FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
FORM 10-K
DECEMBER 31, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from ________________to ___________________.
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 (IRS Employer Identification No.)
incorporation or organization)
204 East Washington Street
Iowa City, Iowa 52240
- -------------------------------------- ---------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (319) 356-9000
--------------
Securities Registered Pursuant to Section 12(b) of the Act: None
----
Securities Registered Pursuant to Section 12(g) of the Act:
$1.25 Par Value Common Stock
(Title of class)
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
While it is difficult to determine the number of shares owned by nonaffiliates
(within the meaning of such term under the applicable regulations of the
Securities and Exchange Commission), the Registrant estimates that the aggregate
market value of the Registrant's common stock held by nonaffiliates on March 19,
1996, (based upon reports of beneficial ownership that approximately 89% of the
shares are so owned by nonaffiliates and upon information communicated
informally to the Registrant by various purchasers and sellers that the sale
price for the common stock is generally $26.50 per share) was approximately
$55,826,000.
The number of shares outstanding of the Registrant's common stock as of March
19, 1996:
Common Stock $1.25 Par Value - 2,369,216 Shares
- -------------------------------------------------
P. 1 of 48
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
1. Proxy Statement dated March 7, 1996, for the Annual Meeting of Shareholders
to be held on April 9, 1996, is incorporated by reference into Part III,
Items 10, 11, 12 and 13.
P. 2 of 48
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PART I
ITEM 1. BUSINESS
CORPORATE ORGANIZATION AND STRUCTURE.
First Financial Bancorporation (Registrant) is an Iowa business corporation
organized on October 8, 1985, under the Iowa Business Corporation Act. The
Registrant is a two-bank holding company engaged in the business of commercial
banking through its wholly-owned subsidiaries, the First National Bank, Iowa
City, Iowa (Iowa City Bank), and First National Bank, Cedar Rapids, Iowa (Cedar
Rapids Bank). The Registrant formed the Cedar Rapids Bank on February 1, 1991.
On February 8, 1991, the Company acquired approximately $45,000,000 of assets
and liabilities of the Cedar Rapids, Iowa, branch office of the failed American
Federal Savings Association from the Resolution Trust Corporation and began
conducting commercial banking business on that date, at 200 First Street SW,
Cedar Rapids, Iowa 52404. The Registrant has conducted no other activities. All
operations of the Registrant are conducted within the state of Iowa.
Both banks are national banking associations incorporated and operating under
the laws of the United States engaged in the commercial banking business, with
trust powers, in Iowa City, Johnson County, Iowa, and Cedar Rapids, Linn County,
Iowa. Both banks' services are offered to individuals, businesses, governmental
units and institutional customers. The Iowa City Bank's primary market area is
Iowa City, Coralville, North Liberty and surrounding areas. The Cedar Rapids
Bank's primary market area is Cedar Rapids and surrounding areas. Both banks are
actively engaged in many areas of commercial banking, including the acceptance
of demand, savings and time deposits; making commercial, real estate,
agricultural, consumer and credit card loans; maintaining night and safe deposit
facilities; and performing collection, exchange, escrow and other banking
services tailored for individual customers. The trust department within each
bank administers estates, personal trusts, conservatorships, pension and profit
sharing funds, and in connection therewith provides property management,
brokerage services, investment advisory and custodial services for individuals,
corporations and not-for-profit organizations. Each bank provides access for its
customers to computer services for payroll accounting and for the numerical
sorting of customer checks. Additionally, the Iowa City Bank provides data
processing for both itself and for the Cedar Rapids Bank through the computer
center located in the main facility in Iowa City.
The Iowa City Bank's primary geographic service area falls within a ten-mile
radius of the center of Iowa City, Iowa, and consists of a population of
approximately 84,000 people. The business community of Iowa City has a strong
agricultural base, but is significantly more diversified with strong
manufacturing and retail sectors, a growing regional distribution industry, the
presence of The University of Iowa and other seats of post-secondary education
and a significant medical and health care infrastructure.
The Cedar Rapids Bank's primary geographic service area falls within a
fifteen-mile radius of the center of Cedar Rapids, Iowa, and consists of a
population of approximately 153,000 people. The business community of Cedar
Rapids is comprised of retail, manufacturing and financial businesses, and is
especially competitive in terms of commercial banking services.
The Company's primary competitors include commercial bank, thrift institutions
such as savings banks and savings and loan associations, and credit unions, all
of which are represented by a physical presence in the local market areas. By
contrast, secondary competitors are often regional or even nationwide in
character, and vary widely depending on the product line in question. In the
case of deposits, secondary competitors include stockbrokers, money market and
mutual fund companies, insurance companies, and out-of-market financial
institutions. In the area of loans, competitors include mortgage brokers, the
financing arm of automobile manufacturers, and in some cases, agencies of the
government.
In the case of both banks, the largest local market share belongs to commercial
banks; thrifts and credit unions also hold significant but smaller portions of
the market. The Iowa City Bank has a significant share of the deposit and loan
market within its geographical service area; due in part to 60+ year presence in
the community. Conversely, the Cedar Rapids Bank, in existence for less than a
decade, has a comparatively smaller share of the Cedar Rapids market. The Cedar
Rapids and Iowa City markets do differ in the respect that the former, aside
from being much larger in size, is dominated by several large non-local banks,
while the over-whelming share of the latter market is held by locally-owned,
independent financial institutions.
The banking environment has been extremely competitive, particularly in terms of
rate, price and new entrants to the market. Within the past 14 months, there
have been three new entrants to the market (two entirely new and one by
acquisition of an existing institution), and the overall number of banking
offices has increased by 30%.
P. 3 of 48
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ITEM 1. BUSINESS (continued)
CORPORATE ORGANIZATION AND STRUCTURE (continued)
These competitive trends are expected to continue in the foreseeable future, due
in part to demographic characteristics which make the area such an attractive
banking market, as well as to regulatory environment which is becoming generally
less restrictive in terms of geographic expansion and branching.
With the exception of real estate lending activities during the period of March
through October, neither bank's business is seasonal in nature and neither
depends upon a single person or a few persons as the source of a material
portion of its individual deposits or loans. The management of neither bank has
reason to believe that the loss of the deposits or the loan activities of any
single person, or of a few persons, would have a material adverse effect on
either bank's operations or erode either's deposit base or loan portfolios.
Neither bank has experienced a material adverse effect on its business as a
result of defaults of any specific industry concentrations and neither expects
to experience any material effects in the future.
Neither Registrant nor either bank has undertaken any material activities during
the last three years related to research and development.
As of December 31, 1995, the Iowa City Bank employed 210 persons, consisting of
170 full-time employees and 40 part-time employees (of which all worked less
than thirty hours per week). The Cedar Rapids Bank employed 29 persons,
consisting of 28 full-time employees and one part-time employee. As of December
31, 1995, the Registrant had no employees other than its corporate officers who
are salaried officers of the Iowa City Bank and who receive no additional
compensation for serving as officers or directors of the Registrant.
CAPITAL REQUIREMENTS
The Company is regulated by the Board of Governors of the Federal Reserve System
while both subsidiary banks fall under the regulatory jurisdiction of the Office
of the Comptroller of the Currency (OCC). One of the functions of the OCC is to
evaluate capital adequacy maintained by each national bank. To determine the
capital adequacy of national banks, the OCC has established a risk-based capital
ratio derived from guidelines sensitive to the credit risk associated with
various bank activities. This risk-based capital ratio is intended to more
accurately assess capital adequacy than is a capital ratio which is based solely
on total assets of banks.
As of December 31, 1995, total risk-based capital was required to equal or
exceed 8% of risk-weighted assets. At least half of that 8% must consist of Tier
I-core capital (common stockholders' equity, noncumulative perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries), and the remainder may be Tier II-supplementary capital (perpetual
debt, intermediate-term preferred stock, cumulative perpetual, long-term and
convertible preferred stock, and loan loss reserve up to a maximum of 1.25% of
risk-weighted assets.) Total risk-weighted assets are determined by weighting
the assets according to their risk characteristics. Certain off-balance sheet
items (such as stand-by letters of credit and firm loan commitments) are
multiplied by "credit conversion factors" to translate them into balance sheet
equivalents before assigning them risk weightings. Any bank having a capital
ratio less than the 8% minimum required level must, within 60 days, submit to
the OCC a plan describing the means and schedule by which the bank shall achieve
the applicable minimum capital ratios. The plan is considered acceptable unless
the bank is notified to the contrary by the OCC. A bank in compliance with an
acceptable plan to achieve the applicable minimum capital ratios will not be
deemed to be in violation.
A comparison of each subsidiary bank's capital as of December 31, 1995, with
minimum requirements is presented below:
ACTUAL MINIMUM
IOWA CITY BANK CEDAR RAPIDS BANK REQUIREMENTS
-------------- ----------------- ------------
Total Risk-Based Capital 19.74% 15.16% 8%
Tier I Risk-Based Capital 18.49% 14.09% 4%
Leverage Ratio 11.61% 8.90% 3%
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
established rating categories for all FDIC insured institutions ranging from
"well capitalized" to "critically undercapitalized." The ratings combine capital
measures in addition to level of regulatory supervision received by an
individual financial institution. At December 31, 1995, both banking
subsidiaries met the capital criteria required by the well-capitalized
definition and substantially exceeded the regulatory minimum capital levels.
P. 4 of 48
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ITEM 1. BUSINESS (continued)
CAPITAL REQUIREMENTS(continued)
As of December 31, 1995 and 1994, the Company's Tier I capital to risk-weighted
asset ratios, total capital risk-weighted asset ratios (Tier I capital plus Tier
II capital) and leverage capital ratios were as follows:
ACTUAL MINIMUM
1995 1994 REQUIREMENTS
-------- -------- ------------
Total Risk-Based Capital 19.51% 19.02% 8%
Tier 1 Risk-Based Capital 18.28% 17.81% 4%
Leverage Ratio 11.46% 11.05% 3%
The following consolidated statistical information reflects selected balances
and operations of the Registrant and its subsidiaries for the periods indicated.
AVERAGE BALANCES AND INTEREST RATES AND INTEREST DIFFERENTIAL
The following tables show the major categories of assets, liabilities, and
stockholders' equity, average balances during the period, interest earned or
paid and average yield. (Yields on nontaxable securities are computed on a tax
equivalent basis.) Changes in interest received and paid for the years ended
December 31, 1995 and 1994, are analyzed showing the effects of changes in
volume and rates:
AVERAGE BALANCES (Daily Average Basis)
(In Thousands)
Year Ended December 31,
1995 1994 1993
--------- --------- ---------
ASSETS
Taxable securities $ 88,064 $ 104,549 $ 116,773
Nontaxable securities 23,726 23,135 24,645
Federal funds sold 11,181 5,789 16,580
Loans, net of unearned income 294,649 277,101 237,598
--------- --------- ---------
Total interest-earning assets $ 417,620 $ 410,574 $ 395,596
Less: Allowance for loan losses (3,512) (3,215) (3,039)
Cash and due from banks 14,312 13,981 13,345
Property and equipment, net 11,693 10,646 9,811
Other assets 9,278 9,000 10,093
--------- --------- ---------
Total assets $ 449,391 $ 440,986 $ 425,806
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-paying demand deposits $ 58,357 $ 60,178 $ 56,123
Savings deposits 89,436 88,948 89,452
Time deposits 188,135 178,581 177,241
Federal funds purchased and
securities sold under agreements
to repurchase 237 1,923 234
Federal Home Loan Bank advances 19,857 19,799 16,474
Other long-term borrowings 13 256 336
--------- -------- ---------
Total interest-paying
liabilities $ 356,035 $ 349,685 $ 339,860
Noninterest-paying demand deposits 42,331 42,688 40,234
Other liabilities 3,644 3,447 3,819
Stockholders' equity 47,381 45,166 41,893
--------- -------- ---------
Total liabilities and
stockholders' equity $ 449,391 $ 440,986 $ 425,806
========= ========= =========
P. 5 of 48
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ITEM 1. BUSINESS (continued)
INTEREST INCOME AND EXPENSE
(In Thousands)
Year Ended December 31,
1995 1994 1993
--------- -------- ---------
INCOME
Taxable securities $ 5,251 $ 5,712 $ 6,603
Nontaxable securities 2,044 2,033 2,246
Federal funds sold 658 222 497
Loans 24,843 22,292 20,041
--------- -------- ---------
Total interest income $ 32,796 $ 30,259 $ 29,387
========= ========= =========
EXPENSE
Interest-paying demand deposits $ 1,253 $ 1,270 $ 1,390
Savings deposits 2,870 2,104 2,393
Time deposits 10,475 8,959 9,255
Federal funds purchased and
securities sold under agreements
to repurchase 14 90 7
Federal Home Loan Bank advances 1,199 1,184 985
Other long-term borrowings - - 17 27
--------- -------- ---------
Total interest expense $ 15,811 $ 13,624 $ 14,057
--------- -------- ---------
Net interest income $ 16,985 $ 16,635 $ 15,330
========= ========= =========
Year Ended December 31,
1995 1994 1993
-------- -------- ---------
INTEREST RATES AND INTEREST
DIFFERENTIAL
Average yields:
Taxable securities 5.96% 5.46% 5.65%
Nontaxable securities 8.62 8.79 9.11
Federal funds sold 5.88 3.83 3.00
Loans 8.43 8.04 8.43
Interest-paying demand deposits 2.15 2.11 2.48
Savings deposits 3.21 2.37 2.68
Time deposits 5.57 5.02 5.22
Federal funds purchased and
securities sold under agreements
to repurchase 5.91 4.68 2.99
Federal Home Loan Bank advances 6.04 5.98 5.98
Other long-term borrowings - - 6.64 8.04
Yield on average interest earning assets (1) 7.85 7.37 7.43
Yield on average interest-paying
liabilities 4.44 3.90 4.14
Net interest yield (1) 3.41 3.47 3.29
Net interest margin (2) 4.07 4.05 3.88
Nonaccruing loans are not material and have been included in the average loan
balances for purposes of this computation.
(1) Net interest yield is the difference between the yield on average
interest-earning assets and the yield on average interest-paying
liabilities stated on a tax equivalent basis using a federal tax rate of
34% and a state tax rate of 5% for the three years presented.
(2) Net interest margin is net interest income, on a tax-equivalent basis,
divided by average interest earning assets.
P. 6 of 48
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ITEM 1. BUSINESS (continued)
CHANGE IN INTEREST INCOME AND EXPENSE
(In Thousands of Dollars)
Year Ended December 31, 1995
Change Change
Due To Due To Total
Volume Rates Change
--------- -------- ---------
Change in interest income:
Taxable securities $ (953) $ 492 $ (461)
Nontaxable securities (1) 51 (40) 11
Federal funds sold 277 159 436
Loans (1) 1,445 1,106 2,551
--------- -------- ---------
$ 820 $ 1,717 $ 2,537
--------- -------- ---------
Change in interest expense:
Interest-paying demand deposits $ (40) $ 23 $ (17)
Savings deposits 12 754 766
Time deposits 498 1,018 1,516
Federal funds purchased and securities
sold under agreements to repurchase (95) 19 (76)
Federal Home Loan Bank advances 3 12 15
Long-term debt (8) (9) (17)
--------- -------- ---------
$ 370 $ 1,817 $ 2,187
--------- -------- ---------
Net change in net interest income (1) $ 450 $ (100) $ 350
========= ======== =========
(In Thousands of Dollars)
Year Ended December 31, 1994
Change Change
Due To Due To Total
Volume Rates Change
--------- -------- ---------
Change in interest income:
Taxable securities $ (675) $ (216) $ (891)
Nontaxable securities (136) (77) (213)
Federal funds sold (386) 111 (275)
Loans 3,211 (960) 2,251
-------- -------- --------
$ 2,014 $ (1,142) $ 872
-------- -------- --------
Change in interest expense:
Interest-paying demand deposits $ 96 $ (216) $ (120)
Savings deposits (13) (276) (289)
Time deposits 68 (364) (296)
Federal funds purchased and securities
sold under agreements to repurchase 77 6 83
Federal Home Loan Advances 199 - - 199
Long-term debt (6) (4) (10)
-------- -------- --------
$ 421 $ (854) $ (433)
-------- -------- --------
Net change in net interest income (1) $ 1,593 $ (288) $ 1,305
======== ======== ========
(1) Loan fees included in interest income are not material. Interest on
non-taxable securities and loans is shown on a tax-equivalent basis using a
federal tax rate of 34% and a state tax rate of 5% for 1994 and 1995.
The rate/volume variances were allocated on a pro rata basis between rate and
volume variances using absolute values.
P. 7 of 48
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ITEM 1. BUSINESS (continued)
INVESTMENT SECURITIES
The following tables show the carrying values of investment securities as of
December 31, 1995, 1994 and 1993, and the maturities and yields of the
investment securities as of December 31, 1995:
(In Thousands)
December 31,
1995 1994 1993
-------- -------- --------
Carrying Values:
U.S. Treasury securities $ 32,027 $ 42,130 $ 56,914
Obligations of other U.S. Government
agencies and corporations 63,231 42,029 52,177
Obligations of states and
political subdivisions 26,403 22,921 23,302
Federal Reserve Bank stock 336 336 326
Federal Home Loan Bank stock 1,889 1,813 1,792
-------- -------- --------
$123,886 $109,229 $134,511
======== ======== ========
December 31, 1995
Weighted
Fair Average
Value Yield (1)
-------- ---------
Type and maturity groupings:
U.S. Treasury maturities:
Within 1 year $ 15,484 6.17%
From 1 to 5 years 16,543 5.85
--------
Total $ 32,027
--------
Obligations of other U.S. Government
agencies and corporations maturities:
Within 1 year $ 19,757 6.67%
From 1 to 5 years 43,474 6.00
--------
Total $ 63,231
--------
Obligations of states and political
subdivisions maturities:
Within 1 year $ 2,867 9.50%
From 1 to 5 years 19,613 8.61
From 5 to 10 years 3,923 7.27
--------
Total $ 26,403
--------
Federal Reserve Bank stock $ 336 6.00%
Federal Home Loan Bank stock 1,889 7.25
--------
Total $ 2,225
--------
Total $123,886
========
(1) The yields are computed on a tax-equivalent basis using a federal tax rate
of 34% and a state tax rate of 5% for 1995 based on fair value.
As of December 31, 1995, there were no investment securities of any issuer,
other than securities of the U.S. Government and U.S. Government agencies and
corporations, exceeding 10% of stockholders' equity.
LOANS (1)
The following table shows the composition of loans as of December 31, 1995,
1994, 1993, 1992 and 1991.
(In Thousands)
December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Commercial, financial
and agricultural $ 30,128 $ 31,800 $ 30,036 $ 29,422 $ 26,261
Bankers' acceptances - - - - - - 1,975 6,251
Real estate, construction 10,914 16,590 13,662 8,145 4,550
Real estate, mortgage 206,869 194,261 159,349 148,178 126,695
Loans to individuals 43,572 50,123 49,571 37,666 36,793
All other 3,046 1,933 1,589 25 8
-------- -------- -------- -------- --------
TOTAL $294,529 $294,707 $254,207 $225,411 $200,558
======== ======== ======== ======== ========
P. 8 of 48
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ITEM 1. BUSINESS (continued)
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table shows the scheduled distribution of future principal
repayment of loans (in thousands) as of December 31, 1995:
One To Over Non-
Amount One Year Five Five Accrual
Of Loans Or Less Years Years Loans
-------- -------- -------- -------- --------
Commercial, financial
and agricultural (2) $ 30,128 $ 20,180 $ 9,580 $ 308 $ 60
Real estate,
construction (3) 10,914 2,894 7,253 755 12
Real estate, mortgage (4) 206,869 67,685 125,579 13,530 75
Loans to individuals (5) 43,572 19,762 23,075 612 123
All other (6) 3,046 1,789 834 423 - -
-------- -------- -------- -------- --------
Total $294,529 $112,310 $166,321 $ 15,628 $ 270
======== ======== ======== ======== ========
(1) Before deducting reserve for possible loan losses.
(2) Approximately $14,324,000 or nearly 48% of these loans are adjustable rate
loans.
(3) Approximately $4,541,000 or nearly 42% of these loans are adjustable rate
loans.
(4) Approximately $117,747,000 or nearly 57% of these loans are adjustable rate
loans.
(5) Approximately $4,637,000 or nearly 11% of these loans are adjustable rate
loans.
(6) Approximately $900,000 or nearly 30% of these loans are adjustable rate
loans.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The Company adopted Statement of Financial 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
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Nonaccrual loans are the only impaired
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 December
31 for each of the years presented:
(In Thousands of Dollars)
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Nonaccrual loans $ 270 $ 1,100 $ 1,274 $ 405 $ 380
Accruing loans
past due 90
days or more $ 273 $ 60 $ 68 None 4
Restructured
loans None None None None None
As of December 31, 1995, total nonaccrual loans were comprised primarily of
loans collateralized by real estate. Nonaccrual 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.
P. 9 of 48
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ITEM 1. BUSINESS (continued)
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Continued)
A loan is considered restructured when the Company allows certain concessions to
a financially troubled debtor that would not normally be considered. There were
no troubled debt restructuring loans for the reporting periods.
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 troubled 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 December 31, 1995
- --------------------------------------------------------------------------------
Impaired loans $ 270
Impaired loans with related reserve for
loan losses calculated under SFAS 114 164
Impaired loans with no related reserve for
loan losses calculated under SFAS 114 106
Amount of reserve for loan losses allocated
to the impaired loan balance 43
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 market 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 losses.
(In Thousands)
For the Year Ended
December 31, 1995
- --------------------------------------------------------------------------------
Average impaired loans $ 682
Interest income that
would have been recorded
during the period on non-
accrual loans 59
- --------------------------------------------------------------------------------
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.
P. 10 of 48
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ITEM 1. BUSINESS (continued)
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience for each of
the years ended December 31, 1995, 1994, 1993, 1992 and 1991:
(In Thousands)
Year Ended December 31,
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Balance of loan loss
allowance at
beginning of period $3,354 $3,101 $3,006 $2,937 $2,848
------ ------ ------ ------ ------
Allowances related to
loans acquired $ - - $ - - $ - - $ - - $ 149
------ ------ ------ ------ ------
Charge-offs:
Commercial, financial
and agricultural $ 21 $ 3 $ 32 $ 105 $ 71
Real estate mortgage - - 4 53 25 - -
Loans to individuals 254 249 148 127 182
------ ------ ------ ------ ------
$ 275 $ 256 $ 233 $ 257 $ 253
------ ------ ------ ------ ------
Recoveries:
Commercial,
financial and
agricultural $ 37 $ 34 $ 27 $ 102 $ 37
Real estate, mortgage 5 6 87 43 - -
Loans to individuals 115 44 59 61 36
------ ------ ------ ------ ------
$ 157 $ 84 $ 173 $ 206 $ 73
------ ------ ------ ------ ------
Net charge-offs $ 118 $ 172 $ 60 $ 51 $ 180
------ ------ ------ ------ ------
Provision for
loan losses (1) $ 366 $ 425 $ 155 $ 120 $ 120
------ ------ ------ ------ ------
Balance of loan
loss allowance
at end of period $3,602 $3,354 $3,101 $3,006 $2,937
====== ====== ====== ====== ======
Percentage of net charge-
offs during period
to average net loans
outstanding .04% .06% .03% .02% .09%
====== ====== ====== ====== ======
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.
P. 11 of 48
<PAGE>
ITEM 1. BUSINESS (continued)
SUMMARY OF LOAN LOSS EXPERIENCE (continued)
The December 31, 1995, 1994, 1993, 1992 and 1991 allowance for loan losses have
been allocated as follows:
<TABLE>
<CAPTION>
(In Thousands Except Percentages)
As of December 31
1995 1994 1993 1992 1991
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(1) %(2) $(1) %(2) $(1) %(2) $(1) %(2) $(1) %(2)
------ --- ------ --- ------ --- ------ --- ------ ---
December 31 balance applicable to:
Allocated:
Commercial,
financial
and agricultural $ 490 10 $1,013 11 $ 973 12 $ 634 13 $ 784 13
Bankers'
acceptances - - - - - - - - - - - - 11 1 31 3
Real estate 2,781 74 1,696 71 1,462 68 1,637 69 1,350 66
Installment loans
to individuals 256 15 579 17 430 19 446 17 334 18
Unallocated: 75 1 66 1 236 1 278 - - 438 - -
------ --- ------ --- ------ --- ------ --- ------ ---
$3,602 100 $3,354 100 $3,101 100 $3,006 100 $2,937 100
------ --- ------ --- ------ --- ------ --- ------ ---
(1) Allocation of allowance amount by category.
(2) Percent of loans in category.
</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.
DEPOSITS
The following tables show the average deposit balances and rates paid on such
deposits for the years ended December 31, 1995, 1994 and 1993 and the
composition of the certificates issued in excess of $100,000 as of December 31,
1995:
(In Thousands)
December 31,
1995 1994 1993
--------------- ---------------- ----------------
$ Rate $ Rate $ Rate
--------- ---- --------- ---- ---------- ----
Average non-
interest-
paying
deposits $ 42,331 - - % $ 42,688 - - % $ 40,234 - - %
Average
interest-
paying
demand
deposits 58,357 2.15 60,178 2.11 56,123 2.48
Average
savings
deposits 89,436 3.21 88,948 2.37 89,452 2.68
Average time
deposits 188,135 5.57 178,581 5.02 177,241 5.22
--------- --------- ---------
$ 378,259 $ 370,395 $ 363,050
========= ========= =========
Amount Rate
------ ----
Time certificates in amounts of
$100,000 or more as of
December 31, 1995 with
maturity in:
3 months or less $ 5,097 5.89%
3 through 6 months 2,918 5.98
6 through 12 months 7,068 5.06
Over 12 months 13,671 6.38
--------
$ 28,754
========
There were no material deposits by foreign investors.
P. 12 of 48
<PAGE>
ITEM 1. BUSINESS (continued)
RETURN ON STOCKHOLDERS' EQUITY AND ASSETS
The following table presents the return on average stockholders' equity and
average assets, dividend payout percentage and stockholders' equity to assets
percentage for the years ended December 31, 1995, 1994 and 1993:
December 31,
1995 1994 1993
------- ------- -------
Return on average total assets 1.02% 1.03% 1.19%
Return on average stockholders' equity 9.65 10.10 12.07
Dividend payout percentage on average
outstanding common shares 39.63 37.98 32.23
Average stockholders' equity to
average total assets percentage 10.54 10.24 9.84
SHORT-TERM BORROWINGS
The following table shows outstanding balances, weighted average interest rates
at year end, maximum month-end balances, average month-end balances and weighted
average interest rates of securities sold under agreements to repurchase and
other short-term borrowings during 1995, 1994 and 1993.
(In Thousands of Dollars, Except
for Interest Rate Percentage)
--------------------------------
1995 1994 1993
-------- -------- --------
Outstanding as of December 31 $ 67 $ 3,200 $ 4,525
Weighted average interest rate at year end - - 6.50% 2.65%
Maximum month-end balance $ 1,575 $12,200 $ 4,525
Average month-end balance $ 131 $ 2,935 $ 573
Weighted average interest rate for the year 5.91% 4.68% 2.99%
FEDERAL HOME LOAN BANK ADVANCES
The following table shows outstanding balances, weighted average interest rates
at year end, maximum month-end balances, average month-end balances and weighted
average interest rates of Federal Home Loan Bank advances during 1995, 1994 and
1993.
(In Thousands of Dollars, Except
for Interest Rate Percentage)
--------------------------------
1995 1994 1993
-------- -------- --------
Outstanding as of December 31 $17,469 $20,628 $18,283
Weighted average interest rate at year end 6.01% 5.92% 5.86%
Maximum month-end balance $20,524 $20,856 $18,300
Average month-end balance $19,772 $19,870 $16,871
Weighted average interest rate for the year 6.04% 5.98% 5.98%
P. 13 of 48
<PAGE>
ITEM 1. BUSINESS (continued)
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
The following table summarizes the repricing dates of the Registrant's earning
assets and interest-paying liabilities as of December 31, 1995.
<TABLE>
December 31, 1995
----------------------------------------------------------
Months
-------------------
After three After one
Within through through Non-
(Dollars in Thousands) three twelve five years sensitive Total
- -------------------------------------------------------------------------------------------------------
Earning assets
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 3,225 $ - - $ - - $ - - $ 3,225
Investment securities available for sale 26,154 11,955 51,968 33,809 123,886
Loans 41,093 71,217 166,321 15,898 294,529(2)
- -------------------------------------------------------------------------------------------------------
Total earning assets 70,472 83,172 218,289 49,707 421,640
- -------------------------------------------------------------------------------------------------------
Interest-paying liabilities
Deposits 83,228(1) 48,332 103,123 104,180(1) 338,863(3)
Short-term borrowings 67 - - - - - - 67
Long-term debt 115 4,999 12,255 100 17,469
- -------------------------------------------------------------------------------------------------------
Total interest-paying liabilities 83,410 53,331 115,378 104,280 356,399
- -------------------------------------------------------------------------------------------------------
Net noninterest-paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 29,749 29,749
Other assets, liabilities and equity net - - - - - - 35,492 35,492
- -------------------------------------------------------------------------------------------------------
Total noninterest paying liabilities - - - - - - 65,241 65,241
- -------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(12,938) $ 29,841 $102,911 $(119,814) $ - -
- -------------------------------------------------------------------------------------------------------
Cumulative Gap $(12,938) $ 16,903 $119,814 $ - -
- -------------------------------------------------------------------------------------------------------
Cumulative percentage of interest sensitive
assets to interest sensitive liabilities 84% 112% 148%
- -------------------------------------------------------------------------------------------------------
<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". The remainder of the balances were
classified as noninterest rate sensitive deposit balances and placed in the
last column titled "non-sensitive".
(2) Of the $294,529,000 of total loans, $152,380,000 have fixed rates, while
$142,149,000 have variable rates.
(3) Certificates of deposit comprise $188,502,000 of total deposits, while
interest-paying demand deposits and savings deposit balances accounted for
$150,361,000 of this total.
</FN>
</TABLE>
P. 14 of 48
<PAGE>
ITEM 2. PROPERTIES
The Registrant's office and the main office of the Iowa City Bank are located in
the urban center of Iowa City, Iowa, at 204 East Washington Street in a
two-story limestone building containing approximately 61,000 square feet. On
August 1, 1990, the Iowa City Bank purchased a parcel of land next to its main
office measuring 76 feet by 40 feet and 74 feet by 35 feet, for a cost of
$450,000. The Iowa City Bank and Cedar Rapids Bank own the fee simple title to
all bank property. A separate urban center parking lot office is located in the
same city block as the main office of the bank on a parcel of land 106 feet by
150 feet with five drive-up teller lanes and a one-story building with basement
area containing approximately 746 square feet. The bank's Towncrest office
facility is located at 1117 William Street, Iowa City, Iowa, approximately two
miles east of the main office of the bank on a parcel of land 188 feet by 192
feet with two drive-up teller lanes and a one-story building with a basement
area containing approximately 4,890 square feet. The bank's Coralville office
facility is located at 505 10th Avenue, Coralville, Iowa, approximately three
miles west of the main office of the bank on a parcel of land 150 feet by 200
feet with three drive-up teller lanes and a one-story building with basement
area containing approximately 4,420 square feet. The Iowa City Bank recently
completed the construction and opening of two new offices. The first office was
opened in December, 1995 and is located on the west side of North Liberty, at
580 West Cherry Street. The 4,300 square foot one level office building is
constructed of drivet and brick and is situated on 4.05 acres of land. The
second office was opened in February, 1996 and is located on the southwest side
of Iowa City, at 2312 Mormon Trek Boulevard. This 4,300 square foot office is a
one level building constructed of drivet and brick which is situated on a parcel
of land measuring approximately 250 feet by 230 feet.
The Cedar Rapids Bank purchased the building, land, furniture and equipment
located at 200 First Street SW, Cedar Rapids, Iowa, from the Resolution Trust
Corporation in October of 1991. The two-story concrete block building with
basement area rests on a parcel of land 169 feet by 140 feet and 90 feet by 140
feet. The basement area, first floor and second floor space contains
approximately 4,200 square feet, 4,327 square feet and 4,200 square feet,
respectively. A new office was opened on December 30, 1994, in the urban center
of Cedar Rapids, located at 240 Third Avenue SE, Cedar Rapids, Iowa,
approximately one-half mile from the main office building. Located on the ground
floor of the Armstrong building, this office features three walk-up teller lanes
and 2,682 square feet of space. This space is being rented for a five-year
period from December 1, 1994, to December 1, 1999, with three five-year options
to renew. During the first five years, annual rent will be $37,206 through
December 1, 1996, $39,840 through December 1, 1998, and $40,068 to December 1,
1999.
The number of retail banking offices currently stands at eight: the Iowa City
Bank has six; the Cedar Rapids Bank has two (see chart below).
================================================================================
FIRST FINANCIAL BANCORPORATION'S RETAIL BANKING LOCATIONS
FIRST NATIONAL BANK, IOWA CITY Established
Main Bank - 204 East Washington Street, Downtown Iowa City ................1932
Drive-In - 21 South Linn Street, Downtown Iowa City .......................1962
Towncrest - 1117 William Street, Iowa City's East Side
in the Towncrest Center ...................................................1968
Coralville - 506 10th Avenue, Coralville, Iowa ............................1979
North Liberty - Highway 965 & West Cherry Street, North Liberty, Iowa .....1994
Southwest - 2312 Mormon Trek Boulevard, Southwest Iowa City ...............1995
FIRST NATIONAL BANK, CEDAR RAPIDS
Main Bank - 200 First Street SW, Cedar Rapids .............................1991
Downtown - 240 Third Avenue SE, Downtown Cedar Rapids
in the Armstrong Centre ...................................................1994
================================================================================
Under Iowa banking law, all off-premise automated teller machines (ATMs)
maintained by any Iowa financial institution can be used by customers of any
other institution. The Iowa City Bank maintains twenty-five ATMs within the Iowa
City, Coralville and North Liberty area. There are eight ATMs located on bank
premises with four ATMs located at the main bank office, and one each at the
Southwest, North Liberty, Towncrest and Coralville offices as of December 31,
1995. Seventeen ATMs are located at fifteen off-bank premise locations.
Customers possessing a bank debit card may make deposits, withdrawals, or
transfers of funds from one account to another at any hour of the day or night,
seven days a week at seven of the bank's on-premise ATMs and during regular
banking hours at eight of the bank's on-premise ATMs, and on different schedules
at the off-bank premises locations. The Cedar Rapids Bank maintains two ATMs
on-premise which are accessible during regular banking hours.
P. 15 of 48
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor the banks are involved in any material legal
proceedings, other than routine proceedings incidental to the operation of the
banks. Such proceedings are not expected to result in any materially adverse
effect on the operations or earnings of the banks. Neither the Registrant nor
the banks are involved in any proceedings to which any director, principal
officer, or affiliate of such persons, or persons who own of record or
beneficially 5% or more of the outstanding shares of the registrant, or any
associate of the foregoing persons, is a party adverse to the Registrant or the
banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock is not listed on any exchange. Four brokerage
firms maintained public trading markets for the Registrant's common stock in
1995. The common stock of the Registrant is not actively traded, but there are
regularly quoted bid and asked prices. The Registrant has subscribed to a weekly
publication which reports the high and low bid prices of the Registrant's common
stock. These price quotes are supplied by the National Association of Securities
Dealers(NASD) through the NASD OTC Bulletin Board(sm), its automated system for
reporting non-NASDAQ Quotes and National Quotation Bureau's Pink Sheets(sm). In
the period January 1, 1995, through December 31, 1995, stock high and low bid
prices ranged from $23.00 to $25.25 per share compared to $24.75 to $26.00 in
1994. The market value per share of the Registrant's common stock as of December
31, 1995, 1994, 1993, 1992 and 1991 was $25.25, $25.75, $26.75, $20.50 and
$17.00, respectively. As of January 31, 1996, the market value per share of the
Registrant's common stock was $25.50. The Registrant had approximately 887
shareholders of record at December 31, 1995.
The following table reflects the high and low stock bid prices for each quarter
based upon information available to the Registrant:
Bid Prices
------------------------------------------------
1995 1994
---------------------- ----------------------
High Low High Low
--------- --------- --------- ---------
First Quarter $ 25.25 $ 25.00 $ 26.00 $ 24.75
Second Quarter 25.00 23.00 25.50 24.75
Third Quarter 25.00 23.50 25.50 24.75
Fourth Quarter 25.00 23.50 25.75 24.75
The Registrant paid quarterly cash dividends in 1995 and 1994 aggregating
$1,811,000 and $1,733,000, respectively, or $.76 per share in 1995 and $.73 per
share in 1994.
The declaration and payment of dividends by the Registrant in the future and the
amount of such dividends is dependent upon earnings, regulatory restrictions,
the financial condition of the Registrant and the banks, and other factors as
evaluated from time to time. Dividends from the banks to the Registrant will be
the principal source of funds for the payment of dividends by the Registrant.
The payment of dividends by the banks is restricted to what prudent and sound
banking principles will permit, and the payment of dividends (i) is not
permitted without the approval of the Comptroller of the Currency except to the
extent of net profits of the current fiscal year and retained net profits of the
two preceding fiscal years, and (ii) is not permitted if the payment of a
dividend would reduce the capital of a bank below required levels. In order to
maintain a ratio of total risk-based capital to risk-weighted assets which would
meet the criteria required by the OCC well-capitalized definition, the retained
earnings of the Iowa City Bank available for the payment of dividends to the
Registrant would total approximately $22,000,000 at December 31, 1995.
The following table states the quarterly dividends paid per share:
1995 1994
------ ------
First Quarter $ .185 $ .180
Second Quarter $ .185 $ .180
Third Quarter $ .195 $ .185
Fourth Quarter $ .195 $ .185
------ ------
Total $ .760 $ .730
====== ======
P. 16 of 48
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS (continued)
STOCK TRANSFER AGENT
In 1995, in order to reduce expenses while maintaining a high level of service
to shareholders, the Company outsourced the function of stock transfer agent to
UMB Bank, N.A., Kansas City, MO.
Shareholders who need assistance or have questions regarding the issuance of
dividend checks and statements, the registration of stock, and similar matters
may contact UMB Bank by writing to: UMB Bank, Attn.: First Financial
Bancorporation Shareholder Relations, P.O. Box 410064, Kansas City, Missouri,
64141-0064 or by telephoning the UMB Bank Shareholder Relations Division at
(816) 860-7786.
FORM 10-K INFORMATION
A copy of the Company's 1O-K, filed with the Securities and Exchange Commission,
is available without charge to any shareholder. Requests should be directed to:
First Financial Bancorporation, Attn.: Chief Financial Officer, P.O. Box 1880,
Iowa City, Iowa, 52244-1880.
The Iowa Banking Act was amended effective January 1, 1991, to permit the
acquisition of control of certain Iowa banks and Iowa-based bank holding
companies by regional bank holding companies subject to newly enacted statutory
criteria and the prior approval of the Iowa Superintendent of Banking
(Superintendent). The new legislation changed but did not repeal the
pre-existing Iowa law which permits the acquisition of Iowa banks by bank
holding companies within limitations based upon the ratio of the aggregate
amount of Iowa-based time and demand deposits of the controlled banks to the
total of the time and demand deposits of all Iowa banks.
The new law permitted an Iowa-based bank holding company to exempt itself for a
specified period of time from acquisition under the new law by a regional bank
holding company if a resolution was adopted by its board of directors and filed
with the Superintendent before January 1, 1991. On December 27, 1990, the board
of directors adopted a resolution exempting the company under the new law for a
period ending June 30, 1991, unless renewed as provided under the Iowa law. A
certified copy of the resolution was filed with the Superintendent prior to
January 1, 1991. Subsequent to January 1, 1991, renewals have been filed with
the Superintendent, the latest extending the exemption from December 31, 1995,
to December 31, 1996. The new law also prohibits a regional bank holding company
from acquiring an Iowa-based bank holding company unless each of its subsidiary
banks has been in existence and continuously operated as a bank for five or more
years. In 1994, Congress enacted legislation which provides for interstate
banking and branching effective July 1, 1997. Certain provisions supersede state
regulations, while others delegate a certain degree of discretion to individual
states. Further clarification of the issue as it relates to Iowa is expected
during the 1996 state legislative session. It is unclear what, if any, impact
this provision will have on the market for the Company's stock.
P. 17 of 48
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Consolidated Five Year Statistical Summary
(In Thousands of Dollars, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
===========================================================================================================
YEAR-END TOTALS
Assets $ 457,236 $ 434,461 $ 434,081 $ 411,197 $ 391,237
Investment Securities Available for Sale 123,886 78,621 97,655 - - - -
Investment Securities Held to Maturity - - 30,608 36,856 140,662 147,399
Federal Funds Sold 3,225 600 17,525 16,000 18,500
Loans, Gross 294,529 294,707 254,207 225,411 200,558
Deposits 385,055 362,263 363,580 355,357 344,885
Federal Home Loan Bank Advances 17,469 20,628 18,283 11,000 - -
Stockholders' Equity 50,207 45,245 43,993 39,940 36,492
===========================================================================================================
EARNINGS
Total Interest Income $ 31,742 $ 29,205 $ 28,236 $ 29,260 $ 31,456
Total Interest Expense 15,811 13,624 14,057 16,126 19,353
Provision for Loan Losses 366 425 155 120 120
Noninterest Income 6,236 5,699 5,924 5,310 4,684
Noninterest Expense 15,480 14,532 13,041 11,722 10,527
Applicable Income Taxes 1,751 1,760 1,852 1,688 1,649
Net Income 4,570 4,563 5,055 4,914 4,491
===========================================================================================================
PER SHARE DATA
Earnings Per Common & Common
Equivalent Share $ 1.91 $ 1.91 $ 2.14 $ 2.10 $ 1.92
Cash Dividends .76 .73 .70 .66 .62
Dividend Payout Percentage on Average
Outstanding Common Shares 39.63% 37.98% 32.23% 31.14% 31.98%
Book Value as of December 31 21.07 19.06 18.91 17.22 15.77
===========================================================================================================
PERFORMANCE & CAPITAL MEASURES
Return on Average Total Assets 1.02% 1.03% 1.19% 1.23% 1.20%
Return on Average Stockholders' Equity 9.65% 10.10% 12.07% 12.88% 13.04%
Percentage of Average Stockholders
Equity to Average Total Assets 10.54% 10.24% 9.84% 9.56% 9.21%
==========================================================================================================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
Consolidated net income increased $7,000 or.2% to $4,570,000 for the year ended
December 31, 1995 compared to the $4,563,000 recorded in 1994 and the $5,055,000
recorded in 1993. Although 1995 performance was relatively flat in comparison to
that of 1994, during the last six months of 1995, much was accomplished to
enhance shareholder value and customer service.
================================================================================
NET INCOME GRAPH
The Company's net income for the years ended December 31, 1995, 1994, 1993, 1992
and 1991 was $4,570,000, $4,563,000, $5,055,000, $4,914,000 and $4,491,000,
respectively.
================================================================================
Beginning in the third quarter of 1995, management took steps to improve and
streamline the operational and managerial structure of the Company. One result
of these efforts was a Voluntary Severance Program (VSP) which was offered in
the fourth quarter to all employees with three or more years of continuous
service and who met certain other criteria. The VSP resulted in the recognition
of $354,000 of severance benefits expense in the fourth quarter. The combination
of a number of additional noninterest expense reduction strategies, some of
which were initiated in the fourth quarter of 1995 and others of which are
planned for implementation in 1996, will have a significant and positive effect
upon future earnings performance.
Another area which management feels will have a positive long-term effect upon
future earnings is the construction of two new offices by the Iowa City Bank
during 1995. The North Liberty Office permanent facility was opened in December
1995, and the Southwest Iowa City Office permanent facility was opened in
February 1996. Both offices are strategically located to provide full service
banking to rapidly growing areas within the Cedar Rapids-Iowa City corridor.
P. 18 of 48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME
For the year ended December 31, 1995, net interest income, on a fully tax
equivalent basis, totaled $16,985,000 and represented an increase of $350,000 or
2.1 % above the $16,635,000 of net interest income reported in 1994, which was
$1,305,000 or 8.5% higher than the $15,330,000 recorded in 1993. Asset growth
and an improved net interest margin accounted for the increase in net interest
income. Average earning assets increased $7,046,000 or 1.7% in 1995, to
$417,620,000 compared to an increase of $14,978,000 or 3.8% to $410,574,000 in
1994. The net interest margin, on a tax equivalent basis, increased from 4.05%
in 1994 to 4.07% in 1995. To maintain this net interest margin, management is
committed to controlling interest rate risk, properly matching asset and
liability balances, terms and rates, maintaining positive rate spreads between
loans and deposits and maintaining sufficient liquidity.
================================================================================
NET INTEREST INCOME GRAPH
The yield on average earning assets, the interest cost of funds for assets and
the resulting net interest income, as a percentage of average earning assets,
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 are presented
in the table below.
1995 1994 1993 1992 1991
Yield on Average Earning Assets 7.85% 7.37% 7.43% 8.17% 9.24%
Interest Expense to Average
Earning Assets 3.78% 3.32% 3.55% 4.34% 5.51%
Net Interest Margin 4.07% 4.05% 3.88% 3.83% 3.73%
================================================================================
DIVIDEND HISTORY
The Company paid cash dividends totaling $1,811,000 in 1995, $1,733,000 in 1994
and $1,629,000 in 1993. Cash dividends have increased $78,000 or 4.5% in 1995,
$104,000 or 6.4% in 1994 and $99,000 or 6.5% in 1993. The dividend payout
percentage for 1995, 1994 and 1993 was 39.63%, 37.98% and 32.23%, respectively.
It is anticipated that the Company will continue to pay this approximate level
of cash dividends in the foreseeable future.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses is an estimate of the anticipated losses in the
loan portfolio. The adequacy of the allowance for loan losses is determined
based on historical loss experience, projected loan losses and other factors. As
of December 31, 1995, the allowance for loan losses was $3,602,000, an increase
of $248,000 or 7.4% over the 1994 year end balance of $3,354,000. Nonaccrual
loan balances decreased $174,000 or 13.7% to $1,100,000 in 1994 and $830,000 or
75.5% to $270,000 in 1995. Past due loan balances decreased $8,000 or 11.8% to
$60,000 in 1994 and increased $213,000 or 355% to $273,000 in 1995. Net
charge-offs in 1995 totaled $118,000 compared to net charge-offs of $172,000 and
$60,000 for 1994 and 1993, respectively. As of December 31, 1995, 1994 and 1993
the loan loss reserve balance was 1.22%, 1.14% and 1.22% of total outstanding
loan balances, respectively. These ratios are comparable to those of other
organizations of similar size and demographics.
For 1995, the provision for loan losses totaled $366,000 which is down $59,000
or 13.9% from the $425,000 recorded in 1994, which was up $270,000 or 174.2%
from the $155,000 recorded in 1993.
There are no trends or uncertainties which management expects to materially
impact the adequacy of the allowance for loan losses or provision expense in the
foreseeable future.
P. 19 of 48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
NONINTEREST INCOME
For the year ended December 31, 1995, noninterest income increased $537,000 or
9.4% to $6,236,000, compared to a decrease of $225,000 or 3.8% to $5,699,000 in
1994 and an increase of $614,000 or 11.6% to $5,924,000 in 1993. Noninterest
income as a percentage of average total assets was 1.4% as of December 31, 1995,
which is an increase over the 1.3% reported as of December 31, 1994, and equals
the ratio reported for 1993.
================================================================================
NONINTEREST INCOME GRAPH
A five year comparison of the major components of noninterest income is provided
for the years 1995, 1994, 1993, 1992 and 1991.
(Amounts In Thousands)
1995 1994 1993 1992 1991
Investment and OREO Gains, Net $ - - $ - - $ - - $ 68 $ 25
Service Charges on Deposit Accounts $1,470 $1,327 $1,310 $1,305 $1,288
Trust Department Fees $2,763 $2,594 $2,416 $2,222 $2,004
Other Service Charges and Fees $2,003 $1,778 $2,198 $1,715 $1,367
================================================================================
Trust fees provided a significant source of noninterest income in 1995. Trust
fees increased $169,000 or 6.5% to $2,763,000 in 1995, compared to an increase
of $178,000 or 7.4% to $2,594,000 in 1994 and an increase of $194,000 or 8.7% to
$2,416,000 in 1993. Increased trust asset balances and number of trust accounts
accounted for this improved level of earnings.
Other service charges, commissions and fees increased $225,000 or 12.7% to
$2,003,000 in 1995, compared to a decrease of $420,000 or 19.1% to $1,778,000 in
1994 and an increase of $483,000 or 28.2% to $2,198,000 in 1993. The
fluctuations in this income category is primarily due to secondary market loan
fees which increased $58,000 or 13.7% to $480,000 in 1995, but decreased
$604,000 or 58.9% to $422,000 in 1994 and increased $388,000 or 60.7% to
$1,026,000 in 1993. Secondary market mortgage loan fees are a direct function of
the volume of loans originated for sale in the secondary market, which in turn
is driven by lower interest rates. The Company has developed and is marketing
alternative products and services in conjunction with promoting customer cross
selling to provide additional sources of noninterest income.
NONINTEREST EXPENSES
Noninterest expenses increased $948,000 or 6.5% to $15,480,000 in 1995, compared
to $1,491,000 or 11.4% to $14,532,000 in 1994 and $1,319,000 or 11.3% to
$13,041,000 in 1993. As a percentage of average total assets, noninterest
expenses increased to 3.4% in 1995, when compared to the 3.3% level in 1994 and
the 3.1% level in 1993.
================================================================================
NONINTEREST EXPENSE GRAPH
A five year comparison of the major components of noninterest expense is
provided for the years 1995, 1994, 1993, 1992 and 1991.
(Amounts in Thousands)
1995 1994 1993 1992 1991
Supplies and Postage and DP $2,180 $1,770 $1,628 $1,486 $1,310
Occupancy and Bank Premise $2,726 $2,515 $2,212 $1,756 $1,555
Other Expenses $2,897 $3,176 $2,998 $2,802 $2,485
Salaries and Employee Benefits $7,677 $7,071 $6,203 $5,678 $5,177
================================================================================
Salaries and employee benefit expenses increased $606,000 or 8.6% to $7,677,000
in 1995, $868,000 or 14% to $7,071,000 in 1994 and $525,000 or 9.2% to
$6,203,000 in 1993. As part of the Company's restructuring initiative, a
Voluntary Severance Program was offered to its employees resulting in $354,000
of severance benefits being expensed in the fourth quarter of 1995. The balance
of the increase in 1995 was due to normal salary adjustments and employee
incentive awards. For 1994 and 1993, increased staffing levels accounted for the
majority of the increase in expense, as the number of full time equivalent (FTE)
employees increased from 234 as of December 31, 1993, to 244 as of December 31,
1994. The increase in the number of FTE employees was due to the building of the
Company's infrastructure to compete in the future. Adjustments for cost of
living and salary increases accounted for the remaining increases in 1994 and
1993. Management believes that future noninterest expense performance will be
positively impacted as a consequence of 1995's Voluntary Severance Program as
well as additional restructuring efforts planned for 1996. FTE employees at
December 31, 1995, totaled 221, a reduction of 23 from the December 31, 1994,
level of 244. The seventeen Voluntary Severance Program participants will leave
the Company's employment during the first quarter of 1996, resulting in a
projected decrease in salary and benefit expenses of approximately $630,000 for
1996.
P. 20 of 48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
NONINTEREST EXPENSES (continued)
Occupancy, furniture and equipment expenses increased $211,000 or 8.4% to
$2,726,000 in 1995, $303,000 or 13.7% to $2,515,000 in 1994 and $456,000 or 26%
to $2,212,000 in 1993. The added operating costs in 1995 associated with the
Iowa City Bank's two recently opened offices (North Liberty and Southwest Iowa
City), the renovation of the Iowa City Bank's main banking facility and opening
of the Cedar Rapids Bank's Downtown office in 1994, and the addition to the main
banking facility in 1993 contributed to this increase in expenses. The impact of
these physical expansions are already reflected in current year occupancy
expenses and will not significantly affect occupancy expense in 1996. Management
feels that all of these physical expansions are strategic to the long-term
growth of the Company and shareholder value.
Data processing expenses increased $229,000 or 24.7%, $176,000 or 23.5% and
$115,000 or 18.1% to $1,155,000, $926,000 and $750,000, respectively for 1995,
1994 and 1993. These increases are due to increased credit card processing and
electronic banking system expenses which are volume driven.
Other expenses totaled $2,897,000, $3,176,000 and $2,998,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. A decrease in other expenses was
reported in 1995 of $279,000 or 8.8% due to the lowering of the FDIC insurance
assessment rate for the Iowa City Bank from $.23 per $100 in deposits to $.04
retroactive to June 1, 1995. As a result, the Company realized a reduction in
expense of $339,000 or 41.1% to $485,000 for the year. In 1994 FDIC insurance
expense increased $19,000 or 2.4% to $824,000 and $21,000 or 2.7% to $805,000 in
1993. Increased deposits and premium rates were primarily responsible for these
increases. Other expenses increased $178,000 or 5.9% to $3,176,000 in 1994 and
$196,000 or 7% to $2,998,000 in 1993. Consulting and professional fees increased
$73,000 or 15.4% in 1994 to $546,000 and $119,000 or 33.6% in 1993 to $473,000.
Advertising and promotional expenses increased $25,000 or 5.5% and $20,000 or
4.6% in 1994 and 1993 to $482,000 and $457,000, respectively.
Legislation is currently underway to determine a one-time insurance premium
assessment to fully fund the Savings and Loan Association Insurance Fund (SAIF)
insurance reserve. This assessment will be applicable to the Cedar Rapids Bank
because of the manner under which the Company acquired the deposits of the Cedar
Rapids Bank from the Resolution Trust Corporation in 1991. Although the amount
of the assessment is currently unknown, pending the approval and enactment of
proposed legislation, it will likely be charged to the Cedar Rapids Bank
sometime during 1996 and potentially may have a material effect upon expenses.
Management does not anticipate any other factors, trends or occurrences which
will materially impact future expenses.
INCOME TAXES
The marginal income tax rates for calculating income tax expense were 34% and 5%
for federal and state taxes, respectively, for the years 1995, 1994 and 1993.
The income tax expense as of December 31, 1995, 1994 and 1993 was $1,751,000,
$1,760,000 and $1,852,000, respectively. The changes in income tax expense are
less than the amounts computed by applying the statutory tax rates to the
differences in pre-tax income primarily because of tax exempt interest.
FINANCIAL POSITION
TOTAL ASSETS: Total assets of the Company were $457,236,000 as of December 31,
1995, which represented an increase of $22,775,000 or 5.2% over total assets of
$434,461,000 as of December 31, 1994, which was $380,000 over 1993 total assets
of $434,081,000. Average total assets for 1995 were $449,391,000 which is an
increase of $8,405,000 or 1.9% over 1994 average total assets of $440,986,000
which was a $15,180,000 or 3.6% increase over 1993 average total assets of
$425,806,000. The funding for this asset growth was provided by average deposit
growth of $7,864,000 or 2.1 % in 1995, $7,345,000 or 2% for 1994 and $10,037,000
or 2.8% for 1993. Average Federal Home Loan Bank (FHLB) advances increased
$58,000 or.3% in 1995 and $3,325,000 or 20.2% in 1994. In addition, average
stockholders' equity balances increased $2,215,000 or 4.9% in 1995 and
$3,273,000 or 7.8% in 1994, primarily through retention of earnings.
================================================================================
AVERAGE TOTAL ASSETS
A five year comparison of the major components of average total consolidated
assets for 1995, 1994, 1993, 1992 and 1991 are listed in the following table.
(Amounts in Thousands)
1995 1994 1993 1992 1991
Federal Funds Sold $ 11,200 $ 5,800 $ 16,600 $ 13,400 $ 19,300
Other Assets $ 35,300 $ 33,600 $ 33,200 $ 30,100 $ 25,500
Investment Securities $111,800 $127,700 $141,400 $146,700 $129,100
Net Loans $291,100 $273,900 $234,600 $208,800 $200,200
================================================================================
P. 21 of 48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
FINANCIAL POSITION (continued)
INVESTMENTS: The Company's average investment portfolio balances for 1995 were
$111,790,000, which decreased $15,894,000 or 12.4% from 1994 average investment
portfolio balances of $127,684,000. The decrease in average investment portfolio
balances is the result of funding loan demand with maturing investment
securities. As of December 31, 1995, United States Treasury securities comprised
25.9% of the investment portfolio compared to 38.6% as of the end of 1994.
LOAN BALANCES: As of December 31, 1995, total loan balances decreased $178,000
or .1% to $294,529,000 as compared to total loan balances of $294,707,000 as of
December 31, 1994. Average loan balances increased by $17,548,000 or 6.3% in
1995 to $294,649,000, when compared to average loan balances of $277,101,000 for
1994. The Company experienced the majority of its loan growth in real estate
loan balances due to construction activity and housing turnover in the local
market area, as well as to refinancing stimulated by favorable interest rates.
Real estate loan balances increased $6,932,000 or 3.3% to $217,783,000 in 1995.
================================================================================
AVERAGE TOTAL NET LOANS GRAPH
Average total net loans for the years 1995, 1994, 1993, 1992 and 1991 were
$291,100,000, $273,900,000, $234,600,000, $208,800,000 and $200,200,000,
respectively.
================================================================================
TOTAL DEPOSITS: Total deposits increased $22,792,000 or 6.3% to $385,055,000 in
1995 when compared to total deposits of $362,263,000 as of December 31, 1994.
Throughout 1995, total deposit balances averaged $378,259,000, an increase of
$7,864,000 or 2.1% over the average total deposits balances of $370,395,000 in
1994. Average time deposit balances increased $9,554,000 or 5.4% to $188,135,000
in 1995 compared to an increase of $1,340,000 or.8% to $178,581,000 in 1994.
Average interest-paying account balances decreased $1,333,000 or.9% to
$147,793,000 in 1995 as did noninterest-paying balances which decreased $357,000
or .8% to $42,331,000 in 1995. Given the decreasing interest rate environment,
many deposit customers have preferred time deposits over liquid savings and
money market accounts.
================================================================================
AVERAGE TOTAL DEPOSITS GRAPH
A five year comparison of the noninterest bearing and interest bearing balances
of average total deposits for 1995, 1994, 1993, 1992 and 1991 are listed in the
following table.
(Amounts in Thousands)
1995 1994 1993 1992 1991
Noninterest Bearing $ 42,300 $ 42,700 $ 40,300 $ 35,100 $ 34,100
Interest Bearing $336,000 $327,700 $322,800 $317,900 $299,000
================================================================================
CAPITAL: The soundness, safety and stability of a financial institution is very
important to customers and shareholders when establishing a business
relationship or when purchasing stock of a financial institution. Management
realizes that this is essential for the Company's continued growth and
profitability. As such, management places great emphasis in maintaining a strong
capital position. A strong capital position is beneficial to the Company,
enabling it to withstand significant long-term adverse economic conditions and
to take advantage of opportunities for future development and profitability. As
of December 31, 1995 and 1994, total stockholders' equity was $50,207,000 and
$45,245,000, respectively. As of December 31, 1995 and 1994, the Company's Tier
1 capital percentage was 18.28% and 17.81 % and its total risk adjusted capital
percentage (Tier 1 capital plus Tier 2 capital) was 19.51% and 19.02%,
respectively. All of these ratios substantially exceed the regulatory minimums
of 4.00% and 8.00%. The Company's leverage capital ratio was 11.46% as of
December 31, 1995, compared to 11.05% as of December 31, 1994, also considerably
higher than the 3.00% floor. There are no plans, trends, events or uncertainties
that are likely to have a material effect on liquidity or capital resources.
CAPITAL EXPENDITURES: The construction of two new office buildings was
fundamentally completed; one opened in December 1995, and one opened in February
1996. The funding of both capital projects was provided by maturing investment
securities. Remaining capital expenditures to bring these offices to final
completion in 1996 is estimated to be $250,000.
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES
AVERAGE INTEREST-EARNING ASSETS: In 1995, average interest-earning assets
(consisting primarily of loans and investment securities) totaled $417,620,000
and represented 92.9% of total average asset balances. This is an increase of
$7,046,000 or 1.7% over 1994 average interest-earning asset balances of
$410,574,000.
P. 22 of 48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES (continued)
During 1995, there was a shift in balances between average interest-earning
asset categories. Average investment security balances decreased $15,894,000 or
12.4% from $127,684,000 in 1994 to $111,790,000 in 1995. The decrease in average
investment balances was offset by a corresponding increase in average loan
balances. Average loan balances increased $17,548,000 or 6.3% to $294,649,000 in
1995, over 1994 average balances of $277,101,000. Average federal funds sold
balances increased to $11,181,000 in 1995, a $5,392,000 or 93.1% increase over
1994 average balances of $5,789,000. The main funding source of this asset
growth was provided by increased average deposit balances.
AVERAGE INTEREST-PAYING LIABILITIES: Asset growth was funded by the retention of
Company earnings and interest-paying deposit balances, primarily certificates of
deposits. In 1995, average interest-paying liability balances increased
$6,350,000 or 1.8% over 1994 balances of $349,685,000 and totaled $356,035,000,
which represented 79.2% of total average assets. Average time-deposit balances
increased $9,554,000 or 5.4% in 1995 to $188,135,000 when compared to the
$178,581,000 of average balances reported for 1994. Average shareholders' equity
increased $2,215,000 or 4.9% in 1995 to $47,381,000 when compared to 1994
average balance of $45,166,000.
INTEREST RATE RISK AND LIQUIDITY: Management has designated the Asset/Liability
Management Committee (ALCO) to maintain adequate liquidity and to control
interest rate risk. Liquidity management involves the ability of the Company to
meet the withdrawal needs of its depositors, the credit and financing needs of
its borrowers and the funding needs for capital expenditures. Liquidity can be
achieved and maintained by matching maturing balances of interest-earning assets
and interest-paying liabilities. The Company has several major funding sources
which are sufficient to meet all of its current and future liquidity needs.
These funding sources consist of selling federal funds sold, investment
securities and loans, obtaining deposits, and borrowing from the FHLB.
Alternative funding sources consist of repurchase agreements, federal funds
purchased and repos.
Over the past year, interest rates have generally declined for both
interest-earning assets and interest-paying liabilities. This trend has had a
negative impact on the Company's earnings because more interest-earning assets
repriced than interest-paying liabilities. As rates continue to drop, the
Company is striving to become more liability sensitive by issuing variable rate
certificates of deposits and shortening the maturity terms of its deposits.
Interest rate risk management will continue to be of key importance in reducing
the effect of declining interest rates on net interest income. One method to
reduce interest rate risk is by matching asset and liability categories by
maturity terms or repricing dates and interest rates. At December 31, 1995, the
Company had $153,644,000 or 36.4% of interest earning assets subject to
repricing and/or maturity within the next twelve months as compared to
$136,741,000 or 38.4% of interest-paying liabilities. This subjects the Company
to interest rate risk on $16,903,000 of interest-earning assets over the next
year should rates decrease. The Company's net interest income would increase if
interest rates increase during the next year. This interest rate risk could be
reduced by shortening the maturities of deposits and liabilities and lengthening
the maturities of investments and loans.
EFFECTS OF INFLATION: Although it has not been an important factor in recent
years, the rate of inflation can have a significant impact on the balance sheet
and income statement of the Company if not continuously reviewed and monitored
for the purpose of making adjustments to the Company's operations. To minimize
the potential impact of inflation, management has established the ALCO
Committee, effective cost and purchasing controls, and ongoing mechanisms and
systems for evaluating and adjusting the pricing of products and ancillary
services.
RECENTLY ISSUED ACCOUNTING STANDARDS
The adoption of recently issued accounting standards is not expected to have a
material effect on the financial statements.
P. 23 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
- --------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
FIRST FINANCIAL BANCORPORATION
(Amounts In Thousands)
<S> <C> <C>
December 31, 1995 1994
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 10) $ 16,443 $ 13,196
Investment securities: (Note 2)
Available for sale(amortized cost 1995 $123,442;
1994 $81,405) 123,886 78,621
Held to maturity (fair value 1995 none; 1994 $30,648) - - 30,608
Federal funds sold 3,225 600
Loans, net (Notes 3, 6 and 9) 290,927 291,353
Bank premises and equipment, net (Note 4) 12,488 10,912
Accrued interest receivable 3,367 3,175
Income tax refund receivable 222 128
Deferred income taxes (Note 7) - - 1,275
Intangible assets 779 945
Prepaid pension cost (Note 8) 2,860 2,051
Other assets 3,039 1,597
- --------------------------------------------------------------------------------
$ 457,236 $ 434,461
========= =========
LIABILITIES
Noninterest-bearing deposits $ 46,192 $ 44,235
Interest-bearing deposits 338,863 318,028
------- -------
Total deposits (Note 5) $ 385,055 $ 362,263
Federal funds purchased and securities
sold under agreements to repurchase - - 3,200
Federal Home Loan Bank advances (Note 6) 17,469 20,628
Other borrowings 67 161
Accrued interest payable 1,553 1,283
Deferred income taxes (Note 7) 68 - -
Accounts payable and other accrued expenses 2,817 1,681
- --------------------------------------------------------------------------------
$ 407,029 $ 389,216
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 8 and 10)
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 42,854 40,095
Unrealized gains (losses) on debt securities, net 279 (1,745)
- --------------------------------------------------------------------------------
$ 50,207 $ 45,245
- --------------------------------------------------------------------------------
$ 457,236 $ 434,461
========= =========
See Notes to Financial Statements.
</TABLE>
P. 24 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
FIRST FINANCIAL BANCORPORATION
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Years Ended December 31, 1995 1994 1993
INTEREST INCOME:
Interest and fees on loans $ 24,449 $ 21,898 $ 19,625
Interest on investment securities:
Taxable 5,251 5,712 6,603
Non-taxable 1,384 1,373 1,511
Interest on federal funds sold 658 222 497
- -------------------------------------------------------------------------------------------------
Total interest income $ 31,742 $ 29,205 $ 28,236
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits $ 14,598 $ 12,333 $ 13,038
Interest on federal funds purchased and securities
sold under agreements to repurchase 14 90 7
Interest on Federal Home Loan Bank advances 1,199 1,184 985
Interest on other borrowings - - 17 27
- -------------------------------------------------------------------------------------------------
Total interest expense $ 15,811 $ 13,624 $ 14,057
- -------------------------------------------------------------------------------------------------
Net interest income $ 15,931 $ 15,581 $ 14,179
Provision for loan losses (Note 3) 366 425 155
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $ 15,565 $ 15,156 $ 14,024
- -------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Trust fees $ 2,763 $ 2,594 $ 2,416
Services charges and fees on deposit accounts 1,470 1,327 1,310
Other service charges, commissions and fees 2,003 1,778 2,198
- -------------------------------------------------------------------------------------------------
Total noninterest income $ 6,236 $ 5,699 $ 5,924
- -------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 8) $ 7,677 $ 7,071 $ 6,203
Occupancy 1,141 1,042 923
Furniture and equipment 1,585 1,473 1,289
Data processing 1,155 926 750
Office supplies and postage 1,025 844 878
Other expenses 2,897 3,176 2,998
- -------------------------------------------------------------------------------------------------
Total noninterest expenses $ 15,480 $ 14,532 $ 13,041
- -------------------------------------------------------------------------------------------------
Income before income taxes $ 6,321 $ 6,323 $ 6,907
Federal and state income taxes (Note 7) 1,751 1,760 1,852
- -------------------------------------------------------------------------------------------------
Net income $ 4,570 $ 4,563 $ 5,055
======== ======== ========
AVERAGE COMMON STOCK AND COMMON EQUIVALENT SHARES 2,392,893 2,384,319 2,360,822
========= ========= =========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 1.91 $ 1.91 $ 2.14
========= ======== ========
See Notes to Financial Statements.
</TABLE>
P. 25 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FIRST FINANCIAL BANCORPORATION
(Amounts in Thousands of Dollars, Except Per Share Data)
Common Stock Additional Unrealized Gains
Years Ended December 31, $1.25 Par Value Paid-in Retained (Losses) on Debt
1995,1994 and 1993 Number Amount Capital Earnings Securities, Net Total
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 2,319 $ 2,899 $ 3,202 $ 33,839 $ - - $ 39,940
Net income - - - - - - 5,055 - - 5,055
Cash dividends ($.70 per share) - - - - - - (1,629) - - (1,629)
Stock options exercised for
8,900 shares (Note 8) 9 11 141 - - - - 152
Redemption of 1,128 shares
of common stock (Note 8) (1) (1) (24) - - - - (25)
Cumulative effect of accounting
change (Note 1) - - - - - - - - 500 500
===================================================================================================================
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 (Note 8) 72 89 1,209 - - - - 1,298
Redemption of 24,721 shares
of common stock (Note 8) (25) (31) (600) - - - - (631)
Unrealized (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 - - - - - - 4,570 - - 4,570
Cash dividends ($.76 per share) - - - - - - (1,811) - - (1,811)
Stock options exercised for
12,087 shares (Note 8) 12 15 233 - - - - 248
Redemption of 2,772 shares
of common stock (Note 8) (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
===== ======= ======= ======== ========= ========
</TABLE>
See Notes to Financial Statements.
P. 26 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST FINANCIAL BANCORPORATION
(Amounts In Thousands)
<S> <C> <C> <C>
Years Ended December 31, 1995 1994 1993
============================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,570 $ 4,563 $ 5,055
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,246 1,025 861
Amortization 166 165 165
Provision for loan losses 366 425 155
Deferred income taxes 139 138 129
Amortization on investment securities 28 (65) (46)
(Increase) decrease in accrued interest receivable (192) (70) 744
(Increase) decrease in other assets (2,251) 1,781 (1,281)
Increase (decrease) in accrued interest and other liabilities 1,406 (356) (73)
Change in accrued income taxes (94) (177) 101
---------- --------- ---------
Net cash provided by operating activities $ 5,384 $ 7,429 $ 5,810
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 38,063 $ 40,700 $ - -
Purchases (46,511) (25,208) - -
Held to maturity securities:
Maturities - - 6,892 58,245
Purchases (3,009) (617) (51,251)
Federal funds sold, net (2,625) 16,925 (1,525)
Net increase (decrease) in loan balances outstanding 60 (40,672) (28,856)
Purchase of bank premises and equipment (2,822) (1,247) (2,448)
---------- --------- ---------
Net cash (used in) investing activities $ (16,844) $ (3,227) $(25,835)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit balances $ 22,792 $ (1,317) $ 8,223
Federal funds purchased and securities sold under
agreements to repurchase (3,200) (1,325) 3,370
Repayment of note principal (161) (170) (21)
Federal Home Loan Bank advances (3,159) 2,345 7,283
Other borrowings 67 - - - -
Dividends paid (1,811) (1,733) (1,629)
Stock options exercised 248 1,298 152
Common stock redeemed (69) (631) (25)
---------- --------- ---------
Net cash provided by (used in) financing activities $ 14,707 $ (1,533) $ 17,353
---------- --------- ---------
Increase (decrease) in cash and due from banks $ 3,247 $ 2,669 $ (2,672)
CASH AND DUE FROM BANKS
Beginning balance 13,196 10,527 13,199
--------- -------- --------
Ending balance $ 16,443 $ 13,196 $ 10,527
========= ======== ========
Supplemental Disclosures (Note 11)
============================================================================================================
See Notes to Financial Statements.
</TABLE>
P. 27 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF BUSINESS: The Company is a bank holding company which owns 100% of the
outstanding common stock of First National Bank, Iowa City, Iowa, and First
National Bank, Cedar Rapids, Iowa. Both subsidiary banks are engaged in many
areas of commercial banking, including deposits, lending and a variety of
customer services. The trust departments of the banks administer fiduciary
accounts and provide the banks with a significant source of fee income.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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.
TRUST ASSETS: Trust accounts (other than cash deposits) held by the banks in a
fiduciary or agency capacity for its customers are not included in the
accompanying financial statements because such items are not assets of the
banks.
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.
INVESTMENTS IN DEBT SECURITIES: Effective December 31, 1993, the Company adopted
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and classified all such investments as held to maturity or
available for sale.
Investment securities available for sale are accounted for at fair value and the
unrealized holding gains or losses are presented as a separate component of
stockholders' equity, net of their deferred income tax effect. The cumulative
effect of the account change was reflected in the statement of stockholders'
equity as of December 31, 1993.
Investment securities held to maturity are those for which the Company has the
ability and intent to hold to maturity. Securities meeting such criteria at the
date of purchase and as of the balance sheet date are carried at cost, adjusted
for amortization of premiums and discounts. Gains and losses on sales of
investment securities are based upon the amortized cost of the specific
securities sold.
Pursuant to a FASB Special Report, "A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities," the
Company transferred at fair value $30,405,000 of investment securities from held
to maturity to available for sale in December 1995.
LOANS: Loans are stated at the amount of unpaid principal, reduced by the
allowance for loan losses.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance when management
believes the collectibility of principal is unlikely.
The allowance for possible loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably anticipated. The banks
make continuous credit reviews of the loan portfolios and will consider current
economic conditions, historical loan loss experience, review of specific problem
loans, and other factors in determining the adequacy of the allowance.
P. 28 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 114, "Accounting for Creditors for Impairment
of a Loan," loans are considered impaired when, based on all current information
and events, it is probable that the bank will not be able to collect all amounts
due. The portion of allowance for loan losses applicable to impaired loans has
been computed based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans is reported as
bad debt expense in the same manner in which impairment initially was recognized
or as a reduction in the amount of bad debt expense that other wise would be
reported. Interest income on impaired loans is recognized on the cash basis.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount is amortized as an adjustment of the related
yield of the loans. The deferred amounts are amortized over the estimated life
of the loans, anticipating prepayments.
BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed primarily by the
straight-line method over estimated useful lives of 15-39 years for buildings
and 3-15 years for furniture and equipment.
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
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
EMPLOYEE BENEFIT PLANS: Annual expense of the Company's defined benefit pension
plan includes service cost (measured by the projected unit credit method),
interest on the projected benefit obligation, actual return on plan assets and
other amortization and deferral amounts specified by FASB Statement No. 87.
Deferred benefits under a salary continuation plan are charged to expense during
the period the respective employee attains full eligibility. The banks do not
provide any other post-employment benefits.
STOCK OPTIONS: Compensation expense for stock issued through stock options plans
is accounted for using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under this
method, compensation is measured as the difference between the estimated market
value of the stock at the date of award less the amount required to be paid for
the stock. The difference, if any, is charged to expense over the periods of
service.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS: FASB Statement No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. When quoted market prices are not available, fair values are based
on estimates using present value or other techniques. These assumptions are
significantly affected by the assumptions used, including the discount rates and
estimates of future cash flows. In this regard, fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in an immediate settlement. Some financial instruments and all
nonfinancial instruments are excluded from the disclosures. The aggregate fair
value amounts presented do not represent the underlying value of the Company.
P. 29 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
The following methods and assumptions were used by the banks in estimating the
fair value of their financial instruments:
CASH AND DUE FROM BANKS: Cash and due from banks represent short-term
instruments and fair value is equal to the carrying amounts of the accounts.
INVESTMENT SECURITIES: Investment securities are valued based upon quoted market
prices.
LOANS: For variable-rate loans, fair values are based on carrying values. The
fair values for other loans are estimated based upon discounted cash flows,
using current interest rates for similar loans to borrowers with similar credit.
The carrying value of accrued interest approximates fair value.
DEPOSITS: The fair value of demand deposits and variable rate money market and
fixed-term deposits is the carrying value of the deposits. Fair values for fixed
rate certificates is based upon discounted cash flows at current interest rates.
The carrying value of accrued interest payable approximates its current value.
OTHER BORROWINGS: For other borrowings, fair value is based upon discounted cash
flows using the banks' current incremental borrowing rates for similar borrowing
arrangements.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: Off-balance-sheet instruments are
valued based upon the current fee structure for outstanding letters of credit,
which is not significant. Unfunded loan commitments are not valued since the
loans are generally priced at market at the time of funding.
RECENTLY ISSUED ACCOUNTING STANDARDS: The Company believes that the adoption of
recently issued accounting standards will not have a material or significant
effect on the financial statements.
P. 30 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 2. INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The amortized cost and fair value of debt securities available for sale are as follows:
(Amounts in Thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains (Losses) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 31,894 $ 183 $ (50) $ 32,027
U.S. Government agencies and corporations 63,493 366 (628) 63,231
States and political subdivisions 25,830 610 (37) 26,403
Other 2,225 - - - - 2,225
- -------------------------------------------------------------------------------------------------------
Total $ 123,442 $ 1,159 $ (715) $ 123,886
========= ======== ======== =========
December 31, 1994
- -------------------------------------------------------------------------------------------------------
U.S. Treasury $ 43,100 $ - - $ (970) $ 42,130
U.S. Government agencies and corporations 36,156 - - (1,814) 34,342
Other 2,149 - - - - 2,149
- -------------------------------------------------------------------------------------------------------
Total $ 81,405 $ - - $(2,784) $ 78,621
========= ======== ======== =========
</TABLE>
The Company transferred securities with an amortized cost of $29,804,000 and an
unrealized gain of $601,000 from the held to maturity portfolio to the available
for sale portfolio on December 31, 1995, based on management's reassessment of
their previous designations of securities, giving consideration to liquidity
needs, management of interest rate risk, and other factors.
<TABLE>
The amortized cost and fair value of debt securities held to maturity are as follows:
(Amounts in Thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains (Losses) Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations $ 7,687 $ 76 $ (147) $ 7,616
States and political subdivisions 22,921 314 (203) 23,032
- --------------------------------------------------------------------------------------------
Total $ 30,608 $ 390 $ (350) $ 30,648
======== ======= ======== ========
</TABLE>
<TABLE>
The contractual maturity distribution of investment securities is summarized as follows:
(Amounts in Thousands)
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
December 31, 1995 Cost Value Cost Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 18,332 $ 18,350 $ - - $ - -
Due after one year through five years 48,435 49,267 - - - -
Due after five years through ten years 3,865 3,923 - - - -
Mortgage-backed securities 50,585 50,121 - - - -
Other 2,225 2,225 - - - -
- -------------------------------------------------------------------------------------------
Total $123,442 $123,886 $ - - $ - -
======== ======== ======== =======
</TABLE>
The Company's wholly-owned subsidiary banks are required to pledge assets to
secure repurchase agreements and public deposits as permitted or required by
law. As of December 31, 1995, $20,754,000 of U. S. Treasury and Government
agency securities were pledged against these deposits. For the years ended
December 31, 1995, 1994 and 1993, there were no material net gains or losses
from the sale of investment securities.
P. 31 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 3, LOANS
- --------------------------------------------------------------------------------
The composition of loans is as follows:
(Amounts in Thousands)
<S> <C> <C>
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
Commercial, financial and agricultural $ 30,128 $ 31,800
Real estate, construction 10,914 16,590
Real estate, mortgage 206,869 194,261
Loans to individuals 43,572 50,123
All others 3,046 1,933
--------- ---------
$ 294,529 $ 294,707
Less allowance for loan losses (3,602) (3,354)
--------- ---------
Net loans $ 290,927 $ 291,353
========= =========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
(Amounts In Thousands)
<S> <C> <C> <C>
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Balance, beginning $ 3,354 $ 3,101 $ 3,006
Provision charged to operating income 366 425 155
Recoveries 157 84 173
Loans charged off (275) (256) (233)
------- ------- -------
Balance, ending $ 3,602 $ 3,354 $ 3,101
======= ======= =======
</TABLE>
<TABLE>
Information for impaired loans as of and for the year ended December 31, 1995, is as follows:
(Amounts in Thousands)
- ----------------------------------------------------------------------------------------
<S> <C>
Loans receivable for which there is a related allowance for credit losses $ 164
Loans receivable for which there is no related allowance for credit losses 106
- ----------------------------------------------------------------------------------------
Total impaired loans $ 270
=======
Related allowance for credit losses $ 43
Average balance (based on month-end balances) 682
Interest income recognized 59
</TABLE>
<TABLE>
<CAPTION>
NOTE 4. BANK PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
Bank premises and equipment are as follows:
(Amounts in Thousands)
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,835 $ 1,433
Buildings 11,183 9,462
Furniture and equipment 5,592 5,266
- --------------------------------------------------------------------------------
$ 18,610 $ 16,161
Accumulated depreciation (6,122) (5,249)
- --------------------------------------------------------------------------------
$ 12,488 $ 10,912
======== ========
</TABLE>
P. 32 of 48
<PAGE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 5. DEPOSITS
- --------------------------------------------------------------------------------
A summary of deposits is as follows:
(Amounts in Thousands)
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Demand $ 46,192 $ 44,235
Interest-bearing transaction accounts 56,158 57,128
Savings 94,203 78,970
Time deposits of less than $100,000 159,748 160,662
Time deposits of $100,000 or more 28,754 21,268
- --------------------------------------------------------------------------------
$385,055 $362,263
======== ========
</TABLE>
<TABLE>
<CAPTION>
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES
- --------------------------------------------------------------------------------
Both banks are members of the Federal Home Loan Bank of Des Moines (FHLB). As of
December 31, 1995, the banks held $1,888,600 of FHLB stock. Advances from the
FHLB are collateralized by 1-4 unit residential mortgages equal to 150% of total
outstanding notes. A summary of FHLB advances as of December 31, 1995, is as
follows:
(Amounts In Thousands)
<S> <C> <C>
Amount Due Weighted Average Rate
- --------------------------------------------------------------------------------
1 to 3 months $ 115 4.78%
4 to 6 months 466 6.20
7 to 12 months 4,533 6.01
2 to 5 years 12,255 6.01
Over 5 years 100 6.55
- --------------------------------------------------------------------------------
$ 17,469 6.01%
========== ====
</TABLE>
<TABLE>
<CAPTION>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 7. INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income tax expense is made up of the following components:
(Amounts in Thousands)
<S> <C> <C> <C>
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $1,308 $1,337 $1,410
State 304 285 313
Deferred 139 138 129
- --------------------------------------------------------------------------------
$1,751 $1,760 $1,852
====== ====== ======
</TABLE>
The effective income tax rate is different than the statutory federal income tax
rate as follows:
<TABLE>
(Amounts in Thousands)
<S> <C> <C> <C>
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Income tax at a statutory rate of 34% $2,149 $2,150 $2,348
Tax exempt interest, net of related
disallowed interest expense (668) (671) (687)
State income taxes, net of federal benefit 201 189 207
Other 69 92 (16)
- --------------------------------------------------------------------------------
$1,751 $1,760 $1,852
====== ====== ======
</TABLE>
P. 33 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 7. INCOME TAXES (continued)
Deferred income tax liabilities and assets arose from the following temporary
differences:
<TABLE>
(Amounts in Thousands)
<S> <C> <C> <C>
As of December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Deferred income tax assets:
Debt securities available for sale $ - - $1,038 $ - -
Allowance for loan losses 941 840 752
Net deferred loan fees - - 14 60
Deferred compensation 287 306 294
Certain accrued expenses 109 126 80
Other - - 12 170
- --------------------------------------------------------------------------------
$1,337 $2,336 $1,356
------ ------ ------
Deferred income tax liabilities:
Debt securities available for sale $ 166 $ - - $ 297
Property and equipment 263 236 225
Pension plan asset 870 765 671
Net deferred loan fees 35 - - - -
Other 71 60 85
- --------------------------------------------------------------------------------
$1,405 $1,061 $1,278
------ ------ ------
Net deferred income tax asset (liability) $ (68) $1,275 $ 78
====== ====== ======
</TABLE>
The net change in the deferred income taxes is reflected in the financial
statements as follows:
<TABLE>
(Amounts in Thousands)
<S> <C> <C> <C>
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Statement of income $ 139 $ 138 $ 129
Statement of stockholders' equity 1,204 (1,335) 297
- --------------------------------------------------------------------------------
$1,343 $(1,197) $ 426
====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
NOTE 8. EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
The Company sponsors a non-contributory defined benefit pension plan for
substantially all employees. The plan was amended in early 1995 to exclude all
employees hired after February 28, 1995. Pension benefits vest after five years
of service and are based on years of service and average final salary. The
Company's funding policy is to contribute funds to a trust as necessary to
provide for current service and for any unfunded projected benefit obligation
over a reasonable period. To the extent that these requirements are fully
covered by assets in the trust, a contribution may not be made in a particular
year. The following items are the components of the net pension credit:
(Amounts in Thousands)
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 90 $ 136 $ 117
Interest cost on projected benefit obligation 199 235 217
Actual return on plan assets (478) (502) (489)
Less gain (loss) amount deferred - - (15) (31)
Amortization of recognized net asset at transition (108) (108) (108)
- --------------------------------------------------------------------------------
Net pension (credit) $ (297) $ (254) $ (294)
====== ====== ======
</TABLE>
P. 34 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
The funded status of the plan is as follows:
<TABLE>
(Amounts in Thousands)
<S> <C> <C> <C>
As of December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Actuarial present value of benefits for service rendered to date:
Accumulated benefits based on salaries to date, including vested
benefits 1995 $2,082; 1994 $2,563; 1993 $2,233 $(2,122) $(2,618) $(2,269)
Effect of projected compensation increases (514) (524) (696)
- ------------------------------------------------------------------------------------------------
Projected benefit obligation $(2,636) $(3,142) $(2,965)
Fair value of plan assets, invested in equities and bonds 8,152 7,135 7,016
- ------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 5,516 $ 3,993 $ 4,051
Unrecognized net asset being recognized over 18.7 years (936) (1,044) (1,102)
Unrecognized net gain on assets and projected benefit obligation (1,720) (898) (1,152)
- ------------------------------------------------------------------------------------------------
Prepaid pension cost $ 2,860 $ 2,051 $ 1,797
======= ======= =======
</TABLE>
The discount rate used to determine the actuarial present value of the projected
benefit obligation as of December 31, 1995, 1994 and 1993, was 8.25%. The
expected long-term rate of return on plan assets as of December 31, 1995, 1994
and 1993, used in determining net pension expense was 7.50%. The assumed rate of
increase in future compensation levels was 4.50%.
The Company maintains a defined contribution 401(k) plan covering all employees
fulfilling minimum age and service requirements. Employee contributions to the
plan are optional. Employer contributions are made to the plan equal to 1% of
the employee's salary plus a percentage of employee contributions. The expense
for this plan was $280,134, $188,368 and $271,054 for the years ended December
31, 1995, 1994 and 1993, respectively.
The Iowa City Bank has a salary continuation plan for several employees which
provides for annual payments of various amounts upon the employee's retirement
or death. The bank is providing for these benefits by charges to operating
expense during the period the respective employee attains full eligibility. The
amount charged to operating expenses during the years ended December 31, 1995,
1994 and 1993, was $74,712, $118,044 and $68,437, respectively. The bank is
carrying life insurance policies with face amounts totaling $1,050,000 to fund
the salary continuation plan. The cash value of these policies was $493,392 at
December 31, 1995.
In 1995, a new nonqualified retirement plan was adopted to provide a portion of
the defined benefit pension plan benefits to the highly compensated employees of
the banks. The pension plan expense associated with the nonqualified plan in
1995 was $72,830.
The Company has a stock option plan for certain officers and directors whereby
225,000 shares of common stock have been reserved for issuance pursuant to terms
in the plan. The stock option committees have granted options at prices equal to
the fair market value on the dates of the grant. All options have been for a
term of five years and become exercisable in full or in part within one year of
the date granted. A summary of stock option transactions follows:
<TABLE>
Number of Shares Option Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1992 124,900 $ 12.50 - $ 18.00
Granted 25,350 21.00 - 21.25
Exercised (8,900) 12.50 - 18.00
Canceled (6,800) 12.50 - 21.00
- --------------------------------------------------------------------------------
Balance December 31, 1993 134,550 $ 12.50 - $ 21.25
Granted 30,700 25.50 - 25.75
Exercised (71,763) 12.50 - 21.25
Canceled (3,200) 18.00 - 25.50
- --------------------------------------------------------------------------------
Balance December 31, 1994 90,287 $ 16.00 - $ 25.75
Granted 23,100 24.125 - 25.125
Exercised (12,087) 16.00 - 21.25
Canceled (10,000) 18.00 - 25.50
- --------------------------------------------------------------------------------
Balance December 31, 1995 91,300 $ 16.00 - $ 25.75
======
</TABLE>
P. 35 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
Options for 63,000 shares were exercisable as of December 31, 1995. Also, as of
December 31, 1995, options for 29,700 shares were available for future grants.
Under the terms of the plan, participants may surrender shares for redemption at
fair market value in order to pay for shares purchased through the exercising of
options. In 1995 and 1994, the Company redeemed 2,772 and 24,721 shares,
respectively, in conjunction with the exercising of stock options. The
redemption price was $25.125 per share in 1995 and ranged from $25.50 to $25.75
per share in 1994.
NOTE 9. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Certain directors of the Company and the banks and companies with which they are
affiliated, as well as certain principal officers of the Company and its
affiliate banks, are customers of and have banking transactions with the banks
in the ordinary course of business. In the case of loans and extensions of
credit, indebtedness has been incurred on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons. The following is an analysis of
the changes in the loans to related parties during the years ended December 31,
1995 and 1994.
(Amounts in Thousands)
Years Ended December 31, 1995 1994
- --------------------------------------------------------------------------------
Beginning balance $ 2,545 $ 4,390
Additions 138 722
Collections (1,017) (2,567)
- --------------------------------------------------------------------------------
Ending Balance $ 1,666 $ 2,545
======= =======
NOTE 10. REGULATORY CAPITAL REQUIREMENTS, RESTRICTIONS ON SUBSIDIARY
DIVIDENDS, AND CASH RESTRICTIONS
- --------------------------------------------------------------------------------
The Company and the banks are required to maintain minimum amounts of capital to
total risk weighted assets, as defined by the banking regulators. A comparison
of the banks' capital as of December 31, 1995, with the minimum regulatory
requirements is presented below:
<TABLE>
Actual Capital Minimum Regulatory
Iowa City Bank Cedar Rapids Bank Requirement
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Risk-Based Capital 19.74% 15.16% 8.00%
Tier I Risk-Based Capital 18.49% 14.09% 4.00%
Leverage Ratio 11.61% 8.90% 3.00%
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, both banking subsidiaries met the capital criteria
required by the "well capitalized" definition.
The ability of the Company to pay dividends to its stockholders is dependent
upon dividends paid by its subsidiaries. The banks are subject to certain
statutory and regulatory restrictions on the amount they may pay in dividends.
To maintain acceptable capital ratios in the subsidiary banks, certain of their
retained earnings are not available for the payment of dividends. To maintain
the minimum of total risk-based capital to risk-weighted assets to qualify as
"well capitalized," retained earnings which could be available for the payment
of dividends to the Company totaled approximately $22,000,000 as of December 31,
1995.
P. 36 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 10. REGULATORY CAPITAL REQUIREMENTS, RESTRICTIONS ON SUBSIDIARY
DIVIDENDS, AND CASH RESTRICTIONS (continued)
The banks are required to maintain reserve balances in cash or with the Federal
Reserve Bank. Reserve balances totaled $4,669,000 and $5,380,000 at December 31,
1995 and 1994, respectively.
<TABLE>
<CAPTION>
NOTE 11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- ------------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Cash payments for:
Interest paid to depositors, on note payable, on federal
funds purchased and securities sold under agreements to
repurchase, and other borrowings $15,541 $13,595 $14,654
Income taxes 1,474 1,168 1,609
Noncash transactions:
Net unrealized gains (losses) on debt securities 3,228 (3,580) 797
Deferred income taxes on unrealized gains (losses) on
debt securities 1,204 (1,335) 297
Investment securities transferred from held to maturity portfolio
to available for sale portfolio, at fair value 33,616 - - - -
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The banks are a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the consolidated balance sheet. The banks' exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual amount of those instruments.
The banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments. A summary of the banks'
commitments at December 31, 1995 and 1994, is as follows:
(Amounts in Thousands)
December 31, 1995 1994
- --------------------------------------------------------------------------------
Commitments to extend credit $52,780 $43,654
Standby letters of credit 3,667 3,679
- --------------------------------------------------------------------------------
$56,447 $47,333
======= =======
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
banks evaluate each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the banks upon
extension of credit, is based on management's credit evaluation of the party.
Collateral held varies, but may include accounts receivable, crops, livestock,
inventory, property and equipment, residential real estate and income producing
commercial properties.
Standby letters of credit are conditional commitments issued by the banks to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral held varies as specified
above and is required in instances which the banks deem necessary.
P. 37 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
CONCENTRATIONS OF CREDIT RISK: Substantially all of the banks' loans,
commitments to extend credit, and standby letters of credit have been granted to
customers in the banks' market area. Investments in securities issued by state
and political subdivisions involve diverse governmental entities. The
concentrations of credit by type of loan are set forth in Note 3. Standby
letters of credit were granted primarily to commercial borrowers. A substantial
portion of the debtors' ability to honor their loans is dependent upon economic
conditions in the Iowa City/Cedar Rapids area.
Investment securities of Iowa political subdivisions totaled $8,068,000 as of
December 31, 1995. No individual municipality exceeded $500,000.
NOTE 13. PARENT COMPANY ONLY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following is condensed financial information of First Financial
Bancorporation (parent company only):
BALANCE SHEETS
(Amounts in Thousands)
December 31, 1995 1994
- --------------------------------------------------------------------------------
Assets
Cash $ 622 $ 461
Investment in subsidiaries 49,163 44,784
Investment securities available for sale
(Amortized cost 1995 $401; 1994 none) 421 - -
Accrued interest receivable 10 - -
- --------------------------------------------------------------------------------
$50,216 $45,245
======= =======
Liabilities and Stockholders' Equity
Liabilities $ 1 $ - -
Deferred income taxes 8 - -
Stockholders' equity:
Capital stock, common 2,979 2,967
Additional paid-in capital 4,095 3,928
Retained earnings 42,854 40,095
Unrealized gain (losses) on debt securities, net 279 (1,745)
- --------------------------------------------------------------------------------
$50,216 $45,245
======= =======
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Amounts in Thousands)
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income, dividends received from subsidiaries $ 2,252 $ 1,687 $ 1,617
Interest income 28 - - - -
Operating expenses 54 39 42
- ------------------------------------------------------------------------------------------------
Income before income taxes and equity in subsidiaries'
undistributed income $ 2,226 $ 1,648 $ 1,575
Income taxes (credits) (10) (13) (20)
- ------------------------------------------------------------------------------------------------
$ 2,236 $ 1,661 $ 1,595
Equity in subsidiaries' undistributed income 2,334 2,902 3,460
- ------------------------------------------------------------------------------------------------
Net Income $ 4,570 $ 4,563 $ 5,055
======= ======= =======
</TABLE>
P. 38 of 48
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Amounts in Thousands)
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 4,570 $ 4,563 $ 5,055
Noncash items included in net income:
Undistributed earnings of subsidiaries (2,334) (2,902) (3,460)
Changes in account with subsidiaries (1) 2 4
(Increase) in other liabilities (9) - - - -
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 2,226 $ 1,663 $ 1,599
------- ------- -------
Cash flows (used in) investing activities:
Available for sale securities - purchases $ (401) $ - - $ - -
------- ------- -------
Cash flows (used in) financing activities:
Stock options exercised $ 216 $ 982 $ 130
Common stock redeemed (69) (631) (25)
Dividends paid (1,811) (1,733) (1,629)
- ------------------------------------------------------------------------------------------------
Net cash (used in) financing activities $(1,664) $(1,382) $(1,524)
------- ------- -------
Increase (decrease) in cash $ 161 $ 281 $ 75
Cash balance:
Beginning 461 180 105
- ------------------------------------------------------------------------------------------------
Ending $ 622 $ 461 $ 180
======= ======= =======
</TABLE>
NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
As of December 31, 1995 As of December 31, 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 16,443 $ 16,443 $ 13,196 $ 13,196
Federal funds sold 3,225 3,225 600 600
Investment securities:
Available for sale 123,886 123,886 78,621 78,621
Held to maturity - - - - 30,608 30,608
Loans:
Variable rate 133,404 133,404 116,768 116,768
Fixed rate 161,125 155,234 177,939 173,852
Accrued interest receivable 3,367 3,367 3,175 3,175
Deposits:
Variable rate 198,743 198,743 190,688 190,688
Fixed rate 179,516 182,510 171,575 175,218
Short-term borrowings 67 67 3,361 3,361
Federal Home Loan Bank advances 17,467 17,575 20,628 19,494
Accrued interest payable 1,553 1,553 1,283 1,283
</TABLE>
<TABLE>
Off-Balance-Sheet Instruments Face Amount Fair Value Face Amount Fair Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Loan commitments $ 52,780 $ - - $ 43,654 $ - -
Letters of credit 3,667 - - 3,679 - -
- -------------------------------------------------------------------------------
</TABLE>
The Registrant does not meet the requirements of item 302 of Regulation SK and
therefore has not included the supplemental financial information required by
that item.
P. 39 of 48
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- ----------------------------
To the Board of Directors
First Financial Bancorporation
Iowa City, Iowa
We have audited the accompanying consolidated balance sheets of First
Financial Bancorporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Financial Bancorporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
//s//McGladrey & Pullen, LLP
Iowa City, Iowa
February 9, 1996
P. 40 of 48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the Proxy Statement dated March 7, 1996, for the
Annual Meeting of the Shareholders to be held on April 9, 1996, under the
captions "Nominees for Election as Directors" and "Executive Compensation" and
"Compensation of Directors" is incorporated into this Item 10 by this reference
thereto, except that the Board Compensation Committee Report on Executive
Compensation and Performance Table set forth in said Proxy Statement are not
incorporated herein.
DIRECTORS AND OFFICERS As of December 31, 1995
- --------------------------------------------------------------------------------
FIRST FINANCIAL BANCORPORATION
Board of Directors Officers
Larry D. Ward, Chairman Robert M. Sierk
Aliber Distinguished Professor, College of Law President & CEO
The University of Iowa
Linda K. Muston A. Russell Schmeiser
Vice President, Marketing & Planning Executive Vice President,
Mercy Hospital, Iowa City, Iowa COO, CFO, Secretary &
Treasurer
Ralph J. Russell
President & CEO
Howard R. Green Company, Cedar Rapids, Iowa
A. Russell Schmeiser
Executive Vice President, COO & CFO
First National Bank, Iowa City, Iowa
Robert M. Sierk
President & CEO
First National Bank, Iowa City, Iowa
FIRST NATIONAL BANK, IOWA CITY, IOWA
Board of Directors Executive Officers
Larry D. Ward, Chairman Robert M. Sierk
Aliber Distinguished Professor, College of Law President & CEO
The University of Iowa
A. Russell Schmeiser
John R. Balmer Executive Vice President,
Executive Vice President COO & CFO
Plumbers Supply Company, Iowa City, Iowa
William H. Burger
Daniel W. Collins Senior Vice President
Henry B. Tippie Professor of Accounting & Senior Trust Officer
Department of Accounting
The University of Iowa Helen M. Dailey
Senior Vice President
Linda K. Muston & Cashier
Vice President, Marketing & Planning
Mercy Hospital, Iowa City, Iowa Kenneth A. Strother
Senior Vice President
A. Russell Schmeiser & Senior Loan Officer
Executive Vice President, COO & CFO
First National Bank, Iowa City, Iowa Kathrine L. Sigsbee
Vice President
Richard J. Schwab
Vice President & General Manager
Information Technology Division
National Computer Systems, Iowa City, Iowa
Robert M. Sierk
President & CEO
First National Bank, Iowa City, Iowa
John P. Wall
Farmer
Johnson County, Iowa
Stephen H. Wolken, M.D.
Partner
Eye Physicians & Surgeons LLP, Iowa City, Iowa
P. 41 of 48
<PAGE>
FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA
Board of Directors Officers
Robert M. Sierk, Chairman Gary L. Bartlett
President & CEO President & CEO
First National Bank, Iowa City, Iowa
Kenneth A. Strother
Gary L. Bartlett Senior Vice President
President & CEO & Senior Loan Officer
First National Bank, Cedar Rapids, Iowa
Frank E. Ceynar
Wendy L. Dunn Vice President
Acting Dean of Faculty & Professor of Psychology & Senior Trust Officer
Coe College, Cedar Rapids, Iowa
Kathy M. Neal
Robert J. Latham Vice President, Mortgage
President Loan Officer & Cashier
Latham & Associates, Cedar Rapids, Iowa
Stacy L. Martin
Ralph J. Russell Assistant Vice President
President & CEO & Branch Manager
Howard R. Green Company, Cedar Rapids, Iowa
Pamela A. Imerman
A. Russell Schmeiser Assistant Vice President
Executive Vice President, COO & CFO & Consumer Loan Officer
First National Bank, Iowa City, Iowa
Catherine T. Snow
Larry D. Ward Assistant Vice President
Aliber Distinguished Professor, College of Law & Commercial Loan Officer
The University of Iowa
P. 42 of 48
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement dated March 7, 1996, for the
Annual Meeting of the Shareholders to be held on April 9, 1996, under the
caption "Executive Compensation" and "Compensation of Directors" is incorporated
into this Item 11 by this reference thereto, except that the Board Compensation
Committee Report on Executive Compensation and Performance Table set forth in
said Proxy Statement are not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the Proxy Statement dated March 7, 1996, for the
Annual Meeting of the Shareholders to be held on April 9, 1996, under the
captions "Voting Securities and Principal Holders Thereof," "Security Ownership
of Directors and Officers," and "Nominees for Election as Directors" are
incorporated into this Item 12 by this reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement dated March 7, 1996, for the
Annual Meeting of the Shareholders to be held on April 9, 1996, under the
caption "Interest of Management and Others in Certain Transactions" is
incorporated into this Item 13 by this reference thereto.
P. 43 of 48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The fiscal 1995 and 1994 consolidated financial statements of First
Financial Bancorporation, together with the report thereon of
McGladrey & Pullen, LLP, dated February 9, 1996, are included on pages
24 to 40 in Item 8 of this report.
(2) Financial Statements Schedules
All schedules are omitted because they are not applicable or not
required or because the required information is included in the
consolidated financial statements or notes thereof.
(3) See Exhibit Index on page 46.
(b) Reports on Form 8-K
The Registrant has filed no reports on Form 8-K during the last three
calendar months of 1995.
P. 44 of 48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 by:
Date: March 27, 1996 By \\s\\Robert M. Sierk
-------------- --------------------------------------
Robert M. Sierk, President and
Chief Executive Officer and Director
Date: March 27, 1996 By \\s\\A. Russell Schmeiser
-------------- --------------------------------------
A. Russell Schmeiser, Executive Vice President and
Chief Operating Officer and Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 27, 1996 By \\s\\Linda K. Muston
-------------- --------------------------------------
Linda K. Muston, Director
Date: March 27, 1996 By \\s\\Ralph J. Russell
-------------- --------------------------------------
Ralph J. Russell, Director
Date: March 27, 1996 By \\s\\Larry D. Ward
-------------- --------------------------------------
Larry D. Ward, Director, Chairman of the Board
P. 45 of 48
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference.
(Documents indicated by an * are incorporated herein by reference.)
Page No. Of
Exhibit No. Description of Exhibits Form 10-K
3a Composite Restatement of Articles of Incorporation for *
First Financial Bancorporation as of May 5, 1988,
Exhibit I to Form 10-Q dated August 12, 1988, for the
quarter ended June 30, 1988.
3b Composite Restatement of the Corporate Bylaws of *
First Financial Bancorporation as of June 21, 1988,
Exhibit II to Form 10-Q dated August 12, 1988, for the
quarter ended June 30, 1988.
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.
10a Purchase and Assumption Agreement between the Cedar *
Rapids Bank and RTC. Pages 7-97 of Current Report Form
8-K dated February 20, 1991.
10b Indemnity Agreement between the Cedar Rapids Bank and *
RTC. Pages 98-121 of Current Report Form 8-K dated
February 20, 1991.
10c Continuing Guaranty to the RTC given by the Registrant. *
Pages 122-130 of Current Report Form 8-K dated
February 20, 1991.
10d (1) First Financial Bancorporation Stock Option Plan. *
As amended and restated in its entirety on February 8,
1993. Pages 30-37 of Form 10-K dated March 26, 1993
10e (2) Salary Continuation Plan for executive officers of *
the Iowa City Bank. As amended and restated in its
entirety on January 12, 1993. Pages 38-43 of Form 10-K
dated March 26, 1993.
11 Statement re computation of earnings per common and 47
common equivalent share
21 Subsidiaries of the Registrant 48
(1)Directors, the named executive officers of the
Registrant and the executive officers of the Iowa City
and Cedar Rapids banks participate in this Plan.
(2)Certain named executive officers of the Registrant and
certain executive officers of the Iowa City Bank
participate in this Plan.
27** Financial Data Schedule as of December 31, 1995.
**Filed herewith.
P. 46 of 48
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
Shares of common stock, beginning 2,373,926 2,326,884 2,319,112
=========== =========== ===========
Shares of common stock, ending 2,383,241 2,373,926 2,326,884
=========== =========== ===========
Computation of weighted average number of
common and common equivalent shares:
Common shares outstanding at the
beginning of the year 2,373,926 2,326,884 2,319,112
Weighted average number of shares
issued 11,094 64,745 7,511
Weighted average of the common
shares redeemed (2,544) (21,899) (630)
Weighted average of the common
equivalent shares attributable to
stock options granted, computed
under the treasury stock method 10,417 14,589 34,829
----------- ----------- -----------
Weighted average number of common and
common equivalent shares 2,392,893 2,384,319 2,360,822
=========== =========== ===========
Net Income $ 4,570,000 $ 4,563,000 $ 5,055,000
=========== =========== ===========
Earnings per common and common
equivalent share: $ 1.91 $ 1.91 $ 2.14
=========== =========== ===========
P. 47 of 48
<PAGE>
FIRST FINANCIAL BANCORPORATION
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
Name Of Subsidiary Place of Incorporation
- ------------------------------------ -----------------------------------
First National Bank, Iowa City, Iowa National Banking Association of the
United States of America
First National Bank, Cedar Rapids, Iowa National Banking Association of the
United States of America
P. 48 of 48
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,443
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,225
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 123,886
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 294,529
<ALLOWANCE> 3,602
<TOTAL-ASSETS> 457,236
<DEPOSITS> 385,055
<SHORT-TERM> 67
<LIABILITIES-OTHER> 4,438
<LONG-TERM> 17,469
0
0
<COMMON> 2,979
<OTHER-SE> 47,228
<TOTAL-LIABILITIES-AND-EQUITY> 457,236
<INTEREST-LOAN> 24,449
<INTEREST-INVEST> 6,635
<INTEREST-OTHER> 658
<INTEREST-TOTAL> 31,742
<INTEREST-DEPOSIT> 14,598
<INTEREST-EXPENSE> 15,811
<INTEREST-INCOME-NET> 15,931
<LOAN-LOSSES> 366
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,480
<INCOME-PRETAX> 6,324
<INCOME-PRE-EXTRAORDINARY> 6,321
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,570
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 7.85
<LOANS-NON> 270
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,354
<CHARGE-OFFS> 275
<RECOVERIES> 157
<ALLOWANCE-CLOSE> 3,602
<ALLOWANCE-DOMESTIC> 3,527
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 75
</TABLE>
