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, 1996 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.
<TABLE>
<CAPTION>
SHARES OUTSTANDING
CLASS AT October 31, 1996
----- -------------------
<S> <C>
Common stock, $1.25 par value 2,331,412
</TABLE>
1
<PAGE>
FIRST FINANCIAL BANCORPORATION
Index to Form 10-Q
Page
PART I - Financial Information Number
Item 1. Financial statements
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
2
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
September 30, December 31,
1996 1995*
------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,058 $ 16,443
Investment securities:
Available for sale (cost 1996 $107,577; December 31, 1995 $123,442) 107,234 123,886
Federal funds sold 1,175 3,225
Loans, net of unearned income $ 329,493 $ 294,529
Less: Allowance for possible loan losses (3,617) (3,602)
--------- ---------
Net loans $ 325,876 $ 290,927
--------- ---------
Bank premises and equipment, net 12,174 12,488
Accrued interest receivable 3,695 3,367
Income tax refund receivable - - 222
Deferred income taxes 225 --
Intangible assets 663 779
Prepaid pension cost 3,184 2,860
Other assets 2,651 3,039
--------- ---------
$ 475,935 $ 457,236
========= =========
LIABILITIES
Noninterest-bearing deposits $ 48,468 $ 46,192
Interest-bearing deposits 351,720 338,863
--------- ---------
Total deposits $ 400,188 $ 385,055
Federal funds purchased and securities sold under agreement to repurchase 3,845 - -
Federal Home Loan advances 16,371 17,469
Other borrowings 14 67
Accrued interest payable 1,463 1,553
Income tax payable 73 --
Deferred income taxes -- 68
Accounts payable and other accrued expenses 2,824 2,817
--------- ---------
$ 424,778 $ 407,029
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1996 2,331,412 shares; 1995 2,383,241 shares (Note 5) $ 2,914 $ 2,979
Additional paid-in capital 2,606 4,095
Retained earnings 45,852 42,854
Unrealized gains (losses) on debt securities, net (215) 279
--------- ---------
$ 51,157 $ 50,207
--------- ---------
$ 475,935 $ 457,236
========= =========
*Condensed from audited financial statements.
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1996 and 1995
(Amounts in Thousands, Except per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,718 $ 6,199 $19,164 $18,273
Interest on investment securities
Taxable 1,334 1,331 4,235 3,846
Nontaxable 369 350 1,098 1,033
Interest on federal funds sold 47 208 304 478
------- ------- ------- -------
Total interest income $ 8,468 $ 8,088 $24,801 $23,630
------- ------- ------- -------
Interest expense:
Interest on deposits $ 3,862 $ 3,804 $11,459 $10,746
Interest on federal funds purchased and
securities sold under agreements to repurchase 37 - - 49 13
Interest on Federal Home Loan Bank advances 254 304 776 914
Interest on other borrowings - - - - - - - -
------- ------- ------- -------
Total interest expense $ 4,153 $ 4,108 $12,284 $11,673
------- ------- ------- -------
Net interest income $ 4,315 $ 3,980 $12,517 $11,957
Provision for loan losses 86 90 239 301
------- ------- ------- -------
Net interest income after provision
for loan losses $ 4,229 $ 3,890 $12,278 $11,656
------- ------- ------- -------
Noninterest income:
Trust fees $ 742 $ 713 $ 2,250 $ 2,130
Service charges and fees on deposit accounts 465 368 1,360 1,071
Other service charges, commissions and fees 542 641 1,663 1,444
Investment gains (losses), net (129) - - (129)
Other real estate owned gains (losses), net ( 2) - - ( 2)
------- ------- ------- -------
$ 1,618 $ 1,722 $ 5,142 $ 4,645
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits $ 1,634 $ 1,787 $ 4,923 $ 5,554
Occupancy furniture and equipment 667 680 2,012 2,073
Data processing 340 290 927 822
Office supplies and postage 280 257 820 775
Other expenses 962 577 2,407 2,141
------- ------- ------- -------
$ 3,883 $ 3,591 $11,089 $11,365
------- ------- ------- -------
Income before income taxes $ 1,964 $ 2,021 $ 6,331 $ 4,936
Federal and state income taxes 580 602 1,899 1,380
------- ------- ------- -------
Net Income $ 1,384 $ 1,419 $ 4,432 $ 3,556
======= ======= ======= =======
Average common stock and common equivalent shares 2,347,767 2,393,576 2,368,940 2,393,502
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 5) $ .59 $ .59 $ 1.87 $ 1.49
======= ======= ======= =======
Dividends per common share $ .22 $ .195 $ .61 $ .565
======= ======= ======= =======
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30, 1996 and 1995
(Amounts in Thousands)
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,432 $ 3,556
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 793 943
Amortization 116 (134)
Provision for loan losses 239 125
Amortization of investment security discount 108 301
(Increase) decrease in accrued interest receivable (328) - -
(Increase) in prepaid pension costs (324) (489)
(Increase) in other assets 388 (1,315)
Increase (decrease) in accrued interest and other liabilities ( 83) 419
Change in accrued income taxes 295 238
-------- --------
Net cash provided by operating activities $ 5,636 $ 3,644
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 15,218 $ 20,247
Sales 13,502 - -
Purchases (12,963) (33,704)
Held to maturity securities:
Maturities - - 5,310
Purchases - - (3,064)
Fed funds sold, net 2,050 (6,725)
Net (increase) decrease in loan balances outstanding (35,188) 438
Purchases of bank premises and equipment (479) (1,728)
-------- --------
Net cash (used in) investing activities $(17,860) $(19,226)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 15,133 $ 22,215
Federal funds purchased and securities sold under agreement
to repurchase 3,845 (3,200)
Repayment of other borrowings (53) - -
Repayment of note principal - - (161)
Federal Home Loan Bank advances (1,098) (794)
Dividends paid (1,434) (1,346)
Stock options exercised 434 248
Common stock redeemed (290) (69)
Common stock purchased (1,698) - -
-------- --------
Net cash provided by financing activities $ 14,839 $ 16,893
-------- --------
Increase in cash and due from banks $ 2,615 $ 1,311
CASH AND DUE FROM BANKS
Beginning balance 16,443 13,196
-------- --------
Ending balance $ 19,058 $ 14,507
======== ========
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Nine Months
Ended September 30, 1996 and 1995
(Amounts in Thousands)
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid to depositors, on note payable,
on federal funds purchased and securities
sold under agreements to repurchase $ 12,374 $ 11,469
Income Taxes 1,283 974
Noncash transactions:
Net unrealized gains (losses) on debt securities (787) (2,117)
Deferred income taxes on unrealized gains (losses)
on debt securities (239) (790)
Other real estate owned property
received in satisfaction of debt 157 - -
See Notes to Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended Unrealized
September 30, 1996 and year ended Common Stock Additional gains (losses)
December 31, 1995 (In Thousands $1.25 Par Value Paid-In Retained on debt
of Dollars, Except Per Share Data) Number Amount Capital Earnings securities, net Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,374 $ 2,967 $ 3,928 $ 40,095 $ (1,745) $ 45,245
Net income - - - - - - 4,570 - - 4,570
Cash dividends ($.76 per share) - - - - - - (1,811) - - (1,811)
Stock options exercised for
12,087 shares 12 15 233 - - - - 248
Redemption of 2,772 shares of
common stock (3) (3) (66) - - - - (69)
Unrealized gains on debt securities,
net of deferred tax effect - - - - - - - - 2,024 2,024
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1995 2,383 $ 2,979 $ 4,095 $ 42,854 $ 279 $ 50,207
Net income - - - - - - 4,432 - - 4,432
Cash dividends ($.61 per share) - - - - - - (1,434) - - (1,434)
Stock options exercised for 21,200 shares 21 26 408 - - - - 434
Redemption of 11,375 shares of common stock (11) (14) (276) - - - - (290)
Purchase of 61,654 shares of common
stock (Note 5) (62) (77) (1,621) - - - - (1,698)
Unrealized (losses) on debt securities,
net of deferred tax effect - - - - - - - - (494) (494)
- -------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 2,331 $ 2,914 $ 2,606 $ 45,852 $ (215) $ 51,157
======== ======== ======== ======== ========= ========
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1996 and 1995
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 1996 and 1995,
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. In the first six months of 1996,
the Company purchased 61,654 shares of its common stock under a
repurchase plan which authorizes up to 120,000 shares to be
repurchased through January 31, 1997. 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.
8
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
The following table summarizes As of
impaired loan information. September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Impaired loans $342
Impaired loans with related reserve for
loan losses calculated under SFAS 114 342
Amount of reserve for loan losses allocated
to the impaired loan balance 53
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Nine Months Ended
September 30,1996 September 30, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans $319 $295
Cash basis interest
income recognized on
impaired loans 7 40
Interest income that
would have been recorded
during the period on non-
accrual loans 10 25
- -------------------------------------------------------------------------------------------------------
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.
</TABLE>
9
<PAGE>
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, 1996 was
$1,384,000 and $4,432,000, respectively, representing a decrease of $35,000 or
2.5% and an increase of $876,000 or 24.6% when compared to the same prior year
periods. Net interest income after provision for loan losses increased $339,000
or 8.7% to $4,229,000 in the third quarter of 1996 and $622,000 or 5.3% to
$12,278,000 in the first nine months of 1996 when compared to the same periods
of 1995 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 $513,000 and $1,434,000, respectively, for
the third quarter and first nine months of 1996, which compares favorably to the
$465,000 and $1,346,000 of dividends paid for the same periods in 1995. A $.22
cash dividend was paid per outstanding share of common stock in the third
quarter of 1996 compared to $.195 in 1995. In the first nine months of 1996, the
per share stock dividend paid totaled $.61 compared to $.565 in 1995. This
represented a year-to-date increase of $.045 or 8% per outstanding share of
common stock and $88,000 or 6.5% in total cash dividends paid. For the third
quarter of 1996 the per share cash dividend increased $.025 or 12.8% and $48,000
or 10.3% in total dividends paid.
NET INTEREST INCOME
For the three and nine month periods ended September 30, 1996, net interest
income after provision for loan losses increased $339,000 or 8.7% to $4,229,000
and $622,000 or 5.3% to $12,278,000. The most significant factor contributing to
this increase in net interest income was loan growth. During the same periods,
the provision for loan losses decreased $4,000 or 4.4% to $86,000 and $62,000 or
20.6% to $239,000. This reduction in the provision is directly related to
decreased nonaccrual loan balances.
Net interest income, on a fully tax-equivalent basis, increased $349,000 or 8.2%
to $4,597,000 in the third quarter of 1996 and increased $552,000 or 4.3% to
$13,295,000 in the first nine months of 1996 when compared to the same periods
of 1995. The consolidated net interest spread and margin are presented in Table
2 for the three and nine month periods ended September 30, 1996 and 1995.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As of September 30, 1996, the allowance for possible loan losses was 1.10% of
total outstanding loans compared to 1.22% as of December 31, 1995. As of
September 30, 1995 this ratio was 1.21%. During the third quarter of 1996 the
Company recorded net charged-off loans totaling $104,000 compared to $54,000 for
the same period in 1995. Year-to-date net charged-off loans totaled $224,000 in
1996 compared to net charged-off loans of $102,000 in 1995. This increase is the
result of higher levels of real estate and consumer loans charged-off. This
trend is expected to continue but is not anticipated to materially impact future
earnings through increased provision. The provision for the third quarter and
first nine months of 1996 was $86,000 and $239,000, respectively, compared to
$90,000 and $301,000 for the same periods in 1995. The provision decreased as
did nonaccrual loan balances which decreased from $537,000 as of September 30,
1995 to $342,000 as of September 30, 1996.
NONINTEREST INCOME
Noninterest income for the third quarter and first nine months of 1996 totaled
$1,618,000 and $5,142,000, respectively. These totals decreased $104,000 or 6%
and increased $497,000 or 10.7% when compared to 1995 totals. Service charges
and fees on deposit accounts, for the same periods, increased $97,000 or 26.4%
to $465,000 and $289,000 or 27% to $1,360,000. Other service charges,
commissions and fees decreased $99,000 or 15.4% for the quarter, but increased
$219,000 or 15.2% year to date. Included in this category are secondary market
mortgage loan fees which decreased $114,000 or 49.4% for the quarter and
increased $98,000 or 28.5% year to date as of September 30, 1996. The volume of
10
<PAGE>
secondary market mortgage loans was substantially higher in the first half of
1996 and lower in the third quarter when compared to 1995, due to changes in
market interest rates. Included in noninterest income was a reduction for
investment security losses realized in the third quarter from the sale of lower
yielding investments which were sold to fund higher-yielding loans.
NONINTEREST EXPENSES
For the three and nine months ending September 30, 1996, noninterest expenses
totaled $3,883,000 and $11,089,000. These expense totals were $292,000 or 8.1%
above and $276,000 or 2.4% below 1995 period totals. Staff reductions associated
with attrition and a voluntary severance program were the major contributing
factors for decreased salaries and employee benefits expenses of $153,000 or
8.6% to $1,634,000 during the third quarter of 1996 and $631,000 or 11.4% to
$4,923,000 as of September 30, 1996. FDIC insurance expense is included in other
expenses, which increased $277,000 in the third quarter of 1996 and decreased
$62,000 through September 30, 1996. The majority of the third quarter increase
is the result of legislation which was passed by Congress to recapitalize the
Savings Association Insurance Fund (SAIF). This one-time assessment on the
deposits of the Cedar Rapids bank amounted to a pre-tax expense of $265,000. Due
to reductions in the 1996 assessment rates on the deposits of the Iowa City
bank, year-to-date FDIC expense has decreased.
INCOME TAXES
Year-to-date income tax expense as of September 30, 1996 totaled $1,899,000,
which is an increase of $519,000 or 37.6% from last years tax expense of
$1,380,000 as of September 30, 1995. For the third quarter of 1996 income tax
expense decreased $22,000 or 3.7% to $580,000 from the $602,000 reported as of
September 30, 1995. The increase in year-to-date income tax expense is relative
to the increase in pre-tax income. The primary reason for the decrease in tax
expense in the third quarter of 1996 was the result of a one-time SAIF
assessment. The total of the assessment amounted to $265,000 and reduced tax
expense approximately $99,000. Under the Company's statutory federal and state
tax rates of 34% and 5%, respectively, year-to-date and quarterly federal tax
expense was $1,578,000 and $480,000 while state tax expense was $321,000 and
$100,000.
FINANCIAL POSITION
TOTAL ASSETS
Total assets as of September 30, 1996, were $475,935,000 which is an increase of
$19,169,000 or 4.2% over total assets of $456,766,000 as of September 30, 1995.
This asset growth was funded primarily by increased deposit balances of
$15,710,000 or 4.1% and increased federal funds purchased of $3,345,000. The
funds were used to finance new loans and loan advances. Since September 30,
1995, loan balances increased $35,326,000 or 12% to $329,493,000.
TOTAL LOAN BALANCES
Total loan balances increased by $35,326,000 or 12% to $329,493,000 as of
September 30, 1996 when compared to balances of $294,167,000 as of September 30,
1995, and increased $34,964,000 or 11.9% when compared to loan balances of
$294,529,000 as of December 31, 1995. The majority of this growth was in real
estate loan balances which increased $37,739,000 or 16.4%, to $267,238,000 as of
September 30, 1996 when compared to loan totals of the prior year. Since
December 31, 1995 real estate loan balances increased $32,420,000 or 13.8%.
TOTAL DEPOSITS
Since September 30, 1995, total deposits have increased $15,710,000 or 4.1% to
$400,188,000 as of September 30, 1996. Since December 31, 1995, total deposits
have increased $15,133,000 or 3.9%. Both of these increases were primarily as a
result of increased demand deposit and money market deposit balances.
11
<PAGE>
CAPITAL POSITION
A Company's strength and soundness 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, 1996 was $54,774,000 which is up
$2,260,000 or 4.3% from total capital of $52,514,000 as of September 30, 1995.
The ratio of total capital to total assets as of September 30, 1996, is 11.42%,
which is up .01% from the September 30, 1995, ratio of 11.41%. Total capital
growth surpassed total asset growth which resulted in the higher
capital-to-total asset ratio.
As of quarter-end September 30, 1996, the Company's Tier I capital ratio is
17.01% and its total risk adjusted capital ratio (Tier I plus Tier II) is
18.22%, compared to the respective September 30, 1995 quarter-end ratios of
18.17% and 19.40%. The decrease in the above ratios is due to a shift of assets
from investments, in the 0% risk weighting category, to loans which are in the
50% and 100% risk weighting categories. These ratios continue to exceed the
regulatory minimums of 4.0 percent for Tier I and 8.0 percent for total risk
adjusted capital. The Company's total leverage capital ratio was 11.53% as of
September 30, 1996, compared to 11.47% at September 30, 1995, which is substant-
ially higher than the 3% regulatory floor. The increase in the leverage ratio is
primarily due to growth in total capital at a faster rate than the growth of
quarterly average total assets.
CAPITAL EXPENDITURES
Approximately $479,000 has been expended year-to-date for capital assets. The
majority of these expenditures were related to general capital expenditures and
the carry-over of final completion costs for the North Liberty and Iowa City
offices.
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.
12
<PAGE>
EFFECT OF INFLATION
While it is the policy of the Company to minimize the effect of inflation,
inflation can and does affect the level of asset growth during the year as well
as the various components of the income statement. The ability of the Company to
position itself to minimize the affect of inflation through its asset and
liability management programs, cost controls and responsive pricing changes.
Reference to the discussions herein of the Liquidity, Net Interest Income,
Noninterest Income and Noninterest Expense sections will address any material
inflationary concerns.
CHANGE IN ACCOUNTING PRINCIPLE
None.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See Exhibit Index on Page 15
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K in the last three calendar months.
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 Exhibits Form 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
27 Financial Data Schedule as of September 30, 1996 **
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 Restructured Loans 17
Table 4 - Summary of Loan Loss Experience 18
Table 5 - Allocation of the Allowance for Loan Losses 19
** Filed herewith.
13
<PAGE>
<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,
------------------------ ------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares of common stock, beginning (Note 5) 2,347,262 2,383,241 2,383,241 2,373,926
========= ========= ========= =========
Shares of common stock, ending 2,331,412 2,383,241 2,331,412 2,383,241
========= ========= ========= =========
Computation of weighted average number of common
and common equivalent shares:
Common shares outstanding at the
beginning of the year 2,347,262 2,383,241 2,383,241 2,373,926
Weighted average number of
shares issued - - - - 18,879 10,759
Weighted average of the
common shares redeemed (Note 5) (11,139) - - (42,502) (2,467)
Weighted average of the common equivalent shares
attributable to stock options granted, computed
under the treasury stock method 11,644 10,335 9,322 11,284
--------- --------- --------- ---------
Weighted average number of common and
common equivalent shares (Note 5) 2,347,767 2,393,576 2,368,940 2,393,502
========= ========= ========= =========
Earnings and earnings per common and common
equivalent share: (Note 5)
Net income (in thousands) $1,384,000 $1,419,000 $4,432,000 $3,556,000
========== ========== ========== ==========
Earnings per common and
common equivalent share $ .59 $ .59 $ 1.87 $ 1.49
========== ========== ========== ==========
Dividends $ .22 $ .195 $ .61 .565
========== ========== ========== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
September 30, 1996
-----------------------------------------------------------------
MONTHS
---------------------------
After Three After One
Within Through Through Non-
(Dollars in Thousands) Three Twelve Five Years sensitive Total
------------------------------------------- ------------ ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 1,175 $ - - $ - - $ - - $ 1,175
Investment securities 25,079 13,282 40,792 28,081 107,234
Loans 46,671 80,431 178,935 23,456 329,493 (2)
Total interest earning assets 72,925 93,713 219,727 51,537 437,902
Interest paying liabilities:
Deposits 84,752 (1) 78,008 74,912 114,048 (1) 351,720 (3)
Federal funds purchased 3,845 - - - - - - 3,845
Long-term debt 4,014 1,150 11,121 100 16,385
Total interest paying liabilities 92,611 79,158 86,033 114,148 371,950
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 29,410 29,410
Other assets, liabilities and equity net - - - - - - 36,542 36,542
Total noninterest rate sensitive assets
and liabilities - - - - - - 65,952 65,952
INTEREST SENSITIVE GAP (19,686) 14,555 133,694 128,563 - -
CUMULATIVE GAP (19,686) (5,131) 128,563 - - - -
CUMULATIVE % OF SENSITIVE 79% 97% 150% - - - -
ASSETS TO LIABILITIES
<FN>
(1) Based on an historical analysis of NOW, SuperNow, Savings and Money Market account balances, covering a seven year period
running from March, 1989 through December, 1995, a percentage of these deposit balances has been determined to be sensitive
to changes in interest rates. Respectively, approximately 30%, 50%, 30%, and 25% of these deposit balances were determined
to be interest rate sensitive. As such, these percentages of interest rate sensitive deposit balances were classified in the
first column titled "Within three months" and totaled $48,461,000. The remainder of the balances were classified as non-
interest rate sensitive deposit balances and placed in the last column titled "Non-sensitive" and totalled $113,963,000.
(2) Of the $329,493,000 of total loans, $172,455,000 have fixed rates, while $157,038,000 have variable rates.
(3) Certificates of deposit comprise $189,296,000 of total interest paying deposits, while interest-paying demand deposits and
savings deposit balances accounted for $162,424,000 of this total.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
-----------------------------------------------------------------
September 30, 1996 September 30, 1995
----------------------------- ---------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest earning assets $ 437,891 7.93% $ 422,755 7.84%
Interest paying liabilities 369,548 4.41 359,890 4.53
Net interest spread 3.52 3.31
Net interest margin 4.21 3.99
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------------------------
September 30, 1996 September 30, 1995
----------------------------- ---------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest earning assets $ 432,630 7.89% $ 416,772 7.83%
Interest paying liabilities 366,715 4.47 353,877 4.41
Net interest spread 3.42 3.42
Net interest margin 4.09 4.09
</TABLE>
16
<PAGE>
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, 1996 and September 30, 1995.
<TABLE>
<CAPTION>
(In Thousands)
--------------------------------------
September 30,1996 September 30, 1995
----------------- ------------------
<S> <C> <C>
Nonaccrual loans $ 342 $ 537
Accruing loans
past due 90
days or more $ 833 $ 196
Restructured
loans None None
</TABLE>
As of September 30, 1996 and September 30, 1995 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
nonaccrual 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.
17
<PAGE>
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, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
(In Thousands) (In Thousands)
------------------------------ ------------------------------
Three Months Ended Nine Months Ended
September 30,1996 September 30,1996
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 3,636 $ 3,517 $ 3,602 $ 3,354
------------ ------------ ------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ 8 $ - - $ 15 $ 18
Real estate, mortgage - - - - 76 - -
Loans to individuals 107 77 176 190
------------ ------------ ------------ ------------
$ 115 $ 77 $ 267 $ 208
------------ ------------ ------------ ------------
Recoveries:
Commercial,
financial and
agricultural $ 2 $ - - $ 7 $ 17
Real estate, mortgage 1 - - 1 5
Loans to individuals 7 23 35 84
------------ ------------ ------------ ------------
$ 10 $ 23 $ 43 $ 106
------------ ------------ ------------ ------------
Net charge-offs $ 105 $ 54 $ 224 $ 102
------------ ------------ ------------ ------------
Provision for
loan losses (1) $ 86 $ 90 $ 239 $ 301
------------ ------------ ------------ ------------
Balance of loan
loss allowance
at end of period $ 3,617 $ 3,553 $ 3,617 $ 3,553
============ ============ ============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .03% .02% .07% .03%
============ ============ ============ ===========
<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>
18
<PAGE>
TABLE 5
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The September 30, 1996 and September 30, 1995 allowance for loan losses have
been allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
September 30, 1996 September 30, 1995
------------------------------------- -----------------------------------
Allocation Allocation
of Percentage of Percentage
Allowance of Loans Allowance of Loans
Amount by in Amount by in
Category Category Category Category
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance applicable to:
Allocated:
Commercial,
financial
and agricultural $1,011 11% $ 471 11%
Real estate 1,956 73 2,751 73
Installment Loans
to individuals 315 15 256 15
Unallocated: 335 1 75 1
---------- ---------- ---------- ----------
$3,617 100% $3,553 100%
========== ========== ========== ==========
</TABLE>
Management regularly reviews the loan portfolio and does not expect any unusual
material amount to be charged off in the future which would be significantly
different than the above historical experience.
19
<PAGE>
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)
November 11, 1996 //S//A.Russell Schmeiser
------------------------- --------------------------------------
DATE A. Russell Schmeiser
Executive Vice President and COO
(Duly authorized officer of the
registrant and principal financial
officer)
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,058
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,175
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 107,234
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 329,493
<ALLOWANCE> 3,617
<TOTAL-ASSETS> 475,935
<DEPOSITS> 400,188
<SHORT-TERM> 3,859
<LIABILITIES-OTHER> 4,360
<LONG-TERM> 16,371
0
0
<COMMON> 2,914
<OTHER-SE> 48,243
<TOTAL-LIABILITIES-AND-EQUITY> 475,935
<INTEREST-LOAN> 19,164
<INTEREST-INVEST> 5,333
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 24,801
<INTEREST-DEPOSIT> 11,459
<INTEREST-EXPENSE> 12,284
<INTEREST-INCOME-NET> 12,517
<LOAN-LOSSES> 239
<SECURITIES-GAINS> 129
<EXPENSE-OTHER> 2,407
<INCOME-PRETAX> 6,331
<INCOME-PRE-EXTRAORDINARY> 6,331
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,432
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> 4.09
<LOANS-NON> 342
<LOANS-PAST> 833
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10
<ALLOWANCE-OPEN> 3,602
<CHARGE-OFFS> 267
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 3,617
<ALLOWANCE-DOMESTIC> 3,617
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 335
</TABLE>
