-----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, SoQIxxqP7xBNQBpxdstrERwO3o1q884u5KA+BvSMmo5F1e4DZy9VEc+eqmh9M8U7 bzOuJRq+kYRswJjrppyAbg== 0000950152-96-003825.txt : 19960809 0000950152-96-003825.hdr.sgml : 19960809 ACCESSION NUMBER: 0000950152-96-003825 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANCORP /OH/ CENTRAL INDEX KEY: 0000708955 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] 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: 96605785 BUSINESS ADDRESS: STREET 1: THIRD & HIGH ST CITY: HAMILTON STATE: OH ZIP: 45011 BUSINESS PHONE: 5138674700 MAIL ADDRESS: STREET 1: THIRD & HIGH ST CITY: HAMILTON STATE: OH ZIP: 45011 10-Q 1 FIRST FINANCIAL BANCORP 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 JUNE 30, 1996 ----------------------- 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 August 1, 1996 ----------------------------- ----------------------------- Common stock, $8.00 par value 13,359,110 2 FIRST FINANCIAL BANCORP. INDEX Page No. -------- PART I-FINANCIAL INFORMATION Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 1 Consolidated Statements of Earnings - Six and Three Months Ended June 30, 1996 and 1995 2 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 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 14 SIGNATURES 15 3 PART I - FINANCIAL INFORMATION FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)
June 30, December 31, ASSETS 1996 1995 ------------ ------------ Cash and due from banks $ 100,805 $ 108,685 Interest-bearing deposits with other banks 6,385 6,882 Federal funds sold and securities purchased under agreements to resell 4,451 14,802 Investment securities held-to-maturity, at cost (market value - $91,152 at June 30, 1996 and $100,512 at December 31, 1995) 86,319 93,522 Investment securities available-for-sale, at market value (cost of $299,791 at June 30, 1996 and $291,766 at December 31, 1995) 299,419 294,052 Loans Commercial 372,759 340,942 Real estate-construction 34,488 41,845 Real estate-mortgage 825,885 788,805 Installment 351,468 329,034 Credit card 14,046 15,406 Lease financing 15,684 16,557 ----------- ----------- Total loans 1,614,330 1,532,589 Less Unearned income 1,101 573 Allowance for loan losses 21,605 20,437 ----------- ----------- Net loans 1,591,624 1,511,579 Premises and equipment 41,498 39,931 Deferred income taxes 4,442 3,369 Accrued interest and other assets 40,438 30,553 ----------- ----------- TOTAL ASSETS $ 2,175,381 $ 2,103,375 =========== =========== LIABILITIES Deposits Noninterest-bearing $ 214,795 $ 220,061 Interest-bearing 1,596,609 1,565,501 ----------- ----------- Total deposits 1,811,404 1,785,562 Short-term borrowings Federal funds purchased and securities sold under agreements to repurchase 70,108 49,483 Other 17,043 8,889 ----------- ----------- Total short-term borrowings 87,151 58,372 Long-term borrowings 4,541 2,820 Accrued interest and other liabilities 23,446 22,446 ----------- ----------- TOTAL LIABILITIES 1,926,542 1,869,200 SHAREHOLDERS' EQUITY Common stock - par value, $8 per share Authorized - 25,000,000 shares Issued - 13,388,884 in 1996 and 13,013,422 in 1995 107,111 104,107 Surplus 12,611 13,577 Retained earnings 130,074 115,102 Unrealized net (losses) gains on investment securities available-for-sale, net of deferred income taxes (244) 1,437 Treasury stock, at cost, 14,074 shares (464) 0 Restricted stock awards (249) (48) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 248,839 234,175 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,175,381 $ 2,103,375 =========== ===========
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)
Six months ended Three months ended June 30, June 30, ------------------------------------------ 1996 1995 1996 1995 --------- --------- --------- ---------- INTEREST INCOME Loans, including fees $ 70,112 $ 61,385 $ 35,637 $ 31,397 Investment securities Taxable 9,471 7,738 4,761 3,740 Tax-exempt 3,045 4,014 1,559 1,931 --------- --------- --------- --------- Total investment interest 12,516 11,752 6,320 5,671 Interest-bearing deposits with other banks 238 139 120 64 Federal funds sold and securities purchased under agreements to resell 330 30 182 12 --------- --------- --------- --------- TOTAL INTEREST INCOME 83,196 73,306 42,259 37,144 INTEREST EXPENSE Deposits 32,646 27,503 16,448 14,468 Short-term borrowings 1,095 2,468 538 1,008 Long-term borrowings 115 0 63 0 --------- --------- --------- --------- TOTAL INTEREST EXPENSE 33,856 29,971 17,049 15,476 --------- --------- --------- --------- NET INTEREST INCOME 49,340 43,335 25,210 21,668 Provision for loan losses 1,370 619 764 226 --------- --------- --------- --------- Net interest income after provision for loan losses 47,970 42,716 24,446 21,442 NONINTEREST INCOME Service charges on deposit accounts 4,525 4,143 2,342 2,121 Trust income 4,160 3,824 2,074 1,930 Investment securities (losses) gains (3) 251 (3) 238 Other 1,980 1,919 992 975 --------- --------- --------- --------- Total noninterest income 10,662 10,137 5,405 5,264 NONINTEREST EXPENSES Salaries and employee benefits 18,327 15,915 9,181 7,839 Net occupancy expenses 2,352 2,141 1,137 1,060 Furniture and equipment expenses 1,891 1,616 960 810 Data processing expenses 2,354 2,620 1,185 1,303 Deposit insurance expense 393 1,783 182 897 State taxes 838 811 422 411 Other 7,762 6,350 3,722 3,255 --------- --------- --------- --------- Total noninterest expenses 33,917 31,236 16,789 15,575 --------- --------- --------- --------- Income before income taxes 24,715 21,617 13,062 11,131 Income tax expense 7,844 6,259 4,017 3,142 --------- --------- --------- --------- NET EARNINGS $ 16,871 $ 15,358 $ 9,045 $ 7,989 ========= ========= ========= ========= Net earnings per common share $ 1.28 $ 1.26 $ 0.68 $ 0.66 ========= ========= ========= ========= Cash dividends declared per share $ 0.60 $ 0.52 $ 0.30 $ 0.26 ========= ========= ========= ========= Average shares outstanding 13,203,147 12,208,840 13,386,410 12,211,127 ========== ========== ========== ==========
See notes to consolidated financial statements. 2 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Six months ended June 30, ---------------------- 1996 1995 --------- --------- OPERATING ACTIVITIES Net earnings $ 16,871 $ 15,358 Adjustments to reconcile net earnings to net cash provided by operating activities Provision for loan losses 1,344 619 Provision for depreciation and amortization 1,860 1,845 Net amortization of investment security premiums and accretion of discounts 320 743 Realized investment security losses (gains) 3 (251) Originations of mortgage loans held for sale (20,026) (6,298) Gains from sales of mortgage loans held for sale (234) (117) Proceeds from sale of mortgage loans held for sale 20,260 6,415 Deferred income taxes 36 0 (Increase) decrease in interest receivable (270) 321 Increase in cash surrender value of life insurance (8,073) 0 Increase in prepaid expenses (732) (1,453) Increase in accrued expenses 882 305 (Decrease) increase in interest payable (356) 1,100 Other (734) (1,843) --------- --------- Net cash provided by operating activities 11,151 16,744 INVESTING ACTIVITIES Proceeds from sales of investment securities available-for-sale 0 28,041 Proceeds from calls, paydowns and maturities of investment securities available-for-sale 89,648 29,484 Purchases of investment securities available-for-sale (87,836) (15,683) Proceeds from calls, paydowns and maturities of investment securities held-to-maturity 8,813 23,901 Purchases of investment securities held-to-maturity (1,600) (129) Net decrease in interest-bearing deposits with other banks 497 3,132 Net decrease (increase) in federal funds sold and securities purchased under agreements to resell 28,951 (8,563) Net increase in loans and leases (52,011) (50,612) Recoveries from loans and leases previously charged off 565 652 Proceeds from disposal of other real estate owned 53 700 Cash acquired in merger 1,845 0 Purchases of premises and equipment (2,416) (1,113) --------- --------- Net cash (used in) provided by investing activities (13,491) 9,810 FINANCING ACTIVITIES Net (decrease) increase in total deposits (27,778) 4,029 Net increase (decrease) in short-term borrowings 28,761 (28,475) Increase in long-term borrowings 1,721 0 Cash dividends declared (7,923) (6,349) Purchase of common stock (464) 0 Proceeds from exercise of stock options, net of shares purchased 143 121 --------- --------- Net cash used in financing activities (5,540) (30,674) --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (7,880) (4,120) Cash and cash equivalents at beginning of period 108,685 103,752 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 100,805 $ 99,632 ========= =========
3 6 FIRST FINANCIAL BANCORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Six months ended June 30, ---------------------- 1996 1995 ---------- -------- Supplemental disclosures Interest paid $ 33,945 $ 30,057 ========== ========= Income taxes paid $ 7,849 $ 5,685 ========== ========= Recognition of deferred tax assets (liabilities) attributable to FASB Statement No. 115 $ 979 $ (1,997) ========== ========== Acquisition of other real estate owned through foreclosure $ 198 $ 207 ========== ========= Issuance of restricted stock awards $ 226 $ 33 ========== =========
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, Home Federal Bank, A Federal Savings Bank, Union Bank & Trust Company, The Clyde Savings Bank Company, Peoples Bank and Trust Company, Bright National Bank and First Finance Mortgage Company of Southwestern Ohio. 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 June 30, 1996, Bancorp had issued standby letters of credit aggregating $11,553,000 compared to $10,989,000 issued as of December 31, 1995. 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 $262,669,000 at June 30, 1996 and $243,430,000 at December 31, 1995. Management does not anticipate any material losses as a result of these commitments. NOTE 3: BUSINESS COMBINATIONS On April 1, 1996 Bancorp issued 363,373 shares of its common stock in exchange for all the outstanding common stock of F&M Bancorp (F&M) of Rochester, Indiana. Upon consummation of the merger, F&M was merged out of existence and Farmers & Merchants Bank of Rochester, F&M's only subsidiary, was merged with and into Indiana Lawrence Bank (Indiana Lawrence), a wholly owned subsidiary of Bancorp. Farmers & Merchants Bank of Rochester's offices became branches of Indiana Lawrence, the surviving entity. This merger was 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 April 1, 1996. NOTE 4: PENDING MERGERS AND ACQUISITIONS On July 16, 1996 Bancorp signed a Plan and Agreement of Merger with Farmers State Bancorp (Farmers), a bank holding company which is headquartered in Liberty, Indiana. The proposed transaction is structured as a cash purchase. Farmers' wholly-owned subsidiary, Farmers State Bank, will become Bancorp's fourteenth affiliate with $63 million in assets. The bank has six offices, two in Union County, Indiana and the remaining four in Rush County, Indiana. The purchase is expected to be completed in the fourth quarter of 1996, after obtaining appropriate regulatory and shareholder approval. Bancorp and Hastings Financial Corporation of Hastings, Michigan (Hastings) signed a Plan and Agreement of Merger on July 1, 1996. The proposed transaction is structured as an exchange of stock and will use the pooling-of-interests method of accounting. Hastings is a one-bank parent holding company of National Bank of Hastings (National). National has assets of $47 million, and operates two offices, one in Barry County and the other in Allegan County, Michigan. After obtaining appropriate regulatory and shareholder approval, the merger is expected to be consummated in the first quarter of 1997. 6 9 NOTE 5: ACCOUNTING CHANGES In May 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 122 on accounting for mortgage servicing rights, which Bancorp adopted effective January 1, 1996. The financial impact of adopting this statement was immaterial. Bancorp is required to adopt SFAS No. 123 "Accounting for Stock-based Compensation" by December 31, 1996. Bancorp is in the process of analyzing this statement and does not anticipate the impact of adoption will have a material effect on its consolidated financial position or earnings. 7 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA 1996 1995 ------------------------ ----------------------------------- Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 ---------- ---------- ---------- ---------- --------- (Dollars in thousands) Net Earnings $ 9,045 $ 7,826 $ 8,314 $ 8,117 $ 7,989 Average Consolidated Balance Sheet Items: Loans less unearned income 1,588,249 1,528,462 1,526,017 1,449,366 1,418,520 Investment securities 380,887 373,359 381,238 332,720 321,336 Other earning assets 22,283 18,482 28,359 13,269 4,084 ---------- ---------- ---------- ---------- ---------- Total Earning Assets 1,991,419 1,920,303 1,935,614 1,795,355 1,743,940 Total assets 2,137,669 2,059,649 2,070,338 1,923,339 1,868,384 Deposits 1,813,461 1,749,361 1,757,020 1,618,998 1,573,997 Shareholders' equity 247,468 236,539 232,471 216,164 203,469 Key Ratios: Average equity to average total assets 11.58% 11.48% 11.23% 11.24% 10.89% Return on average total assets 1.69% 1.52% 1.61% 1.69% 1.71% Return on average equity 14.62% 13.23% 14.31% 15.02% 15.71% Net interest margin (fully tax equivalent) 5.25% 5.21% 5.22% 5.28% 5.22%
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 been declining due to increased calls and maturities of tax-exempt securities. As shown below, net interest income on a fully tax equivalent basis has increased $3,340,000 over the second quarter of 1995 and $1,123,000 over the first quarter of 1996. Continued loan growth, particularly in commercial and installment loans, contributed to higher net interest income in the second quarter of 1996.
Quarter Ended 1996 1995 --------------------- --------------------------------- Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 ------- ------- ------- ------- ------- (Dollars in thousands) Interest income $42,259 $40,937 $41,685 $38,860 $37,144 Interest expense 17,049 16,807 17,393 16,152 15,476 ------- ------- ------- ------- ------- Net interest income 25,210 24,130 24,292 22,708 21,668 Tax equivalent adjustment to interest income 909 866 976 1,008 1,111 ------- ------- ------- ------- ------- Net interest income (fully tax equivalent) $26,119 $24,996 $25,268 $23,716 $22,779 ======= ======= ======= ======= =======
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 six month period ended June 30, 1996 in comparison to 1995. The increase in rates had slightly more impact on interest income than interest expense. For the second quarter, changes in rates caused both interest income and interest expense to decrease, but had a greater effect on 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.
Six Months Three Months Ended Change Due To: Ended Change Due To: Jun. 30, 1996 ------------------- Jun. 30, 1996 ---------------- Over 1995 Rate Volume Over 1995 Rate Volume ------------- -------- -------- ------------- -------- ------- (Dollars in thousands) Interest income $ 9,890 $ 978 $ 8,912 $ 5,115 $ (137) $ 5,252 Interest expense 3,885 710 3,175 1,573 (354) 1,927 -------- -------- -------- -------- ------ ------- Net interest income $ 6,005 $ 268 $ 5,737 $ 3,542 $ 217 $ 3,325 ======== ======== ======== ======== ====== =======
OPERATING RESULTS Net operating income represents net earnings before net securities transactions. Net operating income for the first six months of 1996 was $16,845,000 which was an increase of $1,714,000 or 11.3% over that reported in the same period in 1995. This increase in net operating income can be primarily attributed to an increase in net interest income of $6,005,000 or 13.9%. Noninterest income, excluding securities transactions, for the first six months of 1996 increased 7.88% in comparison to the same period in 1995. 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 8.58%. Net operating income for the second quarter of 1996 increased $1,235,000 or 15.8% over the same period in 1995 due to the same reasons discussed above. INCOME TAXES For the first six months of 1996, income tax expense was $7,844,000 compared to $6,259,000 for the same period in 1995, or an increase of $1,585,000. In 1996, $7,873,000 of the tax expense was related to operating income with a tax benefit of $29,000 related to securities transactions. In the first six months of 1995, income tax expense related to operating income was $6,235,000 with a tax expense related to securities transactions of $24,000. The increase in taxes on operating income was due to the increase in operating income before taxes and securities transactions of $3,352,000 or 15.7% over that reported for the first six months of 1995 and a higher effective tax rate for the period in 1996. The higher effective tax rate was primarily attributable to significant calls of tax-exempt securities which decreased tax-exempt income. Income tax expense for the second quarter of 1996 was $4,017,000 compared to $3,142,000 for the same period in 1995, which was an increase of $875,000. Tax expense relating to operating income totaled $4,036,000 and $3,099,000 for the quarters ended June 30, 1996 and 1995, respectively, with a tax benefit of $19,000 in 1996 and a tax expense of $43,000 in 1995. 9 12 NET EARNINGS Net earnings for the first six months of 1996 were $1,513,000 or 9.85% greater than that recorded during the same period in 1995. As was discussed previously, net operating income was $16,845,000 which was 11.3% greater than the same period in 1995. Net securities gains through June 30, 1996 were $26,000 compared to $227,000 for the period ending June 30, 1995. Net earnings for the three months ended June 30, 1996 were $1,056,000 or 13.2% greater than the same period in 1995. As was discussed above, net operating income was $9,029,000 or 15.8% greater than second quarter 1995. Net securities gains for the second quarter of 1996 and 1995 were $16,000 and $195,000, respectively. ALLOWANCE FOR LOAN LOSSES 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 June 30, 1996 and 1995, the recorded investment in loans that are considered to be impaired under FASB Statement No. 114 was $1,612,000 and $2,070,000, respectively, all of which were on a nonaccrual basis. The related allowance for loan losses on these impaired loans was $437,000 at June 30, 1996 and $420,000 at June 30, 1995. 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 respective six months and quarters ended June 30, was approximately $1,786,000 for both periods in 1996 and $1,212,000 and $1,275,000 in 1995. For the six months and quarter ended June 30, 1996, Bancorp recognized interest income on those impaired loans of $27,000 and $11,000, respectively, compared to $57,000 and $30,000 for the same periods in 1995. 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 1996 1995 ------------------------ --------------------------------- Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 ---------- ---------- ---------- --------- --------- (Dollars In Thousands) Balance at beginning of period $20,659 $20,437 $19,364 $18,948 $18,904 Allowance acquired through merger 723 956 206 Provision for loan losses 764 606 957 532 226 Loans charged off (880) (610) (1,161) (551) (565) Recoveries 339 226 321 229 383 -------- --------- -------- -------- ------- Net Charge Offs (541) (384) (840) (322) (182) -------- --------- -------- -------- -------- Balance at end of period $21,605 $20,659 $20,437 $19,364 $18,948 ======== ========= ======== ======== ======= Ratios: Allowance to period end loans, net of unearned income 1.34% 1.34% 1.33% 1.33% 1.33% Recoveries to charge offs 38.52% 37.05% 27.65% 41.56% 67.79% Allowance as a multiple of net charge offs 39.94x 53.80x 24.33x 60.14x 104.11x
10 13 NONPERFORMING/UNDERPERFORMING ASSETS The table below shows the categories which are included in nonperforming and underperforming assets. Nonperforming assets increased $463,000 or 7.96% in the second quarter of 1996 when compared to the second quarter of 1995, and in that same period, accruing loans past due 90 days or more increased $339,000. Nonperforming assets increased $264,000 or 4.39% in the second quarter of 1996 when compared to the first quarter of 1996. There were no individually large loans contributing to this increase. 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 1996 1995 ------------------------ --------------------------------- Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 ---------- ---------- ---------- --------- --------- (Dollars in thousands) Nonaccrual loans $ 3,931 $ 3,789 $ 2,764 $ 3,522 $ 3,631 Restructured loans 573 582 517 551 571 OREO/ISF* 1,777 1,646 1,677 1,648 1,616 -------- -------- -------- -------- ------- Total nonperforming assets 6,281 6,017 4,958 5,721 5,818 Accruing loans past due 90 days or more 1,198 1,037 1,071 881 859 -------- -------- -------- -------- ------- Total underperforming assets $ 7,479 $ 7,054 $ 6,029 $ 6,602 $ 6,677 ======== ======== ======== ======== ======= Nonperforming assets as a percent of loans, net of unearned income plus OREO/ISF 0.39% 0.39% 0.32% 0.39% 0.41% ======== ======== ======== ======== ======== Underperforming assets as a percent of loans, net of unearned income plus OREO/ISF 0.46% 0.46% 0.39% 0.45% 0.47% ======== ======== ======== ========= ======== *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. 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 second quarter of 1996 Bancorp's deposit liabilities had increased by 1.45% from December 31, 1995. Another source of funding is through short-term borrowings. Bancorp's short-term borrowings increased to $87,151,000 at June 30, 1996, compared to $58,372,000 at December 31, 1995. 11 14 The principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. At June 30, 1996, securities maturing in one year or less amounted to $80,172,000, representing 20.8% 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 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 June 30, 1996, amounted to $478,196,000, representing 22.0% 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 June 30, 1996, Bancorp had classified $299,419,000 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 $2,146,000 for the first six months of 1996. In addition, remodeling is a planned and ongoing process given the 80 offices of Bancorp and its subsidiaries. Material commitments for capital expenditures as of June 30, 1996 were approximately $645,000. 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 June 30, 1996, was 15.2% and its total capital ratio was 16.4%. 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 1996 1995 ------------------------ ---------------------------------- JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 ---------- ---------- ---------- ---------- --------- (Dollars in thousands) Tier I Capital: Shareholder's equity $ 248,839 $ 237,430 $ 234,175 $ 220,561 $ 207,279 LEss: Intangible assets 3,432 3,601 3,770 3,711 3,883 Less: Unrealized net securities (losses) gains (244) 695 1,437 865 759 ---------- ---------- ---------- ---------- ---------- Total Tier I Capital $ 245,651 $ 233,134 $ 228,968 $ 215,985 $ 202,637 ========== ========== ========== ========== ========== Total RIsk-based Capital: Tier I Capital $ 245,651 $ 233,134 $ 228,968 $ 215,985 $ 202,637 Qualifying Allowance for Loan Losses 20,264 19,355 19,127 18,052 17,603 ---------- ---------- ---------- ---------- ---------- Total Risk-based Capital $ 265,915 $ 252,489 $ 248,095 $ 234,037 $ 220,240 ========== ========== ========== ========== ========== Risk Weighted Assets $1,621,113 $1,548,397 $1,530,181 $1,444,180 $1,408,270 ========== ========== ========== ========== ========== Risk-Based Ratios: Tier I 15.15% 15.06% 14.96% 14.96% 14.39% ========== ========== ========== ========== ========== Total Risk-Based Capital 16.40% 16.31% 16.21% 16.21% 15.64% ========== ========== ========== ========== ==========
12 15 ACCOUNTING AND REGULATORY MATTERS 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 1995. 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 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. 13 16 PART II-OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On April 23, 1996, Bancorp held its annual meeting of shareholders, the results of which follow: 1) Election of five directors:
Abstentions/ % of Total Votes Broker Non- Name Term Votes For Shares Voted Against Votes ---- ---- --------- ------------ ------- ------------ Arthur W. Bidwell 3 years 11,958,660 99.12% 18,643 1,045,667 Carl R. Fiora 3 years 11,958,725 99.12% 18,578 1,045,667 Vaden Fitton 3 years 11,958,313 99.11% 18,990 1,045,667 Barry J. Levey 3 years 11,959,057 99.13% 18,246 1,045,667 Stephen S. Marcum 3 years 11,958,377 99.12% 18,926 1,045,667
Directors whose terms continue beyond the Annual Meeting in 1996: Class II Term expiring in 1997: Richard J. Fitton Murph Knapke Stanley N. Pontius Barry S. Porter Joel H. Schmidt Class III Term expiring in 1998: Thomas C. Blake F. Elden Houts Charles T. Koehler Lauren N. Patch Donald M. Cisle 2) Amend Corporation Regulations to provide the Board flexibility to obtain qualified directors to serve on the Board at times between the annual meetings of shareholders. 11,768,121 shares, or 98.14% of the total shares voted, voted to adopt the amended corporate regulations. Of the total shares voted, 126,024 shares voted against the amendment of the regulations and there were 96,509 abstentions. No other matters were brought before the meeting for a vote. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (b) Reports on Form 8-K During the quarter ended June 30, 1996, the registrant did not file any reports on Form 8-K. 14 17 SIGNATURES 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) /s/ Michael R. O'Dell /s/ Joseph M. Gallina - ------------------------------- ------------------------------- Michael R. O'Dell, Senior Vice Joseph M. Gallina, President, Chief Financial Comptroller Officer and Secretary (Principal Accounting Officer) Date August 7, 1996 Date August 7, 1996 ------------------------ ------------------------ 15 EX-27 2 EXHIBIT 27
9 0000708955 FIRST FINANCIAL BANCORP 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 100,805 6,385 4,451 0 299,419 86,319 91,152 1,613,229 21,605 2,175,381 1,811,404 87,151 23,446 4,541 107,111 0 0 141,728 2,175,381 70,112 12,516 568 83,196 32,646 33,856 49,340 1,370 (3) 33,917 24,715 24,715 0 0 16,871 1.28 1.28 8.89 3,931 1,198 0 0 20,659 880 339 21,605 21,605 0 0
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