<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ----------
For the quarter ended
------------------------------------
Commission File Number: 0-22394
FIRST FINANCIAL BANCORP, INC.
-----------------------------
(exact name of Registrant as specified in its charter)
DELAWARE
--------
(State or other jurisdiction of Incorporation or Organization)
36-3899034
----------
(I.R.S. Employer Identification Number)
121 East Locust Street, Belvidere, Illinois 61008
- - ------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(815) 544-3167 or (800) 544-3093
--------------------------------
(Registrant's Telephone Number including area code)
Indicate by check mark whether the Registrant (1) has filed
all the 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 the issuer's
classes of common stock, as of the latest practicable date.
As of April 30, 1996 the Registrant had 485,974 shares
issued and outstanding.
<PAGE> 2
INDEX
Page
PART I - FINANCIAL INFORMATION Number
------
Item 1. Financial Statements - Unaudited
--------------------------------
Consolidated Statement of Financial
Condition as of March 31, 1996 3
Consolidated Statements of Income
for the Three Months Ended March 31,
1996 and 1995 4
Consolidated Statement of Stock-
holders' Equity for the Three Months
Ended March 31, 1996 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1996 and 1995 6
Notes to Unaudited Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of
----------------------------------
Operations 10
----------
Part II. Other Information 16
-----------------
<PAGE> 3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
-----------------------------------------------------------------------------
(Unaudited)
March 31,
1996
---------------
ASSETS (In Thousands)
<S> <C>
Cash on hand and non-interest-earning deposits $392
Interest-earning deposits 2,786
---------------
Total cash and cash equivalents 3,178
Investment securities available for sale, at market value 8,068
Mortgage-backed securities available for sale, at market value 9,413
Investment securities held to maturity 280
Mortgage-backed securities held to maturity 1,305
First mortgage loans held for sale 798
Loans receivable, net 63,003
Accrued interest receivable 492
Premises and equipment 790
Investment in stock of Federal Home Loan Bank of
Chicago, at cost 501
Other assets 787
---------------
Total assets $88,615
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $69,764
Borrowing from FHLB 10,000
Advance payments by borrowers for taxes and
insurance 434
Other liabilities 552
---------------
Total liabilities 80,750
---------------
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY
Common Stock - $0.10 par value, 1,500,000 shares authorized,
501,086 shares issued and 471,896 shares outstanding 50
Additional paid-in capital 3,686
Retained earnings, substantially restricted 5,245
Treasury stock, at cost, 29,190 shares (460)
Common stock purchased by:
Employee stock ownership plan (136)
Management recognition and retention plans (23)
Net unrealized loss on investment securities available for sale (497)
---------------
Total stockholders' equity 7,865
---------------
Total liabilities & stockholders' equity $88,615
---------------
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- - ----------------------------------------------------------
(Unaudited)
Three Months Ended March 31,
------------------------------
1996 1995
------------- -------------
(In Thousands)
<S> <C> <C>
Interest Income:
First mortgage loans $921 $828
Other loans 150 135
Mortgage-backed securities 161 153
Investment securities 122 152
Interest-earning deposits 23 10
------------- -------------
Total interest income 1,377 1,278
------------- -------------
Interest expense:
Deposit accounts 749 602
FHLB advances 25 26
------------- -------------
Total interest expense 774 628
------------- -------------
Net interest income 603 650
Provision for loss on loans 31 2
------------- -------------
Net interest income after provision for loss 572 648
------------- -------------
Non-interest income:
Loan servicing fees and charges 28 38
Service charges on deposit accounts 38 34
Gain on sales of loans 23 32
Gain(loss) on sales of investments and mortgage-backed s (14) 0
Other 13 34
------------- -------------
Total non-interest income 88 138
------------- -------------
Non-interest expense:
Compensation and benefits 325 340
Occupancy and equipment 59 45
Data processing 43 37
Federal deposit insurance premiums 38 34
Loan origination and servicing 34 16
Other 148 114
------------- -------------
Total non-interest expense 647 586
------------- -------------
Income before income taxes 13 200
Income taxes 1 67
------------- -------------
Net income $12 $133
------------- -------------
Primary earnings per share $0.03 $0.28
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996
(Unaudited)
Unrealized
Loss on
Common Common Investment
Additional Stock Stock Securities
Common Paid-in Retained Treasury Purchased Purchased Available for
Stock Capital Earnings Stock by ESOP by RRPs Sale Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $50 $3,677 $5,233 ($460) ($149) ($31) ($448) $7,872
Net income -- -- 12 -- -- -- -- 12
Amortization of RRP's -- -- -- -- -- 8 -- 8
Release of earned ESOP
shares, 1695 shares -- 9 -- -- 13 -- -- 22
Net change in unrealized loss
on investment securities
available for sale, net of
deferred income taxes of -- -- -- -- -- -- (49) (49)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 1996 $50 $3,686 $5,245 ($460) ($136) ($23) ($497) $7,865
========= ========== ========== =========== ========== ========== ========== ==========
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------
Three Months End
March 31,
----------------------
1996 1995
----------------------
(In Thousand)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $12 $133
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of:
Premiums, discounts and deferred fees on loans, mortgage-backed
and investment securities (10) 6
Net excess servicing fees and originated mortgage servicing rights 22 6
Management recognition and retention plans 8 11
Employee stock ownership plan 22 30
Provision for losses on loans and foreclosed real estate 31 2
FHLB stock dividends 0 (7)
(Gain) loss on sale of:
Loans (23) (32)
Investment and mortgage-backed securities 14 0
Depreciation of premises and equipment 24 17
Originations of loans held for sale, net of origination fees and principal collected (1,928) (1,004)
Proceeds from sales of loans held for sale 1,532 938
Increase (decrease) in cash flows due to other changes in:
Accrued interest receivable (31) 33
Other assets (55) (33)
Other liabilities 39 124
-------- ---------
Net cash (used in) provided by operating activities (343) 224
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal collected on loans (5,424) (726)
Purchases of:
Whole loan participations (7,763) 0
Mortgage-backed securities available for sale (1,250) 0
Investment securities available for sale (1,094) (2)
Stock of the FHLB of Chicago (20) 0
Proceeds from:
Sales of investment securities available for sale 736 0
Maturities and calls of investment securities available for sale 1,800 0
Principal collected on mortgage-backed securities 283 136
Purchase of premises and equipment (13) (17)
-------- ---------
Net cash used in investing activities (12,745) (609)
-------- ---------
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------
Three Months End
March 31,
----------------------
1996 1995
----------------------
(In Thousand)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposit accounts 3,534 3,163
Borrowings on advances from the FHLB of Chicago 11,500 1,250
Principal payments on advances from the FHLB of Chicago (1,500) (4,250)
Net increase in advance payments by borrowers for taxes and insurance 174 125
-------- ---------
Net cash provided by financing activities 13,708 288
-------- ---------
Net increase (decrease) in cash and cash equivalents 620 (97)
Cash and cash equivalents at beginning of period 2,558 1,899
-------- ---------
Cash and equivalents at end of period $3,178 $1,802
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $772 $540
Noncash Items
Transfer of held for sale loans to portfolio, at market 0 391
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE> 8
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 and 1995
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles (GAAP) for interim financial information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of only
normal recurring accruals) necessary for a fair comparison have
been included.
The results of operations and other data for the interim periods
are not necessarily indicative of results that may be expected
for the entire fiscal year ending December 31, 1996.
The unaudited consolidated financial statements consist of the
statement of financial condition as of March 31, 1996, the
statements of income for the three months ended March 31, 1996
and 1995, the statement of stockholders' equity for the three
months ended March 31, 1996, and the statements of cash flows for
the three months ended March 31, 1996 and 1995, which include the
accounts of First Financial Bancorp, Inc. (the "Company") and its
wholly-owned subsidiary, First Federal Savings Bank (the "Bank")
and the Bank's wholly-owned subsidiary, First Financial Services
of Belvidere Illinois, Inc., for the three months ended March 31,
1996 and 1995. All material intercompany accounts and
transactions have been eliminated in consolidation.
(2) CONVERSION TO STOCK OWNERSHIP
On June 10, 1993, the Board of Directors of the Bank adopted a
plan of conversion pursuant to which the Bank converted from a
federally chartered mutual savings and loan association to a
federally chartered stock savings bank with the concurrent
formation of the Company. On October 1, 1993, pursuant to the
plan of conversion, the Company issued 484,338 shares of common
stock at $8.00 per share to depositors and borrowers of the Bank
and to community members during the subscription offering. Total
net proceeds were $3,473,471 and are reflected as common stock
and additional paid in capital in the accompanying consolidated
statement of financial condition. The Company utilized
$2,200,000 of the net proceeds to acquire all of the issued and
outstanding capital stock of the Bank.
As a part of the conversion to stock form, the Bank formed an
Employee Stock Ownership Plan ("ESOP") for eligible employees.
The ESOP purchased 33,903 shares of the Company's stock at $8.00
per share. The ESOP borrowed $271,224 from the Company to
<PAGE> 9
purchase the shares. The Bank will make scheduled contributions
for 5 years to the ESOP sufficient to service the amount
borrowed. Additionally, the Bank established Recognition and
Retention Plans, which purchased in the aggregate 19,374 shares
of the Company's stock in the conversion at $8.00 per share. The
funds used to acquire the Recognition and Retention Plans' shares
were contributed by the Bank. The total shares authorized were
awarded to officers, outside directors and certain key employees
in order to provide them with a proprietary interest in the
Company in a manner designed to encourage such personnel to
remain with the Bank. The cost will be amortized to compensation
expense over three years as the individuals become vested in
their stock awards.
(3) EARNINGS PER SHARE
Primary earnings per share information for the three months ended
March 31, 1996 and 1995 is based on the weighted average number
of common shares outstanding during the respective periods of
464,149 and 474,693. The Bank's ESOP held 18,648 unallocated
shares as of March 31, 1996, and the Recognition and Retention
Plans held 903 unallocated shares. Fully diluted earnings per
share is not separately disclosed since the effect of dilution is
immaterial.
(4) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans at March 31, 1996 were
$5.5 million, all of which were fixed rate loans with rates
ranging from 6.375% to 9.500% with a weighted average rate of
7.546%. Commitments to sell mortgage loans totaled $736,756 at
March 31, 1996. As of March 31, 1996 remaining balances in loans
sold under recourse agreements totaled $1.9 million and unused
adjustable rate lines of credit totaled $3.1 million.
The Bank has pledged certain mortgage-backed securities and U.S.
agency securities worth $5.8 million at March 31, 1996 as
collateral for deposits in excess of federal deposit insurance
limitations.
The Bank's deposit liabilities are insured by the Savings
Association Insurance Fund ("SAIF") fund of the FDIC. A number
of proposals to more adequately fund SAIF are being discussed in
the Congress. Among the proposals is a one-time assessment on
thrift deposits of 80 to 85 basis points, based on deposits as
of a predetermined assessment date. This amount would be
reflected by a charge against income in the period or periods in
which the liability is insured. Management is unable to predict
whether the assessment rate will remain as stated or when this
proposal will be enacted by law. If enacted, the assessment
could result in a charge to non-interest expense of $335,000 to
$356,000, net of taxes.
<PAGE>10
(5) MORTGAGE SERVICING
In May of 1995, the Financial Accounting Standards Board released
SFAS 122, Accounting for Mortgage Servicing Rights, an amendment
to FASB Statement No. 65. SFAS 122 eliminates the accounting
distinction between rights to service mortgage loans for others
that are acquired through loan originations and those acquired
through purchase transactions. Under SFAS 122 a banking
enterprise allocates the total cost of originating a mortgage
loan between the loan without the servicing rights and the rights
to service that loan based on their relative fair market values,
if it is practicable for the loan. These assets are amortized in
proportion to and over the period of estimated net servicing
income, and are periodically evaluated on a disaggregated basis
for impairment based on fair values.
The Company elected to implement the standard as of January 1,
1995. During the three months ended March 31, 1996, the Company
capitalized $11,000 of originated mortgage servicing rights and
gains on sales of loans were increased by that amount. During
the three months ended March 31, 1996, the Company recognized an
impairment of $16,000 on originated mortgage servicing rights
with a book value of $78,000. This impairment was the result of
increased prepayments due to higher levels of refinancing
activity during the quarter for long term fixed rate loans
similar to those which the Company services.
<PAGE>11
ITEM 2
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
First Financial Bancorp, Inc. (the "Company") is the holding
company for First Federal Savings Bank (the "Bank"), a federally
chartered stock savings bank. On October 1, 1993, the Bank
completed its conversion from a mutual savings and loan
association to a stock savings bank, and in connection therewith,
the Company issued and sold to the public 484,338 shares of its
common stock at $8.00 per share. The Company utilized
approximately 63% of the net proceeds to acquire all of the
issued and outstanding stock of the Bank (100 shares). As a
result of the conversion, the Bank's capital was increased by
approximately $2.2 million.
First Financial Bancorp, Inc. is headquartered in Belvidere,
Illinois and its principal business currently consists of acting
as the holding company of its wholly-owned subsidiary, First
Federal Savings Bank.
REGULATORY CAPITAL REQUIREMENTS
Current federal regulations, as mandated by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), require institutions to have a minimum regulatory
tangible capital equal to 1.5% of total assets, a minimum 3% core
capital ratio, and a minimum 8% risk-based capital ratio. Core
capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred
stock and related surplus, minority interests in equity accounts
of consolidated subsidiaries, less intangibles other than certain
purchased mortgage servicing rights ("PMSRs").
The risk-based capital standard for savings institutions requires
the maintenance of total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of 8%.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a
risk weight of 0% to 100%, as assigned by the OTS capital
regulation, based on the risks OTS believes are inherent in the
type of asset. The components of core capital are equivalent to
those discussed above under the 3% leverage standard. The
components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate
preferred stock, and allowance for loans and lease losses.
<PAGE>12
Allowance for loan and leases losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-adjusted assets.
Overall, the amount of supplementary capital included in total
capital cannot exceed 100% of core capital.
FDICIA (Federal Deposit Insurance Corporation Improvement Act of
1991) required that the OTS (and other federal banking agencies)
revise, in 1993, risk-based capital standards, with appropriate
transition rules, to ensure that they take into account interest
rate risk, concentration of credit risk and the risks of
nontraditional activities. On August 31, 1993, the OTS issued a
final rule which sets forth the methodology for calculating an
interest rate risk component that was incorporated into the OTS
regulatory capital rule effective January 1, 1994. Savings
institutions with assets less than $300 million and risk-based
capital ratios in excess of 12% are not subject to the interest
rate risk component. The rule also provides that the Director of
the OTS may waive or defer an institution's interest rate risk
component on a case-by-case basis. The Bank has been notified
that it is currently exempt from the interest rate risk
component.
<TABLE>
<CAPTION>
At March 31, 1996, the Bank was in compliance with the capital
requirements, summarized as follows:
Regulatory
Capital Actual Excess
Requirement Capital Capital
------------ ------------ ------------
% Amount % Amount % Amount
----- ------ ----- ------ ----- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) 1.50% $1,335 7.87% $7,000 6.37% $5,665
Core (1) 3.00 2,669 7.87 7,000 4.87 4,331
Risk-Based (2)
Current 8.00 3,702 15.81 7,317 7.81 3,615
Total assets for regulatory purposes $88,972
Total risk-weighted assets 46,274
- - ---------------------------------------------------------------
<F1>
(1)Percentages represent percent of total assets for regulatory
purposes.
<F2>
(2)Percentages represent percent of total risk weighted assets.
</TABLE>
<PAGE>13
At March 31 , 1996, the difference between stockholder's equity
in accordance with generally accepted accounting principles
(GAAP) and regulatory capital are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
GAAP capital $6,481
Net unrealized loss on securities available for sale 519
-----
Capital for regulatory purposes 7,000
Originated mortgage servicing rights fair value (6)
General loan loss allowances 323
-----
Risk-based capital $7,317
=====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal
and interest payments on loans and mortgage-backed securities,
custodial account balances held for borrowers of serviced loans
and advances from the Federal Home Loan Bank of Chicago
("FHLB-Chicago"). While maturities and scheduled amortization of
loans and mortgage-backed securities are predictable sources of
funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and
competition.
The Bank is required to maintain minimum levels of liquid assets
as defined by OTS regulations. This requirement, which may be
varied at the direction of the OTS depending upon economic
conditions and deposit flows, is based upon a percentage of the
average daily balance of net deposits and short term borrowings.
The required ratio is currently 5.0%. The Bank's liquidity ratio
was 14.11% at March 31, 1996. The Bank's relatively high
liquidity ratio as of March 31, 1996 reflects mangement's
decision to maintain a relatively liquid position in the current
interest rate environment.
The Company's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending, and investing activities
during any given period. At March 31, 1996, cash and cash
equivalents totaled $3.2 million as compared to $2.6 million at
December 31, 1995.
The Company's cash flows are comprised of three classifications:
cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities. Cash flows
used in operating activities for the three months ended March 31,
1996, consisted primarily of originations of mortgage loans held
for sale of $1.9 million offset by $1.5 million in sales of such
loans. Cash flows provided by operating activities for the three
months ended March 31, 1995 consisted primarily of originations
of mortgage loans held for sale of $1.0 million offset by $0.9
million in sales of such loans.
<PAGE>14
Cash flows used in investing activities for the three months
ended March 31, 1996 consisted primarily of $7.8 million in loan
participations purchased, $5.4 million in portfolio loan
originations, net of principal collected, and the purchase of
$2.3 million of investment and mortgage-backed securities
available for sale offset by sales and maturities of investment
securities available for sale of $2.5 million and principal
collected on mortgage-backed securities of $0.3 million. The
emphasis on loans was a result of management's efforts to
increase interest-earning assets and to leverage the Company's
capital. Cash flows used in investing activities for the three
months ended March 31, 1995 consisted primarily of originations
of portfolio loans of $0.7 million, net of principal collected
offset by principal collected on mortgage-backed securities of
$0.1 million.
Cash flows provided by financing activities for the three months
ended March 31, 1996 consisted of borrowings from the FHLB
Chicago of $11.5 million, offset by $1.5 million in principal
repayments on such borrowings as well as inflows to deposit
accounts of $3.5 million and a net increase of $0.2 million in
advanced payments for taxes and insurance. The net increase in
FHLB advances allowed for the growth in the loan portfolio. FHLB
advances were emphasized over deposits in light of the premiums
assessed on deposits by the Savings Association Insurance Fund,
which are in excess of premiums paid by many of the Company's
local competitors who are able to offer premium rates as a result
of the negligible insurance premiums currently assessed by the
Bank Insurance Fund. To date, however, the Company has been able
to attract certain time deposits in its local market. Cash
provided by financing activities for the three months ended March
31, 1995 consisted of a net increase in deposit accounts of $3.2
million and a net increase in advance payments for taxes and
insurance of $0.1 million as well as borrowings from the FHLB
Chicago of $1.25 million, offset by $4.25 million in principal
repayments on such borrowings.
At March 31, 1996, the Bank had outstanding loan commitments of
$5.5 million. The Bank anticipates that it will have the
resources available to meet its current loan origination and
purchase commitments. Certificates of deposit which are
scheduled to mature in less than one year from March 31, 1996
totaled $31.7 million. Management believes that a significant
portion of such deposits will remain with the Company, however,
it cannot be certain what portion of such deposits will remain if
the aforementioned deposit insurance premium differential results
in a disparity between the rates paid by the Company versus those
paid by competitors in the local market.
<PAGE>15
CHANGES IN FINANCIAL CONDITION
As of March 31, 1996, total assets of the Company were $88.6
million, an increase of $13.7 million, or 18.4%, from December
31, 1995 assets of $74.9 million.
Cash and cash equivalents totaled $3.2 million at March 31, 1996,
an increase of $0.6 million, or 24.2% from December 31, 1995.
Investment securities held to maturity and available for sale
totaled $8.3 million at March 31, 1996, a decrease of $1.4
million from December 31, 1995. The primary reason for the
decrease was the maturities and calls of $1.8 million in U.S.
Treasury and agency obligations accompanied by the sale of two of
the Company's structured notes totaling $0.7 million, partially
offset by the purchase of $1.0 million in commercial paper.
Mortgage-backed securities totaled $10.7 million at March 31,
1996, a increase of $0.9 million from the December 31, 1995 total
of $9.8 million. The increase was due to the purchase of $1.3
million mortgage-backed securities available for sale offset by
principal collected on mortgage-backed securities of $0.3
million.
First mortgage loans held for sale totaled $0.8 million at March
31, 1996 as compared to $0.4 million at December 31, 1995, an
increase of $0.4 million. The primary reason for the increase in
the held for sale portfolio was originations of $1.9 million
offset by loan sales of $1.5 million. Commitments to sell first
mortgage loans at March 31, 1996 were $0.7 million compared to
$0.3 million in commitments at December 31, 1995. Management
made the decision to retain fixed rate mortgage loans with terms
of 15 years. Most loans of this type had generally been sold
with the servicing rights retained in previous years. The
decision to retain such loans was made after considering several
factors including, the cash flow characteristics of such loans,
alternative investment possibilities, interest rate risk
implications and the possible effects on the Company's asset mix.
Net loans receivable totaled $63.0 million at March 31, 1996 as
compared to $49.8 million at December 31, 1995, an increase of
$13.2 million, or 27.3%. The increased balance is largely
attributable to the purchase of $7.8 million in adjustable rate
mortgage loans. Also, the additional increase resulted from an
increase in originations directed to portfolio as origination
volume increased and 15 year fixed rate mortgages were retained
in portfolio.
Deposit accounts totaled $69.8 million at March 31, 1996 as
compared to $66.2 million at December 31, 1995, an increase of
$3.6 million, or 5.3%. The primary reason for the increase was
the Company's ability to attract conventional depositors through
selective deposit pricing and the introduction of a new image
checking account, making the Company the first to offer such a
product in Boone county and one of two providers in Winnebago
county. The Company continues to maintain lower cost of funds
than its peers.
<PAGE>16
ASSET QUALITY
The following table sets forth information regarding loans
delinquent more than 90 days, non-performing less than 90 days
and real estate owned.
<TABLE>
<CAPTION>
At March At December
31, 1996 31, 1995
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Loans delinquent 90 days or more
Accruing:
First mortgage loans:
1-4 family residential $ 187 $ 196
Other loans - 3
---- ----
Total 187 199
Non-accruing:
First mortgage loans
1-4 family residential 161 52
Other loans 119 118
---- ----
Total 280 200
Loans delinquent 89 days or less
Other loans 2 19
---- ----
Total 2 19
Total non-performing loans $ 469 $ 418
==== ====
Total real estate owned, net of related
allowances for losses 0 0
Total non-performing assets $ 469 $ 418
==== ====
Total loans delinquent 90 days or more
to net loans receivable 1 0.74% 0.83%
Total loans delinquent 90 days or more
to total assets 0.53 0.56
Total non-performing loans and REO to
total assets 0.53 0.56
- - -----------------------------------------------------
<F1>
1 Net loans receivable includes loans held for sale.
<PAGE>17
An allowance for loan losses is maintained at a level considered
by management to be adequate to absorb future loan losses.
Management of the Bank, in determining the provision for loan
losses, considers the risks inherent in its portfolio and changes
in the nature and volume of its loan activities, along with
general economic conditions. The Bank maintains a loan review
system which allows for a periodic review of its loan portfolio
and the early identification of potential problem loans. Such
system takes into consideration, among other things, delinquency
status, size of loans, type of collateral and financial condition
of the borrowers. The delinquencies have been and are expected
to remain relatively stable, and management believes that the
provision balance at March 31, 1996 is both adequate to absorb
any future losses if the real estate market experienced any
weaknesses or if the local economy were to experience a
recessionary period, and is representative of a conservative
approach. Although the Bank maintains its allowance for losses
on loans at a level which it considers to be adequate to provide
for potential losses, there can be no assurance that such losses
will not exceed the estimated amounts or that the Bank will not
be required to make additions to the allowance for losses on
loans in the future. Future additions to the Bank's allowance
for loan losses and any changes in the related ratio of the
allowance for loan losses to non-performing loans are dependent
upon the economy, changes in real estate values and interest
rates, and inflation.
The allowance for loan loss was $353,000 at March 31, 1996, which
represented 75.27% of non-performing loans and non-performing
assets. These ratios compare to 78.95% of non-performing loans
and non-performing assets at December 31, 1995.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED MARCH
31, 1996 AND 1995.
GENERAL
Net income for the three months ended March 31, 1996 was $12,000
compared to $133,000 for the three months ended March 31, 1995, a
decrease of $121,000, or 91.0%. The three primary components of
this decrease were: i) the decrease in net interest income after
provision for loan losses of $76,000, or 11.7%, to $572,000 for
the three months ended March 31, 1996, from $648,000 for the
three months ended March 31, 1995, as deposit costs increased and
a higher level of provisions for loan losses was recorded, ii) an
increase in non-interest expense of $61,000, or 10.4%, to
$647,000 for the three months ended March 31, 1996, from $586,000
for the three months ended March 31, 1996, and iii) a decrease in
non-interest income of $50,000, or 36.2%, to $88,000 for the
three months ended March 31, 1996, from $138,000 for the three
months ended March 31, 1995.
<PAGE>18
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $603,000 for the quarter ended March 31, 1996 as
compared to $650,000 for the quarter ended March 31, 1995, a
decrease of $47,000, or 7.2%. This decrease in net interest
income in the 1996 period was primarily due to an increase in the
cost of deposit accounts. Interest income on interest-earning
assets totaled $1,377,000 for the three months ended March 31,
1996 as compared to $1,278,000 for the same period in 1995, an
increase of $99,000 or 7.7%. Interest expense on interest-bearing
liabilities totaled $774,000 for the three months ended March 31,
1996, as compared to $628,000 for the same period in 1995, an
increase of $146,000, or 23.2%. The Company's net interest
spread decreased 63 basis points to 3.01% for the three months
ended March 31, 1996 from 3.64% for the three months ended March
31, 1995. The decrease was the combined result of a decrease
in yield on interest-earning assets coupled with an increase in
funding costs due the higher cost of attracting and retaining
deposits to facilitate the Company's growth.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses was $31,000 for the three
months ended March 31, 1996 compared to $2,000 for the three
months ended March 31, 1995. The increase in provision in the
1996 period was a result of exceptional growth in the loan
portfolio creating the need to provide the necessary additional
loss reserves.
NON-INTEREST INCOME
Non-interest income decreased $50,000, or 36.2%, to $88,000 for
the three months ended March 31, 1996 from $138,000 for the same
period in 1995. This decrease was partially the result of a
decrease in loan servicing charges of $10,000, or 26.3%, to
28,000 fo the three months ended March 31, 1996 due to a
valuation allowance against originated mortgage servicing rights
incurred this period. There was a $9,000 decrease in gain on
sale of mortgage loans as 15 year fixed mortgage loans were
retained. Also contributing to the decrease was a loss on the
sale of two structured notes of $14,000.
NON-INTEREST EXPENSE
Non-interest expense increased $61,000, or 10.4%, to $647,000 for
the three months ended March 31, 1996, from $586,000 for the
three months ended March 31, 1995. The increase was due to
increased loan originating and servicing expenses due to
additional commissions paid on a higher volume of originations
during the three months ended March 31, 1996 as originations, net
of principal collected and sales, increased to $5.8 million, an
increase of 634.8%, over 1995. Also contributing to the increase
was increased occupancy and equipment costs as a result of
upgrading facilities and technology to better meet customers'
needs and increase staff efficiency. Other expenses also
increased as a result of costs incidental to facilities'
upgrades, the Bank's name change, increased marketing efforts and
the introduction of new products.
<PAGE>19
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the
secondary mortgage market totaled $1.5 million and $0.9 million
during the three months ended March 31, 1996 and 1995,
respectively. The increase is due primarily to a greater amount
of originations resulting in an increase in loan sales. Gain on
sales of mortgage loans, net of a valuation allowance, for the
three months ended March 31, 1996 totaled $23,000 compared to
$32,000 for the same period in 1995, a decrease of 28.1%.
Profits as a percentage of sales declined as price movements in
the secondary market were less favorable during the three months
ended March 31, 1996 as compared to the same period during 1995.
INCOME TAXES
For the three months ended March 31, 1996 income tax expense
decreased $66,000, or 98.5% to $1,000 from $67,000 for the three
months ended March 31, 1995, as net income before income taxes
decreased.
<PAGE>20
PART II OTHER INFORMATION
===========================
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits incidental to the
Registrant's business in which the Registrant is periodically
involved. In the opinion of management, no material loss is
expected from any such pending claims of lawsuits.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the period covered by this report.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended March 31, 1996, the Registrant
filed one Form 8-K dated January 11, 1996, which announced the
dismissal of the previous auditing firm, Lindgren, Callihan, Van
Osdol & Co., Ltd and the appointment of the subsequent firm,
Crowe, Chizek and Company LLP.
<PAGE>21
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchanges Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Financial Bancorp, Inc.
-----------------------------
(Registrant)
Dated: May 10, 1996 By:/s/ Steven C. Derr
------------ ------------------
Steven C. Derr
President
Principal Executive Officer
Dated: May 10, 1996 By:/s/ Keith D. Hill
------------ -----------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 1996 (Unaudited) and
the Consolidated Statement of Income for the Three Months Ended March 31, 1996
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 392
<INT-BEARING-DEPOSITS> 2,786
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,481
<INVESTMENTS-CARRYING> 1,585
<INVESTMENTS-MARKET> 1,544
<LOANS> 63,003
<ALLOWANCE> 353
<TOTAL-ASSETS> 88,615
<DEPOSITS> 69,764
<SHORT-TERM> 3,300
<LIABILITIES-OTHER> 986
<LONG-TERM> 6,700
0
0
<COMMON> 50
<OTHER-SE> 7,815
<TOTAL-LIABILITIES-AND-EQUITY> 88,615
<INTEREST-LOAN> 1,071
<INTEREST-INVEST> 283
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,354
<INTEREST-DEPOSIT> 749
<INTEREST-EXPENSE> 774
<INTEREST-INCOME-NET> 603
<LOAN-LOSSES> 31
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 646
<INCOME-PRETAX> 14
<INCOME-PRE-EXTRAORDINARY> 12
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<YIELD-ACTUAL> 3.01
<LOANS-NON> 282
<LOANS-PAST> 187
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 330
<CHARGE-OFFS> 7
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 353
<ALLOWANCE-DOMESTIC> 30
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
