SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1995 Commission file number 0-14280
FIRST FINANCIAL BANCORPORATION
(Exact name of registrant as specified in its charter)
IOWA 42-1259867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
204 East Washington Street, Iowa City, Iowa 52240
(Address of principal executive offices, including zip
code)
Registrant's telephone number, including area code 319-356-9000
NOT APPLICABLE
(Former name, former address and
former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X . No . (2) Yes X . No. .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING
CLASS AT October 31, 1995
Common stock, $1.25 par value 2,383,241
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FIRST FINANCIAL BANCORPORATION
Index to Form 10-Q
Page
PART I - Financial Information Number
Item 1. Financial statements
Unaudited consolidated balance sheets 3
Unaudited consolidated statements of income 4
Unaudited consolidated statements of cash flows 5 - 6
Consolidated statement of stockholders' equity 7
Note to consolidated financial statements 8 - 9
Item 2. Management's discussion and analysis of financial 10 - 12
condition and results of operations
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13 - 19
Signatures 20
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<S> <C> <C>
September 30, December 31
1995 1994*
ASSETS
Cash and due from banks $14,507 $13,196
Investment securities:
Available for sale (cost 1995 $94,952; 1994 $81,405) 94,286 $78,621
Held to maturity (market value 1995 $28,877; 1994 $30,648) 28,405 30,608
Federal funds sold 7,325 600
Loans, net of unearned income $ 294,167 $ 294,707
Less: Allowance for possible loan losses (3,553) (3,354)
Net loans $ 290,614 $ 291,353
Bank premises and equipment, net 11,697 10,912
Accrued interest receivable 3,664 3,175
Income tax refund receivable - - 128
Deferred income taxes 485 1,275
Intangible assets 820 945
Other assets 4,963 3,648
$ 456,766 $ 434,461
LIABILITIES
Noninterest-bearing deposits $ 38,539 $ 44,235
Interest-bearing deposits 345,939 318,028
Total deposits $ 384,478 $ 362,263
Federal funds purchased and securities sold
under agreements to repurchase - - 3,200
Federal Home Loan advances 19,834 20,628
Mortgage indebtedness - - 161
Accrued interest payable 1,487 1,283
Income tax payable 110 - -
Accounts payable and other accrued expenses 1,896 1,681
$ 407,805 $ 389,216
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1995 2,383,241 shares; 1994 2,373,926 shares $ 2,979 $ 2,967
Additional paid-in capital 4,095 3,928
Retained earnings 42,305 40,095
Unrealized losses on debt securities, net (418) (1,745)
$ 48,961 45,245
$ 456,766 $ 434,461
*Condensed from audited financial statements.
See Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF
INCOME Three and Nine
Months Ended September
30, 1995 and 1994
(Amounts in Thousands, Except per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Interest income:
Interest and fees on loans ....................... $ 6,199 $ 5,683 $18,273 $16,095
Interest on investment securities
Taxable ...................................... 1,331 1,394 3,846 4,417
Nontaxable ................................... 350 341 1,033 1,034
Interest on federal funds sold ................... 208 10 478 152
Total interest income ..................... $ 8,088 $ 7,428 $23,630 $21,698
Interest expense:
Interest on deposits ............................. $ 3,804 $ 3,064 $10,746 $ 9,104
Interest on federal funds purchased and
securities sold under agreements to repurchase -- 56 13 79
Interest on Federal Home Loan Bank advances ...... 304 314 914 871
Interest on other borrowings ..................... -- 3 -- 16
Total interest expense .................... $ 4,108 $ 3,437 $11,673 $10,070
Net interest income ....................... $ 3,980 $ 3,991 $11,957 $11,628
Provision for loan losses ............................ 90 165 301 320
Net interest income after provision
for loan losses ........................ $ 3,890 $ 3,826 $11,656 $11,308
Noninterest income:
Trust fees ....................................... $ 713 $ 656 $ 2,130 $ 2,057
Service charges and fees on deposit accounts ..... 368 329 1,071 987
Other service charges, commissions and fees ...... 641 408 1,444 1,376
$ 1,722 $ 1,393 $ 4,645 $ 4,420
Noninterest expenses:
Salaries and employee benefits ................... $ 1,787 $ 1,777 $ 5,554 $ 5,377
Occupancy expenses ............................... 287 255 889 805
Furniture and equipment .......................... 393 370 1,184 1,085
Data processing .................................. 290 239 822 653
Office supplies and postage ...................... 257 205 775 661
Other expenses ................................... 577 717 2,141 2,293
$ 3,591 $ 3,563 $11,365 $10,874
Income before income taxes ................ $ 2,021 $ 1,656 $ 4,936 $ 4,854
Federal and state income taxes ....................... 602 474 1,380 1,376
Net Income ................................ $ 1,419 $ 1,182 $ 3,556 $ 3,478
Average common stock and common equivalent shares .... 2,394 2,389 2,394 2,383
Earnings per common and
common equivalent share (Note 5) ................. $ .59 $ .49 $ 1.49 $ 1.46
Dividends per common share ........................... $ .195 $ .185 $ .565 $ .545
See Note to Consolidated Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30, 1995 and 1994
(Amounts in Thousands)
<S> <C> <C>
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 3,556 $ 3,478
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ........................................... 943 738
Amortization of investment security discount ........... (134) (367)
Amortization of intangible assets ...................... 125 124
Provision for possible loan losses ..................... 301 320
(Increase) decrease in accrued interest receivable ..... (489) (672)
(Increase) in other assets ............................. (1,315) 1,864
Increase in accrued interest and other liabilities ..... 419 (450)
Change in accrued income taxes ......................... 238 55
Net cash provided by operating activities .......... $ 3,644 $ 5,090
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities ......... $ 5,310 $ 4,104
Purchase of investment securities ......................... (3,064) (465)
Proceeds from maturities of available for sale securities . 20,247 33,959
Purchase of available for sale securities ................. (33,704) (23,117)
Fed funds sold, net ....................................... (6,725) 15,325
Net (increase) decrease in loan balances outstanding ...... 438 (37,976)
Purchases of bank premises and equipment .................. (1,728) (600)
Net cash (used in) investing activities ............ $(19,226) $ (8,770)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances .......................... $ 22,215 $ 10,010
Federal funds purchased and securities sold under agreement
to repurchase .......................................... (3,200) (3,775)
Federal Home Loan Bank advances ........................... (794) 2,358
Repayment of note principal ............................... (161) (170)
Dividends paid ............................................ (1,346) (1,293)
Stock options exercised ................................... 248 1,298
Common stock redeemed ..................................... (69) (631)
Net cash provided by financing activities .......... $ 16,893 $ 7,797
Increase in cash and due from banks .............. $ 1,311 $ 4,117
CASH AND DUE FROM BANKS
Beginning balance ......................................... 13,196 10,527
Ending balance ............................................ $ 14,507 $ 14,644
See Notes to Financial Statements.
</TABLE>
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Nine Months
Ended September 30, 1995 and 1994
(Amounts in Thousands)
<S> <C> <C>
1995 1994
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest paid to depositors, on note payable,
on federal funds purchased and securities
sold under agreements to repurchase .......................... $ 11,469 $ 10,185
Income taxes ..................................................... 974 1,004
Noncash transactions:
Net unrealized (losses) on debt securities, net .................. (2,117) (2,954)
Deferred income taxes on unrealized (losses) on debt securities, net (790) (1,102)
See Notes to Financial Statements.
</TABLE>
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<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended Unrealized Gains
September 30, 1995 and year ended Common Stock Additional on Debt
December 31, 1994 (In Thousands $1.25 Par Value Paid-In Retained Securities,
of Dollars, Except Per Share Data) Number Amount Capital Earnings Net Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ....................... 2,327 $ 2,909 $ 3,319 $ 37,265 $ 500 $ 43,993
Net income .................................. -- -- -- 4,563 -- 4,563
Cash dividends ($.73 per share) ............. -- -- -- (1,733) -- (1,733)
Stock options exercised for
71,763 shares ............................. 72 89 1,209 -- -- 1,298
Redemption of 24,721 shares
common stock .............................. (25) (31) (600) -- -- (631)
Unrealized gains (losses) on debt securities,
net of deferred tax effect ................ -- -- -- -- (2,245) (2,245)
Balance, December 31, 1994 ....................... 2,374 $ 2,967 $ 3,928 $ 40,095 $ (1,745) $ 45,245
Net income .................................. -- -- -- 3,556 -- 3,556
Cash dividends ($.565 per share) ............ -- -- -- (1,346) -- (1,346)
Stock options exercised for
12,087 shares ............................... 12 15 233 -- -- 248
Redemption of 2,772 shares
common stock .............................. (3) (3) (66) -- -- (69)
Unrealized gains (losses) on debt securities,
net of deferred tax effect ................ -- -- -- -- 1,327 1,327
Balance, September 30, 1995 ...................... 2,383 $ 2,979 $ 4,095 $ 42,305 $ (418) $ 48,961
</TABLE>
See Notes to Financial Statements.
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FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1995 and 1994
Note 1. Interim Financial Statements
Interim consolidated financial statements have not been examined
by independent public accountants, but include all adjustments
(consisting only of normal recurring accruals) which in the
opinion of management are necessary for a fair presentation of the
results for those periods. The results of operation for the
interim periods are not necessarily indicative of the results for
a full year.
Note 2. Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, First National Bank,
Iowa City, Iowa, and First National Bank, Cedar Rapids, Iowa, both
of which are wholly-owned. All material intercompany accounts and
transactions have been eliminated in consolidation.
Note 3. Presentation of cash flows:
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks. Cash flows from
deposits, federal funds purchased, federal funds sold and loan
balances are treated as net increases or decreases.
Note 4. Deferred income taxes:
Deferred income taxes are provided under the liability method
whereby deferred tax assets are recognized for deductible
temporary differences and net operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities adjusted for
the effects of changes in tax laws and rates on the date of
enactment.
Note 5. Earnings per common and common equivalent share:
For 1995 and 1994, earnings per common and common equivalent share
are determined by dividing net income by the weighted average
number of common and common equivalent shares outstanding during
the year. Dilutive common stock equivalents related to the stock
option plan were determined using the treasury stock method.
Earnings per share and common equivalent share assuming full
dilution are the same as earnings per common and common equivalent
share.
Note 6. Accounting by creditors for impairment of a loan
The Company adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" in
the second quarter of 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the
schedule payments of principal or interest when due according to
the contractual terms of the loan agreement. Impaired loans
include all nonaccrual loans.
The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the
historical effective rate, except that all collateral dependent
loans are measured for impairment based on the fair value of the
collateral.
SFAS 114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment,
except for those loans restructured under trouble debt
restructuring. Loans collectively evaluated for impairment
include certain smaller balance commercial loans, consumer loans,
residential real estate loans, and credit card loans, and are not
included in the data that follows.
(In Thousands)
The following table summarizes As of
impaired loan information. September 30, 1995
Impaired loans $537
Impaired loans with related reserve for
loan losses calculated under SFAS 114 448
Impaired loans with no related reserve for
loan losses calculated under SFAS 114 89
Amount of reserve for loan losses allocated
to the impaired loan balance 124
The adoption of SFAS 114 did not result in additional provisions
for loan losses primarily because the majority of impaired loan
valuations continue to be based on the fair value of collateral
and because the existing provision evaluations methods had
included impaired loans as defined by SFAS 114. Impairment losses
are included in the provision for loan and lease losses.
(In Thousands)
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
Average impaired loans $612 $795
Cash basis interest
income recognized on
impaired loans NONE NONE
Interest income that
would have been recorded
during the period on non-
accrual loans 19 46
Interest payments on impaired loans are typically applied to
principal unless future collectability of the recorded loan
balance is expected, in which case interest income is recognized
on a cash basis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
EARNINGS PERFORMANCE
Net income for the three and nine month periods ended September 30, 1995 was
$1,419,000 and $3,556,000, respectively, representing increases of $237,000 or
20.1% and $78,000 or 2.2% above the level of net income recorded in the same
prior year periods. Net interest income after provision for loan losses
increased $64,000 or 1.7% to $3,890,000 in the third quarter of 1995 and
$348,000 or 3.1% to $11,656,000 in the first nine months of 1995 when compared
to the same periods of 1994 as a result of asset growth and an improved interest
margin.
DIVIDEND INFORMATION
The ability of the Company to pay dividends to its shareholders is dependent on
the profitability of the Iowa City Bank and to what prudent and sound banking
principles will permit. The payment of dividends (i) is not permitted without
the approval of the Comptroller of the Currency (OCC) except to the extent of
net profits of the current fiscal year and retained net profits of the two
proceeding fiscal years, and (ii) is not permitted if the payment of a dividend
would reduce the capital of a bank below required levels. Given the Bank's
capital position, the OCC's minimum capital criteria will not be restrictive.
The Company paid cash dividends of $465,000 and $1,346,000, respectively, for
the third quarter and first nine months of 1995, which compares favorably to the
$439,000 and $1,293,000 of dividends paid for the same periods in 1994. A $.195
cash dividend was paid per outstanding share of common stock in the third
quarter of 1995 compared to $.185 in 1994. In the first nine months of 1995, the
per share stock dividend paid totaled $.565 compared to $.545 in 1994. This
represented a year-to-date increase of $.02 or 3.7% per outstanding share of
common stock and $53,000 or 4.1% in total cash dividends paid. For the third
quarter of 1995 the per share cash dividend increased $.01 or 5.4% and $26,000
or 5.9% in total dividends paid.
NET INTEREST INCOME
Net interest income after provision for loan losses increased $64,000 or 1.7% to
$3,890,000 in the third quarter of 1995 and $348,000 or 3.1% to $11,656,000
through September 30, 1995, over 1994 period totals. Asset growth and an
increase in the net interest margin accounted for the increase in net interest
income.
Net interest income, on a fully tax-equivalent basis, decreased $8,000 or.2% to
$4,248,000 in the third quarter of 1995 and increased $322,000 or 2.6% to
$12,743,000 in the first nine months of 1995 when compared to the same periods
of 1994. The consolidated net interest spread and margin are presented in Table
2 for the three and nine month periods ended September 30, 1995 and 1994.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As of September 30, 1995, the allowance for possible loan losses was 1.21% of
total outstanding loans compared to 1.14% as of December 31, 1994. As of
September 30, 1994 this ratio was 1.12%. During the third quarter of 1995 the
Company recorded net recoveries on charged-off loans of $54,000 compared to net
charge-offs of $31,000 for the same period in 1994. Year-to-date net charged-off
loans totaled $102,000 in 1995 compared to net charged-off loans of $139,000 in
1994. Provision expense for the third quarter and first nine months of 1995 was
$90,000 and $301,000, respectively, compared to $165,000 and $320,000 for the
same periods in 1994. The dollar amount of classified loans, which includes
loans 90 days or more past due and nonaccrual loans, decreased from $1,160,000
as of December 31, 1994 to $733,000 as of September 30, 1995.
NONINTEREST INCOME
Noninterest income totaled $1,722,000 and $4,645,000 for the three and nine
month periods ended September 30, 1995, when compared to 1994 period totals,
representing increases of $329,000 or 23.6% and $225,000 or 5.1%, respectively.
In these periods, trust fees increased $57,000 or 8.7% and $73,000 or 3.5%,
respectively. Other service charges, commissions and fees increased $233,000 or
57.1% and $68,000 or 4.9% primarily from fees from loans sold and the credit
card merchant program. Secondary market mortgage loan fees increased $189,000 or
309.8% in the third quarter of 1995 but decreased $49,000 or 12.4% through
September 30, 1995, when compared to 1994 period totals. Merchant program credit
card fees increased $26,000 or 21.8% and $104,000 or 36.9% for the respective
periods.
NONINTEREST EXPENSE
Noninterest expenses increased $28,000 or .8% and $491,000 or 4.5% to $3,591,000
and $11,365,000, respectively, for the three and nine month periods ending
September 30, 1995, over 1994 period totals of $3,563,000 and $10,874,000. A
reduction in the FDIC assessment rate from $.23 per $100 in deposits to $.04
retroactive to June 1, 1995, caused the Company to realize a $205,000 reduction
in this expense during the third quarter. Occupancy and furniture and equipment
expenses increased $55,000 or 8.8% and $183,000 or 9.7% resulting primarily from
the added operational costs associated with the new bank building and three
additional branches. Data processing expenses increased $51,000 or 21.3% and
$169,000 or 25.9% for the related periods primarily due to increased credit card
processing and electronic banking system expenses which are volume driven.
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INCOME TAXES
Year-to-date income tax expense as of September 30, 1995 totaled $1,380,000,
which is an increase of $4,000 or .3% from last years tax expense of $1,376,000
as of September 30, 1994. For the third quarter of 1995 income tax expense
increased $128,000 or 27% to $602,000 from the $474,000 reported as of September
30, 1994. The primary reason for the increase in tax expense in the third
quarter of 1995 was the result of an FDIC insurance premium refund. The total of
the refund amounted to $205,000 and resulted in additional tax expense of
approximately $77,000. Under the Company's statutory federal and state tax rates
of 34% and 5%, respectively, year-to-date and quarterly federal tax expense was
$1,126,000 and $498,000 while state tax expense was $254,000 and $104,000.
FINANCIAL POSITION
TOTAL ASSETS
Company assets totaled $456,766,000 as of September 30, 1995, representing a
$13,657,000 or 3.1% increase over September 30, 1994 assets of $443,109,000. The
major funding sources providing this asset growth were increased deposits of
$10,888,000 (2.9% increase), primarily interest-bearing deposits, and
stockholders' equity of $3,968,000 (8.8% increase). These funds were used to
purchase additional federal funds sold and investment securities.
TOTAL LOAN BALANCES
Total loan balances increased by $2,123,000 or .8% to $294,167,000 as of
September 30, 1995 when compared to balances of $292,044,000 as of September 30,
1994, but decreased $540,000 or .2% when compared to balances of $294,707,000 as
of December 31, 1994. Since September 30, 1994, real estate loan balances
increased $13,565,000 or 6%, to $229,499,000 as of September 30, 1995. This
increase was offset by a decrease in consumer loan balances of $10,765,000 or
34.3% to $24,735,000 during the same period. The decrease in consumer loan
balances was primarily due to the selling off of the student loan portfolio to
the Iowa Student Loan Liquidity Corporation. Since December 31, 1994 real estate
balances increased $4,825,000 or 2.1% while consumer loan balances decreased
$6,658,000 or 21.2% for the reason noted above.
TOTAL DEPOSITS
Since September 30, 1994, total deposits have increased $10,888,000 or 2.9% to
$384,478,000 as of September 30, 1995. Since December 31, 1994, total deposits
have increased $22,215,000 or 6.1% to $384,478,000. The majority of this
increase ($12,690,000) is due to short-term public fund deposits which are
seasonal in nature. The remaining increase is due to increased savings and money
market deposit balances. When comparing total deposit balances as of September
30, 1995 to deposit balances as of September 30, 1994 of $373,590,000, total
deposits are up $10,888,000 or 2.9%. Approximately $2,678,000 or 24.6% of this
increase is due to increased public fund deposits. The remaining increases is
due to increased certificate of deposit and money market deposit balances.
CAPITAL POSITION
The strength and soundness of a Company is reflected in the adequacy of its
capital position. Total capital (which includes stockholders' equity and
allowance for possible loan losses) as of September 30, 1995 was $52,514,000
which is up $4,239,000 or 8.8% from total capital of $48,275,000 as of September
30, 1994. The ratio of total capital to total assets as of September 30, 1995,
is 11.41%, which is up .60% or 5.6% from the September 30, 1994, ratio of
10.81%. Total capital increased 8.8% compared to total asset growth of 3%
resulting in the higher capital-to-total asset ratio.
As of quarter-end September 30, 1995, the Company's Tier I capital ratio is
18.17% and its total risk adjusted capital ratio (Tier I plus Tier II) is
19.40%, compared to the respective September 30, 1994 quarter-end ratios of
17.66% and 18.86%. The increase in the above ratios is due to a shift of
investments from 0% risk weighting category to 20% and loan growth in the higher
risk weighting categories. These ratios exceed regulatory minimums of 4.0
percent for Tier I and 8.0 percent for total risk adjusted capital. The
Company's leverage capital ratio was 11.47% as of September 30, 1995, compared
to 10.99% at September 30, 1994, which is substantially higher than the 3%
regulatory floor. The increase in the leverage ratio is primarily due to growth
in retained earnings at a faster rate than the growth of quarterly average total
assets.
CAPITAL EXPENDITURES
Approximately $1,604,000 has been expended year-to-date for capital assets. Of
this amount, $1,301,000 was related to the completion of the Cedar Rapids
downtown branch and the building of the two new Iowa City branches. The
remaining
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capital expenditures was primarily for upgrading computer hardware/software and
related services. Maturing investment securities will be the primary funding
source. These and similar capital expenditures will have no material effect on
the Company's liquidity nor capital adequacy.
INTEREST RATE SENSITIVITY AND LIQUIDITY
ANALYSIS
The profitability of the Company is dependent upon the ability of the Company to
properly manage its rate sensitive assets and liabilities to achieve optimum
earnings potential. This is accomplished by maintaining an appropriate balance
between interest-earning assets and interest-paying liabilities while
maintaining sufficient liquidity to meet the cash flow requirements of
customers. Marketable investments, maturing loans, Federal Funds Purchased in
conjunction with Federal Home Loan Bank advances offer a secondary source of
liquidity to the Company should a mismatch occur between demands for and sources
of funds. Over the past several years the Company has maintained sufficient
liquidity as a result of the maturity schedule of its investment portfolio and
stability of its core deposits. Management continually monitors its liquidity
position and interest rate sensitivity and makes appropriate adjustments as
needed to reduce the adverse effects of changes in market interest rates. Table
1 summarizes various repricing periods of the Company's interest-earnings assets
and interest-paying liabilities as of the report rate. This table indicates that
the Company is liability sensitive within a twelve-month timeframe. Should
interest rates increase in the next year, net interest income may decrease. If
rates would decrease, net interest income may increase. To offset the effects of
increasing market rates and reduce the exposure of the negative gap, management
could shorten the maturities of investment securities and could lengthen the
maturities of deposits by increasing the interest rates paid on long-term time
deposits.
EFFECT OF INFLATION
Inflation can directly affect the level of asset growth during the year as well
as the various components of the income statement. While it is difficult to
measure the effect of inflation directly, it is the policy of the Bank to
minimize the impact of inflation in the future through its asset and liability
management program, effective cost controls and responsive service charge
pricing. The ability of the Company to position itself to minimize the effect of
inflation can more readily be seen by reference to the discussions herein of the
Liquidity, Net Interest Income, Noninterest Income and Noninterest Expense
sections.
CHANGE IN ACCOUNTING PRINCIPLE
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS 122). SFAS 122 amends Statement of Financial Accounting Standard
No. 65, "Accounting for Certain Mortgage Banking Activities," to require that
mortgage banking enterprises recognize as separate assets rights to service
mortgage loans for others, however those mortgage servicing rights are acquired.
SFAS 122 also requires that mortgage banking enterprises assess capitalized
mortgage servicing rights based on the fair value of those rights on a
disaggregated basis. SFAS 122 applies to fiscal years beginning after December
15, 1995 however, earlier application is encouraged. The Company adopted SFAS
122 in the third quarter of 1995. There was no material impact to the Company's
earnings, financial condition or results of operations.
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EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference.
(Documents indicated by an * are incorporated hereby by reference.)
Page No. Of
Exhibit No. Description of ExhibitsForm 10-Q
4 Instruments defining the rights of security holders,
including indentures. See "Description of the
Common Stock of the Holding Company" at
page 30 of * Amendment No. 1 to the
Registration Statement Form S-4 filed
under Registration Number 33-893 dated
November 12, 1985.
11 Statement re computation of earnings per 14
common and common equivalent share
28 Additional Exhibits:
Table 1 - Interest Rate Sensitivity and Liquidity Analysis 15
Table 2 - Analysis of Interest Rate Spread and Margin 16
Table 3 - Non accrual, Past Due and Restructed Loans 17
Table 4 - Summary of Loan Loss Experience 18
Table 5 - Allocation of the Allowance for Loan Losses 19
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Shares of common stock, beginning (Note 5) ....................................2,383,241 2,373,926 2,373,926 2,326,884
Shares of common stock, ending ................................................2,383,241 2,373,926 2,383,241 2,373,926
Computation of weighted .average number of common and common equivalent shares:
Common shares outstanding at the
beginning of the year ....................................................2,383,241 2,373,926 2,373,926 2,326,884
Weighted average number of
shares issued ............................................................ -- -- 10,759 62,380
Weighted average of the
common shares redeemed ................................................... -- -- (2,467) (20,948)
Weighted average of the common equivalent shares
attributable to stock options granted, computed
under the treasury stock method .......................................... 10,335 14,628 11,284 14,628
Weighted average number of common and
common equivalent shares (Note 5) .................................. 2,393,576 2,388,554 2,393,502 2,382,944
Earnings and earnings per common and common equivalent share: (Note 5)
Net income (in thousands) .......................................... $ 1,419,000 $ 1,182,000 $ 3,556,000 $ 3,478,000
Earnings per common and
common equivalent share ............................................. $ .59 $ .49 $ 1.49 $ 1.46
Dividends ........................................................... $ .195 $ .185 $ .565 $ .545
</TABLE>
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<TABLE>
<CAPTION>
TABLE 1
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
AS OF SEPTEMBER 30, 1995:
MONTHS
After Three After One
Within Through Through Non-
(Dollars in Thousands) Three Twelve Five Years sensitive Total
Interest earning assets:
<S> <C> <C> <C> <C> <C>
Federal funds sold ..................... $ 7,325 $ -- $ -- $ -- $ 7,325
Investment securities .................. 33,002 13,244 51,399 25,046 122,691
Loans .................................. 43,854 71,751 161,649 16,913 294,167 (2)
Total interest earning assets ............. 84,181 84,995 213,048 41,959 424,183
Interest paying liabilities:
Deposits ............................... 140,003 52,692 107,409 45,835 (1) 345,939 (3)
Long-term debt ......................... 2,365 1,098 15,245 1,126 19,834
Total interest paying liabilities ......... 142,368 53,790 122,654 46,961 365,773
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks ............. -- -- -- 24,032 24,032
Other assets, liabilities and equity net -- -- -- 34,378 34,378
Total noninterest rate sensitive assets
and liabilities ........................ -- -- -- 58,410 58,410
INTEREST SENSITIVE GAP ................. ($ 58,187) $ 31,205 $ 90,394 ($ 63,412) $ --
CUMULATIVE GAP ......................... ($ 58,187) ($ 26,982) $ 63,412 $ -- $ --
CUMULATIVE % OF SENSITIVE .............. 59% 86% 120%
ASSETS TO LIABILITIES
<FN>
(1) Includes NOW interest paying demand and savings deposits totaling $30,803,000.
(2) Of the $294,167,000 of total loans, $157,167,000 have fixed rates, while $137,000,000 have variable rates.
(3) Certificates of deposit comprise $191,032,000 of total interest-paying deposits, while interest-paying savings deposits
and total interest-paying demand deposit balances accounted for $154,907,000 of this total.
(4) Includes SuperNOW and Money Market deposit accounts totaling $109,177,000.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rate Balance Rates
<S> <C> <C> <C> <C>
Interest earning assets ... $ 422,755 7.84% $410,426 7.44%
Interest paying liabilities 359,890 4.53 349,836 3.90
Net interest spread ... 3.31 3.54
Net interest margin ... 3.99 4.11
NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rate Balance Rates
Interest earning assets $416,772 7.83% $409,457 7.34%
Interest paying liabilities 353,877 4.41 348,922 3.86
Net interest spread 3.42 3.48
Net interest margin 4.09 4.06
</TABLE>
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TABLE 3
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Registrant's nonaccrual, past due 90 days or
more and restructured loans as to interest or principal payments as of September
30, 1995, and December 31, 1994.
(In Thousands)
September 30, 1995 December 31, 1994
Nonaccrual loans $ 537 $ 1,100
Accruing loans
past due 90
days or more $ 196 $ 60
Restructured
loans None None
As of September 30, 1995, and December 31, 1994, total nonaccrual
loans were comprised primarily of loans collateralized by real estate.
Non-accrual of interest may occur on any loan whenever one or more of
the following criteria is evident: (a) there is substantial
deterioration in the financial position of the borrower; (b) the full
payment of interest and principal can no longer be reasonably
expected; (c) the principal or interest on the loan has been in
default for a period of 90 days. In all cases, loans must be placed on
nonaccural or charged off at an earlier date if collection of
principal or interest is considered doubtful. All interest accrued but
not collected for loans that are placed on nonaccrual or charged off
is reversed to interest income. The interest on these loans is
accounted for on the cash basis or cost recovery method, until
qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable time frame and
when the borrower has demonstrated payment performance of cash or cash
equivalents. Given the number of nonaccrual loans and related
underlying collateral, management does not anticipate any significant
impact to earnings.
The Registrant does not have a significant amount of loans which are
past due less than 90 days on which there are serious doubts as to the
ability of the borrowers to comply with the loan repayment terms.
The Registrant has no individual borrower or borrowers engaged in the
same or similar industry exceeding 10% of total loans. The Registrant
has no other interest-bearing assets, other than loans, that meet the
nonaccrual, past due, restructured or potential problem loan criteria.
The Registrant has no foreign loans outstanding.
A loan is considered restructured when the Company allows certain
concessions to financially troubled debtor that would not normally be
considered. There were no trouble debt restructuring loans for the
reporting periods.
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<TABLE>
<CAPTION>
TABLE 4
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience
for the three and nine month periods ended September 30, 1995 and
September 30, 1994:
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 3,517 $ 3,148 $ 3,354 $ 3,101
Charge-offs:
Commercial, financial
and agricultural $ - $ - $ 18 $ -
Real estate, mortgage - - - 4
Loans to individuals 77 45 190 191
$ 77 $ 45 $ 208 $ 195
Recoveries:
Commercial,
financial and
agricultural $ - $ - $ 17 $ 19
Real estate, mortgage - - 5 5
Loans to individuals 23 14 84 32
$ 23 $ 14 $ 106 $ 56
Net charge-offs $ 54 $ 31 $ 102 $ 139
Provision for
loan losses (1) $ 90 $ 165 $ 301 $ 320
Balance of loan
loss allowance
at end of period $ 3,553 $ 3,282 $ 3,553 $ 3,282
Percentage of net charge-
offs during period
to average net loans
outstanding .02% .01% .03% .05%
<FN>
1) For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for loan losses based upon the
impact of economic conditions on the borrower's ability to repay, past
collection experience, the risk characteristics of the loan portfolio
and such other factors which deserve current recognition.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
TABLE 5
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The September 30, 1995 and December 31, 1994 allowance for loan losses have been
allocated as follows:
(In Thousands, Except for Percentages)
September 30, 1995 December 31, 1994
Allocation Allocation
of Percentage of Percentage
Allowance of Loans Allowance of Loans
Amount by in Amounty by in
Category Category Category Category
<S> <C> <C> <C> <C>
Balance applicable to:
Allocated:
Commercial,
financial
and agricultural $ 471 11% $1,013 11%
Real estate ......... 2,781 73% 1,696 71%
Installment Loans
to individuals . 256 15% 579 17%
Unallocated: ........ 75 1% 66 1%
$3,553 100% $3,354 100%
</TABLE>
Management regularly reviews the loan portfolio and does not expect any
unusual material amount to be charged off during the next year that
would be significantly different than the above years.
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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 thereunto duly authorized.
FIRST FINANCIAL BANCORPORATION
(Registrant)
//s//A. Russell Schmeiser
DATE: November 14, 1995 A. Russell Schmeiser
Executive Vice President,
COO, Treasurer and Secretary
(Duly authorized officer of the
registrant and principal financial
officer)
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