<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 MARCH 31, 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 May 1, 1996
- ----------------------------- --------------------------
Common stock, $8.00 par value 13,388,384
<PAGE> 2
FIRST FINANCIAL BANCORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I-Financial Information
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Earnings -
Three Months Ended
March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II-Other Information
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 95,773 $ 108,685
Interest-bearing deposits with other banks 8,431 6,882
Federal funds sold and securities purchased
under agreements to resell 6,869 14,802
Investment securities held-to-maturity, at cost
(market value - $94,346 at March 31, 1996 and
$100,512 at December 31, 1995) 88,206 93,522
Investment securities available-for-sale,
at market value (cost of $270,461 at March 31, 1996
and $291,766 at December 31, 1995) 271,570 294,052
Loans
Commercial 347,596 340,942
Real estate-construction 38,103 41,845
Real estate-mortgage 789,131 788,805
Installment 333,918 329,034
Credit card 13,521 15,406
Lease financing 15,848 16,557
---------- ----------
Total loans 1,538,117 1,532,589
Less
Unearned income 665 573
Allowance for loan losses 20,659 20,437
---------- ----------
Net loans 1,516,793 1,511,579
Premises and equipment 40,074 39,931
Deferred income taxes 3,774 3,369
Accrued interest and other assets 39,292 30,553
---------- ----------
TOTAL ASSETS $2,070,782 $2,103,375
========== ==========
LIABILITIES
Deposits
Noninterest-bearing $ 205,837 $ 220,061
Interest-bearing 1,560,319 1,565,501
---------- ----------
Total deposits 1,766,156 1,785,562
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 33,042 49,483
Other 3,869 8,889
---------- ----------
Total short-term borrowings 36,911 58,372
Long-term borrowings 3,558 2,820
Accrued interest and other liabilities 26,727 22,446
---------- ----------
TOTAL LIABILITIES 1,833,352 1,869,200
SHAREHOLDERS' EQUITY
Common stock - par value, $8 per share
Authorized - 25,000,000 shares
Issued - 13,022,970 in 1996 and 13,013,422 in 1995 104,184 104,107
Surplus 13,793 13,577
Retained earnings 119,021 115,102
Unrealized net gains on investment securities
available-for-sale, net of deferred income taxes 695 1,437
Restricted stock awards (263) (48)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 237,430 234,175
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,070,782 $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>
Three months ended
March 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 34,475 $ 29,988
Investment securities
Taxable 4,710 3,998
Tax-exempt 1,486 2,083
--------- ---------
Total investment interest 6,196 6,081
Interest-bearing deposits with
other banks 118 75
Federal funds sold and securities
purchased under agreements to resell 148 18
--------- ---------
TOTAL INTEREST INCOME 40,937 36,162
INTEREST EXPENSE
Deposits 16,198 13,035
Short-term borrowings 557 1,460
Long-term borrowings 52 0
--------- ---------
Total interest expense 16,807 14,495
--------- ---------
NET INTEREST INCOME 24,130 21,667
Provision for loan losses 606 393
--------- ---------
Net interest income after
provision for loan losses 23,524 21,274
NONINTEREST INCOME
Service charges on deposit accounts 2,183 2,022
Trust income 2,086 1,894
Investment securities gains 0 13
Other 988 944
--------- ---------
Total noninterest income 5,257 4,873
NONINTEREST EXPENSES
Salaries and employee benefits 9,146 8,076
Net occupancy expenses 1,215 1,081
Furniture and equipment expenses 931 806
Data processing expenses 1,169 1,317
Deposit insurance expense 211 886
State taxes 416 400
Other 4,040 3,095
--------- ---------
TOTAL NONINTEREST EXPENSES 17,128 15,661
--------- ---------
Income before income taxes 11,653 10,486
Income tax expense 3,827 3,117
--------- ---------
NET EARNINGS $ 7,826 $ 7,369
========= =========
Net earnings per common share $ 0.60 $ 0.60
========= =========
Cash dividends declared per share $ 0.30 $ 0.26
========= =========
Average shares outstanding 13,019,885 12,206,529
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1995
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 7,826 $ 7,369
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 606 393
Provision for depreciation and amortization 964 921
Net amortization of investment security
premiums and accretion of discounts 156 400
Realized investment security gains 0 (13)
Originations of mortgage loans held for sale (10,226) (1,760)
Gains from sales of mortgage loans held for sale (160) (24)
Proceeds from sale of mortgage loans held for sale 10,386 1,784
Deferred income taxes 31 0
Decrease in interest receivable 489 771
Increase in cash surrender value of life insurance (7,990) 0
Increase in prepaid expenses (646) (1,785)
Increase in accrued expenses 3,482 2,680
(Decrease) increase in interest payable (90) 1,187
Other (43) (1,008)
---------- ----------
Net cash provided by operating activities 4,785 10,915
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale 0 18,224
Proceeds from calls, paydowns and maturities of
investment securities available-for-sale 56,776 23,227
Purchases of investment securities available-for-sale (35,470) (7,280)
Proceeds from calls, paydowns and maturities of
investment securities held-to-maturity 5,969 14,375
Purchases of investment securities held-to-maturity (650) (15)
Net (increase) decrease in interest-bearing deposits
with other banks (1,549) 3,538
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell 7,933 (101)
Net increase in loans and leases (6,016) (31,744)
Recoveries from loans and leases previously charged off 226 269
Proceeds from disposal of other real estate owned 28 541
Purchases of premises and equipment (975) (500)
---------- ----------
Net cash provided by investing activities 26,272 20,534
FINANCING ACTIVITIES
Net (decrease) increase in total deposits (19,406) 3,371
Net decrease in short-term borrowings (21,461) (42,717)
Increase in long-term borrowings 738 0
Cash dividends declared (3,907) (3,174)
Proceeds from exercise of stock options, net of shares
purchased 67 53
--------- ---------
Net cash used in financing activities (43,969) (42,467)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (12,912) (11,018)
Cash and cash equivalents at beginning of period 108,685 103,752
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 95,773 $ 92,734
========= =========
</TABLE>
3
<PAGE> 6
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1995
---------- ---------
<S> <C> <C>
Supplemental disclosures
Interest paid $ 16,897 $ 13,308
========== =========
Income taxes paid $ 332 $ 85
========== =========
Recognition of deferred tax assets
attributable to FASB Statement No. 115 $ 436 $ 1,321
========== =========
Acquisition of other real estate owned through
foreclosure $ 10 $ 101
========== =========
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 and Bright National Bank. 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.
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
5
<PAGE> 8
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 March 31, 1996, Bancorp had issued standby
letters of credit aggregating $13,528,000 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 $250,535,000 at March 31, 1996 and $243,430,000 at
December 31, 1995. Management does not anticipate any material losses as a
result of these commitments.
NOTE 3: SUBSEQUENT EVENTS
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 &
Merchant's 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, will not be restated for periods prior to April 1,
1996.
NOTE 4: 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.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995
---------- -------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Earnings $ 7,826 $ 8,314 $ 8,117 $ 7,989 $ 7,369
Average Consolidated Balance Sheet Items:
Loans less unearned income 1,528,462 1,526,017 1,449,366 1,418,520 1,394,024
Investment securities 373,359 381,238 332,720 321,336 347,172
Other earning assets 18,482 28,359 13,269 4,084 7,056
---------- ---------- ---------- ---------- ----------
Total Earning Assets 1,920,303 1,935,614 1,795,355 1,743,940 1,748,252
Total assets 2,059,649 2,070,338 1,923,339 1,868,384 1,871,532
Deposits 1,749,361 1,757,020 1,618,998 1,573,997 1,551,899
Shareholders' equity 236,539 232,471 216,164 203,469 197,050
Key Ratios:
Average equity to average total assets 11.48% 11.23% 11.24% 10.89% 10.53%
Return on average total assets 1.52% 1.61% 1.69% 1.71% 1.57%
Return on average equity 13.23% 14.31% 15.02% 15.71% 14.96%
Net interest margin (fully tax equivalent) 5.21% 5.22% 5.28% 5.22% 5.23%
</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 gradually declined
over the periods presented as a result of a decline in tax-exempt assets. As
shown below, net interest income on a fully tax equivalent basis has increased
$2,138,000 over the first quarter of 1995. Continued loan growth, particularly
in commercial and installment loans, contributed to higher net interest income
in the first quarter of 1996. Increased calls and maturities of tax-exempt
securities contributed to the gradual decrease of the tax equivalent adjustment
to interest income.
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
---------- -------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $40,937 $41,685 $38,860 $37,144 $36,162
Interest expense 16,807 17,393 16,152 15,476 14,495
------- ------- ------- ------- -------
Net interest income 24,130 24,292 22,708 21,668 21,667
Tax equivalent adjustment to interest income 866 976 1,008 1,111 1,191
------- ------- ------- ------- -------
Net interest income (fully tax equivalent) $24,996 $25,268 $23,716 $22,779 $22,858
======= ======= ======= ======= =======
</TABLE>
7
<PAGE> 10
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 three month period
ended March 31, 1996 in comparison to 1995. The increase in rates had slightly
more impact on interest income than interest expense. The primary factor,
however, for increased net interest income for the periods presented was a
significant increase in the volume of earning assets. The change in interest due
to the combined effect of both rate and volume has been allocated to the volume
and rate variance on a prorated basis.
<TABLE>
<CAPTION>
Three Months
Ended Change Due To:
Mar. 31, 1996 ----------------
Over 1995 Rate Volume
--------- ---- ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income $ 4,775 $ 1,133 $ 3,642
Interest expense 2,312 1,092 1,220
-------- -------- --------
Net interest income $ 2,463 $ 41 $ 2,422
======== ======== ========
</TABLE>
OPERATING RESULTS
Net operating income represents net earnings before net securities transactions.
Net operating income for the first three months of 1996 was $7,816,000 which was
an increase of $479,000 or 6.53% 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 $2,463,000 or 11.4%. Noninterest income, excluding
securities transactions, for the first three months of 1996 increased 8.17% 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 9.37%.
INCOME TAXES
For the first three months of 1996, income tax expense was $3,827,000 compared
to $3,117,000 for the same period in 1995, or an increase of $710,000. In 1996,
$3,837,000 of the tax expense was related to operating income with a tax benefit
of $10,000 related to securities transactions. In the first three months of
1995, income tax expense related to operating income was $3,136,000 with a tax
benefit related to securities transactions of $19,000. The increase in taxes on
operating income was due to the increase in operating income before taxes and
securities transactions of $1,180,000 or 11.3% over that reported for the first
three 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.
NET EARNINGS
Net earnings for the first three months of 1996 were $457,000 or 6.20% greater
than that recorded during the same period in 1995. As was discussed previously,
net operating income was $7,816,000 which was 6.53% greater than the same period
in 1995. Net securities gains through March 31, 1996 were $10,000 compared to
$32,000 for the period ending March 31, 1995.
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),
8
<PAGE> 11
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 March 31, 1996 and 1995, the recorded investment in loans that are considered
to be impaired under FASB Statement No. 114 was $1,776,000 and $1,142,000,
respectively, all of which were on a nonaccrual basis. The related allowance for
loan losses on these impaired loans was $720,000 at March 31, 1996 and $423,000
at March 31, 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 quarters ended March 31, 1996 and 1995, was
approximately $1,785,000 and $1,148,000. For the three months ended March 31,
1996, Bancorp recognized interest income on those impaired loans of $16,000
compared to $27,000 for the same period 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
---------- ---------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $20,437 $19,364 $18,948 $18,904 $18,609
Allowance acquired through merger 956 206
Provision for loan losses 606 957 532 226 393
Loans charged off (610) (1,161) (551) (565) (367)
Recoveries 226 321 229 383 269
-------- --------- -------- -------- --------
Net charge offs (384) (840) (322) (182) (98)
-------- --------- -------- -------- --------
Balance at end of period $20,659 $20,437 $19,364 $18,948 $18,904
======== ========= ======== ======== ========
Ratios:
Allowance to period end loans,
net of unearned income 1.34% 1.33% 1.33% 1.33% 1.34%
Recoveries to charge offs 37.05% 27.65% 41.56% 67.79% 73.30%
Allowance as a multiple of
net charge offs 53.80X 24.33X 60.14X 104.11X 192.90X
</TABLE>
NONPERFORMING/UNDERPERFORMING ASSETS
The table on the following page shows the categories which are included in
nonperforming and underperforming assets.
Nonperforming assets decreased $282,000 or 4.48% in the first quarter of 1996
when compared to the first quarter of 1995, and in that same period, accruing
loans past due 90 days or more increased $337,000. Nonperforming assets
increased $1,059,000 or 21.4% in the first quarter of 1996 when compared to the
fourth quarter of 1995. There were no individually large loans contributing to
this increase. While the percentage increase may seem large, the level of
nonperforming assets in the current quarter is similar to 1995 levels. 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.
9
<PAGE> 12
<TABLE>
<CAPTION>
Quarter Ended
1996 1995
---------- ---------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 3,789 $ 2,764 $ 3,522 $ 3,631 $ 3,457
Restructured loans 582 517 551 571 1,173
OREO/ISF* 1,646 1,677 1,648 1,616 1,669
-------- -------- -------- -------- -------
Total nonperforming assets 6,017 4,958 5,721 5,818 6,299
Accruing loans past due
90 days or more 1,037 1,071 881 859 700
-------- -------- -------- -------- -------
Total underperforming assets $ 7,054 $ 6,029 $ 6,602 $ 6,677 $ 6,999
======== ======== ======== ======== =======
Nonperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.39% 0.32% 0.39% 0.41% 0.45%
======== ======== ======== ======== ========
Underperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.46% 0.39% 0.45% 0.47% 0.50%
======== ======== ======== ========= ========
<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. Loans previously classified
as in-substance foreclosure but for which Bancorp had not taken possession of
the collateral have not been reclassified to loans due to immateriality.
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 first quarter of 1996 Bancorp's deposit
liabilities had decreased by 1.09% from December 31, 1995. Another source of
funding is through short-term borrowings. Bancorp's short-term borrowings
decreased to $36,911,000 at March 31, 1996, compared to $58,372,000 at December
31, 1995.
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At March 31, 1996,
securities maturing in one year or less amounted to $58,880,000, representing
16.4% 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 March 31, 1996,
amounted to $447,513,000, representing 21.6% 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 March 31, 1996, Bancorp had classified $271,570,000 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.
10
<PAGE> 13
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 $975,000 for the first three
months of 1996. In addition, remodeling is a planned and ongoing process given
the 77 offices of Bancorp and its subsidiaries. Material commitments for capital
expenditures as of March 31, 1996 were approximately $1,045,000. 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 March 31, 1996, was 15.1% and its total capital ratio
was 16.3%. 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
---------- ----------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tier I Capital:
Shareholder's equity $ 237,430 $ 234,175 $ 220,561 $ 207,279 $ 201,252
Less: Intangible assets 3,601 3,770 3,711 3,883 4,056
Less: Unrealized net securities
gains (losses) 695 1,437 865 759 (384)
---------- ---------- ---------- ---------- ----------
Total Tier I Capital $ 233,134 $ 228,968 $ 215,985 $ 202,637 $ 197,580
========== ========== ========== ========== ==========
Total Risk-Based Capital:
Tier I Capital $ 233,134 $ 228,968 $ 215,985 $ 202,637 $ 197,580
Qualifying Allowance for Loan Losses 19,355 19,127 18,052 17,603 17,290
---------- ---------- ---------- ---------- ----------
Total Risk-Based Capital $ 252,489 $ 248,095 $ 234,037 $ 220,240 $ 214,870
========== ========== ========== ========== ==========
Risk Weighted Assets $1,548,397 $1,530,181 $1,444,180 $1,408,270 $1,383,180
========== ========== ========== ========== ==========
Risk-Based Ratios:
Tier I 15.06% 14.96% 14.96% 14.39% 14.28%
========== ========== ========== ========== ==========
Total Risk-Based Capital 16.31% 16.21% 16.21% 15.64% 15.53%
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 14
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. 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.
PART II-OTHER INFORMATION
Item 5. OTHER INFORMATION
The Registrant is setting forth on the following page an unaudited consolidated
statement of earnings for the four months ended April 30, 1996. This financial
statement covers the financial results of 30 days of post-merger combined
operations of the Registrant and Farmers & Merchants Bank of Rochester.
12
<PAGE> 15
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Four months ended
April 30, 1996
--------------
<S> <C>
INTEREST INCOME
Loans, including fees $ 46,168
Investment securities
Taxable 6,336
Tax-exempt 2,010
---------
Total investment securities interest 8,346
Interest-bearing deposits with other banks 162
Federal funds sold and securities
purchased under agreements to resell 245
---------
TOTAL INTEREST INCOME 54,921
INTEREST EXPENSE
Deposits 21,637
Short-term borrowings 730
Long-term borrowings 70
---------
TOTAL INTEREST EXPENSE 22,437
---------
NET INTEREST INCOME 32,484
Provision for loan losses 883
---------
Net interest income after
provision for loan losses 31,601
NONINTEREST INCOME
Service charges on deposit accounts 2,951
Trust income 2,807
Investment securities gains 1
Other 1,285
---------
Total noninterest income 7,044
NONINTEREST EXPENSES
Salaries and employee benefits 12,252
Net occupancy expenses 1,625
Furniture and equipment expenses 1,267
Data processing expenses 1,572
Deposit insurance expense 268
State taxes 554
Other 5,322
---------
Total noninterest expenses 22,860
---------
Income before income taxes 15,785
Income tax expense 5,175
---------
NET EARNINGS $ 10,610
=========
Net earnings per common share $ 0.81
=========
Average shares outstanding 13,111,198
==========
</TABLE>
13
<PAGE> 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
During the quarter ended March 31, 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 May 7, 1996 Date May 7, 1996
----------------------------- ----------------
15
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 95,773
<INT-BEARING-DEPOSITS> 8,431
<FED-FUNDS-SOLD> 6,869
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 271,570
<INVESTMENTS-CARRYING> 88,206
<INVESTMENTS-MARKET> 94,346
<LOANS> 1,537,452
<ALLOWANCE> 20,659
<TOTAL-ASSETS> 2,070,782
<DEPOSITS> 1,766,156
<SHORT-TERM> 36,911
<LIABILITIES-OTHER> 26,727
<LONG-TERM> 3,558
<COMMON> 104,184
0
0
<OTHER-SE> 133,246
<TOTAL-LIABILITIES-AND-EQUITY> 2,070,782
<INTEREST-LOAN> 34,475
<INTEREST-INVEST> 6,196
<INTEREST-OTHER> 266
<INTEREST-TOTAL> 40,937
<INTEREST-DEPOSIT> 16,198
<INTEREST-EXPENSE> 16,807
<INTEREST-INCOME-NET> 24,130
<LOAN-LOSSES> 606
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,128
<INCOME-PRETAX> 11,653
<INCOME-PRE-EXTRAORDINARY> 11,653
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,826
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 8.71
<LOANS-NON> 3,789
<LOANS-PAST> 1,037
<LOANS-TROUBLED> 582
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,437
<CHARGE-OFFS> 610
<RECOVERIES> 226
<ALLOWANCE-CLOSE> 20,659
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
