Provisions
of SFAS No. 125." The statement revises the standards for accounting for
securitizations and other transfers of financial assets and requires certain
disclosures, but it also carries over most of the provisions of SFAS No. 125
without modification. The statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on the application of a financial components approach that
focuses on control. It is effective for transactions occurring after March 31,
2001. Certain disclosures about securitizations are effective on December 31,
2000. The adoption is not expected to be material to the Corporation's financial
position or results of operations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is set forth in Item 7 under the captions
"Quantitative and Qualitative Disclosures About Market Risk" and "Interest Rate
Risk."
39
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED BANC-CORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
2000 1999
---------------------------
($ IN THOUSANDS
EXCEPT SHARE DATA)
ASSETS
Cash and due from banks $ 368,186 $ 284,652
Interest-bearing deposits in other financial institutions 5,024 4,394
Federal funds sold and securities purchased under agreements to resell 23,310 25,120
Investment securities:
Held to maturity - at amortized cost (fair value of approximately
$372,873 and $413,107, respectively) 368,558 414,037
Available for sale - at fair value (amortized cost of $2,867,109 and
$2,916,455 respectively) 2,891,647 2,856,346
Loans held for sale 24,593 11,955
Loans 8,913,379 8,343,100
Allowance for loan losses (120,232) (113,196)
- --------------------------------------------------------------------------------------------------------------
Loans, net 8,793,147 8,229,904
Premises and equipment 127,600 140,100
Other assets 526,329 553,394
- --------------------------------------------------------------------------------------------------------------
Total assets $13,128,394 $12,519,902
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 1,243,949 $ 1,103,931
Interest-bearing deposits 8,047,697 7,587,898
- --------------------------------------------------------------------------------------------------------------
Total deposits 9,291,646 8,691,829
Short-term borrowings 2,598,203 2,775,090
Long-term debt 122,420 24,283
Accrued expenses and other liabilities 147,429 118,911
- --------------------------------------------------------------------------------------------------------------
Total liabilities 12,159,698 11,610,113
- --------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock (Par value $1.00 per share, authorized 750,000
shares, no shares issued) --- ---
Common stock (Par value $0.01 per share, authorized 100,000,000
shares, issued 66,402,157 and 69,520,136 shares at
December 31, 2000 and 1999, respectively) 664 634
Surplus 296,479 226,042
Retained earnings 663,566 728,754
Accumulated other comprehensive income (loss), net of tax 15,581 (38,782)
Treasury stock at cost (285,948 shares in 2000 and
208,571 shares in 1999) (7,594) (6,859)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 968,696 909,789
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,128,394 $12,519,902
==============================================================================================================
See accompanying Notes to Consolidated Financial Statements.
40
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
-------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
INTEREST INCOME
Interest and fees on loans $ 726,849 $ 625,529 $ 602,470
Interest and dividends on investment securities:
Taxable 163,768 163,768 168,536
Tax-exempt 37,765 23,417 11,280
Interest on deposits in other financial institutions 432 454 1,679
Interest on federal funds sold and securities purchased
under agreements to resell 2,343 1,352 1,800
- ------------------------------------------------------------------------------------------------------
Total interest income 931,157 814,520 785,765
- ------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 379,892 314,075 345,392
Interest on short-term borrowings 160,430 103,057 63,774
Interest on long-term borrowings 7,268 1,643 1,862
- ------------------------------------------------------------------------------------------------------
Total interest expense 547,590 418,775 411,028
- ------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 383,567 395,745 374,737
Provision for loan losses 20,206 19,243 14,740
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 363,361 376,502 359,997
- ------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust service fees 37,617 37,996 33,328
Service charges on deposit accounts 33,296 29,584 27,464
Mortgage banking 19,944 30,417 46,105
Credit card and other nondeposit fees 25,739 20,763 17,514
Retail commissions 20,187 18,372 14,823
Asset sale gains, net 24,420 4,977 7,166
Investment securities gains (losses), net (7,649) 3,026 6,831
Other 30,642 20,771 14,697
- ------------------------------------------------------------------------------------------------------
Total noninterest income 184,196 165,906 167,928
- ------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Personnel expense 157,007 151,644 148,490
Occupancy 23,258 22,576 20,205
Equipment 15,272 15,987 13,250
Data processing 22,375 21,695 18,714
Business development and advertising 13,359 11,919 13,177
Stationery and supplies 7,961 8,110 6,858
FDIC expense 1,818 3,313 3,267
Legal and professional fees 7,595 8,051 11,889
Other 69,091 61,797 59,112
- ------------------------------------------------------------------------------------------------------
Total noninterest expense 317,736 305,092 294,962
- ------------------------------------------------------------------------------------------------------
Income before income taxes 229,821 237,316 232,963
Income tax expense 61,838 72,373 75,943
- ------------------------------------------------------------------------------------------------------
Net income $ 167,983 $ 164,943 $ 157,020
======================================================================================================
Earnings per share:
Basic $ 2.46 $ 2.36 $ 2.26
Diluted $ 2.46 $ 2.34 $ 2.24
Average shares outstanding:
Basic 68,186 69,858 69,438
Diluted 68,410 70,468 70,168
======================================================================================================
See accompanying Notes to Consolidated Financial Statements.
41
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED
OTHER
COMMON STOCK RETAINED COMPREHENSIVE TREASURY
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) STOCK TOTAL
-----------------------------------------------------------------------------
(IN THOUSANDS)
Balance, December 31, 1997 50,395 $ 504 $ 218,072 $ 569,995 $ 26,144 $ (1,023) $ 813,692
Comprehensive income:
Net income --- --- --- 157,020 --- --- 157,020
Net unrealized holding gains arising
during year --- --- --- --- 2,292 --- 2,292
Less: reclassification adjustment for
net gains realized in net income --- --- --- --- (6,831) --- (6,831)
Income tax effect --- --- --- --- 1,593 --- 1,593
---------
Comprehensive income 154,074
---------
Cash dividends, $0.95 per share --- --- --- (65,841) --- --- (65,841)
Common stock issued:
Business combinations --- --- --- (3,425) 171 15,253 11,999
Incentive stock options 317 3 3,778 (11,678) --- 15,823 7,926
5-for-4 stock split effected in the
form of a stock dividend 12,678 127 (127) --- --- --- ---
Tax benefits of stock options --- --- 4,034 --- --- --- 4,034
Purchase of treasury stock --- --- --- --- --- (47,163) (47,163)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 63,390 634 225,757 646,071 23,369 (17,110) 878,721
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income --- --- --- 164,943 --- --- 164,943
Net unrealized holding losses arising
during year --- --- --- --- (93,803) --- (93,803)
Less: reclassification adjustment for
net gains realized in net income --- --- --- --- (3,026) --- (3,026)
Income tax effect --- --- --- --- 34,832 --- 34,832
---------
Comprehensive income 102,946
---------
Cash dividends, $1.05 per share --- --- --- (73,743) --- --- (73,743)
Common stock issued:
Business combinations 2,513 25 90,063 (2,211) (154) 25,976 113,699
Incentive stock options --- --- --- (5,109) --- 8,530 3,421
Purchase and retirement of treasury stock
in connection with business
combinations (2,513) (25) (90,540) (1,197) --- --- (91,762)
Tax benefits of stock options --- --- 762 --- --- --- 762
Purchase of treasury stock --- --- --- --- --- (24,255) (24,255)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 63,390 634 226,042 728,754 (38,782) (6,859) 909,789
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income --- --- --- 167,983 --- --- 167,983
Net unrealized holding gains arising
during year --- --- --- --- 76,998 --- 76,998
Less: reclassification adjustment for
net losses realized in net income --- --- --- --- 7,649 --- 7,649
Income tax effect --- --- --- --- (30,284) --- (30,284)
---------
Comprehensive income 222,346
---------
Cash dividends, $1.11 per share --- --- --- (75,719) --- --- (75,719)
Common stock issued:
Incentive stock options --- --- --- (6,219) --- 10,112 3,893
10% stock dividend 6,269 63 151,170 (151,233) --- --- ---
Purchase and retirement of treasury stock
in connection with repurchase program (3,257) (33) (81,847) --- --- 7,782 (74,098)
Tax benefits of stock options --- --- 1,114 --- --- --- 1,114
Purchase of treasury stock --- --- --- --- --- (18,629) (18,629)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 66,402 $ 664 $ 296,479 $ 663,566 $ 15,581 $ (7,594) $ 968,696
==========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
42
ASSOCIATED BANC-CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 167,983 $ 164,943 $ 157,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 20,206 19,243 14,740
Depreciation and amortization 19,396 19,266 15,027
Amortization (accretion) of:
Mortgage servicing rights 9,406 9,690 6,833
Intangibles 8,905 8,134 5,844
Investment premiums and discounts (572) 1,959 (4,985)
Deferred loan fees and costs 2,514 1,772 13
Deferred income taxes (13,936) 4,543 9,891
(Gain) loss on sales of investment securities, net 7,649 (3,026) (6,831)
Gain on sales of other assets, net (24,420) (4,977) (7,166)
Gain on sales of loans held for sale, net (3,113) (11,172) (24,341)
Mortgage loans originated and acquired for sale (456,312) (1,169,843) (2,184,681)
Proceeds from sales of mortgage loans held for sale 446,787 1,237,075 2,158,012
(Increase) decrease in interest receivable and other assets (3,859) (5,083) 14,085
Increase (decrease) in interest payable and other
liabilities 8,518 (2,444) (14,892)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 189,152 270,080 138,569
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (715,452) (682,837) (231,285)
Capitalization of mortgage servicing rights (4,739) (12,389) (21,502)
Purchases of:
Securities held to maturity --- --- (1,717)
Securities available for sale (933,197) (1,210,498) (800,724)
Premises and equipment, net of disposals (11,828) (20,457) (30,268)
Bank owned life insurance --- (100,000) (100,000)
Proceeds from:
Sales of securities available for sale 648,359 78,751 62,168
Maturities of securities available for sale 327,385 744,403 663,227
Maturities of securities held to maturity 45,201 136,292 222,869
Sales of other assets 169,793 16,832 41,831
Net cash received in acquisitions of subsidiaries --- 53,597 12,525
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (474,478) (996,306) (182,876)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 709,017 (299,739) 45,475
Net increase (decrease) in short-term borrowings (176,887) 1,046,214 321,607
Repayment of long-term debt (1,863) (619) (1,464)
Proceeds from issuance of long-term debt 100,000 53 13,538
Cash dividends (75,719) (73,743) (65,841)
Proceeds from exercise of incentive stock options 3,893 3,421 7,926
Sales of branch deposits (98,034) (55,663) ---
Purchase and retirement of treasury stock (74,098) (91,762) ---
Purchase of treasury stock (18,629) (24,255) (47,163)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 367,680 503,907 274,078
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 82,354 (222,319) 229,771
Cash and due from banks at beginning of year 314,166 536,485 306,714
- -------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 396,520 $ 314,166 $ 536,485
- -------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 529,017 $ 417,047 $ 405,841
Income taxes 49,814 53,512 70,109
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate 7,255 9,177 7,910
Loans made in connection with the disposition of
other real estate --- 1,125 780
Mortgage loans securitized and transferred to
securities available for sale --- 97,155 78,557
Acquisitions:
Fair value of assets acquired, including cash
and cash equivalents --- 590,845 161,033
Value ascribed to intangibles --- 85,090 11,903
Liabilities assumed --- 551,126 144,405
=============================================================================================================
See accompanying notes to consolidated financial statements.
43
ASSOCIATED BANC-CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999, and 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Associated Banc-Corp (the "parent
company"), together with its affiliates and subsidiaries (the "Corporation"),
conform to accounting principles generally accepted in the United States of
America and to general practice within the financial services industry. The
following is a description of the more significant of those policies.
BUSINESS
The Corporation provides a full range of banking and related financial services
to individual and corporate customers through its network of bank and nonbank
affiliates. The Corporation is subject to competition from other financial and
non-financial institutions that offer similar or competing products and
services. The Corporation is regulated by federal and state banking agencies and
undergoes periodic examinations by those agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation. Results of
operations of companies purchased are included from the date of acquisition.
Certain amounts in the 1999 and 1998 consolidated financial statements have been
reclassified to conform with the 2000 presentation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses, income taxes, and mortgage
servicing rights.
INVESTMENT SECURITIES
Securities are classified as held to maturity ("HTM"), available for sale
("AFS"), or trading at the time of purchase. In 2000 and 1999, all securities
purchased were classified as AFS. Investment securities classified as HTM, which
management has the positive intent and ability to hold to maturity, are reported
at amortized cost, adjusted for amortization of premiums and accretion of
discounts, using a method that approximates level yield. The amortized cost of
debt securities classified as HTM or AFS is adjusted for amortization of
premiums and accretion of discounts to the earlier of call date or maturity, or
in the case of mortgage-related securities, over the estimated life of the
security. Such amortization and accretion is included in interest income from
the related security. AFS and trading securities are reported at fair value with
unrealized gains and losses, net of related deferred income taxes, included in
stockholders' equity or income, respectively. Realized securities gains or
losses and declines in value judged to be other than temporary are included in
investment securities gains (losses), net in the consolidated statements of
income. The cost of securities sold is based on the specific identification
method. Any security for which there has been other than temporary impairment of
value is written down to its estimated market value through a charge to
earnings.
LOANS
Loans and leases are carried at the principal amount outstanding, net of any
unearned income. Unearned income, primarily from direct leases, is recognized on
a basis that generally approximates a level yield on the outstanding balances
receivable. Interest on all other loans is based upon the principal amount
outstanding.
44
Loans are normally placed on nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact the
collectibility of principal or interest on loans, it is management's practice to
place such loans on nonaccrual status immediately, rather than delaying such
action until the loans become 90 days past due. Previously accrued and
uncollected interest on such loans is reversed, amortization of related loan
fees is suspended, and income is recorded only to the extent that interest
payments are subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible. If collectibility of the
principal is in doubt, payments received are applied to loan principal. A
nonaccrual loan is returned to accrual status when the obligation has been
brought current and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Loan origination fees and certain direct loan origination costs are deferred,
and the net amount is amortized over the contractual life of the related loans
or over the commitment period as an adjustment of yield.
LOANS HELD FOR SALE
Loans held for sale are recorded at the lower of cost or market as determined on
an aggregate basis and generally consist of current production of certain
fixed-rate first mortgage loans. Holding costs are treated as period costs.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses ("AFLL") is a reserve for estimated credit losses.
Credit losses arise primarily from the loan portfolio. Actual credit losses, net
of recoveries, are deducted from the AFLL. A provision for loan losses, which is
a charge against earnings, is added to bring the AFLL to a level that, in
management's judgment, is adequate to absorb probable losses inherent in the
loan portfolio.
The allocation methodology applied by the Corporation, designed to assess the
adequacy of the AFLL, focuses on changes in the size and character of the loan
portfolio, changes in levels of impaired and other nonperforming loans,
historical losses on each portfolio category, the risk inherent in specific
loans, concentrations of loans to specific borrowers or industries, existing
economic conditions, the fair value of underlying collateral, and other factors
which could affect potential credit losses. Management continues to target and
maintain the AFLL equal to the allocation methodology plus an unallocated
portion, as determined by economic conditions, on the Corporation's borrowers.
Management allocates the AFLL by pools of risk. The business loan (commercial
mortgage; commercial, industrial, and agricultural; leases; and real estate
construction) allocation is based on a quarterly review of individual loans,
loan types, and industries. The retail loan (residential mortgage, home equity,
and consumer) allocation is based on analysis of historical delinquency and
charge-off statistics and trends. Minimum loss factors used by the Corporation
for criticized loan categories are consistent with regulatory agencies. Loss
factors for non-criticized loan categories are based primarily on historical
loan loss experience and peer group statistics.
Management, considering current information and events regarding the borrowers'
ability to repay their obligations, considers a loan to be impaired when it is
probable that the Corporation will be unable to collect all amounts due
according to the contractual terms of the note agreement, including principal
and interest. Management has determined that commercial loans and commercial
real estate loans that have a nonaccrual status or have had their terms
restructured meet this definition. Large groups of homogeneous loans, such as
mortgage and consumer loans and leases, are collectively evaluated for
impairment. The amount of impairment is measured based upon the loan's
observable market price, the estimated fair value of the collateral for
collateral-dependent loans, or alternatively, the present value of expected
future cash flows discounted at the loan's effective interest rate. Interest
income on impaired loans is recorded when cash is received and only if principal
is considered to be fully collectible.
Management believes that the AFLL is adequate. While management uses available
information to recognize losses on loans, future additions to the AFLL may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the
45
Corporation's AFLL. Such agencies may require the Corporation to recognize
additions to the AFLL based on their judgments about information available to
them at the time of their examinations.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") is included in other assets in the consolidated
balance sheets and is comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified
as in-substance foreclosure. OREO is recorded at the lower of recorded
investment in the loans at the time of acquisition or the fair value of the
properties, less estimated selling costs. Any write-down in the carrying value
of a property at the time of acquisition is charged to the AFLL. Any subsequent
write-downs to reflect current fair market value, as well as gains and losses on
disposition and revenues and expenses incurred in maintaining such properties,
are recorded directly to the income statement. OREO totaled $4.0 million and
$3.7 million at December 31, 2000 and 1999, respectively.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the related assets or the lease term.
Maintenance and repairs are charged to expense as incurred, while additions or
major improvements are capitalized and depreciated over their estimated useful
lives. Estimated useful lives for premises include periods up to 50 years and
for equipment include periods up to 10 years.
INTANGIBLES
The excess of the purchase price over the fair value of net assets of
subsidiaries acquired consists primarily of goodwill and core deposit
intangibles that are being amortized on straight-line and accelerated methods.
These intangibles are included in other assets in the consolidated balance
sheets. Goodwill is amortized to operating expense over periods of 10 to 40
years. Core deposit intangibles are amortized to expense over periods of 7 to 10
years. The Corporation reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable, in which case an
impairment charge would be recorded.
As a result of acquisitions during 1999 and 1998, the Corporation recorded
additional goodwill of $79.2 million and $11.9 million, respectively.
Additionally, in 1999, the Corporation recorded additional core deposit
intangibles of $5.9 million. Goodwill and deposit base intangibles outstanding,
net of accumulated amortization, at December 31, 2000 and 1999 was $106.7
million and $116.6 million, respectively.
MORTGAGE SERVICING RIGHTS
The total cost of loans originated or purchased is allocated between loans and
servicing rights based on the relative fair values of each. The servicing rights
capitalized are amortized in proportion to and over the period of estimated
servicing income. Capitalized mortgage servicing rights ("MSRs") are included in
other assets. The value of MSRs is adversely affected when mortgage interest
rates decline and mortgage loan prepayments increase. Impairment is assessed
using stratifications based on the risk characteristics of the underlying loans,
such as bulk acquisitions versus loan-by-loan, loan type, and interest rate. To
the extent the carrying value of the MSRs exceed their fair value, a valuation
reserve is established.
INCOME TAXES
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income taxes, which arise principally from
temporary differences between the period in which certain income and expenses
are recognized for financial accounting purposes and the period in which they
affect taxable income, are included in the amounts provided for income taxes.
46
The Corporation files a consolidated federal income tax return and individual
subsidiary state income tax returns. Accordingly, amounts equal to tax benefits
of those subsidiaries having taxable federal losses or credits are reimbursed by
other subsidiaries that incur federal tax liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS
As part of managing the Corporation's interest rate risk, a variety of
derivative financial instruments could be used to hedge market values and to
alter the cash flow characteristics of certain on-balance sheet instruments. The
Corporation has principally used interest rate swaps. The derivative instruments
used to manage interest rate risk are linked with a specific asset or liability
or a group of related assets or liabilities at the inception of the derivative
contract and have a high degree of correlation with the related balance sheet
item during the hedge period. Net interest income or expense on derivative
contracts used for interest rate risk management is recorded in the consolidated
statements of income as a component of interest income or interest expense
depending on the financial instrument to which the swap is designated. Realized
gains and losses on contracts, either settled or terminated, are deferred and
are recorded as either an adjustment to the carrying value of the related
on-balance sheet asset or liability or in other assets or other liabilities.
Deferred amounts are amortized into interest income or expense over either the
remaining original life of the derivative instrument or the expected life of the
related asset or liability. Unrealized gains or losses on these contracts are
not recognized on the balance sheet.
STOCK-BASED COMPENSATION
As allowed under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Corporation measures stock-based
compensation cost in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25). The Corporation
has included in Note 11 the impact of the fair value of employee stock-based
compensation plans on net income and earnings per share on a pro forma basis.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents are considered to include cash and due from banks, interest-bearing
deposits in other financial institutions, and federal funds sold. Cash and cash
equivalents were $396.5 million and $314.2 million at December 31, 2000, and
December 31, 1999, respectively.
PER SHARE COMPUTATIONS
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is calculated by dividing net income by the weighted
average number of shares adjusted for the dilutive effect of outstanding stock
options. See also Notes 11 and 18.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," (collectively referred to as "SFAS No. 133" or as the "statement")
requires derivative instruments, including derivative instruments embedded in
other contracts, to be carried at fair value on the balance sheet. The statement
continues to allow derivative instruments to be used to hedge various risks and
sets forth specific criteria to be used to determine when hedge accounting can
be used. For fair value hedges, the statement also provides for offsetting
changes in fair value of both the derivative and the hedged asset or liability
to be recognized in earnings in the same period. For cash flow hedges, the fair
value of the derivative is recorded in other comprehensive income, to the extent
it is effective. Any changes in fair value or cash flow that represent the
ineffective portion of a hedge are required to be recognized in earnings and
cannot be
47
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings.
The Corporation adopted the provisions of the statement, as required, beginning
January 1, 2001. The predominant activities affected by the statement include
the Corporation's use of interest rate swaps and certain mortgage banking
activities. The interest rate swaps disclosed in Note 14 of the Notes to
Consolidated Financial Statements were redesignated on January 1, 2001, and
qualify for hedge accounting. In addition, the Corporation enters into
commitments to sell groups of residential mortgage loans that it originates or
purchases as part of its mortgage banking business, as well as commitments to
originate loans. Both the commitments to sell, as well as the commitments to
originate loans, are considered derivatives under SFAS No. 133, and beginning
January 1, 2001, are carried at fair value on the consolidated balance sheet,
with changes in fair value recognized in earnings. Further, as allowed by the
statement, the Corporation transferred all HTM investment securities to the AFS
category, effective January 1, 2001. Given the derivatives existing at January
1, 2001, the impact of adopting the provisions of this statement was not
material on the Corporation's financial position or results of operations.
The Financial Accounting Standards Board continues to issue interpretive
guidance which could require changes in the Corporation's application of the
statement or adjustments to transition amounts. SFAS No. 133 as applied to the
Corporation's risk management strategies may increase or decrease reported net
income and stockholders' equity prospectively, depending on future levels of
interest rates and other variables affecting the fair values of derivative
instruments and hedged items, but will have no effect on cash flows or economic
risk.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replaces SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and rescinds SFAS No. 127, "Deferral of the Effective Date of Certain Provisions
of SFAS No. 125." The statement revises the standards for accounting for
securitizations and other transfers of financial assets and requires certain
disclosures, but it also carries over most of the provisions of SFAS No. 125
without modification. The statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on the application of a financial components approach that
focuses on control. It is effective for transactions occurring after March 31,
2001. Certain disclosures about securitizations are effective on December 31,
2000. The adoption is not expected to be material to the Corporation's financial
position or results of operations.
NOTE 2 BUSINESS COMBINATIONS:
The following table summarizes completed transactions during 1999 and 1998.
There were no completed or pending business combination transactions during
2000.
CONSIDERATION PAID
--------------------
SHARES OF
DATE COMMON TOTAL METHOD OF
NAME OF ACQUIRED COMPANY ACQUIRED STOCK (C) CASH ASSETS LOANS DEPOSITS ACCOUNTING
- -----------------------------------------------------------------------------------------------------------------------------
( $ IN MILLIONS, EXCEPT SHARES)
BNC Financial Corporation ("BNC") 12/31/99 --- $ 5.3 $ 35 $ 33 $ --- Purchase
St. Cloud, Minnesota (a)
Riverside Acquisition Corp. ("Riverside") 8/31/99 2,677,405 --- 374 266 337 Purchase
Minneapolis, Minnesota (b)
Windsor Bancshares, Inc. ("Windsor") 2/3/99 879,957 --- 182 113 152 Purchase
Minneapolis, Minnesota (b)
Citizens Bankshares, Inc. ("Citizens") 12/19/98 493,428 16.2 161 105 117 Purchase
Shawano, Wisconsin
(a) Effective March 31, 2000, BNC operated as Associated Commercial Finance,
Inc.
(b) During the first quarter of 2000, Riverside and Windsor merged and became
Associated Bank Minnesota
(c) Share amounts have been restated to reflect the 10% stock dividend paid on
June 15, 2000.
48
For the acquisitions accounted for under the purchase method, the results of
their operations prior to their respective consummation dates are not included
in the accompanying consolidated financial statements. Goodwill, core deposit
intangibles, and other purchase accounting adjustments are recorded upon
consummation of a purchase acquisition where the purchase price exceeds the fair
value of net assets acquired.
On December 31, 1999, the Corporation completed its acquisition of BNC, an
asset-based commercial lender headquartered in St. Cloud, Minnesota. BNC had
assets of approximately $35 million at December 31, 1999. The $5.3 million cash
acquisition was accounted for under the purchase method, and goodwill of $1.2
million was recorded. BNC operates as a wholly-owned subsidiary of the
Corporation. Effective March 31, 2000, BNC operated as Associated Commercial
Finance, Inc.
On August 31, 1999, the Corporation completed its acquisition of Riverside, a
Minnesota bank holding company for Riverside Bank. Riverside had total assets of
approximately $374 million upon consummation. The transaction was completed
through the issuance of 2,677,405 shares of common stock, which were repurchased
and retired during 1999 under authorization by the Board of Directors ("BOD").
The transaction was accounted for under the purchase method. Goodwill of $60.6
million and a core deposit intangible of $5.9 million were recorded.
On February 3, 1999, the Corporation consummated the acquisition of Windsor, a
Minnesota bank holding company for Bank Windsor. At consummation Windsor had
total assets of approximately $182 million. The transaction was consummated
through the issuance of 879,957 shares of common stock, which were repurchased
and retired under authorization by the BOD. The transaction was accounted for
under the purchase method, and goodwill of $17.4 million was recorded.
On December 19, 1998, the Corporation completed its acquisition of Citizens,
which had $161 million in assets and operated Citizens Bank and two consumer
finance companies. The merger, accounted for as a purchase, was consummated with
$16.2 million in cash and through the issuance of 493,428 shares of common
stock, which were repurchased under authorization by the BOD. Goodwill of $11.9
million was recorded. In the second quarter of 1999, the Corporation merged
Citizens Bank into its existing banks. The consumer finance companies continue
to operate as wholly-owned subsidiaries of the Corporation.
NOTE 3 RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Corporation's bank subsidiaries are required to maintain certain vault cash
and reserve balances with the Federal Reserve Bank to meet specific reserve
requirements. These requirements approximated $81.7 million at December 31,
2000.
49
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and fair values of securities HTM at December 31, 2000 and
1999 were as follows:
2000
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
($ IN THOUSANDS)
Federal agency securities $ 25,055 $ 86 $ --- $ 25,141
Obligations of state and political subdivisions 110,182 1,041 --- 111,223
Mortgage-related securities 182,299 2,868 (4) 185,163
Other securities (debt) 51,022 324 --- 51,346
--------------------------------------------------
Total securities HTM $ 368,558 $ 4,319 $ (4) $ 372,873
==================================================
1999
--------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
($ IN THOUSANDS)
Federal agency securities $ 26,012 $ 33 $ (321) $ 25,724
Obligations of state and political subdivisions 128,833 584 (376) 129,041
Mortgage-related securities 204,725 1,267 (1,764) 204,228
Other securities (debt) 54,467 35 (388) 54,114
--------------------------------------------------
Total securities HTM $ 414,037 $ 1,919 $(2,849) $ 413,107
==================================================
50
The amortized cost and fair values of securities AFS at December 31, 2000 and
1999 were as follows:
2000
------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
($ IN THOUSANDS)
U. S. Treasury securities $ 23,847 $ 51 $ (38) $ 23,860
Federal agency securities 341,929 868 (49) 342,748
Obligations of state
and political subdivisions 756,914 9,408 (1,381) 764,941
Mortgage-related securities 1,425,290 7,574 (5,247) 1,427,617
Other securities (debt and equity) 319,129 16,943 (3,591) 332,481
------------------------------------------------------
Total securities AFS $ 2,867,109 $ 34,844 $ (10,306) $ 2,891,647
======================================================
1999
------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
($ IN THOUSANDS)
U. S. Treasury securities $ 47,092 $ 53 $ (475) $ 46,670
Federal agency securities 406,275 --- (9,959) 396,316
Obligations of state and
political subdivisions 550,975 257 (28,933) 522,299
Mortgage-related securities 1,578,089 28,915 (54,563) 1,552,441
Other securities (debt and equity) 334,024 15,870 (11,274) 338,620
------------------------------------------------------
Total securities AFS $ 2,916,455 $ 45,095 $ (105,204) $ 2,856,346
======================================================
The amortized cost and fair values of investment securities HTM and AFS at
December 31, 2000, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
2000
--------------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
--------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------------------------------------------------
($ IN THOUSANDS)
Due in one year or less $ 43,687 $ 43,828 $ 85,571 $ 85,494
Due after one year through five years 138,058 139,306 433,946 434,513
Due after five years through ten years 4,514 4,576 428,877 424,698
Due after ten years --- --- 392,448 401,418
--------------------------------------------------------
Total debt securities 186,259 187,710 1,340,842 1,346,123
Mortgage-related securities 182,299 185,163 1,425,290 1,427,617
Equity securities --- --- 100,977 117,907
--------------------------------------------------------
Total $ 368,558 $ 372,873 $ 2,867,109 $ 2,891,647
========================================================
Total proceeds and gross realized gains and losses from sale of securities AFS
for each of the three years ended December 31 were:
2000 1999 1998
-------------------------------------
($ IN THOUSANDS)
Proceeds $ 648,359 $ 78,751 $ 62,168
Gross gains 2,889 4,615 9,357
Gross losses 10,538 1,589 2,526
Pledged securities with a carrying value of approximately $1.7 billion at
December 31, 2000, and December 31, 1999, were pledged to secure certain
deposits, Federal Home Loan Bank advances, or for other purposes as required or
permitted by law.
NOTE 5 LOANS:
Loans at December 31 are summarized below. During 2000, $128 million of credit
card receivables were sold to Citi for a $12.9 million gain.
2000 1999
---------------------------
($ IN THOUSANDS)
Commercial, financial, and agricultural $ 1,657,322 $ 1,412,338
Real estate - construction 660,732 560,450
Real estate - mortgage/commercial 2,287,946 1,903,633
Lease financing 14,854 23,229
---------------------------
Commercial 4,620,854 3,899,650
Real estate - mortgage/residential 3,158,721 3,274,767
Home equity 508,979 408,577
---------------------------
Residential mortgage 3,667,700 3,683,344
Consumer 624,825 760,106
---------------------------
Total loans $ 8,913,379 $ 8,343,100
===========================
51
A summary of the changes in the allowance for loan losses for the years
indicated is as follows:
2000 1999 1998
--------------------------------------
($ IN THOUSANDS)
Balance at beginning of year $ 113,196 $ 99,677 $ 92,731
Balance related to acquisitions --- 8,016 3,636
Decrease from sale of credit
card receivables (4,216) --- ---
Provision for loan losses 20,206 19,243 14,740
Charge-offs (11,155) (16,621) (17,039)
Recoveries 2,201 2,881 5,609
--------------------------------------
Net charge-offs (8,954) (13,740) (11,430)
--------------------------------------
Balance at end of year $ 120,232 $ 113,196 $ 99,677
======================================
Nonaccrual loans totaled $41.0 million and $32.1 million at December 31, 2000
and 1999, respectively.
Management has determined that commercial loans and commercial real estate loans
that have nonaccrual status or have had their terms restructured are impaired
loans. The following table presents data on impaired loans at December 31:
2000 1999
-----------------------
($ IN THOUSANDS)
Impaired loans for which an
allowance has been provided $ 4,733 $ 3,174
Impaired loans for which no
allowance has been provided 14,690 11,576
-----------------------
Total loans determined to be impaired $ 19,423 $ 14,750
=======================
AFLL related to impaired loans $ 2,315 $ 1,731
=======================
2000 1999 1998
---------------------------------
FOR THE YEARS ENDED DECEMBER 31: ($ IN THOUSANDS)
Average recorded investment
in impaired loans $ 18,650 $ 16,640 $ 15,652
=================================
Cash basis interest income
recognized from impaired loans $ 1,623 $ 1,081 $ 1,062
=================================
The Corporation's subsidiaries have granted loans to their directors, executive
officers, or their related affiliates. These loans were made on substantially
the same terms, including rates and collateral, as those prevailing at the time
for comparable transactions with other unrelated customers, and do not involve
more than a normal risk of collection. These loans to related parties are
summarized as follows:
2000
------------
($ IN
THOUSANDS)
Balance at beginning of year $ 124,621
New loans 72,579
Repayments (35,371)
Changes due to status of executive officers and directors (7,461)
------------
Balance at end of year $ 154,368
============
The Corporation serves the credit needs of its customers by offering a wide
variety of loan programs to customers, primarily in Wisconsin, Illinois, and
Minnesota. The loan portfolio is widely diversified by types of borrowers,
industry groups, and market areas. Significant loan concentrations are
considered to exist for a financial institution when there are amounts loaned to
a multiple number of borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions. At December 31,
2000, no concentrations existed in the Corporation's loan portfolio in excess of
10% of total loans.
52
NOTE 6 MORTGAGE SERVICING RIGHTS:
A summary of changes in the balance of mortgage servicing rights is as follows:
2000 1999
----------------------
($ IN THOUSANDS)
Balance at beginning of year $ 40,936 $ 30,214
Additions 4,739 12,389
Amortization (9,406) (9,690)
Change in valuation allowance --- 8,023
----------------------
Balance at end of year $ 36,269 $ 40,936
======================
A summary of changes in the valuation allowance during 1999 and 1998 is as
follows. There was no valuation allowance at December 31, 2000.
1999 1998
----------------------
($ IN THOUSANDS)
Balance at beginning of year $ 8,023 $ 1,033
Additions --- 7,748
Reversals (8,023) (758)
----------------------
Balance at end of year $ --- $ 8,023
======================
At December 31, 2000, the Corporation was servicing 1- to 4-family residential
mortgage loans owned by other investors with balances totaling $5.50 billion
compared to $5.57 billion and $5.21 billion at December 31, 1999 and 1998,
respectively.
NOTE 7 PREMISES AND EQUIPMENT:
A summary of premises and equipment at December 31 is as follows:
2000 1999
-----------------------
($ IN THOUSANDS)
Premises $ 124,075 $ 124,947
Land and land improvements 25,834 26,638
Furniture and equipment 130,623 128,324
Leasehold improvements 14,872 14,575
Less: Accumulated depreciation
and amortization (167,804) (154,384)
-----------------------
Total $ 127,600 $ 140,100
=======================
Depreciation and amortization of premises and equipment totaled $17.1 million in
2000, $17.4 million in 1999, and $14.4 million in 1998.
The Corporation and certain subsidiaries are obligated under a number of
noncancelable operating leases for other facilities and equipment, certain of
which provide for increased rentals based upon increases in cost of
53
living adjustments and other operating costs. The approximate minimum annual
rentals and commitments under these noncancelable agreements and leases with
remaining terms in excess of one year are as follows:
($ IN THOUSANDS)
2001 $ 5,682
2002 5,460
2003 4,738
2004 3,554
2005 3,230
Thereafter 16,848
---------
Total $ 39,512
=========
Total rental expense under leases, net of sublease income, totaled $7.1 million
in 2000, $6.3 million in 1999, and $5.0 million in 1998.
NOTE 8 DEPOSITS:
The distribution of deposits at December 31 is as follows. During 2000, $109
million in deposits from six branches were sold for a net premium of $11.1
million.
2000 1999
----------------------------
($ IN THOUSANDS)
Noninterest-bearing demand deposits $ 1,243,949 $ 1,103,931
Interest-bearing demand deposits 850,280 868,514
Savings deposits 857,247 838,201
Money market deposits 1,492,628 1,483,779
Brokered time deposits 916,060 337,243
Other time deposits 3,931,482 4,060,161
----------------------------
Total deposits $ 9,291,646 $ 8,691,829
============================
Time deposits of $100,000 or more were $1.2 billion and $804.9 million at
December 31, 2000 and 1999, respectively. Aggregate annual maturities of
certificate accounts at December 31, 2000 are as follows:
MATURITIES DURING YEAR END
DECEMBER 31, ($ IN THOUSANDS)
- -------------------------------------------------------------------------------
2001 $ 3,476,627
2002 1,206,180
2003 101,627
2004 32,897
2005 29,302
Thereafter 909
-----------
Total $ 4,847,542
===========
54
NOTE 9 SHORT-TERM BORROWINGS:
Short-term borrowings at December 31 are as follows:
2000 1999
---------------------------
($ IN THOUSANDS)
Federal funds purchased
and securities sold under
agreements to repurchase $ 1,691,796 $ 1,344,396
Federal Home Loan Bank (FHLB) advances 750,000 531,652
Notes payable to banks 83,740 156,900
Treasury, tax, and loan notes 38,363 742,142
Commercial paper 34,304 ---
---------------------------
Total $ 2,598,203 $ 2,775,090
===========================
The short-term FHLB advances are secured by blanket collateral agreements on the
subsidiary banks' mortgage loan portfolios whereby qualifying mortgages (as
defined) with unpaid principal balances aggregating no less than 167% of the
FHLB advances are maintained.
Included in short-term borrowings are FHLB advances with original maturities of
less than one year and callable notes that have one-year call premiums, which
the Corporation expects may be called, even if the notes have maturities
exceeding one year.
Notes payable to banks are unsecured borrowings under existing lines of credit.
At December 31, 2000, the parent company had $200 million of established lines
of credit with various nonaffiliated banks, of which $83.7 million was
outstanding. Borrowings under these lines accrue interest at short-term market
rates and are payable upon demand or in maturities up to 90 days. During 2000, a
$200 million commercial paper program was initiated, of which $34.3 million was
outstanding at December 31, 2000.
NOTE 10 LONG-TERM DEBT:
Long-term debt at December 31 is as follows:
2000 1999
-------------------------
($ IN THOUSANDS)
Federal Home Loan Bank advances
(4.95% to 7.63% maturing in 2001 through
2014 in 2000, and 4.95% to 7.63%
maturing in 2000 through 2014 in 1999) $ 116,765 $ 17,098
Other borrowed funds 5,655 7,185
-------------------------
Total long-term debt $ 122,420 $ 24,283
=========================
The table below summarizes the maturities of the Corporation's long-term debt at
December 31, 2000:
YEAR ($ IN THOUSANDS)
- -------------------------------------------------------------------------------
2001 $ 735
2002 100,140
2003 2,579
2004 150
2005 ---
Thereafter 18,816
----------
Total long-term debt $ 122,420
==========
NOTE 11 STOCKHOLDERS' EQUITY:
On June 15, 2000, the Corporation distributed 6.3 million shares of common stock
in connection with a 10% stock dividend. During 1999, the Corporation issued
shares in conjunction with merger and acquisition activity (see Note 2 of the
Notes to Consolidated Financial Statements). Additionally, on June 12, 1998, the
Corporation distributed 12.7 million shares of common stock in connection with a
5-for-4 stock split effected
55
in the form of a 25% stock dividend. Share and price information has been
adjusted to reflect all stock splits and dividends.
The Corporation's Articles of Incorporation authorize the issuance of 750,000
shares of preferred stock at a par value of $1.00 per share. No shares have been
issued.
At December 31, 2000, subsidiary net assets equaled $1.0 billion, of which
approximately $148.5 million could be transferred to the Corporation in the form
of cash dividends without prior regulatory approval, subject to the capital
needs of each subsidiary.
The BOD has authorized management to repurchase shares of the Corporation's
common stock each quarter in the market, to be made available for issuance in
connection with the Corporation's employee incentive plans and for other
corporate purposes. The BOD authorized the repurchase of up to 1.3 million
shares (330,000 shares per quarter) in 2000 and 1999. Of these authorizations,
approximately 418,000 shares were repurchased for $10.6 million during 2000
(with 322,000 shares reissued in connection with stock options exercised), and
429,000 shares were repurchased for $13.6 million in 1999 (with 277,000 shares
reissued for 1999 options exercised). In March 2000, the BOD also authorized the
repurchase and cancellation of up to 5% of the Corporation's outstanding shares,
not to exceed approximately 3.5 million shares. Under this authorization through
December 31, 2000, 3.3 million shares were repurchased and retired at a cost of
$81.9 million. In October 2000, the BOD authorized the repurchase and
cancellation of an additional 3.2 million shares. The repurchase of shares under
this authorization is expected to begin after repurchases under the March 2000
authorization are completed. The repurchase of shares will be based on market
opportunities, capital levels, growth prospects, and other investment
opportunities.
The BOD approved the implementation of a broad-based stock option grant,
effective July 28, 1999. This stock option grant provided all qualifying
employees with an opportunity and an incentive to buy shares of the Corporation
and align their financial interest with the growth in value of the Corporation's
shares. These options have 10-year terms, fully vest in two years, and have
exercise prices equal to 100% of market value on the date of grant. As of
December 31, 2000, 1,567,000 shares remain available for granting.
The Amended and Restated Long-Term Incentive Stock Plan ("Stock Plan") was
adopted by the BOD and originally approved by shareholders in 1987 and amended
in 1994, 1997, and 1998. Options are generally exercisable up to 10 years from
the date of grant and vest over two to three years. As of December 31, 2000,
approximately 1,701,000 shares remain available for grants.
The stock incentive plans of acquired companies were terminated at each
respective merger date. Option holders under such plans received the
Corporation's common stock, or options to buy the Corporation's common stock,
based on the conversion terms of the various merger agreements. The historical
option information presented below has been restated to reflect the options
originally granted under the acquired companies' plans.
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE OUTSTANDING PRICE
----------------------------------------------------------------------------
Outstanding, January 1 3,206,489 $25.95 2,156,822 $20.28 2,635,732 $14.10
Granted 688,030 $27.57 1,428,508 $32.26 425,013 $36.65
Exercised (351,990) $11.05 (276,524) $12.35 (864,666) $ 9.18
Forfeited (234,082) $34.36 (102,317) $31.26 (39,257) $26.93
----------------------------------------------------------------------------
Outstanding, December 31 3,308,447 $27.33 3,206,489 $25.95 2,156,822 $20.28
============================================================================
Options exercisable at year-end 1,539,303 1,493,667 1,440,885
============================================================================
56
The following table summarizes information about the Corporation's stock options
outstanding at December 31, 2000:
------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE REMAINING GRANTS EXERCISE
OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
------------------------------------------------------------------------
Range of Exercise Prices:
$ 4.85 - $ 7.18 89,804 $ 7.04 1.85 89,804 $ 7.04
$11.22 - $12.74 31,401 11.73 3.33 31,401 11.73
$15.54 - $18.68 482,158 16.31 3.18 481,978 16.31
$22.35 - $25.61 545,387 24.27 5.56 492,108 24.21
$27.56 - $29.61 1,154,343 27.68 8.58 191,727 27.58
Greater than $35.90 1,005,354 36.18 8.01 252,285 36.64
------------------------------------------------------------------------
TOTAL 3,308,447 $ 27.33 6.89 1,539,303 $ 22.94
========================================================================
For purposes of providing the pro forma disclosures required under SFAS No. 123,
the fair value of stock options granted in 1998, 1999, and 2000 was estimated at
the date of grant using a Black-Scholes option pricing model which was
originally developed for use in estimating the fair value of traded options
which have different characteristics from the Corporation's employee stock
options. The model is also sensitive to changes in the subjective assumptions
which can materially affect the fair value estimate. As a result, management
believes the Black-Scholes model may not necessarily provide a reliable single
measure of the fair value of employee stock options.
The following assumptions were used in estimating the fair value for options
granted in 2000, 1999 and 1998:
2000 1999 1998
--------------------------------------
Dividend yield 3.82% 3.39% 3.39%
Risk-free interest rate 6.63% 4.97% 5.61%
Weighted average expected life 7 yrs. 5.50 yrs. 7 yrs.
Expected volatility 25.73% 24.51% 21.95%
The weighted average per share fair values of options granted in 2000, 1999, and
1998 were $6.97, $6.90, and $8.28, respectively. The annual expense allocation
methodology prescribed by SFAS No. 123 attributes a higher percentage of the
reported expense to earlier years than to later years, resulting in an
accelerated expense recognition for pro forma disclosure purposes.
Had the Corporation determined the compensation cost based on the fair value at
grant date for its stock options under SFAS No. 123, the Corporation's net
income and net income per share would have been as summarized below:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
---------------- -------------- ----------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income As Reported $ 167,983 $ 164,943 $ 157,020
Pro Forma $ 164,394 $ 162,226 $ 155,356
Basic Earnings Per Share As Reported $ 2.46 $ 2.36 $ 2.26
Pro Forma $ 2.41 $ 2.32 $ 2.24
Diluted Earnings Per Share As Reported $ 2.46 $ 2.34 $ 2.24
Pro Forma $ 2.40 $ 2.30 $ 2.21
NOTE 12 RETIREMENT PLAN:
The Corporation has a noncontributory defined benefit retirement plan (the
"Plan") covering substantially all full-time employees. The benefits are based
primarily on years of service and the employee's compensation
57
paid while a participant in the plan. The Corporation's funding policy is
consistent with the funding requirements of federal law and regulations.
The following tables set forth the Plan's funded status and net periodic benefit
cost:
2000 1999
-----------------------
($ IN THOUSANDS)
Change in Benefit Obligation
Net benefit obligation at
beginning of year $ 37,052 $ 37,301
Service cost 3,576 3,858
Interest cost 2,858 2,549
Actuarial (gain) loss 2,223 (4,136)
Gross benefits paid (4,801) (2,520)
------------------------
Net benefit obligation at end of year $ 40,908 $ 37,052
========================
Change in Plan Assets
Fair value of plan assets at beginning of year $ 37,018 $ 37,035
Actual return (loss) on plan assets (639) 511
Employer contributions 3,103 1,992
Gross benefits paid (4,801) (2,520)
------------------------
Fair value of plan assets at end of year $ 34,681 $ 37,018
========================
Funded Status
Funded status at end of year $ (6,227) $ (34)
Unrecognized net actuarial (gain) loss 58 (5,974)
Unrecognized prior service cost 594 657
Unrecognized net transition asset (1,707) (2,031)
------------------------
Net amount recognized at end of year
in the balance sheet $ (7,282) $ (7,382)
========================
Weighted average assumptions as of December 31:
Discount rate 7.50% 7.75%
Rate of increase in compensation levels 5.00 5.00
========================
2000 1999 1998
------------------------------
($ IN THOUSANDS)
Components of Net Periodic Benefit Cost
Service cost $ 3,576 $ 3,858 $ 3,369
Interest cost 2,858 2,549 2,329
Expected return on plan assets (3,134) (2,789) (2,511)
Amortization of:
Transition asset (324) (324) (324)
Prior service cost 62 63 35
Actuarial gain (36) -- --
-------------------------------
Total net periodic benefit cost $ 3,002 $ 3,357 $ 2,898
===============================
Weighted average assumptions used
in cost calculations:
Discount rate 7.75% 6.75% 7.00%
Rate of increase in
compensation levels 5.00 5.00 5.00
Expected long-term rate of
return on plan assets 9.00 9.00 9.00
===============================
The Corporation and its subsidiaries also have a Profit Sharing/Retirement
Savings Plan (the "plan"). The Corporation's contribution is determined annually
by the Administrative Committee of the BOD, based in part on performance-based
formulas provided in the plan. Total expense related to contributions to the
plan was $6.1 million, $2.3 million, and $9.1 million in 2000, 1999, and 1998,
respectively.
58
NOTE 13 INCOME TAX EXPENSE:
The current and deferred amounts of income tax expense (benefit) are as follows:
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
---- ---- ----
($ IN THOUSANDS)
Current:
Federal $ 73,885 $ 66,735 $ 65,938
State 1,889 1,095 114
--------------------------------
Total current 75,774 67,830 66,052
Deferred:
Federal (11,640) 3,894 8,087
State (2,296) 649 1,804
--------------------------------
Total deferred (13,936) 4,543 9,891
--------------------------------
Total income tax expense $ 61,838 $ 72,373 $ 75,943
================================
Temporary differences between the amounts reported in the financial statements
and the tax bases of assets and liabilities resulted in deferred taxes. Deferred
tax assets and liabilities at December 31 are as follows:
2000 1999
------------------------
($ IN THOUSANDS)
Gross deferred tax assets:
Allowance for loan losses $ 47,895 $ 44,655
Accrued liabilities 4,363 5,557
Accrued pension expense 2,066 2,066
Deferred compensation 7,460 7,657
Securities valuation adjustment 15,012 14,095
Deposit base intangible 4,901 4,752
Benefit of tax loss carryforwards 12,182 10,227
Other 7,915 652
-----------------------
Total gross deferred tax assets 101,794 89,661
Valuation adjustment for deferred tax assets (13,198) (14,930)
-----------------------
88,596 74,731
Gross deferred tax liabilities:
Premises and equipment 2,221 2,596
Deferred loan fee income and other loan
yield adjustment 2,760 1,797
FHLB bank stock dividend 1,028 1,028
State income taxes 8,057 6,189
Other 7,646 11,905
-----------------------
Total gross deferred tax liabilities 21,712 23,515
-----------------------
Net deferred tax assets 66,884 51,216
Tax effect of unrealized gain (loss) related to
available for sale securities (8,983) 21,327
-----------------------
Net deferred tax assets including unrealized gain
related to available for sale securities $ 57,901 $ 72,543
=======================
Components of the 1999 deferred tax assets have been adjusted to reflect the
filing of corporate income tax returns.
For financial reporting purposes, a valuation allowance has been recognized to
offset deferred tax assets related to state net operating loss carryforwards of
certain subsidiaries and other temporary differences due to the uncertainty that
the assets will be realized. If it is subsequently determined that all or a
portion of these
59
deferred tax assets will be realized, the tax benefit for these items will be
used to reduce current tax expense for that period.
At December 31, 2000, the Corporation had net operating losses of $120 million
that will expire in the years 2001 through 2014.
The effective income tax rate differs from the statutory federal tax rate. The
major reasons for this difference are as follows:
2000 1999 1998
-------------------------
Federal income tax rate at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) resulting from:
Tax-exempt interest and dividends (5.0) (3.2) (1.7)
State income taxes (net of federal income taxes) (0.1) 1.2 1.7
Change in valuation allowance for deferred tax assets (0.8) (1.7) (2.2)
Increase in cash surrender value of life insurance (1.9) (1.4) (0.2)
Other (0.3) 0.6 ---
-------------------------
Effective income tax rate 26.9% 30.5% 32.6%
=========================
A savings bank acquired by the Corporation in 1997 qualified under provisions of
the Internal Revenue Code that permitted it to deduct from taxable income an
allowance for bad debts that differed from the provision for such losses charged
to income for financial reporting purposes. Accordingly, no provision for income
taxes has been made for $79.2 million of retained income at December 31, 2000.
If income taxes had been provided, the deferred tax liability would have been
approximately $31.8 million.
NOTE 14 COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENT LIABILITIES:
COMMITMENTS AND OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to manage its own exposure to interest rate risk. These financial
instruments include lending-related commitments and interest rate swaps.
LENDING-RELATED COMMITMENTS
Off-balance sheet lending-related commitments include commitments to extend
credit, commercial letters of credit, and standby letters of credit. With the
exception of commitments to originate residential mortgage loans (discussed
below), these financial instruments are exercisable at the market rate
prevailing at the date the underlying transaction will be completed and thus are
deemed to have no current fair value, or the fair value based on fees currently
charged to enter into similar agreements is not material at December 31, 2000
and 1999. Commitments to extend credit are agreements to lend to customers at
predetermined interest rates as long as there is no violation of any condition
established in the contracts. Standby and commercial letters of credit are
conditional commitments issued by the Corporation to guarantee the performance
and/or payment of a customer to a third party in connection with specified
transactions. The following is a summary of lending-related off-balance sheet
financial instruments at December 31:
2000 1999
--------------- ----------
($ IN THOUSANDS)
Commitments to extend credit $2,596,438 $3,165,411
Commercial letters of credit 45,248 26,666
Standby letters of credit 145,321 147,864
Loans sold with recourse 4,575 7,851
Forward commitments to sell loans 52,350 17,559
For commitments to extend credit, commercial letters of credit, and standby
letters of credit, the Corporation's associated credit risk is essentially the
same as that involved in extending loans to customers and is
60
subject to normal credit policies. The Corporation's exposure to credit loss in
the event of nonperformance by the other party to these financial instruments is
represented by the contractual amount of those instruments. The commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Corporation uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Corporation upon extension of credit, is based on management's credit
evaluation of the customer. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
All loans currently sold to others are sold on a nonrecourse basis with the
servicing rights of these loans retained by the Corporation. At December 31,
2000 and 1999, $4.6 million and $7.9 million, respectively, of the serviced
loans were previously sold with recourse, the majority of which is either
federally-insured or federally-guaranteed.
Included in commitments to extend credit are commitments to originate
residential mortgage loans held for sale ("pipeline loans") of approximately
$55.2 million and $18.9 million at December 31, 2000 and 1999, respectively,
with terms generally not exceeding 90 days. Also, the Corporation had $25
million and $12 million of mortgage loans held for sale ("MLHFS") in the
consolidated balance sheets at December 31, 2000 and 1999, respectively. Adverse
market interest rate changes between the time a customer receives a rate-lock
commitment and the time the loan is sold to an investor can erode the value of
that mortgage. Therefore, the Corporation uses forward commitments to sell
residential mortgage loans to reduce its exposure to market risk resulting from
changes in interest rates which could alter the underlying fair value of MLHFS
and pipeline loans. The MLHFS are carried in the consolidated balance sheet at
lower of cost or fair value, with fair value determined based on the fixed
prices of the forward commitments, or quoted market prices on uncommitted MLHFS.
The fair value of the pipeline loans and the forward commitments on a net basis
at December 31, 2000 and 1999, was $12,000 and $68,000, respectively.
INTEREST RATE SWAPS
As part of managing the Corporation's interest rate risk, a variety of
derivative financial instruments could be used to hedge market values and to
alter the cash flow characteristics of certain on-balance sheet instruments. The
Corporation has principally used interest rate swaps. In these swap agreements,
the Corporation agrees to exchange, at specified intervals, the difference
between fixed- and floating-interest amounts calculated on an agreed-upon
notional principal amount. Pay fixed interest rate swaps are used to convert
fixed rate assets into synthetic variable rate instruments and to convert
variable rate funding sources into synthetic fixed rate funding instruments. Pay
variable interest rate swaps are used to convert variable rate assets into
synthetic fixed rate instruments and to convert fixed rate funding sources into
synthetic variable rate funding instruments.
Associated's interest rate swaps at December 31, 2000 and 1999, are summarized
below. The effect on net interest income was an increase of $311,000 for 2000
and a decrease of $148,000 for 1999. The pay fixed swaps hedge money market
deposits and the receive rate is based on 3 month LIBOR. The pay variable swaps
hedge certificates of deposit and the pay rate is based on 3 month LIBOR.
ESTIMATED WEIGHTED AVERAGE
----------------------------------------------------
NOTIONAL FAIR PAY RECEIVE REMAINING
AMOUNT VALUE RATE RATE MATURITY
- -------------------------------------------------------------------------------
($ IN THOUSANDS)
Pay fixed swaps $300,000 $ (2,107) 6.36% 6.79% 18 months
Pay variable swaps $ 10,000 $ 7 6.43% 6.35% 3 months
CONTINGENT LIABILITIES
There are legal proceedings pending against certain subsidiaries of the
Corporation in the ordinary course of their business. Although litigation is
subject to many uncertainties and the ultimate exposure with respect to
61
these matters cannot be ascertained, management believes, based upon discussions
with counsel, that the Corporation has meritorious defenses, and any ultimate
liability would not have a material adverse affect on the consolidated financial
position or results of operations of the Corporation.
NOTE 15 PARENT COMPANY ONLY FINANCIAL INFORMATION:
Presented below are condensed financial statements for the parent company:
BALANCE SHEETS
-----------------------------
2000 1999
-----------------------------
($ IN THOUSANDS)
ASSETS
Cash and due from banks $ 516 $ 854
Notes receivable from subsidiaries 81,044 117,239
Investment in subsidiaries 1,005,256 928,237
Other assets 53,177 58,198
-----------------------------
Total assets $ 1,139,993 $ 1,104,528
=============================
LIABILITY AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 118,044 $ 156,900
Long-term debt --- 1,405
Accrued expenses and other liabilities 53,253 36,434
-----------------------------
Total liabilities 171,297 194,739
Stockholders' equity 968,696 909,789
-----------------------------
Total liabilities and stockholders' equity $ 1,139,993 $ 1,104,528
=============================
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
-------------------------------------
($ IN THOUSANDS)
INCOME
Dividends from subsidiaries $ 168,150 $ 73,675 $ 161,675
Management and service fees from subsidiaries 20,617 19,355 10,092
Interest income on notes receivable 8,442 8,007 9,432
Other income 3,234 1,919 1,543
-------------------------------------
Total income 200,443 102,956 182,742
-------------------------------------
EXPENSE
Interest expense on borrowed funds 9,284 7,886 5,581
Provision for loan losses 2,000 --- ---
Personnel expense 10,991 13,470 7,367
Other expense 11,565 8,948 6,342
------------------------------------
Total expense 33,840 30,304 19,290
------------------------------------
Income before income tax expense (benefit) and
equity in undistributed income 166,603 72,652 163,452
Income tax expense (benefit) (4,670) (1,041) 751
------------------------------------
Income before equity in undistributed net income of
subsidiaries 171,273 73,693 162,701
Equity in undistributed net income (loss) of
subsidiaries (3,290) 91,250 (5,681)
-------------------------------------
Net income $ 167,983 $ 164,943 $ 157,020
=====================================
62
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
-------------------------------------
($ IN THOUSANDS)
OPERATING INCOME
Net income $ 167,983 $ 164,943 $ 157,020
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in equity in undistributed
net income of subsidiaries 3,290 (91,250) 5,681
Depreciation and other amortization 476 388 298
Amortization of intangibles 420 404 443
Gain on sales of assets, net (1,016) (783) (1,321)
(Increase) decrease in interest receivable
and other assets 4,243 (12,911) 2,949
Increase in interest payable and other liabilities 16,819 4,732 6,226
-------------------------------------
Net cash provided by operating activities 192,215 65,523 171,296
-------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities 1,013 604 1,602
Net cash paid in acquisition of subsidiary --- (10,584) (16,021)
Net decrease (increase) in notes receivable 36,195 138,274 (116,616)
Purchase of premises and equipment, net of disposals (115) (503) (1,527)
Capital (contributed to) received from subsidiaries (24,832) 52,464 (62,162)
-------------------------------------
Net cash provided (used) by investing activities 12,261 180,255 (194,724)
-------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings (38,856) (60,635) 129,146
Net increase (decrease) in long-term debt (1,405) 1,405 ---
Cash dividends paid (75,719) (73,743) (65,841)
Proceeds from exercise of stock options 3,893 3,421 7,926
Purchase and retirement of treasury stock (74,098) (91,762) ---
Purchase of treasury stock (18,629) (24,255) (47,163)
-------------------------------------
Net cash provided (used) by financing activities (204,814) (245,569) 24,068
-------------------------------------
Net increase (decrease) in cash and cash equivalents (338) 209 640
Cash and due from banks at beginning of year 854 645 5
-------------------------------------
Cash and due from banks at end of year $ 516 $ 854 $ 645
=====================================
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Corporation disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth below
for the Corporation's financial instruments.
63
The estimated fair values of the Corporation's financial instruments at December
31, 2000 and 1999 are as follows:
2000 1999
-------------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------------------------------------------------
($ IN THOUSANDS)
Financial assets:
Cash and due from banks $ 368,186 $ 368,186 $ 284,652 $ 284,652
Interest-bearing deposits in other
financial institutions 5,024 5,024 4,394 4,394
Federal funds sold and securities
purchase under
purchased under agreements to resell 23,310 23,310 25,120 25,120
Accrued interest receivable 96,163 96,163 82,032 82,032
Investment securities:
Held to maturity 368,558 372,873 414,037 413,107
Available for sale 2,891,647 2,891,647 2,856,346 2,856,346
Loans held for sale 24,593 24,693 11,955 12,001
Loans 8,913,379 8,949,770 8,343,100 8,280,945
Financial liabilities:
Deposits 9,291,646 9,318,802 8,691,829 8,677,444
Accrued interest payable 60,744 60,744 42,172 42,172
Short-term borrowings 2,598,203 2,598,203 2,775,090 2,775,090
Long-term debt 122,420 123,821 24,283 25,283
Off-balance sheet:
Interest rate swap agreements --- (2,100) --- 1,812
-------------------------------------------------------
At December 31, 2000 and 1999, the notional amount of off-balance sheet
instruments was $310 million and $300 million, respectively, of interest rate
swap agreements. See Note 14 for information on the fair value of
lending-related off-balance sheet financial instruments.
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL
INSTITUTIONS, FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO
RESELL, AND ACCRUED INTEREST RECEIVABLE - For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES HELD TO MATURITY, INVESTMENT SECURITIES AVAILABLE FOR
SALE, AND TRADING ACCOUNT SECURITIES - The fair value of investment securities
held to maturity, investment securities available for sale, and trading account
securities, except certain state and municipal securities, is estimated based on
bid prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal securities is
not readily available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued. There were no trading account securities at December 31, 2000 or
1999.
LOANS HELD FOR SALE - Fair value is estimated using the prices of the
Corporation's existing commitments to sell such loans and/or the quoted market
prices for commitments to sell similar loans.
LOANS - Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, credit card, and other consumer. The fair
value of other types of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for similar maturities. Future cash flows are also
adjusted for estimated reductions or delays due to delinquencies, nonaccruals,
or potential charge-offs.
DEPOSITS - The fair value of deposits with no stated maturity such as
noninterest-bearing demand deposits, savings, interest-bearing demand deposits,
and money market accounts, is equal to the amount payable on
64
demand as of December 31. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining maturities.
ACCRUED INTEREST PAYABLE AND SHORT-TERM BORROWINGS - For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT - Rates currently available to the Corporation for debt with
similar terms and remaining maturities are used to estimate fair value of
existing borrowings.
INTEREST RATE SWAP AGREEMENTS - The fair value of interest rate swap agreements
is obtained from dealer quotes. These values represent the estimated amount the
Corporation would receive or pay to terminate the agreements, taking into
account current interest rates and, when appropriate, the current
creditworthiness of the counter-parties.
LIMITATIONS - Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 17 REGULATORY MATTERS:
The Corporation and the subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation must meet specific capital guidelines that involve
quantitative measures of the Corporation's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Corporation's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the
Corporation and the subsidiary banks meet all capital adequacy requirements to
which they are subject.
As of December 31, 2000 and 1999, the most recent notifications from the Office
of the Comptroller of the Currency and the Federal Deposit Insurance Corporation
categorized the subsidiary banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the subsidiary banks must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institutions' category.
The actual capital amounts and ratios of the Corporation and its significant
subsidiaries are presented below. No deductions from capital were made for
interest rate risk in 2000 or 1999.
65
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
FOR CAPITAL ACTION
($ IN THOUSANDS) ACTUAL ADEQUACY PURPOSES PROVISIONS: (2)
- -----------------------------------------------------------------------------------------------------------
AMOUNT RATIO (1) AMOUNT RATIO (1) AMOUNT RATIO (1)
- -----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2000:
- -----------------------
Associated Banc-Corp
- --------------------
Total Capital $ 966,994 10.70% $ 722,655 +8.00%
Tier I Capital 846,371 9.37 361,327 +4.00%
Leverage 846,371 6.52 519,200 +4.00%
Associated Bank Illinois, N.A.
- ------------------------------
Total Capital 172,611 10.28 134,346 +8.00% $ 167,932 +10.00%
Tier I Capital 152,894 9.10 67,173 +4.00% 100,759 +6.00%
Leverage 152,894 5.42 112,864 +4.00% 141,080 +5.00%
Associated Bank Milwaukee
- -------------------------
Total Capital 194,400 10.36 150,087 +8.00% 187,609 +10.00%
Tier I Capital 171,179 9.12 75,043 +4.00% 112,565 +6.00%
Leverage 171,179 5.86 116,782 +4.00% 145,977 +5.00%
Associated Bank Green Bay, N.A.
- -------------------------------
Total Capital 183,848 10.75 136,771 +8.00% 170,964 +10.00%
Tier I Capital 159,577 9.33 68,386 +4.00% 102,578 +6.00%
Leverage 159,577 6.46 98,883 +4.00% 123,603 +5.00%
Associated Bank North
- ---------------------
Total Capital 112,506 11.90 75,636 +8.00% 94,545 +10.00%
Tier I Capital 100,491 10.63 37,818 +4.00% 56,727 +6.00%
Leverage 100,491 6.77 59,358 +4.00% 74,197 +5.00%
AS OF DECEMBER 31, 1999:
- -----------------------
Associated Banc-Corp
- --------------------
Total Capital $ 941,105 10.99% $ 684,739 +8.00%
Tier I Capital 831,907 9.72 342,369 +4.00%
Leverage 831,907 6.80 489,083 +4.00%
Associated Bank Illinois, N.A.
- ------------------------------
Total Capital 187,183 11.12 134,660 +8.00% $ 168,325 +10.00%
Tier I Capital 166,084 9.87 67,330 +4.00% 100,995 +6.00%
Leverage 166,084 6.03 110,108 +4.00% 137,635 +5.00%
Associated Bank Milwaukee
- -------------------------
Total Capital 189,302 10.87 139,329 +8.00% 174,161 +10.00%
Tier I Capital 166,283 9.55 69,664 +4.00% 104,497 +6.00%
Leverage 166,283 6.05 109,988 +4.00% 137,485 +5.00%
Associated Bank Green Bay, N.A.
- -------------------------------
Total Capital 176,525 10.75 131,339 +8.00% 164,174 +10.00%
Tier I Capital 142,972 8.71 65,670 +4.00% 98,505 +6.00%
Leverage 142,972 6.60 86,632 +4.00% 108,290 +5.00%
Associated Bank North
- ---------------------
Total Capital 114,485 12.43 73,705 +8.00% 92,132 +10.00%
Tier I Capital 101,650 11.03 36,853 +4.00% 55,279 +6.00%
Leverage 101,650 7.14 56,983 +4.00% 71,229 +5.00%
+ Represents the "greater than or equal to" sign
(1) Total Capital ratio is defined as Tier 1 Capital plus Tier 2 Capital
divided by total risk-weighted assets. The Tier 1 Capital ratio is defined
as Tier 1 capital divided by total risk-weighted assets. The leverage ratio
is defined as Tier 1 capital divided by the most recent quarter's average
total assets.
(2) Prompt corrective action provisions are not applicable at the bank holding
company level.
66
NOTE 18 EARNINGS PER SHARE:
Presented below are the calculations for basic and diluted earnings per share:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Basic:
Net income $ 167,983 $ 164,943 $ 157,020
Weighted average shares outstanding 68,186 69,858 69,438
Basic earnings per common share $ 2.46 $ 2.36 $ 2.26
================================
Diluted:
Net income $ 167,983 $ 164,943 $ 157,020
Weighted average shares outstanding 68,186 69,858 69,438
Effect of dilutive stock options outstanding 224 610 730
--------------------------------
Diluted weighted average shares outstanding 68,410 70,468 70,168
Diluted earnings per common share $ 2.46 $ 2.34 $ 2.24
================================
NOTE 19 SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires selected financial and descriptive information about
reportable operating segments. The statement replaces the "industry segment"
concept of SFAS No. 14 with a "management approach" concept as the basis for
identifying reportable segments. The management approach is based on the way
that management organizes the segments within the enterprise for making
operating decisions, allocating resources, and assessing performance.
Consequently, the segments are evident from the structure of the enterprise's
internal organization, focusing on financial information that an enterprise's
chief operating decision-makers use to make decisions about the enterprise's
operating matters.
While the Corporation continues developing a process toward evaluating business
lines and products across its subsidiaries through 2000, management
decision-making has been and is still strongly based on financial information by
legal entity. The Corporation has managed itself as a multibank holding company
with a super community banking philosophy. Each banking entity is empowered to
make decisions that are appropriate for its customers and for the business
environment of its communities.
The Corporation's reportable segment is banking. The Corporation conducts its
banking segment through its bank, leasing, mortgage, insurance, and brokerage
subsidiaries. For purposes of segment disclosure under this statement, these
entities have been combined as one, given these segments have similar economic
characteristics and the nature of their products, services, processes,
customers, delivery channels, and regulatory environment are similar. Banking
includes: a) business banking - small business and other business lending,
investment management, leasing, business deposits, and a complement of services
such as cash management, insurance, and international banking; and b) retail
banking - consumer, mortgage, and other real estate lending, credit cards,
insurance, brokerage, and deposits.
The "other" segment is comprised of smaller nonreportable segments, including
asset management, consumer finance, treasury, holding company investments, as
well as inter-segment eliminations and residual revenues and expenses,
representing the difference between actual amounts incurred and the amounts
allocated to operating segments.
67
The accounting policies of the segments are the same as those described in Note
1. Selected segment information is presented below.
CONSOLIDATED
BANKING OTHER ELIMINATIONS TOTAL
---------------------------------------------------------
($ IN THOUSANDS)
2000
Interest income $ 982,870 $ 20,916 $ (72,629) $ 931,157
Interest expense 604,598 15,621 (72,629) 547,590
---------------------------------------------------------
Net interest income 378,272 5,295 --- 383,567
Provision for loan losses 17,216 2,990 --- 20,206
Noninterest income 178,329 133,603 (127,736) 184,196
Depreciation and amortization 27,811 9,896 --- 37,707
Other noninterest expense 292,992 114,773 (127,736) 280,029
Income taxes 61,493 345 --- 61,838
---------------------------------------------------------
Net income $ 157,089 $ 10,894 $ --- $ 167,983
=========================================================
Total assets $13,906,539 $ 1,249,204 $(2,027,349) $13,128,394
=========================================================
1999
Interest income $ 844,606 $ 15,378 $ (45,464) $ 814,520
Interest expense 452,362 11,877 (45,464) 418,775
---------------------------------------------------------
Net interest income 392,244 3,501 --- 395,745
Provision for loan losses 18,616 627 --- 19,243
Noninterest income 161,180 121,717 (116,991) 165,906
Depreciation and amortization 28,068 9,022 --- 37,090
Other noninterest expense 287,653 97,340 (116,991) 268,002
Income taxes 65,611 6,762 --- 72,373
---------------------------------------------------------
Net income $ 153,476 $ 11,467 $ --- $ 164,943
=========================================================
Total assets $13,460,394 $ 1,218,536 $(2,159,028) $12,519,902
=========================================================
1998
Interest income $ 813,561 $ 10,374 $ (38,170) $ 785,765
Interest expense 441,771 7,427 (38,170) 411,028
---------------------------------------------------------
Net interest income 371,790 2,947 -- 374,737
Provision for loan losses 14,740 -- -- 14,740
Noninterest income 137,159 86,489 (55,720) 167,928
Depreciation and amortization 32,855 3,785 (1,354) 35,286
Other noninterest expense 246,419 58,431 (45,174) 259,676
Income taxes 69,197 6,571 175 75,943
---------------------------------------------------------
Net income $ 145,738 $ 20,649 $ (9,367) $ 157,020
=========================================================
Total assets $11,479,306 $ 1,235,362 $(1,464,001) $11,250,667
=========================================================
68
INDEPENDENT AUDITORS' REPORT
ASSOCIATED BANC-CORP
The Board of Directors
Associated Banc-Corp:
We have audited the accompanying consolidated balance sheets of Associated
Banc-Corp and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of Associated
Banc-Corp's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Associated Banc-Corp
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Chicago, Illinois
January 18, 2001
69
Market Information
MARKET PRICE RANGE
SALES PRICES
-----------------------------
DIVIDENDS BOOK
PAID VALUE HIGH LOW CLOSE
- -------------------------------------------------------------------------------
2000
4th Quarter $.2900 $14.65 $30.63 $21.84 $30.38
3rd Quarter .2900 13.94 26.63 22.13 26.25
2nd Quarter .2636 13.57 27.27 21.81 21.81
1st Quarter .2636 13.30 30.06 20.29 27.16
- -------------------------------------------------------------------------------
1999
4th Quarter $.2636 $13.09 $36.70 $30.68 $31.14
3rd Quarter .2636 13.22 37.44 31.90 32.90
2nd Quarter .2636 12.89 39.15 28.01 37.73
1st Quarter .2636 12.97 32.05 27.56 29.04
- -------------------------------------------------------------------------------
Annual dividend rate: $1.16
Market information has been restated for the 10% stock dividend declared April
26, 2000, paid on June 15, 2000, to shareholders of record at the close of
business on June 1, 2000.
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
The information in the Corporation's definitive Proxy Statement, prepared for
the 2001 Annual Meeting of Shareholders, which contains information concerning
directors of the Corporation, under the caption "Election of Directors," is
incorporated herein by reference. The information concerning "Executive Officers
of the Registrant," as a separate item, appears in Part I of this document.
ITEM 11 EXECUTIVE COMPENSATION
The information in the Corporation's definitive Proxy Statement, prepared for
the 2001 Annual Meeting of Shareholders, which contains information concerning
this item, under the caption "Executive Compensation," is incorporated herein by
reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Corporation's definitive Proxy Statement, prepared for
the 2001 Annual Meeting of Shareholders, which contains information concerning
this item, under the caption "Stock Ownership," is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the Corporation's definitive Proxy Statement, prepared for
the 2001 Annual Meeting of Shareholders, which contains information concerning
this item under the caption "Interest of Management in Certain Transactions," is
incorporated herein by reference.
70
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are included under a separate caption "Financial
Statements and Supplementary Data" in Part II, Item 8 hereof and
are incorporated herein by reference.
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Income - For the Years Ended December
31, 2000, 1999, and 1998
Consolidated Statements of Changes in Stockholders' Equity - For
the Years Ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Reports
71
(a) 3 EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT SEQUENTIAL PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATE BY REFERENCE TO
- --------------------------------------------------------------------------------------------------
(3)(a) Articles of Incorporation Exhibit (3)(a) to Report on
Form 10-K for fiscal year
ended December 31, 1999
(3)(b) Bylaws Exhibit (3)(b) to Report on
Form 10-K for fiscal year
ended December 31, 1999
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
The Registrant, by signing this report,
agrees to furnish the Securities and Exchange
Commission, upon its request, a copy of any
instrument that defines the rights of holders
of long-term debt of the Registrant and all
of its subsidiaries for which consolidated
or unconsolidated financial statements are
required to be filed and that authorizes a total
amount of securities not in excess of 10% of the
total assets of the Registrant and its
subsidiaries on a consolidated basis
*(10)(a) The 1982 Incentive Stock Option Plan of the Exhibit (10) to Report on Form
Registrant 10-K for fiscal year ended
December 31, 1987
*(10)(b) The Restated Long-Term Incentive Stock Plan of Exhibits filed with
the Registrant Associated's registration
statement (333-46467) on Form
S-8 filed under the Securities
Act of 1933
*(10)(c) Change of Control Plan of the Registrant Exhibit (10)(d) to Report on
effective April 25, 1994 Form 10-K for fiscal year
ended December 31, 1994
*(10)(d) Deferred Compensation Plan and Exhibit (10)(e) to Report on Form
Deferred Compensation Trust effective 10-K for fiscal year ended
as of December 16, 1993, and Deferred December 31, 1994
Compensation Agreement of the Registrant
dated December 31, 1994
(11) Statement Re Computation of Per Share Earnings See Note 19 in Part II Item 8
(21) Subsidiaries of the Corporation Filed herewith
(23) Consents of Independent Auditors Filed herewith
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
* Management contracts and arrangements.
Schedules and exhibits other than those listed are omitted for
the reasons that they are not required, are not applicable or
that equivalent information has been included in the financial
statements, and notes thereto, or elsewhere herein.
(b) Reports on Form 8-K
None
72
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.
ASSOCIATED BANC-CORP
Date: March 22, 2001 By: /s/ ROBERT C. GALLAGHER
------------------------ ------------------------------------------
Robert C. Gallagher
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ H. B. Conlon * /s/ William R. Hutchinson *
- ----------------------------- --------------------------------
H. B. Conlon William R. Hutchinson
Chairman of the Board Director
/s/ JOSEPH B. SELNER /s/ Robert P. Konopacky *
- ----------------------------- --------------------------------
Joseph B. Selner Robert P. Konopacky
Chief Financial Officer Director
Principal Financial Officer and
Principal Accounting Officer
/s/ ROBERT C. GALLAGHER /s/ Dr. George R. Leach *
- ----------------------------- --------------------------------
Robert C. Gallagher Dr. George R. Leach
President, Chief Executive Director
Officer, and a Director
/s/ John C. Seramur * /s/ John C. Meng *
- ----------------------------- --------------------------------
John C. Seramur John C. Meng
Vice Chairman Director
/s/ Robert S. Gaiswinkler * /s/ J. Douglas Quick *
- ----------------------------- --------------------------------
Robert S. Gaiswinkler J. Douglas Quick
Director Director
/s/ Ronald R. Harder * /s/ John H. Sproule *
- ----------------------------- --------------------------------
Ronald R. Harder John H. Sproule
Director Director
* /s/ BRIAN R. BODAGER
- -----------------------------
Brian R. Bodager
Attorney-in-Fact
Date: March 22, 2001
73
EXHIBIT 21
Subsidiaries of the Corporation
The following bank subsidiaries are national banks and are organized under the
laws of the United States: Associated Bank, National Association Associated Bank
Green Bay, National Association Associated Bank Illinois, National Association
Associated Bank Lakeshore, National Association Associated Card Services Bank,
National Association Associated Trust Company, National Association
The following bank subsidiaries are state banks and are organized under the laws
of the State of Wisconsin:
Associated Bank North
Associated Bank Milwaukee
Associated Bank South Central
The following bank subsidiaries are state banks and are organized under the laws
of the State of Illinois:
Associated Bank Chicago
The following bank subsidiaries are state banks and are organized under the laws
of the State of Minnesota:
Associated Bank Minnesota
The following non-bank subsidiaries are organized under the laws of the State of
Wisconsin:
Associated Banc-Corp Services, Inc. Associated Leasing, Inc.
Associated Commercial Finance, Inc. Associated Mortgage, Inc.
Associated Commercial Mortgage, Inc. Appraisal Services, Inc.
Associated Investment Management Group, Inc. Associated Investment Management, LLC
Associated Investment Services, Inc. Wisconsin Finance Corporation
Associated Green Bay Real Estate Corp. Associated Neenah Real Estate Corp.
Associated Illinois Real Estate Corp.
The following non-bank subsidiary is organized under the laws of the State of
Illinois:
Citizens Financial Services, Inc.
The following non-bank subsidiary is organized under the laws of the State of
Arizona:
Banc Life Insurance Corporation
The following non-bank subsidiary is organized under the laws of the State of
California:
Mortgage Finance Corporation
1
The following non-bank subsidiary is organized under the laws of the State of
Missouri:
Illini Service Corporation
The following non-bank subsidiaries are organized under the laws of the State of
Nevada:
ASBC Investment Corp - Green Bay ASBC Investment Corp - Neenah
ASBC Investment Corp - Lakeshore ASBC Investment Corp - North
ASBC Investment Corp - Milwaukee ASBC Investment Corp - South Central
ASBC Investment Corp - Illinois Associated Green Bay Investment Corp.
Associated Illinois Investment Corp. Associated Neenah Investment Corp.
2
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Associated Banc-Corp:
Re: Registration Statement on Form S-8
- #2-77435 - #33-63545
- #2-99096 - #33-67436
- #33-16952 - #33-86790
- #33-24822 - #333-46467
- #33-35560 - #333-74307
- #33-54658
Re: Registration Statement on Form S-3
- #2-98922 - #33-63557
- #33-28081 - #33-67434
We consent to incorporation by reference in the subject Registration Statements
on Form S-8 and S-3 of Associated Banc-Corp of our report dated January 18,
2001, relating to the consolidated balance sheets of Associated Banc-Corp and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 2000, which report appears
in the December 31, 2000 annual report on Form 10-K of Associated Banc-Corp.
/s/ KPMG LLP
Chicago, Illinois
March 19, 2001
1
EXHIBIT 24
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ Harry B. Conlon
----------------------------------------
Harry B. Conlon
Director
1
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ Robert S. Gaiswinkler
----------------------------------------
Robert S. Gaiswinkler
Director
2
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ Ronald R. Harder
----------------------------------------
Ronald R. Harder
Director
3
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ William R. Hutchinson
----------------------------------------
William R. Hutchinson
Director
4
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ Robert P. Konopacky
----------------------------------------
Robert P. Konopacky
Director
5
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ George R. Leach
----------------------------------------
George R. Leach
Director
6
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ John C. Meng
----------------------------------------
John C. Meng
Director
7
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ J. Douglas Quick
----------------------------------------
J. Douglas Quick
Director
8
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ John C. Seramur
----------------------------------------
John C. Seramur
Director
9
DIRECTOR'S POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Associated Banc-Corp, a Wisconsin corporation (the "Corporation"), which is
planning to file with the Securities and Exchange Commission (the "SEC"),
Washington, D.C., under the provisions of the Securities Act of 1934 (the
"Act"), a Form 10-K, the form which must be used for annual reports pursuant to
Section 13 or 15(d) of the Act, and Proxy Statement in accordance with
Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule
14a-3(b) under the Act, for the reporting period ending December 31, 2000,
hereby constitutes and appoints Brian R. Bodager his true and lawful
attorney-in-fact and agent.
Said attorney-in-fact and agent shall have full power to act for him and
in his name, place, and stead in any and all capacities, to sign such Form 10-K
and Proxy Statement and any and all amendments thereto (including post-effective
amendments), with power where appropriate to affix the corporate seal of the
Corporation thereto and to attest such seal, and to file such Form 10-K and
Proxy Statement and each amendment (including post-effective amendments) so
signed, with all exhibits thereto, and any and all documents in connection
therewith, with the SEC, and to appear before the SEC in connection with any
matter relating to such Form 10-K and Proxy Statement and to any and all
amendments thereto (including post-effective amendments).
The undersigned hereby grants such attorney-in-fact and agent full power
and authority to do and perform any and all acts and things requisite and
necessary to be done as he might or could do in person, and hereby ratifies and
confirms all that such attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 24th day of January, 2001.
/s/ John H. Sproule
----------------------------------------
John H. Sproule
Director
10