<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended JUNE 30, 1996
-----------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
----------------- -------------------
Commission file number 0-12379
---------
FIRST FINANCIAL BANCORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1042001
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 High Street, Hamilton, Ohio 45011
---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 867-4700
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1996
----------------------------- -----------------------------
Common stock, $8.00 par value 13,359,110
<PAGE> 2
FIRST FINANCIAL BANCORP.
INDEX
Page No.
--------
PART I-FINANCIAL INFORMATION
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 1
Consolidated Statements of Earnings -
Six and Three Months Ended
June 30, 1996 and 1995 2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II-OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE> 3
PART I - FINANCIAL INFORMATION
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 100,805 $ 108,685
Interest-bearing deposits with other banks 6,385 6,882
Federal funds sold and securities purchased
under agreements to resell 4,451 14,802
Investment securities held-to-maturity, at cost
(market value - $91,152 at June 30, 1996 and
$100,512 at December 31, 1995) 86,319 93,522
Investment securities available-for-sale,
at market value (cost of $299,791 at June 30, 1996
and $291,766 at December 31, 1995) 299,419 294,052
Loans
Commercial 372,759 340,942
Real estate-construction 34,488 41,845
Real estate-mortgage 825,885 788,805
Installment 351,468 329,034
Credit card 14,046 15,406
Lease financing 15,684 16,557
----------- -----------
Total loans 1,614,330 1,532,589
Less
Unearned income 1,101 573
Allowance for loan losses 21,605 20,437
----------- -----------
Net loans 1,591,624 1,511,579
Premises and equipment 41,498 39,931
Deferred income taxes 4,442 3,369
Accrued interest and other assets 40,438 30,553
----------- -----------
TOTAL ASSETS $ 2,175,381 $ 2,103,375
=========== ===========
LIABILITIES
Deposits
Noninterest-bearing $ 214,795 $ 220,061
Interest-bearing 1,596,609 1,565,501
----------- -----------
Total deposits 1,811,404 1,785,562
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 70,108 49,483
Other 17,043 8,889
----------- -----------
Total short-term borrowings 87,151 58,372
Long-term borrowings 4,541 2,820
Accrued interest and other liabilities 23,446 22,446
----------- -----------
TOTAL LIABILITIES 1,926,542 1,869,200
SHAREHOLDERS' EQUITY
Common stock - par value, $8 per share
Authorized - 25,000,000 shares
Issued - 13,388,884 in 1996 and 13,013,422 in 1995 107,111 104,107
Surplus 12,611 13,577
Retained earnings 130,074 115,102
Unrealized net (losses) gains on investment securities
available-for-sale, net of deferred income taxes (244) 1,437
Treasury stock, at cost, 14,074 shares (464) 0
Restricted stock awards (249) (48)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 248,839 234,175
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,175,381 $ 2,103,375
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
------------------------------------------
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 70,112 $ 61,385 $ 35,637 $ 31,397
Investment securities
Taxable 9,471 7,738 4,761 3,740
Tax-exempt 3,045 4,014 1,559 1,931
--------- --------- --------- ---------
Total investment interest 12,516 11,752 6,320 5,671
Interest-bearing deposits with
other banks 238 139 120 64
Federal funds sold and securities
purchased under agreements to resell 330 30 182 12
--------- --------- --------- ---------
TOTAL INTEREST INCOME 83,196 73,306 42,259 37,144
INTEREST EXPENSE
Deposits 32,646 27,503 16,448 14,468
Short-term borrowings 1,095 2,468 538 1,008
Long-term borrowings 115 0 63 0
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 33,856 29,971 17,049 15,476
--------- --------- --------- ---------
NET INTEREST INCOME 49,340 43,335 25,210 21,668
Provision for loan losses 1,370 619 764 226
--------- --------- --------- ---------
Net interest income after
provision for loan losses 47,970 42,716 24,446 21,442
NONINTEREST INCOME
Service charges on deposit accounts 4,525 4,143 2,342 2,121
Trust income 4,160 3,824 2,074 1,930
Investment securities (losses) gains (3) 251 (3) 238
Other 1,980 1,919 992 975
--------- --------- --------- ---------
Total noninterest income 10,662 10,137 5,405 5,264
NONINTEREST EXPENSES
Salaries and employee benefits 18,327 15,915 9,181 7,839
Net occupancy expenses 2,352 2,141 1,137 1,060
Furniture and equipment expenses 1,891 1,616 960 810
Data processing expenses 2,354 2,620 1,185 1,303
Deposit insurance expense 393 1,783 182 897
State taxes 838 811 422 411
Other 7,762 6,350 3,722 3,255
--------- --------- --------- ---------
Total noninterest expenses 33,917 31,236 16,789 15,575
--------- --------- --------- ---------
Income before income taxes 24,715 21,617 13,062 11,131
Income tax expense 7,844 6,259 4,017 3,142
--------- --------- --------- ---------
NET EARNINGS $ 16,871 $ 15,358 $ 9,045 $ 7,989
========= ========= ========= =========
Net earnings per common share $ 1.28 $ 1.26 $ 0.68 $ 0.66
========= ========= ========= =========
Cash dividends declared per share $ 0.60 $ 0.52 $ 0.30 $ 0.26
========= ========= ========= =========
Average shares outstanding 13,203,147 12,208,840 13,386,410 12,211,127
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 16,871 $ 15,358
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 1,344 619
Provision for depreciation and amortization 1,860 1,845
Net amortization of investment security
premiums and accretion of discounts 320 743
Realized investment security losses (gains) 3 (251)
Originations of mortgage loans held for sale (20,026) (6,298)
Gains from sales of mortgage loans held for sale (234) (117)
Proceeds from sale of mortgage loans held for sale 20,260 6,415
Deferred income taxes 36 0
(Increase) decrease in interest receivable (270) 321
Increase in cash surrender value of life insurance (8,073) 0
Increase in prepaid expenses (732) (1,453)
Increase in accrued expenses 882 305
(Decrease) increase in interest payable (356) 1,100
Other (734) (1,843)
--------- ---------
Net cash provided by operating activities 11,151 16,744
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale 0 28,041
Proceeds from calls, paydowns and maturities of
investment securities available-for-sale 89,648 29,484
Purchases of investment securities available-for-sale (87,836) (15,683)
Proceeds from calls, paydowns and maturities of
investment securities held-to-maturity 8,813 23,901
Purchases of investment securities held-to-maturity (1,600) (129)
Net decrease in interest-bearing deposits
with other banks 497 3,132
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell 28,951 (8,563)
Net increase in loans and leases (52,011) (50,612)
Recoveries from loans and leases previously charged off 565 652
Proceeds from disposal of other real estate owned 53 700
Cash acquired in merger 1,845 0
Purchases of premises and equipment (2,416) (1,113)
--------- ---------
Net cash (used in) provided by investing activities (13,491) 9,810
FINANCING ACTIVITIES
Net (decrease) increase in total deposits (27,778) 4,029
Net increase (decrease) in short-term borrowings 28,761 (28,475)
Increase in long-term borrowings 1,721 0
Cash dividends declared (7,923) (6,349)
Purchase of common stock (464) 0
Proceeds from exercise of stock options, net of shares
purchased 143 121
--------- ---------
Net cash used in financing activities (5,540) (30,674)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (7,880) (4,120)
Cash and cash equivalents at beginning of period 108,685 103,752
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 100,805 $ 99,632
========= =========
</TABLE>
3
<PAGE> 6
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1996 1995
---------- --------
<S> <C> <C>
Supplemental disclosures
Interest paid $ 33,945 $ 30,057
========== =========
Income taxes paid $ 7,849 $ 5,685
========== =========
Recognition of deferred tax assets (liabilities)
attributable to FASB Statement No. 115 $ 979 $ (1,997)
========== ==========
Acquisition of other real estate owned through
foreclosure $ 198 $ 207
========== =========
Issuance of restricted stock awards $ 226 $ 33
========== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of the management of First Financial Bancorp.
("Bancorp"), all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation have been included.
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of Bancorp, a bank and savings and loan
holding company, include the accounts of Bancorp and its wholly-owned
subsidiaries - First National Bank of Southwestern Ohio, Citizens Commercial
Bank & Trust Company, Van Wert National Bank, Union Trust Bank, Indiana Lawrence
Bank, Fidelity Federal Savings Bank, Citizens First State Bank, Home Federal
Bank, A Federal Savings Bank, Union Bank & Trust Company, The Clyde Savings Bank
Company, Peoples Bank and Trust Company, Bright National Bank and First Finance
Mortgage Company of Southwestern Ohio. All significant intercompany transactions
and accounts have been eliminated in consolidation. Intangible assets arising
from the acquisition of subsidiaries are being amortized over varying periods,
none of which currently exceeds 15 years. Core deposit balances are being
amortized over varying periods, none of which currently exceeds 10 years.
The accompanying financial statements have been prepared in accordance with the
instructions for Form 10-Q and therefore, do not include all information and
footnotes necessary to be in conformity with generally accepted accounting
principles.
The Consolidated Statements of Cash Flows has been presented utilizing the
indirect method. For purposes of the Consolidated Statements of Cash Flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
The assumed exercise of stock options would not have a materially dilutive
effect, therefore, fully diluted earnings per share is not presented.
NOTE 2: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, Bancorp offers a variety of financial
instruments with off-balance-sheet risk to its customers to aid them in meeting
their requirements for liquidity and credit enhancement and to reduce its own
exposure to fluctuations in interest rates. These financial instruments include
standby letters of credit and commitments outstanding to extend credit.
Generally accepted accounting principles do not require these financial
instruments to be recorded in the consolidated financial statements, and
accordingly, they are not. Bancorp does not use off-balance-sheet derivative
financial instruments (such as interest rate swaps) as defined in the Financial
Accounting Standards Board's (FASB) Statement No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments".
Bancorp's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for standby letters of credit and commitments
outstanding to extend credit is represented by the contractual amounts of those
instruments. Bancorp uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. Following
is a discussion of these transactions.
5
<PAGE> 8
Standby letters of credit are conditional commitments issued by Bancorp to
guarantee the performance of a customer to a third party. Bancorp's portfolio of
standby letters of credit consists primarily of performance assurances made on
behalf of customers who have a contractual commitment to produce or deliver
goods or services. The risk to Bancorp arises from its obligation to make
payment in the event of the customers' contractual default. As of June 30, 1996,
Bancorp had issued standby letters of credit aggregating $11,553,000 compared to
$10,989,000 issued as of December 31, 1995. Management conducts regular reviews
of these instruments on an individual customer basis, and the results are
considered in assessing the adequacy of Bancorp's allowance for loan losses.
Management does not anticipate any material losses as a result of these letters
of credit.
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Bancorp evaluates each customer's creditworthiness on an
individual basis. The amount of collateral obtained, if deemed necessary by
Bancorp upon extension of credit, is based on management's credit evaluation of
the counterparty. The collateral held varies, but may include securities, real
estate, inventory, plant, or equipment. Bancorp had commitments outstanding to
extend credit totaling $262,669,000 at June 30, 1996 and $243,430,000 at
December 31, 1995. Management does not anticipate any material losses as a
result of these commitments.
NOTE 3: BUSINESS COMBINATIONS
On April 1, 1996 Bancorp issued 363,373 shares of its common stock in exchange
for all the outstanding common stock of F&M Bancorp (F&M) of Rochester, Indiana.
Upon consummation of the merger, F&M was merged out of existence and Farmers &
Merchants Bank of Rochester, F&M's only subsidiary, was merged with and into
Indiana Lawrence Bank (Indiana Lawrence), a wholly owned subsidiary of Bancorp.
Farmers & Merchants Bank of Rochester's offices became branches of Indiana
Lawrence, the surviving entity. This merger was accounted for as an immaterial
pooling-of-interests and accordingly, the consolidated financial statements,
including earnings per share, have not been restated for periods prior to April
1, 1996.
NOTE 4: PENDING MERGERS AND ACQUISITIONS
On July 16, 1996 Bancorp signed a Plan and Agreement of Merger with Farmers
State Bancorp (Farmers), a bank holding company which is headquartered in
Liberty, Indiana. The proposed transaction is structured as a cash purchase.
Farmers' wholly-owned subsidiary, Farmers State Bank, will become Bancorp's
fourteenth affiliate with $63 million in assets. The bank has six offices, two
in Union County, Indiana and the remaining four in Rush County, Indiana. The
purchase is expected to be completed in the fourth quarter of 1996, after
obtaining appropriate regulatory and shareholder approval.
Bancorp and Hastings Financial Corporation of Hastings, Michigan (Hastings)
signed a Plan and Agreement of Merger on July 1, 1996. The proposed transaction
is structured as an exchange of stock and will use the pooling-of-interests
method of accounting. Hastings is a one-bank parent holding company of National
Bank of Hastings (National). National has assets of $47 million, and operates
two offices, one in Barry County and the other in Allegan County, Michigan.
After obtaining appropriate regulatory and shareholder approval, the merger is
expected to be consummated in the first quarter of 1997.
6
<PAGE> 9
NOTE 5: ACCOUNTING CHANGES
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 122 on accounting for mortgage servicing rights, which Bancorp adopted
effective January 1, 1996. The financial impact of adopting this statement was
immaterial.
Bancorp is required to adopt SFAS No. 123 "Accounting for Stock-based
Compensation" by December 31, 1996. Bancorp is in the process of analyzing this
statement and does not anticipate the impact of adoption will have a material
effect on its consolidated financial position or earnings.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
1996 1995
------------------------ -----------------------------------
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Earnings $ 9,045 $ 7,826 $ 8,314 $ 8,117 $ 7,989
Average Consolidated Balance Sheet Items:
Loans less unearned income 1,588,249 1,528,462 1,526,017 1,449,366 1,418,520
Investment securities 380,887 373,359 381,238 332,720 321,336
Other earning assets 22,283 18,482 28,359 13,269 4,084
---------- ---------- ---------- ---------- ----------
Total Earning Assets 1,991,419 1,920,303 1,935,614 1,795,355 1,743,940
Total assets 2,137,669 2,059,649 2,070,338 1,923,339 1,868,384
Deposits 1,813,461 1,749,361 1,757,020 1,618,998 1,573,997
Shareholders' equity 247,468 236,539 232,471 216,164 203,469
Key Ratios:
Average equity to average total assets 11.58% 11.48% 11.23% 11.24% 10.89%
Return on average total assets 1.69% 1.52% 1.61% 1.69% 1.71%
Return on average equity 14.62% 13.23% 14.31% 15.02% 15.71%
Net interest margin (fully tax equivalent) 5.25% 5.21% 5.22% 5.28% 5.22%
</TABLE>
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the amount by which
interest and fees generated by earning assets exceed the interest costs of
liabilities obtained to fund them. For analytical purposes, interest income
presented in the table below has been adjusted to a tax equivalent basis
assuming a 35% marginal tax rate for interest earned on tax-exempt assets such
as municipal loans, tax-free leases and investments. This is to recognize the
income tax savings which facilitates a comparison between taxable and tax-exempt
assets. The tax equivalent adjustment to interest income has been declining due
to increased calls and maturities of tax-exempt securities. As shown below, net
interest income on a fully tax equivalent basis has increased $3,340,000 over
the second quarter of 1995 and $1,123,000 over the first quarter of 1996.
Continued loan growth, particularly in commercial and installment loans,
contributed to higher net interest income in the second quarter of 1996.
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
--------------------- ---------------------------------
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $42,259 $40,937 $41,685 $38,860 $37,144
Interest expense 17,049 16,807 17,393 16,152 15,476
------- ------- ------- ------- -------
Net interest income 25,210 24,130 24,292 22,708 21,668
Tax equivalent adjustment to interest income 909 866 976 1,008 1,111
------- ------- ------- ------- -------
Net interest income (fully tax equivalent) $26,119 $24,996 $25,268 $23,716 $22,779
======= ======= ======= ======= =======
</TABLE>
8
<PAGE> 11
RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net interest income is
illustrated in the table below. As shown, increases in rates had a significant
impact on both interest income and interest expense for the six month period
ended June 30, 1996 in comparison to 1995. The increase in rates had slightly
more impact on interest income than interest expense. For the second quarter,
changes in rates caused both interest income and interest expense to decrease,
but had a greater effect on interest expense. The primary factor, however, for
increased net interest income for the periods presented was a significant
increase in the volume of earning assets. The change in interest due to the
combined effect of both rate and volume has been allocated to the volume and
rate variance on a prorated basis.
<TABLE>
<CAPTION>
Six Months Three Months
Ended Change Due To: Ended Change Due To:
Jun. 30, 1996 ------------------- Jun. 30, 1996 ----------------
Over 1995 Rate Volume Over 1995 Rate Volume
------------- -------- -------- ------------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 9,890 $ 978 $ 8,912 $ 5,115 $ (137) $ 5,252
Interest expense 3,885 710 3,175 1,573 (354) 1,927
-------- -------- -------- -------- ------ -------
Net interest income $ 6,005 $ 268 $ 5,737 $ 3,542 $ 217 $ 3,325
======== ======== ======== ======== ====== =======
</TABLE>
OPERATING RESULTS
Net operating income represents net earnings before net securities transactions.
Net operating income for the first six months of 1996 was $16,845,000 which was
an increase of $1,714,000 or 11.3% over that reported in the same period in
1995. This increase in net operating income can be primarily attributed to an
increase in net interest income of $6,005,000 or 13.9%. Noninterest income,
excluding securities transactions, for the first six months of 1996 increased
7.88% in comparison to the same period in 1995. These positive variances were
offset by increases in provision for loan losses, noninterest expense and income
tax expense. The increase in income tax expense is discussed in the next
section. The increase in noninterest expense was 8.58%.
Net operating income for the second quarter of 1996 increased $1,235,000 or
15.8% over the same period in 1995 due to the same reasons discussed above.
INCOME TAXES
For the first six months of 1996, income tax expense was $7,844,000 compared to
$6,259,000 for the same period in 1995, or an increase of $1,585,000. In 1996,
$7,873,000 of the tax expense was related to operating income with a tax benefit
of $29,000 related to securities transactions. In the first six months of 1995,
income tax expense related to operating income was $6,235,000 with a tax expense
related to securities transactions of $24,000. The increase in taxes on
operating income was due to the increase in operating income before taxes and
securities transactions of $3,352,000 or 15.7% over that reported for the first
six months of 1995 and a higher effective tax rate for the period in 1996. The
higher effective tax rate was primarily attributable to significant calls of
tax-exempt securities which decreased tax-exempt income.
Income tax expense for the second quarter of 1996 was $4,017,000 compared to
$3,142,000 for the same period in 1995, which was an increase of $875,000. Tax
expense relating to operating income totaled $4,036,000 and $3,099,000 for the
quarters ended June 30, 1996 and 1995, respectively, with a tax benefit of
$19,000 in 1996 and a tax expense of $43,000 in 1995.
9
<PAGE> 12
NET EARNINGS
Net earnings for the first six months of 1996 were $1,513,000 or 9.85% greater
than that recorded during the same period in 1995. As was discussed previously,
net operating income was $16,845,000 which was 11.3% greater than the same
period in 1995. Net securities gains through June 30, 1996 were $26,000 compared
to $227,000 for the period ending June 30, 1995.
Net earnings for the three months ended June 30, 1996 were $1,056,000 or 13.2%
greater than the same period in 1995. As was discussed above, net operating
income was $9,029,000 or 15.8% greater than second quarter 1995. Net securities
gains for the second quarter of 1996 and 1995 were $16,000 and $195,000,
respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on Bancorp's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
At June 30, 1996 and 1995, the recorded investment in loans that are considered
to be impaired under FASB Statement No. 114 was $1,612,000 and $2,070,000,
respectively, all of which were on a nonaccrual basis. The related allowance for
loan losses on these impaired loans was $437,000 at June 30, 1996 and $420,000
at June 30, 1995. There were no impaired loans that as a result of write-downs
did not have an allowance for loan losses. The average recorded investment in
impaired loans for the respective six months and quarters ended June 30, was
approximately $1,786,000 for both periods in 1996 and $1,212,000 and $1,275,000
in 1995. For the six months and quarter ended June 30, 1996, Bancorp recognized
interest income on those impaired loans of $27,000 and $11,000, respectively,
compared to $57,000 and $30,000 for the same periods in 1995. Bancorp recognizes
income on impaired loans using the cash basis method. The table below indicates
the activity in the allowance for loan losses for the quarters presented.
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
------------------------ ---------------------------------
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
---------- ---------- ---------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $20,659 $20,437 $19,364 $18,948 $18,904
Allowance acquired through merger 723 956 206
Provision for loan losses 764 606 957 532 226
Loans charged off (880) (610) (1,161) (551) (565)
Recoveries 339 226 321 229 383
-------- --------- -------- -------- -------
Net Charge Offs (541) (384) (840) (322) (182)
-------- --------- -------- -------- --------
Balance at end of period $21,605 $20,659 $20,437 $19,364 $18,948
======== ========= ======== ======== =======
Ratios:
Allowance to period end loans,
net of unearned income 1.34% 1.34% 1.33% 1.33% 1.33%
Recoveries to charge offs 38.52% 37.05% 27.65% 41.56% 67.79%
Allowance as a multiple of
net charge offs 39.94x 53.80x 24.33x 60.14x 104.11x
</TABLE>
10
<PAGE> 13
NONPERFORMING/UNDERPERFORMING ASSETS
The table below shows the categories which are included in nonperforming and
underperforming assets.
Nonperforming assets increased $463,000 or 7.96% in the second quarter of 1996
when compared to the second quarter of 1995, and in that same period, accruing
loans past due 90 days or more increased $339,000. Nonperforming assets
increased $264,000 or 4.39% in the second quarter of 1996 when compared to the
first quarter of 1996. There were no individually large loans contributing to
this increase. Accruing loans, including loans impaired under FASB Statement No.
114, which are past due 90 days or more where there is not a likelihood of
becoming current are transferred to nonaccrual loans. However, those loans,
which management feels will become current and, therefore accruing, will be
classified as "Accruing loans 90 days or more past due" until they become
current.
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
------------------------ ---------------------------------
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
---------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 3,931 $ 3,789 $ 2,764 $ 3,522 $ 3,631
Restructured loans 573 582 517 551 571
OREO/ISF* 1,777 1,646 1,677 1,648 1,616
-------- -------- -------- -------- -------
Total nonperforming assets 6,281 6,017 4,958 5,721 5,818
Accruing loans past due
90 days or more 1,198 1,037 1,071 881 859
-------- -------- -------- -------- -------
Total underperforming assets $ 7,479 $ 7,054 $ 6,029 $ 6,602 $ 6,677
======== ======== ======== ======== =======
Nonperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.39% 0.39% 0.32% 0.39% 0.41%
======== ======== ======== ======== ========
Underperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.46% 0.46% 0.39% 0.45% 0.47%
======== ======== ======== ========= ========
<FN>
*Other real estate owned/in-substance foreclosure
</TABLE>
In accordance with FASB Statement No. 114, a loan is classified as in-substance
foreclosure when Bancorp has taken possession of the collateral regardless of
whether formal foreclosure proceedings take place.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which Bancorp provides for the continuing
flow of funds necessary to meet its financial commitments on a timely basis.
These commitments include withdrawals by depositors, funding credit commitments
to borrowers, shareholder dividends, paying expenses of operations, and funding
capital expenditures.
Liquidity is derived primarily from deposit growth, maturing loans, the maturity
of investment securities, access to other funding sources and markets, and a
strong capital position. The most stable source of liability-funded liquidity
for both the long-term and short-term is deposit growth and retention in the
core deposit base. At the end of the second quarter of 1996 Bancorp's deposit
liabilities had increased by 1.45% from December 31, 1995. Another source of
funding is through short-term borrowings. Bancorp's short-term borrowings
increased to $87,151,000 at June 30, 1996, compared to $58,372,000 at December
31, 1995.
11
<PAGE> 14
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At June 30, 1996,
securities maturing in one year or less amounted to $80,172,000, representing
20.8% of the total of the investment securities portfolio. In addition, other
types of assets such as cash and due from banks, federal funds sold and
securities purchased under agreements to resell, as well as loans and
interest-bearing deposits with other banks maturing within one year, are sources
of liquidity. Total asset-funded sources of liquidity at June 30, 1996, amounted
to $478,196,000, representing 22.0% of total assets. Sources of long-term asset
funded liquidity are derived from the maturity of investment securities and
maturing loans in excess of one year.
At June 30, 1996, Bancorp had classified $299,419,000 in investment securities
available-for-sale. Management examines Bancorp's liquidity needs in
establishing this classification in accordance with the Financial Accounting
Standards Board Statement No. 115 on accounting for certain investments in debt
and equity securities.
Liquidity is very important and as such is both monitored and managed closely by
the asset/liability committee at each affiliate. Liquidity may be used to fund
capital expenditures. Capital expenditures were $2,146,000 for the first six
months of 1996. In addition, remodeling is a planned and ongoing process given
the 80 offices of Bancorp and its subsidiaries. Material commitments for capital
expenditures as of June 30, 1996 were approximately $645,000. Management
believes that Bancorp has sufficient liquidity to fund its current commitments.
CAPITAL ADEQUACY
The Federal Reserve established risk-based capital requirements for U.S. banking
organizations which have been adopted by the Office of Thrift Supervision for
savings and loan associations. Risk weights are assigned to on-and off-balance
sheet items in arriving at risk-adjusted total assets. Regulatory capital is
divided by risk-adjusted total assets, with the resulting ratio compared to a
minimum standard to determine whether a bank has adequate capital.
Fully phased-in guidelines require 4.00% for Tier I capital, which consists
mainly of common shareholders' equity net of intangibles, and 8.00% for total
capital (Tier I plus Tier II supplementary capital).
Bancorp's Tier I ratio at June 30, 1996, was 15.2% and its total capital ratio
was 16.4%. While Bancorp's ratios are well above the guidelines, management will
continue to monitor the asset mix, product pricing, and the allowance for loan
losses, which are the areas determined to be most affected by these
requirements. The following table illustrates the risk-based capital
calculations and ratios for the past five quarters.
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
------------------------ ----------------------------------
JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tier I Capital:
Shareholder's equity $ 248,839 $ 237,430 $ 234,175 $ 220,561 $ 207,279
LEss: Intangible assets 3,432 3,601 3,770 3,711 3,883
Less: Unrealized net securities
(losses) gains (244) 695 1,437 865 759
---------- ---------- ---------- ---------- ----------
Total Tier I Capital $ 245,651 $ 233,134 $ 228,968 $ 215,985 $ 202,637
========== ========== ========== ========== ==========
Total RIsk-based Capital:
Tier I Capital $ 245,651 $ 233,134 $ 228,968 $ 215,985 $ 202,637
Qualifying Allowance for Loan Losses 20,264 19,355 19,127 18,052 17,603
---------- ---------- ---------- ---------- ----------
Total Risk-based Capital $ 265,915 $ 252,489 $ 248,095 $ 234,037 $ 220,240
========== ========== ========== ========== ==========
Risk Weighted Assets $1,621,113 $1,548,397 $1,530,181 $1,444,180 $1,408,270
========== ========== ========== ========== ==========
Risk-Based Ratios:
Tier I 15.15% 15.06% 14.96% 14.96% 14.39%
========== ========== ========== ========== ==========
Total Risk-Based Capital 16.40% 16.31% 16.21% 16.21% 15.64%
========== ========== ========== ========== ==========
</TABLE>
12
<PAGE> 15
ACCOUNTING AND REGULATORY MATTERS
On August 8, 1995, the Federal Deposit Insurance Corporation (FDIC) voted to
retroactively lower the deposit insurance premiums commercial banks pay from
$0.23 to $0.04 per $100 in insured deposits for well-capitalized institutions.
In September of 1995, Bancorp's commercial banking subsidiaries received refunds
on excess deposit insurance premiums paid from June to September 1995.
Accordingly, these refunds are reflected in the September 30, 1995 Consolidated
Financial Statements. Premiums for thrifts were not revised. Bancorp currently
has approximately $300,000,000 in deposits at its thrift subsidiaries insured
under the Savings Association Insurance Fund (SAIF). Currently, the SAIF
reserves are considered underfunded and regulatory discussions continue
regarding options for restoring SAIF levels. These discussions include the
possibility of a one-time charge to thrifts in 1996, which could have a material
negative impact on Bancorp's thrifts.
Management is not aware of any other events or regulatory recommendations which,
if implemented, are likely to have a material effect on Bancorp's liquidity,
capital resources, or operations.
13
<PAGE> 16
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 23, 1996, Bancorp held its annual meeting of
shareholders, the results of which follow:
1) Election of five directors:
<TABLE>
<CAPTION>
Abstentions/
% of Total Votes Broker Non-
Name Term Votes For Shares Voted Against Votes
---- ---- --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Arthur W. Bidwell 3 years 11,958,660 99.12% 18,643 1,045,667
Carl R. Fiora 3 years 11,958,725 99.12% 18,578 1,045,667
Vaden Fitton 3 years 11,958,313 99.11% 18,990 1,045,667
Barry J. Levey 3 years 11,959,057 99.13% 18,246 1,045,667
Stephen S. Marcum 3 years 11,958,377 99.12% 18,926 1,045,667
</TABLE>
Directors whose terms continue beyond the Annual Meeting in 1996:
Class II Term expiring in 1997:
Richard J. Fitton
Murph Knapke
Stanley N. Pontius
Barry S. Porter
Joel H. Schmidt
Class III Term expiring in 1998:
Thomas C. Blake
F. Elden Houts
Charles T. Koehler
Lauren N. Patch
Donald M. Cisle
2) Amend Corporation Regulations to provide the Board
flexibility to obtain qualified directors to serve on the Board
at times between the annual meetings of shareholders.
11,768,121 shares, or 98.14% of the total shares voted, voted to
adopt the amended corporate regulations. Of the total shares
voted, 126,024 shares voted against the amendment of the
regulations and there were 96,509 abstentions.
No other matters were brought before the meeting for a vote.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the registrant did
not file any reports on Form 8-K.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST FINANCIAL BANCORP.
-------------------------------
(Registrant)
/s/ Michael R. O'Dell /s/ Joseph M. Gallina
- ------------------------------- -------------------------------
Michael R. O'Dell, Senior Vice Joseph M. Gallina,
President, Chief Financial Comptroller
Officer and Secretary (Principal Accounting Officer)
Date August 7, 1996 Date August 7, 1996
------------------------ ------------------------
15
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 100,805
<INT-BEARING-DEPOSITS> 6,385
<FED-FUNDS-SOLD> 4,451
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 299,419
<INVESTMENTS-CARRYING> 86,319
<INVESTMENTS-MARKET> 91,152
<LOANS> 1,613,229
<ALLOWANCE> 21,605
<TOTAL-ASSETS> 2,175,381
<DEPOSITS> 1,811,404
<SHORT-TERM> 87,151
<LIABILITIES-OTHER> 23,446
<LONG-TERM> 4,541
<COMMON> 107,111
0
0
<OTHER-SE> 141,728
<TOTAL-LIABILITIES-AND-EQUITY> 2,175,381
<INTEREST-LOAN> 70,112
<INTEREST-INVEST> 12,516
<INTEREST-OTHER> 568
<INTEREST-TOTAL> 83,196
<INTEREST-DEPOSIT> 32,646
<INTEREST-EXPENSE> 33,856
<INTEREST-INCOME-NET> 49,340
<LOAN-LOSSES> 1,370
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 33,917
<INCOME-PRETAX> 24,715
<INCOME-PRE-EXTRAORDINARY> 24,715
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,871
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 8.89
<LOANS-NON> 3,931
<LOANS-PAST> 1,198
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,659
<CHARGE-OFFS> 880
<RECOVERIES> 339
<ALLOWANCE-CLOSE> 21,605
<ALLOWANCE-DOMESTIC> 21,605
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
