-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjtPYGl/bABnRxBqV87DmxlfZ2DGl9NjqDkPerNAmHyvAMF/2PQSKo3c864broe0 axvEVqI56otA5qVq6gDtNA== 0000950152-95-002556.txt : 19951119 0000950152-95-002556.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950152-95-002556 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANCORP /OH/ CENTRAL INDEX KEY: 0000708955 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311042001 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12379 FILM NUMBER: 95589297 BUSINESS ADDRESS: STREET 1: 300 HIGH STREET CITY: HAMILTON STATE: OH ZIP: 45011 BUSINESS PHONE: 5138674700 MAIL ADDRESS: STREET 1: 300 HIGH STREET STREET 2: P O BOX 376 CITY: HAMILTON STATE: OH ZIP: 45011 10-Q 1 FIRST FINANCIAL 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1995 ------------------------------- OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ------------- Commission file number 0-12379 ------- FIRST FINANCIAL BANCORP. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 31-1042001 ----------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 High Street, Hamilton, Ohio 45011 -------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (513) 867-4700 ------------------------- 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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 1, 1995 ----------------------------- ---------------------------------- Common stock, $8.00 par value 13,011,517 2 FIRST FINANCIAL BANCORP. INDEX Page No. -------- PART I-FINANCIAL INFORMATION Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 1 Consolidated Statements of Earnings - Nine and Three Months Ended September 30, 1995 and 1994 2 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1995 and 1994 3 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II-OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 13 SIGNATURE 14 3 PART I - FINANCIAL INFORMATION FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)
September 30, December 31, 1995 1994 ------------ ----------- ASSETS Cash and due from banks $ 93,539 $ 103,752 Interest-bearing deposits with other banks 5,512 8,055 Federal funds sold and securities purchased under agreements to resell 8,006 97 Investment securities held-to-maturity, at cost (market value - $112,376 at September 30, 1995 and $140,319 at December 31, 1994) 105,849 135,187 Investment securities available-for-sale, at market value (cost of $247,147 at September 30, 1995 and $246,637 at December 31, 1994) 248,540 242,410 Loans Commercial 321,846 286,635 Real estate-construction 36,730 29,273 Real estate-mortgage 753,777 746,150 Installment 315,097 285,412 Credit card 14,086 15,599 Lease financing 14,968 16,102 ----------- ----------- Total loans 1,456,504 1,379,171 Less Unearned income 612 304 Allowance for loan losses 19,364 18,609 ----------- ----------- Net loans 1,436,528 1,360,258 Premises and equipment 37,710 37,999 Deferred income taxes 3,964 5,904 Accrued interest and other assets 29,741 28,981 ----------- ----------- TOTAL ASSETS $1,969,389 $1,922,643 =========== =========== LIABILITIES Deposits Noninterest-bearing $ 192,099 $ 201,331 Interest-bearing 1,448,951 1,385,993 ----------- ----------- Total deposits 1,641,050 1,587,324 Short-term borrowings Federal funds purchased and securities sold under agreements to repurchase 64,332 81,609 Other 21,645 41,510 ----------- ----------- Total short-term borrowings 85,977 123,119 Accrued interest and other liabilities 21,801 17,527 TOTAL LIABILITIES ----------- ----------- 1,748,828 1,727,970 SHAREHOLDERS' EQUITY Common stock - par value, $8 per share Authorized - 25,000,000 shares Issued - 12,568,641 in 1995, 12,204,575 in 1994 100,549 97,637 Surplus 14,241 15,027 Retained earnings 104,957 84,748 Unrealized net gain (losses) on securities available-for-sale, net of deferred income taxes 865 (2,712) Restricted stock awards (51) (27) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 220,561 194,673 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,969,389 $1,922,643 =========== ===========
See notes to consolidated financial statements. 1 4 FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Dollars in thousands, except per share data)
Nine months ended Three months ended September 30, September 30, ------------------------------------------ 1995 1994 1995 1994 ---------- -------- --------- --------- INTEREST INCOME Loans, including fees $ 94,305 $ 76,459 $ 32,920 $ 26,897 Investment securities Taxable 11,751 13,800 4,013 4,569 Tax-exempt 5,758 7,349 1,744 2,344 --------- --------- --------- --------- Total investment interest 17,509 21,149 5,757 6,913 Interest-bearing deposits with other banks 224 298 85 90 Federal funds sold and securities purchased under agreements to resell 128 281 98 13 --------- --------- --------- --------- TOTAL INTEREST INCOME 112,166 98,187 38,860 33,913 INTEREST EXPENSE Deposits 42,747 34,634 15,244 11,905 Short-term borrowings 3,376 1,342 908 742 Long-term borrowings 0 124 0 38 --------- --------- --------- --------- TOTAL INTEREST EXPENSE 46,123 36,100 16,152 12,685 --------- --------- --------- --------- NET INTEREST INCOME 66,043 62,087 22,708 21,228 Provision for loan losses 1,151 657 532 298 --------- --------- --------- --------- Net interest income after provision for loan losses 64,892 61,430 22,176 20,930 NONINTEREST INCOME Service charges on deposit accounts 6,314 6,154 2,171 2,085 Trust income 5,706 5,308 1,882 1,697 Investment securities gains (losses) 300 (618) 49 (520) Other 2,908 3,179 989 939 --------- --------- --------- --------- Total noninterest income 15,228 14,023 5,091 4,201 NONINTEREST EXPENSES Salaries and employee benefits 24,321 23,446 8,406 7,772 Net occupancy expenses 3,260 3,165 1,119 1,074 Furniture and equipment expenses 2,415 2,217 799 707 Data processing expenses 3,977 3,863 1,357 1,305 Deposit insurance expense 1,860 2,652 77 884 State taxes 1,224 1,318 413 419 Other 9,738 9,583 3,388 3,355 --------- --------- --------- --------- Total noninterest expenses 46,795 46,244 15,559 15,516 --------- --------- --------- --------- Income before income taxes 33,325 29,209 11,708 9,615 Income tax expense 9,850 7,552 3,591 2,454 --------- --------- --------- --------- NET EARNINGS $ 23,475 $ 21,657 $ 8,117 $ 7,161 ========= ========= ========= ========= Net earnings per common share $ 1.91 $ 1.77 $ 0.65 $ 0.59 ========= ========= ========= ========= Cash dividends declared per share $ 0.78 $ 0.66 $ 0.26 $ 0.22 ========= ========= ========= ========= Average shares outstanding 12,311,609 12,213,201 12,513,795 12,214,452 ========== ========== ========== ==========
See notes to consolidated financial statements. 2 5 FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine months ended September 30, ---------------------- 1995 1994 ---------- --------- OPERATING ACTIVITIES Net earnings $ 23,475 $ 21,657 Adjustments to reconcile net earnings to net cash provided by operating activities Provision for loan losses 1,151 657 Provision for depreciation and amortization 2,985 2,607 Net amortization of investment security premiums and accretion of discounts 864 1,507 Deferred income taxes (102) (596) Realized investment security (gains) losses (300) 618 Originations of mortgage loans held for sale (18,247) (28,575) Gains from sales of mortgage loans held for sale (254) (322) Proceeds from sale of mortgage loans held for sale 18,501 28,897 Increase in interest receivable (601) (2,311) Increase in prepaid expenses (509) (1,069) Increase in accrued expenses 2,384 639 Increase in interest payable 1,744 479 Other (345) (2,230) ---------- ---------- Net cash provided by operating activities 30,746 21,958 INVESTING ACTIVITIES Proceeds from sales of securities available-for-sale 34,188 33,715 Proceeds from calls, paydowns and maturities of securities available-for-sale 35,871 78,901 Purchases of securities available-for-sale (59,442) (109,913) Proceeds from calls, paydowns and maturities of securities held-to-maturity 37,236 28,105 Purchases of securities held-to-maturity (520) (9,159) Net decrease in interest-bearing deposits with other banks 3,740 10,725 Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (1,184) 20,751 Net increase in loans and leases (54,777) (131,384) Recoveries from loans and leases previously charged off 881 843 Proceeds from disposal of other real estate owned 833 1,667 Cash acquired in merger 2,577 0 Purchases of premises and equipment (2,232) (2,954) ---------- ---------- Net cash used in investing activities (2,829) (78,703) FINANCING ACTIVITIES Net increase in total deposits 8,506 5,403 Net (decrease) increase in short-term borrowings (37,142) 69,654 Principal payments of long-term borrowings 0 (3,983) Cash dividends declared (9,617) (7,903) Purchase of treasury stock 0 (189) Proceeds from exercise of stock options, net of shares purchased 123 151 ---------- ---------- Net cash (used in) provided by financing activities (38,130) 63,133 ---------- ---------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,213) 6,388 Cash and cash equivalents at beginning of period 103,752 88,926 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,539 $ 95,314 ========== ==========
3 6 FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine months ended September 30, ----------------------- 1995 1994 ---------- ---------- Supplemental disclosures Interest paid $ 45,171 $ 35,621 ========== ========== Income taxes paid $ 8,260 $ 6,734 ========== ========== Recognition of deferred tax (liabilities) assets attributable to FASB Statement No. 115 $ (2,042) $ 486 ========== ========== Acquisition of other real estate owned through foreclosure $ 371 $ 192 ========== ========== Issuance of restricted stock awards $ 33 ========== Transfer of securities to available-for-sale upon adoption of FASB Statement No. 115 $272,856 ==========
See notes to consolidated financial statements. 4 7 FIRST FINANCIAL BANCORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The consolidated financial statements for interim periods are unaudited; however, in the opinion of the management of First Financial Bancorp. ("Bancorp"), all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation have been included. NOTE 1: BASIS OF PRESENTATION The consolidated financial statements of Bancorp, a bank and savings and loan holding company, include the accounts of Bancorp and its wholly-owned subsidiaries - First National Bank of Southwestern Ohio, Citizens Commercial Bank & Trust Company, Van Wert National Bank, Union Trust Bank, Indiana Lawrence Bank, Fidelity Federal Savings Bank, Citizens First State Bank, Fayette Federal Savings Bank, Home Federal Bank - A Federal Savings Bank, Union Bank & Trust Company, The Clyde Savings Bank Company and Peoples Bank and Trust Company. All significant intercompany transactions and accounts have been eliminated in consolidation. Intangible assets arising from the acquisition of subsidiaries are being amortized over varying periods, none of which currently exceeds 15 years. Core deposit balances are being amortized over varying periods, none of which currently exceeds 10 years. The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore, do not include all information and footnotes necessary to be in conformity with generally accepted accounting principles. The Consolidated Statements of Cash Flows has been presented utilizing the indirect method. For purposes of the Consolidated Statements of Cash Flows, Bancorp considers cash and due from banks as cash and cash equivalents. The assumed exercise of stock options would not have a materially dilutive effect, therefore, fully diluted earnings per share is not presented. NOTE 2: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, Bancorp offers a variety of financial instruments with off-balance-sheet risk to its customers to aid them in meeting their requirements for liquidity and credit enhancement and to reduce its own exposure to fluctuations in interest rates. These financial instruments include standby letters of credit and commitments outstanding to extend credit. Generally accepted accounting principles do not require these financial instruments to be recorded in the consolidated financial statements, and accordingly, they are not. Bancorp does not use off-balance-sheet derivative financial instruments (such as interest rate swaps) as defined in the Financial Accounting Standards Board's (FASB) Statement No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". Bancorp's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit and commitments outstanding to extend credit is represented by the contractual amounts of those instruments. Bancorp uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Following is a discussion of these transactions. 5 8 Standby letters of credit are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party. Bancorp's portfolio of standby letters of credit consists primarily of performance assurances made on behalf of customers who have a contractual commitment to produce or deliver goods or services. The risk to Bancorp arises from its obligation to make payment in the event of the customers' contractual default. As of September 30, 1995, Bancorp had issued standby letters of credit aggregating $9,871,000 compared to $9,976,000 issued as of December 31, 1994. Management conducts regular reviews of these instruments on an individual customer basis, and the results are considered in assessing the adequacy of Bancorp's allowance for loan losses. Management does not anticipate any material losses as a result of these letters of credit. Loan commitments are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp evaluates each customer's creditworthiness on an individual basis. The amount of collateral obtained, if deemed necessary by Bancorp upon extension of credit, is based on management's credit evaluation of the counterparty. The collateral held varies, but may include securities, real estate, inventory, plant, or equipment. Bancorp had commitments outstanding to extend credit totaling $211,802,000 at September 30, 1995 and $216,802,000 at December 31, 1994. Management does not anticipate any material losses as a result of these commitments. NOTE 3: BUSINESS COMBINATIONS On July 16, 1995, Bancorp issued 354,645 shares of its common stock in exchange for all the outstanding common stock of Peoples Bank and Trust Company, Sunman, Indiana. The acquisition of the $54 million bank has been accounted for as an immaterial pooling-of-interests and accordingly, the consolidated financial statements, including earnings per share, have not been restated for periods prior to July 16, 1995. NOTE 4: PENDING MERGERS On September 12, 1995, Bancorp announced the signing of a Definitive Agreement of Merger with F&M Bancorp of Rochester, Indiana. F&M Bancorp is a one-bank holding company with the $60 million Farmers & Merchants Bank as its only subsidiary. Bancorp intends to merge Farmers & Merchants Bank into Indiana Lawrence Bank. Subject to required shareholder and regulatory approval, this merger is expected to be consummated during the second quarter of 1996 and be accounted for using the pooling-of-interests method of accounting. NOTE 5: SUBSEQUENT EVENTS On October 1, 1995, Bancorp issued 442,876 shares of its common stock in exchange for all the outstanding common stock of Bright Financial Services, Inc. (Bright Financial), Flora, Indiana. Upon consummation of the merger, Bright Financial was dissolved and its subsidiary, the $113 million Bright National Bank, became a wholly-owned subsidiary of Bancorp. Bancorp also acquired Bright Financial's 23.1911% joint venture investment in Independent Bankers Life Insurance of Indiana (Independent Bankers Life), operating out of Roachdale, Indiana. Independent Bankers Life is a joint venture of five community bank holding companies. The only purpose of this insurance company is to write credit life and disability insurance for consumer loans. This merger was accounted for as an immaterial pooling-of-interests and accordingly, the consolidated financial statements, including earnings per share, will not be restated for periods prior to October 1, 1995. 6 9 NOTE 6: ACCOUNTING CHANGES Bancorp adopted FASB Statement No. 114 "Accounting by Creditors for Impairment of a Loan", as amended by FASB Statement No. 118 "Accounting by Creditors for Impairment of a Loan -Income Recognition and Disclosures" effective January 1, 1995. The adoption of the standard did not have a material impact on Bancorp's financial position or results of operations. For additional disclosures refer to the MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALLOWANCE FOR LOAN LOSSES and NONPERFORMING/UNDERPERFORMING ASSETS sections. 7 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST FINANCIAL BANCORP. AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA
1995 1994 -------------------------------------- ----------------------- SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) NET EARNINGS $ 8,117 $ 7,989 $ 7,369 $ 6,516 $ 7,161 AVERAGE CONSOLIDATED BALANCE SHEET ITEMS: LOANS LESS UNEARNED INCOME 1,449,366 1,418,520 1,394,024 1,345,953 1,291,400 INVESTMENT SECURITIES 332,720 321,336 347,172 393,912 421,654 OTHER EARNING ASSETS 13,269 4,084 7,056 5,696 9,761 ---------- ---------- ---------- ---------- ---------- TOTAL EARNING ASSETS 1,795,355 1,743,940 1,748,252 1,745,561 1,722,815 TOTAL ASSETS 1,923,339 1,868,384 1,871,532 1,878,577 1,851,992 DEPOSITS 1,618,998 1,573,997 1,551,899 1,576,111 1,567,006 SHAREHOLDERS' EQUITY 216,164 203,469 197,050 192,414 191,555 KEY RATIOS: AVERAGE EQUITY TO AVERAGE TOTAL ASSETS 11.24% 10.89% 10.53% 10.24% 10.34% RETURN ON AVERAGE TOTAL ASSETS 1.69% 1.71% 1.57% 1.39% 1.55% RETURN ON AVERAGE EQUITY 15.02% 15.71% 14.96% 13.55% 14.95% NET INTEREST MARGIN (FULLY TAX EQUIVALENT) 5.28% 5.22% 5.23% 5.30% 5.24%
NET INTEREST INCOME Net interest income, the principal source of earnings, is the amount by which interest and fees generated by earning assets exceed the interest costs of liabilities obtained to fund them. For analytical purposes, interest income presented in the table below has been adjusted to a tax equivalent basis assuming a 35% marginal tax rate for interest earned on tax-exempt assets such as municipal loans, tax-free leases and investments. This is to recognize the income tax savings which facilitates a comparison between taxable and tax-exempt assets. The tax equivalent adjustment to interest income has gradually declined over the periods presented as a result of a decline in tax-exempt assets. As shown below, net interest income on a fully tax equivalent basis has increased $1,152,000 over the third quarter of 1994. Continued loan growth, particularly in commercial and installment loans, contributed to higher net interest income in the third quarter of 1995.
QUARTER ENDED 1995 1994 ---------------------------------- -------------------- SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) INTEREST INCOME $38,860 $37,144 $36,162 $35,317 $33,913 INTEREST EXPENSE 16,152 15,476 14,495 13,487 12,685 ------- ------- ------- ------- ------- NET INTEREST INCOME 22,708 21,668 21,667 21,830 21,228 TAX EQUIVALENT ADJUSTMENT TO INTEREST INCOME 1,008 1,111 1,191 1,308 1,336 ------- ------- ------- ------- ------- NET INTEREST INCOME (FULLY TAX EQUIVALENT) $23,716 $22,779 $22,858 $23,138 $22,564 ======= ======= ======= ======= =======
8 11 RATE/VOLUME ANALYSIS The impact of changes in volume and interest rates on net interest income is illustrated in the table below. As shown, increases in rates had a significant impact on both interest income and interest expense for the nine month and three month periods ended September 30, 1995 in comparison to 1994. The increase in rates had slightly more impact on interest income than interest expense. The primary factor, however, for increased net interest income for the periods presented was a significant increase in the volume of earning assets. The change in interest due to the combined effect of both rate and volume has been allocated to the volume and rate variance on a prorated basis.
NINE MONTHS THREE MONTHS ENDED ENDED SEP. 30, 1995 CHANGE DUE TO: SEP. 30, 1995 CHANGE DUE TO: ------------------- ------------------- OVER 1994 RATE VOLUME OVER 1994 RATE VOLUME ------------- -------- -------- --------------- --------- ------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) INTEREST INCOME $ 13,979 $ 9,663 $ 4,316 $ 4,947 $ 3,477 $ 1,470 INTEREST EXPENSE 10,023 8,930 1,093 3,467 3,174 293 -------- -------- -------- ---------- --------- ------- NET INTEREST INCOME $ 3,956 $ 733 $ 3,223 $ 1,480 $ 303 $ 1,177 ======== ======== ======== ========== ========= =======
OPERATING RESULTS Net operating income represents net earnings before net securities transactions. Net operating income for the first nine months of 1995 was $23,191,000 which was an increase of $2,036,000 or 9.62% over that reported in the same period in 1994. This increase in net operating income can be primarily attributed to an increase in net interest income of $3,956,000 or 6.37%. Noninterest income, excluding securities transactions, for the first nine months of 1995 increased 1.96% in comparison to the same period in 1994. These positive variances were offset by increases in provision for loan losses, noninterest expense and income tax expense. The increase in income tax expense is discussed in the next section. The increase in noninterest expense was only 1.19%. This marginal increase in noninterest expense was achievable in part due to the receipt of refunds from the Federal Deposit Insurance Corporation (FDIC) on deposit insurance premiums paid. These refunds were received at Bancorp's commercial banking subsidiaries in the third quarter of 1995. Net operating income for the third quarter of 1995 increased $919,000 or 12.9% over the same period in 1994 due to the same reasons discussed above. INCOME TAXES For the first nine months of 1995, income tax expense was $9,850,000 compared to $7,552,000 for the same period in 1994, or an increase of $2,298,000. In 1995, $9,834,000 of the tax expense was related to operating income with a tax expense of $16,000 related to securities transactions. In the first nine months of 1994, income tax expense related to operating income was $8,672,000 with a tax benefit related to securities transactions of $1,120,000. The increase in taxes on operating income was due to the increase in operating income before taxes and securities transactions of $3,198,000 or 10.7% over that reported for the first nine months of 1994 and a higher effective tax rate for the period in 1995. The higher effective tax rate was primarily attributable to the effect of calls and decreased income from tax-exempt securities. For the third quarter of 1995, income tax expense was $3,591,000 compared to $2,454,000 for the same period in 1994, or an increase of $1,137,000. In 1995, $3,599,000 of the tax expense was related to operating income with a tax benefit of $8,000 related to securities transactions. In the third quarter of 1994, income tax expense related to operating income was $2,994,000 with a tax benefit related to securities transactions of $540,000. 9 12 NET EARNINGS Net earnings for the first nine months of 1995 were $1,818,000 or 8.39% greater than that recorded during the same period in 1994. As was discussed previously, net operating income was $23,191,000 which was 9.62% greater than the same period in 1994. Net securities gains through September 30, 1995 were $284,000 compared to $502,000 for the same period in 1994. Net earnings for the quarter ending September 30, 1995 were $956,000 or 13.4% greater than that recorded during the same period in 1994. Net operating income was $8,060,000 which was 12.9% greater than the same period in 1994. Net securities gains for the quarter ended September 30, 1995 were $57,000 compared to $20,000 for the same period in 1994. ALLOWANCE FOR LOAN LOSSES Beginning in 1995, Bancorp adopted FASB Statement No. 114. Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with FASB Statement No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated probable credit losses. Management's periodic evaluation of the adequacy of the allowance is based on Bancorp's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. At September 30, 1995, the recorded investment in loans that are considered to be impaired under FASB Statement No. 114 was $863,000, all of which were on a nonaccrual basis. The related allowance for loan losses on these impaired loans was $513,000. There were no impaired loans that as a result of write-downs did not have an allowance for loan losses. The average recorded investment in impaired loans for the nine months and quarter ended September 30, 1995, was approximately $1,478,000 and $2,001,000, respectively. For the nine months ended September 30, 1995, Bancorp recognized interest income on those impaired loans of $57,000. Bancorp did not recognize any interest income on impaired loans during the third quarter. Bancorp recognizes income on impaired loans using the cash basis method. The table below indicates the activity in the allowance for loan losses for the quarters presented.
QUARTER ENDED 1995 1994 ---------------------------- ------------------ SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) BALANCE AT BEGINNING OF PERIOD $18,948 $18,904 $18,609 $18,441 $18,504 ALLOWANCE ACQUIRED THROUGH MERGER 206 PROVISION FOR LOAN LOSSES 532 226 393 611 298 LOANS CHARGED OFF (551) (565) (367) (713) (643) RECOVERIES 229 383 269 270 282 -------- -------- -------- -------- -------- NET CHARGE OFFS (322) (182) (98) (443) (361) -------- -------- -------- -------- -------- BALANCE AT END OF PERIOD $19,364 $18,948 $18,904 $18,609 $18,441 ======== ======== ======== ======== ======== RATIOS: ALLOWANCE TO PERIOD END LOANS, NET OF UNEARNED INCOME 1.33% 1.33% 1.34% 1.35% 1.40% RECOVERIES TO CHARGE OFFS 41.56% 67.79% 73.30% 37.87% 43.86% ALLOWANCE AS A MULTIPLE OF NET CHARGE OFFS 60.14X 104.11X 192.90X 42.01X 51.08X
10 13 NONPERFORMING/UNDERPERFORMING ASSETS The table below shows the categories which are included in nonperforming and underperforming assets. Nonperforming assets decreased $626,000 or 9.86% in the third quarter of 1995 when compared to the third quarter of 1994. In that same period, accruing loans past due 90 days or more decreased $63,000. Accruing loans, including loans impaired under FASB Statement No. 114, which are past due 90 days or more where there is not a likelihood of becoming current are transferred to nonaccrual loans. However, those loans, which management feels will become current and, therefore accruing, will be classified as "Accruing loans 90 days or more past due" until they become current.
QUARTER ENDED 1995 1994 ---------------------------- ------------------ SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 -------- -------- -------- -------- -------- NONACCRUAL LOANS $ 3,522 $ 3,631 $ 3,457 $ 2,412 $ 2,938 RESTRUCTURED LOANS 551 571 1,173 1,429 1,245 OREO/ISF* 1,648 1,616 1,669 2,116 2,164 -------- -------- -------- -------- -------- TOTAL NONPERFORMING ASSETS 5,721 5,818 6,299 5,957 6,347 ACCRUING LOANS PAST DUE 90 DAYS OR MORE 881 859 700 683 944 -------- -------- -------- -------- -------- TOTAL UNDERPERFORMING ASSETS $ 6,602 $ 6,677 $ 6,999 $ 6,640 $ 7,291 ======== ======== ======== ======== ======== NONPERFORMING ASSETS AS A PERCENT OF LOANS, NET OF UNEARNED INCOME PLUS OREO/ISF 0.39% 0.41% 0.45% 0.43% 0.48% ======== ======== ======== ======== ======== UNDERPERFORMING ASSETS AS A PERCENT OF LOANS, NET OF UNEARNED INCOME PLUS OREO/ISF 0.45% 0.47% 0.50% 0.48% 0.55% ======== ======== ======== ======== ========
*OTHER REAL ESTATE OWNED/IN-SUBSTANCE FORECLOSURE In accordance with FASB Statement No. 114, a loan is classified as in-substance foreclosure when Bancorp has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Loans previously classified as in-substance foreclosure but for which Bancorp had not taken possession of the collateral have not been reclassified to loans due to immateriality. At December 31, 1994, loans classified as in-substance foreclosure were $70,000. LIQUIDITY AND CAPITAL RESOURCES Liquidity management is the process by which Bancorp provides for the continuing flow of funds necessary to meet its financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit commitments to borrowers, shareholder dividends, paying expenses of operations, and funding capital expenditures. Liquidity is derived primarily from deposit growth, maturing loans, the maturity of investment securities, access to other funding sources and markets, and a strong capital position. The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base. At the end of the third quarter of 1995 Bancorp's deposit liabilities had increased by 3.38% from December 31, 1994. Another source of funding is through short-term borrowings. Bancorp's short-term borrowings decreased to $85,977,000 at September 30, 1995, compared to $123,119,000 at December 31, 1994. This higher level of short-term funding was required at December 31, 1994 in anticipation of maturing investment securities. The principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. At September 30, 1995, securities maturing in one year or less amounted to $74,809,000, representing 21.1% of the total of the investment securities portfolio. In addition, other types of assets such as cash and due from banks, federal funds sold and 11 14 securities purchased under agreements to resell, as well as loans and interest-bearing deposits with other banks maturing within one year, are sources of liquidity. Total asset-funded sources of liquidity at September 30, 1995, amounted to $455,855,000, representing 23.2% of total assets. Sources of long-term asset funded liquidity are derived from the maturity of investment securities and maturing loans in excess of one year. At September 30, 1995, Bancorp had classified $248,540,000 in investment securities available-for-sale. Management examines Bancorp's liquidity needs in establishing this classification in accordance with the Financial Accounting Standards Board Statement No. 115 on accounting for certain investments in debt and equity securities. Liquidity is very important and as such is both monitored and managed closely by the asset/liability committee at each affiliate. Liquidity may be used to fund capital expenditures. Capital expenditures were $2,232,000 for the first nine months of 1995. In addition, remodeling is a planned and ongoing process given the 69 offices of Bancorp and its subsidiaries. Material commitments for capital expenditures as of September 30, 1995 were approximately $253,000. Management believes that Bancorp has sufficient liquidity to fund its current commitments. CAPITAL ADEQUACY The Federal Reserve established risk-based capital requirements for U.S. banking organizations which have been adopted by the Office of Thrift Supervision for savings and loan associations. Risk weights are assigned to on-and off-balance sheet items in arriving at risk-adjusted total assets. Regulatory capital is divided by risk-adjusted total assets, with the resulting ratio compared to a minimum standard to determine whether a bank has adequate capital. Fully phased-in guidelines require 4.00% for Tier I capital, which consists mainly of common shareholders' equity net of intangibles, and 8.00% for total capital (Tier I plus Tier II supplementary capital). Bancorp's Tier I ratio at September 30, 1995, was 15.0% and its total capital ratio was 16.2%. While Bancorp's ratios are well above the guidelines, management will continue to monitor the asset mix, product pricing, and the allowance for loan losses, which are the areas determined to be most affected by these requirements. The following table illustrates the risk-based capital calculations and ratios for the past five quarters.
QUARTER ENDED 1995 1994 ---------------------------------- ---------------------- SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) TIER I CAPITAL: SHAREHOLDER'S EQUITY $ 220,561 $ 207,279 $ 201,252 $ 194,673 $ 194,033 LESS: INTANGIBLE ASSETS 3,711 3,883 4,056 4,230 4,446 LESS: UNREALIZED NET SECURITIES GAINS (LOSSES) 865 759 (384) (2,712) (934) ---------- ---------- ---------- ---------- ---------- TOTAL TIER I CAPITAL $ 215,985 $ 202,637 $ 197,580 $ 193,155 $ 190,521 ========== ========== ========== ========== ========== TOTAL RISK-BASED CAPITAL: TIER I CAPITAL $ 215,985 $ 202,637 $ 197,580 $ 193,155 $ 190,521 QUALIFYING ALLOWANCE FOR LOAN LOSSES 18,052 17,603 17,290 17,074 16,803 ---------- ---------- ---------- ---------- ---------- TOTAL RISK-BASED CAPITAL $ 234,037 $ 220,240 $ 214,870 $ 210,229 $ 207,324 ========== ========== ========== ========== ========== RISK WEIGHTED ASSETS $1,444,180 $1,408,270 $1,383,180 $1,365,882 $1,344,203 ========== ========== ========== ========== ========== RISK-BASED RATIOS: TIER I 14.96% 14.39% 14.28% 14.14% 14.17% ========== ========== ========== ========== ========== TOTAL RISK-BASED CAPITAL 16.21% 15.64% 15.53% 15.39% 15.42% ========== ========== ========== ========== ==========
12 15 ACCOUNTING AND REGULATORY MATTERS In May 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 122 on accounting for mortgage servicing rights. This Statement is required to be adopted for financial statements for fiscal years beginning after December 15, 1995. Bancorp is in the process of analyzing the Statement and at this time its financial impact is unknown but is expected to be immaterial. On August 8, 1995, the Federal Deposit Insurance Corporation (FDIC) voted to retroactively lower the deposit insurance premiums commercial banks pay from $0.23 to $0.04 per $100 in insured deposits for well-capitalized institutions. In September of 1995, Bancorp's commercial banking subsidiaries received refunds on excess deposit insurance premiums paid from June to September. Accordingly, these refunds are reflected in the September 30, 1995 Consolidated Financial Statements. Premiums for thrifts were not revised. Bancorp currently has approximately $300,000,000 in deposits at its thrift subsidiaries insured under the Savings Association Insurance Fund (SAIF). Currently, the SAIF reserves are considered underfunded and regulatory discussions continue regarding options for restoring SAIF levels. These discussions include the possibility of a one-time charge to thrifts in the fourth quarter of 1995 or early 1996, which could have a material negative impact on Bancorp's thrifts. Management is not aware of any other events or regulatory recommendations which, if implemented, are likely to have a material effect on Bancorp's liquidity, capital resources, or operations. PART II-OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (b) Reports on Form 8-K During the quarter ended September 30, 1995, the registrant did not file any reports on Form 8-K. 13 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FIRST FINANCIAL BANCORP. ------------------------ (Registrant) Date November 7, 1995 /s/ Michael R. O'Dell --------------------- ------------------------ Michael R. O'Dell, Comptroller 14 EX-27 2 EXHIBIT 27
9 This schedule contains summary financial information extracted from September 30, 1995 financial statements and is qualified in its entirety by reference to such financial statements. 0000708955 FIRST FINANCIAL BANCORP 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 93,539 5,512 8,006 0 248,540 105,849 112,376 1,455,892 19,364 1,969,389 1,641,050 85,977 21,801 0 100,549 0 0 120,012 1,969,389 94,305 17,509 352 112,166 42,747 46,123 66,043 1,151 300 46,795 33,325 33,325 0 0 23,475 1.91 1.91 8.56 3,522 881 1,478 0 18,904 1,483 881 19,364 0 0 0
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