FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
(FIRST NATIONAL BANK, IOWA CITY, IOWA)
(FIRST NATIONAL BANK, CEDAR RAPIDS, IOWA)
FORM 10-K
DECEMBER 31, 1996
<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, 1996
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 February
28, 1997, (based upon reports of beneficial ownership that approximately 88.87%
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 $31.00 per share) was approximately
$64,381,000.
The number of shares outstanding of the Registrant's common stock as of
March 27, 1997.
Common Stock $1.25 Par Value - 2,336,894 Shares
- -------------------------------------------------
P. 1 of 49
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
1. Proxy Statement dated March 7, 1997, for the Annual Meeting of Shareholders
to be held on April 8, 1997, is incorporated by reference into Part III,
Items 10, 11, 12 and 13.
P. 2 of 49
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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 100,000 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 179,000 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 are other commercial banks, 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, they include mortgage brokers, the financing
arm of automobile manufacturers, and in some cases, agencies of the federal
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. At the south end of the corridor, the Iowa City Bank has a
significant share of the deposit and loan market, due in part to its 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 north corridor
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.
p. 3 of 49
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ITEM 1. BUSINESS (continued)
CORPORATE ORGANIZATION AND STRUCTURE (continued)
In recent years, the banking environment of the entire corridor has been
extremely competitive in nature, particularly in terms of rate, price and new
entrants to the market. The greater Iowa City area is a case in point. The
number of ATMs has tripled since 1988. Three new financial institutions have
entered the market and the overall number of banking offices has increased by
30%, all within the past three years.
These highly competitive local market trends are expected to continue in the
foreseeable future, due in part to the demograpic characteristics which make the
area such an attractive banking market, as well as to a regulatory environment
which 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, 1996, the Iowa City Bank employed 204 persons consisting of
154 full-time employees and 50 part-time employees (the majority of which worked
less than thirty hours per week). The Cedar Rapids Bank employed 27 persons
consisting of 24 full-time employees and three part-time employees. As of
December 31, 1996, the Registrant had one full-time employee who is a salaried
corporate officer of the Company. The other corporate officer is a salaried
officer of the Iowa City Bank. Neither corporate officer received additional
compensation for serving as officer or director 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, 1996, 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.
p. 4 of 49
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ITEM 1. BUSINESS (continued)
CAPITAL REQUIREMENTS(continued)
A comparison of each subsidiary bank's capital as of December 31, 1996, with
minimum requirements is presented below:
ACTUAL MINIMUM
IOWA CITY BANK CEDAR RAPIDS BANK REQUIREMENTS
-------------- ----------------- ------------
Total Risk-Based Capital 17.82% 12.68% 8%
Tier I Risk-Based Capital 16.57% 11.76% 4%
Leverage Ratio 11.08% 8.40% 4%
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, 1996, both banking
subsidiaries met the capital criteria required by the well-capitalized
definition and substantially exceeded the regulatory minimum capital levels.
As of December 31, 1996 and 1995, 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
1996 1995 REQUIREMENTS
-------- -------- ------------
Total Risk-Based Capital 18.75% 19.51% 8%
Tier 1 Risk-Based Capital 17.50% 18.28% 4%
Leverage Ratio 11.73% 11.46% 4%
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, 1996 and 1995, are analyzed showing the effects of changes in
volume and rates:
AVERAGE BALANCES (Daily Average Basis) (In Thousands)
Year Ended December 31,
1996 1995 1994
ASSETS --------- --------- ---------
Taxable securities $ 87,414 $ 88,064 $ 104,549
Nontaxable securities 27,384 23,276 23,135
Federal funds sold 8,136 11,181 5,789
Loans, net of unearned income 310,956 294,649 277,101
--------- --------- ---------
Total interest-earning assets $ 433,890 $ 417,620 $ 410,574
Less allowance for loan losses (3,625) (3,512) (3,215
Cash and due from banks l5,905 14,312 13,981
Property and equipment, net 12,357 11,693 10,646
Other assets 9,600 9,278 9,000
--------- --------- ---------
Total assets $ 468,127 $ 449,391 $ 440,986
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-paying demand deposits $ 58,696 $ 58,357 $ 60,178
Savings deposits 102,185 89,436 88,948
Time deposits 189,227 188,135 178,581
Federal funds purchased and
securities sold under agreements
to repurchase 1,068 237 1,923
Federal Home Loan Bank advances 16,246 19,857 19,799
Other long-term borrowings -- 13 256
--------- -------- ---------
Total interest-paying liabilities $ 367,422 $ 356,035 $ 349,685
Noninterest-paying demand deposits 44,692 42,331 42,688
Other liabilities 4,629 3,644 3,447
Stockholders' equity 51,384 47,381 45,166
--------- -------- ---------
Total liabilities and stockholders' equity $ 468,127 $ 449,391 $ 440,986
========= ========= =========
P. 5 of 49
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ITEM 1. BUSINESS (continued)
INTEREST INCOME AND EXPENSE
(In Thousands)
Year Ended December 31,
1996 1995 1994
--------- -------- ---------
INCOME
Taxable securities $ 5,316 $ 5,251 $ 5,712
Nontaxable securities 2,188 2,044 2,033
Federal funds sold 430 658 222
Loans 26,376 24,843 22,292
--------- -------- ---------
Total interest income $ 34,310 32,796 $ 30,259
========= ========= =========
EXPENSE
Interest-paying demand deposits $ 1,184 1,253 $ 1,270
Savings deposits 3,568 2,870 2,104
Time deposits 10,642 10,475 8,959
Federal funds purchased and
securities sold under agreements
to repurchase 60 14 90
Federal Home Loan Bank advances 995 1,199 1,184
Other long-term borrowings - - - - 17
--------- -------- ---------
Total interest expense $ 16,449 15,811 $ 13,624
--------- -------- ---------
Net interest income $ 17,861 16,985 $ 16,635
========= ========= =========
Year Ended December 31,
1996 1995 1994
-------- -------- ---------
INTEREST RATES AND INTEREST
DIFFERENTIAL
Average yields:
Taxable securities 6.08% 5.96% 5.46%
Nontaxable securities 7.99 8.62 8.79
Federal funds sold 5.29 5.88 3.83
Loans 8.48 8.43 8.04
Interest-paying demand deposits 2.02 2.15 2.11
Savings deposits 3.49 3.21 2.37
Time deposits 5.62 5.57 5.02
Federal funds purchased and
securities sold under agreements
to repurchase 5.62 5.91 4.68
Federal Home Loan Bank advances 6.12 6.04 5.98
Other long-term borrowings - - - - 6.64
Yield on average interest earning assets (1) 7.91 7.85 7.37
Yield on average interest-paying
liabilities 4.48 4.44 3.90
Net interest yield (1) 3.43 3.41 3.47
Net interest margin (2) 4.12 4.07 4.05
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 49
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ITEM 1. BUSINESS (continued)
CHANGE IN INTEREST INCOME AND EXPENSE
(In Thousands of Dollars)
Year Ended December 31, 1996
Change Change
Due To Due To Total
Volume Rates Change
--------- -------- ---------
Change in interest income:
Taxable securities $ ( 40) $ 105 $ 65
Nontaxable securities 300 (156) 144
Federal funds sold (167) ( 61) (228)
Loans 1,385 148 1,533
-------- -------- --------
$ 1,478 $ 36 $ 1,514
-------- -------- --------
Change in interest expense:
Interest-paying demand deposits $ 7 $ ( 76) $ ( 69)
Savings deposits 433 265 698
Time deposits 66 101 167
Federal funds purchased and securities
sold under agreements to repurchase 47 ( 1) 46
Federal Home Loan Advances (220) 16 (204)
-------- -------- --------
$ 333 $ 305 $ 638
-------- -------- --------
Net change in net interest income (1) $ 1,145 $ (269) $ 876
======== ======== ========
(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
========= ======== =========
(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 1995 and 1996.
The rate/volume variances were allocated on a pro rata basis between rate and
volume variances using absolute values.
P. 7 of 49
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ITEM 1. BUSINESS (continued)
INVESTMENT SECURITIES
The following tables show the carrying values of investment securities as of
December 31, 1996, 1995 and 1994, and the maturities and yields of the
investment securities as of December 31, 1996:
(In Thousands)
December 31,
1996 1995 1994
-------- -------- --------
Carrying Values:
U.S. Treasury securities $ 20,933 $ 32,027 $ 42,130
Obligations of other U.S. Government
agencies and corporations 44,526 63,231 42,029
Obligations of states and
political subdivisions 29,588 26,403 22,921
Marketable equity securities 475 - - - -
Federal Reserve Bank stock 339 336 336
Federal Home Loan Bank stock 1,941 1,889 1,813
-------- -------- --------
$ 97,802 $123,886 $109,229
======== ======== ========
December 31, 1996
Weighted
Fair Average
Value Yield (1)
-------- ---------
Type and maturity groupings:
U.S. Treasury maturities:
Within 1 year $ 8,521 6.01%
From 1 to 5 years 12,412 5.93
--------
Total $ 20,933
--------
Obligations of other U.S. Government
agencies and corporations maturities:
Within 1 year $ 12,065 6.58%
From 1 to 5 years 25,563 6.01
From 5 to 10 years 4,935 6.36
Over 10 years 1,963 6.49
--------
Total $ 44,526
--------
Obligations of states and political
subdivisions maturities:
Within 1 year $ 5,407 8.96%
From 1 to 5 years 17,379 7.77
From 5 to 10 years 6,331 7.09
Over 10 years 471 7.85
--------
Total $ 29,588
--------
Marketable equity securities $ 475 4.71%
Federal Reserve Bank stock 338 6.00
Federal Home Loan Bank stock 1,942 7.25
--------
Total $ 2,755
--------
Total $ 97,802
========
(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 1996 based on fair value.
As of December 31, 1996, 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.
p. 8 of 49
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ITEM 1. BUSINESS (continued)
LOANS (1)
The following table shows the composition of loans as of December 31, 1996,
1995, 1994, 1993 and 1992.
(In Thousands)
December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Commercial, financial
and agricultural $ 32,361 $ 30,128 $ 31,800 $ 30,036 $ 29,422
Bankers' acceptances - - - - - - - - 1,975
Real estate, construction 16,440 10,914 16,590 13,662 8,145
Real estate, mortgage 230,534 206,869 194,261 159,349 148,178
Loans to individuals 49,386 43,572 50,123 49,571 37,666
All other 2,018 3,046 1,933 1,589 25
-------- -------- -------- -------- --------
TOTAL $330,739 294,529 $294,707 $254,207 $225,411
======== ======== ======== ======== ========
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, 1996:
One To Over Non-
Amount One Year Five Five Accrual
Of Loans Or Less Years Years Loans
-------- -------- -------- -------- --------
Commercial, financial
and agricultural (2) $ 32,361 $ 22,609 $ 7,665 $ 2,039 $ 48
Real estate,
construction (3) 16,440 4,751 9,672 2,017 - -
Real estate, mortgage (4) 230,534 77,286 134,950 18,109 189
Loans to individuals (5) 49,386 21,092 27,271 701 322
All other (6) 2,018 1,870 148 - - - -
-------- -------- -------- -------- --------
Total $330,739 $127,608 $179,706 $ 22,866 $ 559
======== ======== ======== ======== ========
(1) Before deducting reserve for possible loan losses.
(2) Approximately $15,548,000 or over 48% of these loans are adjustable rate
loans.
(3) Approximately $6,181,000 or nearly 38% of these loans are adjustable rate
loans.
(4) Approximately $129,775,000 or over 56% of these loans are adjustable rate
loans.
(5) Approximately $6,736,000 or nearly 14% of these loans are adjustable rate
loans.
(6) Approximately $601,000 or nearly 30% of these loans are adjustable rate
loans.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Registrant's nonaccrual, past due 90 days or
more and restructured loans as of December 31 for each of the years presented:
(In Thousands of Dollars)
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Nonaccrual loans $ 559 $ 270 $ 1,100 $ 1,274 $ 405
Accruing loans
past due 90
days or more $ 381 $ 273 $ 60 $ 68 None
Restructured
loans $ 16 None None None None
As of December 31, 1996, 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
p. 9 of 49
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ITEM 1. BUSINESS (continued)
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Continued)
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.
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.
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 material 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 December 31,
impaired loan information
1996 1995
- --------------------------------------------------------------------------------
Impaired loans $ 559 $ 270
Impaired loans with related reserve for
loan losses calculated under SFAS 114 559 164
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 88 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,
1996 1995
- --------------------------------------------------------------------------------
Average impaired loans $ 317 $ 682
Interest income recognized 62 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 49
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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, 1996, 1995, 1994, 1993, and 1992:
(In Thousands)
Year Ended December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Balance of loan loss
allowance at
beginning of period $3,602 $3,354 $3,101 $3,006 $2,937
------ ------ ------ ------ ------
Charge-offs:
Commercial, financial
and agricultural $ 31 $ 21 $ 3 $ 32 $ 105
Real estate mortgage 76 - - 4 53 25
Loans to individuals 370 254 249 148 127
------ ------ ------ ------ ------
$ 477 $ 275 $ 256 $ 233 $ 257
------ ------ ------ ------ ------
Recoveries:
Commercial,
financial and
agricultural $ 13 $ 37 $ 34 $ 27 $ 102
Real estate, mortgage 4 5 6 87 43
Loans to individuals 55 115 44 59 61
------ ------ ------ ------ ------
$ 72 $ 157 $ 84 $ 173 $ 206
------ ------ ------ ------ ------
Net charge-offs $ 405 $ 118 $ 172 $ 60 $ 51
------ ------ ------ ------ ------
Provision for
loan losses (1) $ 591 $ 366 $ 425 $ 155 $ 120
------ ------ ------ ------ ------
Balance of loan
loss allowance
at end of period $3,788 $3,602 $3,354 $3,101 $3,006
====== ====== ====== ====== ======
Percentage of net charge-
offs during period
to average net loans
outstanding .13% .04% .06% .03% .02%
====== ====== ====== ====== ======
1) 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 49
<PAGE>
ITEM 1. BUSINESS (continued)
SUMMARY OF LOAN LOSS EXPERIENCE (continued)
The December 31, 1996, 1995, 1994, 1993, and 1992 allowance for loan losses
have been allocated as follows:
<TABLE>
<CAPTION>
(In Thousands Except Percentages)
As of December 31
1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
<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 $ 807 10 $ 490 10 $1,013 11 $ 973 12 $ 634 13
Bankers' acceptances - - - - - - - - - - - - - - - - 11 1
Real estate 2,572 75 2,781 74 1,696 71 1,462 68 1,637 69
Installment loans to indivduals 409 15 256 15 579 17 430 19 446 17
Unallocated: - - - - 75 1 66 1 236 1 278 - -
------ --- ------ --- ------ --- ------ --- ------ ---
$3,788 100 $3,602 100 $3,354 100 $3,101 100 $3,006 100
------ --- ------ --- ------ --- ------ --- ------ ---
(1) Allocation of allowance amount by category.
(2) Percent of outstanding loan balances in each 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, 1996, 1995, and 1994 and the
composition of the certificates issued in excess of $100,000 as of December 31,
1996:
(In Thousands)
December 31,
1996 1995 1994
$ Rate $ Rate $ Rate
--------- ---- --------- ---- ---------- ----
Average non-
interest-
paying
deposits $ 44,692 - - % $ 42,331 - - % $ 42,688 - - %
Average
interest-
paying
demand
deposits 58,696 2.02 58,357 2.15 60,178 2.11
Average
savings
deposits 102,185 3.49 89,436 3.21 88,948 2.37
Average time
deposits 189,227 5.62 188,135 5.57 178,581 5.02
--------- --------- ---------
$ 394,800 $ 378,259 $ 370,395
========= ========= =========
Amount Rate
------- ----
Time certificates in amounts of $100,000 or more
as of December 31, 1996 with maturity in:
3 months or less $ 6,487 5.44%
3 through 6 months 5,146 5.67
6 through 12 months 6,020 5.40
Over 12 months 8,765 6.42
-------
$26,418
=======
There were no material deposits by foreign investors.
P. 12 of 49
<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, 1996, 1995 and 1994:
December 31,
1996 1995 1994
------- ------- -------
Return on average total assets 1.26% 1.02% 1.03%
Return on average stockholders' equity 11.51 9.65 10.10
Dividend payout percentage on average
outstanding common shares 32.89 39.63 37.98
Average stockholders' equity to
average total assets percentage 10.98 10.54 10.24
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 1996, 1995 and 1994.
(In Thousands of Dollars, Except
for Interest Rate Percentage)
--------------------------------
1996 1995 1994
-------- -------- --------
Outstanding as of December 31 $ 3,146 $ 67 $ 3,200
Weighted average interest rate at year end 5.61% - - 6.50%
Maximum month-end balance $ 9,700 $ 1,575 $12,200
Average month-end balance $ 2,217 $ 131 $ 2,935
Weighted average interest rate for the year 5.62% 5.91% 4.68%
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 1996, 1995 and
1994.
(In Thousands of Dollars, Except
for Interest Rate Percentage)
--------------------------------
1996 1995 1994
-------- -------- --------
Outstanding as of December 31 $12,355 $17,469 $20,628
Weighted average interest rate at year end 6.01% 6.01% 5.92%
Maximum month-end balance $17,264 $20,524 $20,856
Average month-end balance $16,126 $19,772 $19,870
Weighted average interest rate for the year 6.12% 6.04% 5.98%
P. 13 of 49
<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, 1996.
<TABLE>
December 31, 1996
----------------------------------------------------------
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 $ - - $ - - $ - - $ - - $ - -
Investment securities available for sale 9,314 20,574 37,652 30,262 97,802
Loans 49,050 78,558 179,706 23,425 330,739(2)
- -------------------------------------------------------------------------------------------------------
Total earning assets 58,364 99,132 217,358 53,687 428,541
- -------------------------------------------------------------------------------------------------------
Interest-paying liabilities
Deposits 92,071(1) 73,017 73,466 109,250(1) 347,804(3)
Federal funds purchased and securities
sold under agreement to repurchase 3,146 - - - - - - 3,146
Long-term debt 400 3,820 8,135 - - 12,355
- -------------------------------------------------------------------------------------------------------
Total interest-paying liabilities 95,617 76,837 81,601 109,250 363,305
- -------------------------------------------------------------------------------------------------------
Net noninterest-paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 26,654 26,654
Other assets, liabilities and equity net - - - - - - 38,582 38,582
- -------------------------------------------------------------------------------------------------------
Total noninterest paying liabilities - - - - - - 65,236 65,236
- -------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(37,253) $ 22,295 $135,757 $(120,799) $ - -
- -------------------------------------------------------------------------------------------------------
Cumulative Gap $(37,253)$ 14,958 $120,799 - -
- -------------------------------------------------------------------------------------------------------
Cumulative percentage of interest sensitive
assets to interest sensitive liabilities 61% 91% 148%
- -------------------------------------------------------------------------------------------------------
<FN>
(1) Based on an historical analysis of NOW, SuperNow, Savings and Money Market
account balances, 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 $330,739,000 of total loans, $172,498,000 have fixed rates, while
$158,241,000 have variable rates.
(3) Certificates of deposit comprise $190,313,000 of total deposits, while
interest-paying demand deposits and savings deposit balances accounted for
$157,491,000 of this total.
</FN>
</TABLE>
P. 14 of 49
<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. 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 bank's North Liberty office facility is
located , at 580 West Cherry Street, North Liberty Iowa. 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 bank's southwest side office is located at 2312 Mormon
Trek Boulevard, Iowa City Iowa. 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 second office is located 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, 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 is
$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 ....................1968
Southwest - 2312 Mormon Trek Boulevard, Southwest Iowa City................1996
Coralville - 506 10th Avenue, Coralville, Iowa ............................1979
North Liberty - Highway 965 & West Cherry Street, North Liberty, Iowa .....1994
FIRST NATIONAL BANK, CEDAR RAPIDS
Main Bank - 200 First Street SW, Cedar Rapids .............................1991
Downtown - 240 Third Avenue SE, in the Armstrong Centre, Cedar Rapids......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,
1996. 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 49
<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 1996.
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. Six brokerage firms
maintained public trading markets for the Registrant's common stock in 1996. 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). The
Registrant had approximately 872 shareholders of record at December 31, 1996.
The following table reflects the high and low stock bid prices for each quarter
based upon information available to the Registrant:
Bid Prices
------------------------------------------------
1996 1995
---------------------- ----------------------
High Low High Low
--------- --------- --------- ---------
First Quarter $ 26.50 $ 24.50 $ 25.25 $ 23.00
Second Quarter 27.50 25.00 25.00 23.00
Third Quarter 29.25 27.625 25.00 23.50
Fourth Quarter 30.00 29.25 25.00 23.50
The Registrant paid quarterly cash dividends in 1996 and 1995 aggregating
$1,946,000 and $1,811,000, respectively, or $.83 per share in 1996 and $.76 per
share in 1995.
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 $19,000,000 at December 31, 1996.
The following table states the quarterly dividends paid per share:
1996 1995
------ ------
First Quarter $ .195 $ .185
Second Quarter $ .195 $ .185
Third Quarter $ .220 $ .195
Fourth Quarter $ .220 $ .195
------ ------
Total $ .830 $ .760
====== ======
P. 16 of 49
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS (continued)
STOCK TRANSFER AGENT
The Company's stock transfer agent is 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, 1996,
to December 31, 1997. 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. It is unclear what, if any, impact
this provision will have on the market for the Company's stock.
P. 17 of 49
<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>
1996 1995 1994 1993 1992
==========================================================================================================
YEAR-END TOTALS
Assets $ 467,725 $ 457,236 $ 434,461 $ 434,081 $ 411,197
Investment Securities Available for Sale 97,802 123,886 78,621 97,655 - -
Investment Securities Held to Maturity - - - - 30,608 36,856 140,662
Federal Funds Sold - - 3,225 600 17,525 16,000
Loans, Gross 330,739 294,529 294,707 254,207 225,411
Deposits 395,407 385,055 362,263 363,580 355,357
Federal Home Loan Bank Advances 12,355 17,469 20,628 18,283 11,000
Stockholders' Equity 52,576 50,207 45,245 43,993 39,940
===========================================================================================================
EARNINGS
Total Interest Income $ 33,268 $ 31,742 $ 29,205 $ 28,236 $ 29,260
Total Interest Expense 16,449 15,811 13,624 14,057 16,126
Provision for Loan Losses 591 366 425 155 120
Noninterest Income 7,024 6,236 5,699 5,924 5,310
Noninterest Expense 14,802 15,480 14,532 13,041 11,722
Applicable Income Taxes 2,534 1,751 1,760 1,852 1,688
Net Income 5,916 4,570 4,563 5,055 4,914
===========================================================================================================
PER SHARE DATA
Earnings Per Common & Common
Equivalent Share $ 2.50 $ 1.91 $ 1.91 $ 2.14 $ 2.10
Cash Dividends $ .83 $ .76 $ .73 $ .70 $ .66
Dividend Payout Percentage on Average
Outstanding Common Shares 32.89% 39.63% 37.98% 32.23% 31.14%
Book Value as of December 31 $ 22.06 $ 21.07 $ 19.06 $ 18.91 $ 17.22
===========================================================================================================
PERFORMANCE & CAPITAL MEASURES
Return on Average Total Assets 1.26% 1.02% 1.03% 1.19% 1.23%
Return on Average Stockholders' Equity 11.51% 9.65% 10.10% 12.07% 12.88%
Percentage of Average Stockholders
Equity to Average Total Assets 10.98% 10.54% 10.24% 9.84% 9.56%
==========================================================================================================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
Consolidated net income increased $1,346,000 or 29.5% to $5,916,000 for the year
ended December 31, 1996, when compared to the $4,570,000 recorded in 1995 and
the $4,563,000 recorded in 1994. 1996 earnings are the highest on record for the
Company. 1995 performance was relatively flat in comparison to that of 1994, but
much was accomplished to lay the foundation to enhance shareholder value and
customer service in future years.
================================================================================
NET INCOME GRAPH
The Company's net income for the years ended December 31, 1996, 1995, 1994, 1993
and 1992 was $5,916,000, $4,570,000, $4,563,000, $5,055,000 and $4,914,000,
respectively.
================================================================================
The primary factors which contributed to 1996's substantial increase in net
income included the implementation of an organization-wide restructuring
program, corresponding reductions in salary and fringe benefit expense
associated with attrition and a voluntary severance program, which was a part of
the restructuring, reductions in Federal Deposit Insurance Corporation (FDIC)
insurance premiums, growth of the loan portfolios of the subsidiary banks, trust
asset growth, and increased fee income.
P. 18 of 49
<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, 1996, net interest income, on a fully tax
equivalent basis, totaled $17,861,000 and represented an increase of $876,000 or
5.2% above the $16,985,000 of net interest income reported in 1995, which was
$350,000 or 2.1% higher than the $16,635,000 recorded in 1994. Increased average
earning asset balances, in particular loan growth, and an improved net interest
margin accounted for the increase in net interest income. Average earning assets
increased $16,270,000 or 3.9% in 1996, to $433,890,000, compared to an increase
of $7,046,000 or 1.7% to $417,620,000 in 1995. The net interest margin, on a tax
equivalent basis, increased from 4.07% in 1995 to 4.12% in 1996. Because net
interest income is such a significant factor to the overall profitability of the
Company, management has made a commitment to control interest rate risk by
attempting to match the maturing balances, terms and rates, of assets and
liabilities, to maintain positive rate spreads between loans and deposits and to
maintain 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, 1996, 1995, 1994, 1993 and 1992 are presented
in the table below.
1996 1995 1994 1993 1992
Yield on Average Earning Assets 7.91% 7.85% 7.37% 7.43% 8.17%
Interest Expense to Average
Earning Assets 3.48% 3.78% 3.32% 3.55% 4.34%
Net Interest Margin 4.12% 4.07% 4.05% 3.88% 3.83%
================================================================================
DIVIDEND HISTORY
The Company paid cash dividends totaling $1,946,000 in 1996, $1,811,000 in 1995
and $1,733,000 in 1994. Cash dividends have increased $135,000 or 7.5% in 1996,
$78,000 or 4.5% in 1995 and $104,000 or 6.4% in 1994. The dividend payout
percentage for 1996, 1995 and 1994 was 32.89%, 39.63% and 37.98%, respectively.
This pay-out percentage is indicative of the Company's efforts to shares its'
profits and provide an acceptable return to its shareholders.
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, 1996, the allowance for loan losses was $3,788,000, an increase
of $186,000 or 5.2% over the 1995 year-end balance of $3,602,000. Nonaccrual
loan balances decreased $830,000 or 75.5% to $270,000 in 1995 but increased
$289,000 or 107% to $559,000 in 1996. Past due loan balances increased $213,000
or 355% to $273,000 in 1995 and $108,000 or 39.6% to $381,000 in 1996. Net
charge-offs in 1996 totaled $405,000 compared to net charge-offs of $118,000 and
$172,000 for 1995 and 1994, respectively. As of December 31, 1996, 1995 and 1994
the loan loss reserve balances were 1.15%, 1.22% and 1.14% of total outstanding
loan balances, respectively. These ratios are comparable to those of other
organizations of similar size and demographics.
For 1996, the provision for loan losses totaled $591,000 which increased
$225,000 or 61.5% from the $366,000 recorded in 1995, which decreased $59,000 or
13.9% from the $425,000 recorded in 1994. The increase in 1996 is due to
increased loan balances and in part to loan losses.
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 49
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
NONINTEREST INCOME
Noninterest income, for the year ended December 31, 1996, increased $788,000 or
12.6% to $7,024,000, compared to an increase of $537,000 or 9.4% to $6,236,000
in 1995 and a decrease of $225,000 or 3.8% to $5,699,000 in 1994. Noninterest
income as a percentage of average total assets was 1.5% as of December 31, 1996,
which is an increase over the 1.4% reported as of December 31, 1995, and is an
increase over the 1.3% ratio reported for 1994.
================================================================================
NONINTEREST INCOME GRAPH
A five year comparison of the major components of noninterest income is provided
for the years 1996, 1995, 1994, 1993 and 1992.
(Amounts In Thousands)
1996 1995 1994 1993 1992
Investment and OREO Gains, Net $( 160)$ - - $ - - $ - - $ 68
Service Charges on Deposit Accounts $1,825 $1,470 $1,327 $1,310 $1,305
Trust Department Fees $2,998 $2,763 $2,594 $2,416 $2,222
Other Service Charges and Fees $2,361 $2,003 $1,778 $2,198 $1,715
================================================================================
A significant source of noninterest income in 1996 was trust fees. Trust fees
increased $235,000 or 8.5% to $2,998,000 in 1996, compared to an increase of
$169,000 or 6.5% to $2,763,000 in 1995 and an increase of $178,000 or 7.4% to
$2,594,000 in 1994. Increased trust asset balances, as well as a greater overall
number of trust accounts, was responsible for this improved level of earnings.
Other service charges, commissions and fees increased $358,000 or 17.9% to
$2,361,000 in 1996 and increased $225,000 or 12.7% to $2,003,000 in 1995 but
decreased $420,000 or 19.1% to $1,778,000 in 1994. The fluctuations in this
revenue category are primarily due to secondary market loan fees which increased
$91,000 or 19% to $571,000 in 1996, $58,000 or 13.7% to $480,000 in 1995 but
decreased $604,000 or 58.9% to $422,000 in 1994. Secondary market mortgage loan
fees are a direct function of the volume of loans originated for sale in the
secondary market, which is driven by changes in market interest rates.
Management is constantly reviewing additional products and services to offer to
the general public and to cross-sell to existing customers to provide additional
sources of noninterest income.
NONINTEREST EXPENSES
Noninterest expenses decreased $678,000 or 4.4% to $14,802,000 in 1996, compared
to increases of $948,000 or 6.5% to $15,480,000 in 1995 and $1,491,000 or 11.4%
to $14,532,000 in 1994. As a percentage of average total assets, noninterest
expenses decreased to 3.2% in 1996, which compares favorably to the 3.4% level
in 1995 and the 3.3% level in 1994.
================================================================================
NONINTEREST EXPENSE GRAPH
A five year comparison of the major components of noninterest expense is
provided for the years 1996, 1995, 1994, 1993 and 1992.
(Amounts in Thousands)
1996 1995 1994 1993 1992
Supplies and Postage and DP $2,377 $2,180 $1,770 $1,628 $1,486
Occupancy and Bank Premise $2,624 $2,726 $2,515 $2,212 $1,756
Other Expenses $3,105 $2,897 $3,176 $2,998 $2,802
Salaries and Employee Benefits $6,696 $7,677 $7,071 $6,203 $5,678
================================================================================
Salaries and employee benefit expenses decreased $981,000 or 12.8% to $6,696,000
in 1996, increased $606,000 or 8.6% to $7,677,000 in 1995 and $868,000 or 14% to
$7,071,000 in 1994. This reduction in expense in 1996 is the result of staff
reductions associated with attrition and the Voluntary Severance Program (VSP)
initiated in 1995. In the past three years, the number of full-time equivalent
(FTE) employees has decreased from 244 as of December 31, 1994 to 221 as of
December 31, 1995 to 205 as of December 31, 1996. As part of the Company's
restructuring initiative, the VSP was offered to employees in 1995, 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, increased staffing levels accounted for the
majority of the increase in expense. The number of FTE employees increased by 10
employees due to the building of the Company's infrastructure.
p. 20 of 49
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
NONINTEREST EXPENSES (continued)
Occupancy, furniture and equipment expenses decreased $102,000 or 3.7% to
$2,624,000 in 1996 compared to increases of $211,000 or 8.4% to $2,726,000 in
1995 and $303,000 or 13.7% to $2,515,000 in 1994. Reduced depreciation expense
accounted for the majority of the decrease in 1996. The increase reported in
1995 was due to the added operating costs of the two new Iowa City Bank 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 contributed to this increase in expense.
Data processing expenses increased $127,000 or 11%, $229,000 or 24.7% and
$176,000 or 23.5% to $1,282,000, $1,155,000 and $926,000, respectively for 1996,
1995 and 1994. These increases are due to increased credit card processing and
electronic banking system expenses which are volume driven.
Other expenses totaled $3,105,000, $2,897,000 and $3,176,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. This reflects an increase of
$208,000 or 7.2% in 1996, a decrease of $279,000 or 8.8% in 1995 and an increase
of $178,000 or 5.9% in 1994. Included in this expense category is FDIC and SAIF
insurance premium expense, which decreased $123,000 in 1996 to $362,000.
Legislation was passed by Congress to recapitalize SAIF at the end of the third
quarter of 1996. In that quarter, there was a one-time assessment on the
deposits of the Cedar Rapids bank amounting to a pre-tax expense of $265,000.
However, due to the reductions in 1996 assessment rates on the deposits of both
banks, year-to-date insurance premium expense decreased. A decrease was also
reported in other expenses in 1995 of $279,000 or 8.8% due to the lowering of
the FDIC insurance premium assessment rate for the Iowa City Bank, from $.23 to
$.04 per $100 in deposits, retroactive to June 1, 1995. As a result, the Company
realized a reduction insurance premium 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 due to increased deposits and premium rates. Consulting and
professional fees increased $123,000 or 21% in 1996 to $709,000, compared to an
increase of $7,000 or 1.2% to $586,000 in 1995 and a $49,000 or 9.2% increase to
$579,000 in 1994. Increased advertising and promotional expense accounted for
the remaining increase for this category, reflecting an increase of $126,000 or
25.8% in 1996 to $615,0000. 1995 advertising and promotional expense reflected a
$7,000 or 1.5% increase over the $482,000 recorded in 1994.
BALANCE SHEET ANALYSIS
TOTAL ASSETS: Total assets of the Company were $467,725,000 as of December 31,
1996, which represented an increase of $10,489,000 or 2.3% over total assets of
$457,236,000 as of December 31, 1995, which was $22,775,000 or 5.2% over 1994
total assets of $434,461,000. Average total assets for 1996 were $468,127,000
which is an increase of $18,736,000 or 4.2% over 1995 average total assets of
$449,391,000 which was a $8,405,000 or 1.9% increase over 1994 average total
assets of $440,986,000. The funding for this asset growth was provided by
average deposit growth of $16,541,000 or 4.4% to $394,800,000 in 1996 and
$7,864,000 or 2.1% to $378,259,000 in 1995. In addition, average stockholders'
equity balances increased $4,003,000 or 8.6% in 1996 and $2,215,000 or 4.9% in
1995, primarily through the retention of earnings. Average Federal Home Loan
Bank (FHLB) advances decreased $3,611,000 or 18.4% in 1996, but increased
$58,000 or .3% in 1995.
================================================================================
AVERAGE TOTAL ASSETS
A five year comparison of the major components of average total consolidated
assets for 1996, 1995, 1994, 1993 and 1992 are listed in the following table.
(Amounts in Thousands)
1996 1995 1994 1993 1992
Federal Funds Sold $ 8,100 $ 11,200 $ 5,800 $ 16,600 $ 13,400
Other Assets $ 34,200 $ 35,300 $ 33,600 $ 33,200 $ 30,100
Investment Securities $114,800 $111,800 $127,700 $141,400 $146,700
Net Loans $311,000 $291,100 $273,900 $234,600 $208,800
================================================================================
P. 21 of 49
<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 1996 were
$114,798,000, which increased $3,458,000 or 3.1% from 1995 average investments
of $111,340,000. The increase in average investment portfolio balances is the
result of maintaining lower average federal funds sold balances in 1996. Average
federal funds sold balances were $8,136,000 in 1996, $3,045,000 or 27.2% below
the 1995 average of $11,181,000. As of December 31, 1996, United States Treasury
securities comprised 21.4% of the investment portfolio compared to 25.9% as of
the end of 1995.
LOAN BALANCES: As of December 31, 1996, total loan balances increased
$36,210,000 or 12.3% to $330,739,000 when compared to total loan balances of
$294,529,000 as of December 31, 1995. Average loan balances increased by
$16,307,000 or 5.5% in 1996 to $310,956,000, when compared to average loan
balances of $294,649,000 for 1995. 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 $29,191,000 or
13.8% to $246,974,000 as of December 31, 1996, when compared to the balance of
$217,783,000 as of December 31, 1995.
================================================================================
AVERAGE TOTAL NET LOANS GRAPH Average total net loans for the years 1996, 1995,
1994, 1993 and 1992 were $330,739,000, $291,100,000, $273,900,000, $234,600,000
and $208,800,000, respectively.
================================================================================
DEPOSITS: Total deposits increased $10,352,000 or 2.7% to $395,407,000 in 1996
compared to total deposits of $385,055,000 as of December 31, 1995. Throughout
1996, total deposit balances averaged $394,800,000, an increase of $16,541,000
or 4.4% over the average total deposits balances of $378,259,000 in 1995.
Average time-deposit balances increased $1,092,000 or .6% to $189,227,000 in
1996 and $9,554,000 or 5.3% to $188,135,000 in 1995. During 1996, average
savings and money market account balances increased $12,749,000 or 14.3% to
$102,185,000 as did noninterest-paying balances which increased $2,361,000 or
5.6% to $44,692,000. Given the decreasing interest rate environment, many
deposit customers have preferred 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 1996, 1995, 1994, 1993 and 1992 are listed in the
following table.
(Amounts in Thousands)
1996 1995 1994 1993 1992
Noninterest Bearing $ 44,700 $ 42,300 $ 42,700 $ 40,300 $ 35,100
Interest Bearing $350,100 $336,000 $327,700 $322,800 $317,900
================================================================================
CAPITAL RESOURCES AND COMMITMENTS: 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, 1996 and 1995, total stockholders' equity was
$52,576,000 and $50,207,000, respectively. As of December 31, 1996 and 1995, the
Company's Tier 1 capital percentage was 17.50% and 18.28% and its total risk
adjusted capital percentage (Tier 1 capital plus Tier 2 capital) was 18.75% and
19.51%, respectively. All of these ratios substantially exceed the regulatory
minimums of 4.00% and 8.00%. The Company's leverage capital ratio was 11.73% as
of December 31, 1996, compared to 11.46% as of December 31, 1995, also
considerably higher than the 4.00% floor. There are no plans, trends, events or
uncertainties that are likely to have a material effect on liquidity or capital
resources.
p. 22 of 49
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
CAPITAL RESOURCES AND COMMITMENTS (continued)
COMMITMENTS: No major capital expenditures were financed in 1996. Two major
expenditures are projected for fiscal 1997: the purchase of West Branch State
Bank and the establishment of a third Cedar Rapids office. In November, 1996,
the Company entered into a stock purchase agreement to acquire 100% of the
common stock of West Branch Bancorporation, Inc., a one bank holding company
which owns 100% of the stock of the West Branch State Bank, West Branch, Iowa.
This transaction is expected to occur in the first half of 1997. had closing
taken place on December 31, 1996, the purchase price would have been
approximately $7,500,000. The sellers will receive a partial cash payment with
approximately 72% of the purchase price carried on unsecured promissory notes
payable over a period of 2 to 3 years. As of December 31, 1996, the assets of
West Branch State Bank totaled Approximately $40 million. Also, during the
fourth quarter of 1996, the Cedar Rapids Bank entered into an agreement to
purchase an existing building at 5012 Center Point Road in Cedar Rapids for the
purpose of establishing a banking office during the first half of 1997. Both
initiatives are subject to regualtory approval, and it is anticipated that both
will be funded primarily through the sale of investment securities.
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES AND LIQUIDITY
AVERAGE INTEREST-EARNING ASSETS: In 1996, average interest-earning assets
(consisting primarily of loans and investment securities) totaled $433,890,000
and represented 92.7% of total average asset balances. This is an increase of
$16,270,000 or 3.9% over 1995 average interest-earning asset balances of
$417,620,000. The majority of this increase was in loans. Average loan balances
increased $16,307,000 or 5.5% to $310,956,000 in 1996.
During 1995, there was a shift in balances between average interest-earning
asset categories. Average investment security balances decreased $16,344,000 or
12.8% to $111,340,000 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. Average federal
funds sold balances increased to $11,181,000 in 1995, a $5,392,000 or 93.1%
increase. The main funding source of 1995's asset growth was provided by
increased average deposit balances.
AVERAGE INTEREST-PAYING LIABILITIES: Average interest-paying liabilities
increased $11,387,000 or 3.2% in 1996 and $6,350,000 or 1.8% in 1995, to
$367,422,000 and $356,035,000 respectively. Average savings deposit balances
increased $12,749,000 or 14.3% in 1996 to $102,185,000 and average time deposit
balances increased $9,554,000 or 5.3% in 1995 to $118,135,000, accounting for
the majority of these increases.
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 and federal funds
purchased.
Over the past year, interest rates have generally declined for both
interest-earning assets and interest-paying liabilities. This trend has had a
positive impact on the Company's earnings because more interest-paying
liabilities repriced than interest-earning assets. The decline in market rates
has slowed and rates have actually increased slightly in the last quarter of
1996. Given the current rate environment, the Company will position itself to
become less liability sensitive by offering higher rate longer term deposits and
shortening the maturity terms of its loans and investments. Shifts in market
interest rates subject the Company to interest rate risk, and managing it will
continue to be of key importance in reducing the effect of changes in interest
rates on net interest income. One method to reduce interest rate risk is to
match asset and liability categories by maturity terms or repricing dates and
interest rates. At December 31, 1996, the Company had $157,496,000 or 36.8% of
p. 23 of 49
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
INTEREST RATE RISK AND LIQUIDITY (continued)
interest earning assets subject to repricing and/or maturity within the next
twelve months as compared to $172,454,000 or 47.5% of interest-paying
liabilities. This subjects the Company to interest rate risk on $14,958,000 of
interest-earning assets over the next year if rates increase. The Company's net
interest income would decrease if interest rates increase during the next year.
This interest rate risk could be reduced by extending the maturities of deposits
and liabilities and shortening 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. In addition to the establishment of ALCO,
management has instituted effective cost and purchasing controls and has
established ongoing mechanisms for adjusting product and service pricing to
minimize the potential impact of inflation.
RECENTLY-ISSUED ACCOUNTING STANDARDS: The adoption of recently-issued accounting
standards is not expected to have a material effect on the Company's financial
statements.
P. 24 OF 49
<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, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 10) $ 20,949 $ 16,443
Available for sale securities (amortized cost 1996
$97,431; 1995 $123,442) (Note 2) 97,802 123,886
Federal funds sold - - 3,225
Loans, net (Notes 3, 6 and 9) 326,951 290,927
Bank premises and equipment, net (Note 4) 12,082 12,488
Accrued interest receivable 3,179 3,367
Income tax refund receivable - - 222
Intangible assets 624 779
Prepaid pension cost (Note 8) 3,240 2,860
Other assets 2,898 3,039
- --------------------------------------------------------------------------------
$ 467,725 $ 457,236
========= =========
LIABILITIES
Noninterest-bearing deposits $ 47,603 $ 46,192
Interest-bearing deposits 347,804 338,863
------- -------
Total deposits (Note 5) $ 395,407 $ 385,055
Federal funds purchased and securities sold under
agreements to repurchase 3,146 - -
Federal Home Loan Bank advances (Note 6) 12,355 17,469
Other borrowings - - 67
Accrued interest payable 1,516 1,553
Imcome tax payable 87 - -
Deferred income taxes (Note 7) 135 68
Accounts payable and other accrued expenses 2,503 2,817
- --------------------------------------------------------------------------------
$ 415,149 $ 407,029
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 8 and 10)
Capital stock, common, $1.25 par value; authorized
5,000,000 shares; (Issued 1996 2,331,412 shares;
1995 2,383,241 shares) $ 2,914 $ 2,979
Additional paid-in capital 2,606 4,095
Retained earnings 46,824 42,854
Unrealized gains on debt securities, net 232 279
- --------------------------------------------------------------------------------
$ 52,576 $ 50,207
- --------------------------------------------------------------------------------
$ 467,725 $ 457,236
========= =========
See Notes to Financial Statements.
</TABLE>
P. 25 of 49
<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, 1996 1995 1994
=======================================================================================================
INTEREST INCOME:
Interest and fees on loans $ 26,037 $ 24,449 $ 21,898
Interest on investment securities:
Taxable 5,316 5,251 5,712
Non-taxable 1,485 1,384 1,373
Interest on federal funds sold 430 658 222
- -------------------------------------------------------------------------------------------------
Total interest income $ 33,268 $ 31,742 $ 29,205
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits $ 15,394 $ 14,598 $ 12,333
Interest on federal funds purchased and securities
sold under agreements to repurchase 60 14 90
Interest on Federal Home Loan Bank advances 995 1,199 1,184
Interest on other borrowings - - - - 17
- -------------------------------------------------------------------------------------------------
Total interest expense $ 16,449 $ 15,811 $ 13,624
- -------------------------------------------------------------------------------------------------
Net interest income $ 16,819 $ 15,931 $ 15,581
Provision for loan losses (Note 3) 591 366 425
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $ 16,228 $ 15,565 $ 15,156
- -------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Trust fees $ 2,998 $ 2,763 $ 2,594
Services charges and fees on deposit accounts 1,825 1,470 1,327
Other service charges, commissions and fees 2,361 2,003 1,778
Investment (losses), net (160) - - - -
- -------------------------------------------------------------------------------------------------
Total noninterest income $ 7,024 $ 6,236 $ 5,699
- -------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 8) $ 6,696 $ 7,677 $ 7,071
Occupancy, furniture and equipment 2,624 2,726 2,515
Data processing 1,282 1,155 926
Office supplies and postage 1,095 1,025 844
Other expenses 3,105 2,897 3,176
- -------------------------------------------------------------------------------------------------
Total noninterest expenses $ 14,802 $ 15,480 $ 14,532
- -------------------------------------------------------------------------------------------------
Income before income taxes $ 8,450 $ 6,321 $ 6,323
Federal and state income taxes (Note 7) 2,534 1,751 1,760
- -------------------------------------------------------------------------------------------------
Net income $ 5,916 $ 4,570 $ 4,563
======== ======== ========
AVERAGE COMMON STOCK AND COMMON EQUIVALENT SHARES 2,362,648 2,392,893 2,384,319
========= ========= =========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 2.50 $ 1.91 $ 1.91
========= ======== ========
See Notes to Financial Statements.
</TABLE>
P. 26 of 49
<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
1996,1995 and 1994 Number Amount Capital Earnings Securities, Net Total
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 (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 (3) (3) (66) - - - - (69)
Unrealized gains on debt securities
net of deferred tax effect - - - - - - - - (2,024) (2,024)
===================================================================================================================
BALANCE, DECEMBER 31, 1995 2,383 $ 2,979 $ 4,095 $ 42,854 $ 279 $ 50,207
Net income - - - - - - 5,916 - - 5,916
Cash dividends ($.83 per share) - - - - - - (1,946) - - (1,946)
Stock options exercised for
21,200 shares (Note 8) 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
===== ======= ======= ======== ========= ========
</TABLE>
See Notes to Financial Statements.
P. 27 of 49
<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, 1996 1995 1994
============================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,916 $ 4,570 $ 4,563
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,116 1,246 1,025
Amortization 155 166 165
Provision for loan losses 591 366 425
Deferred income taxes 93 139 138
Amortization on investment securities 140 28 (65)
(Increase) decrease in accrued interest receivable 188 (192) (70)
(Increase) decrease in other assets (239) (2,251) 1,781
Increase (decrease) in accrued interest and other liabilities (351) 1,406 (356)
Change in accrued income taxes 309 (94) (177)
---------- --------- ---------
Net cash provided by operating activities $ 7,918 $ 5,384 $ 7,429
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 21,038 $ 38,063 $ 40,700
Sales 26,747 - - - -
Purchases (21,914) (46,511) (25,208)
Held to maturity securities:
Maturities - - - - 6,892
Purchases - - (3,009) (617)
Federal funds sold, net 3,225 (2,625) 16,925
Net increase (decrease) in loan balances outstanding (36,615) 60 (40,672)
Purchase of bank premises and equipment (710) (2,822) (1,247)
---------- --------- ---------
Net cash (used in) investing activities $ (8,229) $(16,844) $ (3,227)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit balances $ 10,352 $ 22,792 $ (1,317)
Federal funds purchased and securities sold under
agreements to repurchase 3,146 (3,200) (1,325)
Repayment of note principal - - (161) (170)
Federal Home Loan Bank advances (5,114) (3,159) 2,345
Other borrowings (67) 67 - -
Dividends paid (1,946) (1,811) (1,733)
Stock options exercised 371 248 1,298
Common stock redeemed (1,925) (69) (631)
---------- --------- ---------
Net cash provided by (used in) financing activities $ 4,817 $ 14,707 $ (1,533)
---------- --------- ---------
Increase in cash and due from banks $ 4,506 $ 3,247 $ 2,669
CASH AND DUE FROM BANKS
Beginning balance 16,443 13,196 10,527
--------- -------- --------
Ending balance $ 20,949 $ 16,443 $ 13,196
========= ======== ========
Supplemental Disclosures (Note 11)
============================================================================================================
See Notes to Financial Statements.
</TABLE>
P. 28 of 49
<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: Debt 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. Gains and losses on sale of investment securities are based on 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. 29 of 49
<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. 30 of 49
<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. 31 of 49
<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, 1996 Cost Gains (Losses) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 20,886 $ 59 $ (12) $ 20,933
U.S. Government agencies and corporations 44,511 206 (191) 44,526
States and political subdivisions 29,367 330 (109) 29,588
Other 2,667 88 - - 2,755
- -------------------------------------------------------------------------------------------------------
Total $ 97,431 $ 683 $ (312) $ 97,802
========= ======== ======== =========
December 31, 1995
- -------------------------------------------------------------------------------------------------------
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
========= ======== ======== =========
</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 contractual maturity distribution of investment securities is summarized as follows:
(Amounts in Thousands)
Amortized Fair
December 31, 1996 Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 21,864 $ 21,966
Due after one year through five years 35,412 35,687
Due after five years through ten years 6,372 6,331
Due after ten years 470 471
Mortgage-backed securities 30,646 30,592
Other 2,667 2,755
- --------------------------------------------------------------------------------------------
Total $ 97,431 $ 97,802
======== ========
</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, 1996, $25,680,000 of U. S. Treasury and Government
agency securities were pledged against these deposits. For the years ended
December 31, 1996, 1995 and 1994, there were no material net gains or losses
from the sale of investment securities.
P. 32 of 49
<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, 1996 1995
- --------------------------------------------------------------------------------
Commercial, financial and agricultural $ 32,361 $ 30,128
Real estate, construction 16,440 10,914
Real estate, mortgage 230,534 206,869
Loans to individuals 49,386 43,572
All others 2,018 3,046
--------- ---------
$ 330,739 $ 294,529
Less allowance for loan losses (3,788) (3,602)
--------- ---------
Net loans $ 326,951 $ 290,927
========= =========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
(Amounts In Thousands)
<S> <C> <C> <C>
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Balance, beginning $ 3,602 $ 3,354 $ 3,101
Provision charged to operating income 591 366 425
Recoveries 72 157 84
Loans charged off (477) (275) (256)
------- ------- -------
Balance, ending $ 3,788 $ 3,602 $ 3,354
======= ======= =======
</TABLE>
<TABLE>
Information for impaired loans as of and for the year ended December 31, 1996, is as follows:
(Amounts in Thousands)
1996 1995
- ----------------------------------------------------------------------------------------
<C> <C>
Loan receivable for which there is a related
allowance for credit losses $ 559 $ 164
Loan receivable for which there is no related
allowance for credit losses - - 106
- ----------------------------------------------------------------------------------------
Total impaired loans $ 559 $ 270
======= ======
Related allowance for credit losses $ 88 $ 43
Average balance (based on month-end balances) 317 682
Interest income recognized 62 59
</TABLE>
<TABLE>
<CAPTION>
NOTE 4. BANK PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
Bank premises and equipment are as follows:
(Amounts in Thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,881 $ 1,835
Buildings 11,212 11,183
Furniture and equipment 6,118 5,592
- --------------------------------------------------------------------------------
$ 19,211 $ 18,610
Accumulated depreciation (7,129) (6,122)
- --------------------------------------------------------------------------------
$ 12,082 $ 12,488
======== ========
</TABLE>
P. 33 of 49
<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, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Demand $ 47,603 $ 46,192
Interest-bearing transaction accounts 56,762 56,158
Savings 100,738 94,203
Time deposits of less than $100,000 163,886 159,748
Time deposits of $100,000 or more 26,418 28,754
- --------------------------------------------------------------------------------
$395,407 $385,055
======== ========
</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, 1996, the banks held $1,942,000 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, 1996, is as
follows:
(Amounts In Thousands)
<S> <C> <C>
Amount Due Weighted Average Rate
- --------------------------------------------------------------------------------
1 to 3 months $ 400 5.73%
4 to 6 months 450 6.61
7 to 12 months 3,370 6.40
2 to 5 years 8,135 5.82
- --------------------------------------------------------------------------------
$ 12,355 6.01%
========== ====
</TABLE>
<TABLE>
<CAPTION>
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, 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $2,023 $1,308 $1,337
State 418 304 285
Deferred 93 139 138
- --------------------------------------------------------------------------------
$2,534 $1,751 $1,760
====== ====== ======
</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, 1996 1995 1994
- --------------------------------------------------------------------------------
Income tax at a statutory rate of 34% $2,882 $2,149 $2,150
Tax exempt interest, net of related
disallowed interest expense (659) (668) (671)
State income taxes, net of federal benefit 276 201 189
Other 35 69 92
- --------------------------------------------------------------------------------
$2,534 $1,751 $1,760
====== ====== ======
</TABLE>
P. 34 of 49
<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, 1996 1995 1994
- --------------------------------------------------------------------------------
Deferred income tax assets:
Debt securities available for sale $ - - $ - - $1,038
Allowance for loan losses 1,037 941 840
Deferred compensation 264 287 306
Certain accrued expenses 125 109 126
Other - - - - 26
- --------------------------------------------------------------------------------
$1,426 $1,337 $2,336
------ ------ ------
Deferred income tax liabilities:
Debt securities available for sale $ 138 $ 166 $ - -
Property and equipment 274 263 236
Pension plan asset 1,001 870 765
Net deferred loan fees 55 35 - -
Other 93 71 60
- --------------------------------------------------------------------------------
$1,561 $1,405 $1,061
------ ------ ------
Net deferred income tax asset (liability) $ (135) $ (68) $1,275
====== ====== ======
</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, 1996 1995 1994
- --------------------------------------------------------------------------------
Statement of income $ 93 $ 139 $ 138
Statement of stockholders' equity (26) 1,204 (1,335)
- --------------------------------------------------------------------------------
$ 67 $ 1,343 $(1,197)
====== ======== =======
</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 make contributions based upon an acturarially-
determined cost method; however, no contributions to the plan were required for
1996, 1995 and 1994. The following items are the components of the net pension
credit:
(Amounts in Thousands)
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 104 $ 90 $ 136
Interest cost on projected benefit obligation 230 199 235
Actual return on plan assets (1,025) (1,475) 194
Net amortization and deferral 323 889 (819)
- --------------------------------------------------------------------------------
Net pension (credit) $ (368) $ (297) $ (254)
====== ====== ======
</TABLE>
P. 35 of 49
<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, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Actuarial present value of benefits for service rendered to date:
Accumulated benefits based on salaries to date, including vested
benefits 1996 $1,691; 1995 $2,082; 1994 $2,563 $(1,727) $(2,122) $(2,618)
Effect of projected compensation increases (794) (514) (524)
- ------------------------------------------------------------------------------------------------
Projected benefit obligation $(2,521) $(2,636) $(3,142)
Fair value of plan assets, invested in equities and bonds 7,423 8,152 7,135
- ------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 4,902 $ 5,516 $ 3,993
Unrecognized net asset being recognized over 18.7 years (829) (936) (1,044)
Unrecognized net gain on assets and projected benefit obligation (845) (1,720) (898)
- ------------------------------------------------------------------------------------------------
Prepaid pension cost $ 3,228 $ 2,860 $ 2,051
======= ======= =======
</TABLE>
The discount rate used to determine the actuarial present value of the projected
benefit obligation as of December 31, 1996, 1995 and 1994, was 8.25%. The
expected long-term rate of return on plan assets as of December 31, 1996, 1995
and 1994, 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 $256,000, $280,000 and $188,000 for the years ended December
31, 1996, 1995 and 1994, 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, 1996,
1995 and 1994, was $69,000, $75,000 and $118,000 respectively. The bank is
carrying life insurance policies with face amounts totaling $925,000 to fund
the salary continuation plan. The cash value of these policies was $445,000 at
December 31, 1996.
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 was
$76,000 in 1996 and $73,000 in 1995.
At December 31, 1996, the Company had a stock option plan for certain officers
and directors whereby 225,000 shares were reserved for grants. Stock option
committees have granted options at prices equal to the fair market value of the
stock on the dates of the grant. All options are for a term of five years and
become exercisable in full or in part within one year of the date granted.
Grants under this plan are accounted for following Accounting Principles Board
(APB) Opinion No. 25 and related Interpretations. No compensation expense has
been charged to expense for the years ended December 31, 1995 and 1996,
respectively, using the intrinsic value based method as prescribed by SFAS No.
123, reported net income and earnings per common and common equivalent share
would have been as follows:
<TABLE>
<S> <C> <C>
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Pro forma net income (in thousands) $ 5,902 $ 4,563
Pro forma income per common and common equivalent
share $ 2.50 $ 1.91
- --------------------------------------------------------------------------------
</TABLE>
P. 36 OF 49
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 8. EMPLOYEE BENEFIT PLANS (continued)
The pro forma effects of applying SFAS No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of SFAS No. 123
have been applied only to options granted after December 31, 1994.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing module with the following weighted-average
assumptions for grants in 1996 and 1995, respectively: dividend rate of 2.9% for
both years; price volatility of 7.91% for both years; risk-free interest rates
of 5.56% and 6.63% for 1996 and 1995; and expected lives of 3.5 years for both
1996 and 1995.
A summary of the Company's stock option plan is as follows:
<TABLE>
Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at Janurary 1, 1994 133,300 $ 15.91
Granted 30,700 25.52
Exercised (71,763) 13.68
Forfeited ( 1,950) 23.32
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 90,287 20.79
Granted 23,100 24.46
Exercised (12,087) 17.83
Canceled (10,000) 23.24
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 91,300 21.84
Granted 14,700 27.76
Exercised (21,200) 17.51
Canceled ( 7,350) 25.38
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 77,450 23.81
=======
</TABLE>
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
- --------------------------------------------------------------------------------
Number of options exercisable, end of year 60,950 63,000 55,037
Weighted-average fair value per option of
options granted during the year $ 2.72 $ 2.75 n/a
- --------------------------------------------------------------------------------
</TABLE>
Other pertininent information related to the options outstanding at December 31,
1996, is as follows:
<TABLE>
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$18.00..............................11,400...........1 Month..........11,400
$21.00...............................2,500.........13 Months...........2,500
$21.25..............................10,900.........13 Months..........10,900
$25.50..............................18,800.........25 Months..........17,800
$25.13...............................6,300.........37 Months.......... 6,300
$24.13..............................13,550.........42 Months..........12,050
$25.50...............................7,000.........49 Months...............0
$30.25...............................7,000.........59 Months...............0
- --------------------------------------------------------------------------------
Total...............................77,450............................60,950
====== ======
</TABLE>
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,
1996 and 1995.
P. 37 OF 49
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 9. RELATED PARTY TRANSACTIONS (continued)
(Amounts in Thousands)
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Beginning balance $ 1,666 $ 2,545
Additions 233 138
Collections (1,123) (1,017)
- --------------------------------------------------------------------------------
Ending Balance $ 776 $ 1,666
======= =======
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, 1996, 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 17.82% 12.68% 8.00%
Tier I Risk-Based Capital 16.57% 11.76% 4.00%
Leverage Ratio 11.08% 8.40% 4.00%
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 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 $19,000,000 as of December 31,
1996.
The banks are required to maintain reserve balances in cash or with the Federal
Reserve Bank. Reserve balances totaled $888,000 and $585,000 at December 31,
1996 and 1995, 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, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Cash payments for:
Interest paid to depositors, on note payable, on federal
funds purchased and securities sold under agreements to
repurchase, and other borrowings $16,486 $15,541 $13,595
Income taxes 1,867 1,474 1,168
Noncash transactions:
Net unrealized gains (losses) on debt securities (73) 3,228 (3,580)
Deferred income taxes on unrealized gains (losses) on
debt securities (26) 1,204 (1,335)
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.
P. 38 OF 49
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
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, 1996 and 1995, is as follows:
(Amounts in Thousands)
December 31, 1996 1995
- --------------------------------------------------------------------------------
Commitments to extend credit $49,358 $52,780
Standby letters of credit 4,398 3,667
- --------------------------------------------------------------------------------
$53,756 $56,447
======= =======
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 credit worthiness 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.
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 $9,920,000 as of
December 31, 1996. No individual municipality exceeded $750,000.
PURCHASE COMMITMENT: In November, 1996, the Company entered into an agreement to
purchase West Branch Bancorporation, Inc., West Branch, Iowa, and its
wholly-owned subsidiary, West branch State Bank for approximately $7,500,000.
The transaction, which is subject to regulatory approval, is projected to be
completed during the first half of 1997.
p. 39 of 49
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
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, 1996 1995
- --------------------------------------------------------------------------------
Assets
Cash $ 4,021 $ 622
Investment in subsidiaries
Investment securities available for sale 47,674 49,163
(cost 1996 $789; 1995 $401) 887 421
Accrued interest receivable 18 10
Income taxes receivable 13 - -
- --------------------------------------------------------------------------------
$52,613 $50,216
======= =======
Liabilities and Stockholders' Equity
Liabilities $ - - $ 1
Deferred income taxes 37 8
Stockholders' equity:
Capital stock, common 2,914 2,979
Additional paid-in capital 2,606 4,095
Retained earnings 46,824 42,854
Unrealized gain on debt securities, net 232 279
- --------------------------------------------------------------------------------
$52,613 $50,216
======= =======
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Amounts in Thousands)
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income, dividends received from subsidiaries $ 7,433 $ 2,252 $ 1,687
Interest income 31 28 - -
Operating expenses 116 39 39
- ------------------------------------------------------------------------------------------------
Income before income taxes and equity in subsidiaries'
undistributed income $ 7,348 $ 2,226 $ 1,648
Income taxes (credits) (24) (10) (13)
- ------------------------------------------------------------------------------------------------
$ 7,372 $ 2,236 $ 1,661
Equity in subsidiaries' undistributed income (1,456) 2,334 2,902
- ------------------------------------------------------------------------------------------------
Net Income $ 5,916 $ 4,570 $ 4,563
======= ======= =======
</TABLE>
P. 40 of 49
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Amounts in Thousands)
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 5,916 $ 4,570 $ 4,563
Noncash items included in net income:
Undistributed earnings of subsidiaries 1,456 (2,334) (2,902)
Changes in account with subsidiaries (13) (1)
(Increase) in other assets (8) (10) - -
Increase (decrease) in other liabilities (1) 1 - -
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 7,350 $ 2,226 $ 1,663
------- ------- -------
Cash flows (used in) investing activities:
Available for sale securities - purchases $ (388) $ (401) $ - -
------- ------- -------
Cash flows (used in) financing activities:
Stock options exercised $ 308 $ 216 $ 982
Common stock redeemed (1,925) (69) (631)
Dividends paid (1,946) (1,811) (1,733)
- ------------------------------------------------------------------------------------------------
Net cash (used in) financing activities $(3,563) $(1,664) $(1,382)
------- ------- -------
Increase in cash $ 3,399 $ 161 $ 281
Cash balance:
Beginning 622 461 180
- ------------------------------------------------------------------------------------------------
Ending $ 4,021 $ 622 $ 461
======= ======= =======
</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, 1996 As of December 31, 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 20,949 $ 20,949 $ 16,443 $ 16,443
Federal funds sold - - - - 3,225 3,225
Available for sale securities 97,802 97,802 123,886 123,886
Loans:
Variable rate 149,538 160,452 133,404 133,404
Fixed rate 181,201 170,287 161,125 155,234
Accrued interest receivable 3,179 3,179 3,367 3,367
Deposits:
Variable rate 220,057 220,057 205,539 205,539
Fixed rate 175,350 178,062 179,516 182,510
Short-term borrowings - - - - 67 67
Federal Home Loan Bank advances 12,355 12,344 17,469 17,575
Accrued interest payable 1,516 1,516 1,553 1,553
</TABLE>
<TABLE>
Off-Balance-Sheet Instruments Face Amount Fair Value Face Amount Fair Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Loan commitments $ 49,358 $ - - $ 52,780 $ - -
Letters of credit 4,398 - - 3,667 - -
- -------------------------------------------------------------------------------
</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. 41 of 49
<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, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
//s//McGladrey & Pullen, LLP
Iowa City, Iowa
February 7, 1997
P. 42 of 49
<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, 1997, for the
Annual Meeting of the Shareholders to be held on April 8, 1997, 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, 1996
- --------------------------------------------------------------------------------
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
Fritz L. Duda A. Russell Schmeiser
Owner Executive Vice President
Fritz Duda Company, Dallas, Texas & COO
Ralph J. Russell
President & CEO
Howard R. Green Company, Cedar Rapids, Iowa
A. Russell Schmeiser
Executive Vice President & COO
First Financial Bancorporation, 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
John R. Balmer William H. Burger
Chief Executive Officer Senior Vice President
Plumbers Supply Company, Iowa City, Iowa & Senior Trust Officer
Daniel W. Collins Lanny J. Benishek
Henry B. Tippie Professor of Accounting Senior Vice President
Department of Accounting & Senior Loan Officer
The University of Iowa
A. Russell Schmeiser Kathrine L. Sigsbee
Executive Vice President & COO Senior Vice President,
First Financial Bancorpoartion, Iowa City, Iowa Retail
Richard J. Schwab Lorie E. Schweer
Vice President & General Manager Senior Vice President,
Information Technology Division Administration
National Computer Systems, Inc., Iowa City, Iowa
Robert M. Sierk
President & CEO
First National Bank, Iowa City, Iowa
David J. Skorton, M.D.
Vice President for Research
The University of Iowa
p. 43 of 49
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
FIRST NATIONAL BANK, IOWA CITY, IOWA (continued)
John P. Wall
Farmer
Johnson County, Iowa
Stephen H. Wolken, M.D.
Partner
Eye Physicians & Surgeons LLP, Iowa City, Iowa
- --------------------------------------------------------------------------------
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
Gary L. Bartlett James P. Bell
President & CEO Vice President &
First National Bank, Cedar Rapids, Iowa Commercial Loan Officer
Wendy L. Dunn Frank E. Ceynar
Interim Vice President for Academic Affairs Vice President
and Interim Dean of the Faculty & Senior Trust Officer
Coe College, Cedar Rapids, Iowa
Robert J. Latham Stacy L. Martin
President Assistant Vice President
Latham & Associates, Cedar Rapids, Iowa & Branch Manager
Ralph J. Russell Pamela A. Imerman
President & CEO Assistant Vice President
Howard R. Green Company, Cedar Rapids, Iowa & Consumer Loan Officer
A. Russell Schmeiser Katie Hiatt-Braasch
Executive Vice President & COO Assistant Vice President
First Financial Bancorporation, Iowa City, Iowa & Mortgage Loan Manager
Larry D. Ward
Aliber Distinguished Professor, College of Law
The University of Iowa
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement dated March 7, 1997, for the
Annual Meeting of the Shareholders to be held on April 8, 1997, 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, 1997, for the
Annual Meeting of the Shareholders to be held on April 8, 1997, 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, 1997, for the
Annual Meeting of the Shareholders to be held on April 8, 1997, under the
caption "Interest of Management and Others in Certain Transactions" is
incorporated into this Item 13 by this reference thereto.
P. 44 of 49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The fiscal 1996 and 1995 consolidated financial statements of First
Financial Bancorporation, together with the report thereon of
McGladrey & Pullen, LLP, dated February 7, 1997, are included on pages
18 to 42 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 47.
(b) Reports on Form 8-K
The Registrant filed on Form 8-K dated November 20, 1996 in connection with the
announcement of the acquisition of West Branch Bancorporation, Inc.
P. 45 of 49
<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, 1997 By \\s\\Robert M. Sierk
-------------- --------------------------------------
Robert M. Sierk, President and
Chief Executive Officer and Director
Date: March 27, 1997 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, 1997 By \\s\\Fritz L. Duda
-------------- --------------------------------------
Fritz L. Duda, Director
Date: March 27, 1997 By \\s\\Ralph J. Russell
-------------- --------------------------------------
Ralph J. Russell, Director
Date: March 27, 1997 By \\s\\Larry D. Ward
-------------- --------------------------------------
Larry D. Ward, Director, Chairman of the Board
P. 46 of 49
<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 48
common equivalent share
21 Subsidiaries of the Registrant 49
(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, 1996.
**Filed herewith.
P. 47 of 49
<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,
1996 1995 1994
----------- ----------- -----------
Shares of common stock, beginning 2,383,241 2,373,926 2,326,884
=========== =========== ===========
Shares of common stock, ending 2,331,412 2,383,241 2,373,926
=========== =========== ===========
Computation of weighted average
number of common and common
equivalent shares:
Common shares outstanding at the
beginning of the year 2,383,241 2,373,926 2,326,884
Weighted average number of shares
issued 19,462 11,094 64,745
Weighted average of the common
shares redeemed (50,175) (2,544) (21,899)
Weighted average of the common
equivalent shares attributable to
stock options granted, computed
under the treasury stock method 10,120 10,417 14,589
----------- ----------- -----------
Weighted average number of common and
common equivalent shares 2,362,648 2,392,893 2,384,319
=========== =========== ===========
Net Income $ 5,916,000 4,570,000 $ 4,563,000
=========== =========== ===========
Earnings per common and common
equivalent share: $ 2.50 $ 1.91 $ 1.91
=========== =========== ===========
P. 48 of 49
<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. 49 of 49
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,949
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,802
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 330,739
<ALLOWANCE> 3,788
<TOTAL-ASSETS> 467,725
<DEPOSITS> 395,407
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,241
<LONG-TERM> 12,355
0
0
<COMMON> 2,914
<OTHER-SE> 49,662
<TOTAL-LIABILITIES-AND-EQUITY> 467,725
<INTEREST-LOAN> 26,037
<INTEREST-INVEST> 7,101
<INTEREST-OTHER> 430
<INTEREST-TOTAL> 33,268
<INTEREST-DEPOSIT> 15,394
<INTEREST-EXPENSE> 16,449
<INTEREST-INCOME-NET> 16,819
<LOAN-LOSSES> 591
<SECURITIES-GAINS> (160)
<EXPENSE-OTHER> 14,802
<INCOME-PRETAX> 8,450
<INCOME-PRE-EXTRAORDINARY> 8,450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,916
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
<YIELD-ACTUAL> 7.91
<LOANS-NON> 559
<LOANS-PAST> 381
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,602
<CHARGE-OFFS> 477
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 3,788
<ALLOWANCE-DOMESTIC> 3,788
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
