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 June 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 July 31, 1996
----- -------------------
<S> <C>
Common stock, $1.25 par value 2,336,912
</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 - 20
Signatures 21
2
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 30, December 31,
1996 1995*
----------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,615 $ 16,443
Investment securities:
Available for sale (cost 1996 $122,989; December 31, 1995 $123,442) 122,308 123,886
Federal funds sold 625 3,225
Loans, net of unearned income $ 308,991 $ 294,529
Less: Allowance for possible loan losses (3,636) (3,602)
--------- ---------
Net loans $ 305,355 $ 290,927
--------- ---------
Bank premises and equipment, net 12,400 12,488
Accrued interest receivable 3,572 3,367
Income tax refund receivable -- 222
Deferred income taxes 351 --
Intangible assets 701 779
Prepaid pension cost 3,089 2,860
Other assets 2,857 3,039
--------- ---------
$ 467,873 $ 457,236
========= =========
LIABILITIES
Noninterest-bearing deposits $ 44,872 $ 46,192
Interest-bearing deposits 343,080 338,863
--------- ---------
Total deposits $ 387,952 $ 385,055
Federal funds purchased and securities sold under agreement to repurchase 8,625 --
Federal Home Loan advances 16,688 17,469
Other borrowings -- 67
Accrued interest payable 1,460 1,553
Income tax payable 169 --
Deferred income taxes -- 68
Accounts payable and other accrued expenses 2,451 2,817
--------- ---------
$ 417,345 $ 407,029
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1996 2,347,262 shares; 1995 2,383,241 shares (Note 5) $ 2,934 $ 2,979
Additional paid-in capital 3,041 4,095
Retained earnings 44,980 42,854
Unrealized gains (losses) on debt securities, net (427) 279
--------- ---------
$ 50,528 $ 50,207
--------- ---------
$ 467,873 $ 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 Six Months Ended June 30, 1996 and 1995
(Amounts in Thousands, Except per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,250 $ 6,125 $12,446 $12,074
Interest on investment securities
Taxable 1,451 1,275 2,901 2,515
Nontaxable 366 345 729 683
Interest on federal funds sold 115 200 257 270
------- ------- ------- -------
Total interest income $ 8,182 $ 7,945 $16,333 $15,542
------- ------- ------- -------
Interest expense:
Interest on deposits $ 3,793 $ 3,640 $ 7,597 $ 6,939
Interest on federal funds purchased and
securities sold under agreements to repurchase 11 3 12 16
Interest on Federal Home Loan Bank advances 260 306 522 610
------- ------- ------- -------
Total interest expense $ 4,064 $ 3,949 $ 8,131 $ 7,565
------- ------- ------- -------
Net interest income $ 4,118 $ 3,996 $ 8,202 $ 7,977
Provision for loan losses 81 111 153 211
------- ------- ------- -------
Net interest income after provision
for loan losses $ 4,037 $ 3,885 $ 8,049 $ 7,766
------- ------- ------- -------
Noninterest income:
Trust fees $ 751 $ 709 $ 1,508 $ 1,417
Service charges and fees on deposit accounts 500 378 895 703
Other service charges, commissions and fees 567 453 1,121 803
------- ------- ------- -------
$ 1,818 $ 1,540 $ 3,524 $ 2,923
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits $ 1,560 $ 1,920 $ 3,289 $ 3,767
Occupancy furniture and equipment 670 707 1,345 1,393
Data processing 318 269 587 532
Office supplies and postage 267 268 540 518
Other expenses 708 809 1,445 1,564
------- ------- ------- -------
$ 3,523 $ 3,973 $ 7,206 $ 7,774
------- ------- ------- -------
Income before income taxes $ 2,332 $ 1,452 $ 4,367 $ 2,915
Federal and state income taxes 714 386 1,319 778
------- ------- ------- -------
Net Income $ 1,618 $ 1,066 $ 3,048 $ 2,137
======= ======= ======= =======
Average common stock and common equivalent shares 2,366,695 2,393,617 2,379,040 2,392,487
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 5) $ .68 $ .45 $ 1.28 $ .89
======= ======= ======= =======
Dividends per common share $ .195 $ .185 $ .39 $ .37
======= ======= ======= =======
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
June 30, 1996 and 1995
(Amounts in Thousands)
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,048 $ 2,137
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 489 611
Amortization 78 83
Provision for loan losses 153 211
Amortization of investment security discount 245 75
(Increase) decrease in accrued interest receivable (205) 209
(Increase) in prepaid pension costs (229) - -
(Increase) in other assets 182 (2,405)
Increase (decrease) in accrued interest and other liabilities (459) 271
Change in accrued income taxes 391 140
-------- --------
Net cash provided by operating activities $ 3,693 $ 1,332
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 10,029 $ 15,132
Purchases (9,822) (10,579)
Held to maturity securities:
Maturities - - 4,317
Purchases - - (2,070)
Fed funds sold, net 2,600 (11,225)
Net (increase) decrease in loan balances outstanding (14,581) (1,471)
Purchases of bank premises and equipment (400) (1,184)
-------- --------
Net cash (used in) investing activities $(12,174) $( 7,080)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 2,897 $ 12,906
Federal funds purchased and securities sold under agreement
to repurchase 8,625 (3,200)
Repayment of other borrowings (67) - -
Repayment of note principal - - (161)
Federal Home Loan Bank advances (781) (479)
Dividends paid (922) (882)
Stock options exercised 434 248
Common stock redeemed (290) (69)
Common stock purchased (1,243) - -
-------- --------
Net cash provided by financing activities $ 8,653 $ 8,363
-------- --------
Increase in cash and due from banks $ 172 $ 2,615
CASH AND DUE FROM BANKS
Beginning balance 16,443 13,196
-------- --------
Ending balance $ 16,615 $ 15,811
======== ========
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Three Months
Ended June 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 $ 8,224 $ 7,463
Income Taxes 866 534
Noncash transactions:
Net unrealized gains (losses) on debt securities (1,126) 1,705
Deferred income taxes on unrealized gains (losses)
on debt securities (420) 636
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
Six months ended Unrealized
June 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 - - - - - - 3,048 - - 3,048
Cash dividends ($.39 per share) - - - - - - (922) - - (922)
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 45,804 shares of common
stock (Note 5) (46) (57) (1,186) - - - - (1,243)
Unrealized (losses) on debt securities,
net of deferred tax effect - - - - - - - - (706) (706)
- -------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1996 2,347 $ 2,934 $ 3,041 $ 44,980 $ (427) $ 50,528
======== ======== ======== ======== ========= ========
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 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 45,804 shares of its common stock under a
repurchase plan which authorizes up to 120,000 shares to be
repurchased through July 31, 1996. 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. June 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Impaired loans $395
Impaired loans with related reserve for
loan losses calculated under SFAS 114 395
Amount of reserve for loan losses allocated
to the impaired loan balance 68
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
June 30,1996 June 30, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans $339 $283
Cash basis interest
income recognized on
impaired loans 15 33
Interest income that
would have been recorded
during the period on non-
accrual loans 10 15
- -------------------------------------------------------------------------------------------------------
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 six month periods ended June 30, 1996 was
$1,618,000 and $3,048,000, respectively, representing an increase of $552,000 or
51.8% and $911,000 or 42.6% below the level of net income recorded in the same
prior year periods.
DIVIDEND INFORMATION
Cash dividends totaling $459,000 and $922,000 were paid, respectively, for the
second quarter and first half of 1996, which compares favorably to the $441,000
and $882,000 of dividends paid for the same periods in 1995. A $.195 cash
dividend was paid per outstanding share of common stock in the second quarter of
1996 compared to $.185 in 1995. In the first half of 1996, the per share stock
dividend was $.39 compared to $.37 in 1995. This represented an increase of $.02
or 5.4% per outstanding share of common stock and $40,000 or 4.5% in total cash
dividends paid. For the second quarter of 1996 the per share cash dividend
increased $.01 or 5.4% and $18,000 or 4.1% in total cash dividends paid. 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 minimum capital criteria will not be restrictive.
NET INTEREST INCOME
For the three and six month periods ended June 30, 1996, net interest income
after provision for loan losses, increased $152,000 or 3.9% to $4,037,000 and
$283,000 or 3.6% to $8,049,000, respectively, when compared to 1995 period
totals. The primary factor contributing to this increase in net interest income
was asset growth. During the same periods, the provision for loan losses
decreased $30,000 or 27% to $81,000 and $58,000 or 27.5% to $153,000. This
reduction in the provision is directly related to decreased nonaccrual loan
balances.
Net interest income, on a fully tax-equivalent basis, increased $155,000 or 3.6%
to $4,412,000 in the second quarter of 1996 and $248,000 or 2.9% to $8,755,000
in the first half of 1996 when compared to the same periods of 1995. The
increase in fully taxable equivalent net interest income was attributed to asset
growth. The consolidated net interest spreads and margins are presented in Table
2 for the three and six month periods ended June 30, 1996 and 1995.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
When compared to 1995, the provision for loan losses decreased $30,000 or 27% to
$81,000 and $58,000 or 27.5% to $153,000 for the three and six months periods
ending June 30, 1996. The dollar amount of nonaccrual loans decreased from
$671,000 as of June 30, 1995 to $395,000 as of June 30, 1996. The decrease in
the provision is primarily due to the reduction in nonaccrual loan balances.
As of June 30, 1996, the allowance for possible loan losses was 1.18% of total
outstanding loans compared to 1.22% as of December 31, 1995. As of June 30, 1995
this ratio was 1.19%. During the second quarter of 1996 the Company recorded net
charged off loans totaling $56,000 compared to $26,000 for the same period in
1995. Year-to-date net charged off loans totaled $119,000 in 1996 compared to
$48,000 in 1995.
NONINTEREST INCOME
Noninterest income for the second quarter and first half of 1996 totaled
$1,818,000 and $3,524,000, respectively. These totals increased $278,000 or
18.1% and $601,000 or 20.6% when compared to 1995 totals. Service charges and
fees on deposit accounts for the same periods, increased $122,000 or 32.3% to
$500,000 and $192,000 or 27.3% to $895,000. Other service charges, commissions
and fees increased $114,000 or 25.2% and $318,000 or 39.6%. Included in this
category are secondary market mortgage loan fees, which increased $64,000 or
69.4% for the quarter and $212,000 or 187.4% year to date as of June 30, 1996.
The volume of secondary market mortgage loans was substantially higher in the
first quarter and half of 1996, compared to 1995, because of lower interest
rates.
10
<PAGE>
NONINTEREST EXPENSES
For the second quarter and first half of 1996, noninterest expenses totaled
$3,523,000 and $7,206,000. These expense totals were $450,000 or 11.3% and
$568,000 or 7.3% below 1995 period totals. Staff reductions associated with
attrition and a voluntary severance program were the major contributing factors.
As a result, salaries and employee benefits decreased $360,000 or 18.8% to
$1,560,000 during the second quarter and $478,000 or 12.7% to $3,767,000 as of
June 30, 1996. FDIC insurance expense is included in other expenses, which
decreased $101,000 or 12.5% in the first quarter of 1996 and $119,000 or 7.6%
through June 30, 1996.
INCOME TAXES
Income tax expense totaled $714,000 and $1,319,000 for the three and six month
periods ending as of June 30, 1996. This is an increase of $328,000 or 85% and
$541,000 or 69.5% when compared to last year's tax expense of $386,000 and
$778,000, for the three and six months periods ending June 30, 1995. Under
Company's statutory tax rates of 34% and 5% year-to-date 1996 federal tax
expense was $1,098,000 and state tax expense was $221,000.
FINANCIAL POSITION
TOTAL ASSETS
Total assets of June 30, 1996 were $467,873,000 which is an increase of
$21,560,000 or 4.8% over total assets of $446,313,000 as of June 30, 1995. This
asset growth was funded primarily by increased deposit balances of $12,783,000
or 3.4% and increased Federal funds purchased of $8,625,000. These sources of
funds were primarily used to purchase investment securities and fund loan
demand. Since June 30, 1995 investment securities balances increased
$18,249,000 or 17.5% to $122,308,000 as of June 30, 1996. During the same
period, loan balances increased $12,861,000 or 4.3% to $308,991,000.
TOTAL LOAN BALANCES
Total loan balances increased by $14,462,000 or 4.9% to $308,991,000 as of June
30, 1996 when compared to the balances of $294,529,000 as of December 31, 1995
and $12,861,000 or 4.3% when compared to June 30, 1995 balances of $296,130,000.
The majority of this increase was provided by growth in real estate loan
balances which were up #11,304,000 or 4.8% over year end totals and up
$15,736,000 or 6.8% over last year's totals.
TOTAL DEPOSITS
Since December 31, 1995, total deposits increased $2,897,000 or .8% to
$387,952,000 as of June 30, 1996. All of this increase was in interest-bearing
balances. When compared to last year at this date, total deposit balances have
increased $12,783,000 or 3.4%, with the majority of the increase in
interest-bearing balances.
CAPITAL POSITION
Stockholders' Equity as of June 30, 1996 was $50,528,000, which is is up
$321,000 or .6% from the $50,207,000 reported as of December 31, 1995 and
$2,780,000 or 5.8% from the $47,748,000 reported as of June 30, 1995. The ratio
of total capital-to-total assets as of June 30, 1996 is 11.5% which is down .2%
or 1.7% since December 31, 1995 and up .1% or .9% from the June 30, 1995 ratio
of 11.4%. During the past year total capital increased $2,899,000 or 5.7% since
June 30, 1995 and $355,000 or .7% since December 31, 1995, compared to total
asset growth of $21,679,000 or 4.8% and $10,671,000 or 2.3% resulting in the
changes to these ratios. As of June 30, 1996 this ratio is substantially higher
than the current Federal Reserve guideline of 6.0%.
As of June 30, 1996, the Company's Tier I capital ratio is 17.79% and its total
risk adjusted capital ratio (Tier I plus Tier II) is 18.98%, compared to the
respective June 30, 1995 ratios of 17.81% and 19.04%. These ratios exceed the
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 11.49% as of June 30,
1996, compared to 11.34% at June 30, 1995, which is substantially higher than
the 3% regulatory floor.
11
<PAGE>
CAPITAL EXPENDITURES
For the quarter ending June 30, 1996 the Company recorded capital expenditures
totaling approximately $133,000 and year-to-date capital expenditures totaling
approximately $400,000. The majority of these expenditures were related to
general capital expenditures and the final expenditures required to complete 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 the repricing dates of the Company's interest-earning assets and
interest-paying liabilities as of June 30, 1996. This table indicates that the
Company is liability sensitive within a twelve-month time frame. 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 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 Company 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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held at 4:30 P.M.
local time on Tuesday, April 9, 1996, at the Main Office of the First National
Bank, Iowa city, Iowa, at 204 E. Washington Street, Iowa City, Iowa 52240. At
this meeting, nominees for directors of the Company as listed in the proxy and
below were voted upon. The results of the elections were as follows:
<TABLE>
<CAPTION>
Nominee's Name Voted For Voted Against Abstained From Voting
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fritz L. Duda 1,917,054 87,370 388,642
Ralph J. Russell 1,932,210 72,214 388,642
A. Russell Schmeiser 1,925,401 79,023 388,642
Robert M. Sierk 1,933,866 70,558 388,642
Larry D. Ward 1,926,217 78,207 388,642
Total outstanding voting shares as of April 9, 1996, was approximately 2,393,066.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See Exhibit Index on Page 14
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K in the last three calendar months.
13
<PAGE>
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 15
common and common equivalent share
27 Financial Data Schedule as of June 30, 1996 **
28 Additional Exhibits:
Table 1 - Interest Rate Sensitivity and Liquidity Analysis 16
Table 2 - Analysis of Interest Rate Spread and Margin 17
Table 3 - Non accrual, Past Due and Restructured Loans 18
Table 4 - Summary of Loan Loss Experience 19
Table 5 - Allocation of the Allowance for Loan Losses 20
** Filed herewith.
14
<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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares of common stock, beginning (Note 5) 2,368,766 2,383,241 2,383,241 2,373,926
========= ========= ========= =========
Shares of common stock, ending 2,347,262 2,383,241 2,347,262 2,383,241
========= ========= ========= =========
Computation of weighted average number of common
and common equivalent shares:
Common shares outstanding at the
beginning of the year 2,368,766 2,383,241 2,383,241 2,373,926
Weighted average number of
shares issued - - - - 17,705 10,084
Weighted average of the
common shares redeemed (Note 5) (11,469) - - (29,452) (2,313)
Weighted average of the common equivalent shares
attributable to stock options granted, computed
under the treasury stock method 9,398 10,376 7,546 10,790
--------- --------- --------- ---------
Weighted average number of common and
common equivalent shares (Note 5) 2,366,695 2,393,617 2,379,040 2,392,487
========= ========= ========= =========
Earnings and earnings per common and common
equivalent share: (Note 5)
Net income (in thousands) $1,618,000 $1,066,000 $3,048,000 $2,137,000
========== ========== ========== ==========
Earnings per common and
common equivalent share $ .68 $ .45 $ 1.28 $ .89
========== ========== ========== ==========
Dividends $ .195 $ .185 $ .39 .37
========== ========== ========== ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
June 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 $ 625 $ - - $ - - $ - - $ 625
Investment securities 23,358 17,609 45,251 36,090 122,308
Loans 51,682 65,201 170,263 21,845 308,991 (2)
Total interest earning assets 75,665 82,810 215,514 57,935 431,924
Interest paying liabilities:
Deposits 78,800 (1) 74,336 82,346 107,598 (1) 343,080 (3)
Federal funds purchased 8,625 - - - - - - 8,625
Long-term debt 300 4,850 11,538 - - 16,688
Total interest paying liabilities 87,725 79,186 93,884 107,598 368,393
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 28,257 28,257
Other assets, liabilities and equity net - - - - - - 35,274 35,274
Total noninterest rate sensitive assets
and liabilities - - - - - - 63,531 63,531
INTEREST SENSITIVE GAP (12,060) 3,624 121,630 (113,194) - -
CUMULATIVE GAP (12,060) (8,436) 113,194 - - - -
CUMULATIVE % OF SENSITIVE 86% 95% 143% - - - -
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 totalled $47,208,000. 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 $62,970,000.
(2) Of the $308,991,000 of total loans, $159,867,000 have fixed rates, while $149,124,000 have variable rates.
(3) Certificates of deposit comprise $188,357,000 of total interest paying deposits, while interest-paying demand deposits and
savings deposit balances accounted for $154,723,000 of this total.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
----------------------------------------------------------------
June 30, 1996 June 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 $ 432,733 7.84% $ 418,601 7.86%
Interest paying liabilities 368,471 4.42 355,632 4.45
Net interest spread 3.42 3.41
Net interest margin 4.07 4.08
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------
June 30, 1996 June 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 $ 430,001 7.87% $ 413,770 7.83%
Interest paying liabilities 365,299 4.49 350,861 4.35
Net interest spread 3.38 3.48
Net interest margin 4.06 4.15
</TABLE>
17
<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 June 30,
1996 and June 30, 1995.
<TABLE>
<CAPTION>
(In Thousands)
-----------------------------------
June 30,1996 June 30, 1995
-------------- ---------------
<S> <C> <C>
Nonaccrual loans $ 395 $ 671
Accruing loans
past due 90
days or more $ 975 $ 121
Restructured
loans None None
</TABLE>
As of June 30, 1996 and June 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.
18
<PAGE>
TABLE 4
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience for the
three and six month periods ended June 30, 1996 and June 30, 1995:
<TABLE>
<CAPTION>
(In Thousands) (In Thousands)
------------------------------ ------------------------------
Three Months Ended Six Months Ended
June 30,1996 June 30,1996
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 3,611 $ 3,432 $ 3,602 $ 3,354
------------ ------------ ------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ 5 $ 1 $ 5 $ 18
Real estate, mortgage 51 - - 77 - -
Loans to individuals 23 50 70 113
------------ ------------ ------------ ------------
$ 79 $ 51 $ 152 $ 131
------------ ------------ ------------ ------------
Recoveries:
Commercial,
financial and
agricultural $ 3 $ 1 $ 5 $ 17
Real estate, mortgage - - 1 - - 5
Loans to individuals 20 23 28 61
------------ ------------ ------------ ------------
$ 23 $ 25 $ 33 $ 83
------------ ------------ ------------ ------------
Net charge-offs $ 56 $ 26 $ 119 $ 48
------------ ------------ ------------ ------------
Provision for
loan losses (1) $ 81 $ 111 $ 153 $ 211
------------ ------------ ------------ ------------
Balance of loan
loss allowance
at end of period $ 3,636 $ 3,517 $ 3,636 $ 3,517
============ ============ ============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .02% .01% .04% .02%
============ ============ ============ ===========
<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>
19
<PAGE>
TABLE 5
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The June 30, 1996 and June 30, 1995 allowance for loan losses have been
allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
June 30, 1996 June 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 $ 978 12% $ 950 12%
Real estate 2,302 73 2,216 73
Installment Loans
to individuals 356 15 351 15
Unallocated: - - - - - - - -
---------- ---------- ---------- ----------
$3,636 100% $3,517 100%
========== ========== ========== ==========
</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.
20
<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)
August 13, 1996 //s//A. Russell Schmeiser
------------------------- --------------------------------------
DATE A. Russell Schmeiser
Executive Vice President and COO
(Duly authorized officer of the
registrant and principal financial
officer)
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,615
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 625
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 122,308
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 308,991
<ALLOWANCE> 3,636
<TOTAL-ASSETS> 467,873
<DEPOSITS> 387,952
<SHORT-TERM> 8,625
<LIABILITIES-OTHER> 4,080
<LONG-TERM> 16,688
0
0
<COMMON> 2,934
<OTHER-SE> 47,594
<TOTAL-LIABILITIES-AND-EQUITY> 467,873
<INTEREST-LOAN> 12,446
<INTEREST-INVEST> 3,630
<INTEREST-OTHER> 257
<INTEREST-TOTAL> 16,333
<INTEREST-DEPOSIT> 7,597
<INTEREST-EXPENSE> 8,131
<INTEREST-INCOME-NET> 8,202
<LOAN-LOSSES> 153
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,445
<INCOME-PRETAX> 4,367
<INCOME-PRE-EXTRAORDINARY> 4,367
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,048
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.06
<LOANS-NON> 395
<LOANS-PAST> 975
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10
<ALLOWANCE-OPEN> 3,602
<CHARGE-OFFS> 79
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 3,636
<ALLOWANCE-DOMESTIC> 3,636
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 287
</TABLE>
