<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, 1997
-----------------------------
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, 1997
----------------------------- --------------------------
Common stock, $8.00 par value 15,037,691
<PAGE> 2
FIRST FINANCIAL BANCORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I-Financial Information
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Earnings -
Three Months Ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 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 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</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,
1997 1996
--------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 110,896 $ 110,767
Interest-bearing deposits with other banks 3,774 5,079
Federal funds sold and securities purchased
under agreements to resell 12,758 12,201
Investment securities held-to-maturity, at cost
(market value - $70,835 at March 31, 1997 and
$83,441 at December 31, 1996) 67,496 78,945
Investment securities available-for-sale, at market 301,120 290,701
Loans
Commercial 411,270 398,034
Real estate-construction 43,032 43,262
Real estate-mortgage 875,460 863,414
Installment 384,667 366,051
Credit card 14,818 16,107
Lease financing 15,024 14,821
---------- ----------
Total loans 1,744,271 1,701,689
Less
Unearned income 1,376 1,425
Allowance for loan losses 23,651 22,672
---------- ----------
Net loans 1,719,244 1,677,592
Premises and equipment 43,034 42,633
Deferred income taxes 3,524 2,802
Accrued interest and other assets 46,805 40,991
---------- ----------
Total assets $2,308,651 $2,261,711
========== ==========
Liabilities
Deposits
Noninterest-bearing $ 230,298 $ 238,415
Interest-bearing 1,667,238 1,641,551
---------- ----------
Total deposits 1,897,536 1,879,966
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 42,674 35,304
Federal Home Loan Bank borrowings 59,000 56,500
Other 2,281 1,975
---------- ----------
Total short-term borrowings 103,955 93,779
Long-term borrowings 11,223 6,506
Accrued interest and other liabilities 28,439 22,978
---------- ----------
Total liabilities 2,041,153 2,003,229
Shareholders' equity
Common stock - par value, $8 per share
Authorized - 25,000,000 shares
Issued - 15,050,158 in 1997 and 14,727,772 in 1996 120,401 117,822
Surplus 45,336 47,125
Retained earnings 102,511 93,369
Unrealized net gains on investment securities
available-for-sale, net of deferred income taxes 129 1,162
Restricted stock awards (421) (220)
Treasury stock, at cost, 15,301 shares in 1997
and 25,907 shares in 1996 (458) (776)
---------- ----------
Total shareholders' equity 267,498 258,482
---------- ----------
Total liabilities and shareholders' equity $2,308,651 $2,261,711
========== ==========
</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,
1997 1996
-------- ---------
<S> <C> <C>
Interest income
Loans, including fees $39,016 $34,475
Investment securities
Taxable 4,743 4,710
Tax-exempt 1,337 1,486
------- -------
Total investment interest 6,080 6,196
Interest-bearing deposits with
other banks 79 118
Federal funds sold and securities
purchased under agreements to resell 194 148
------- -------
Total interest income 45,369 40,937
Interest expense
Deposits 16,825 16,198
Short-term borrowings 1,148 557
Long-term borrowings 158 52
------- -------
Total interest expense 18,131 16,807
------- -------
Net interest income 27,238 24,130
Provision for loan losses 860 606
------- -------
Net interest income after
provision for loan losses 26,378 23,524
Noninterest income
Service charges on deposit accounts 2,373 2,183
Trust revenues 2,455 2,086
Investment securities gains 9 0
Other 1,350 988
------- -------
Total noninterest income 6,187 5,257
Noninterest expenses
Salaries and employee benefits 10,239 9,146
Net occupancy 1,311 1,215
Furniture and equipment 1,111 931
Data processing 1,228 1,169
Deposit insurance 65 211
State taxes 407 416
Other 4,159 4,040
------- -------
Total noninterest expenses 18,520 17,128
------- -------
Income before income taxes 14,045 11,653
Income tax expense 4,631 3,827
------- -------
Net earnings $ 9,414 $ 7,826
======= =======
Net earnings per common share $ 0.63 $ 0.55
======= =======
Cash dividends declared per share $ 0.30 $ 0.27
======= =======
Average shares outstanding 15,030,321 14,321,873
========== ==========
</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,
1997 1996
-------- --------
<S> <C> <C>
Operating activities
Net earnings $ 9,414 $ 7,826
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 860 606
Provision for depreciation and amortization 1,243 964
Net amortization of investment security
premiums and accretion of discounts 193 156
Realized investment security gains (9) 0
Originations of mortgage loans held for sale (10,673) (10,226)
Gains from sales of mortgage loans held for sale (139) (160)
Proceeds from sale of mortgage loans held for sale 10,812 10,386
Deferred income taxes (82) 31
(Increase) decrease in interest receivable (763) 489
Increase in cash surrender value of life insurance (3,193) (7,990)
Increase in prepaid expenses (995) (646)
Increase in accrued expenses 3,977 3,482
Increase (decrease) in interest payable 147 (90)
Other 984 (43)
-------- --------
Net cash provided by operating activities 11,776 4,785
Investing activities
Proceeds from sales of investment securities
available-for-sale 0 0
Proceeds from calls, paydowns and maturities of
investment securities available-for-sale 17,431 56,776
Purchases of investment securities available-for-sale (24,929) (35,470)
Proceeds from calls, paydowns and maturities of
investment securities held-to-maturity 12,022 5,969
Purchases of investment securities held-to-maturity (356) (650)
Net decrease (increase) in interest-bearing deposits
with other banks 1,305 (1,549)
Net decrease in federal funds sold and
securities purchased under agreements to resell 5,343 7,933
Net increase in loans and leases (14,483) (6,016)
Recoveries from loans and leases previously charged off 346 226
Proceeds from disposal of other real estate owned 149 28
Cash and cash equivalents acquired in merger 8,288 0
Purchases of premises and equipment (605) (975)
-------- --------
Net cash provided by investing activities 4,511 26,272
Financing activities
Net decrease in total deposits (26,586) (19,406)
Net increase (decrease) in short-term borrowings 10,176 (21,461)
Net increase in long-term borrowings 4,717 738
Cash dividends declared (4,510) (3,907)
Proceeds from exercise of stock options, net of shares
purchased 45 67
-------- --------
Net cash used in financing activities (16,158) (43,969)
-------- --------
Increase (decrease) in cash and cash equivalents 129 (12,912)
Cash and cash equivalents at beginning of period 110,767 108,685
-------- --------
Cash and cash equivalents at end of period $110,896 $ 95,773
======== ========
</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,
1997 1996
-------- --------
<S> <C> <C>
Supplemental disclosures
Interest paid $20,100 $16,897
======= =======
Income taxes paid $ 295 $ 332
======= =======
Recognition of deferred tax assets
attributable to FASB Statement No. 115 $ 610 $ 436
======= =======
Acquisition of other real estate owned through
foreclosure $ 238 $ 10
======= =======
Issuance of restricted stock awards $ 226 $ 226
======= =======
</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,
First Finance Mortgage Company of Southwestern Ohio, Farmers State Bank and
National Bank of Hastings. 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.
Average common shares outstanding have been adjusted for a 10% stock dividend
declared by the Board of Directors on September 24, 1996, payable on November
1, 1996. Appropriately, shares outstanding and earnings and dividends per share
in the accompanying financial statements have been restated to reflect the
above-mentioned stock dividend. The 10% stock dividend was recorded by
transferring the fair market value of the shares issued from retained earnings
to common stock and surplus. 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".
5
<PAGE> 8
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 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,
1997, Bancorp had issued standby letters of credit aggregating $10,985,000
compared to $9,706,000 issued as of December 31, 1996. 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 $293,053,000 at March 31, 1997 and $270,232,000 at
December 31, 1996. Management does not anticipate any material losses as a
result of these commitments.
NOTE 3: BUSINESS COMBINATIONS
On January 1, 1997, Bancorp issued 322,386 shares of its common stock in
exchange for all the outstanding common stock of Hastings Financial Corporation
(Hastings) of Hastings, Michigan. Upon consummation of the merger, Hastings was
merged out of existence and National Bank of Hastings, Hasting's only
subsidiary became a wholly owned subsidiary of Bancorp. This merger was
accounted for as an immaterial pooling-of-interests and accordingly, the
consolidated financial statements, including earnings per share, were not
restated for periods prior to January 1, 1997.
NOTE 4: PENDING MERGERS AND ACQUISITIONS
On January 13, 1997, Bancorp signed a Plan and Agreement of Merger with
Southeastern Indiana Bancorp (SIB). SIB's only subsidiary, Vevay Deposit Bank,
has its main office and two other offices in Vevay, Indiana and an additional
office in East Enterprise, Indiana. Under the terms of the merger agreement,
Bancorp will pay $7,800,000 in cash for all the outstanding common stock of
SIB. Upon consummation of the merger, SIB will be merged out of existence and
Vevay Deposit Bank will become a wholly owned subsidiary of Bancorp. Subject to
regulatory approval and approval by SIB's shareholders, the merger is expected
to occur during the second quarter of 1997. The merger will be accounted for
using the purchase method of accounting.
6
<PAGE> 9
NOTE 5: ACCOUNTING CHANGES
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," was released in June 1996 and was effective for
transactions occuring after December 31, 1996. Early adoption of SFAS No. 125
was not permitted. Under the provisions of SFAS No. 125, each party to a
transaction recognizes only assets it controls and liabilities it has incurred,
derecognizes assets only when control has been surrendered and derecognizes
liabilities only when they have been extinguished. Transactions are to be
separated into components and separate assets and liabilities may need to be
recorded for the different components. The financial impact of adopting this
statement was immaterial.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996
------- --------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- --------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Earnings $ 9,414 $ 9,489 $ 7,580 $ 9,045 $ 7,826
Average Consolidated Balance Sheet Items:
Loans less unearned income 1,730,946 1,665,127 1,635,564 1,588,249 1,528,462
Investment securities 369,438 376,345 381,986 380,887 373,359
Other earning assets 20,266 15,131 12,848 22,283 18,482
---------- ---------- ---------- ---------- ----------
Total Earning Assets 2,120,650 2,056,603 2,030,398 1,991,419 1,920,303
Total assets 2,281,811 2,211,307 2,180,410 2,137,669 2,059,649
Deposits 1,888,159 1,831,974 1,803,351 1,813,461 1,749,361
Shareholders' equity 266,008 255,733 249,941 247,468 236,539
Key Ratios:
Average equity to average total assets 11.66% 11.56% 11.46% 11.58% 11.48%
Return on average total assets 1.65% 1.72% 1.39% 1.69% 1.52%
Return on average equity 14.16% 14.84% 12.13% 14.62% 13.23%
Net interest margin (fully tax equivalent) 5.29% 5.31% 5.25% 5.25% 5.21%
</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
$3,024,000 over the first quarter of 1996. Continued loan growth, particularly
in commercial and installment loans, contributed to higher net interest income
in the first quarter of 1997.
<TABLE>
<CAPTION>
1997 Quarter Ended 1996
------- -------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $45,369 $44,497 $43,582 $42,259 $40,937
Interest expense 18,131 18,058 17,793 17,049 16,807
------- ------- ------- ------- -------
Net interest income 27,238 26,439 25,789 25,210 24,130
Tax equivalent adjustment to interest income 782 856 879 909 866
------- ------- ------- ------- -------
Net interest income (fully tax equivalent) $28,020 $27,295 $26,668 $26,119 $24,996
======= ======= ======= ======= =======
</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, average earning assets had an
increase in rates, while average interest-bearing liabilities experienced a
decrease in rates for the three month period ended March 31, 1997 in comparison
to the same period in 1996. The rates had more impact on interest expense than
interest income. 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, 1997 -------------------
Over 1996 Rate Volume
------------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income $4,432 $146 $4,286
Interest expense 1,324 (362) 1,686
------ ---- ------
Net interest income $3,108 $508 $2,600
====== ==== ======
</TABLE>
OPERATING RESULTS
Net operating income represents net earnings before net securities
transactions. Net operating income for the first three months of 1997 was
$9,408,000 which was an increase of $1,592,000 or 20.4% over that reported in
the same period in 1996. This increase in net operating income can be primarily
attributed to an increase in net interest income of $3,108,000 or 12.9%.
Noninterest income, excluding securities transactions, for the first three
months of 1997 increased 17.5% in comparison to the same period in 1996 as a
result of new services and fees. 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 8.13%.
INCOME TAXES
For the first three months of 1997, income tax expense was $4,631,000 compared
to $3,827,000 for the same period in 1996, or an increase of $804,000. In 1997,
$4,628,000 of the tax expense was related to operating income with a tax
expense of $3,000 related to securities transactions. In the first three months
of 1996, income tax expense related to operating income was $3,837,000 with a
tax benefit related to securities transactions of $10,000. The increase in
taxes on operating income was due to the increase in operating income before
taxes and securities transactions of $2,383,000 or 20.4% over that reported for
the first three months of 1996 and a higher effective tax rate for the period
in 1997. 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 1997 were $1,588,000 or 20.3%
greater than that recorded during the same period in 1996. As was discussed
previously, net operating income was $9,408,000 which was 20.4% greater than
the same period in 1996. Net securities gains through March 31, 1997 were
$6,000 compared to $10,000 for the period ending March 31, 1996.
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
8
<PAGE> 11
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 March 31, 1997 and 1996, the recorded investment in loans that are
considered to be impaired under FASB Statement No. 114 was $3,458,000 and
$1,776,000, respectively, all of which were on a nonaccrual basis. The related
allowance for loan losses on these impaired loans was $1,415,000 at March 31,
1997 and $720,000 at March 31, 1996. 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, 1997 and 1996, was approximately $3,040,000 and $1,785,000. For the three
months ended March 31, 1997, Bancorp recognized interest income on those
impaired loans of $64,000 compared to $16,000 for the same period in 1996.
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>
1997 Quarter Ended 1996
------- ---------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $22,672 $21,972 $21,605 $20,659 $20,437
Allowance acquired through merger 438 869 723
Provision for loan losses 860 966 1,097 764 606
Loans charged off (665) (1,447) (1,026) (880) (610)
Recoveries 346 312 296 339 226
------- ------- ------- ------- -------
Net charge offs (319) (1,135) (730) (541) (384)
------- ------- ------- ------- -------
Balance at end of period $23,651 $22,672 $21,972 $21,605 $20,659
======= ======= ======= ======= =======
Ratios:
Allowance to period end loans,
net of unearned income 1.36% 1.33% 1.33% 1.34% 1.34%
Recoveries to charge offs 52.03% 21.56% 28.85% 38.52% 37.05%
Allowance as a multiple of
net charge offs 74.14X 19.98X 30.10X 39.94X 53.80X
</TABLE>
NONPERFORMING/UNDERPERFORMING ASSETS
The table on the following page shows the categories which are included in
nonperforming and underperforming assets.
Nonperforming assets increased $1,489,000 or 24.7% in the first quarter of 1997
when compared to the first quarter of 1996, and in that same period, accruing
loans past due 90 days or more decreased $28,000. Nonperforming assets
increased $1,502,000 or 25.0% in the first quarter of 1997 when compared to the
fourth quarter of 1996. There were no individually large loans contributing to
this increase. While the increase may seem large, the level of nonperforming
assets as a percentage of loans in the current quarter has only increased a
small amount compared to 1996 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>
1997 Quarter Ended 1996
------- ---------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $6,611 $4,850 $5,028 $3,931 $3,789
Restructured loans 550 890 507 573 582
OREO/ISF* 345 264 1,118 1,777 1,646
------ ------ ------ ------ ------
Total nonperforming assets 7,506 6,004 6,653 6,281 6,017
Accruing loans past due
90 days or more 1,009 906 1,238 1,198 1,037
------ ------ ------ ------ ------
Total underperforming assets $8,515 $6,910 $7,891 $7,479 $7,054
====== ====== ====== ====== ======
Nonperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.43% 0.35% 0.40% 0.39% 0.39%
====== ====== ====== ====== ======
Underperforming assets as a percent
of loans, net of unearned income
plus OREO/ISF 0.49% 0.41% 0.48% 0.46% 0.46%
====== ====== ====== ====== ======
</TABLE>
*Other real estate owned/In-substance foreclosure
In accordance with FASB Statement No. 114, a loan is classified as in-substance
foreclosure when Bancorp has taken possession of the collateral regardless of
whether formal foreclosure proceedings take place.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which Bancorp provides for the
continuing flow of funds necessary to meet its financial commitments on a
timely basis. These commitments include withdrawals by depositors, funding
credit commitments to borrowers, shareholder dividends, paying expenses of
operations, and funding capital expenditures.
Liquidity is derived primarily from deposit growth, maturing loans, the
maturity of investment securities, access to other funding sources and markets,
and a strong capital position. The most stable source of liability-funded
liquidity for both the long-term and short-term is deposit growth and retention
in the core deposit base. At the end of the first quarter of 1997 Bancorp's
deposit liabilities had increased by 0.93% from December 31, 1996. Another
source of funding is through short-term borrowings. Bancorp's short-term
borrowings increased to $103,955,000 at March 31, 1997, compared to $93,779,000
at December 31, 1996.
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At March 31, 1997,
securities maturing in one year or less amounted to $35,233,000, representing
9.56% 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,
1997, amounted to $474,231,000, representing 20.5% 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, 1997, Bancorp had classified $301,120,000 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 $605,000 for the first
three months of 1997. In addition, remodeling is a planned and ongoing process
given the 90 offices of Bancorp and its subsidiaries. Material commitments for
capital expenditures as of March 31, 1997 were approximately $615,000.
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
ratios compared to minimum standards to determine whether a bank has adequate
capital.
Regulatory guidelines require a 4.00% Tier 1 capital ratio, an 8.00% Total
risk-based capital ratio and a 4.00% Leverage ratio. Tier 1 capital consists
primarily of common shareholders' equity, net of intangibles, and Total
risked-based capital is Tier 1 capital plus Tier 2 supplementary capital, which
is primarily the allowance for loan losses subject to certain limits. The
Leverage ratio is a result of Tier 1 capital divided by average total assets
less certain intangibles.
Bancorp's Tier I ratio at March 31, 1997, was 16.0%, its Total risked-based
capital was 17.3% and its Leverage ratio was 11.5%. While Bancorp subsidiaries'
ratios are well above regulatory requirements, management will continue to
monitor the asset mix which affects these ratios due to the risk weights
assigned various assets, and the allowance for loan losses, which influences
the Total risk-based capital ratio.
The table below illustrates the risk-based capital calculations and ratios for
the last two years.
<TABLE>
<CAPTION>
1997 Quarter Ended 1996
------- ---------------------------------------------
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 $ 267,498 $ 258,482 $ 252,376 $ 248,839 $ 237,430
Less: Intangible assets 5,187 4,154 1,528 1,586 1,644
Less: Unrealized net securities
gains (losses) 129 1,162 154 (244) 695
---------- ---------- ---------- ---------- ----------
Total Tier I Capital $ 262,182 $ 253,166 $ 250,694 $ 247,497 $ 235,091
========== ========== ========== ========== ==========
Total Risk-Based Capital:
Tier I Capital $ 262,182 $ 253,166 $ 250,694 $ 247,497 $ 235,091
Qualifying Allowance for Loan Losses 20,468 19,856 19,263 18,833 17,947
---------- ---------- ---------- ---------- ----------
Total Risk-Based Capital $ 282,650 $ 273,022 $ 269,957 $ 266,330 $ 253,038
========== ========== ========== ========== ==========
Risk Weighted Assets $1,637,465 $1,588,464 $1,538,359 $1,503,886 $1,433,051
========== ========== ========== ========== ==========
Risk-Based Ratios:
Tier I 16.04% 15.94% 16.30% 16.46% 16.40%
========== ========== ========== ========== ==========
Total Risk-Based Capital 17.30% 17.19% 17.55% 17.71% 17.66%
========== ========== ========== ========== ==========
Leverage 11.52% 11.83%
========== ==========
</TABLE>
11
<PAGE> 14
ACCOUNTING AND REGULATORY MATTERS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 on earnings per share presentation. This Statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. FASB Statement No. 128 requires the presentation of
basic (excludes dilution) and fully diluted earnings per share.
The impact to Bancorp from adoption of this Statement is not expected to be
material. Bancorp has presented earnings per share for the first quarter of
1997 of $0.63. Basic and diluted earnings per share for the same period
calculated according to the new standard would also be $0.63.
Management is not aware of any other events or regulatory recommendations
which, if implemented, are likely to have a material effect on Bancorp's
liquidity, capital resources, or operations.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On February 12, 1997, Bancorp filed a Form 8-K reporting the
unaudited consolidated statement of earnings for the month ended
January 31, 1997 which covered the financial results of more than
30 days of post-merger combined operations of Bancorp and
National Bank of Hastings. See "Note 3: Business Combinations"
for further information.
12
<PAGE> 15
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 13, 1997 Date May 13, 1997
----------------- -------------------
13
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 110,896
<INT-BEARING-DEPOSITS> 3,774
<FED-FUNDS-SOLD> 12,758
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 301,120
<INVESTMENTS-CARRYING> 67,496
<INVESTMENTS-MARKET> 70,835
<LOANS> 1,742,895
<ALLOWANCE> 23,651
<TOTAL-ASSETS> 2,308,651
<DEPOSITS> 1,897,536
<SHORT-TERM> 103,955
<LIABILITIES-OTHER> 28,439
<LONG-TERM> 11,223
0
0
<COMMON> 120,401
<OTHER-SE> 147,097
<TOTAL-LIABILITIES-AND-EQUITY> 2,308,651
<INTEREST-LOAN> 39,016
<INTEREST-INVEST> 6,080
<INTEREST-OTHER> 273
<INTEREST-TOTAL> 45,369
<INTEREST-DEPOSIT> 16,825
<INTEREST-EXPENSE> 18,131
<INTEREST-INCOME-NET> 27,238
<LOAN-LOSSES> 860
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 18,520
<INCOME-PRETAX> 14,045
<INCOME-PRE-EXTRAORDINARY> 14,045
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,414
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 8.51
<LOANS-NON> 6,611
<LOANS-PAST> 1,009
<LOANS-TROUBLED> 550
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 22,672
<CHARGE-OFFS> 665
<RECOVERIES> 346
<ALLOWANCE-CLOSE> 23,651
<ALLOWANCE-DOMESTIC> 23,651
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
