<PAGE> 1
------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
Commission File Number 0-12379
FIRST FINANCIAL BANCORP.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C>
Ohio 31-1042001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 High Street 45011
Hamilton, Ohio (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (513) 867-4700
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $8 Par Value
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 (section 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, 1996, there were issued and outstanding 13,022,970 shares of
Registrant's Common Stock. The aggregate market value of the voting stock held
by non-affiliates of the Registrant computed by reference to the sales price of
the last trade of such stock as of March 1, 1996, was $442,781,000. (The
exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the Registrant that such person is
an affiliate of the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated by reference into Parts I and II.
Portions of the proxy statement dated March 15, 1996 for the annual meeting
of shareholders to be held April 23, 1996 are incorporated by reference into
Part III.
------------------------------------------------------------------------
<PAGE> 2
FORM 10-K CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PART I Item 1 Business F-1
Item 2 Properties F-5
Item 3 Legal Proceedings F-6
Item 4 Submission of Matters to a Vote of Security Holders
(during the fourth quarter of 1995) F-6
Additional Item - Executive Officers F-6
- ----------------------------------------------------------------------------------------------------------------------------
PART II Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters F-7
Item 6 Selected Financial Data F-7
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations F-7
Item 8 Financial Statements and Supplementary Data F-10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure F-10
- ----------------------------------------------------------------------------------------------------------------------------
PART III Item 10 Directors and Executive Officers of the Registrant F-11
Item 11 Executive Compensation F-11
Item 12 Security Ownership of Certain Beneficial Owners and
Management F-11
Item 13 Certain Relationships and Related Transactions F-11
- ----------------------------------------------------------------------------------------------------------------------------
PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K F-12
- ----------------------------------------------------------------------------------------------------------------------------
SIGNATURES F-14
</TABLE>
<PAGE> 3
F-1
PART I
ITEM 1. BUSINESS.
First Financial Bancorp.
- ------------------------
First Financial Bancorp., an Ohio corporation (Bancorp), is a bank and savings
and loan holding company that engages in the business of commercial banking,
and other permissible activities closely related to banking, through twelve
wholly owned subsidiaries, First National Bank of Southwestern Ohio (First
Southwestern), Van Wert National Bank (Van Wert National), Bright National Bank
(Bright National), all national banking associations, Citizens Commercial Bank
& Trust Company (Citizens Commercial), Clyde Savings Bank Company (Clyde), both
Ohio banking corporations, Union Trust Bank (Union Trust), Indiana Lawrence
Bank (Indiana Lawrence), Citizens First State Bank (Citizens First), Union Bank
& Trust Company (Union Bank), and Peoples Bank and Trust Company (Peoples
Bank), all Indiana banking corporations, Fidelity Federal Savings Bank
(Fidelity Federal), and Home Federal Bank, A Federal Savings Bank (Home
Federal), both federal savings banks. Bancorp provides management and similar
services for its twelve subsidiary financial institutions. Since it does not
itself conduct any operating businesses, Bancorp must depend largely upon its
twelve subsidiaries for funds with which to pay the expenses of its operation
and, to the extent applicable, any dividends on its outstanding shares of
stock. For further information see Note 6 of the Notes to Consolidated
Financial Statements appearing on page 38 of Bancorp's Annual Report to
Shareholders, which is incorporated by reference in response to this item.
Bancorp was formed in 1982 for the purpose of becoming the parent holding
company of First Southwestern. For additional information, please see
"Subsidiaries" on page F-2.
Bancorp is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. Bancorp is also a savings and loan holding company
under the savings and loan holding company provisions of the Home Owners' Loan
Act of 1933, as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). As such, Bancorp is subject to strict
regulation regarding the acquisition of additional financial institutions and
the conduct, through subsidiaries, of non-banking activities (see "Regulation"
on page F- 3).
Bancorp faces strong competition from both financial institutions and other
non-financial organizations. Its competitors include local and regional
financial institutions, savings and loans, and bank holding companies, as well
as some of the largest banking organizations in the United States. In
addition, other types of financial institutions, such as credit unions, also
offer a wide range of loan and deposit services that are directly competitive
with those offered by Bancorp's subsidiaries. The consumer is also served by
brokerage firms and mutual funds that provide checking services, credit cards,
and other services similar to those offered by Bancorp's subsidiaries. Major
stores compete for loans by offering credit cards and retail installment
contracts. It is anticipated that competition from entities other than
financial institutions will continue to grow.
The range of banking services provided by Bancorp's subsidiaries to their
customers includes commercial lending, real estate lending, consumer credit,
credit card, and other personal loan financing. Fidelity Federal and Home
Federal are full service savings banks with their primary business being the
promotion of thrift through the solicitation of savings accounts from the
general public and the promotion of home ownership through the granting of
mortgage loans, primarily to finance the purchase, construction, and
improvement of residential real estate. First
<PAGE> 4
F-2
Southwestern, Citizens Commercial, Van Wert National, Citizens First, Clyde,
and Bright National also offer lease financing. In addition, the institutions
offer deposit services that include interest-bearing and noninterest-bearing
deposit accounts and time deposits. Most subsidiaries provide safe deposit
facilities. A full range of trust and asset management services is provided by
Bancorp's subsidiaries, excluding the savings banks. Each subsidiary retains
its local identity and operates under the direction of its own board of
directors and officers.
Bancorp and its subsidiaries operate in one business segment--the financial
institutions industry. Foreign transactions are nominal. Information
regarding statistical disclosure required by Industry Guide 3 is included in
Bancorp's Annual Report to Shareholders for the year ended December 31, 1995,
and is incorporated herein by reference.
At December 31, 1995, Bancorp and its subsidiaries employed 1,173 employees.
Bancorp's executive office is located at 300 High Street, Hamilton, Ohio
45011, and its telephone number is (513)867-4700.
Subsidiaries
- ------------
First Southwestern was formed as the result of a consolidation of the First
National Bank and Trust Company of Hamilton and the First National Bank of
Middletown in 1980. On April 26, 1983, Bancorp acquired all of the outstanding
capital stock of First Southwestern. At December 31, 1995, First Southwestern
had 29 offices located in Butler, Warren, Preble, and Hamilton Counties in Ohio
with total deposits of $769 million. First Southwestern has a total of 29
automated teller machines (ATM) of which four ATM's are at sites other than
branches.
Bancorp acquired 100% of the outstanding stock of Citizens Commercial on April
29, 1983. Citizens Commercial operates five offices and two ATM's in Mercer
County, Ohio, one of which is at a site other than a branch with deposits of
$182 million at December 31, 1995.
On July 31, 1988, NB Banc Corp, the parent holding company of Van Wert
National, merged into and out of existence with Bancorp leaving Van Wert
National as a wholly owned subsidiary of Bancorp. Van Wert National operates
five offices and has two ATM's in Van Wert County, Ohio with deposits of $104
million at December 31, 1995.
Union Trust merged with Bancorp on September 1, 1989, as a wholly owned
subsidiary. Union Trust has one ATM and operates two offices in Randolph
County, Indiana and had $36 million in deposits on December 31, 1995.
On September 1, 1989, ILB Financial Corp. was merged into and out of existence
with Bancorp. ILB Financial Corp. was the one bank holding company of Indiana
Lawrence. This merger resulted in Indiana Lawrence becoming a wholly owned
subsidiary of Bancorp. As of December 31, 1995, Indiana Lawrence had deposits
of $75 million, one ATM, and operated five offices in Wabash County, Indiana.
Fidelity Federal merged with Bancorp on September 21, 1990 as a wholly owned
subsidiary. Fidelity Federal operates three offices in Grant County, Indiana.
Total deposits at December 31, 1995 were $55 million.
<PAGE> 5
F-3
Citizens First joined Bancorp on October 1, 1990 as two separate entities,
Trustcorp Bank, Hartford City, and Trustcorp Bank, Dunkirk. These two entities
were purchased from Society Corporation for cash. On that same date, Trustcorp
Bank, Hartford City was renamed Citizens First State Bank of Hartford City and
Trustcorp Bank, Dunkirk was renamed Citizens First State Bank of Dunkirk. On
July 1, 1991, those two banks merged to become one wholly owned subsidiary of
Bancorp. Citizens First operates four offices in Blackford County, Indiana,
one office in Jay County, Indiana, and one office in Delaware County, Indiana.
Citizens First has four ATM's of which one is at a site other than branches,
and had total deposits of $88 million at December 31, 1995.
Bancorp purchased Home Federal on October 1, 1991. In November, 1995, Home
Federal and Fayette Federal combined operations, with Fayette Federal operating
as a division of Home Federal. Home Federal operates five offices in Butler
County, Ohio, two offices in Hamilton County, Ohio, one office in Fayette
County, Indiana and one office in Franklin County, Indiana, with total deposits
of $241 million at December 31, 1995. Home Federal has five ATM's of which
three are at sites other than branches.
On January 4, 1993, Jennings Union Bankcorp, the parent holding company of
Union Bank, merged into and out of existence with Bancorp leaving Union Bank as
a wholly owned subsidiary of Bancorp. Union Bank operates two offices in
Jennings County, Indiana with total deposits at December 31, 1995 of $71
million.
On June 1, 1994, First Clyde Banc Corp., the parent holding company of Clyde,
merged into and out of existence with Bancorp leaving Clyde as a wholly owned
subsidiary of Bancorp. Clyde operates two offices and one ATM in Sandusky
County in Ohio, with $60 million in total deposits as of December 31, 1995.
On July 16, 1995, Peoples Bank and Trust Company merged with Bancorp. Located
in Sunman, Indiana, Peoples Bank operates one office in Ripley County, Indiana
with total deposits of $43 million at December 31, 1995.
On October 1, 1995, Bright Financial Services, Inc., Flora, Indiana merged with
and into Bancorp leaving its subsidiary, Bright National Bank, as a wholly
owned Bancorp subsidiary. With deposits at December 31, 1995 of $103 million,
Bright National operates four offices in Carroll County, Indiana, two offices
in Tippecanoe County, Indiana and one office in Clinton County, Indiana.
Regulation
- ----------
First Southwestern, Van Wert National and Bright National, as national banking
associations, are subject to supervision and regular examination by the
Comptroller of the Currency. Citizens Commercial and Clyde, as Ohio state
chartered banks, are subject to supervision and regular examination by the
Superintendent of Banks of the State of Ohio. First Southwestern, Citizens
Commercial, Van Wert National, Clyde, Peoples Bank and Bright National are
members of the Federal Reserve System and, as such, are subject to the
applicable provisions of the Federal Reserve Act. Citizens Commercial is also
subject to regular examination by the Federal Reserve System. Union Trust,
Indiana Lawrence, Citizens First, Union Bank and Peoples Bank, as Indiana state
chartered banks, are subject to supervision and regular examination by the
Indiana Department of Financial Institutions. Fidelity Federal and Home
Federal, as federal savings banks, are subject to supervision and regular
examination by the Office of Thrift Supervision. Since
<PAGE> 6
F-4
Fidelity Federal is located in Indiana, it is also subject to examination by
the Indiana Department of Financial Institutions. All twelve institutions are
insured by the Federal Deposit Insurance Corporation and are subject to the
provisions of the Federal Deposit Insurance Act.
To the extent that the information below consists of summaries of certain
statutes or regulations, it is qualified in its entirety by reference to the
statutory or regulatory provisions described.
Bancorp is subject to the provisions of the Bank Holding Company Act of 1956,
as amended (the Act), which requires a bank holding company to register under
the Act and to be subject to supervision and examination by the Board of
Governors of the Federal Reserve System. As a bank holding company, Bancorp is
required to file with the Board of Governors an annual report and such
additional information as the Board of Governors may require pursuant to the
Act. The Act requires prior approval by the Board of Governors of the
acquisition by a bank holding company, or any subsidiary thereof, of 5% or more
of the voting stock or substantially all the assets of any bank within the
United States. Prior to the passage of FIRREA, it was not possible for bank
holding companies, such as Bancorp, to acquire "healthy" thrift institutions.
Although such acquisitions are now authorized, mergers between bank holding
companies and thrift institutions must be approved by the Federal Reserve Board
and the Office of Thrift Supervision. Once a bank holding company acquires a
thrift institution, it is then considered a savings and loan holding company,
as well, which is subject to regulation and examination by the Office of Thrift
Supervision. As a bank holding company located in the State of Ohio, Bancorp
is not permitted to acquire a bank or other financial institution located in
another state unless such acquisition is specifically authorized by the
statutes of such state, as is the case in Indiana. The Act further provides
that the Board of Governors shall not approve any such acquisition that would
result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, or the effect of which may be to substantially
lessen competition or to create a monopoly in any section of the country, or
that in any other manner would be in restraint of trade, unless the
anti-competitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
The Act also prohibits a bank holding company, with certain exceptions, from
acquiring 5% or more of the voting stock of any company that is not a bank and
from engaging in any business other than banking or performing services for its
banking subsidiaries without the approval of the Board of Governors. In
addition, the acquisition of a thrift institution must be approved by the
Office of Thrift Supervision pursuant to the savings and loan holding company
provisions of the Home Owners' Loan Act of 1933, as amended by FIRREA. The
Board of Governors is also authorized to approve, among other things, the
ownership of shares by a bank holding company in any company the activities of
which the Board of Governors has determined to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. The Board
of Governors has, by regulation, determined that certain activities, including
mortgage banking, operating small loan companies, factoring, furnishing certain
data processing operations, holding or operating properties used by banking
subsidiaries or acquired for such future use, providing certain investment and
financial advice, leasing (subject to certain conditions) real or personal
property, providing management consulting advice to certain depository
institutions, providing securities brokerage services, arranging commercial
real estate equity financing, underwriting and dealing in government
obligations and money market instruments, providing consumer financial
counseling, operating a collection agency, owning and operating a savings
<PAGE> 7
F-5
association, operating a credit bureau and conducting certain real estate
investment activities and acting as insurance agent for certain types of
insurance, are closely related to banking within the meaning of the Act. It
also has determined that certain other activities, including real estate
brokerage and syndication, land development, and property management, are not
related to credit transactions and are not permissible.
The Act and the regulations of the Board of Governors prohibit a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or
furnishing of services. The Act also imposes certain restrictions upon dealing
by affiliated banks with the holding company and among themselves including
restrictions on interbank borrowing and upon dealings in respect to the
securities or obligations of the holding company or other affiliates.
The earnings of banks, and therefore the earnings of Bancorp (and its
subsidiaries), are affected by the policies of regulatory authorities,
including the Board of Governors of the Federal Reserve System. An important
function of the Federal Reserve Board is to regulate the national supply of
bank credit in an effort to prevent recession and to restrain inflation. Among
the procedures used to implement these objectives are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings, and changes in reserve requirements against member bank deposits.
These procedures are used in varying combinations to influence overall growth
and distribution of bank loans, investments and deposits, and their use also
may affect interest rates charged on loans or paid for deposits.
Monetary policies of the Federal Reserve Board have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effect, if any, of such policies upon the
future business and earnings of Bancorp cannot accurately be predicted.
Bancorp makes no attempt to predict the effect on its revenues and earnings of
changes in general economic, industrial, and international conditions or in
legislation and governmental regulations.
ITEM 2. PROPERTIES.
The registrant and its subsidiaries operate from 50 offices in Ohio, including
Bancorp's executive office in Hamilton, Ohio and 26 offices in Indiana.
Twenty-eight of the offices are located in Butler County, Ohio, of which four
branches are built on leased land and there are seven branches wherein the land
and building are leased. Excess space in three facilities is leased to third
parties. Five offices are located in Mercer County, Ohio, five in Van Wert
County, Ohio, three in Preble County, Ohio, three in Warren County, Ohio, three
in Hamilton County, Ohio, and two in Sandusky County, Ohio. Five offices are
located in Wabash County, Indiana, of which one office is built on leased land
with a purchase option on the land. Two offices are in Randolph County,
Indiana, three in Grant County, Indiana, one in Jay County, Indiana, four in
Blackford County, Indiana, one in Fayette County, Indiana, one in Franklin
County, Indiana, two in Jennings County, Indiana, four in Carroll County,
Indiana, two in Tippecanoe County, Indiana and one in Clinton County, Indiana.
One office is located in Delaware County, Indiana, of which both the land and
building are leased. All leases are comparable to other leases in the
respective market areas and
<PAGE> 8
F-6
do not contain provisions detrimental to the registrant or its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
Except for routine litigation incident to their business, the registrant and
its subsidiaries are not a party to any material pending legal proceedings and
none of their property is the subject of any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders during the fourth quarter of
1995.
ADDITIONAL ITEM - EXECUTIVE OFFICERS.
Listed below are the Executive Officers of Bancorp as of December 31, 1995.
The Executive Officers will serve until the first meeting of the Board of
Directors following the next annual meeting of shareholders, scheduled to be
held on April 23, 1996 or until their successors are elected and duly
qualified. All Executive Officers are chosen by the Board of Directors by a
majority vote.
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- -----------------------------------------------
<S> <C> <C>
Stanley N. Pontius 49 President and Chief Executive Officer, Director
Richard E. Weinman 61 Executive Vice President, Chief Financial
Officer, Secretary, and Treasurer
James J. Ashburn 65 Senior Vice President
Rick L. Blossom 48 Senior Vice President, Chief Lending Officer
</TABLE>
The following is a brief description of the business experience over the past
five years of the individuals named above.
Stanley N. Pontius became Chief Executive Officer of Bancorp in July, 1992.
Mr. Pontius was Chief Operating Officer from March, 1991 until July, 1992.
Upon joining Bancorp in March, 1991 he assumed the responsibilities of
President and Chief Operating Officer, as well as a director. He also became
President, Chief Executive Officer, and a director of First Southwestern.
Prior to coming to Bancorp, Mr. Pontius served as President and Chief Executive
Officer of Bank One, Mansfield, Mansfield, Ohio from 1988 to 1991.
Richard E. Weinman retired in the first quarter 1996, after forty years of
service with First Southwestern and 12 years with Bancorp. Mr. Weinman became
Executive Vice President, Chief Financial Officer, Secretary and Treasurer in
December, 1994. Since December 30, 1988, Mr. Weinman had served as Senior
Vice President, Chief Financial Officer, Secretary and Treasurer of Bancorp.
Mr. Weinman has served as Bancorp's Principal Financial Officer since its
formation in 1982. In December of 1994, Mr. Weinman also became Executive Vice
President and Chief Financial Officer of First Southwestern. Since October,
1991, Mr. Weinman had been Senior Vice President and Chief Financial Officer of
First Southwestern. Mr. Weinman was Cashier of First Southwestern from
November 1980 to October 1991. He served as Senior Vice President of First
Southwestern for over five years.
<PAGE> 9
F-7
James J. Ashburn became Senior Vice President of Bancorp on December 30, 1988.
He had been Vice President of Bancorp since April, 1983. He has served as a
Senior Vice President and Senior Trust Officer of First Southwestern for over
five years.
Rick L. Blossom became Chief Lending Officer of Bancorp effective January 12,
1996. Mr. Blossom remains Senior Vice President of Bancorp, a position he has
held since September 26, 1990. On January 12, 1996, he also became Executive
Vice President of First Southwestern, retaining his Chief Lending Officer
status. He previously held the title of Senior Vice President/Retail Lending
of First Southwestern. On March 4, 1991, he was promoted to Chief Lending
Officer of First Southwestern, while retaining his Senior Vice President
status. He had served as First Vice President/Retail Lending of First
Southwestern since March, 1989.
Michael R. O'Dell became Senior Vice President, Chief Financial Officer and
secretary of Bancorp on January 12, 1996. He had served as Bancorp's
Comptroller since December, 1994. Mr. O'Dell was also promoted to Senior Vice
President and Chief Financial Officer of First Southwestern in January, 1996.
He had served as First Vice President and Comptroller since 1991.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Bancorp had 3,938 common stock shareholders of record as of March 1, 1996.
Bancorp's common equity is listed with the National Association of Securities
Dealers, Inc. (NASDAQ) and is traded on the Over-the-Counter Market. The
information contained on page 48 of Bancorp's Annual Report to Shareholders for
the year ended December 31, 1995 is incorporated herein by reference in
response to this item.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained in Table 1 on page 22 of Bancorp's Annual Report to
Shareholders for the year ended December 31, 1995 is incorporated herein by
reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information contained on pages 21 through 31 of Bancorp's Annual Report
to Shareholders for the year ended December 31, 1995 is incorporated herein by
reference in response to this item.
The financial and statistical data presented on the following pages, when
viewed along with the financial and statistical data presented in pages 21
through 48 of Bancorp's Annual Report to Shareholders, provides a detailed
review of Bancorp's business activities.
Investment Portfolio
- --------------------
At December 31, 1995, Bancorp's investment portfolio included no investments
which were not issued by the U.S. Government, its agencies, or corporations and
which exceeded ten percent of Bancorp's shareholders' equity.
<PAGE> 10
F-8
Loan Portfolio
- --------------
The following table shows the composition of Bancorp's loan portfolio at the
end of each of the last five years:
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 340,942 $ 286,635 $ 247,052 $ 237,935 $ 236,050
Real estate--construction 41,845 29,273 31,597 15,283 28,831
Real estate--mortgage 788,805 746,150 665,390 658,689 701,150
Installment 329,034 285,412 214,600 195,947 210,461
Credit card 15,406 15,599 16,703 17,946 19,216
Lease financing 16,557 16,102 14,872 13,035 11,115
---------- ---------- ---------- ---------- ----------
Total loans $1,532,589 $1,379,171 $1,190,214 $1,138,835 $1,206,823
========== ========== ========== ========== ==========
</TABLE>
Nonperforming Assets
- --------------------
The accrual of interest on a loan is discontinued and interest collected on
such loan is credited to loan principal if, in the opinion of management, full
collection of principal is doubtful. The following table summarizes Bancorp's
nonaccrual loans, restructured loans, other real estate owned/in-substance
foreclosures, and past due loans as of the end of each of the last five years:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 2,764 $ 2,412 $ 4,679 $ 9,216 $18,847
Restructured loans 517 1,429 605 719 1,868
OREO and ISF* 1,677 2,116 3,673 9,549 4,528
------- ------- ------- ------- -------
Total nonperforming assets $ 4,958 $ 5,957 $ 8,957 $19,484 $25,243
======= ======= ======= ======= =======
Nonperforming assets as a
percent of total loans plus
OREO and ISF 0.32% 0.43% 0.75% 1.70% 2.08%
Accruing loans past due
90 days or more 1,071 683 1,321 1,547 1,940
<FN>
*Other Real Estate Owned and In-Substance Foreclosures
</TABLE>
As a result of management's continued effort to improve asset quality, OREO and
ISF decreased $439,000 in 1995, $1,557,000 in 1994 and $5,876,000 in 1993. Of
the $5,021,000 increase in 1992 compared to 1991, approximately 30.0% was
farming properties with the majority of the remaining increase being commercial
real estate properties.
Of the $25.2 million in total nonperforming assets in 1991, 52.0% were a result
of the acquisition of two financial institutions each of which had a large
amount in nonperforming assets. These nonperforming assets were known in
advance of the acquisitions and were taken into consideration in their pricing.
<PAGE> 11
F-9
Potential Problem Loans
- -----------------------
At December 31, 1995, Bancorp had $3,354,000 in loans for which payments were
presently current, but the borrowers were experiencing financial difficulties.
These loans are a combination of commercial, real estate, and installment loans
and are not included as part of nonaccrual loans, nor are they included within
restructured loans or loans past due 90 days or more and still accruing.
However, these loans are subject to constant monitoring by management, and
their status is reviewed on a continual basis. These loans were considered by
management in determining the adequacy of the recorded allowance for loan
losses at December 31, 1995.
Loan Loss Data
- --------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in thousands)
Transactions in the allowance for loan losses:
<S> <C> <C> <C> <C> <C>
Balance at January 1 $18,609 $18,380 $17,014 $17,739 $14,061
Loans Charged off:
Commercial 790 648 1,634 3,600 2,136
Real estate--construction 1,059 64
Real estate--mortgage 26 124 320 1,763 726
Installment and other
consumer financing 1,721 1,248 1,580 1,936 3,037
Lease financing 107 132 155 44 52
------- ------- ------- ------- -------
Total loans charged off 2,644 2,152 3,689 8,402 6,015
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Commercial 546 384 538 346 505
Real estate--construction 8 56 10
Real estate--mortgage 39 41 65 143 123
Installment and other
consumer financing 592 653 676 582 558
Lease financing 17 35 29 7 21
------- ------- ------- ------- -------
Total recoveries 1,202 1,113 1,308 1,134 1,217
------- ------- ------- ------- -------
Net charge-offs 1,442 1,039 2,381 7,268 4,798
Allowance acquired through mergers
and acquisitions 1,162 3,090
Provision for loan losses 2,108 1,268 3,747 6,543 5,386
------- ------- ------- ------- -------
Balance at December 31 $20,437 $18,609 $18,380 $17,014 $17,739
======= ======= ======= ======= =======
Ratios:
Net charge-offs as a percent of:
Average loans outstanding 0.10% 0.08% 0.21% 0.63% 0.56%
Provision 68.41% 81.94% 63.54% 111.08% 89.08%
Allowance 7.06% 5.58% 12.95% 42.72% 27.05%
Allowance as a percent of:
5 year moving average of
net charge-offs 603.64% 402.18% 347.24% 313.95% 381.86%
Year-end loans, net of
unearned income 1.33% 1.35% 1.54% 1.50% 1.47%
</TABLE>
<PAGE> 12
F-10
Allocation of the Allowance for Loan Losses
- -------------------------------------------
The following table shows an allocation of the allowance for loan losses for
each of the five years indicated:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------ ------------
$ % $ % $ % $ % $ %
------- ---- ------- ---- ------- ---- ------ ---- ------ ----
Balance at End (Dollars in thousands)
of Period Appli-
cable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,254 22% $ 4,395 21% $ 4,457 21% $ 5,088 21% $ 4,377 20%
Real estate-
construction 210 3% 340 2% 300 3% 64 1% 462 2%
Real estate-
mortgage 3,713 52% 2,552 54% 4,305 56% 4,796 58% 5,367 58%
Installment &
credit card 4,184 22% 3,298 22% 3,104 19% 3,308 19% 4,316 19%
Lease financing 196 1% 154 1% 512 1% 733 1% 113 1%
Unallocated 7,880 N/A 7,870 N/A 5,702 N/A 3,025 N/A 3,104 N/A
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
$20,437 100% $18,609 100% $18,380 100% $17,014 100% $17,739 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
<FN>
$ - Dollar Amount
% - Percent of Loans in Each Category to Total Loans
</TABLE>
Dividend Payout Ratio
- ---------------------
The dividend payout ratios for 1995, 1994 and 1993 were 42.5%, 41.9%, and
39.2%, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and report of independent auditors
included on pages 32 through 47 of the Annual Report to Shareholders for the
year ended December 31, 1995 are incorporated herein by reference.
The Quarterly Financial and Common Stock Data on page 48 of the Annual Report
to Shareholders for the year ended December 31, 1995 is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements with accountants on any accounting or financial disclosure
occurred during the periods covered by this report.
<PAGE> 13
F-11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by Item 10 is contained under "Shareholdings of
Directors, Executive Officers, and Nominees for Director" on pages 2 through 5
of Bancorp's Proxy Statement, dated March 15, 1996 with respect to the Annual
Meeting of Shareholders to be held on April 23, 1996 which was filed pursuant
to Regulation 14(A) of the Securities Exchange Act of 1934 and which is
incorporated herein by reference in response to this item.
Reference is also made to "Additional Item - Executive Officers" included in
Part I of this Form 10-K in partial response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under "Meetings of the Board of Directors and
Committees of the Board" on page 6, "Executive Compensation" on pages 7 through
11, and under "Compensation Committee Report" on pages 12 through 13 of
Bancorp's Proxy Statement dated March 15, 1996 is incorporated herein by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under "Shareholdings of Directors, Executive
Officers, and Nominees for Director" on pages 2 and 3 of Bancorp's Proxy
Statement dated March 15, 1996 is incorporated herein by reference in response
to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in Note 14 of the Notes to Consolidated Financial
Statements included on page 44 of Bancorp's Annual Report to Shareholders is
incorporated herein by reference in response to this item.
<PAGE> 14
F-12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Documents filed as a part of the Report: Page*
-----
<S> <C> <C>
(1) Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . 47
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . 32
Consolidated Statements of Earnings for year ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows for year ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Changes in Shareholders' Equity
for year ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 36
(2) Financial Statement Schedules:
Schedules to the consolidated financial statements
required by Regulation S-X are not required under the
related instructions, or are inapplicable, and therefore
have been omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
</TABLE>
_______________________________________________________________________________
*THE PAGE NUMBERS INDICATED REFER TO PAGES OF THE REGISTRANT'S ANNUAL REPORT TO
SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 WHICH ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE> 15
F-14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius
---------------------------------
Stanley N. Pontius, Director
President and Chief Executive Officer
Date 2-27-96
- -------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
(Signed) /s/ Richard J. Fitton (Signed) /s/ Michael R. O'Dell
- ----------------------------------------- ----------------------------------------
Richard J. Fitton, Director Michael R. O'Dell,
Chairman of the Board Senior Vice President, Chief Financial
Officer, and Secretary
Date 2-27-96 Date 2-27-96
------------------------------------- -----------------------------------
(Signed) /s/ Stanley N. Pontius (Signed) /s/ Murph Knapke
- ----------------------------------------- ----------------------------------------
Stanley N. Pontius Murph Knapke, Director
President and Chief Executive Officer
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
(Signed) /s/ Carl R. Fiora (Signed) /s/ Barry Levey
- ----------------------------------------- ----------------------------------------
Carl R. Fiora, Director Barry Levey, Director
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
(Signed) /s/ Charles T. Koehler (Signed) /s/ Arthur W. Bidwell
- ----------------------------------------- ----------------------------------------
Charles T. Koehler, Director Arthur W. Bidwell, Director
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
</TABLE>
<PAGE> 16
F-15
SIGNATURES (CONT'D)
<TABLE>
<S> <C>
(Signed) /s/ Elden Houts (Signed) /s/ Vaden Fitton
- ----------------------------------------- ----------------------------------------
F. Elden Houts, Director Vaden Fitton, Director
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
(Signed) /s/ Lauren N. Patch (Signed) /s/ Don M. Cisle
- ----------------------------------------- ----------------------------------------
Lauren N. Patch, Director Don M. Cisle, Director
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
(Signed) /s/ Thomas C. Blake (Signed) /s/ Joseph M. Gallina
- ----------------------------------------- ----------------------------------------
Thomas C. Blake, Director Joseph M. Gallina, Comptroller
Date 2-27-96 Date 2-27-96
------------------------------------- ------------------------------------
(Signed) /s/ Barry S. Porter
- -----------------------------------------
Barry S. Porter, Director
Date 2-27-96
-------------------------------------
</TABLE>
<PAGE> 17
1995
FIRST FINANCIAL BANCORP
ANNUAL REPORT
TABLE OF CONTENTS
Service Creed ............................................................. 1
Letter to Shareholders .................................................... 3
Editorial Review .......................................................... 6
Affiliate Office Locations ................................................ 17
Bancorp Board of Directors and Officers ................................... 20
Affiliate Directors and Officers .......................................... 20
Management's Discussion and Analysis ...................................... 21
Consolidated Financial Statements ......................................... 32
Notes to Consolidated Financial Statements ................................ 36
Quarterly Financial and Common Stock Data ................................. 48
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders
will be held in Hamilton, Ohio, at
the Fitton Center for Creative Arts,
101 South Monument Avenue,
on Tuesday, April 23, 1996, beginning at 2:00 p.m.
FORM 10-K
Copies of First Financial Bancorp's Form 10-K may be
obtained by writing to:
Michael R. O'Dell, Comptroller
First Financial Bancorp
300 High Street, P.O. Box 476
Hamilton, Ohio 45012-0476
513-425-7573 (FAX)
TRANSFER AGENT AND REGISTRAR
First National Bank
of Southwestern Ohio
Trust Division
2 North Main Street, P.O. Box 220
Middletown, Ohio 45042-0220
513-425-7569
513-425-7573 (FAX)
NASDAQ OTC NATIONAL MARKET
Common Stock Symbol: FFBC
<PAGE> 18
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of operations of First
Financial Bancorp. (Bancorp). It identifies trends and material changes that
occurred during the reporting periods and should be read in conjunction with
the consolidated financial statements and accompanying notes.
Bancorp is a bank and savings and loan holding company headquartered in
Hamilton, Ohio. As of December 31, 1995, Bancorp owned twelve subsidiaries
located primarily in western Ohio and eastern and west-central Indiana. Also,
as of December 31, 1995, Bancorp was in the process of incorporating a new
subsidiary to be named First Finance Mortgage Company of Southwestern Ohio,
Inc. Management currently intends to conduct business under the name of "First
Finance." This new organization will be a finance company and is expected to
open during the first quarter of 1996 in Fairfield, Ohio.
On November 28, 1995, the Board of Directors approved a regular
quarterly cash dividend of 30 cents per share payable January 2, 1996, to
shareholders of record as of December 8, 1995.
The major components of Bancorp's operating results for the past five
years are summarized in Table 1 and discussed in greater detail on subsequent
pages which should be read in conjunction with the statistical data and
consolidated financial statements on pages 31 through 48.
RECENT AND PENDING MERGERS
On September 11, 1995, Bancorp signed a Plan and Agreement of Merger
with F&M Bancorp (F&M). F&M's only subsidiary, Farmers & Merchants Bank of
Rochester (Farmers & Merchants), has its main office and one other office in
Rochester, Indiana and one office in Kewanna, Indiana. Upon consummation of the
merger, F&M will be merged out of existence and Farmers & Merchants will be
merged with and into Indiana Lawrence Bank, a wholly owned subsidiary of
Bancorp. Farmers & Merchants' offices will become branches of Indiana Lawrence
Bank, the surviving entity. Subject to regulatory approval and approval by
F&M's shareholders, the merger is expected to occur during the second quarter
of 1996. Bancorp anticipates the merger will be accounted for using the
pooling-of-interests accounting method.
On October 1, 1995, Bancorp issued 442,876 shares of its common stock
for all the outstanding common stock of Bright Financial Services, Inc. (Bright
Financial). Upon consummation of the merger, Bright Financial was merged out of
existence and its only subsidiary, Bright National Bank (Bright), became a
wholly owned subsidiary of Bancorp. This merger was accounted for using the
pooling-of-interests method of accounting. The consolidated financial
statements for prior periods have not been restated due to immateriality.
On July 16, 1995, Bancorp issued 354,645 shares of its common stock for
all the outstanding common stock of Peoples Bank and Trust Company (Peoples).
Upon consummation of the merger, Peoples became a wholly owned subsidiary of
Bancorp. This merger was accounted for using the pooling-of-interests
accounting method. The consolidated financial statements for prior periods have
not been restated due to immateriality.
On June 1, 1994, Bancorp issued 287,699 shares of its common stock for
all the outstanding common stock of First Clyde Banc Corp. Upon consummation of
the merger, First Clyde Banc Corp was merged out of existence and its only
subsidiary, The Clyde Savings Bank Company (Clyde), became a wholly owned
subsidiary of Bancorp. This merger was accounted for as a pooling-of-interests,
and accordingly, the consolidated financial statements, including earnings per
share, have been restated for the periods prior to the merger to include the
accounts and operations of Clyde.
On February 1, 1994, Bancorp issued 198,386 shares of its common stock
for all the outstanding shares of Highland Federal Savings Bank (Highland).
Upon consummation of the merger, Highland was merged into Home Federal Bank, A
Federal Savings Bank (Home Federal). Home Federal, a wholly owned subsidiary of
Bancorp, was the surviving entity with Highland's offices becoming branches of
Home Federal. This merger was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements, including earnings per
share, have been restated for the periods prior to the merger to include the
accounts and operations of Highland.
On January 4, 1993, Bancorp issued 287,414 shares of its common stock
for all the outstanding common stock of Jennings Union Bankcorp. Upon
consummation of the merger, Jennings Union Bankcorp was merged out of existence
and its only subsidiary, Union Bank & Trust Company (Union), became a wholly
owned subsidiary of Bancorp. The merger was accounted for as a
pooling-of-interests and, accordingly, the consolidated financial statements,
including earnings per share, have been restated for the periods prior to the
merger to include the accounts and operations of Union.
OVERVIEW OF OPERATIONS
- ----------------------
Bancorp's earnings during 1995 reached a record $31,789,000 or $2.55 per
share, representing a 12.8% growth over 1994's net earnings and a 10.4%
increase over 1994 earnings per share. Net earnings in 1994 were $28,173,000
($2.31 per share), reflecting an 11.8% increase from 1993 net earnings of
$25,194,000 ($2.06 per share). The 1995 earnings increase was achieved
primarily through an increase in net interest income. The 1994 earnings
increase was achieved through an increase in net interest income and a
reduction in the provision for loan losses, which was due to Bancorp's improved
asset quality.
Key industry performance ratios increased in 1995 over the previous two
years. Bancorp's return on assets was 1.64%, 1.54% and 1.41% for 1995, 1994 and
1993, respectively. Bancorp's return on equity for 1995 was 15.0% compared to
14.9% and 14.5% for 1994 and 1993, respectively.
NET INTEREST INCOME
- -------------------
Net interest income, Bancorp's principal source of earnings, is the
excess of interest received from earning assets over interest paid on
interest-bearing liabilities. Bancorp's net interest income for the years 1991
through 1995 is shown in Table 1. For analytical purposes, a section showing
interest income on a tax equivalent basis is also presented in Table 1. The tax
equivalent adjustment recognizes the income tax savings when comparing taxable
and tax-exempt assets and assumes a 35.0% tax rate in 1995, 1994 and 1993 and a
34.0% tax rate in prior years.
The amount of net interest income is determined by the volume and mix of
earning assets, the rates earned on such earning assets and the volume, mix and
rates paid for the deposits and borrowed money that support the earning assets.
Table 2 describes the extent to which changes in interest rates and changes in
volume of earning assets and interest-bearing liabilities have affected
Bancorp's net interest income during the years indicated. The combined effect
of changes in both volume and rate has been allocated proportionately to the
change due to volume and the change due to rate. Table 2 should be read in
conjunction with the Statistical Information shown on page 31.
Tax equivalent total interest income was $158,137,000 in 1995, an
increase of $19,151,000 over 1994. Approximately $9,845,000 of this increase
was due to an increase in average rates earned from 8.15% during 1994 to 8.75%
during 1995. The increase
21
<PAGE> 19
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
TABLE 1 * FINANCIAL SUMMARY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Summary of operations
Interest income $ 153,851 $ 133,504 $ 130,739 $ 143,439 $ 152,649
Tax equivalent adjustment 4,286 5,482 5,922 5,875 6,222
------- ------- ------- ------- -------
Interest income - tax equivalent 158,137 138,986 136,661 149,314 158,871
Interest expense 63,516 49,587 51,880 66,958 85,140
------- ------- ------- ------- -------
Net interest income - tax equivalent $ 94,621 $ 89,399 $ 84,781 $ 82,356 $ 73,731
======= ======= ======= ======= =======
Interest income $ 153,851 $ 133,504 $ 130,739 $ 143,439 $ 152,649
Interest expense 63,516 49,587 51,880 66,958 85,140
------- ------- ------- ------- -------
Net interest income 90,335 83,917 78,859 76,481 67,509
Provision for loan losses 2,108 1,268 3,747 6,543 5,387
Noninterest income 20,558 17,462 19,589 19,814 16,124
Noninterest expenses 63,345 62,139 62,038 60,639 54,616
------- ------- ------- ------- -------
Income before income taxes and cumulative
effect of changes in accounting principles 45,440 37,972 32,663 29,113 23,630
Income tax expense 13,651 9,799 7,469 7,343 5,030
Income before cumulative effect of changes in ------- ------- ------- ------- -------
accounting principles 31,789 28,173 25,194 21,770 18,600
Cumulative effect of changes in accounting principles 1,698
------ ------- ------- ------- -------
Net earnings $ 31,789 $ 28,173 $ 25,194 $ 23,468 $ 18,600
======= ======= ======= ======= =======
Tax equivalent basis was calculated using a marginal federal income tax rate of
35.0% in 1995, 1994 and 1993 and a 34.0% tax rate for all other years
presented
Per share data (1)
Income before cumulative effect of changes in
accounting principles 2.55 $ 2.31 $ 2.06 $ 1.77 $ 1.51
Cumulative effect of changes in accounting principles 0.14
---- ---- ---- ---- ----
Net earnings $ 2.55 $ 2.31 $ 2.06 $ 1.91 $ 1.51
====== ====== ====== ==== =====
Cash dividends declared
First Financial Bancorp $ 1.08 $ 0.98 $ 0.82 $ 0.74 $ 0.66
Jennings Union Bankcorp (2) N/A N/A $ 2.00 $ 2.00
Highland Federal Savings Bank N/A $ 0.85 $ 0.75 $ 0.75
First Clyde Banc Corp (3) N/A $ 0.50 $ 2.00 $ 1.80 $ 1.60
Average common shares outstanding (in thousands) 12,488 12,211 12,211 12,319 12,358
Selected year-end balances
Total assets $ 2,103,375 $ 1,922,643 $ 1,810,673 $ 1,816,414 $ 1,860,955
Earning assets 1,941,274 1,764,616 1,670,009 1,662,413 1,721,867
Investment securities held-to-maturity 93,522 135,187 438,461 457,919 319,266
Investment securities available-for-sale 294,052 242,410
Investment securities held for sale 123,572
Loans, net of unearned income 1,532,016 1,378,867 1,189,790 1,137,482 1,204,860
Deposits 1,785,562 1,587,324 1,580,546 1,604,053 1,663,310
Noninterest-bearing demand deposits 220,061 201,331 182,192 181,696 155,888
Interest-bearing demand deposits 302,119 266,601 277,444 249,531 224,274
Savings deposits 359,638 374,378 403,845 400,632 354,170
Time deposits 903,744 745,014 717,065 772,194 928,978
Long-term borrowings 2,820 3,983 4,564 5,119
Shareholders' equity 234,175 194,673 181,252 167,694 154,207
Ratios based on average balances
Loans to deposits 89.01% 80.79% 74.14% 72.40% 73.54%
Net charge-offs to loans 0.10% 0.08% 0.21% 0.63% 0.44%
Shareholders' equity to
Total assets 10.98% 10.29% 9.73% 8.84% 8.77%
Deposits 13.06% 12.05% 11.10% 9.94% 9.82%
Return on Assets 1.64% 1.54% 1.41% 1.30% 1.11%
Return on Equity 14.97% 14.93% 14.54% 14.70% 12.64%
Net interest margin (tax equivalent basis) 5.24% 5.25% 5.14% 4.91% 4.72%
<FN>
(1) First Financial Bancorp's per share data has been restated for all stock
dividends and material pooling-of-interests mergers through 1995.
(2) Jennings Union Bankcorp was the parent company of Union Bank & Trust Company and was
merged out of existence on January 4, 1993.
(3) First Clyde Banc Corp was the parent company of The Clyde Savings Bank Company and was merged out of
existence on June 1, 1994.
</TABLE>
22
<PAGE> 20
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
in rates earned was due to a general increase in market rates and to a shift in
average asset balances of approximately $77,784,000 from securities into higher
yielding loans. The remaining $9,306,000 of the $19,151,000 increase in tax
equivalent total interest income was due to an increase of $101,889,000 in
average total earning assets during 1995. Outstanding loan balances increased
$182,082,000 while investment securities and other instruments decreased
$80,193,000.
Total interest expense was $63,516,000 in 1995, an increase of
$13,929,000 over 1994. Most of the increase, approximately $9,923,000, was due
to increases in average rates paid on deposits and borrowings, from 3.41%
during 1994 to 4.19% during 1995. The increase in rates was primarily due to a
general increase in market rates and to a shift in average balances of
approximately $45,484,000 from lower rate interest-bearing demand and savings
deposit accounts to higher rate time deposit accounts. The remaining $4,006,000
of the $13,929,000 increase was due to an increase of $64,344,000 in average
total interest-bearing liabilities during 1995.
Tax equivalent net interest income, the difference between tax
equivalent total interest income and total interest expense, increased
$5,222,000 during 1995. The $9,306,000 effect of the volume increase in earning
assets was greater than the $4,006,000 effect of the volume increase in
interest-bearing deposits, thereby contributing $5,300,000 to the increase in
net interest income. This volume increase was slightly offset by rate
influences on net interest income. The $9,845,000 effect of the rate increase
in earning assets was less than the $9,923,000 effect of the rate increase in
interest-bearing liabilities, resulting in a $78,000 decrease to net interest
income.
Nonaccruing loans were included in the daily average loan balances used
in determining the yields in Table 2. Interest foregone on nonaccruing loans is
disclosed in Note 9 of the Notes to Consolidated Financial Statements and is
not considered to have a material effect on the reasonableness of these
presentations. In addition, the amount of loan fees included in the interest
income computation for 1995, 1994 and 1993 was $2,928,000, $2,742,000 and
$2,592,000, respectively.
Bancorp's interest rate spread (the average rate on earning assets minus
the average rate on interest-bearing liabilities) declined slightly from 4.74%
for 1994 to 4.56% for 1995. This decrease was the result of the cost of
interest-bearing liabilities increasing 78 basis points (a basis point equals
0.01%) while the yield on earning assets increased only 60 basis points. This
trend is likely to continue into 1996. The 1994 interest rate spread of 4.74%
was greater than the 1993 spread of 4.64% due to the yield on earning assets
declining less than the cost of interest-bearing liabilities.
As with Bancorp's interest rate spread, the net interest margin (net
interest income on a tax equivalent basis divided by average earning assets)
also declined, but by only one basis point. The net interest margin was 5.24%,
5.25% and 5.14% for 1995, 1994 and 1993, respectively.
During 1995 and 1994, approximately $51,193,000 and $16,134,000,
respectively, of tax-exempt municipal securities earning a tax equivalent yield
of 13.4% and 12.5%, respectively, were called by their issuers or matured.
Bancorp believes another $12,620,000 of municipal securities earning a tax
equivalent yield of 11.9% may be called or mature during 1996. In the current
economic environment, Bancorp may not be able to reinvest these funds in
similar earning assets at acceptable risk levels. The loss of such tax-exempt
municipal securities will likely continue to negatively influence the interest
rate spread and net interest margin in the future.
NONINTEREST INCOME
- ------------------
A listing of noninterest income for 1995, 1994 and 1993 is reported in
Table 3. Noninterest income, excluding investment securities transactions,
increased $1,002,000 or 5.21% in 1995, while 1994 showed a decrease of $444,000
or 2.26% from 1993.
Service charges on deposit accounts increased $374,000 or 4.55% over
1994 primarily due to increases in noninterest-bearing demand deposit balances.
Service charges during 1994 decreased $291,000 or 3.42% from 1993 mainly as a
result of a decrease in the number of insufficient fund charges on checking
accounts.
TABLE 2 * VOLUME/RATE ANALYSIS - TAX EQUIVALENT BASIS(1)
<TABLE>
<CAPTION>
1995 change from 1994 due to 1994 change from 1993 due to
------------------------------------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 15,884 $ 8,238 $ 24,122 $ 9,015 $ (3,323) $ 5,692
Investment securities (2)
Taxable (3,320) 1,684 (1,636) (1,037) (97) (1,134)
Tax-exempt (3,129) (312) (3,441) (1,188) (324) (1,512)
---------- ----------- ---------- ---------- ---------- ----------
Total investment securities interest (2) (6,449) 1,372 (5,077) (2,225) (421) (2,646)
Interest-bearing deposits with other banks (138) 101 (37) (301) 111 (190)
Federal funds sold and securities
purchased under agreements to resell 9 134 143 (716) 185 (531)
---------- ----------- ---------- ---------- ---------- ----------
Total 9,306 9,845 19,151 5,773 (3,448) 2,325
Interest expense
Interest-bearing demand deposits (140) 182 42 30 (998) (968)
Savings deposits (990) 430 (560) 139 (1,587) (1,448)
Time deposits 4,567 8,322 12,889 (467) (937) (1,404)
Short-term borrowings 615 1,015 1,630 1,238 393 1,631
Long-term borrowings (46) (26) (72) (198) 94 (104)
---------- ----------- ---------- ---------- ---------- ----------
Total 4,006 9,923 13,929 742 (3,035) (2,293)
---------- ----------- ---------- ---------- ---------- ----------
Net interest income $ 5,300 $ (78) $ 5,222 $ 5,031 $ (413) $ 4,618
========== =========== ========== ========== ========== ==========
<FN>
(1) Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0%.
(2) Includes both investment securities held-to-maturity and investment securities available-for-sale.
</TABLE>
23
<PAGE> 21
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
Trust revenues in 1995 increased $606,000 or 8.64% over 1994 and
increased $592,000 or 9.21% in 1994 over 1993. The increase during 1995 was due
to an increase of $115,609,000 in trust assets serviced, from $1,025,388,000 at
December 31, 1994 to $1,140,997,000 at December 31, 1995. Nearly all of the
increases in 1995 and 1994 are attributed to new business, estate settlement
fees and growth in the number of accounts.
Other income during 1995 increased $22,000 or 0.55% over 1994 primarily
due to an increase in safe deposit box rental income, partially offset by a
decrease in gains from sales of other real estate owned. The decrease in gains
from sales of other real estate owned reflects a lower amount of foreclosed
real estate properties held during 1995. See the "Asset Quality" section on
page 26 for more information on other real estate owned.
Other income in 1994 decreased $745,000 or 15.8% from 1993. A
significant portion of 1994's decrease is due to reduced gains on the sale of
loans and a decrease in the amount of safe deposit box rent. Bancorp's
subsidiaries sell certain fixed rate mortgage loans immediately after
origination. Due to interest rate increases which occurred in 1994, the demand
for fixed rate mortgage loans decreased and resulted in a reduction in loan
sale activity and related gains.
Investment securities gains increased $2,094,000 in 1995, from a loss of
$1,754,000 in 1994 to a gain of $340,000 in 1995. Net gains were recorded by
Bancorp during 1995 primarily due to the proceeds from sales of $39,514,000 of
securities available-for-sale. Bancorp recorded $1,754,000 gross losses on the
sale of $82,735,000 of securities available-for-sale during 1994. A $71,000
loss was reported in 1993 due to the sale and call of $17,869,000 of investment
securities.
Bancorp expects 1996 noninterest income to increase over 1995 due to
increased deposit balances, which would result in an increase in service
charges on deposit accounts. In addition to the growth of deposits, Bancorp's
subsidiaries conduct periodic reviews of noninterest income and service
charges. Through the review of these charges, Bancorp is able to offset some
increases in operational expenses. While Bancorp expects trust revenues to
increase due to increased trust balances, trust revenues are based on the
market value of the trust portfolios. These market values are, of course,
dependent upon the condition of the economy.
NONINTEREST EXPENSES
- --------------------
A listing of noninterest expenses for 1995, 1994 and 1993 is reported in
Table 3. Noninterest expenses in 1995 increased $1,206,000 or 1.94% over 1994
and 1994 expenses increased $101,000 or 0.16% over 1993. The stability of
noninterest expenses reflects management's rigorous efforts to closely monitor
and control these expenses.
The largest component of noninterest expenses is salaries and employee
benefits, which increased $1,966,000 or 6.28% over 1994 due to wage and salary
increases, an increased number of employees (primarily due to the addition of
two new subsidiaries during 1995) and increased expense relating to the pension
plan covering substantially all employees of Bancorp and its subsidiaries.
Salaries and employee benefits in 1994 rose $1,663,000 or 5.61% over 1993 due
to wage and salary increases.
Deposit insurance expenses decreased during 1995 primarily due to a
decrease in the Bank Insurance Fund (BIF) premium charged by the Federal
Deposit Insurance Corporation (FDIC) from a range of $0.23 to $0.31 per $100 of
insured deposits to a range of $0.04 to $0.31 per $100, effective June 1, 1995.
The FDIC lowered the BIF premium after meeting its capitalization target of
$1.25 per $100 of deposits in May, 1995. The exact amount paid by a bank
depends on its capitalization and other qualitative factors considered by the
FDIC. Bancorp affiliates are considered well capitalized and have historically
paid the minimum premium amount. Ten of Bancorp's twelve subsidiaries are
insured by the BIF and received the premium reduction.
Bancorp's remaining two affiliates are insured by the Savings
Association Insurance Fund (SAIF). Also, one bank subsidiary purchased SAIF
insured deposits from the Resolution Trust Corporation. These deposits continue
to be insured by the SAIF. As the SAIF has not yet reached its capitalization
target, SAIF insured institutions will continue paying the higher premium rates
during the foreseeable future.
Both the House of Representatives and the Senate are considering bills
that would require an immediate recapitalization of the SAIF through the
levying of a one-time special assessment on all SAIF insured institutions. The
assessment, if passed and signed by the President, will be based on insured
deposits as of March 31, 1995. The amount of the assessment will be determined
by the FDIC's calculation
TABLE 3 * NONINTEREST INCOME & NONINTEREST EXPENSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
% CHANGE % CHANGE % CHANGE
INCREASE INCREASE INCREASE
TOTAL (DECREASE) TOTAL (DECREASE) TOTAL (DECREASE)
-------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest income
Service charges on deposit accounts $ 8,596 4.5% $ 8,222 (3.4%) $ 8,513 9.0%
Trust revenues 7,623 8.6% 7,017 9.2% 6,425 8.7%
Other 3,999 0.6% 3,977 (15.8%) 4,722 10.3%
----------- ----------- -----------
Subtotal 20,218 5.2% 19,216 (2.3%) 19,660 9.2%
Investment securities gains (losses) 340 N/M (1,754) N/M (71) N/M
----------- ----------- -----------
Total $ 20,558 17.7% $ 17,462 (10.9%) $ 19,589 (1.1%)
=========== ====== =========== ====== =========== ======
Noninterest expenses
Salaries and employee benefits $ 33,262 6.3% $ 31,296 5.6% $ 29,633 4.9%
Net occupancy 4,340 3.1% 4,211 (0.2%) 4,219 9.4%
Furniture and equipment 3,352 11.5% 3,006 (4.5%) 3,147 (2.5%)
Data processing 5,165 (0.8%) 5,205 9.8% 4,741 0.3%
Deposit insurance 2,204 (37.7%) 3,537 2.0% 3,468 (2.4%)
State taxes 1,637 (5.2%) 1,726 1.3% 1,704 4.0%
Other 13,385 1.7% 13,158 (13.0%) 15,126 (1.6%)
----------- ----------- -----------
Total $ 63,345 1.9% $ 62,139 0.2% $ 62,038 2.3%
=========== ====== =========== ====== =========== ======
<FN>
N/M = Not meaningful
</TABLE>
24
<PAGE> 22
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
of the amount needed to reach the $1.25 per $100 of insured deposits
capitalization target. An assessment of between $0.80 and $0.85 per $100 of
insured deposits is generally considered necessary to recapitalize the SAIF. If
the assessment rate is $0.85 per $100, Bancorp estimates that its two SAIF
insured subsidiaries and its bank subsidiary with SAIF insured deposits will be
assessed an aggregate total of approximately $2,900,000. The Emerging Issues
Task Force of the Financial Accounting Standards Board has issued an opinion
that SAIF member institutions should not accrue a liability for the special
assessment until the legislation is enacted and signed by the President.
Accordingly, Bancorp has not accrued a liability for the potential assessment.
The efficiency ratio (noninterest expenses as a percentage of
noninterest income, excluding investment securities transactions, plus tax
equivalent net interest income) reflects how much, on average, an institution
expended to generate each dollar of revenue. The combined effect of an increase
in net interest income with the stability of noninterest expenses resulted in
improvements in the efficiency ratio. Bancorp's efficiency ratio for 1995, 1994
and 1993 was 55.2%, 57.2% and 59.4%, respectively.
Salary and employee benefits are expected to show a moderate increase in
1996. The expense, however, will be especially dependent on the status of
health care costs. Net occupancy and equipment will probably increase due to
anticipated capital expenditures. Bancorp is in the process of converting all
subsidiaries to a standard data processing system within the next three years.
Conversion costs for these five subsidiaries and contractual increases based on
inflation will result in increased data processing expenses. Once all the
subsidiaries are converted to a standard data processing system, the costs
should be maintained, if not decline. The reduction in FDIC expense, which was
effective in mid-1995, will show a full year's effect in 1996. State franchise
taxes are expected to increase at a minimal level.
INCOME TAXES
- ------------
In August, 1993, President Clinton signed the Omnibus Budget
Reconciliation Act of 1993, which was effective for tax years beginning on or
after January 1, 1993. This act included a provision increasing the top
corporate income tax rate from 34.0% to 35.0% for taxable income over
$10,000,000.
Net deferred tax assets at December 31, 1995, 1994 and 1993 were
$3,369,000, $5,904,000 and $5,802,000, respectively. Due to Bancorp's strong
historical earnings trend and the expectation that this trend will continue,
management has determined that it is more likely than not that the net deferred
tax asset will be realized. Therefore, no valuation allowance has been
established. Management will continue to evaluate quarterly the need for a
valuation allowance.
Bancorp's tax expense in 1995 totaled $13,651,000 compared to $9,799,000
in 1994 and $7,469,000 in 1993, resulting in effective tax rates of 30.0%,
25.8% and 22.9% in 1995, 1994 and 1993, respectively. The increase in 1995's
effective tax rate was primarily due to the absence of tax losses recognized on
tax-exempt municipal securities called during 1994 and to a decline in average
tax-exempt investments held during 1995 as compared to 1994.
The tax effects of investment securities transactions was a tax expense
of $17,000 during 1995 and tax benefits of $1,634,000 and $463,000 in 1994 and
1993, respectively.
Further analysis of income taxes is presented in Note 10 of the Notes to
Consolidated Financial Statements.
LOANS
- -----
Total loans, net of unearned income, increased $153,149,000 or 11.1%
during 1995 and $189,077,000 or 15.9% in 1994. Approximately $101,444,000 of
the 1995 increase was due to the addition of two new subsidiaries. All loan
categories, except credit cards, increased during 1995 and all loan categories,
except real estate-construction and credit cards increased in 1994. A favorable
market with respect to loan demand, combined with aggressive loan campaigns and
the pursuit of new business, led to net increases during 1995 of $54,307,000 or
18.9% in commercial loans, $12,572,000 or 42.9% in construction loans,
$42,655,000 or 5.72% in mortgage loans, $43,353,000 or 15.2% in installment
loans, net of unearned income, and $455,000 or 2.83% in lease financing. Credit
card lending decreased $193,000 or 1.24% during 1995.
Bancorp's loans cover a broad range of borrowers characterizing the
western Ohio and eastern and west-central Indiana markets. There were no loan
concentrations of multiple borrowers in similar activities at December 31, 1995
which exceeded 10.0% of total loans.
Bancorp's subsidiaries consist of community banks dedicated to meeting
the financial needs of individuals and businesses living and operating in the
communities they serve. Bancorp's loan portfolio is therefore primarily
composed of residential and commercial real estate mortgage loans, commercial
loans and installment loans. At December 31, 1995, real estate mortgage loans
composed 51.5% of
TABLE 4 * LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
Maturity
-----------------------------------------------------
AFTER ONE BUT
WITHIN WITHIN FIVE AFTER FIVE
ONE YEAR YEARS YEARS TOTAL
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 208,676 $ 72,426 $ 59,840 $ 340,942
Real estate - construction 30,131 7,787 3,927 41,845
-------------- ------------- ------------- ----------
Total $ 238,807 $ 80,213 $ 63,767 $ 382,787
============== ============= ============= ==========
</TABLE>
<TABLE>
<CAPTION> Sensitivity to changes
in interest rates
-------------------------
PREDETERMINED VARIABLE
RATE RATE
-------------------------
(Dollars in thousands)
<S> <C> <C>
Due after one year but within five years $ 19,904 $ 60,309
Due after five years 14,742 49,025
-------------- ----------
Total $ 34,646 $ 109,334
============== ==========
</TABLE>
25
<PAGE> 23
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
Bancorp's total loan portfolio and installment loans composed another 21.4% of
the total loan portfolio. Commercial loans equaled 22.3% of the total portfolio
and real estate-construction, credit card lending and lease financing made up
the remaining 4.80% of the portfolio.
Residential real estate mortgage loans are generally considered to be
the safest loan investments because of the real estate securing the loans.
Installment loans include unsecured loans, second mortgage loans, secured lines
of credit, secured and unsecured home improvement loans, automobile loans,
student loans and loans secured by savings, stocks or life insurance. Bancorp
subsidiaries offer a wide variety of commercial loans, including small business
loans, agricultural loans, equipment loans and lines of credit.
In accordance with Bancorp's decentralized management structure and
subject to Bancorp guidelines, credit underwriting and approval occur within
the subsidiary originating the loan. Depending on the subsidiary, loan
applications are approved by either a loan committee or by one or more loan
personnel with designated approval authority. Loan committees are composed of
senior management and loan personnel and, at some subsidiaries, members of the
subsidiary's board of directors. Loan applications for principal amounts
greater than a designated amount, which varies by subsidiary, require Bancorp
approval. Any plans to purchase or sell a participation in a loan also require
Bancorp approval.
Bancorp subsidiaries receive requests to renew maturing loans as a
normal part of business. Such requests are especially common with real estate
loans that are scheduled to mature before being fully amortized and with
commercial loans. The requests are reviewed by the subsidiary's loan committee
or by designated loan personnel, as appropriate, and may be approved, approved
with modifications or disapproved. Required modifications may include, among
other items, a reduction in the loan balance, a change in the interest rate or
the initiation of monthly principal payments.
Table 4 indicates the contractual maturity of commercial loans and real
estate-construction loans outstanding at December 31, 1995. Loans due after one
year are classified according to their sensitivity to changes in interest
rates.
ASSET QUALITY
- -------------
Bancorp's subsidiaries record a provision for loan losses (provision) in
the Consolidated Statements of Earnings to provide for expected credit losses.
Actual losses on loans and leases are charged against the allowance for loan
losses (allowance), which is a reserve accumulated on the Consolidated Balance
Sheets through the provision. The recorded values of the loans and leases
actually removed from the Consolidated Balance Sheets are referred to as
charge-offs and, after netting out recoveries on previously charged off assets,
become net charge-offs. Bancorp's policy is to charge off loans when, in
management's opinion, collection of principal is in doubt. All loans charged
off are subject to continuous review and concerted efforts are made to maximize
recovery.
Management records the provision, on an individual subsidiary basis, in
amounts sufficient to result in an allowance that will cover future risks
believed to be inherent in the loan portfolio of each subsidiary. Management's
evaluation in establishing the provision includes such factors as the
historical loss and recovery experience, estimated future loss for loans, known
deterioration in loans, periodic external loan evaluations, prevailing economic
conditions that might have an impact on the portfolio and ratios of
delinquencies and nonaccruals. The 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. The evaluation of these factors is completed at Bancorp's
subsidiaries through a group of senior officers from the financial and lending
areas.
The provision increased from $1,268,000 in 1994 to $2,108,000 in 1995.
The increase was primarily due to the increase in loan volume mentioned
previously. The allowance on December 31, 1995 was $20,437,000 or 1.33% of
loans, net of unearned income. This compares to $18,609,000 or 1.35% of loans,
net of unearned income, at December 31, 1994. Although the balance of the
allowance increased $1,828,000, the significant increase in total loans
outstanding resulted in a constant allowance to loan ratio. The provision
decreased $2,479,000 in 1994, from $3,747,000 in 1993 to $1,268,000 in 1994,
due to improvement in asset quality.
The level of nonaccrual and restructured loans and leases is an
important element in assessing asset quality. Loans are classified nonaccrual
when, in the opinion of management, collection of interest is doubtful.
Nonaccrual loans at December 31, 1995, 1994 and 1993 were $2,764,000,
$2,412,000 and $4,679,000, respectively.
Loans are classified as restructured when management, to protect its
investment, grants concessions to the debtor that it would not otherwise
consider. Restructured loans at December 31, 1995, 1994 and 1993 were $517,000,
$1,429,000 and $605,000, respectively.
Another element associated with asset quality is Other Real Estate Owned
(OREO). OREO primarily represents properties acquired by Bancorp's subsidiaries
through loan defaults by customers. The balances of OREO at December 31, 1995,
1994 and 1993 were $1,677,000, $2,116,000 and $3,673,000, respectively.
Loans 90 days or more past due which were still accruing interest
totaled $1,071,000, $683,000 and $1,321,000 at December 31, 1995, 1994 and
1993, respectively.
Nonaccrual and restructured loans and leases and OREO are discussed or
summarized in Notes 1 and 9 of the Notes to Consolidated Financial Statements.
Bancorp adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," (SFAS No. 114) as amended
by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures," (SFAS
No. 118) in January, 1995. SFAS No. 114 and SFAS No. 118 require that lenders
measure an impaired loan, as defined in the statements, at the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. If the measure of
the impaired loan is less than the creditor's recorded investment in the loan,
the creditor must record a valuation allowance for the amount of the
difference. Implementation of this statement did not have a material effect on
Bancorp's allowance or provision.
INVESTMENT SECURITIES
- ---------------------
Bancorp's investment securities increased $9,977,000 or 2.64% during
1995 to a balance of $387,574,000. The major portion of this growth was due to
the addition of two new subsidiaries and occurred primarily in the U.S.
government agencies and corporations component of the investments portfolio.
Bancorp follows a conservative investment policy, investing primarily
for interest rate risk management and liquidity management purposes. U.S.
Treasury Securities, generally considered to have the least credit risk and the
highest liquidity, composed 17.6% of Bancorp's investment portfolio at December
31, 1995. All U.S. Treasury Securities were classified as available-for-sale at
that date and are available for liquidity management purposes. Another 27.1% of
the investment portfolio is composed of securities issued by U.S. government
agencies and corporations, primarily the Federal Home Loan Bank (FHLB), Federal
Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA), Student Loan Marketing Association (SLMA) and Federal Farm Credit Bank.
Included in the U.S. government agencies and corporations securities category
at December 31, 1995 were structured notes totaling $8,338,000. The structured
notes held by Bancorp are multistep coupon debentures issued by the FHLB,
FHLMC, FNMA and SLMA and, accordingly, are rated AAA. All U.S. government
agency and corporation securities
26
<PAGE> 24
FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP
were classified as available-for-sale at December 31, 1995 and are available
for liquidity management purposes. Due to the government guarantees, U.S.
government agency and corporation obligations are considered to have low credit
risk and high liquidity.
Investments in mortgage-backed securities (MBSs), including
collateralized mortgage obligations (CMOs), composed 28.9% of the investment
portfolio at December 31, 1995. MBSs represent participations in pools of
mortgage loans, the principal and interest payments of which are passed to the
security investors. MBSs are subject to prepayment risk, especially during
periods of decreasing interest rates. Prepayments of the underlying mortgage
loans may shorten the lives of the securities, thereby affecting yields to
maturity and market values. Bancorp invests primarily in MBSs issued by U.S.
government agencies, such as FHLMC, FNMA, and the Government National Mortgage
Association (GNMA). Such securities, because of government agency guarantees,
are considered to have low credit risk and high liquidity.
CMOs totaled $62,937,000 at December 31, 1995, all of which were
classified as available-for-sale. CMOs are collateralized by pools of mortgage
loans or MBSs. Substantially all of the CMOs held by Bancorp are rated AAA by
Standard & Poor's Corporation or similar rating agencies. Bancorp does not own
any interest-only securities, principal-only securities, accrual bonds, inverse
floaters or other high risk CMOs. All CMOs held as of December 31, 1995 passed
the stress test required by the Federal Financial Institutions Examination
Council at the last testing date and, therefore, are not considered high risk
by regulatory definition.
State, county, and municipal securities composed 21.8% of Bancorp's
investment portfolio at December 31, 1995. The securities are diversified as to
states and issuing authorities within states, thereby decreasing portfolio
risk. Bancorp management views investments in state, county, and municipal
securities as primarily long-term investments and, accordingly, about 86.3% of
such investments at December 31, 1995 were classified as held-to-maturity.
The remaining 4.60% of Bancorp's investment portfolio at December 31,
1995, termed "other securities," was primarily composed of stock ownership in
the Indianapolis and Cincinnati District Federal Home Loan Banks and in the
Federal Reserve Bank and in corporate debt securities. Bancorp invests only in
corporate debt securities that are rated investment grade by nationally
recognized rating organizations.
Table 5 sets forth the maturities of investment securities
held-to-maturity and investment securities available-for-sale as of December
31, 1995, and the average yields of such securities calculated on the basis of
the cost and effective yields weighted for the scheduled maturity of each
security. Tax equivalent adjustments (using a 35.0% rate) have been made in
calculating yields on tax-exempt obligations of state, counties and
municipalities.
At December 31, 1995, the market value of Bancorp's held-to-maturity
investment securities portfolio exceeded the carrying value by $6,990,000. The
available-for-sale investment securities are reported at their market value of
$294,052,000, as required by Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS
No. 115). See Note 8 of the Notes to Consolidated Financial Statements for
additional information.
Bancorp's federal funds sold and securities purchased under agreements
to resell increased $14,705,000, from $97,000 at December 31, 1994 to
$14,802,000 at December 31, 1995. The increase was primarily for liquidity
purposes. Bancorp monitors this position as part of its asset/liability
management.
Bancorp adopted the provisions of SFAS No. 115 for investments held as
of, or acquired after, January 1, 1994. Securities with a market value of
$272,856,000 were reclassified as available-for-sale at that time. In
accordance with SFAS No. 115, prior period financial statements were not
restated to reflect the change in accounting principle. As of January 1, 1994,
the cumulative effect (net of $1,960,000 in deferred income taxes) of adopting
SFAS No. 115 was to increase shareholders' equity by $3,638,000 to reflect
unrealized holding gains on securities classified as available-for-sale,
previously carried at amortized cost or lower of cost or market.
TABLE 5 * INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Maturing
-----------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
-----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
Mortgage-backed securities (2) $ 739 8.03% $ 4,775 6.75% $ 12,546 8.86%
State, county, and
municipal securities $ 7,830 11.66% 35,783 12.10% 19,319 12.17% 9,846 12.55%
Other securities 718 7.59% 1,966 7.87%
----------- ---------- ----------- ----------
Total $ 8,548 11.32% $ 38,488 11.81% $ 24,094 11.10% $ 22,392 10.48%
=========== ===== ========== ===== =========== ===== ========== =====
Available-for-Sale
U.S. Treasury securities $ 53,871 5.92% $ 14,511 6.59%
Securities of other U.S.
government agencies
and corporations 10,415 6.96% 83,021 6.74% $ 9,563 6.52% $ 1,905 6.65%
Mortgage-backed securities (2) 143 5.63% 6,487 5.90% 6,359 6.38% 81,080 5.98%
State, county, and
municipal securities 727 8.09% 5,209 9.07% 4,048 7.20% 1,547 9.03%
Other securities 3,099 6.22% 106 7.01% 11,961 6.14%
----------- ---------- ----------- ----------
Total $ 65,156 6.11% $ 112,327 6.77% $ 20,076 6.62% $ 96,493 6.06%
=========== ===== ========== ===== =========== ===== ========== =====
<FN>
(1) Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0%.
(2) 56.8% of the mortgage-backed securities maturing after five years are variable rate.
</TABLE>
27
<PAGE> 25
In November, 1995, the Financial Accounting Standards Board (FASB)
released a special report titled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (Guide). The
Guide permitted businesses to make a one-time reassessment of the
classification of all securities held. Under the provisions of the Guide, a
business was able to make a one-time reclassification of securities from
held-to-maturity to available-for-sale without calling into question the intent
to hold other debt securities to maturity. Such reassessment and
reclassification was required to occur no later than December 31, 1995. Bancorp
management analyzed the investment portfolio during this period and decided
that classification adjustments were not needed.
Bancorp does not use off-balance-sheet derivative financial instruments
(such as interest rate swaps) as defined in Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments."
DEPOSITS AND BORROWINGS
- -----------------------
Bancorp's subsidiaries solicit deposits by offering a wide variety of
savings and transaction accounts, including checking accounts, regular savings
accounts, money market deposit accounts and time deposits of various maturities
and rates. In accordance with Bancorp's decentralized management structure and
in an effort to respond to local conditions, each Bancorp subsidiary designs
and prices the savings and transaction accounts offered in its local marketing
area.
Total deposits increased $198,238,000 or 12.5% in 1995. Approximately
$145,660,000 of this increase was due to the addition of two subsidiaries
during 1995. Time deposits increased $158,730,000, interest-bearing demand
accounts increased $35,518,000 and noninterest-bearing demand deposits
increased $18,730,000. These increases were partially offset by a decline in
savings deposits of $14,740,000. The average rate paid on time deposits
increased 106 basis points, from 4.34% in 1994 to 5.40% in 1995, while the
average rate paid on total interest-bearing deposits increased only 74 basis
points, from 3.38% in 1994 to 4.12% in 1995.
Table 6 shows the contractual maturity of time deposits of $100,000 and
over that were outstanding at December 31, 1995. These deposits represented
only 8.35% of total deposits.
Short-term borrowings decreased from $123,119,000 at December 31, 1994
to $58,372,000 at December 31, 1995. This decrease in borrowings was due to
increased deposit funding. Long-term borrowings at December 31, 1995 totaled
$2,820,000, while no long-term borrowings were outstanding at December 31,
1994.
LIQUIDITY
- ---------
Liquidity management is the process by which Bancorp ensures that
adequate liquid funds are available for the corporation and its subsidiaries.
These funds are necessary in order for Bancorp and its subsidiaries to meet
financial commitments on a timely basis. These commitments include withdrawals
by depositors, funding credit obligations to borrowers, paying dividends to
shareholders, paying operating expenses, funding capital expenditures and
maintaining deposit reserve requirements. Liquidity is monitored and closely
managed by the asset/liability committees at Bancorp's subsidiaries.
Liquidity may be used to fund capital expenditures. Capital
expenditures were $3,615,000 for 1995 and $4,364,000 for 1994. Capital
expenditures for 1995 included approximately $800,000 for construction of a new
branch. Remodeling is a planned and ongoing process given the 76 offices of
Bancorp and its subsidiaries. Material commitments for capital expenditures as
of December 31, 1995 were $2,276,000. A significant portion of these
commitments are associated with plans for an additional branch office presently
under construction and construction of a lockbox facility.
Bancorp subsidiaries' source of funding is predominately deposits
within each of their respective market areas. The deposit base is diversified
between individuals, partnerships, corporations and public entities. This
diversification helps Bancorp avoid dependence on large concentrations of
funds. Bancorp does not solicit time deposits from brokers.
Liquidity is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturity of investment securities, net
cash provided by operating activities and access to other funding sources. 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. In
addition, Bancorp utilizes advances from the Federal Home Loan Bank as a
funding source. The principal source of asset-funded liquidity is investment
securities classified as available-for-sale, the market values of which totaled
$294,052,000 at December 31, 1995. Securities classified as held-to-maturity
that are maturing within a short period of time can also be a source of
liquidity. Securities classified as held-to-maturity and that are maturing in
one year or less totaled $8,548,000 at December 31, 1995. In addition, other
types of assets--such as cash and due from banks, federal funds sold and
securities purchased under agreements to resell, and loans and interest-bearing
deposits with other banks maturing within one year--are sources of liquidity.
Certain restrictions exist regarding the ability of Bancorp's
subsidiaries to transfer funds to Bancorp (see Note 6 of the Notes to
Consolidated Financial Statements). Management is not aware of any other
events or regulatory requirements which, if implemented, are likely to have a
material effect on Bancorp's liquidity.
INTEREST RATE SENSITIVITY
- -------------------------
Interest rate risk is the exposure to Bancorp's earnings and capital
arising from changes in future interest rates. All financial institutions
assume interest rate risk as an integral part of normal operations. Managing
and measuring interest rate risk is a dynamic, multi-faceted process that
ranges from reducing the exposure of Bancorp's net interest margin to swings in
interest rates to assuring
TABLE 6 * MATURITIES OF TIME DEPOSITS GREATER THAN OR EQUAL TO $100,000*
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------
Maturing in (Dollars in thousands)
<S> <C>
3 months or less $ 80,790
3 months to 6 months 25,561
6 months to 12 months 17,952
over 12 months 24,791
--------
Total $149,094
========
<FN>
*All time deposits greater than or equal to $100,000 were in certificates of
deposit.
</TABLE>
28
<PAGE> 26
that there is sufficient capital and liquidity to support future balance sheet
growth. Bancorp manages interest rate risk through the asset/liability
committees of Bancorp's subsidiaries. The asset/liability committees are
comprised of bank officers from various disciplines. Each subsidiary committee
establishes policies and rates which lead to the prudent investment of
resources, the effective management of risks associated with changing interest
rates, the existence of adequate liquidity and the earning of an adequate
return on shareholders' equity.
Bancorp has a holding company asset/liability committee, made up of
representatives of various subsidiaries and various disciplines, whose function
is to develop policies and guidelines for effective asset/liability management
throughout Bancorp's subsidiaries.
Table 7 shows Bancorp's interest rate sensitivity position based on the
distribution of earning assets and interest-bearing liabilities among the
maturity categories. Product lines repricing in time periods predetermined by
contractual agreement are included in the respective maturity categories. Some
products, such as federal funds and commercial loans which reprice overnight,
are recorded in the 1-30 days category.
Table 7 shows that, at December 31, 1995, Bancorp had a
liability-sensitive position of $7,050,000 or 0.40% within a one-year maturity
range. The liability-sensitive position indicates that maturing or repricing
interest-sensitive liabilities exceeded maturing or repricing
interest-sensitive assets within a one-year period. A liability-sensitive
position suggests that a rising rate environment will negatively influence net
interest income and a declining rate environment will positively influence net
interest income. As evidenced by this low ratio, Bancorp's various
asset/liability committees are devoted to protecting interest rate margins and
net interest income during periods of rising interest rates.
The rate sensitivity analysis presented in Table 7 is a static gap
model. The balances in this table are distributed among future periods based
primarily on contractual interest rate repricing dates or on contractual
maturity dates. Distributions of interest-bearing demand deposits and savings
deposits, neither of which have contractual maturity dates or set repricing
dates, reflect management's current assumptions as to repricing frequency and
to changes in deposit balances in reaction to interest rate levels. These
assumptions are based on recent historical deposit account rate changes and
changes in deposit balances. They are also influenced by the Federal Reserve
Bank and other regulators' proposed guidelines for the measurement of interest
rate risk.
Another measurement technique used by Bancorp's subsidiaries to
identify and manage exposure to changing interest rates is a simulation model
that estimates the effect on net interest income and the market value of
portfolio equity caused by changes in interest rates, interest rate spreads,
the shape of the yield curve and changing product growth patterns. Liabilities
are distributed based on historical deposit rate relationships to changes in
market interest rate changes over long-term rate changes. These assumptions are
based upon the individual markets and customers and include projections of how
management expects to price in response to the marketplace and market rate
changes. However, adjustments are necessary as customer preferences,
competitive market conditions, liquidity, loan growth rates and mix change.
<TABLE>
TABLE 7 * RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1995
<CAPTION>
TOTAL 1 YEAR OVER
1-30 DAYS 31-90 DAYS 91-180 DAYS 181-365 DAYS & UNDER 1 YEAR TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Loans, net of unearned income $324,985 $107,134 $120,519 $288,327 $840,965 $691,051 $1,532,016
Investment securities held-to-maturity
Taxable 1,872 158 1,809 3,839 18,831 22,670
Tax-exempt 1,885 2,732 1,398 4,313 10,328 60,524 70,852
Investment securities available-for-sale
Taxable 65,210 19,927 19,112 33,264 137,513 145,460 282,973
Tax-exempt 578 103 160 841 10,238 11,079
-------- -------- -------- -------- -------- -------- ----------
Total investment securities 69,545 22,920 20,670 39,386 152,521 235,053 387,574
Interest-bearing deposits with other banks 3,691 400 2,297 100 6,488 394 6,882
Federal funds sold and securities
purchased under agreements to resell 14,802 14,802 14,802
------- ------- ------- ------- --------- ------- ---------
Total earning assets 413,023 130,454 143,486 327,813 1,014,776 926,498 1,941,274
Interest-bearing liabilities
Interest-bearing demand deposits 116,739 69,642 186,381 115,738 302,119
Savings deposits 110,452 85,093 195,545 164,093 359,638
Time deposits 119,599 134,417 137,083 189,139 580,238 323,506 903,744
Short-term borrowings 56,372 2,000 58,372 58,372
Long-term borrowings 7 255 17 1,011 1,290 1,530 2,820
-------- -------- -------- -------- -------- -------- ----------
Total interest-bearing liabilities 403,169 134,672 139,100 344,885 1,021,826 604,867 1,626,693
-------- -------- -------- -------- -------- -------- ----------
Rate sensitivity gap $ 9,854 $ (4,218) $ 4,386 $(17,072) $ (7,050) $321,631 $ 314,581
========= ========= ========= ======== ========== ========= ==========
Cumulative gap $ 9,854 $ 5,636 $ 10,022 $ (7,050) $314,581
========= ========= ========= ======== ========== ========= ==========
Cumulative gap as a
percentage of earning assets 0.5% 0.3% 0.5% (0.4%) 16.2%
========= ========= ========= ======== ========== ========= =========
</TABLE>
29
<PAGE> 27
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.
Regulatory guidelines require a 4.00% Tier 1 capital ratio and an 8.00%
Total capital ratio. Tier 1 capital consists primarily of common shareholders'
equity, net of intangibles, and total capital is Tier 1 capital plus Tier 2
supplementary capital, which is primarily the allowance for loan losses subject
to certain limits.
Bancorp's Tier 1 ratio at December 31, 1995 was 15.0% and its Total
risk-based capital ratio was 16.2%. While Bancorp subsidiaries' ratios are well
above regulatory requirements, management will continue to monitor the asset
mix, which affects both ratios due to the risk weights assigned various assets,
and the allowance for loan losses, which influences the Total capital ratio.
Table 8 illustrates the risk-based capital calculations and ratios for
the last two years.
TABLE 8 * RISK-BASED CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----- -----
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 234,175 $ 194,673
Less intangibles 3,770 4,230
Less unrealized net investment
securities gains (losses) 1,437 (2,712)
------------ -----------
Total Tier 1 capital $ 228,968 $ 193,155
============ ===========
Total risk-based capital
Tier 1 capital $ 228,968 $ 193,155
Qualifying allowance for loan losses 19,127 17,074
------------ -----------
Total risk-based capital $ 248,095 $ 210,229
============ ===========
Risk weighted assets $ 1,530,181 $ 1,365,882
============ ===========
Risk-based ratios
Tier 1 15.0% 14.1%
============ ===========
Total risk-based capital 16.2% 15.4%
============ ===========
</TABLE>
30
<PAGE> 28
STATISTICAL INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
(Unaudited)
BALANCE INTEREST YIELD BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ------- ------- ------- ----- ------- -------- -----
(Daily average balances and interest rates: Tax equivalent basis; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Loans (1)
Commercial (2) $ 316,414 $ 32,581 10.30% $ 261,799 $ 23,594 9.01% $ 236,566 $ 19,768 8.36%
Real estate (2) 793,379 63,400 7.99% 725,468 55,053 7.59% 686,306 56,546 8.24%
Installment
and other consumer 321,978 32,131 9.98% 262,498 25,378 9.67% 220,726 22,043 9.99%
Lease financing (2) 15,580 1,217 7.81% 15,504 1,182 7.62% 14,191 1,158 8.16%
---------- --------- ---------- -------- ---------- --------
Total loans 1,447,351 129,329 8.94% 1,265,269 105,207 8.31% 1,157,789 99,515 8.60%
Investment securities (3)
Taxable 250,492 16,593 6.62% 302,307 18,229 6.03% 319,489 19,363 6.06%
Tax-exempt (2) 95,182 11,446 12.03% 121,151 14,887 12.29% 130,779 16,399 12.54%
---------- --------- ---------- -------- ---------- --------
Total investment securities (3) 345,674 28,039 8.11% 423,458 33,116 7.82% 450,268 35,762 7.94%
Interest-bearing deposits
with other banks 5,932 351 5.92% 8,574 388 4.53% 15,676 578 3.69%
Federal funds sold and securities
purchased under agreements
to resell 7,319 418 5.71% 7,086 275 3.88% 26,803 806 3.01%
---------- --------- ---------- -------- ---------- --------
Total earning assets 1,806,276 158,137 8.75% 1,704,387 138,986 8.15% 1,650,536 136,661 8.28%
Nonearning assets
Allowance for loan losses (19,341) (18,554) (17,927)
Cash and due from banks 75,904 76,988 74,477
Accrued interest and other assets 71,076 71,179 74,755
---------- ---------- ----------
Total assets $1,933,915 $1,834,000 $1,781,841
========== ========== ==========
Interest-bearing liabilities
Deposits
Interest-bearing demand $ 260,419 5,799 2.23% $ 266,841 5,757 2.16% $ 265,655 6,725 2.53%
Savings 358,517 9,212 2.57% 397,579 9,772 2.46% 392,649 11,220 2.86%
Time 822,289 44,402 5.40% 725,479 31,513 4.34% 736,031 32,917 4.47%
---------- --------- ---------- -------- ---------- --------
Total interest-bearing
deposits 1,441,225 59,413 4.12% 1,389,899 47,042 3.38% 1,394,335 50,862 3.65%
Borrowed funds
Short-term borrowings 74,744 4,051 5.42% 61,109 2,421 3.96% 27,618 790 2.86%
Long-term borrowings 783 52 6.64% 1,400 124 8.86% 4,120 228 5.53%
---------- --------- ---------- -------- ---------- --------
Total borrowed funds 75,527 4,103 5.43% 62,509 2,545 4.07% 31,738 1,018 3.21%
---------- --------- ---------- -------- ---------- --------
Total interest-bearing
liabilities 1,516,752 63,516 4.19% 1,452,408 49,587 3.41% 1,426,073 51,880 3.64%
Noninterest-bearing liabilities
Noninterest-bearing demand
deposits 184,797 176,128 167,262
Other liabilities 19,970 16,712 15,179
Shareholders' equity 212,396 188,752 173,327
Total liabilities and ---------- --------- ---------- -------- ---------- --------
shareholders' equity $1,933,915 $1,834,000 $1,781,841
========== ========== ==========
Net interest income and
interest rate spread $ 94,621 4.56% $ 89,399 4.74% $ 84,781 4.64%
========= ===== ======== ===== ======== =====
Net interest margin 5.24% 5.25% 5.14%
===== ===== =====
<FN>
(1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income.
(2) Interest income on tax-exempt investment securities and on certain tax-exempt loans and leases has been adjusted to a tax
equivalent basis using a marginal federal income tax rate of 35.0%.
(3) Includes both investment securities held-to-maturity and investment securities available-for-sale in 1995 and 1994.
</TABLE>
31
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 108,685 $ 103,752
Interest-bearing deposits with other banks 6,882 8,055
Federal funds sold and securities purchased under agreements to resell 14,802 97
Investment securities held-to-maturity
(market value-$100,512 at December 31, 1995;
$140,319 at December 31, 1994) 93,522 135,187
Investment securities available-for-sale, at market 294,052 242,410
Loans
Commercial 340,942 286,635
Real estate-construction 41,845 29,273
Real estate-mortgage 788,805 746,150
Installment 329,034 285,412
Credit card 15,406 15,599
Lease financing 16,557 16,102
------------ -----------
Total loans 1,532,589 1,379,171
Less
Unearned income 573 304
Allowance for loan losses 20,437 18,609
------------ -----------
Net loans 1,511,579 1,360,258
Premises and equipment 39,931 37,999
Deferred income taxes 3,369 5,904
Accrued interest and other assets 30,553 28,981
------------ -----------
Total assets $ 2,103,375 $ 1,922,643
============ ===========
Liabilities
Deposits
Noninterest-bearing $ 220,061 $ 201,331
Interest-bearing 1,565,501 1,385,993
------------ -----------
Total deposits 1,785,562 1,587,324
Short-term borrowings
Federal funds purchased and securities sold under agreements to repurchase 49,483 81,609
Other 8,889 41,510
------------ -----------
Total short-term borrowings 58,372 123,119
Long-term borrowings 2,820
Accrued interest and other liabilities 22,446 17,527
------------ -----------
Total liabilities 1,869,200 1,727,970
Shareholders' equity
Common stock -- par value $8 per share
Authorized -- 25,000,000 shares
Issued and outstanding -- 13,013,422 shares
in 1995 and 12,204,575 shares in 1994 104,107 97,637
Surplus 13,577 15,027
Retained earnings 115,102 84,748
Unrealized net gains (losses) on investment securities
available-for-sale, net of tax 1,437 (2,712)
Restricted stock awards (48) (27)
------------ -----------
Total shareholders' equity 234,175 194,673
------------ -----------
Total liabilities and shareholders' equity $ 2,103,375 $ 1,922,643
============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
32
<PAGE> 30
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
----------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income
Loans, including fees $ 129,058 $ 104,936 $ 99,333
Investment securities
Taxable 16,593 18,229 19,363
Tax-exempt 7,431 9,676 10,659
----------- ---------- ----------
Total investment securities interest 24,024 27,905 30,022
Interest-bearing deposits with other banks 351 388 578
Federal funds sold and securities purchased under agreements to resell 418 275 806
----------- ---------- ----------
Total interest income 153,851 133,504 130,739
Interest expense
Deposits 59,413 47,042 50,862
Short-term borrowings 4,051 2,421 790
Long-term borrowings 52 124 228
----------- ---------- ----------
Total interest expense 63,516 49,587 51,880
----------- ---------- ----------
Net interest income 90,335 83,917 78,859
Provision for loan losses 2,108 1,268 3,747
----------- ---------- ----------
Net interest income after provision for loan losses 88,227 82,649 75,112
Noninterest income
Service charges on deposit accounts 8,596 8,222 8,513
Trust revenues 7,623 7,017 6,425
Investment securities gains (losses) 340 (1,754) (71)
Other 3,999 3,977 4,722
----------- ---------- ----------
Total noninterest income 20,558 17,462 19,589
Noninterest expenses
Salaries and employee benefits 33,262 31,296 29,633
Net occupancy 4,340 4,211 4,219
Furniture and equipment 3,352 3,006 3,147
Data processing 5,165 5,205 4,741
Deposit insurance 2,204 3,537 3,468
State taxes 1,637 1,726 1,704
Other 13,385 13,158 15,126
----------- ---------- ----------
Total noninterest expenses 63,345 62,139 62,038
----------- ---------- ----------
Income before income taxes 45,440 37,972 32,663
Income tax expense 13,651 9,799 7,469
----------- ---------- ----------
Net earnings $ 31,789 $ 28,173 $ 25,194
=========== ========== ==========
Net earnings per share $ 2.55 $ 2.31 $ 2.06
=========== ========== ==========
Average shares outstanding 12,488,168 12,210,753 12,211,405
=========== ========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
33
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net earnings $ 31,789 $ 28,173 $ 25,194
Adjustments to reconcile net earnings to net cash provided
by operating activities
Provision for loan losses 2,108 1,268 3,747
Provision for depreciation and amortization 3,981 3,722 4,118
Net amortization of premiums and accretion of discounts
on investment securities 1,114 2,025 2,077
Deferred income taxes 171 1,412 (450)
Realized (gains) losses on investment securities (340) 1,754 71
Originations of mortgage loans held for sale (33,009) (30,046) (93,189)
Gains from sales of mortgage loans held for sale (501) (348) (1,281)
Proceeds from sales of mortgage loans held for sale 33,510 30,394 94,470
Decrease (increase) in interest receivable 220 (3,969) 1,106
Decrease (increase) in prepaid expenses 143 (48) (1,126)
Increase in accrued expenses 1,041 114 2,980
Increase (decrease) in interest payable 1,638 470 (600)
Other (95) (160) 1,118
--------- --------- ---------
Net cash provided by operating activities 41,770 34,761 38,235
Investing activities
Proceeds from sales of investment securities available-for-sale 39,514 82,735
Proceeds from calls, paydowns and maturities of investment
securities available-for-sale 58,798 90,212
Purchases of investment securities available-for-sale (112,372) (142,217)
Proceeds from calls, paydowns and maturities of investment
securities held-to-maturity 56,118 32,795
Purchases of investment securities held-to-maturity (525) (8,903)
Proceeds from maturities of investment securities 86,689
Proceeds from sales and calls of investment securities 17,869
Purchases of investment securities (87,378)
Net decrease (increase) in interest-bearing deposits with other banks 2,470 9,366 (2,738)
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell (6,042) 24,240 28,223
Net increase in loans and leases (56,235) (191,398) (55,760)
Proceeds from disposal of other real estate owned 1,028 1,729 7,702
Recoveries from loans and leases previously charged off 1,202 1,113 1,308
Cash acquired in merger with other financial institutions 5,999
Purchases of premises and equipment (3,615) (4,364) (4,948)
--------- --------- ---------
Net cash used in investing activities (13,660) (104,692) (9,033)
Financing activities
Net increase (decrease) in total deposits 54,765 6,778 (23,354)
Net (decrease) increase in short-term borrowings (63,747) 93,984 1,967
Proceeds from long-term borrowings 49
Principal payments of long-term borrowings (850) (3,983) (581)
Cash dividends (13,521) (11,809) (9,865)
Purchase of common stock (388) (2,087)
Proceeds from exercise of stock options 127 151 296
--------- --------- ---------
Net cash (used in) provided by financing activities (23,177) 84,733 (33,624)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 4,933 14,802 (4,422)
Cash and cash equivalents at beginning of year 103,752 88,950 93,372
--------- --------- ---------
Cash and cash equivalents at end of year $ 108,685 $ 103,752 $ 88,950
========= ========= =========
Supplemental disclosures
Interest paid $ 61,878 $ 49,117 $ 52,588
========= ========= =========
Income taxes paid $ 12,140 $ 7,878 $ 7,164
========= ========= =========
Recognition of deferred tax (liabilities) assets attributable
to SFAS No. 115 $ (2,364) $ 1,514
========= =========
Acquisition of other real estate owned through foreclosure $ 635
=========
Issuance of restricted stock awards $ 33 $ 8
========= =========
Transfer of investment securities to available-for-sale upon
adoption of SFAS No. 115 $ 272,856
=========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
34
<PAGE> 32
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON UNREALIZED RESTRICTED
COMMON STOCK RETAINED GAINS STOCK
STOCK SHARES AMOUNT SURPLUS EARNINGS (LOSSES) AWARDS TOTAL
------------ ------ ------- -------- -------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 7,484,760 $ 59,878 $ 16,707 $ 91,139 $ (30) $167,694
Net earnings 25,194 25,194
Cash dividends declared
(Bancorp - $0.82 per share; Highland Federal
Savings Bank - $0.85 per share; First Clyde
Banc Corp - $2.00 per share) (9,865) (9,865)
Purchase of common stock (50,200) (403) (1,684) (2,087)
Exercise of stock options,
net of shares purchased 10,636 85 211 296
Restricted stock awards 200 2 6 (8)
Employee stock awards 336 3 12 15
33.3% stock split 2,319,871 18,560 (18,560)
Amortization of restricted stock awards 5 5
---------- -------- -------- -------- ---------- --------
Balances at December 31, 1993 9,765,603 78,125 15,252 87,908 (33) 181,252
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $1,960 $ 3,638 3,638
Change in unrealized gains (losses),
net of income tax benefit of $3,474 (6,350) (6,350)
Net earnings 28,173 28,173
Cash dividends declared
(Bancorp - $0.98 per share; First Clyde
Banc Corp - $0.50 per share) (11,809) (11,809)
Purchase of common stock (10,000) (80) (308) (388)
Exercise of stock options,
net of shares purchased 8,416 68 83 151
25.0% stock split 2,440,556 19,524 (19,524)
Amortization of restricted stock awards 6 6
---------- -------- -------- -------- -------- ---------- --------
Balances at December 31, 1994 12,204,575 97,637 15,027 84,748 (2,712) (27) 194,673
Net earnings 31,789 31,789
Cash dividends declared
(Bancorp - $1.08 per share) (13,521) (13,521)
Shares issued in Peoples Bank and Trust
Company merger 354,645 2,837 (867) 6,351 8,321
Shares issued in Bright Financial Services, Inc.
merger 442,876 3,543 (653) 5,735 8,625
Change in unrealized gains (losses),
net of income taxes of $2,364 4,149 4,149
Exercise of stock options,
net of shares purchased 10,326 82 45 127
Restricted stock awards 1,000 8 25 (33)
Amortization of restricted stock awards 12 12
---------- -------- -------- -------- -------- ---------- --------
Balances at December 31, 1995 13,013,422 $104,107 $ 13,577 $115,102 $ 1,437 $ (48) $234,175
========== ======= ======== ======== ======== ========== ========
</TABLE>
35
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 * SUMMARY OF
- -------------------
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
Basis of presentation - The consolidated financial statements of First
Financial Bancorp. (Bancorp), a bank and savings and loan holding company,
principally serving western Ohio and eastern and west-central Indiana, include
the accounts and operations of Bancorp and its 12 wholly owned subsidiaries.
All significant intercompany transactions and accounts have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. Interest on loans, securities and other earning assets is recognized
primarily on the accrual basis. Intangible assets arising from the acquisition
of subsidiaries are being amortized over varying periods, none of which exceeds
15 years. Core deposit intangibles are being amortized over varying periods,
none of which currently exceeds 10 years.
Investment securities - Bancorp adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115) on January 1, 1994. SFAS No. 115
classifies debt and equity securities in three categories: trading,
held-to-maturity and available-for-sale.
Bancorp does not hold any investment securities for trading purposes.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when Bancorp has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Debt securities not
classified held-to-maturity are classified as available-for-sale.
Available-for-sale securities are stated at aggregate fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other than temporary, are included in Investment securities gains (losses). The
cost of securities sold is based on the specific identification method.
Mortgage-backed securities - Since 1994, mortgage-backed securities
have been recorded according to their classification under SFAS No. 115, as
discussed above. Prior to 1994, mortgage-backed securities were stated at lower
of aggregate cost or market. Aggregate cost is net of unearned discounts and
premiums which are accreted or amortized into interest income using a method
that approximates a level yield over the estimated remaining lives of the
securities.
Loans - Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount amortized as an adjustment
to the related loan's yield. The accrual of interest income is discontinued
when the collection of a loan or interest, in whole or in part, is doubtful.
This applies generally to all loans, including loans impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," (SFAS No. 114). When
interest accruals are suspended, interest income accrued in the current period
is reversed, and interest accrued in the prior year is charged to the allowance
for loan losses.
Bancorp's subsidiaries sell certain fixed rate mortgage loans
immediately after origination on a flow basis. Due to Bancorp's policy of
selling loans on a flow basis, loans held for sale are not material and
therefore not disclosed separately on the Consolidated Balance Sheets. Loans
held for sale are carried at the lower of cost or market value.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," (SFAS No.
122) was released in May, 1995. This statement requires that companies engaging
in mortgage banking operations, that is, the selling of mortgage loans,
recognize as separate assets the estimated value of rights to service mortgage
loans for others. A company that acquires mortgage servicing rights either
through origination or purchase of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of
the mortgage loans to mortgage servicing rights and to loans without mortgage
servicing rights based on their relative fair values. This allocation increases
the gain or decreases the loss from the sale of the mortgage loans and
decreases income in the future as the mortgage servicing rights are amortized
against servicing income. This statement is effective for financial statements
for fiscal years beginning after December 15, 1995. Bancorp anticipates that
the adoption of this statement, based on current mortgage sale levels, will not
have a material impact on its consolidated financial position or earnings.
Allowance for loan losses - The level of the allowance for loan losses
is based upon management's evaluation of the loan and lease portfolios, 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, economic conditions and other pertinent
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. The
level maintained is believed by management to be adequate to cover future
potential losses. The allowance is increased by provisions charged to expense
and decreased by charge-offs, net of recoveries of amounts previously charged
off.
Bancorp adopted SFAS No. 114, as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures," in
the first quarter of 1995. Under the new standard, the 1995 allowance for loan
losses related to loans that are identified for evaluation in accordance with
SFAS 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 adoption of SFAS No. 114
did not have a material effect on the consolidated financial statements.
Lease financing - Bancorp principally uses the finance method of
accounting for direct lease contracts. Under this method of accounting, a
receivable is recorded for the total amount of lease payments due and estimated
residual values. Lease income, represented by the excess of the total contract
receivable plus estimated equipment residual value over the cost of the related
equipment, is recorded over the terms of the leases at a level rate of return
on the unrecovered net investment.
Premises and equipment - Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization
are computed principally on the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred.
Other real estate owned/in-substance foreclosures - Other real estate
owned primarily represents properties acquired by Bancorp's subsidiaries
through loan defaults by customers. In accordance with SFAS No. 114, a loan is
classified as in-substance foreclosure when Bancorp's subsidiaries have taken
possession of a collateral regardless of whether formal foreclosure proceedings
take place. Loans previously classified as in-substance foreclosure but for
which Bancorp's subsidiaries had not taken possession of the collateral have
not been reclassified to loans due to immateriality. The property is recorded
at the lower of cost or fair value less estimated costs to sell at the date
acquired or when an in-substance foreclosure exists. Subsequently, the property
is valued at the lower of the amount recorded when the property was placed into
other
36
<PAGE> 34
real estate owned/in-substance foreclosures or fair value less estimated costs
to sell based on periodic valuations performed by management. An allowance for
losses on other real estate owned may be maintained for subsequent valuation
adjustments on a specific property basis. Any gains or losses realized at the
time of disposal are reflected in income.
Income taxes - Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Bancorp and its subsidiaries file a consolidated federal income tax
return. Each subsidiary provides for income taxes on a separate return basis,
and remits to Bancorp amounts determined to be currently payable.
Earnings per share - Earnings per share are based upon the weighted
average number of common shares outstanding each year and include the effects
of all mergers and stock splits, distributed in the form of stock dividends,
declared through 1995. The assumed exercise of stock options would not have a
materially dilutive effect.
Stock-based compensation - SFAS No. 123, "Accounting for Stock-Based
Compensaton," (SFAS No. 123) was released in October, 1995. This statement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees.
Compensation expense is to be calculated using models that meet certain
requirements described in SFAS No 123. Companies that choose not to record
compensation expense for these grants must still disclose pro forma net income
and earnings per share as if compensation expense had been recorded. This
statement is effective for financial statements for fiscal years beginning
after December 15, 1995. Bancorp is in the process of analyzing this statement
and has not determined the impact that adoption will have on its consolidated
financial position or earnings.
Cash flow information - For purposes of the statement of cash flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
Long-lived assets - SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was released in
March, 1995. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment when events or changes in
circumstances indicate that an asset's recorded value may not be recoverable.
This statement is effective for financial statements for fiscal years beginning
after December 15, 1995. Bancorp anticipates that adoption of this statement
will not have a material effect on its consolidated financial position or
earnings.
Reclassifications - Certain reclassifications of prior years' amounts
have been made to conform to current year presentation. Such reclassifications
had no effect on net earnings.
NOTE 2 * RESTRICTIONS ON CASH
- -----------------------------
AND DUE FROM BANK ACCOUNTS
- --------------------------
Bancorp's subsidiaries are required to maintain average reserve balances
either in the form of vault cash or reserves held on deposit with the Federal
Reserve Bank, Federal Home Loan Bank or in pass-through reserve accounts with
correspondent banks. The average amounts of these required reserve balances for
1995 and 1994 were approximately $21,081,000 and $20,162,000, respectively.
NOTE 3 * BUSINESS COMBINATIONS
- ------------------------------
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. This merger was
accounted for as an immaterial pooling-of-interests and the consolidated
financial statements, including earnings per share, have not been restated for
periods prior to October 1, 1995.
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 merger with this $54 million bank has been
accounted for as an immaterial pooling-of-interests and the consolidated
financial statements, including earnings per share, have not been restated for
periods prior to July 16, 1995.
On September 11, 1995, Bancorp signed a Plan and Agreement of Merger
with F&M Bancorp, Rochester, Indiana. F&M Bancorp is a one-bank holding company
with the $60 million Farmers & Merchants Bank of Rochester as its only
subsidiary. Upon consummation of the merger, Bancorp intends to dissolve F&M
Bancorp and merge Farmers & Merchants Bank of Rochester into one of Bancorp's
subsidiaries, 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.
Bancorp consummated the following business combinations in 1995, 1994
and 1993:
<TABLE>
<CAPTION>
BUSINESS COMBINATIONS MERGER DATE ASSETS DEPOSITS SHARES ISSUED
- --------------------- ------------- ------ -------- -------------
<S> <C> <C> <C> <C>
Pooling-of-interests (Dollars in thousands)
Bright Financial Services, Inc. October 1, 1995 $112,813 $ 98,251 442,876
Peoples Bank and Trust Company July 16, 1995 54,005 45,220 354,645
The Clyde Savings Bank Company June 1, 1994 68,280 60,664 287,699
Highland Federal Savings Bank February 1, 1994 52,173 43,599 198,386
Union Bank & Trust Company January 4, 1993 74,797 66,558 287,414
</TABLE>
37
<PAGE> 35
NOTE 4 * LEASE FINANCING
- ------------------------
Leases included in the loan portfolio at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Direct financing $ 14,754 $ 14,102
Leveraged 1,302 1,302
Non-recourse debt, principal
and interest (936) (936)
----------- -----------
Net rentals receivable 15,120 14,468
Estimated residual value
of leased assets 4,184 4,131
Less unearned income 2,747 2,497
------------ -----------
Investment in leases, net $ 16,557 $ 16,102
============ ===========
</TABLE>
Direct financing lease payments receivable as of December 31, 1995 for
the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
DIRECT FINANCING LEASES
------------------------
(Dollars in thousands)
<S> <C>
1996 $ 5,593
1997 4,343
1998 2,774
1999 1,467
2000 529
Thereafter 48
</TABLE>
NOTE 5 * PREMISES AND EQUIPMENT
- -------------------------------
Premises and equipment at December 31 were summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- -----
(Dollars in thousands)
<S> <C> <C>
Land and land improvements $ 8,143 $ 7,100
Buildings 38,891 36,474
Furniture and fixtures 28,423 25,961
Leasehold improvements 387 344
Construction in progress 2,269 2,538
------------ -----------
78,113 72,417
Less accumulated depreciation
and amortization 38,182 34,418
------------ -----------
Total $ 39,931 $ 37,999
============ ===========
</TABLE>
NOTE 6 * RESTRICTIONS ON
- ------------------------
SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
- ---------------------------------------
Dividends paid by Bancorp are mainly provided by dividends from its
subsidiaries. However, certain restrictions exist regarding the ability of
these subsidiaries to transfer funds to Bancorp in the form of cash dividends,
loans or advances. The approval of the subsidiaries' respective primary federal
regulators is required for Bancorp's subsidiaries to pay dividends in excess
of regulatory limitations. As of December 31, 1995, Bancorp's subsidiaries had
retained earnings of $105,303,000 of which $39,231,000 was available for
distribution to Bancorp as dividends without prior regulatory approval.
NOTE 7 * 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 SFAS 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.
Standby letters of credit - These transactions 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. Bancorp has issued standby letters of credit
aggregating $10,989,000 and $9,976,000 at December 31, 1995 and 1994,
respectively.
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 - Commitments to extend credit 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 investment securities, real estate,
inventory, plant or equipment. Bancorp had commitments outstanding to extend
credit totaling $243,430,000 and $216,802,000 at December 31, 1995 and 1994,
respectively. Management does not anticipate any material losses as a result
of these commitments.
38
<PAGE> 36
NOTE 8 * INVESTMENT SECURITIES
- ------------------------------
The net investment gain after taxes was $323,000 for the year ended
December 31, 1995. There was a net investment loss after taxes of $120,000 for
the year ended December 31, 1994 and a net investment gain after taxes of
$392,000 for the year ended December 31, 1993. The applicable income tax
effects were an expense of $17,000 in 1995 and benefits of $1,634,000 and
$463,000 for 1994 and 1993, respectively.
The carrying value of investment securities pledged to secure public
deposits and for other purposes as required by law amounted to $169,522,000 at
December 31, 1995.
The following is a summary of investment securities as of December 31,
1995:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
-------- ----- -------- ------ --------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) (Dollars in thousands)
U.S. Treasury securities $ 68,010 $ 388 $ (16) $ 68,382
Securities of U.S. government
agencies and corporations 103,610 1,372 (78) 104,904
Mortgage-backed securities $ 18,060 $ 699 $(104) $18,655 93,831 489 (251) 94,069
State, county, and municipal securities 72,778 6,380 (37) 79,121 11,195 344 (8) 11,531
Other securities 2,684 53 (1) 2,736 15,120 137 (91) 15,166
-------- ------ ------ -------- -------- ------ ------ --------
Total $ 93,522 $7,132 $(142) $100,512 $291,766 $2,730 $(444) $294,052
======== ====== ====== ======== ======== ====== ====== ========
</TABLE>
The following is a summary of investment securities as of December 31, 1994:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
--------- ----- -------- ------ --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands) (Dollars in thousands)
U.S. Treasury securities $ 101,298 $ (954) $100,344
Securities of U.S. government
agencies and corporations 63,743 (1,144) 62,599
Mortgage-backed securities $ 21,828 $ 302 $ (769) $ 21,361 66,775 $ 29 (2,429) 64,375
State, county, and municipal securities 108,805 5,979 (360) 114,424 7,861 155 (71) 7,945
Other securities 4,554 42 (62) 4,534 6,960 187 7,147
-------- ------ ------- -------- --------- ----- ------- --------
Total $135,187 $6,323 $(1,191) $140,319 $ 246,637 $ 371 $(4,598) $242,410
======== ====== ======= ======== ========= ===== ======= ========
</TABLE>
The carrying value of investment securities as of December 31, 1993,
by category was as follows: U.S. Treasury $155,933,000, U.S. government agencies
and corporations $26,416,000, mortgage-backed $114,169,000, state, county, and
municipal $129,905,000, and other $12,038,000.
During the year ended December 31, 1995, available-for-sale securities
with a fair value at the date of sale of $39,220,000 were sold. The gross
realized gains on such sales totaled $297,000 and the gross realized losses
totaled $3,000.
During the year ended December 31, 1994, available-for-sale securities
with a fair value at the date of sale of $82,735,000 were sold. The gross
realized gains on such sales totaled $3,000 and the gross realized losses
totaled $1,553,000.
During the year ended December 31, 1993, gross realized gains on
investment securities totaled $12,000 and the gross realized losses totaled
$83,000.
The amortized cost and market value of investment securities, including
mortgage-backed securities at December 31, 1995, by contractual maturity, are
shown in the table below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------ ------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 8,548 $ 8,680 $ 64,924 $ 65,156
Due after one year through five years 38,488 41,367 110,889 112,327
Due after five years through ten years 24,094 26,120 19,829 20,076
Due after ten years 22,392 24,345 96,124 96,493
------- -------- -------- --------
Total $93,522 $100,512 $291,766 $294,052
======= ======== ======== ========
</TABLE>
39
<PAGE> 37
NOTE 9 * LOANS
- --------------
Information as to nonaccrual and restructured loans at December 31 was
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Principal balance
Nonaccrual loans $ 2,764 $ 2,412 $ 4,679
Restructured loans 517 1,429 605
----------- ----------- ------------
Total $ 3,281 $ 3,841 $ 5,284
=========== =========== ============
Interest income effect
Gross amount of interest that would
have been recorded at original rate $ 276 $ 203 $ 485
Interest included in income 135 80 160
----------- ----------- ------------
Net impact on interest income $ 141 $ 123 $ 325
=========== =========== ============
</TABLE>
At December 31, 1995, there were no commitments outstanding to lend
additional funds to borrowers with nonaccrual or restructured loans.
The balances of other real estate acquired through loan foreclosures,
in-substance foreclosures, repossessions or other workout situations, net of
the related allowance, totaled $1,677,000, $2,116,000 and $3,673,000 at
December 31, 1995, 1994 and 1993, respectively.
Changes in the allowance for loan losses for the three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 18,609 $ 18,380 $ 17,014
Allowance acquired through mergers 1,162
Provision for loan losses 2,108 1,268 3,747
Loans charged off (2,644) (2,152) (3,689)
Recoveries 1,202 1,113 1,308
----------- ----------- -----------
Balance at end of year $ 20,437 $ 18,609 $ 18,380
=========== =========== ===========
</TABLE>
Bancorp did not have an allowance for other real estate owned at
December 31, 1995 and 1994. At December 31, 1993, Bancorp had an allowance of
$404,000 for other real estate owned.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Balance Sheets. The unpaid principal balances of these loans
totaled $221,519,000, $186,114,000 and $173,667,000, at December 31, 1995, 1994
and 1993, respectively.
Custodial escrow balances maintained in connection with these mortgage
loans serviced were approximately $1,485,000, $1,297,000 and $1,343,000 at
December 31, 1995, 1994 and 1993, respectively.
Bancorp adopted SFAS No. 114, as amended by SFAS No. 118 in the first
quarter of 1995.
Under the new standard, the 1995 allowance for loan losses related to
loans that are identified for evaluation in accordance with SFAS 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.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $889,000, all of which were on
a nonaccrual basis. The related allowance for loan losses on these impaired
loans was $514,000. 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 during the year ended December 31, 1995 was
approximately $1,325,000. For the year ended December 31, 1995, Bancorp
recognized interest income on those impaired loans of $57,000. Bancorp
recognizes income on impaired loans using the cash basis method.
NOTE 10 * INCOME TAXES
- ----------------------
Income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ 12,486 $ 7,607 $ 7,190
State 994 780 729
----------- ---------- -----------
Total 13,480 8,387 7,919
Deferred expense (benefit) 171 1,412 (450)
----------- ---------- -----------
Income tax expense $ 13,651 $ 9,799 $ 7,469
=========== ========== ===========
</TABLE>
40
<PAGE> 38
The difference between the federal income tax rates, applied to income
before income taxes, and the effective rates were due to the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Income taxes computed at federal statutory rate of 35% $ 15,904 $ 13,290 $ 11,432
State income taxes, net of federal tax benefit 646 507 474
Effect of tax-exempt interest (2,687) (3,326) (4,043)
Other (212) (672) (394)
------------ ----------- -----------
Income tax expense $ 13,651 $ 9,799 $ 7,469
============ =========== ===========
</TABLE>
At December 31, 1995, approximately $5,800,000 was included in Bancorp's
retained earnings for which no provision for federal income taxes had been
made. This amount represents an allocation of Bancorp's savings and loan
affiliates' earnings to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carryback of net operating losses would create taxable income
which would be subject to the then-current corporate tax rate.
SFAS No. 109, "Accounting for Income Taxes," (SFAS No. 109) requires
that deferred tax assets and liabilities be carried at the enacted tax rate.
The enacted tax rate was 35% for years ended December 31, 1995, 1994 and 1993.
The major components of the temporary differences that give rise to deferred
tax assets and liabilities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 6,091 $ 5,839
Other real estate owned 182 193
Postretirement benefits other
than pensions liability 939 949
Other 196 443
------- -------
Total deferred tax assets 7,408 7,424
Deferred tax liabilities
Tax greater than book depreciation 536 335
Leasing activities 1,620 1,629
Federal Home Loan Bank stock basis difference 442 357
Prepaid pension asset 91 378
Deferred loan fees 237 105
Other 263 230
------- -------
Total deferred tax liabilities 3,189 3,034
Net deferred tax asset recognized through
the statement of earnings 4,219 4,390
Net deferred tax (liability) asset from valuation
adjustments of investment securities available-for-
sale, recognized in equity section of balance sheet (850) 1,514
------- -------
Total net deferred tax asset $ 3,369 $ 5,904
======= =======
</TABLE>
SFAS No. 109 requires that a valuation allowance be established if
management has evidence that part or all of the deferred tax assets may not be
realized. Management has determined that it is more likely than not that all of
the deferred tax assets will be realized. Therefore, no valuation allowance is
required at this time. Management examines the deferred tax assets quarterly
and reassesses the need for a valuation allowance for future accounting
periods.
41
<PAGE> 39
NOTE 11 * EMPLOYEE BENEFIT PLAN
- -------------------------------
Bancorp and its subsidiaries have a non-contributory defined benefit
pension plan covering substantially all employees. Benefits are based on age,
years of service and the employee's compensation during a five year period of
employment. The funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes.
The following tables set forth the plan's funded status and amounts
recognized in Bancorp's Consolidated Balance Sheets:
<TABLE>
<CAPTION> January 1,
1995 1994
---- ----
<S> <C> <C>
(Dollars in thousands)
Actuarial present value of accumulated plan benefits:
Vested $ 15,364 $ 15,597
Nonvested 1,355 513
---------- -----------
Total $ 16,719 $ 16,110
========= ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
(Dollars in thousands)
Reconciliation of funded status:
Projected benefit obligation for service rendered to date $ (21,883) $ (19,989)
Plan assets at fair value, primarily listed stocks, bonds and U.S. bonds 22,101 19,464
----------- -----------
Plan assets in excess of (less than) projected benefit obligation 218 (525)
Unrecognized net (gain) loss from past experience different from that assumed
and effects of changes in assumptions (175) 1,751
Prior service cost not yet recognized in net periodic pension cost 2,083 2,327
Unrecognized net asset at January 1, 1986, net of amortization (2,103) (2,452)
----------- -----------
Net pension asset recognized in the balance sheets $ 23 $ 1,101
=========== ===========
</TABLE>
The net periodic pension expense (benefit) included the following components:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Service cost benefits earned during the period $ 1,129 $ 1,051 $ 891
Interest cost on projected benefit obligation 1,505 1,478 1,211
Actual return on plan assets (4,300) 163 (1,389)
Net amortization and deferral 2,744 (2,013) (820)
----------- ----------- ----------
Net periodic pension expense (benefit) $ 1,078 $ 679 $ (107)
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Assumptions used in the actuarial present value determinations
of the projected benefit obligation were:
Weighted-average discount rate used in determining projected benefit obligations 7.50% 7.50%
Rate of increase in future compensation 3.50% 3.50%
Long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
42
<PAGE> 40
NOTE 12 * POSTRETIREMENT
- ------------------------
BENEFITS OTHER THAN PENSIONS
- ----------------------------
Some Bancorp subsidiaries maintain health care and, in limited
instances, life insurance plans for current retired employees. Under the
current policy, the health care plans are unfunded and pay medically necessary
expenses incurred by retirees, after subtracting payments by Medicare or other
providers and after stated deductibles have been met. Bancorp has reserved the
right to change or eliminate these benefit plans.
The following table sets forth the funded status and amounts recognized
in Bancorp's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Actuarial present value of accumulated benefits other than pension $ 2,297 $ 2,474
Plan assets
----------- ----------
Accumulated obligation in excess of plan assets 2,297 2,474
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions 404 170
----------- ----------
Net postretirement liability recognized in the balance sheets $ 2,701 $ 2,644
=========== ===========
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Interest cost on accumulated postretirement benefit obligation $ 179 $ 166
Net amortization and deferral (14)
----------- ----------
Net periodic cost $ 179 $ 152
=========== ===========
</TABLE>
The discount rate used to determine the accumulated postretirement
benefit obligation was 7.50% at December 31, 1995 and 1994. For 1995, the
assumed health care cost trend rates used in determining the accumulated
postretirement benefit obligation were 10.5% for the first eight years, 8.50%
for the next five years and 6.50% thereafter. For 1994, the assumed trend was
10.5% for the first nine years, 8.50% for the next five years and 6.50%
thereafter. If the health care cost trend rate assumptions were increased by
1.00%, the accumulated postretirement benefit obligation as of December 31,
1995 would be increased by approximately $216,000.
NOTE 13 * STOCK OPTIONS
- -----------------------
On April 28, 1992, the shareholders of Bancorp approved the 1991 Stock
Incentive Plan. This plan provides incentive stock options and stock awards to
certain key employees and non-qualified stock options to directors of Bancorp
who are not employees for up to 605,000 common shares of Bancorp. The options
are not exercisable for at least one year from the date of grant and are
thereafter exercisable for such periods as the Board of Directors, or a
committee thereof, specify (which may not exceed 10 years), provided that the
optionee has remained in the employment of Bancorp or its subsidiaries. The
Board or the committee may accelerate the exercise period for an option upon
the optionee's disability, retirement or death. All options expire at the end
of the exercise period. Cancelled and expired options become available for
issuance and are reflected in the "available for future grant" figure.
Bancorp makes no recognition in the financial statements of the options until
such options are exercised. All options were granted at not less than the fair
market value at the date of grant.
Outstanding stock options have not been considered as common stock
equivalents in the computation of earnings per share because the assumed
exercise of stock options would not have a materially dilutive effect.
Activity in the plan for 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
NUMBER OF NUMBER OF NUMBER OF
SHARES OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE
--------- ------------ -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 139,928 118,151 76,908
Granted 13,564 $ 33.25-34.00 42,284 $ 30.60-32.40 68,584 $ 25.20
Exercised (24,386) $ 21.95-33.25 (20,507) $ 21.95-25.20 (27,341) $21.95-22.64
Cancelled (2,016) $ 34.00
Expired (2,016) $ 21.95
------- ------- -------
Outstanding at end of year 125,074 $ 21.95-34.00 139,928 $ 21.95-32.40 118,151 $21.95-25.20
======= ======= =======
Exercisable at end of year 111,510 $ 21.95-32.40 97,644 $ 21.95-25.20 49,566 $21.95-22.64
======= ======= =======
Available for future grant under
the 1991 Stock Incentive Plan 402,559 412,091 454,375
======= ======= =======
</TABLE>
43
<PAGE> 41
NOTE 14 * LOANS TO RELATED PARTIES
- ----------------------------------
Loans to directors, executive officers, principal holders of Bancorp's
common stock and certain related persons totaled $18,929,000 and $19,154,000 at
December 31, 1995 and 1994, respectively.
Activity of these loans was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Beginning balance $ 19,154 $ 18,274
Additions 6,515 4,701
Collected 6,740 3,821
Charged off 0 0
----------- -----------
Ending balance $ 18,929 $ 19,154
=========== ===========
Loans 90 days past due $ 0 $ 0
=========== ===========
</TABLE>
Related parties of Bancorp, as defined above, were customers of and had
transactions with subsidiaries of Bancorp in the ordinary course of business
during the periods noted above. Additional transactions may be expected in the
ordinary course of business in the future. All outstanding loans, commitments,
financing leases, transactions in money market instruments and deposit
relationships included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and did not involve more than a normal
risk of collectibility or present other unfavorable features.
NOTE 15 * SHAREHOLDER RIGHTS PLAN
- ---------------------------------
On November 26, 1993, Bancorp adopted a "shareholder rights plan" and
declared a dividend of one "right" on each outstanding share of Bancorp common
stock.
Under the plan, each "right" would be distributed only on the 20th
business day after any one of the following events occur: 1) A public
announcement that a person or group has acquired 20 percent or more (an
"acquiring person") of Bancorp's outstanding common shares, 2) The beginning of
a tender offer or exchange offer that would result in a person or group owning
30 percent or more of the corporation's outstanding common shares, or 3) A
declaration by the Board of Directors of a shareholder as an "adverse person."
(An adverse person is a person who owns at least 10 percent of the common
shares and attempts "greenmail," or is likely to cause a material adverse
impact on the Bancorp - such as impairing customer relationships, harming the
company's competitive position or hindering the Board's ability to effect a
transaction it deems to be in the shareholders' best interest.)
In the event of such a distribution, each "right" would entitle the
holder to purchase, at an exercise price of $120, one share of common stock of
the corporation. If a person or group acquires 30 percent or more of Bancorp's
outstanding common shares or is declared an "adverse person" by the Board of
Directors of the corporation, each "right" would entitle the holder to
purchase, at an exercise price of $120, a number (to be determined under the
plan) of shares of common stock of the corporation at a price equal to 50
percent of its then current market price. However, any "rights" held by an
"acquiring person" or an "adverse person" could not be exercised.
Additionally, each "right" holder would be entitled to receive common
stock of any acquiring company worth two times the exercise price of the
"right," should either of the following happen after a person becomes an
"acquiring person": 1) Bancorp is acquired in a merger or other transaction -
other than a merger which the independent directors determine to be in the best
interest of Bancorp and its shareholders, or 2) 50 percent or more of Bancorp's
assets or earning power is sold or transferred.
Bancorp may redeem "rights" for $0.01 per "right" at any time prior to
the 20th business day following the date when a person acquires 20 percent of
the outstanding shares. Bancorp may NOT redeem the "rights" when a holder has
become an "adverse person."
The Board's adoption of this "rights" plan has no financial effect on
Bancorp, is not dilutive to Bancorp shareholders, is not taxable to the
corporation or its shareholders and will not change the way in which Bancorp
common shares are traded. "Rights" are not exercisable until distributed; and
all "rights" will expire at the close of business on December 6, 2003, unless
earlier redeemed by Bancorp.
NOTE 16 * DISCLOSURES ABOUT FAIR
- --------------------------------
VALUE OF FINANCIAL INSTRUMENTS
- ------------------------------
The following methods and assumptions were used by Bancorp in
estimating its fair value disclosures for financial instruments:
Cash and short-term investments - The carrying amounts reported in the
balance sheet for cash and short-term investments, such as interest-bearing
deposits with other banks and federal funds sold, approximated the fair value
of those instruments.
Investment securities (including mortgage-backed securities) - Fair
values for investment securities were based on quoted market prices, where
available. If quoted market prices were not available, fair values were based
on quoted market prices of comparable instruments. Refer to Note 8 for further
disclosure.
Loans - For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values were based on carrying values.
The fair values of other loans and leases, such as commercial real estate and
consumer loans, were estimated by discounting the future cash flows using the
current rates at which similar loans and leases would be made to borrowers with
similar credit ratings and for similar remaining maturities. The carrying
amount of accrued interest approximated its fair value.
Deposit liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits was the amount payable on demand at
the reporting date. The carrying amounts for variable-rate certificates of
deposit approximated their fair values at the reporting date. The fair value of
fixed-rate certificates of deposit was estimated using a discounted cash flow
calculation which applies the interest rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
approximated its fair value.
Borrowings - The carrying amounts of federal funds purchased and
securities sold under agreements to repurchase and other short-term borrowings
approximated their fair values. The fair value of long-term borrowings was
estimated using a discounted cash flow calculation which utilizes the interest
rates currently offered for borrowings of similar remaining maturities.
Commitments to extend credit and standby letters of credit - Pricing of
these financial instruments is based on the credit quality and relationship,
fees, interest rates, probability of funding and compensating balance and other
covenants or requirements. Loan commitments generally have fixed expiration
dates, are variable rate and contain termination and other clauses which
provide for relief from funding in the event that there is a significant
deterioration in the credit quality of the customer. Many loan commitments are
expected to expire without being drawn upon. The rates and terms of the
commitments to extend credit and the standby letters of credit are competitive
with those in Bancorp's market area. The carrying amounts are reasonable
estimates of the fair value of these financial instruments. Carrying amounts
which are comprised of the unamortized fee income and, where necessary,
reserves for any expected credit losses from these financial instruments, are
immaterial. Refer to Note 7 for additional information.
44
<PAGE> 42
Bancorp does not carry financial instruments which are held or issued
for trading purposes.
The estimated fair values of Bancorp's financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $ 130,369 $ 130,369 $ 111,904 $ 111,904
Investment securities held-to-maturity 93,522 100,512 135,187 140,319
Investment securities available-for-sale 294,052 294,052 242,410 242,410
Loans
Commercial 340,942 335,377 286,635 289,151
Real estate-construction 41,845 41,650 29,273 28,881
Real estate-mortgage 788,805 761,190 746,150 732,439
Installment, net of unearned income 328,461 359,679 285,108 279,868
Credit card 15,406 15,042 15,599 15,397
Leasing 16,557 15,642 16,102 16,848
Less allowance for loan losses 20,437 18,609
----------- ---------- ----------- ----------
Net loans 1,511,579 1,528,580 1,360,258 1,362,584
Accrued interest receivable 18,494 18,494 18,178 18,178
Financial liabilities
Deposits
Noninterest-bearing 220,061 220,061 201,331 201,331
Interest-bearing demand 302,119 302,119 266,601 266,601
Savings 359,638 359,638 374,378 374,378
Time 903,744 895,303 745,014 734,918
----------- ---------- ----------- ----------
Total deposits 1,785,562 1,777,121 1,587,324 1,577,228
Short-term borrowings 58,372 58,372 123,119 123,119
Long-term borrowings 2,820 2,834
Accrued interest payable 6,125 6,125 3,672 3,672
</TABLE>
NOTE 17 * FIRST FINANCIAL BANCORP. (PARENT
- ------------------------------------------
COMPANY ONLY) FINANCIAL INFORMATION
- -----------------------------------
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
------------------------
1995 1994
------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Cash $ 40,971 $ 5,556
Receivables from subsidiaries 2,061
Securities purchased under agreements to resell to affiliates 15,000 30,279
Investment in subsidiaries
Commercial banks 153,270 129,464
Stock savings banks 29,967 32,169
------------ -----------
Total investment in subsidiaries 183,237 161,633
Other assets 175 246
------------ -----------
Total assets $ 239,383 $ 199,775
============ ===========
Liabilities
Dividends payable $ 3,904 $ 3,905
Other liabilities 1,304 1,197
------------ -----------
Total liabilities 5,208 5,102
Shareholders' equity 234,175 194,673
------------ -----------
Total liabilities and shareholders' equity $ 239,383 $ 199,775
============ ===========
</TABLE>
45
<PAGE> 43
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Income
Interest income $ 40 $ 21 $ 3
Dividends from subsidiaries 33,572 24,273 18,445
------------ ----------- -----------
Total income 33,612 24,294 18,448
Expenses
Salaries and employee benefits 966 863 638
Other 608 500 1,003
------------ ----------- -----------
Total expenses 1,574 1,363 1,641
------------ ----------- -----------
Income before income taxes and equity in undistributed
net earnings of subsidiaries 32,038 22,931 16,807
Income tax (benefit) expense (95) 72 (813)
------------ ----------- -----------
Income before equity in undistributed net earnings of subsidiaries 32,133 22,859 17,620
Equity in undistributed net earnings of subsidiaries (344) 5,314 7,574
------------ ----------- -----------
Net earnings $ 31,789 $ 28,173 $ 25,194
============ =========== ===========
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net earnings $ 31,789 $ 28,173 $ 25,194
Adjustments to reconcile net earnings to
net cash provided by operating activities
Equity in undistributed net earnings of subsidiaries 344 (5,314) (7,574)
Provision for amortization 17 20 (189)
Deferred income taxes 104 (42) (153)
(Decrease) increase in dividends payable (1) 1,400 291
Increase (decrease) in accrued expenses 109 15 (400)
Decrease (increase) in receivables 2,061 (572) 17,211
------------ ----------- -----------
Net cash provided by operating activities 34,423 23,680 34,380
Investing activities
Securities purchased under agreements to resell to affiliates 15,279 (7,702) (22,577)
Other (43) (61) (28)
------------ ----------- -----------
Net cash provided by (used in) investing activities 15,236 (7,763) (22,605)
Financing activities
Cash dividends (13,521) (11,809) (9,865)
Purchase of common stock (388) (2,087)
Proceeds from exercise of stock options, net of shares purchased 127 151 296
Issuance of employee stock awards 15
Principal payment of long-term borrowings (850)
------------ ----------- -----------
Net cash used in financing activities (14,244) (12,046) (11,641)
------------ ----------- -----------
Increase in cash 35,415 3,871 134
Cash at beginning of year 5,556 1,685 1,551
------------ ----------- -----------
Cash at end of year $ 40,971 $ 5,556 $ 1,685
============ =========== ===========
</TABLE>
46
<PAGE> 44
REPORT OF ERNST & YOUNG LLP,
- ----------------------------
INDEPENDENT AUDITORS
- --------------------
The Board of Directors and Shareholders
First Financial Bancorp.
We have audited the accompanying consolidated balance sheets of First
Financial Bancorp. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Financial Bancorp. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in
1994 First Financial Bancorp. and subsidiaries changed their method of
accounting for investment securities.
Ernst & Young LLP
Cincinnati, Ohio
January 16, 1996
47
<PAGE> 45
QUARTERLY FINANCIAL AND COMMON STOCK DATA(1)
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
1995
Interest income $ 36,162 $ 37,144 $ 38,860 $ 41,685
Interest expense 14,495 15,476 16,152 17,393
----------- ----------- ---------- -----------
Net interest income 21,667 21,668 22,708 24,292
Provision for loan losses 393 226 532 957
Noninterest income
Investment securities gains 13 238 49 40
All other 4,860 5,026 5,042 5,290
Noninterest expenses 15,661 15,575 15,559 16,550
----------- ----------- ---------- -----------
Income before income taxes 10,486 11,131 11,708 12,115
Income tax expense 3,117 3,142 3,591 3,801
----------- ----------- ---------- -----------
Net earnings $ 7,369 $ 7,989 $ 8,117 $ 8,314
=========== =========== ========== ===========
Per share
Net earnings $ 0.60 $ 0.66 $ 0.65 $ 0.64
=========== =========== ========== ===========
Cash dividends paid $ 0.32 $ 0.26 $ 0.26 $ 0.26
=========== =========== ========== ===========
Market price
High bid $ 34.75 $ 34.50 $ 35.50 $ 35.25
=========== =========== ========== ===========
Low bid $ 32.50 $ 33.00 $ 33.00 $ 33.00
=========== =========== ========== ===========
1994
Interest income $ 31,735 $ 32,539 $ 33,913 $ 35,317
Interest expense 11,653 11,762 12,685 13,487
----------- ----------- ---------- -----------
Net interest income 20,082 20,777 21,228 21,830
Provision for loan losses 169 190 298 611
Noninterest income
Investment securities gains (losses) 6 (104) (520) (1,136)
All other 5,098 4,822 4,721 4,575
Noninterest expenses 15,389 15,339 15,516 15,895
----------- ----------- ---------- -----------
Income before income taxes 9,628 9,966 9,615 8,763
Income tax expense 2,626 2,472 2,454 2,247
----------- ----------- ---------- -----------
Net earnings $ 7,002 $ 7,494 $ 7,161 $ 6,516
=========== =========== ========== ===========
Per share
Net earnings $ 0.57 $ 0.61 $ 0.59 $ 0.54
=========== =========== ========== ===========
Cash dividends paid $ 0.22 $ 0.22 $ 0.22 $ 0.22
=========== =========== ========== ===========
Market price
High bid $ 39.80 $ 31.60 $ 32.20 $ 33.75
=========== =========== ========== ===========
Low bid $ 29.20 $ 30.00 $ 30.20 $ 29.50
=========== =========== ========== ===========
<FN>
The stock of First Financial Bancorp. is listed with the National Association of Securities Dealers, Inc. (NASDAQ), under the symbol
FFBC.
(1) All financial information for 1994 has been restated to reflect (a) the merger of Highland Federal Savings Bank into Home
Federal Bank, A Federal Savings Bank on February 1, 1994; (b) the merger with First Clyde Banc Corp on June 1, 1994; and (c) a
five-for-four stock split distributed in the form of a 25.0 percent stock dividend on December 1, 1994. Both mergers were accounted
for as a pooling-of-interests.
</TABLE>
48
<PAGE> 46
F-13
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
(3)a* Articles of Incorporation
(3)b* Restated Code of Regulations, revised April 27, 1993 and incorporated herein by reference to Exhibit
(3)b to Form 10-K for the year ended December 31, 1993.
(10)* First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24, 1991 and incorporated herein by
reference to a Registration Statement on Form S-8, Registration No. 33-46819.
(11) Computation of Consolidated Net Earnings Per Share for the Year Ended December 31, 1995, 1994 and 1993.
(13) Registrant's annual report to security holders for the year ended December 31, 1995.
(22) First Financial Bancorp. Subsidiaries.
(23) Consent of Ernst & Young LLP, Independent Auditors.
(27) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1995, the
registrant did not file any reports on Form 8-K.
- --------------------------------------------------------------------------------
*COPIES OF THIS EXHIBIT HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. SHAREHOLDERS MAY OBTAIN A COPY OF ANY EXHIBIT, UPON PAYMENT OF
REPRODUCTION COSTS, BY WRITING JOSEPH M. GALLINA, COMPTROLLER, FIRST FINANCIAL
BANCORP, 2 NORTH MAIN STREET, MIDDLETOWN, OHIO, 45042.
<PAGE> 1
EXHIBIT 11
FIRST FINANCIAL BANCORP.
COMPUTATION OF CONSOLIDATED NET EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993**
---- ---- ----
<S> <C> <C> <C>
Weighted Average:
- -----------------
Net earnings $31,789,000 $28,173,000 $25,194,000
=========== =========== ===========
Weighted average number of shares
outstanding 12,488,168 12,210,753 12,211,405
=========== =========== ===========
Per share (net earnings divided by the
weighted average number of shares
outstanding) $ 2.55 $ 2.31 $ 2.06
=========== =========== ===========
Primary:
- --------
Net earnings $31,789,000 $28,173,000 $25,194,000
=========== =========== ===========
Adjusted weighted average number of shares
outstanding 12,511,352 12,233,727 12,228,865
=========== =========== ===========
Per share (net earnings divided by the
adjusted weighted average number of shares
outstanding) $ 2.54 $ 2.30 $ 2.06
=========== =========== ===========
Fully Diluted:
- --------------
Net earnings $31,789,000 $28,173,000 $25,194,000
=========== =========== ===========
Adjusted weighted average number of shares
outstanding 12,515,316 12,240,573 12,243,270
=========== =========== ===========
Per share (net earnings divided by the
adjusted weighted average number of shares
outstanding) $ 2.54 $ 2.30 $ 2.06
=========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
** Per share data has been restated for a five-for-four stock split
distributed in the form of a 25% stock dividend on December 1, 1994.
<PAGE> 1
EXHIBIT 22
FIRST FINANCIAL BANCORP. SUBSIDIARIES
First National Bank of Southwestern Ohio, organized as a national banking
association under the laws of the United States
Citizens Commercial Bank & Trust Company, incorporated in the state of Ohio
Van Wert National Bank, organized as a national banking association under the
laws of the United States
Union Trust Bank, incorporated in the state of Indiana
Indiana Lawrence Bank, incorporated in the state of Indiana
Fidelity Federal Savings Bank, organized as a federal stock savings bank under
the laws of the United States
Citizens First State Bank, incorporated in the state of Indiana
Home Federal Bank, A Federal Savings Bank, organized as a federal stock savings
bank under the laws of the United States
Union Bank & Trust Company, incorporated in the state of Indiana
Clyde Savings Bank Company, incorporated in the state of Ohio
Peoples Bank and Trust Company, incorporated in the state of Indiana
Bright National Bank, organized as a national banking association under the
laws of the United States
First Finance Mortgage Company of Southwestern Ohio, Inc., incorporated in the
state of Ohio
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of First Financial Bancorp. of our report dated January 16, 1996, included in
the 1995 Annual Report to Shareholders of First Financial Bancorp.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-46819) pertaining to the First Financial Bancorp. 1991 Stock
Incentive Plan and in the related Prospectus of our report dated January 16,
1996, with respect to the consolidated financial statements of First Financial
Bancorp. incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1995.
/s/ Ernst & Young LLP,
March 19, 1996
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 108,685
<INT-BEARING-DEPOSITS> 6,882
<FED-FUNDS-SOLD> 14,802
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 294,052
<INVESTMENTS-CARRYING> 93,522
<INVESTMENTS-MARKET> 100,512
<LOANS> 1,532,016
<ALLOWANCE> 20,437
<TOTAL-ASSETS> 2,103,375
<DEPOSITS> 1,785,562
<SHORT-TERM> 58,372
<LIABILITIES-OTHER> 22,446
<LONG-TERM> 2,820
<COMMON> 104,107
0
0
<OTHER-SE> 130,068
<TOTAL-LIABILITIES-AND-EQUITY> 2,103,375
<INTEREST-LOAN> 129,058
<INTEREST-INVEST> 24,024
<INTEREST-OTHER> 769
<INTEREST-TOTAL> 153,851
<INTEREST-DEPOSIT> 59,413
<INTEREST-EXPENSE> 63,516
<INTEREST-INCOME-NET> 90,335
<LOAN-LOSSES> 2,108
<SECURITIES-GAINS> 340
<EXPENSE-OTHER> 63,345
<INCOME-PRETAX> 45,440
<INCOME-PRE-EXTRAORDINARY> 45,440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,789
<EPS-PRIMARY> $2.55
<EPS-DILUTED> $2.54
<YIELD-ACTUAL> 8.75
<LOANS-NON> 2,764
<LOANS-PAST> 1,071
<LOANS-TROUBLED> 517
<LOANS-PROBLEM> 3,354
<ALLOWANCE-OPEN> 18,609
<CHARGE-OFFS> 2,644
<RECOVERIES> 1,202
<ALLOWANCE-CLOSE> 20,437
<ALLOWANCE-DOMESTIC> 20,437
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
