SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 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 November 14, 1997
- ----------------------------- ----------------------
<S> <C>
Common stock, $1.25 par value 3,488,680
</TABLE>
1
<PAGE>
FIRST FINANCIAL BANCORPORATION
Index to Form 10-Q
Page
PART I - Financial Information Number
Item 1. Financial statements
Consolidated balance sheets 3
Unaudited consolidated statements of income 4
Unaudited consolidated statements of cash flows 5 - 6
Consolidated statement of stockholders' equity 7
Note to consolidated financial statements 8 - 9
Item 2. Management's discussion and analysis of financial 10 - 12
condition and results of operations
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13 - 19
Signatures 20
2
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
As of
September 30, December 31,
1997 1996*
----------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,785 $ 20,949
Investment securities:,
Available for sale (cost 1997 $107,962; 1996 $97,431) 109,112 97,802
Federal funds sold 17,950 - -
Loans, net of unearned income $ 360,239 $ 330,739
Less: Allowance for possible loan losses (4,713) (3,788)
--------- ---------
Net loans $ 355,526 $ 326,951
--------- ---------
Bank premises and equipment, net 12,331 12,082
Accrued interest receivable 4,185 3,179
Income tax receivable 7 - -
Deferred income taxes - - - -
Intangible assets (Note 7.) 2,864 624
Prepaid pension cost 3,608 3,240
Other assets 3,526 2,898
--------- ---------
$ 534,894 $ 467,725
========= =========
LIABILITIES
Noninterest-bearing deposits $ 55,708 $ 47,603
Interest-bearing deposits 391,700 347,804
--------- ---------
Total deposits $ 447,408 $ 395,407
Federal funds purchased and securities sold under agreement to repurchase 5,299 3,146
Federal Home Loan Bank advances 15,753 12,355
Accrued interest payable 1,831 1,516
Accounts payable and other accrued expenses 2,688 2,503
Income tax payable - - 87
Deferred income taxes 345 135
Notes Payable (Note 7.) 5,453 - -
--------- ---------
$ 478,777 $ 415,149
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1997 3,488,680 shares; issued 1996 3,497,118 shares $ 4,361 $ 2,914
Additional paid-in capital 2,284 2,606
Retained earnings 48,751 46,824
Unrealized gains on debt securities, net 721 232
--------- ---------
$ 56,117 $ 52,576
--------- ---------
$ 534,894 $ 467,725
========= =========
*Condensed from audited financial statements.
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1997 and 1996
(Amounts in Thousands, Except per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,526 $ 6,718 $21,586 $19,164
Interest on investment securities,
Taxable 1,117 1,334 3,411 4,235
Nontaxable 427 369 1,234 1,098
Interest on federal funds sold 312 47 820 304
------- ------- ------- -------
Total interest income $ 9,382 $ 8,468 $27,051 $24,801
------- ------- ------- -------
Interest expense:
Interest on deposits $ 4,392 $ 3,862 $12,674 $11,459
Interest on federal funds purchased and
securities sold under agreements to repurchase 50 37 87 49
Interest on Federal Home Loan Bank advances 252 254 693 776
Interest notes payable 89 - - 171 - -
------- ------- ------- -------
Total interest expense $ 4,783 $ 4,153 $13,625 $12,284
------- ------- ------- -------
Net interest income $ 4,599 $ 4,315 $13,426 $12,517
Provision for loan losses 177 86 530 239
------- ------- ------- -------
Net interest income after provision
for loan losses $ 4,422 $ 4,229 $12,896 $12,278
------- ------- ------- -------
Noninterest income:
Trust fees $ 840 $ 742 $ 2,512 $ 2,250
Service charges and fees on deposit accounts 515 465 1,502 1,360
Other service charges, commissions and fees 713 542 1,838 1,663
Investment gains (losses), net 56 (129) 231 (129)
------- ------- ------- -------
$ 2,124 $ 1,620 $ 6,083 $ 5,144
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits $ 1,965 $ 1,634 $ 5,659 $ 4,923
Occupancy furniture and equipment 747 667 2,064 2,012
Data processing 394 340 1,117 927
Office supplies and postage 270 280 771 820
Other expenses 741 964 2,165 2,409
------- ------- ------- -------
$ 4,117 $ 3,885 $11,776 $11,091
------- ------- ------- -------
Income before income taxes $ 2,429 $ 1,964 $ 7,203 $ 6,331
Federal and state income taxes 747 580 2,198 1,899
------- ------- ------- -------
Net Income $ 1,682 $ 1,384 $ 5,005 $ 4,432
======= ======= ======= =======
Average common stock and common equivalent shares 3,515,192 3,521,651 3,518,848 3,553,410
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 4. and 5.) $ .48 $ .39 $ 1.42 $ 1.25
======= ======= ======= =======
Dividends per common share $ .17 $ .15 $ .46 $ .41
======= ======= ======= =======
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30, 1997 and 1996
(Amounts in Thousands)
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,005 $ 4,432
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 801 793
Amortization 186 116
Provision for loan losses 530 239
Amortization of investment security discount 124 108
(Increase) decrease in accrued interest receivable (516) (328)
(Increase) in prepaid pension costs (368) (324)
(Increase) in other assets (518) 388
Increase (decrease) in accrued interest and other liabilities 133 (83)
Change in accrued income taxes (94) 295
Change in deferred income taxes (101) - -
-------- --------
Net cash provided by operating activities $ 5,182 $ 5,636
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 19,262 $ 15,218
Sales 19,194 13,502
Purchases (34,401) (12,963)
Federal funds sold, net (16,250) 2,050
Net (increase) decrease in loan balances outstanding (8,029) (35,188)
Purchases of bank premises and equipment (777) (479)
Acquisition of stock West Branch Bancorporation, Inc. net of cash
received(Note 7.) ( 1,155) - -
-------- --------
Net cash (used in) investing activities $(22,156) $(17,860)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 19,212 $ 15,133
Federal funds purchased and securities sold under agreement
to repurchase 2,153 3,845
Repayment of other borrowings - - (53)
Federal Home Loan Bank advances 2,398 (1,098)
Cash dividends paid (1,620) (1,434)
Stock options exercised 414 434
Common stock redeemed (Note 4. and 5.) (203) (290)
Common stock purchased (544) (1,698)
-------- --------
Net cash provided by financing activities $ 21,810 $ 14,839
-------- --------
Increase in cash and due from banks $ 4,836 $ 2,615
CASH AND DUE FROM BANKS
Beginning balance 20,949 16,443
-------- --------
Ending balance $ 25,785 $ 19,058
======== ========
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Three Months
Ended September 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 $ 13,310 $ 12,374
Income Taxes 2,218 1,283
Noncash transactions:
Net unrealized gains (losses) on debt securities 800 (787)
Deferred income taxes on unrealized gains (losses)
on debt securities 311 (239)
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 equivalents $ 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
Nine months ended Unrealized
September 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 - - - - - - 5,005 - - 5,005
Cash dividends ($.46 per share) - - - - - - (1,621) - - (1,621)
Stock options exercised for 17,200 shares 17 22 393 - - - - 415
Redemption of 24,898 shares of common stock(Note 5.) (24) (31) (715) - - - - (746)
Stock spllit 1 for 2, 1,165,027 shares issued 1,165 1,456 - - (1,456) - - - -
Fractional shares purchased of 56 - - - - - - (1) - - (1)
Unrealized (losses) on debt securities,
net of deferred tax effect - - - - - - - - 489 489
- -------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1997 3,489 $ 4,361 $ 2,284 $48,751 $ 721 $ 56,117
======== ======== ======== ======== ========= ========
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 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 nine months of 1997, the Company purchased 18,440 shares
of its common stock under a repurchase plan which authorizes up to
180,000 shares to be repurchased through January 31, 1998.
The company issued a 1-2 stock split affected in the form of a stock
dividend on July 18, 1997, payable to shareholder's of record as of
July 1, 1997. An additional 1,165,022 shares of common stock were
issued to stockholders. Fractional shares totaling 56 shares were
purchased at a cost of $1,288. Information with respect to common
stock outstanding, earnings per common share, and other stock
information has been adjusted to give effect to the stock split.
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 September 30,
impaired loan information. 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $278 $342
Impaired loans with related reserve for
loan losses calculated under SFAS 114 278 342
Amount of reserve for loan losses allocated
to the impaired loan balance 43 53
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
September 30,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans $461 $319
Cash basis interest
income recognized on
impaired loans - - 7
Interest income that
would have been recorded
during the period on non-
accrual loans 9 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 third quarter and the first three quarters of 1997
totaled $1,682,000 and $5,005,000, respectively, representing increases of
$298,000 or 21.5% and $573,000 or 12.9% when compared to the same prior year
period totals, as a result of increased net interest income after provision for
loan losses. Included in these totals is the net income of West Branch State
Bank of $92,000 and $139,000 for the periods reported. Increased loan and
federal funds sold balances provided the higher levels of net interest income
after provision for loan losses, which increased $193,000 or 4.6% to $4,422,000
and $618,000 or 5% to $12,896,000 for the periods. During these periods, West
Branch State Bank contributed net interest income after provision for loan
losses of $291,000 and $619,000, respectively.
DIVIDEND INFORMATION
Cash dividends totaling $593,000 and $1,620,000 were paid, respectively, for the
third quarter and first nine months of 1997, which compares favorably to the
$513,000 and $1,434,000 of dividends paid for the same periods in 1996. A $.17
cash dividend was paid per outstanding share of common stock in the third
quarter of 1997 compared to $.15 in 1996. As of September 30, 1997, the per
share stock dividend paid was $.46 compared to $.41 in 1996. This represented an
increase of $.05 or 12.2% per outstanding share of common stock and $186,000 or
13% in total cash dividends paid. In addition, the Company issued a 1 for 2
stock split affected in the form of a stock dividend in the third quarter of
1997. As a result, an additional 1,165,022 shares of common stock were issued.
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 nine month periods ended September 30, 1997, net interest
income, increased $284,000 or 6.7% to $4,599,000 and $909,000 or 7.3% to
$13,426,000, respectively, when compared to 1996 period totals. During these
periods, West Branch State Bank recorded $291,000 and $619,000 of net interest
income, respectively.
Net interest income, on a fully tax-equivalent basis, increased $752,000 or
17.8% to $4,981,000 in the third quarter of 1997 and $1,913,000 or 15.6% to
$14,191,000 in the first nine months of 1997 when compared to the same periods
in 1996. The acquisition of the West Branch State Bank added $377,000 of net
interest income, on a fully tax-equivalent basis, in the third quarter of 1997
and $738,000 for the year. After adjusting for this, results in increases of
$375,000 or 8.2% and $1,175,000 or 8.8% 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 nine month periods ended September
30, 1997 and 1996.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses increased $91,000 or 105.8% to $177,000 and
$291,000 or 121.8% to $239,000, respectively, for the three and nine month
periods ended September 30, 1997. This increase in the provision is directly
related to increased loan balances and charged-off loan balances.
As of September 30, 1997, the reserve for loan losses was 1.31% of total
outstanding loans compared to 1.15% as of December 31, 1996. As of September 30,
1996 this ratio was 1.10%. The reserves for loan losses of West Branch State
Bank were $669,000 as of September 30, 1997. The added reserves increased this
ratio by .19%. During the third quarter of 1997 the Company recorded net
charged-off loans totaling $206,000 compared to $105,000 for the same period in
1996. Year-to-date net charged-off loans totaled $276,000 in 1997 compared to
$224,000 in 1996.
NONINTEREST INCOME
For the third quarter and first three quarters of 1997, noninterest income
totaled $2,124,000 and $6,083,000, respectively. These totals increased $504,000
or 31.1% and $939,000 or 18.3% when compared to 1996. Included in these totals
are investment security gains and losses and noninterest income of West Branch
State Bank. After adjusting for these items, noninterest income increased
$298,000 or 18.4% and $533,000 or 10.4%, respectively. Trust fees increased
$98,000 or 13.2% and $262,000 or 11.6% for the periods reported. When compared
to 1996 period totals and after excluding West Branch State Bank totals, other
service charges, commissions and fees increased $169,000 or 31.2% for the third
quarter and $167,000 or 10% for the year. Included in this caregory are
secondary market mortgage loan fees which increased $79,000 or 67.5% for the
quarter but decreased $48,000 or 10.9% year to date as of September 30, 1997.
Merchant program fees increased $46,000 or 28.2% and $120,000 or 28.2% for the
same quarters.
10
<PAGE>
NONINTEREST EXPENSES
For the third quarter and first three quarters of 1997, noninterest
expenses increased $232,000 or 6% to $4,117,000 and $685,000 or 6.2% to
$11,176,000 when compared to 1996 totals. These increases were primarily due to
the $260,000 third quarter and $488,000 year to date expenses incurred as a
result of the acquisition of West Branch State Bank. Salaries and employee
benefits increased $331,000 or 20.2% to $1,965,000 in the third quarter and
$736,000 or 15% to $5,659,000 as of September 30, 1997. West Branch State Bank
reported $119,000 and $239,000 of salary expense for these periods. The
remaining increases were due to increased staffing and normal salary
adjustments.
INCOME TAXES
Income tax expense totaled $747,000 and $2,198,000 for the three and nine month
periods ending as of September 30, 1997. This is an increase of $167,000 or
28.8% and $299,000 or 15.7% when compared to last year's tax expense of $580,000
and $1,899,000, for the three and nine months periods ending September 30, 1996.
Under the Company's statutory tax rates of 34% and 5% year-to-date 1997 federal
tax expense was $1,825,000 and state tax expense was $373,000. West Branch State
Bank's portion of this tax expense was $33,000 and $9,000, respectively.
FINANCIAL POSITION
TOTAL ASSETS
Total consolidated assets as of September 30, 1997 were $534,894,000, which is
an increase of $58,959,000 or 12.4% over total assets of $475,935,000 as of
September 30, 1996. Included in this increase were the assets of West Branch
State Bank, which totaled $40,039,000 as of September 30, 1997. Excluding these
balances, total assets increased $18,920,000 or 4% over 1996 totals. Loans and
federal funds sold balances increased the most, $7,763,000 or 2.4% and
$15,825,000 or 134.7%, respectively. This asset growth was funded primarily by
increased deposit balances of $47,220,000 or 11.8%. Excluding the deposit
balances of West Branch State Bank of $31,187,000 as of September 30, 1997,
these balances increased $16,033,000 or 4%.
TOTAL LOAN BALANCES
Total loan balances increased $30,746,000 or 9.3% to $360,239,000 as of
September 30, 1997 when compared to loan balances of $329,493,000 as of
September 30, 1996 and $29,500,000 or 8.9% when compared to December 31, 1996
loan balances of $330,739,000. The majority of the increase was in the real
estate loan category, which increased $22,031,000 or 8.2% over last year's
totals and $18,377,000 or 6.8% over year-end totals. Included in these totals
were totals loans of West Branch State Bank of $22, 983,000.
TOTAL DEPOSITS
Since December 31, 1996, total deposits increased $52,001,000 or 13.2% to
$447,408,000 as of September 30, 1997. The majority of this deposit growth,
approximately $31,187,000 as of September 30, 1997, was due to the added deposit
balances of West Branch State Bank. The majority of the remaining increase in
deposit balances was attributed to increased checking account balances of
$5,218,000 or 11% and interest-bearing balances of $6,346,000 or 1.8%. When
compared to last year at this date, total deposit balances have increased
$16,033,000 or 4.1%, $4,353,000 or 9% in checking accounts and $11,680,000 or
3.3% in interest-bearing balances.
11
<PAGE>
CAPITAL POSITION
Stockholders' equity as of September 30, 1997 was $56,117,000, which is up
$3,541,000 or 6.7% from the $52,576,000 reported as of December 31, 1996 and
$4,960,000 or 9.7% from the $51,157,000 reported as of September 30, 1996. The
ratio of total capital-to-total assets as of September 30, 1997 is 11.3% is down
.7% or 5.8% since December 31, 1996 and down .1% or .8% from the September 30,
1996 ratio of 11.4%. As of September 30, 1997 this ratio is substantially higher
than the current Federal Reserve guideline of 6.0%.
As of September 30, 1997, the Company's Tier I capital ratio is 15.96% and its
total risk adjusted capital ratio (Tier I plus Tier II) is 17.21%, compared to
the respective September 30, 1996 ratios of 17.01% and 18.22%. 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 10.80% as
of September 30, 1997, compared to 11.53% at September 30, 1996, which is
substantially higher than the 3% regulatory floor.
CAPITAL EXPENDITURES
For the quarter ending September 30, 1997 the Company recorded capital
expenditures totaling approximately $146,000 and year-to-date capital
expenditures totaling approximately $777,000. The majority of the third quarter
expenditures were related to the purchase of furniture and equipment for the
Centre Point Road office, in Cedar Rapids, which was opened in the fourth
quarter of 1997. 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 September 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 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See Exhibit Index below
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K in the last three calendar months.
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference.
(Documents indicated by an * are incorporated hereby by reference.)
Page No. Of
Exhibit No. Description of Exhibits Form 10-Q
- --------------------------------------------------------------------------------
4 Instruments defining the rights of security holders,
including indentures. See "Description of the
Common Stock of the Holding Company" at *
page 30 of * Amendment No. 1 to the
Registration Statement Form S-4 filed
under Registration Number 33-893 dated
November 12, 1985.
11 Statement re computation of earnings per 14
common and common equivalent share
27 Financial Data Schedule as of September 30, 1997 **
28 Additional Exhibits:
Table 1 - Interest Rate Sensitivity and Liquidity Analysis 15
Table 2 - Analysis of Interest Rate Spread and Margin 16
Table 3 - Non accrual, Past Due and Restructured Loans 17
Table 4 - Summary of Loan Loss Experience 18
Table 5 - Allocation of the Allowance for Loan Losses 19
** Filed herewith.
13
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares of common stock, beginning (Note 4. and 5.) 3,495,066 3,520,893 3,497,118 3,574,862
========= ========= ========= =========
Shares of common stock, ending 3,488,680 3,497,118 3,488,680 3,497,118
========= ========= ========= =========
Computation of weighted average number of common and common equivalent shares:
Common shares outstanding at the
beginning of the year 3,495,066 3,520,893 3,497,118 3,574,862
Weighted average number of
shares issued - - - - 22,098 28,319
Weighted average of the
common shares redeemed (Note 4. and 5.) (2,317) (16,709) (19,903) (63,753)
Weighted average of the common equivalent shares
attributable to stock options granted, computed
under the treasury stock method 22,443 17,467 19,535 13,982
--------- --------- --------- --------
Weighted average number of common and
common equivalent shares (Note 4. and 5.) 3,515,192 3,521,651 3,518,848 3,553,410
========= ========= ========= ========
Earnings and earnings per common and common
equivalent share: (Note 4. and 5.)
Net income $1,682,000 $1,384,000 $5,005,000 $4,432,000
========== ========== ========== =========
Earnings per common and
common equivalent share $ .48 $ .39 $ 1.42 $ 1.25
========== ========== ========== =========
Dividends $ .17 $ .15 $ .46 .41
========== ========== ========== =========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
September 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 $ 17,950 $ - - $ - - $ - - $ 17,950
Investment securities 7,987 24,751 45,549 30,825 109,112
Loans 44,101 59,542 224,930 31,666 360,239 (2)
Total interest earning assets 70,038 84,293 270,479 62,491 487,301
Interest paying liabilities:
Deposits 80,936 (1) 88,584 92,650 129,530 (1) 391,700 (3)
Federal funds purchased and securities sold
agreement to repurchase 5,299 - - - - - - 5,299
FHLB Advances 3,000 6,474 6,229 50 15,753
Notes Payable - - 1,812 3,641 - - 5,453
Total interest paying liabilities 89,235 96,870 102,520 129,580 418,205
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 29,923 29,923
Other assets, liabilities and equity net - - - - - - 39,173 39,173
Total noninterest rate sensitive assets
and liabilities - - - - - - 69,096 69,096
INTEREST SENSITIVE GAP (19,197) (12,577) 167,959 (136,185) - -
CUMULATIVE GAP (19,197) (31,774) 136,185 - - - -
CUMULATIVE % OF SENSITIVE 78% 83% 147% - - - -
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 $50,205,000. 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
$129,452,000.
(2) Of the $360,239,000 of total loans, $154,860,000 have fixed rates, while $205,379,000 have variable rates.
(3) Certificates of deposit comprise $212,043,000 of total interest paying deposits, while interest-paying demand
deposits and savings deposit balances accounted for $179,657,000 of this total.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
----------------------------------------------------------------
September 30, 1997 September 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 $ 487,822 7.99% $ 437,891 7.93%
Interest paying liabilities 414,199 4.58 369,548 4.41
Net interest spread 3.31 3.52
Net interest margin 4.10 4.21
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------------------
September 30, 1997 September 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 $ 484,601 7.87% $ 432,630 7.89%
Interest paying liabilities 410,541 4.57 366,715 4.47
Net interest spread 3.30 3.42
Net interest margin 4.00 4.09
</TABLE>
16
<PAGE>
TABLE 3
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Registrant's nonaccrual, past due 90 days or
more and restructured loans as to interest or principal payments as of September
30, 1997 and September 30, 1996. <TABLE>
<CAPTION>
(In Thousands)
--------------------------------------
September 30,1997 September 30, 1996
----------------- ------------------
<S> <C> <C>
Nonaccrual loans $ 278 $ 342
Accruing loans
past due 90
days or more $1,647 $ 833
Restructured
loans None None
</TABLE>
As of September 30, 1997 and September 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
indefault for a period of 90 days. In all cases, loans must be placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful. All interest accrued but not collected for
loans that are placed on nonaccrual or charged off is reversed to interest
income. The interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans are returned to
accrual status when all the principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable time frame and when the
borrower has demonstrated payment performance of cash or cash equivalents. Given
the number of nonaccrual loans and related underlying collateral, management
does not anticipate any significant impact to earnings.
The Registrant does not have a significant amount of loans which are past due
less than 90 days on which there are serious doubts as to the ability of the
borrowers to comply with the loan repayment terms.
The Registrant has no individual borrower or borrowers engaged in the same or
similar industry exceeding 10% of total loans. The Registrant has no other
interest-bearing assets, other than loans, that meet the nonaccrual, past due,
restructured or potential problem loan criteria. The Registrant has no foreign
loans outstanding.
A loan is considered restructured when the Company allows certain concessions to
financially troubled debtor that would not normally be considered. There were no
trouble debt restructuring loans for the reporting periods.
17
<PAGE>
TABLE 4
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience for the
three and nine month periods ended September 30, 1997 and September 30, 1996:
<TABLE>
<CAPTION>
(In Thousands) (In Thousands)
------------------------------ ------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 4,742 $ 3,636 $ 3,788 $ 3,602
------------ ------------ ------------ ------------
Allowance related to acquisition
(Note 7.) $ - - $ - - $ 671 $ - -
------------ ------------ ------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ 216 $ 8 $ 255 $ 15
Real estate, mortgage 2 - - 37 76
Loans to individuals 19 107 304 176
------------ ------------ ------------ ------------
$ 237 $ 115 $ 596 $ 267
------------ ------------ ------------ ------------
Recoveries:
Commercial,
financial and
agricultural $ 7 $ 2 $ 35 $ 7
Real estate, mortgage 2 1 216 1
Loans to individuals 22 7 69 35
------------ ------------ ------------ ------------
$ 31 $ 10 $ 320 $ 43
------------ ------------ ------------ ------------
Net charge-offs $ 206 $ 105 $ 276 $ 224
------------ ------------ ------------ ------------
Provision for
loan losses (1) $ 177 $ 86 $ 530 $ 239
------------ ------------ ------------ ------------
Balance of loan
loss allowance
at end of period $ 4,713 $ 3,617 $ 4,713 $ 3,617
============ ============ ============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .06% .03% .07% .07%
============ ============ ============ ===========
<FN>
1) For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for loan losses based upon the
impact of economic conditions on the borrower's ability to repay, past
collection experience, the risk characteristics of the loan portfolio
and such other factors which deserve current recognition.
</FN>
</TABLE>
18
<PAGE>
TABLE 5
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The September 30, 1997 and September 30, 1996 allowance for loan losses
have been allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
September 30, 1997 September 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 $ 1,109 12% $ 1,011 11%
Real estate 2,658 74 1,956 73
Installment Loans
to individuals 946 14 315 15
Unallocated: - - - - 335 1
---------- ---------- ---------- ----------
$ 4,713 100% $ 3,617 100%
========== ========== ========== ==========
</TABLE>
Management regularly reviews the loan portfolio and does not expect any
unusual material amount to be charged off in the future which would be
significantly different than the above historical experience.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL BANCORPORATION
(Registrant)
November 14, 1997 //s//A. Russell Schmeiser
------------------------- --------------------------------------
DATE A. Russell Schmeiser
Executive Vice President and COO
(Duly authorized officer of the
registrant and principal financial
officer)
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 25,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,112
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 360,239
<ALLOWANCE> 4,713
<TOTAL-ASSETS> 534,894
<DEPOSITS> 447,408
<SHORT-TERM> 5,299
<LIABILITIES-OTHER> 10,317
<LONG-TERM> 15,753
0
0
<COMMON> 4,361
<OTHER-SE> 51,756
<TOTAL-LIABILITIES-AND-EQUITY> 534,894
<INTEREST-LOAN> 21,586
<INTEREST-INVEST> 4,645
<INTEREST-OTHER> 820
<INTEREST-TOTAL> 27,051
<INTEREST-DEPOSIT> 12,674
<INTEREST-EXPENSE> 13,625
<INTEREST-INCOME-NET> 13,426
<LOAN-LOSSES> 530
<SECURITIES-GAINS> 231
<EXPENSE-OTHER> 11,776
<INCOME-PRETAX> 7,203
<INCOME-PRE-EXTRAORDINARY> 7,203
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,005
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 4.00
<LOANS-NON> 278
<LOANS-PAST> 1,647
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,788
<CHARGE-OFFS> 596
<RECOVERIES> 320
<ALLOWANCE-CLOSE> 4,713
<ALLOWANCE-DOMESTIC> 4,713
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
