SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1998 Commission file number 0-14280
FIRST FINANCIAL BANCORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
IOWA 42-1259867
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
204 East Washington Street, Iowa City, Iowa 52240
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code 319-356-9000
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and
former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X . No . (2) Yes X . No. .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING
CLASS AT MAY 15, 1998
- ----------------------------- -------------------
Common stock, $1.25 par value 3,553,717
1
<PAGE>
FIRST FINANCIAL BANCORPORATION
Index to Form 10-Q
Page
PART I - Financial Information Number
Item 1. Financial statements
Consolidated balance sheets 3
Unaudited consolidated statements of income 4
Unaudited consolidated statements of comprehensive income 5
Unaudited consolidated statements of cash flows 6 - 7
Consolidated statement of stockholders' equity 8
Note to consolidated financial statements 9 - 11
Item 2. Management's discussion and analysis of financial 12 - 18
condition and results of operations
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 19 - 21
Signatures 22
2
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<S> <C> <C>
March 31, December 31,
1998 1997
---------- -----------
ASSETS
Cash and due from banks $ 23,575 $ 21,449
Investment securities:
Available for sale (cost 1998 $117,077 December 31, 1997 $110,891) 119,254 112,755
Federal funds sold 39,300 27,925
Loans, net of unearned income $ 357,598 $ 364,301
Less: allowance for loan losses (4,499) (4,589)
---------- -----------
Net loans $ 353,099 $ 359,712
---------- -----------
Bank premises and equipment, net 12,794 12,885
Accrued interest receivable 3,732 3,730
Intangible assets 2,695 2,775
Prepaid pension cost 3,828 3,718
Other assets 10,165 5,104
---------- -----------
$ 568,442 $ 550,053
========== ===========
LIABILITIES
Noninterest-bearing deposits $ 60,913 $ 59,244
Interest-bearing deposits 419,548 399,571
---------- -----------
Total deposits $ 480,461 $ 458,815
Securities sold under agreement to repurchase 9,467 10,028
Accrued interest payable 2,044 2,153
Other Liabilities 2,208 2,617
Federal Home Loan advances 9,267 12,735
Notes Payable 3,641 5,453
Income tax payable 301 61
Deferred income taxes 786 611
---------- -----------
$ 508,175 $ 492,473
---------- -----------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 5,000,000
shares; issued 1998, 3,553,717 shares; 1997, 3,505,341 shares (Note 5) $ 4,442 $ 4,361
Additional paid-in capital 3,635 2,284
Retained earnings 50,825 49,766
Accumulated other comprehensive income, unrealized gains on debt securities, net 1,365 1,169
---------- ----------
$ 60,267 $ 57,580
---------- ----------
$ 568,442 $ 550,053
========== ==========
*Condensed from audited financial statements.
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1998 and 1997
(Amounts in Thousands, Except per Share Data)
<S> <C> <C>
1998 1997
------- -------
Interest income:
Interest and fees on loans $ 7,395 $ 6,738
Interest on investment securities
Taxable 1,126 1,030
Nontaxable 476 383
Interest on federal funds sold 370 212
------- -------
Total interest income $ 9,367 $ 8,363
------- -------
Interest expense:
Interest on deposits $ 4,573 $ 3,919
Interest on federal funds purchased 118 15
Notes Payable Interest Expense 58 - -
Interest on Federal Home Loan Bank advances 158 188
------- -------
Total interest expense $ 4,907 $ 4,122
------- -------
Net interest income $ 4,460 $ 4,241
Provision for loan losses 100 177
------- -------
Net interest income after provision
for loan losses $ 4,360 $ 4,064
------- -------
Noninterest income:
Trust fees $ 938 $ 832
Service charges and fees on deposit accounts 511 445
Other service charges, commissions and fees 998 528
Investment gains (losses), net 154 44
------- -------
$ 2,601 $ 1,849
------- -------
Noninterest expenses:
Salaries and employee benefits $ 2,164 $ 1,801
Occupancy, furniture and equipment 723 655
Data processing 394 327
Office supplies and postage 295 254
Other expenses 915 665
------- -------
$ 4,491 $ 3,702
------- -------
Income before income taxes $ 2,470 $ 2,211
Federal and state income taxes 736 664
------- -------
Net Income $ 1,734 $ 1,547
======= =======
Earnings per share:
Basic $ .49 $ .44
Diluted .49 .44
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 1998 and 1997
(Amounts in Thousands)
<S> <C> <C>
1998 1997
------- -------
Net income $ 1,734 $ 1,547
Gross unrealized gains on debt securities 468 177
Less reclassification adjustments for gains
included in net income ( 154) ( 44)
Income tax expense related to items of other
comprehensive income ( 118) ( 50)
------- -------
Comprehensive income $ 1,930 $ 1,630
------- -------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31, 1998 and 1997
(Amounts in Thousands)
<S> <C> <C>
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,734 $ 1,547
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 296 267
Amortization 80 38
Provision for loan losses 100 177
Amortization of investment security discount 45 35
(Increase) decrease in accrued interest receivable (2) (212)
(Increase)in prepaid pension costs (110) (91)
(Increase) in other assets (5,061) 376
Increase (decrease) in accrued interest and other
liabilities (518) (84)
Change in accrued income taxes 664 492
--------- ---------
Net cash provided by operating activities $ (2,772) $ 2,545
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 6,068 $ 2,767
Sales 589 - -
Purchases (12,888) (7,827)
Fed funds sold, net (11,375) (31,500)
Net (increase) decrease in loan balances outstanding 6,513 5,574
Purchases of bank premises and equipment (205) (100)
--------- ---------
Net cash (used in) investing activities $(11,298) $(31,086)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 21,646 $ 23,758
Federal funds purchased and securities sold under agreement
to repurchase (561) (2,061)
Repayment of other borrowings (1,812) - -
Federal Home Loan Bank advances (3,468) 1,583
Dividends paid (675) (514)
Stock options exercised 1,066 361
Common stock redeemed - - (158)
Common stock purchased - - (144)
--------- ---------
Net cash provided by financing activities $ 16,196 $ 22,825
--------- ---------
Increase in cash and due from banks $ 2,126 $ (5,716)
CASH AND DUE FROM BANKS
Beginning balance 21,449 20,949
--------- ---------
Ending balance $ 23,575 $ 15,233
========= ========
See Notes to Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Three Months
Ended March 31, 1998 and 1997
(Amounts in Thousands)
<S> <C> <C>
1998 1997
-------- --------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid to depositors, on note payable,
on federal funds purchased and securities
sold under agreements to repurchase $ 4,348 $ 4,153
Noncash transactions:
Net unrealized gains (losses) on debt securities 2,177 237
Deferred income taxes on unrealized gains (losses)
on debt securities 812 88
Other real estate owned property
received in satisfaction of debt -- 91
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated other
Three months ended comprehensive
March 31, 1998 and year ended Common Stock Additional income, unrealized
December 31, 1997 (In Thousands $1.25 Par Value Paid-In Retained gains on debt
of Dollars, Except Per Share Data) Number Amount Capital Earnings securities, net Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,497 $ 2,914 $ 2,606 $ 46,824 $ 232 $ 52,576
Net Income - - - - - - 6,683 - -
Other comprenesive income, net of tax - - - - - - - - 937
Comprehensive income - - - - - - - - - - 7,620
3-for-2 stock split effected in the
form of a stock dividend - - 1,456 - - (1,456) - - - -
Cash dividends ($.65 per share) - - - - - - (2,283) - - (2,283)
Stock options exercised for 25,800 shares 26 22 320 - - - - 342
Redemption of 34,182 shares of common stock (34) (31) (642) - - - - (673)
Redemption of 56 fractional shares - - - - - - (2) - - (2)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1997 3,489 $ 4,361 $ 2,284 $ 49,766 $ 1,169 $ 57,580
Net income - - - - - - 1,734 - -
Other comprenesive income, net of tax - - - - - - - - 196
Comprehensive income - - - - - - - - - - 1,930
Cash dividends ($.19 per share) - - - - - - (675) - - (675)
Stock options exercised for 65,037 shares 65 81 1,351 - - - - 1,432
- ---------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1998 3,554 $ 4,442 $ 3,635 $ 50,825 $ 1,365 $ 60,267
======== ======== ======== ======== ========= =========
See Notes to Financial Statements.
8
</TABLE>
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1998 and 1997
Note 1. Nature of Business
The Company is a bank-holding company which owns 100% of the outstanding
common stock of First National Bank Iowa ("the Bank"). The Bank is engaged in
many areas of commercial and consumer banking, including deposits, lending and a
variety of related services. The Trust and Asset Management division of the Bank
administers fiduciary and agency accounts and provides the Bank with a
significant source of fee income.
Note 2. 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.
Note 3. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary, First National Bank Iowa, which is wholly-owned.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Note 4. Trust Assets
Trust accounts (other than cash deposits) held by the Bank 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 Bank.
Note 5. Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from banks includes cash
on hand and amounts due from banks. Cash flows from deposits, federal funds
purchased, federal funds sold and loan balances are treated as net increases or
decreases.
Note 6. Investments in Debt and Equity Securities
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 cost or amortized cost of the
specific securities sold.
Note 7. 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 Bank
makes 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.
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 otherwise 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.
9
<PAGE>
SFAS 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those
loans restructured under trouble debt restructuring. Loans
collectively evaluated for impairment include certain smaller balance
commercial loans, consumer loans, residential real estate loans, and
credit card loans, and are not included in the data that follows.
(In Thousands)
The following table summarizes Three Months Ended March 31,
impaired loan information. 1998 1997 1996
- --------------------------------------------------------------------------------
Impaired loans $1,425 $550 $142
Impaired loans with related reserve for
loan losses calculated under SFAS 114 1,425 550 142
Amount of reserve for loan losses allocated
to the impaired loan balance 267 88 25
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 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 and lease losses.
(In Thousands)
Three Months Ended March 31,
1998 1997 1996
- --------------------------------------------------------------------------------
Average impaired loans $1,169 $505 $227
Cash basis interest
income recognized on
impaired loans - - - - 18
Interest income that
would have been recorded
during the period on non-
accrual loans 40 13 5
- --------------------------------------------------------------------------------
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.
Note 8. 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.
Note 9. Intangible Assets
Intangible assets consist primarily of goodwill which represents the excess
of cost over fair value of net assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized on a
straight-line basis over 15 years. The carrying value of goodwill is reviewed
periodically for impairment. Goodwill totaled $2,263,000, net of year to date
accumulated amortization of $40,000, as of March 31, 1998.
Note 10. 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.
Note 11: 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.
10
<PAGE>
Deferred benefits under a salary continuation plan are charged to expense
during the period the respective employee attains full eligibility. The Banks
does not provide any other post-employment benefits.
Compensation expense for stock issued through a stock option plan 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 periods of
service.
Note 12: Earnings Per Common Share
In July 1997, the Board of Directors approved a three-for-two stock split
effected in the form of a stock dividend and an additional 1,165,022 shares of
common stock were issued to stockholders. As a result, fractional shares of
stock totaling 56 shares were redeemed. Information with respect to the common
stock outstanding, earnings per common share and other stock information has
been retroactively adjusted to give effect to the stock split.
The FASB has issued Statement No. 128, Earnings Per Share, which supercedes APB
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities outstanding that trade in a public
market. Basic per-share amounts are computed by dividing net income (the
numerator) by the weighted-average number of common shares outstanding (the
denominator). Diluted per-share amounts assume the conversion, exercise or
issuance of all potential common stock unless the effect is to reduce the loss
or increase the income per common share from continuing operations. Statement
No. 128 has been applied for annual and interim periods ending after December
15, 1997, and earnings per share for prior periods have been retroactively
restated, which had no effect on reported earnings per share. Following is a
reconciliation of the denominator:
================================================================================
Period Ending March 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted Average number of shares 3,532,038 3,502,600 3,578,537
Potential number of dilutive shares 29,120 19,178 12,305
Total shares to compute -------------------------------
diuluted earnings per share 3,561,158 3,521,778 3,590,842
================================================================================
Note 13. Recently Issued Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Statement does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. The Statement requires that an enterprise: a) classify items of other
comprehensive income by their nature in a financial statement; and b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The Company adopted this new financial statement
presentation in the quarter ended March 31, 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
EARNINGS PERFORMANCE
Net income increased $187,000 or 12.1% to $1,734,000 for the quarter ended March
31, 1998 when compared to net income of $1,547,000 for the first quarter of
1997. Basic earnings per share increased from $.44 in the first quarter of 1997
to $.49 in the first quarter of 1998, an increase of 11.4%.
DIVIDEND INFORMATION
In the first quarter of 1998, the Company paid cash dividends of $.19 per out-
standing share of common stock which totaled $675,000, compared to $.15 per
share and $514,000 in total dividends for the same period in 1997. This
represented an increase of $.04 or 26.7% per outstanding share of common stock
and $161,000 or 31.3% in total cash dividends paid. The ability of the Company
to pay dividends to its shareholders is dependent on the profitability of the
Iowa City Bank and to what prudent and sound banking principles will permit. The
payment of the dividends (i) is not permitted without the approval of the
Comptroller of the Currency (OCC) except to the extent of net profits of the
current fiscal year and retained net profits of the two preceding fiscal years,
and (ii) is not permitted if the payment of a dividend would reduce the capital
of a bank below required levels. Given the Bank's capital position, the OCC
minimum capital criteria will not be restrictive.
NET INTEREST INCOME
Net interest income after provision for loan losses increased $296,000 or 7.3%
to $4,360,000 at the end of the first quarter of 1998 when compared to 1997
period totals. The primary factor contributing to this increase in net interest
income was the acquisition of West Branch Bancorp, Inc. in April, 1997.
Net interest income, on a fully tax-equivalent basis, for the first quarter of
1998 totaled $4,746,000, which is up $246,000 or 5.5% over the $4,500,000
reported for the same period in 1997. The increase in fully taxable-equivalent
net interest income is also attributed to the acquisition. The consolidated net
interest spreads and margins are presented in the following table for the first
quarter of 1998 and 1997.
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
---------------------------- --------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Interest earning assets $ 504,140 7.68% $ 440,549 7.85%
Interest paying liabilities 429,681 4.63 370,764 4.51
Net interest spread 3.05 3.34
Net interest margin 3.74 4.06
</TABLE>
12
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As of March 31, 1998, the allowance for possible loan losses was 1.26% of total
outstanding loans compared to the same percentage as of December 31, 1997 and
1.20% as of March 31, 1997. During the first quarter of 1998, the company
recorded net charged-off loans totaling $190,000 compared to $69,000 for the
first quarter of 1997. The dollar amount of nonaccrual loans increased from
$550,000 as of March 31, 1997 to $1,425,000 as of March 31, 1998. Year-to-date
provision decreased $77,000 or 43.5% to $100,000 as of March 31, 1998 when
compared to March 31, 1997. The provision was decreased primarily due to the
improvement of the credit quality of the loan portfolio. 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.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Registrant's loan loss experience for the
three and nine month periods ended March 31, 1998 and March 31, 1997:
<TABLE>
<CAPTION>
(In Thousands)
------------------------------
Three Months Ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 3,896 $ 3,788
------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ 30 $ 3
Real estate, mortgage - - 35
Loans to individuals 195 87
------------ ------------
$ 225 $ 125
------------ ------------
Recoveries:
Commercial,financial
and agricultural $ 13 $ 6
Real estate, mortgage - - 26
Loans to individuals 22 24
------------ ------------
$ 35 $ 56
------------ ------------
Net charge-offs $ 190 $ 69
------------ ------------
Provision for
loan losses (1) $ 100 $ 177
------------ ------------
Balance of loan
loss allowance
at end of period $ 4,499 $ 3,896
============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .05% .02%
============ ============
<FN>
1) For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for loan losses based upon the
impact of economic conditions on the borrower's ability to repay, past
collection experience, the risk characteristics of the loan portfolio
and such other factors which deserve current recognition.
</FN>
</TABLE>
13
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The March 31, 1998 and March 31, 1997 allowance for loan losses have been
allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
March 31, 1998 March 31, 1997
------------------------------ ------------------------------
Allocation Allocation
of Percentage of Percentage
Allowance of Loans Allowance of Loans
Amount by in Amount by in
Category Category Category Category
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance applicable to:
Allocated:
Commercial, financial
and agricultural $ 1,047 11% $ 849 9%
Real Estate 2,329 74 2,648 76
Installment loans to individuals 1,123 14 399 14
Unallocated: - - 1 - - 1
---------- ---------- ---------- ----------
$ 4,499 100% $ 3,896 100%
========== ========== ========== ==========
</TABLE>
Management regularly reviews the loan portfolio and does not expect any unusual
material amount to be charged off in the future which would be significantly
different than the above historical experience.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Registrant's nonaccrual, past due 90 days or
more and restructured loans as to interest or principal payments as of March 31,
1998 and March 31, 1997.
(In Thousands)
-------------------------------------------------------
March 31, 1998 March 31, 1997 March 31, 1996
-------------- -------------- --------------
Nonaccrual loans $ 1,425 $ 550 $ 142
Accruing loans
past due 90
days or more $ 783 $ 735 $ 810
Restructured
loans $ 118 $ 18 $ - -
As of March 31, 1998 and March 31, 1997 total nonaccrual loans were comprised
primarily of loans collateralized by real estate. Non-accrual of interest may
occur on any loan whenever one or more of the following criteria is evident: (a)
there is substantial deterioration in the financial position of the borrower;
(b) the full payment of interest and principal can no longer be reasonably
expected; (c) the principal or interest on the loan has been in default for a
period of 90 days. In all cases, loans must be placed on nonaccural or charged
off at an earlier date if collection of principal or interest is considered
doubtful. All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed to interest income. The interest on these
loans is accounted for on the cash basis or cost recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are reasonably assured of
repayment within a reasonable time frame and when the borrower has demonstrated
payment performance of cash or cash equivalents. Given the number of nonaccrual
loans and related underlying collateral, management does not anticipate any
significant impact to earnings.
The Registrant does not have a significant amount of loans which are past due
less than 90 days on which there are serious doubts as to the ability of the
borrowers to comply with the loan repayment terms.
The Registrant has no individual borrower or borrowers engaged in the same or
similar industry exceeding 10% of total loans. The Registrant has no other
interest-bearing assets, other than loans, that meet the nonaccrual, past due,
restructured or potential problem loan criteria. The Registrant has no foreign
loans outstanding.
A loan is considered restructured when the company allows certain concessions to
financially troubled debtor that would not normally be considered. There were no
trouble debt restructuring loans for the reporting periods.
14
<PAGE>
NONINTEREST INCOME
Noninterest income for the quarter ending March 31, 1998, totaled $2,447,000
(when excluding security gains), which is an increase of $642,000 or 35.6% when
compared to the $1,805,000 of noninterest income reported for the quarter ending
March 31, 1997. Trust fees increased $106,000 or 12.7% to $938,000 during the
first quarter of 1998 when compared to the same period during 1997. Other
service charges, commissions and fees on increased $470,000 or 89% to $938,000
in the first quarter of 1998, compared to $528,000 as of March 31, 1997.
Secondary market loan fees accounted for the majority of this increase, totaling
$448,000 as of March 31, 1998, an increase of $346,000 or 339.2% over 1997. The
acquisition of West Branch Bancorp, Inc. accounted for the remaining increase.
Investment security gains of $154,000 were realized in the first three months of
1998 compared to $44,000 during the same period in 1997.
NONINTEREST EXPENSES
Noninterest expenses totaled $4,491,000 as of March 31,1998. This represented an
increase of $789,000 or 21.3% over the $3,702,000 of noninterest expense
recorded for 1997.
FINANCIAL POSITION
TOTAL ASSETS
As of March 31, 1998, Company assets totaled $568,442,000 representing a
$18,389,000 or 3.3% increase over December 31, 1997 assets of $550,053,000. The
majority of this asset growth was funded by approximately $17,000,000 of
seasonal short-term deposits. Average total assets for the first quarter of 1998
were $549,949,000 compared to $473,882,000 for 1997, an increase of $76,067,000
or 16.1%, reflecting the acquired assets of West Branch Bancorp Inc. and deposit
growth previously noted.
TOTAL LOAN BALANCES
Total loan balances decreased by $6,703,000 or 18.4% to $357,598,000 in the
first quarter of 1998 when compared to year end loan balances of $364,301,000.
Increased secondary market mortgage refinancing resulted in a higher volume of
in-house real estate loans being sold to the secondary market. Average loan
balances for the first quarter of 1998 increased $33,446,000 or 10.2% to
$359,807,000 when compared to the $326,361,000 in average loan balances reported
for the first quarter of 1997. Again, the majority of this increase was through
acquisition.
15
<PAGE>
TOTAL DEPOSITS
Since December 31, 1997, total deposits increased $21,646,000 or 4.7% to
$480,461,000 as of March 31, 1998. The majority of this increase was due to
seasonal short-term deposits. Average total deposits for the first quarter of
1998 were $461,362,000, an increase of $58,796,000 or 14.6%, over first quarter
1997 average deposits of $402,566,000 as a result of seasonal deposits and
acquired deposits.
CAPITAL POSITION
The strength and soundness of a Company is reflected in the adequacy of its
capital position. Total capital as of March 31, 1998 was $64,766,000 which is up
to $2,597,000 or 4.2% from total capital of $62,169,000 as of December 31, 1997.
The ratio of total capital to total assets as of March 31, 1998 is 11.4%, which
is down .2% from the December 31, 1997 ratio of 11.6%. Stockholders' equity
increased 4.7% compared to asset growth of 3.3%, resulting in the lower total
capital-to-total asset ratio. This ratio is substantially higher than the
current Federal, Reserve guideline of 6.0%.
As of quarter-end March 31, 1998, the Company's Tier I capital ratio was 16.31%
and its total risk adjusted capital ratio (Tier I plus Tier II) was 17.56%
compared to 15.98% and 17.23%, respectively, as of December 31, 1997. Both of
these ratios exceed the regulatory minimums of 4.0 percent for Tier I and 8.0
percent for total risk adjusted capital. The Company's leverage capital was
11.08% as of March 31, 1998, compared to 10.59% at December 31, 1997,
substantially higher than the 4% regulatory floor.
CAPITAL EXPENDITURES
Through March 31, 1998, the company recorded year-to-date capital expenditures
totaling approximately $205,000, relating to standard expenditures necessary to
conduct its banking business. Cash flow provided by maturing investment
securities funded these capital outlays.
INTEREST RATE SENSITIVITY AND LIQUIDITY
ANALYSIS
Net interest income is the principal source of earnings for the company. As
such, the profitability of the company is dependent upon the ability of the
Company to properly manage its rate sensitive assets and liabilities to achieve
optimum earnings potential. This is accomplished by maintaining an appropriate
balance between interest-earning assets and interest-paying liabilities while
maintaining sufficient liquidity to meet the cash flow requirements of
customers. Marketable investments, maturing loans, Federal Funds Purchased in
conjunction with Federal Home Loan Bank advances offer a secondary source of
liquidity to the company should a mismatch occur between demands for and sources
of funds. Over the past several years the company has maintained sufficient
liquidity as a result of the maturity schedule of its investment portfolio and
stability of its core deposits. Management continually monitors its liquidity
position and interest rate sensitivity and makes appropriate adjustments as
needed to reduce the adverse effects of changes in market interest rates. Table
1 summarizes various repricing periods of the company's interest-earnings assets
and interest-paying liabilities as of March 31, 1997. This table indicates that
the company is slightly liability sensitive over the next twelve-month
timeframe. Should interest rates increase in the next year, net interest income
may decrease. If rates would decrease, net interest income may increase. To
offset the effects of decreasing market rates and reduce the exposure of the
positive gap, management could shorten the maturities of investment securities
and could lengthen the maturities of deposits in conjunction with increasing the
interest rates paid on long-term time deposits.
16
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
March 31, 1998
-------------------------------------------------------------
MONTHS
-----------------------
After Three After One
Within Through Through Non-
(Dollars in Thousands) Three Twelve Five Years sensitive Total
------------------------------------------- ------------ ------------ ----------- ------------ --------
Interest earning assets:
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 39,300 $ - - $ - - $ - - $ 39,300
Investment securities 8,977 20,758 62,741 26,778 119,254
Loans 45,019 76,485 217,686 18,408 357,598(2)
Total interest earning assets 93,296 97,243 280,427 45,186 516,152
Interest paying liabilities:
Securities sold under agreement to repurchase 9,467 - - - - - - 9,467
Deposits 101,958(1) 77,458 102,689 137,443 419,548(3)
Long-term debt 2,250 4,512 5,996 150 12,908
Total interest paying liabilities 113,675 81,970 108,685 137,593 441,923
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 37,338 37,338
Other assets, liabilities and equity net - - - - - - 36,891 36,891
Total noninterest rate sensitive assets
and liabilities - - - - - - 74,229 74,229
INTEREST SENSITIVE GAP ( 20,379) 15,273 171,742 (166,636) - -
CUMULATIVE GAP ( 20,379) ( 5,106) 166,636 - - - -
CUMULATIVE % OF SENSITIVE 82% 97% 155% - - - -
ASSETS TO LIABILITIES
<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 $357,598,000 of total loans, $191,822,000 have fixed rates, while $165,776,000 have variable rates.
(3) Certificates of deposit comprise $229,892,000 of total deposits, while interest-paying demand deposits and savings deposit
balances accounted for $189,656,000 of this total.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Market Risk Analysis at March 31, 1998 Dollar Amounts Expressed in Thousands
(Expected Maturity Date, Period Ended March 31, 1998)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
======================================================================================================================
ASSETS
Fixed Rate Loans:
Balance $ 50,906 $ 31,396 $ 26,727 $ 32,448 $ 33,762 $ 16,583 $191,822 $190,335
Average interest rate 8.19% 8.48% 8.46% 8.45% 8.25% 6.77% 8.21%
Variable Rate Loans:
Balance 70,598 39,550 34,140 6,346 13,316 1,826 165,776 165,776
Average interest rate 8.53% 8.15% 8.02% 7.85% 7.86% 7.64% 8.25%
Investments:(1)
Balance 69,034 26,141 20,320 11,560 4,720 26,779 158,554 158,554
Average interest rate 6.14% 6.47% 6.42% 6.62% 6.74% 5.51% 6.28%
LIABILITIES
Liquid deposits:(2)
Balance 189,656 - - - - - - - - - - 189,656 189,656
Average interest rate 2.80% - - - - - - - - - - 2.80%
Fixed-rate time deposits:
Balance 123,622 64,182 29,389 2,459 4,181 30 223,863 226,022
Average interest rate 5.66% 6.19% 5.89% 5.53% 5.59% 6.62% 5.84%
Variable-rate time deposts:
Balance 3,551 2,473 5 - - - - - - 6,029 6,029
Average interest rate 5.72% 5.90% 5.05% - - - - - - 5.79%
FHLB advances and notes payable:
Balance 6,762 3,673 2,273 50 - - 150 12,908 12,914
Average interest rate 5.98% 6.47% 6.02% 6.45% - - 2.30% 6.13%
Securities sold under agreement
to repurchase:
Balance 9,467 - - - - - - - - - - 9,467 9,467
Average interest rate 2.53% - - - - - - - - - - 2.53%
====================================================================================================================
(1) Investments include federal funds sold and available for sale securities.
(2) Liquid deposits include interest-earning checking accounts, savings accounts and money market deposit accounts.
</TABLE>
17
<PAGE>
EFFECT OF INFLATION
Inflation is a significant factor when considering the consolidated balance
sheet and the consolidated income statement. Inflation can directly affect the
level of asset growth during the year as well as the various components of the
income statement. While it is difficult to measure the effect of the inflation
directly, it is the practice of the company to minimize the impact of inflation
in the future through its asset and liability management program, effective cost
controls and responsive service charge pricing. The ability of the company to
position itself to minimize the effect of inflation can more readily be seen by
reference to the discussion herein of the Liquidity, Net Interest Income, and
Noninterest Income and Noninterest Expense sections.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit
See Exhibit Index on Page 20
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K in the last three calendar
months.
19
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference.
(Documents indicated by an * are incorporated hereby by reference.)
Page No. Of
Exhibit No. Description of Exhibits Form 10-Q
- --------------------------------------------------------------------------------
4 Instruments defining the rights of security holders,
including indentures. See "Description of the Common
Stock of the Holding Company" at page 30 of * *
Amendment No. 1 to the Registration Statement Form
S-4 filed under Registration Number 33-989 dated
November 12, 1985.
10.e. Termination agreements for Robert M. Sierk, President
and CEO, and A. Russell Schmeiser, EVP and COO, of the
Company dated January 1, 1998. 23-26
11 Statement re computation of earnings per common and 21
common equivalent share
27 Financial Data Schedule as of March 31, 1998 **
** Filed herewith.
20
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
(FIRST NATIONAL BANK IOWA)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER BASIC AND
DILUTED SHARES
Three Months Ended
March 31,
------------------------
<S> <C> <C>
1998 1997
--------- ---------
Shares of common stock, beginning (Note 5) 3,488,680 3,497,118
========= =========
Shares of common stock, ending 3,553,717 3,505,381
========= =========
Computation of weighted average number of basic and diluted shares:
Basic shares outstanding at the beginning of the year 3,488,680 3,497,118
Weighted average number of basic shares issued 43,358 15,300
Weighted average number of the diluted shares redeemed (Note 5) - - (9,818)
--------- ---------
Weighted average shares used to compute basice earnings per shares 3,532,038 3,502,600
========= =========
Potential number of diluted shares related to stock option plan 29,120 19,178
========= =========
Weighted average mumber of shares used to compute diluted earnings per share 3,561,158 3,521,778
========= =========
Net Income $1,734,000 $1,547,000
========== ==========
Basic earnings per share $ .49 $ .44
========== ==========
Diluted earnings per share $ .49 $ .44
========== ==========
</TABLE>
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL BANCORPORATION
(Registrant)
May 15, 1998 //s//A. Russell Schmeiser
------------------------- --------------------------------------
DATE A. Russell Schmeiser
Executive Vice President & COO
(Duly authorized officer of the
registrant and principal financial
officer)
22
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<CASH> 23,575
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 119,254
<LOANS> 357,598
<ALLOWANCE> 4,499
<TOTAL-ASSETS> 568,442
<DEPOSITS> 480,461
<SHORT-TERM> 9,467
<LIABILITIES-OTHER> 5,399
<LONG-TERM> 12,908
0
0
<COMMON> 4,442
<OTHER-SE> 55,825
<TOTAL-LIABILITIES-AND-EQUITY> 568,442
<INTEREST-LOAN> 7,395
<INTEREST-INVEST> 1,602
<INTEREST-OTHER> 370
<INTEREST-TOTAL> 9,367
<INTEREST-DEPOSIT> 4,573
<INTEREST-EXPENSE> 4,907
<INTEREST-INCOME-NET> 4,460
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 154
<INCOME-PRETAX> 2,470
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,734
<EPS-PRIMARY> .49 .44 .40
<EPS-DILUTED> .49 .44 .40
<YIELD-ACTUAL> 7.68
<LOANS-NON> 1,425
<LOANS-PAST> 783
<LOANS-TROUBLED> 118
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,896
<CHARGE-OFFS> 225
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 4,499
<ALLOWANCE-DOMESTIC> 4,499
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
First Financial Bancorporation
204 East Washington Street
Iowa City, Iowa 52244-1880
January 1, 1998
Mr. Robert M. Sierk
2043 Glendale Road
Iowa City, IA 52245
Dear Bob:
This letter will confirm the terms of an your employment. You are employed
as the President and Chief Executive Officer of First Financial Bancorporation
(the "Company") and First National Bank, Iowa ("the Ban"). Subject to the
powers, authorities and responsibilities vested in the Board of Directors (the
"Board"), you shall have the duties specified in the By-laws of the Company and
the Bank, respectively, and such other executive and administrative duties as
may from time to time be authorized or directed by the Board.
The term of your employment commences on the date hereof and ends on
December 31, 2000, unless terminated earlier or extended pursuant to the terms
hereof (the "Employment Period"). As compensation for the services hereunder,
the Company shall pay you during the Employment Period a minimum annual salary
of $175,408 (the "Base Salary") which may be increased from time to time by the
Board. You shall also be eligible for an annual bonus in the discretion of the
Board of Directors pursuant to the Company's Executive Incentive Compensation
Plan. The Company shall also pay certain membership dues and other fringe
benefits, such as life insurance, in accordance with Company and Bank policies.
You shall also be entitled to the benefits provided in the Salary Continuation
Plan.
The Company may terminate your employment by the Company and the Bank for
Cause (as hereafter defined). "Cause" shall mean any conduct involving
dishonesty, misconduct, significant activities harmful to the reputation of the
Company, willful refusal to perform or substantial disregard of the duties
properly assigned to you or a material violation of any statutory duty or common
law duty of loyalty to the Company or the Bank. In the event of a termination
for Cause, you shall be entitled to receive any unpaid compensation accrued
through the date of termination, but no other severance payments.
During the Employment Period, you and your dependents shall be entitled to
participate in the Bank's group health insurance program. If your employment is
terminated without Cause prior to your attaining age 65 and you do not have
comparable coverage with another employer, you and your dependents may elect
continuation of your health insurance coverage until you reach age 65, with the
Bank and you bearing the same proportionate share of the premium cost as was in
effect on the date of termination. If you are no longer eligible for coverage
under the Bank's group health insurance policy after your employment is
terminated without Cause and you do not have comparable coverage with another
employer (or Medicare), the Bank will partially reimburse you for premiums paid
for comparable coverage based on the same proportionate share of the cost as was
in effect on the date of termination.
If at any time during the Employment Period you shall be unable to perform
fully your duties hereunder by reason of illness, accident or other disability
(as confirmed by competent medical evidence), you shall be entitled to the
disability benefits provided by the Company or the Bank under its disability
program in lieu of any Base Salary to which you would otherwise be entitled. In
the event of your death during the Employment Period, your estate shall be
entitled to receive any accrued and unpaid compensation and any other benefits
customarily provided to employees under the Company's existing policies.
In the event of the occurrence of a "Good Reason" (as hereinafter defined),
you shall be entitled to terminate this letter agreement and receive the
following sums: (a) any accrued and unpaid portion of your Base Salary from the
Company and the Bank; (b) an amount equal to your highest annualized bonus paid
or payable in respect of the three fiscal years of the Company immediately
preceding the fiscal year in which such termination occurs, multiplied by a
fraction, the numerator of which is the number of days in the fiscal year in
which such termination occurs through the date of termination and the
denominator of which is 365 or 366, as applicable; (c) a lump-sum cash amount
equal to the unpaid Base Salary for the remaining portion of the Employment
Period (but in no event less than two times your annual Base Salary in effect on
the date of termination nor greater than 2.99 times your annual Base Salary in
effect on the date of termination) (d) two times your highest annualized bonus,
paid or payable, by the Company and its affiliate companies in respect of the
three fiscal years of the Company immediately preceding the fiscal year in which
such termination occurs. In the event the Company terminates your employment
without Cause during the Employment Period, you shall be entitled to receive the
amounts set forth in the preceding sentence ( in which case, the term "such
termination" shall mean the termination without Cause by the Company).
23
<PAGE>
For purposes of this letter agreement, "Good Reason," means, without your
express written consent, occurrence of any of the following events: (a) any
requirement of the Company or the Bank that you be based anywhere other than in
Iowa City or Cedar Rapids, Iowa; (b) you no longer have an executive position
with the Company or the Bank; or (c) any removal or involuntary termination from
the Company or the Bank otherwise than as expressly permitted by this Agreement.
If a "Good Reason" described in clause (a) or (b) shall occur, you shall be
deemed to have waived your right to terminate this letter agreement if you do
not act within 30 days of the occurrence of the event giving rise to the "Good
Reason."
The Employment Period, which is scheduled to terminate on January 31, 2000,
shall be automatically extended until June 30, 2001 unless either party shall
give written notice to the other party of the non-extension of the contract on
or before June 30, 1998. Thereafter, the Employment Period shall be
automatically extended for an additional six-month period to December 31, 2001
unless written notice of non-extension is given by either party on or before
December 31, 1998. Notwithstanding the foregoing, your employment can always be
terminated for Cause or without Cause provided that in the event you are
terminated without Cause you are paid the severance payments described in the
paragraph of this letter concerning Change of Control payments.
During the Employment Period, you agree to faithfully perform the duties
assigned to you to the best of your ability and to devote your full time and
attention to the business of the Company and the Bank. During the Employment
Period and for a period of two years thereafter, except with the prior written
consent of the Company duly authorized by the Board, you shall not (a) induce or
attempt to persuade any employee of the Company or of the Bank to discontinue
such employment relationship, (b) solicit any person, corporation, partnership
or other entity or organization which at any time during the Employment Period
is a customer of the Company or of the Bank to become a customer of another
financial institution providing commercial banking or related services, (c)
engage in any banking business (whether as officer, director, employee,
consultant or otherwise) in Johnson, Linn or Cedar counties in the State of Iowa
or (d) make any public statement or take any action which is inconsistent with
your obligations hereunder. During the Employment Period and thereafter, except
with the prior written consent of the Company, you agree not to disclose any
confidential information (i.e., information not generally known in the industry
and treated by the Company or the Bank as confidential) to a person who is not
properly authorized to receive such information and otherwise agree to abide by
the Company's policies concerning confidentiality.
Whenever possible, each provision and term of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision or term of this Agreement shall be held to be prohibited by
or wholly invalid under applicable law, then such provision or term shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or affecting in any manner whatsoever the remaining provisions or
terms of this Agreement. If a court having jurisdiction shall find that the
covenants contained in the preceding paragraph are not reasonable, such court
shall have the power to reduce the geographic area, duration or scope of such
covenants, and in such reduced form, the covenants shall be enforceable.
This agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, with respect to the
subject matter hereof.
The letter shall be binding upon the Company and its successors and
assigns.
If you agree that this letter correctly sets forth the terms of this letter
agreement, please sign the enclosed copy and return it to us. This copy is for
your records.
Very truly yours,
First Financial Bancorporation
By \\s\\ Larry D. Ward
__________________________________
Chairman of the Board
Accepted and Agreed:
\\s\\ Robert M. Sierk
__________________________________
Robert M. Sierk
24
<PAGE>
First Financial Bancorporation
204 East Washington Street
Iowa City, Iowa 52244-1880
January 1, 1998
Mr. A. Russell Schmeiser
4 Wendram Bluff NE
Iowa City, IA 52240
Dear Russ:
This letter will confirm the terms of an employment and severance agreement with
you. You are currently employed as the Executive Vice President and Chief
Operating Officer of First Financial Bancorporation (the "Company"). The Company
has determined that it is in its best interests to assure your continued
services and continued dedication through the entering into of this agreement
providing severance compensation to you as hereinafter described upon the event
of your termination of employment. The term of this agreement commenced on the
date hereof and terminates on January 31, 1999, unless terminated earlier or
extended pursuant to the terms hereof (the "Employment Period").
You shall be eligible to receive severance compensation, as hereinafter
described, if your employment with the Company is terminated and your
termination is not on account of disability, death, or Cause. "Cause" shall mean
any conduct involving dishonesty, misconduct, significant activities harmful to
the reputation of the Company, willful refusal to perform or substantial
disregard of the duties properly assigned to you or a material violation of any
statutory duty or common law duty of loyalty to the Company or First National
Bank Iowa (the "Bank"). In the event of a termination for Cause, you shall be
entitled to receive any unpaid compensation accrued through the date of
termination and no other severance payments.
If at any time during your employment you shall be unable to perform fully your
duties hereunder by reason of illness, accident or other disability (as
confirmed by competent medical evidence), you shall be entitled to the
disability benefits provided by the Company under its disability program in lieu
of any Base Salary to which you would otherwise be entitled. In the event of
your death during your employment, your estate shall be entitled to receive any
accrued and unpaid compensation and any other benefits customarily provided to
employees under the Company's existing policies.
If the Company terminates your employment without Cause, then you shall be
entitled to receive the following sums: (a) any accrued and unpaid portion of
your Base Salary from the Company; (b) an amount equal to your average bonus
paid by the Company and its affiliate companies attributable to the three fiscal
years of the Company ending December 31, 1997 (excluding any cash bonuses paid
in lieu of stock options) multiplied by a fraction, the numerator of which is
the number of days in the fiscal year in which such termination occurs through
the date of termination and the denominator of which is 365 or 366, as
applicable; (c)an amount equal to two times your highest annual Base Salary in
effect at any time during the two years prior to the date of termination; (d) an
amount equal to two times your average bonus paid by the Company and its
affiliate companies which is attributable to the three fiscal years of the
Company ending December 31, 1997 (excluding any cash bonuses paid in lieu of
stock options); and (e) your accrued vacation pay and any benefits accrued and
expensed by the Company or the Bank under the Salary Continuation Plan. For
example, a bonus paid in 1998 which is attributable to performance in 1997,
shall, for purposes of the preceding sentence, be deemed attributable to 1997.
If a "Good Reason" (as hereinafter defined) occurs, you shall be entitled to
terminate your employment and receive the payments specified in the preceding
paragraph. For purposes of the Agreement, "Good Reason" means without your
express written consent, occurrence of any of the following events: (a) any
requirement of the Company or any subsidiary that you be based anywhere other
than in Iowa City or Cedar Rapids, Iowa; (b) you no longer have an executive
position with the Company or any subsidiary; (c)any reduction in your Base
Salary; or (d) the Company provides notice of the non-extension of the agreement
prior to January 31, 2000. If a "Good Reason" described in clause (a), (b) or
(c)of the preceding sentence shall occur, you shall be deemed to have waived
your right to receive payments based upon the occurrence of the Good Reason if
you do not act within 30 days of the occurrence of the event giving rise to the
Good Reason.
The Employment Period, which is scheduled to terminate on January 31, 1999,
shall be automatically extended on a year-by-year basis unless either party
shall give written notice of the non-extension of the agreement on or before 30
days prior to the end of the initial Employment Period or an extension therof.
25
<PAGE>
Except as expressly set forth herein, nothing expressed or implied in this
letter agreement shall be deemed to entitle you to continued employment with the
Company or any subsidiary. If your employment shall voluntarily terminate other
than as a result of the occurrence of a good reason for which you have received,
or are entitled to receive, the payments described above, then you shall be
entitled to receive (a) any unpaid compensation accrued through the date of
termination and (b) severance benefits no less favorable than those provided in
the 1995 Voluntary Severance Plan (such payments to be in lieu of any other
rights under this agreement).
During the period you are employed by the Company, you agree to faithfully
perform the duties assigned to you to the best of your ability and to devote
your full time and attention to the business of the Company. During the period
you are employed by the Company and for a period of two years thereafter, except
with the prior written consent of the Company duly authorized by the board of
directors, you shall not (a) induce or attempt to persuade any employee of the
Company or of the Bank to discontinue such employment relationship, (b) solicit
any person, corporation, partnership or other entity or organization which at
any time during employment is a customer of the Company or of the Bank to become
a customer of another financial institution providing commercial banking or
related services, (c)engage in any banking business (whether as officer,
director, employee, consultant or otherwise) in Johnson, Linn or Cedar counties
in the State of Iowa or (d) make any public statement or take any action which
is inconsistent with your obligations hereunder. During the period you are
employed by the Company and thereafter, except with the prior written consent of
the Company, you agree not to disclose any confidential information (i.e.,
information not generally known in the industry and treated by the Company or
the Bank as confidential) to a person who is not properly authorized to receive
such information and otherwise agree to abide by the Company's policies
concerning confidentiality.
Whenever possible, each provision and term of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision or term of this Agreement shall be held to be prohibited by
or wholly invalid under applicable law, then such provision or term shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or affecting in any manner whatsoever the remaining provisions or
terms of this Agreement. If a court having jurisdiction shall find that the
covenants contained in the preceding paragraph are not reasonable, such court
shall have the power to reduce the geographic area, duration or scope of such
covenants, and in such reduced form, the covenants shall be enforceable.
This agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, with respect to the
subject matter hereof. This letter agreement shall be binding upon the Company
and its successors and assigns.
If you agree that this letter correctly sets forth the terms of this letter
agreement, please sign the enclosed copy and return it to us. This copy is for
your files.
Very truly yours,
First Financial Bancorporation
By \\s\\ Larry D. Ward
__________________________________
Chairman of the Board
Accepted and Agreed:
\\s\\ A. Russell Schmeiser
__________________________________
A. Russell Schmeiser
26
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