SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1997 Commission file number 0-14280
FIRST FINANCIAL BANCORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
IOWA 42-1259867
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
204 East Washington Street, Iowa City, Iowa 52240
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code 319-356-9000
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and
former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X . No . (2) Yes X . No. .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<CAPTION>
SHARES OUTSTANDING
CLASS at August 7, 1997
- ----------------------------- ------------------
<S> <C>
Common stock, $1.25 par value 2,330,044
</TABLE>
1
<PAGE>
FIRST FINANCIAL BANCORPORATION
Index to Form 10-Q
Page
PART I - Financial Information Number
Item 1. Financial statements
Consolidated balance sheets 3
Unaudited consolidated statements of income 4
Unaudited consolidated statements of cash flows 5 - 6
Consolidated statement of stockholders' equity 7
Note to consolidated financial statements 8 - 9
Item 2. Management's discussion and analysis of financial 10 - 12
condition and results of operations
PART II - Other Information
Item 4. Submission of Matters to a Vote of security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14 - 20
Signatures 21
2
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 30, December 31,
1996 1996*
----------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,891 $ 20,949
Investment securities:
Available for sale (cost 1997 $108,545; December 31, 1996 $97,431) 109,248 97,802
Federal funds sold 16,900 - -
Loans, net of unearned income $ 355,084 $ 330,739
Less: Allowance for possible loan losses (4,742) (3,788)
--------- ---------
Net loans $ 350,342 $ 326,951
--------- ---------
Bank premises and equipment, net 12,450 12,082
Accrued interest receivable 3,649 3,179
Intangible assets (Note 7.) 2,933 624
Prepaid pension cost 3,499 3,240
Other assets 3,748 2,898
--------- ---------
$ 523,660 $ 467,725
========= =========
LIABILITIES
Noninterest-bearing deposits $ 57,477 $ 47,603
Interest-bearing deposits 382,450 347,804
--------- ---------
Total deposits $ 439,927 $ 395,407
Federal funds purchased and securities sold under agreement to repurchase 2,502 3,146
Federal Home Loan Bank advances 16,270 12,355
Accrued interest payable 1,826 1,516
Notes payable (Note 7.) 5,453 - -
Income tax payable 82 87
Deferred income taxes 178 135
Accounts payable and other accrued expenses 2,522 2,503
--------- ---------
$ 468,760 $ 415,149
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1997 2,330,044 shares; 1996 2,331,412 shares (Note 5) $ 2,913 $ 2,914
Additional paid-in capital 2,427 2,606
Retained earnings 49,119 46,824
Unrealized gains on debt securities, net 441 232
--------- ---------
$ 54,900 $ 52,576
--------- ---------
$ 523,660 $ 467,725
========= =========
*Condensed from audited financial statements.
See Notes to Financial Statements.
</TABLE>
3
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<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME Three and Six Months
Ended June 30, 1997 and 1996
(Amounts in Thousands, Except per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,322 $ 6,250 $14,060 $12,446
Interest on investment securities
Taxable 1,264 1,451 2,294 2,901
Nontaxable 424 366 807 729
Interest on federal funds sold 296 115 508 257
------- ------- ------- -------
Total interest income $ 9,306 $ 8,182 $17,669 $16,333
------- ------- ------- -------
Interest expense:
Interest on deposits $ 4,363 $ 3,793 $ 8,282 $ 7,597
Interest on federal funds purchased and
securities sold under agreements to repurchase 22 11 37 12
Interest on Federal Home Loan Bank advances 253 260 441 522
Interest notes payable 82 - - 82 - -
------- ------- ------- -------
Total interest expense $ 4,720 $ 4,064 $ 8,842 $ 8,131
------- ------- ------- -------
Net interest income $ 4,586 $ 4,118 $ 8,827 $ 8,202
Provision for loan losses 176 81 353 153
------- ------- ------- -------
Net interest income after provision
for loan losses $ 4,410 $ 4,037 $ 8,474 $ 8,049
------- ------- ------- -------
Noninterest income:
Trust fees $ 840 $ 751 $ 1,672 $ 1,508
Service charges and fees on deposit accounts 542 500 987 895
Other service charges, commissions and fees 597 567 1,125 1,121
Investment gains (losses), net 131 - - 175 - -
------- ------- ------- -------
$ 2,110 $ 1,818 $ 3,959 $ 3,524
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits $ 1,893 $ 1,560 $ 3,694 $ 3,289
Occupancy furniture and equipment 662 670 1,317 1,345
Data processing 396 318 723 587
Office supplies and postage 247 267 501 540
Other expenses 759 708 1,424 1,445
------- ------- ------- -------
$ 3,957 $ 3,523 $ 7,659 $ 7,206
------- ------- ------- -------
Income before income taxes $ 2,563 $ 2,332 $ 4,774 $ 4,367
Federal and state income taxes 787 714 1,451 1,319
------- ------- ------- -------
Net Income $ 1,776 $ 1,618 $ 3,323 $ 3,048
======= ======= ======= =======
Average common stock and common equivalent shares 2,347,951 2,366,695 2,346,953 2,379,040
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 4. and 5.) $ .76 $ .68 $ 1.42 $ 1.28
======= ======= ======= =======
Dividends per common share $ .22 $ .195 $ .44 $ .39
======= ======= ======= =======
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
June 30, 1997 and 1996
(Amounts in Thousands)
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,323 $ 3,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 536 489
Amortization 117 78
Provision for loan losses 353 153
Amortization of investment security discount 70 245
(Increase) decrease in accrued interest receivable 20 (205)
(Increase) in prepaid pension costs (259) (229)
(Increase) in other assets (740) 182
Increase (decrease) in accrued interest and other liabilities (38) (459)
Change in accrued income taxes (5) 391
Change in deferred income taxes (80) - -
-------- --------
Net cash provided by operating activities $ 3,297 $ 3,693
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 7,632 $ 10,029
Sales 14,436 - -
Purchases (18,563) (9,822)
Federal funds sold, net (15,200) 2,600
Net (increase) decrease in loan balances outstanding (2,668) (14,581)
Purchases of bank premises and equipment (631) (400)
Acquisition of stock West Branch Bancorporation, Inc. net of cash
received(Note 7.) ( 1,155) - -
-------- --------
Net cash (used in) investing activities $(16,149) $(12,174)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 11,731 $ 2,897
Federal funds purchased and securities sold under agreement
to repurchase (644) 8,625
Repayment of other borrowings - - (67)
Federal Home Loan Bank advances 2,915 (781)
Dividends paid (1,028) (922)
Stock options exercised 414 434
Common stock redeemed (Note 4. and 5.) (202) (290)
Common stock purchased (392) (1,243)
-------- --------
Net cash provided by financing activities $ 12,794 $ 8,653
-------- --------
Increase in cash and due from banks $ (58) $ 172
CASH AND DUE FROM BANKS
Beginning balance 20,949 16,443
-------- --------
Ending balance $ 20,891 $ 16,615
======== ========
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Three Months
Ended June 30, 1997 and 1996
(Amounts in Thousands)
1997 1996
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid to depositors, on note payable,
on federal funds purchased and securities
sold under agreements to repurchase $ 8,532 $ 8,224
Income Taxes 1,365 866
Noncash transactions:
Net unrealized gains (losses) on debt securities (333) (1,123)
Deferred income taxes on unrealized gains (losses)
on debt securities (124) (420)
Other real estate owned property
received in satisfaction of debt - - 157
A. Acquisition of certain assets and liabilities
from West Branch Bancorporation, Inc.: (Note 7.)
Cash purchase price $ 2,151 $ None
========== =======
Assets acquired:
Cash and cash eqivalents $ 996
Federal funds sold 1,700
Investment securities 14,690
Loans 21,076
Goodwill 2,406
Other assets 892
----------
$ 41,760 $ None
========== ========
Liabilities assumed:
Deposits $ 32,789
Notes payable to sellers 5,453
Federal Home Loan Bank advances 1,000
Other liabilities 367
2,151
----------
$ 41,760 $ None
========== ========
See Notes to Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six months ended Unrealized
June 30, 1997 and year ended Common Stock Additional gains (losses)
December 31, 1996 (In Thousands $1.25 Par Value Paid-In Retained on debt
of Dollars, Except Per Share Data) Number Amount Capital Earnings securities, net Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,383 $ 2,979 $ 4,095 $ 42,854 $ 279 $ 50,207
Net income - - - - - - 5,916 - - 5,916
Cash dividends ($.83 per share) - - - - - - (1,946) - - (1,946)
Stock options exercised for 21,200 shares 21 26 345 - - - - 371
Redemption of 73,029 shares of common stock (73) (91) (1,834) - - - - (1,925)
Unrealized (losses) on debt securities,
net of deferred tax effect - - - - - - - - (47) (47)
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 2,331 $ 2,914 $ 2,606 $ 46,824 $ 232 $ 52,576
Net income - - - - - - 3,323 - - 3,323
Cash dividends ($.44 per share) - - - - - - (1,028) - - (1,028)
Stock options exercised for 17,200 shares 17 22 320 - - - - 342
Redemption of 18,568 shares of common stock(Note 5.) (18) (23) (499) - - - - (522)
Unrealized (losses) on debt securities,
net of deferred tax effect - - - - - - - - 209 209
- -------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1997 2,330 $ 2,913 $ 2,427 $ 49,119 $ 441 $ 54,900
======== ======== ======== ======== ========= ========
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1997 and 1996
Note 1. Interim Financial Statements
Interim consolidated financial statements have not been examined by
independent public accountants, but include all adjustments
(consisting only of normal recurring accruals) which in the opinion of
management are necessary for a fair presentation of the results for
those periods. The results of operation for the interim periods are
not necessarily indicative of the results for a full year.
Note 2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, First
National Bank Iowa, Iowa City, Iowa, and West Branch Bancorporation
Inc., West Branch, Iowa, which wholly owns West Branch State Bank,
West Branch, Iowa. All material intercompany accounts and transactions
have been eliminated in consolidation.
Note 3. Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from banks includes
cash on hand and amounts due from banks. Cash flows from deposits,
federal funds purchased, federal funds sold and loan balances are
treated as net increases or decreases.
Note 4. Changes in Accounting Policies
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," was issued in February 1997 and will be
effective for the Company for periods ending after December 15, 1997
and may not be adopted prior to such date. This statement establishes
standards for computing and presenting earnings per share. The Company
expects to adopt SFAS No. 128 when required, and management
anticipates adoption of this statement will not have a material effect
on earnings per share disclosures.
Note 5. Earnings Per Common and Common Equivalent Shares
Current earnings per common and common equivalent shares for 1997 and
1996, are determined by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the
year. Dilutive common stock equivalents related to the stock option
plan were determined using the treasury stock method. Earnings per
share and common equivalent share assuming full dilution are the same
as earnings per common and common equivalent share.
In the first six months of 1997, the Company purchased 12,110 shares
of its common stock under a repurchase plan which authorizes up to
180,000 shares to be repurchased through January 31, 1998.
Note 6. Deferred Income Taxes
Deferred income taxes are provided under the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and net operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Note 7. Acquisition
Effective April 8, 1997 the Company acquired for cash and notes
payable all of the outstanding shares of West Branch Bancorporation,
Inc. which held 100% of the common stock of West Branch State Bank.
The total acquisition cost was $7,604,038. The excess of the
acquisition cost over fair value of net assets acquired of $2,405,690
is being amortized over fifteen years by the straight-line method. The
acquisition was accounted for as a purchase and the results of
operations since the date of acquisition is included in the Company's
statement of income.
8
<PAGE>
Unaudited proforma net income for 1997, 1996 and 1995, as though West
Branch Bancorporation, Inc. had been acquired as of January 1, 1995,
is not significantly different than reported net income of the Company
after consideration of goodwill amortization and interest on borrowed
funds.
Total assets of West Branch Bancorporation Inc. as of the date of
acquisition was approximately $39 million.
Note 8. Impaired Loans
A loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect
the schedule payments of principal or interest when due according to
the contractual terms of the loan agreement.
Impaired loans include all nonaccrual loans. The measurement of
impaired loans is generally based on the present value of expected
future cash flows discounted at the historical effective rate, except
that all collateral dependent loans are measured for impairment based
on the fair value of the collateral.
SFAS 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those
loans restructured under trouble debt restructuring. Loans
collectively evaluated for impairment include certain smaller balance
commercial loans, consumer loans, residential real estate loans, and
credit card loans, and are not included in the data that follows.
<TABLE>
<CAPTION>
(In Thousands)
The following table summarizes As of June 30,
impaired loan information. 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $420 $395
Impaired loans with related reserve for
loan losses calculated under SFAS 114 420 395
Amount of reserve for loan losses allocated
to the impaired loan balance 65 68
The majority of impaired loan valuations continue to be based on the
fair value of collateral and the existing provision evaluation methods
have included impaired loans as defined by SFAS 114. Impairment losses
are included in the provision for loan and lease losses.
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
June 30,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans $506 $339
Cash basis interest
income recognized on
impaired loans - - 15
Interest income that
would have been recorded
during the period on non-
accrual loans 11 10
- --------------------------------------------------------------------------------
Interest payments on impaired loans are typically applied to principal
unless future collectability of the recorded loan balance is expected,
in which case interest income is recognized on a cash basis.
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
EARNINGS PERFORMANCE
Net income for the three and six month periods ended June 30, 1997 was
$1,776,000 and $3,323,000, respectively, representing an increase of $158,000 or
7.9% and $275,000 or 9% over the level of net income recorded in the same prior
year periods. West Branch Bancorporation, Inc. contributed $92,000 to this
increase in earnings. As a result, earnings per share, increased from $.68 and
$1.28 to $.76 and $1.42, respectively for these periods.
DIVIDEND INFORMATION
Cash dividends totaling $514,000 and $1,028,000 were paid, respectively, for the
second quarter and first half of 1997, which compares favorably to the $459,000
and $922,000 of dividends paid for the same periods in 1996. A $.22 cash
dividend was paid per outstanding share of common stock in the second quarter of
1997 compared to $.195 in 1996. In the first half of 1997, the per share stock
dividend was $.44 compared to $.39 in 1996. This represented an increase of $.05
or 12.8% per outstanding share of common stock and $106,000 or 10.3% in total
cash dividends paid. For the second quarter of 1997 the per share cash dividend
increased $.025 or 12.8% and $51,000 or 11% in total cash dividends paid over
the prior year. The ability of the company to pay dividends to its shareholders
is dependent on the profitability of First National Bank Iowa, prudent banking
principles and the approval of the Comptroller of the Currency to the extent
that it does not reduce the bank's capital below regulatory guidelines.
NET INTEREST INCOME
For the three and six month periods ended June 30, 1997, net interest income,
increased $468,000 or 11.4% to $4,586,000 and $625,000 or 7.6% to $8,827,000,
respectively, when compared to 1996 period totals. During these periods, West
Branch Bancorporation, Inc. recorded $328,000 of net interest income.
Net interest income, on a fully tax-equivalent basis, increased $629,000 or
14.3% to $5,041,000 in the second quarter of 1997 and $610,000 or 7% to
$9,365,000 in the first half of 1997 when compared to the same periods in 1996.
The acquisition of West Branch Bancorporation, Inc. added $349,000 of net
interest income, on a fully tax-equivalent basis, in the second quarter of 1997.
After adjusting for this, results in increases of $280,000 or 6.3% and $261,000
or 3% for the respective periods. The remaining increase in fully taxable
equivalent net interest income was attributed to asset growth. The consolidated
net interest spreads and margins are presented in Table 2 for the three and six
month periods ended June 30, 1997 and 1996.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses increased $95,000 or 117.3% to $176,000 and
$200,000 or 130.7% to $353,000, respectively, for the three and six month
periods ended June 30, 1997. This increase in the provision is directly related
to increased loan balances.
As of June 30, 1997, the allowance for loan losses was 1.34% of total
outstanding loans compared to 1.15% as of December 31, 1996. As of June 30, 1996
this ratio was 1.18%. The acquisition of the West Branch Bancorporation, Inc.,
in the second quarter of 1997, provided additional reserves of $852,000, which
increased this ratio by approximately .24%. During the second quarter of 1997
the Company recorded net charged off loans totaling $1,000 compared to $56,000
for the same period in 1996. Year-to-date net charged off loans totaled $70,000
in 1997 compared to $119,000 in 1996.
NONINTEREST INCOME
Noninterest income for the second quarter and first half of 1997 totaled
$2,110,000 and $3,959,000, respectively. These totals increased $292,000 or
16.1% and $435,000 or 12.3% when compared to 1996 totals. During 1997, trust
fees increased $89,000 or 11.9% for the quarter and $164,000 or 10.9%
year-to-date. Service charges and fees on deposit accounts increased $42,000 or
8.4% to $542,000 for the quarter and $92,000 or 10.3% to $987,000 year-to-date.
Investment security gains of $131,000 and $175,000 were taken in the the second
quarter of 1997 and for the six months ended June 30, 1997, respectively.
10
<PAGE>
NONINTEREST EXPENSES
For the second quarter and first half of 1997, noninterest expenses totaled
$3,957,000 and $7,659,000. This is an increase of $434,000 or 12.3% and $453,000
or 6.3%, respectively, when compared to 1996 period totals. These increases were
primarily due to the $228,000 of noninterest expense incurred by West Branch
Bancorporation, Inc. from the date of acquisition. Salaries and employee
benefits increased $333,000 or 21.3% to $1,893,000 during the second quarter and
$405,000 or 12.3% to $3,694,000 as of June 30, 1997. The majority of these
increases were due to normal salary adjustments and the $119,000 of salary and
fringe benefit expenses recorded by West Branch Bancorporation, Inc.. During
these periods, data processing expense increased $78,000 or 24.5% to $396,000
and $136,000 or 23.2% to $723,000 as a result of increased electronic banking
and credit card processing costs.
INCOME TAXES
Income tax expense totaled $787,000 and $1,451,000 for the three and six month
periods ending as of June 30, 1997. This is an increase of $73,000 or 10.2% and
$132,000 or 10% when compared to last year's tax expense of $714,000 and
$1,319,000, for the three and six months periods ending June 30, 1996. Under the
Company's statutory tax rates of 34% and 5% year-to-date 1997 federal tax
expense was $1,210,000 and state tax expense was $241,000.
FINANCIAL POSITION
TOTAL ASSETS
Total consolidated assets of the Company as of June 30, 1997 were $523,660,000
which is an increase of $55,797,000 or 11.9% over total assets of $467,863,000
as of June 30, 1996. Since year end, consolidated assets increased $55,935,000
or 12%. Included in these increases were the assets of West Branch
Bancorporation, Inc. which totaled $40,837,000 as of June 30, 1997. Excluding
these asset balances, assets increased $14,960,000 or 3.2% over 1996 totals and
$15,098,000 or 3.2% since year end. Asset growth was funded primarily by
increased deposit balances of $51,975,000 or 13.4% when compared to last year,
and $44,520,000 or 11.3% since year end. Excluding the June 30, 1997 deposit
balances of West Branch Bancorportion, Inc. of $31,950,000, these balances
increased $20,025,000 or 5.2% and $12,570,000 or 3.2% since year end.
TOTAL LOAN BALANCES
Total loan balances increased $46,093,000 or 14.9% to $355,084,000 as of June
30, 1997 when compared to loan balances of $308,991,000 as of June 30, 1996 and
$24,345,000 or 7.4% when compared to December 31, 1996 loan balances of
$330,739,000. The majority of this increase was provided by the acquisition of
West Branch Bancorporation, Inc. which had loan balances of $22,331,000 as of
June 30, 1997. When excluding these balances, the real estate loan category
increased the most significantly, $28,497,000 or 11.6% over last year's totals
and $3,727,000 or 1.4% over year-end totals.
TOTAL DEPOSITS
Since December 31, 1996, total deposits increased $44,520,000 or 11.3% to
$439,927,000 as of June 30, 1997. The majority of this deposit growth,
approximately $31,950,000 as of June 30, 1997, was due to the added deposit
balances of West Branch Bancorporation, Inc. The majority of the remaining
increase in deposit balances was attributed to increased checking account
balances of $6,719,000 or 14.1% and interest-bearing balances of $5,851,000 or
1.7%. When compared to last year at this date, total deposit balances have
increased $20,025,000 or 5.2%, $10,575,000 or 3.1% in interest-bearing balances
and $9,450,000 or 21.1% in checking.
11
<PAGE>
CAPITAL POSITION
Stockholders' Equity as of June 30, 1997 was $54,900,000, which is is up
$2,324,000 or 4.4% from the $52,576,000 reported as of December 31, 1996 and
$4,372,000 or 8.7% from the $50,528,000 reported as of June 30, 1996. The ratio
of total capital-to-total assets as of June 30, 1997 is 11.3% is down .7% or
5.8% since December 31, 1996 and down .2% or 1.7% from the June 30, 1996 ratio
of 11.5%. As of June 30, 1997 this ratio is substantially higher than the
current Federal Reserve guideline of 6.0%.
As of June 30, 1997, the Company's Tier I capital ratio is 16.18% and its total
risk adjusted capital ratio (Tier I plus Tier II) is 17.44%, compared to the
respective June 30, 1996 ratios of 17.79% and 18.98%. These ratios exceed the
regulatory minimums of 4.0 percent for Tier I and 8.0 percent for total risk
adjusted capital. The Company's leverage capital ratio was 10.56% as of June 30,
1997, compared to 11.49% at June 30, 1996, which is substantially higher than
the 3% regulatory floor.
CAPITAL EXPENDITURES
For the quarter ending June 30, 1997 the Company recorded capital expenditures
totaling approximately $631,000 and year-to-date capital expenditures totaling
approximately $731,000. The majority of the second quarter expenditures were
related to the purchase of the Centre Point Road office building in Cedar
Rapids. In addition, the Company purchased the assets of West Branch
Bancorporation, Inc. (Note 7.).
INTEREST RATE SENSITIVITY AND LIQUIDITY
ANALYSIS
The profitability of the Company is dependent upon the ability of the Company to
properly manage its rate sensitive assets and liabilities to achieve optimum
earnings potential. This is accomplished by maintaining an appropriate balance
between interest-earning assets and interest-paying liabilities while
maintaining sufficient liquidity to meet the cash flow requirements of
customers. Marketable investments, maturing loans, Federal Funds Purchased in
conjunction with Federal Home Loan Bank advances offer a secondary source of
liquidity to the Company should a mismatch occur between demands for and sources
of funds. Over the past several years the Company has maintained sufficient
liquidity as a result of the maturity schedule of its investment portfolio and
stability of its core deposits. Management continually monitors its liquidity
position and interest rate sensitivity and makes appropriate adjustments as
needed to reduce the adverse effects of changes in market interest rates. Table
1 summarizes the repricing dates of the Company's interest-earning assets and
interest-paying liabilities as of June 30, 1997. This table indicates that the
Company is liability sensitive within a twelve-month time frame. Should interest
rates increase in the next year, net interest income may decrease. If rates
would decrease, net interest income may increase. To offset the effects of
increasing market rates and reduce the exposure of the negative gap, management
could shorten the maturities of investment securities and could lengthen the
maturities of deposits by increasing the interest paid on long-term time
deposits.
EFFECT OF INFLATION
Inflation can directly affect the level of asset growth during the year as well
as the various components of the income statement. While it is difficult to
measure the effect of inflation directly, it is the policy of the Company to
minimize the impact of inflation in the future through its asset and liability
management program, effective cost controls and responsive service charge
pricing. The ability of the Company to position itself to minimize the effect of
inflation can more readily be seen by reference to the discussions herein of the
Liquidity, Net Interest Income, Noninterest Income and Noninterest Expense
sections.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held at 4:30 P.M.
local time on Tuesday, April 8, 1997, at the Main Office of the First National
Bank, Iowa city, Iowa, at 204 E. Washington Street, Iowa City, Iowa 52240. At
this meeting, nominees for directors of the Company as listed in the proxy and
below were voted upon. The results of the elections were as follows:
<TABLE>
<CAPTION>
Nominee's Name Voted For Voted Against Abstained From Voting
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fritz L. Duda 1,695,509 - - 641,385
Ralph J. Russell 1,716,659 - - 620,235
A. Russell Schmeiser 1,698,642 - - 638,252
Robert M. Sierk 1,716,725 - - 620,169
Larry D. Ward 1,704,354 - - 632,540
Total outstanding voting shares as of April 8, 1997, was approximately 2,336,894.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See Exhibit Index on Page 14
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K in the last three calendar months.
13
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference.
(Documents indicated by an * are incorporated hereby by reference.)
Page No. Of
Exhibit No. Description of Exhibits Form 10-Q
- --------------------------------------------------------------------------------
4 Instruments defining the rights of security holders,
including indentures. See "Description of the
Common Stock of the Holding Company" at *
page 30 of * Amendment No. 1 to the
Registration Statement Form S-4 filed
under Registration Number 33-893 dated
November 12, 1985.
11 Statement re computation of earnings per 15
common and common equivalent share
27 Financial Data Schedule as of June 30, 1997 **
28 Additional Exhibits:
Table 1 - Interest Rate Sensitivity and Liquidity Analysis 16
Table 2 - Analysis of Interest Rate Spread and Margin 17
Table 3 - Non accrual, Past Due and Restructured Loans 18
Table 4 - Summary of Loan Loss Experience 19
Table 5 - Allocation of the Allowance for Loan Losses 20
** Filed herewith.
14
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares of common stock, beginning (Note 4. and 5.) 2,336,894 2,368,766 2,331,412 2,383,241
========= ========= ========= =========
Shares of common stock, ending 2,330,044 2,347,262 2,330,044 2,347,262
========= ========= ========= =========
Computation of weighted average number of common and common equivalent shares:
Common shares outstanding at the
beginning of the year 2,336,894 2,368,766 2,331,412 2,383,241
Weighted average number of
shares issued 1,420 - - 13,478 17,705
Weighted average of the
common shares redeemed (Note 4. and 5.) (3,180) (11,469) (9,790) (29,452)
Weighted average of the common equivalent shares
attributable to stock options granted, computed
under the treasury stock method 12,817 9,398 11,853 7,546
--------- --------- --------- ---------
Weighted average number of common and
common equivalent shares (Note 4. and 5.) 2,347,951 2,366,695 2,346,953 2,379,040
========= ========= ========= =========
Earnings and earnings per common and common
equivalent share: (Note 4. and 5.)
Net income (in thousands) $1,776,000 $1,618,000 $3,323,000 $3,048,000
========== ========== ========== ==========
Earnings per common and
common equivalent share $ .76 $ .68 $ 1.42 $ 1.28
========== ========== ========== ==========
Dividends $ .22 $ .195 $ .44 .39
========== ========== ========== ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
June 30, 1997
-----------------------------------------------------------------
MONTHS
---------------------------
After Three After One
Within Through Through Non-
(Dollars in Thousands) Three Twelve Five Years sensitive Total
------------------------------------------- ------------ ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 16,900 $ - - $ - - $ - - $ 16,900
Investment securities 7,420 29,507 50,124 22,197 109,248
Loans 55,152 67,500 206,967 25,465 355,084 (2)
Total interest earning assets 79,472 97,007 257,091 47,662 481,232
Interest paying liabilities:
Deposits 94,582 (1) 75,483 92,861 119,524 (1) 382,450 (3)
Federal funds purchased and securities sold
agreement to repurchase 2,502 - - - - - - 2,502
Long-term debt 3,500 7,611 10,562 50 21,723
Total interest paying liabilities 100,584 83,094 103,423 119,574 406,675
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 36,586 36,586
Other assets, liabilities and equity net - - - - - - 37,971 37,971
Total noninterest rate sensitive assets
and liabilities - - - - - - 74,557 74,557
INTEREST SENSITIVE GAP (21,112) 13,913 153,668 (146,469) - -
CUMULATIVE GAP (21,112) (7,199) 146,469 - - - -
CUMULATIVE % OF SENSITIVE 79% 96% 151% - - - -
ASSETS TO LIABILITIES
<FN>
(1) Based on an historical analysis of NOW, SuperNow, Savings and Money Market account balances, covering
a seven year period running from March, 1989 through December, 1995, a percentage of these deposit
balances has been determined to be sensitive to changes in interest rates. Respectively,
approximately 30%, 50%, 30%, and 25% of these deposit balances were determined to be interest rate sensitive.
As such, these percentages of interest rate sensitive deposit balances were classified in the first column
titled "Within three months" and totalled $51,639,000. The remainder of the balances were classified as
non-interest rate sensitive deposit balances and placed in the last column titled "Non-sensitive" and totalled
$119,440,000.
(2) Of the $355,084,000 of total loans, $193,136,000 have fixed rates, while $161,948,000 have variable rates.
(3) Certificates of deposit comprise $211,371,000 of total interest paying
deposits, while interest-paying demand deposits and savings deposit
balances accounted for $171,079,000 of this total.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
----------------------------------------------------------------
June 30, 1997 June 30, 1996
----------------------------- --------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Interest earning assets $ 488,388 8.05% $ 432,733 7.84%
Interest paying liabilities 416,822 4.57 368,471 4.42
Net interest spread 3.48 3.42
Net interest margin 4.15 4.07
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------
June 30, 1997 June 30, 1996
---------------------------- --------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Interest earning assets $ 483,194 7.90% $ 430,001 7.87%
Interest paying liabilities 408,717 4.57 365,299 4.49
Net interest spread 3.33 3.38
Net interest margin 4.03 4.06
</TABLE>
17
<PAGE>
TABLE 3
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Registrant's nonaccrual, past due 90 days or
more and restructured loans as to interest or principal payments as of June 30,
1997 and June 30, 1996. <TABLE>
<CAPTION>
(In Thousands)
-----------------------------------
June 30,1997 June 30, 1996
-------------- ---------------
<S> <C> <C>
Nonaccrual loans $ 420 $ 395
Accruing loans
past due 90
days or more $ 558 $ 975
Restructured
loans None None
</TABLE>
As of June 30, 1997 and June 30, 1996 total nonaccrual loans were comprised
primarily of loans collateralized by real estate. Non-accrual of interest may
occur on any loan whenever one or more of the following criteria is evident: (a)
there is substantial deterioration in the financial position of the borrower;
(b) the full payment of interest and principal can no longer be reasonably
expected; (c) the principal or interest on the loan has been in default for a
period of 90 days. In all cases, loans must be placed on nonaccrual or charged
off at an earlier date if collection of principal or interest is considered
doubtful. All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed to interest income. The interest on these
loans is accounted for on the cash basis or cost recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are reasonably assured of
repayment within a reasonable time frame and when the borrower has demonstrated
payment performance of cash or cash equivalents. Given the number of nonaccrual
loans and related underlying collateral, management does not anticipate any
significant impact to earnings.
The Registrant does not have a significant amount of loans which are past due
less than 90 days on which there are serious doubts as to the ability of the
borrowers to comply with the loan repayment terms.
The Registrant has no individual borrower or borrowers engaged in the same or
similar industry exceeding 10% of total loans. The Registrant has no other
interest-bearing assets, other than loans, that meet the nonaccrual, past due,
restructured or potential problem loan criteria. The Registrant has no foreign
loans outstanding.
A loan is considered restructured when the Company allows certain concessions to
financially troubled debtor that would not normally be considered. There were no
trouble debt restructuring loans for the reporting periods.
18
<PAGE>
TABLE 4
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience for the
three and six month periods ended June 30, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
(In Thousands) (In Thousands)
------------------------------ ------------------------------
Three Months Ended Six Months Ended
June 30,1997 June 30,1997
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 3,896 $ 3,611 $ 3,788 $ 3,602
------------ ------------ ------------ ------------
Allowance related to acquisition
(Note 7.) $ 671 $ - - $ 671 $ - -
------------ ------------ ------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ 36 $ 5 $ 39 $ 5
Real estate, mortgage - - 51 35 77
Loans to individuals 198 23 285 70
------------ ------------ ------------ ------------
$ 234 $ 79 $ 359 $ 152
------------ ------------ ------------ ------------
Recoveries:
Commercial,
financial and
agricultural $ 25 $ 3 $ 28 $ 5
Real estate, mortgage 188 - - 214 - -
Loans to individuals 20 20 47 28
------------ ------------ ------------ ------------
$ 233 $ 23 $ 289 $ 33
------------ ------------ ------------ ------------
Net charge-offs $ 1 $ 56 $ 70 $ 119
------------ ------------ ------------ ------------
Provision for
loan losses (1) $ 176 $ 81 $ 353 $ 153
------------ ------------ ------------ ------------
Balance of loan
loss allowance
at end of period $ 4,742 $ 3,636 $ 4,742 $ 3,636
============ ============ ============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .00% .02% .02% .04%
============ ============ ============ ===========
<FN>
1) For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for loan losses based upon the
impact of economic conditions on the borrower's ability to repay, past
collection experience, the risk characteristics of the loan portfolio
and such other factors which deserve current recognition.
</FN>
</TABLE>
19
<PAGE>
TABLE 5
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The June 30, 1997 and June 30, 1996 allowance for loan losses have been
allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
June 30, 1997 June 30, 1996
------------------------------------- -----------------------------------
Allocation Allocation
of Percentage of Percentage
Allowance of Loans Allowance of Loans
Amount by in Amount by in
Category Category Category Category
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance applicable to:
Allocated:
Commercial,
financial
and agricultural $ 1,093 11% $ 978 12%
Real estate 3,175 74 2,302 73
Installment Loans
to individuals 474 15 356 15
Unallocated: - - - - - - - -
---------- ---------- ---------- ----------
$ 4,742 100% $ 3,636 100%
========== ========== ========== ==========
</TABLE>
Management regularly reviews the loan portfolio and does not expect any unusual
material amount to be charged off in the future which would be significantly
different than the above historical experience.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL BANCORPORATION
(Registrant)
August 7, 1997 //s//A. Russell Schmeiser
------------------------- --------------------------------------
DATE A. Russell Schmeiser
Executive Vice President and COO
(Duly authorized officer of the
registrant and principal financial
officer)
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,891
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,618
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 354,715
<ALLOWANCE> 4,742
<TOTAL-ASSETS> 523,668
<DEPOSITS> 439,927
<SHORT-TERM> 2,502
<LIABILITIES-OTHER> 4,437
<LONG-TERM> 16,271
0
0
<COMMON> 2,913
<OTHER-SE> 51,987
<TOTAL-LIABILITIES-AND-EQUITY> 523,668
<INTEREST-LOAN> 14,060
<INTEREST-INVEST> 3,101
<INTEREST-OTHER> 508
<INTEREST-TOTAL> 17,669
<INTEREST-DEPOSIT> 8,282
<INTEREST-EXPENSE> 8,842
<INTEREST-INCOME-NET> 8,827
<LOAN-LOSSES> 353
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,424
<INCOME-PRETAX> 4,774
<INCOME-PRE-EXTRAORDINARY> 4,774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,323
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 4.03
<LOANS-NON> 420
<LOANS-PAST> 558
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,788
<CHARGE-OFFS> 359
<RECOVERIES> 289
<ALLOWANCE-CLOSE> 4,742
<ALLOWANCE-DOMESTIC> 4,742
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
