SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 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 AUGUST 14, 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 4. Submission of Matters to a Vote of Security Holders 19
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>
June 30, December 31,
1998 1997
---------- -----------
ASSETS
Cash and due from banks $ 29,919 $ 21,449
Federal funds sold 18,000 27,925
Investment securities:
Available for sale (cost 1998 $107,748, December 31, 1997 $110,891) 108,570 112,755
Loans, net of unearned income $ 377,335 $ 364,301
Less: allowance for loan losses (4,425) (4,589)
---------- -----------
Net loans $ 372,910 $ 359,712
---------- -----------
Bank premises and equipment, net 12,662 12,885
Accrued interest receivable 3,602 3,730
Intangible assets 2,617 2,775
Prepaid pension cost 3,957 3,718
Other assets 5,330 5,104
---------- -----------
$ 557,567 $ 550,053
========== ===========
LIABILITIES
Noninterest-bearing deposits $ 62,933 $ 59,244
Interest-bearing deposits 405,838 399,571
---------- -----------
Total deposits $ 468,771 $ 458,815
Securities sold under agreement to repurchase 12,164 10,028
Accrued interest payable 1,920 2,153
Other Liabilities 2,262 2,617
Federal Home Loan advances 6,997 12,735
Notes Payable 3,641 5,453
Income tax payable 562 61
Deferred income taxes 281 611
---------- -----------
$ 496,598 $ 492,473
---------- -----------
STOCKHOLDERS' EQUITY
Capital stock, common $1.25 par value; authorized 15,000,000
shares; issued 1998, 3,553,717 shares; 1997, 3,505,341 shares (Note 12) $ 4,442 $ 4,361
Additional paid-in capital 3,636 2,284
Retained earnings 52,375 49,766
Accumulated other comprehensive income, unrealized gains on debt securities, net 516 1,169
---------- -----------
$ 60,969 $ 57,580
---------- -----------
$ 557,567 $ 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 and Six months Ended June 30, 1998 and 1997
(Amounts in Thousands, Except per Share Data)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- -------- --------
Interest income:
Interest and fees on loans $ 7,601 $ 7,322 $ 14,996 $ 14,060
Interest on investment securities
Taxable 1,165 1,264 2,291 2,294
Nontaxable 469 424 945 807
Interest on federal funds sold 387 296 757 508
------- ------- -------- --------
Total interest income $ 9,622 $ 9,306 $ 18,989 $ 17,669
------- ------- -------- --------
Interest expense:
Interest on deposits $ 4,610 $ 4,363 $ 9,183 $ 8,282
Interest on federal funds purchased 130 22 248 37
Notes Payable Interest Expense 59 82 117 82
Interest on Federal Home Loan Bank advances 118 253 276 441
------- ------- -------- --------
Total interest expense $ 4,917 $ 4,720 $ 9,824 $ 8,842
------- ------- -------- --------
Net interest income $ 4,705 $ 4,586 $ 9,165 $ 8,827
Provision for loan losses - - 176 100 353
------- ------- -------- --------
Net interest income after provision
for loan losses $ 4,705 $ 4,410 $ 9,065 $ 8,474
------- ------- -------- --------
Noninterest income:
Trust fees $ 940 $ 840 $ 1,878 $ 1,672
Service charges and fees on deposit accounts 559 542 1,070 987
Other service charges, commissions and fees 1,188 597 2,186 1,125
Investment gains (losses), net 1,087 131 1,241 175
------- ------- -------- --------
$ 3,774 $ 2,110 $ 6,375 $ 3,959
------- ------- -------- --------
Noninterest expenses:
Salaries and employee benefits $ 2,211 $ 1,893 $ 4,375 $ 3,694
Occupancy, furniture and equipment 736 662 1,459 1,317
Data processing 480 396 874 723
Office supplies and postage 265 247 560 501
Other expenses 994 759 1,909 1,424
------- ------- -------- --------
$ 4,686 $ 3,957 $ 9,177 $ 7,659
------- ------- -------- --------
Income before income taxes $ 3,793 $ 2,563 $ 6,263 $ 4,774
Federal and state income taxes 1,274 787 2,010 1,451
------- ------- -------- --------
Net Income $ 2,519 $ 1,776 $ 4,253 $ 3,323
======= ======= ======== ========
Earnings per share:
Basic $ .71 $ .51 $ 1.20 $ .95
Diluted .70 .50 1.19 .94
See Note to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended June 30, 1998 and 1997
(Amounts in Thousands)
<S> <C> <C>
1998 1997
------- -------
Net income $ 4,253 $ 3,323
Gross unrealized gains on debt securities 200 508
Less reclassification adjustments for gains
included in net income (1,241) (175)
Income tax expense related to items of other
comprehensive income 388 (124)
------- -------
Comprehensive income $ 3,600 $ 3,532
------- -------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Six Months Ended
June 30, 1998 and 1997
(Amounts in Thousands)
<S> <C> <C>
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,253 $ 3,323
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 591 536
Amortization 158 117
Provision for loan losses 100 353
Amortization of investment security discount 90 70
(Increase) decrease in accrued interest receivable 128 20
(Increase)in prepaid pension costs (239) (259)
(Increase) in other assets (226) (740)
Increase (decrease) in accrued interest and other
liabilities (588) (38)
Change in accrued income taxes 928 (5)
Change in deferred income taxes 648 (80)
---------- ---------
Net cash provided by operating activities $ 5,843 $ 3,297
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 18,426 $ 7,632
Sales 5,425 14,436
Purchases (21,448) (18,563)
Fed funds sold, net 9,925 (15,200)
Net (increase) decrease in loan balances outstanding (13,298) (2,668)
Purchases of bank premises and equipment (368) (631)
Acquistion of stock West Branch Bancorporation, Inc. net
of cash received (Note 9.) - - (1,155)
---------- ---------
Net cash (used in) investing activities $ (1,338) $(16,149)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 9,956 $ 11,731
Federal funds purchased and securities sold under agreement
to repurchase 2,136 (644)
Repayment of other borrowings (1,812) - -
Federal Home Loan Bank advances (5,738) 2,915
Dividends paid (1,644) (1,028)
Stock options exercised 1,067 414
Common stock redeemed - - (202)
Common stock purchased - - (392)
---------- ---------
Net cash provided by financing activities $ 3,965 $ 12,794
---------- ---------
Increase in cash and due from banks $ 8,470 $ (58)
CASH AND DUE FROM BANKS
Beginning balance 21,449 20,949
---------- ---------
Ending balance $ 29,919 $ 20,891
========== =========
See Notes to Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS
OF CASH FLOWS Six Months
Ended June 30, 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 $ 10,057 $ 8,532
Income Taxes 797 1,365
Noncash transactions:
Net unrealized gains (losses) on debt securities (1,692) (333)
Deferred income taxes on unrealized gains (losses)
on debt securities (1,039) (124)
A. Acquistion of certain assets and liabilities
from West Branch Bancorporation, Inc.: (Note 9.)
Assets acquired:
Cash and cash equivalents NONE $ 996
Federal funds sold 1,700
Investment securities 14,690
Loans 21,076
Goodwill 2,406
Other assets 892
-------
$41,760
=======
Liabilities assumed:
Deposits NONE $32,789
Notes payable to sellers 5,453
Federal Home Loan Bank advances 1,000
Other liabilities 367
Cash purchase price 2,151
------
41,760
======
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated other
Six months ended comprehensive
June 30, 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 - - - - - - 4,253 - -
Other comprenesive income, net of tax - - - - - - - - (653)
Comprehensive income - - - - - - - - - - 3,600
Cash dividends ($.46 per share) - - - - - - (1,644) - - (1,644)
Stock options exercised for 65,037 shares 65 81 1,352 - - - - 1,433
- ---------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1998 3,554 $ 4,442 $ 3,636 $ 52,375 $ 516 $ 60,969
======== ======== ======== ======== ========= =========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 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 As of June 30,
impaired loan information. 1998 1997 1996
- --------------------------------------------------------------------------------
Impaired loans $934 $420 $395
Impaired loans with related reserve for
loan losses calculated under SFAS 114 934 420 395
Amount of reserve for loan losses allocated
to the impaired loan balance 181 65 68
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)
Six Months Ended June 30,
1998 1997 1996
- --------------------------------------------------------------------------------
Average impaired loans $1,167 $506 $339
Cash basis interest
income recognized on
impaired loans 23 - - 15
Interest income that
would have been recorded
during the period on non-
accrual loans 61 11 10
- --------------------------------------------------------------------------------
Interest payments on impaired loans are typically applied to principal
unless future collectability of the recorded loan balance is expected,
in which case interest income is recognized on a cash basis.
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 $2,223,000, net of year to date
accumulated amortization of $79,000, as of June 30, 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 June 30, 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted Average number of shares 3,542,937 3,502,650 3,557,241
Potential number of dilutive shares 33,707 19,944 14,926
Total shares to compute --------------------------------
diuluted earnings per share 3,576,644 3,522,594 3,572,167
================================================================================
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
When excluding security gains net of taxes, net income increased $143,000 or
8.4% to $1,837,000 for the quarter and $262,000 or 8.2% to $3,475,000 for the
six months ended June 30, 1998. Basic earnings per share increased by $.04 or
8.3% and $.06 or 6.5%, respectively, for the second quarter and first six months
of 1998 after excluding net security gains.
DIVIDEND INFORMATION
As of June 30, 1998, the Company paid year to date cash dividends of $.46 per
outstanding share of common stock, of which $.27 per share was paid in the
second quarter of 1998. This compares favorably to the $.29 and $.14 paid per
share for the same periods in 1997, respectively. This represented a year to
date dividend increase of $.17 or 58.6% and a second quarter increase of $.13 or
92.9% per outstanding share of common stock. 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 increased $119,000 or 2.6% to $4,705,000 for the quarter and
$338,000 or 3.8% for the six month months ended June 30, 1998. The primary
factor contributing to this increase in net interest income was asset growth.
Net interest income, on a fully tax-equivalent basis, for the second quarter of
1998 totaled $4,958,000, which is down $83,000 or 1.6% below the $5,041,000
reported for the same period in 1997. Year to date net interest income increased
$409,000 or 4.4% to $9,774,000 over the $9,365,000 reported for 1997. The
quarterly decrease and year to date increase in fully tax-equivalent net
interest income is attributed to the competition for loan and deposit growth and
the slowing of the secondary market refinancing. The consolidated net interest
spreads and margins are presented in the following table for the year to date
and second quarter of 1998 and 1997.
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
THREE MONTHS ENDED
----------------------------------------------------------------
June 30, 1998 June 30, 1997
---------------------------- --------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Interest earning assets $ 512,554 7.71% $ 488,388 8.05%
Interest paying liabilities 435,232 4.53 416,822 4.57
Net interest spread 3.18 3.48
Net interest margin 3.86 4.15
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------
June 30, 1998 June 30, 1997
---------------------------- ---------------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Interest earning assets $ 508,416 7.73% $ 483,194 7.90%
Interest paying liabilities 432,544 4.58 408,717 4.57
Net interest spread 3.15 3.33
Net interest margin 3.83 4.03
</TABLE>
12
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As of June 30, 1998, the allowance for possible loan losses was 1.17% of total
outstanding loans compared to 1.26% as of December 31, 1997 and 1.34% as of June
30, 1997. During the second quarter of 1998, the company recorded net
charged-off loans totaling $74,000 compared to $1,000 for the second quarter of
1997. The dollar amount of nonaccrual loans increased from $420,000 as of June
30, 1997 to $934,000 as of June 30, 1998. Year-to-date provision decreased
$253,000 or 71.7% to $100,000 as of June 30, 1998 when compared to June 30,
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 six month periods ended June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance of loan loss
allowance at
beginning of period $ 4,499 $ 3,896 $ 4,589 $ 3,788
------------ ------------ ------------ ------------
Allowance related to acquistion
(Note 7.) $ - - $ 671 $ - - $ 671
------------ ------------ ------------ ------------
Charge-offs:
Commercial, financial
and agricultural $ - - $ 36 $ 30 $ 39
Real estate, mortgage 1 - - 1 35
Loans to individuals 138 198 333 285
------------ ------------ ------------ ------------
$ 139 $ 234 $ 364 $ 359
------------ ------------ ------------ ------------
Recoveries:
Commercial,financial
and agricultural $ 9 $ 25 $ 22 $ 28
Real estate, mortgage 1 188 1 214
Loans to individuals 55 20 77 47
------------ ------------ ------------ ------------
$ 65 $ 233 $ 100 $ 289
------------ ------------ ------------ ------------
Net Charge-offs 74 1 264 70
------------ ------------ ------------ ------------
Provision for
loan losses (1) $ - - $ 176 $ 100 $ 353
------------ ------------ ------------ ------------
Balance of loan
loss allowance
at end of period $ 4,425 $ 4,742 $ 4,425 $ 4,742
============ ============ ============ ============
Percentage of net charge-
offs during period
to average net loans
outstanding .02% .00% .07% .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 June 30, 1998 and June 30, 1997 allowance for loan losses have been
allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
June 30, 1998 June 30, 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 $ 1,154 13% $ 1,093 11%
Real Estate 2,201 74 3,175 74
Installment loans to individuals 1,070 13 474 15
Unallocated: - - - - - - - -
---------- ---------- ---------- ----------
$ 4,425 100% $ 4,742 100%
========== ========== ========== ==========
</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 June 30,
1998, June 30, 1997, and June 30, 1996.
(In Thousands)
-------------------------------------------------------
June 30, 1998 June 30, 1997 June 30, 1996
-------------- -------------- --------------
Nonaccrual loans $ 934 $ 420 $ 395
Accruing loans
past due 90
days or more $ 439 $ 558 $ 975
Restructured
loans $ 103 $ None $ None
As of June 30, 1998 and June 30, 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, excluding net security gains, for the second quarter and
first half of 1998 totaled $2,687,000 and $5,134,000, respectively. These totals
increased $708,000 or 35.8% and $1,350,000 or 35.7% when compared to 1997
totals. Trust fees increased $100,000 or 11.9% to $940,000 during the second
quarter of 1998, and $206,000 or 12.3% for the first half of 1998. Other service
charges, commissions and fees increased $591,000 or 99% to $1,188,000 in the
second quarter quarter of 1998, when compared to $597,000 in 1997. Year to date,
these fees increased $1,061,000 or 94.3% to $2,186,000 in 1998 when compared to
the $1,125,000 recorded in 1997. Secondary market loan fees accounted for the
majority of this increase, increasing $429,000 or 445.9% in the second quarter
of 1998 and $775,000 or 391.3% year to date.
Investment security gains of $1,087,000 were realized in the second quarter of
1998 compared to $131,000 during the same period in 1997. $1,241,000 of gains
was realized year to date compared to $175,000 for 1997. The majority of the
holding companies equity holdings were sold to realize the valuation gains
created by the strength of the current stock markets.
NONINTEREST EXPENSES
Noninterest expenses totaled $4,686,000 for the quarter and $9,177,000 for the
six months ended June 30, 1998. This represented an increase of $729,000 or
18.4% and $1,518,000 or 19.8% over the 1997 noninterest expense totals. Salaries
and employee benefits increased $318,000 or 16.8% and $681,000 or 18.4% for
these respective periods, due to increased staffing levels. Other expenses
increased $235,000 or 31% for the quarter and $485,000 or 34.1% for the year, to
$994,000 and $1,909,000, respectively, as a result of incurring acquisition
costs of approximately $231,000.
FINANCIAL POSITION
TOTAL ASSETS
As of June 30, 1998, Company assets totaled $557,567,000 representing a
$7,514,000 or 1.4% increase over December 31, 1997 assets of $550,053,000. The
majority of this asset growth was funded by seasonal short-term deposits.
Average total assets for the first half of 1998 were $553,917,000 compared to
$518,912,000 for 1997, an increase of $35,005,000 or 6.7%, reflecting the
acquired assets of West Branch Bancorp Inc. and deposit growth previously noted.
TOTAL LOAN BALANCES
Total loan balances increased by $13,034,000 or 3.6% to $377,335,000 in the
first half of 1998 when compared to year end loan balances of $364,301,000. This
growth was viewed as very positive when considering that competing secondary
market mortgage refinancing volume has been the highest in the history of the
company. Average loan balances for the first half of 1998 increased $14,641,000
or 4.2% to $363,880,000 when compared to the $349,239,000 in average loan
balances reported for the first half of 1997. The majority of this increase was
in real estate loans.
15
<PAGE>
TOTAL DEPOSITS
Since December 31, 1997, total deposits increased $9,956,000 or 2.2% to
$468,771,000 as of June 30, 1998. The majority of this increase was due to
seasonal short-term deposits. Average total deposits for the first half of 1998
were $465,840,000, an increase of $27,398,000 or 6.2%, over 1997 average
deposits of $438,442,000 as a result of growth in time deposits.
CAPITAL POSITION
Total capital as of June 30, 1998 was $60,969,000 which is up to $3,359,000 or
5.8% from total capital of $57,580,000 as of December 31, 1997. The ratio of
total capital to total assets as of June 30, 1998 is 11.7%, which is up .4% from
the December 31, 1997 ratio of 11.3%. Stockholders' equity increased 5.8%
compared to asset growth of 1.4%, resulting in the higher total capital-to-total
asset ratio. This ratio is substantially higher than the current Federal,
Reserve guideline of 6.0%.
As of quarter-end June 30, 1998, the company's Tier I capital ratio was 16.66%
and its total risk adjusted capital ratio (Tier I plus Tier II) was 17.91%
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
11.23% as of June 30, 1998, compared to 10.59% at December 31, 1997,
substantially higher than the 4% regulatory floor.
CAPITAL EXPENDITURES
Through June 30, 1998, the company recorded year-to-date capital expenditures
totaling approximately $368,000, 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 June 30, 1998. 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
June 30, 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 $ 18,000 $ - - $ - - $ - - $ 18,000
Investment securities 8,067 22,673 60,044 17,786 108,570
Loans 52,748 79,044 224,050 21,493 377,335 (2)
Total interest earning assets 78,815 101,717 284,094 39,279 503,905
Interest paying liabilities:
Securities sold under agreement to repurchase 12,164 - - - - - - 12,164
Deposits 86,901(1) 84,789 107,398 126,750(1) 405,838 (3)
Long-term debt 600 6,162 3,778 98 10,638
Total interest paying liabilities 99,665 90,951 111,176 126,848 428,640
Net noninterest paying liabilities
Noninterest paying deposits net
of cash and due from banks - - - - - - 33,014 33,014
Other assets, liabilities and equity net - - - - - - 42,251 42,251
Total noninterest rate sensitive assets
and liabilities - - - - - - 75,265 75,265
INTEREST SENSITIVE GAP $( 20,850) $ 10,766 $ 172,918 $( 162,834) - -
CUMULATIVE GAP $( 20,850) $( 10,084) $ 162,834 - - - -
CUMULATIVE % OF SENSITIVE 79% 95% 154% - - - -
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 $377,335,000 of total loans, $206,463,000 have fixed rates, while $170,872,000 have variable rates.
(3) Certificates of deposit comprise $230,760,000 of total deposits, while interest-paying demand deposits and savings deposit
balances accounted for $175,078,000 of this total.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Market Risk Analysis at June 30, 1998 Dollar Amounts Expressed in Thousands
(Expected Maturity Date, Period Ended June 30, 1998)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
======================================================================================================================
ASSETS
Fixed Rate Loans:
Balance $ 57,805 $ 30,747 $ 31,309 $ 32,474 $ 34,731 $ 19,397 $206,463 $205,287
Average interest rate 8.18% 8.39% 8.26% 8.34% 8.14% 7.03% 8.13%
Variable Rate Loans:
Balance 73,987 36,154 31,356 12,024 15,255 2,096 170,872 170,872
Average interest rate 8.57% 8.22% 7.94% 7.89% 7.76% 7.68% 8.25%
Investments:(1)
Balance 47,005 21,342 25,918 7,294 5,491 19,520 126,570 126,570
Average interest rate 6.23% 6.50% 6.34% 5.24% 6.99% 6.72% 6.35%
LIABILITIES
Liquid deposits:(2)
Balance 175,077 - - - - - - - - - - 175,077 175,077
Average interest rate 2.82% - - - - - - - - - - 2.82%
Fixed-rate time deposits:
Balance 117,468 66,142 34,703 2,171 4,352 30 224,866 227,058
Average interest rate 5.47% 6.15% 5.82% 5.71% 5.51% 6.73% 5.73%
Variable-rate time deposts:
Balance 5,633 262 - - - - - - - - 5,895 5,895
Average interest rate 5.93% 4.59% - - - - - - - - 5.87%
FHLB advances and notes payable:
Balance 6,762 1,423 2,255 50 - - 148 10,638 10,639
Average interest rate 6.30% 6.53% 6.03% 6.45% - - 6.60% 6.27%
Securities sold under agreement
to repurchase:
Balance 12,164 - - - - - - - - - - 12,164 12,164
Average interest rate 5.03% - - - - - - - - - - 5.03%
====================================================================================================================
(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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held at 4:30 P.M.
local time on Tuesday, April 7, 1998, at the Main Office of the First National
Bank, Iowa City, Iowa, at 204 E. Washington Street, Iowa City, Iowa 52240. At
this meeting, nominees for directors of the Company as listed in the proxy and
below were voted upon. The results of the elections were as follows:
<TABLE>
<CAPTION>
Nominee's Name Voted For Voted Against Abstained From Voting
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John R. Balmer 2,677,926 - - 875,791
Fritz L. Duda 2,523,088 - - 1,030,629
Robert J. Latham 2,685,187 - - 868,530
Ralph J. Russell 2,696,619 - - 857,098
A. Russell Schmeiser 2,613,445 - - 940,272
Robert M. Sierk 2,677,472 - - 876,245
Larry D. Ward 2,616,840 - - 936,877
Stephen H. Wolken 2,665,295 - - 888,422
In addition, the resolution to amend Section One of Article Five of the
Company's Restated Articles of Incorporation to increase the number of
authorized shares from 5,000,000 shares to 15,000,000 shares were voted upon.
The results of the voting were as follows:
Voted For Voted Against Abstained From Voting
--------------------------------------------------------------------
<S> <C> <C> <C>
2,612,818 431,354 509,545
Total outstanding voting shares as of April 7, 1998 was approximately
3,553,717.
</TABLE>
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
- --------------------------------------------------------------------------------
3a Composite Restatement of Articles of Incorporation for 23-25
First Financial Bancorporation as of April 7, 1998,
Exhibit I to Form 10-Q dated July 31, 1998, for the
quarter ended June 30, 1998.
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.
11 Statement re computation of earnings per common and 21
common equivalent share
27 Financial Data Schedule as of June 30, 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 Six Months Ended
June 30, June 30,
---------------------- -----------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Shares of common stock, beginning (Note 12.) 3,553,717 3,505,341 3,488,680 3,497,118
========= ========= ========= =========
Shares of common stock, ending 3,553,717 3,495,066 3,553,717 3,495,066
========= ========= ========= =========
Computation of weighted average number of basic and diluted shares:
Basic shares outstanding at the beginning of the period 3,553,717 3,505,341 3,488,680 3,497,118
Weighted average number of basic shares issued - - 2,130 54,257 20,217
Weighted average number of basic shares redeemed (Note 12.) - - (4,771) - - (14,685)
--------- --------- --------- ---------
Weighted average shares used to compute basic earnings per shares 3,553,717 3,502,700 3,542,937 3,502,650
--------- --------- --------- ---------
Potential number of diluted shares related to stock option plan 37,611 23,886 33,707 19,944
========= ========= --------- =========
Weighted average number of shares used to compute diluted earnings per share 3,591,328 3,526,586 3,576,644 3,522,594
========= ========= ========= =========
Net Income $2,519,000 $1,776,000 $4,253,000 $3,323,000
========== ========== ========== ==========
Basic earnings per share $ .71 $ .51 $ 1.20 $ .95
========== ========== ========== ==========
Diluted earnings per share $ .70 $ .50 $ 1.19 $ .94
========== ========== ========== ==========
</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)
August 14, 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>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 29,919
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,570
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 377,335
<ALLOWANCE> 4,425
<TOTAL-ASSETS> 557,567
<DEPOSITS> 468,771
<SHORT-TERM> 12,164
<LIABILITIES-OTHER> 5,025
<LONG-TERM> 10,638
0
0
<COMMON> 4,442
<OTHER-SE> 56,527
<TOTAL-LIABILITIES-AND-EQUITY> 557,567
<INTEREST-LOAN> 14,996
<INTEREST-INVEST> 3,236
<INTEREST-OTHER> 757
<INTEREST-TOTAL> 18,989
<INTEREST-DEPOSIT> 9,183
<INTEREST-EXPENSE> 9,824
<INTEREST-INCOME-NET> 9,165
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 1,241
<EXPENSE-OTHER> 9,177
<INCOME-PRETAX> 6,263
<INCOME-PRE-EXTRAORDINARY> 6,263
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,253
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 7.73
<LOANS-NON> 934
<LOANS-PAST> 439
<LOANS-TROUBLED> 103
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,589
<CHARGE-OFFS> 364
<RECOVERIES> 100
<ALLOWANCE-CLOSE> 4,425
<ALLOWANCE-DOMESTIC> 4,425
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
COMPOSITE RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
FIRST FINANCIAL BANCORPORATION
AMENDED APRIL 7, 1998
Pursuant to the provisions of S61 of the Iowa Business Corporation Act,
Chapter 496A Code of Iowa, the undersigned corporation adopts the following
Amended and Restated Articles of Incorporation:
ARTICLE 1.
NAME
1. The name of this corporation shall be: First Financial Bancorporation.
ARTICLE 2.
PRINCIPAL PLACE OF BUSINESS
The principal place of business of this Corporation shall be: 204 East
Washington Street, Iowa City, Johnson County, Iowa.
ARTICLE 3.
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office in Johnson County shall be:
204 East Washington Street, Iowa City, Iowa 52240, and the registered agent for
the Corporation at such address shall be A. Russell Schmeiser.
ARTICLE 4.
PURPOSES
The purpose for which this Corporation is organized is the transaction of
any and all lawful business for which corporations may be incorporated under the
Iowa Business Corporation Act.
ARTICLE 5.
CAPITAL STOCK
1. The authorized capital stock of the Corporation shall be 15,000,000
shares of common stock with par value of $1.25 per share.
2. The Board of Directors shall have the power to issue stock in such
amounts as it may determine in exchange for other property, either personal or
real, which may be acquired by the Corporation in accordance with the law
governing the same.
3. No shareholder shall have any prior preemptive right to purchase all or
any part of any stock now or hereafter authorized, issued, or acquired by the
Corporation.
4. Each holder of common stock shall be entitled to one vote for each share
of stock standing in the name of the shareholder on the books of the Corporation
at all meetings of the Corporation.
5. At all meetings of the Corporation, a majority of the common stock
outstanding either in person or by written proxy shall constitute a quorum for
the transaction of business.
6. Cumulative voting for directors shall not be permitted.
ARTICLE 6.
BOARD OF DIRECTORS
1. The Corporation will have a Board of Directors consisting of not less
than five (5) and not more than fifteen (15) directors.
2. The names and addresses of the persons who make up the initial Board of
Directors and are serving as directors until the first annual meeting of the
shareholders or until their successors are elected and shall qualify are:
Randall P. Bezanson, One Hickory Ridge, Route 6, Iowa City, Iowa 52240; Charles
G.Dore, 406 Lexington Avenue, Iowa City, Iowa 52240; Ann Feddersen, Route 2, Box
300, North Liberty, Iowa 52317; Clark Houghton, 920 River Street, Iowa City,
Iowa 52240; George Nagle, 3 Heather Court, Iowa City, Iowa 52240; A. Russell
Schmeiser, 4 Wendram Bluff, Iowa City, Iowa 52240; and Robert M. Sierk, 536
South Summit Street, Iowa City, Iowa 52240.
3. Any director of this Corporation may be removed at any time, with or
without cause, by vote of the holders of a majority of the shares then entitled
to vote at an election of directors.
23
<PAGE>
ARTICLE 7.
NONLIABILITY OF SHAREHOLDERS
1. The private property of the shareholders of the Corporation shall not be
liable for corporate debts to any extent whatsoever.
2. This Article 7 may not be amended except by the unanimous vote of the
shareholders.
ARTICLE 8.
AMENDMENT OF ARTICLES
These Articles of Incorporation other than Article 7 may be amended at any
regular or special meeting of the shareholders of the Corporation by the
affirmative vote of two-thirds vote of the outstanding common stock, provided
notice of such proposed amendment has been mailed to each shareholder at least
ten (10) days prior to the date of said meeting. 23
ARTICLE 9.
NONLIABILITY OF DIRECTORS
A director of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (c) for
a transaction from which the director derives an improper personal benefit, or
(d) under S496A.44 of the Iowa Business Corporation Act. If the Iowa Business
Corporation Act is amended to authorize corporate action further eliminating or
limiting personal liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Iowa Business Corporation Act, as so amended. Any repeal or modification
of the provisions of this Article by the shareholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE 10.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 10.1 The corporation shall indemnify and advance expenses to any
person who was or is a party or witness, or is threatened to be made a party or
witness, to any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
grand jury proceedings, by reason of the fact that such person is or was a
director or officer of the corporation or, while a director or officer of the
corporation is, or was serving at the request of the corporation as a member,
director, trustee, officer, partner, employee, or agent of another corporation,
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, against reasonable costs, charges,
expenses, attorney's fees, judgments, fines, penalties and amounts reasonably
paid in settlement to the extent actually incurred by such person in connection
with such claim, action, suit or proceeding, or in connection with an appeal
thereof, to the full extent and in a manner consistent with the Iowa Business
Corporation Act, as the same now exists or may hereafter be amended or changed,
or any successor or substitute law; provided, however, that such person acted in
good faith, and in the case of conduct in the person's official capacity with
the corporation, that such conduct was in the corporation's best interest, and
in all other cases, that such person's conduct was at least not opposed to the
corporation's best interest; and provided further that entitlement to such
indemnification shall be conditional upon the corporation being afforded the
opportunity to participate directly on behalf of such person in such claim,
action, suit or proceeding or any settlement discussions relating thereto. The
rights to indemnification hereunder shall be construed to be a contract between
the corporation and each person who is now serving or who shall hereafter serve
as a director or officer of the corporation. Each person who is now serving or
who shall hereafter serve as a director or officer of the corporation shall be
deemed to be serving in reliance upon the rights to indemnification provided
hereunder, and such rights to indemnification shall continue as to any person
who has ceased to serve in such capacity and shall inure to the benefit of the
heirs and personal representative of such person.
Section 10.2 The indemnification provided hereunder shall not be deemed
exclusive of any other rights to which the persons indemnified may be entitled
under any bylaw, agreement, vote of disinterested directors or otherwise, both
as to activity in such person's official capacity and as to activity in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director of officer.
24
<PAGE>
Section 10.3 The corporation, at its expense, shall have the power to
purchase and maintain insurance on behalf of the corporation and on behalf of
its directors and officers against any liability asserted against such persons
in their capacities as directors and officers or arising out of their status as
directors and officers, whether or not the corporation would have the power to
indemnify the director or officer against such liability hereunder or under the
Iowa Business Corporation Act. The corporation's obligation to indemnify
hereunder shall be in excess of any insurance purchased and maintained by the
corporation, but such insurance shall be the primary source of satisfaction of
such obligation of the corporation. To the extent that indemnification is paid
to or on behalf of a director or officer by such insurance, such payments shall
be deemed to be in satisfaction of the corporation's obligation to indemnify
such director or officer.
Section 10.4 The board of directors of the corporation by resolution, or by
provision in the bylaws of the corporation, may provide indemnification by the
corporation to employees and agents of the corporation, other than directors and
officers, to the extent provided hereunder for directors and officers of the
corporation.
ARTICLE 11.
MERGER; CONSOLIDATION; SALE OF ASSETS
Any proposed merger, consolidation, or sale (or other disposition) of all
or substantially all of the assets of this Corporation shall become effective
only upon receiving the affirmative vote of at least two-thirds of the
outstanding common stock of the Corporation.
ARTICLE 12. These Amended and Restated Articles of Incorporation: (1)
correctly set forth the provisions of the Articles of Incorporation of the
corporation as heretofore and hereby amended; (2) have been duly adopted as
required by law; and (3) supersede the original Articles of Incorporation of the
corporation and all amendments thereto.
CERTIFICATION
The undersigned certifies that the foregoing is a correct Composite
Restatement of Articles of Incorporation of First Financial Bancorporation as
amended through April 7, 1998.
//s//A. Russell Schmeiser
__________________________________________
A. Russell Schmeiser
Secretary, First Financial Bancorporation
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