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 June 30, 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 36-3899034
---------------------------------------------------- ---------------------
(State or other jurisdiction of Incorporation or (I.R.S. Employer
Organization Number) 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 July 31, 1996 the Registrant had 460,902 shares issued and outstanding.
<PAGE>2
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. FINANCIAL STATEMENTS - UNAUDITED Number
Consolidated Statement of Financial Condition as of June 30, 1996 3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity for the Three
Months Ended June 30, 1996 5
Consolidated Statements of Cash Flows for the Six months
Ended June 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
Part II. OTHER INFORMATION 19
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
---------------------------------------------------
(Unaudited)
<S> <C>
June 30,
1996
-----------
ASSETS (In Thousands)
Cash on hand and non-interest-earning deposits $397
Interest-earning deposits 1,378
-----------
Total cash and cash equivalents 1,775
Investment securities available for sale, at market value 8,782
Mortgage-backed securities available for sale, at market value 8,995
Investment securities held to maturity 79
Mortgage-backed securities held to maturity 1,131
First mortgage loans held for sale 1,828
Loans receivable, net 68,730
Accrued interest receivable 538
Premises and equipment 843
Investment in stock of Federal Home Loan Bank of
Chicago, at cost 895
Other assets 890
---------------
Total assets $94,486
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $67,354
Borrowing from FHLB 17,900
Advance payments by borrowers for taxes
Insurance 493
Other liabilities 866
---------------
Total liabilities 86,613
---------------
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' EQUITY
Common Stock - $0.10 par value, 1,500,000 shares authorized,
501,086 shares issued and 465,896 shares outstand 50
Additional paid-in capital 3,694
Retained earnings, substantially restricted 5,383
Treasury stock, at cost, 35,190 shares (556)
Common stock purchased by:
Employee stock ownership plan (122)
Management recognition and retention plans (22)
Net unrealized loss on investment securities available for sale (554)
net of taxes ---------------
Total stockholders' equity 7,873
---------------
Total liabilities & stockholders' equity $94,486
===============
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>4
</TABLE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, Six Months Ended June 30,
- ---------------------------------------------------------- ------------------------------ -------------------------
(Unaudited) 1996 1995 1996 1995
------------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Interest income: $1,174 $853 $2,095 $1,681
First mortgage loans 165 139 315 274
Other loans 158 153 319 306
Mortgage-backed securities 120 150 242 302
Investment securities 8 18 31 28
Interest-earning deposits ------------- ------------- ------------- ---------
Total interest income 1,625 1,313 3,002 2,591
------------- ------------- ------------- ---------
Interest expense:
Deposit accounts 736 670 1,485 1,272
FHLB advances 206 5 231 31
------------- ------------- ------------- ---------
Total interest expense 942 675 1,716 1,303
------------- ------------- ------------- ---------
Net interest income 683 638 1,286 1,288
Provision for loss on loans 24 2 55 4
------------- ------------- ------------- ---------
Net interest income after provision for 659 636 1,231 1,284
------------- ------------- ------------- ---------
Non-interest income:
Loan servicing fees and charges 50 44 78 82
Service charges on deposit accounts 54 46 92 80
Gain on sales of loans 18 37 41 69
Loss on sales of investments and mortgage-backed s 0 0 (14) 0
Loss on sales/disposal of assets (9) 0 (9) 0
Other 14 201 27 235
------------- ------------- ------------- ---------
Total non-interest income 127 328 215 466
------------- ------------- ------------- ---------
Non-interest expense:
Compensation and benefits 276 536 601 876
Occupancy and equipment 58 50 117 95
Data processing 40 35 83 71
Federal deposit insurance premiums 38 34 76 68
Loan origination and servicing 38 8 72 24
Other 130 122 278 237
------------- ------------- ------------- ---------
Total non-interest expense 580 785 1,227 1,371
------------- ------------- ------------- ---------
Income before income taxes 206 179 219 379
Income taxes 68 59 69 126
------------- ------------- ------------- ---------
Net income $138 $120 $150 $253
============= ============= ============= =========
Primary earnings per share $0.30 $0.25 $0.32 $0.53
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>5
</TABLE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1996
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized
Loss on
Common Common Investment
Additional Stock Stock Securities
Common Paid-in Retained Treasury Purchased Purchased Available for
Stock Capital Earninings Stock by ESOP by RRP's Sale Total
--------- ---------- ------------ ---------- ---------- ---------- -------------- ---------
(In Thousands)
Balance, December 31, 1995 $50 $3,677 $5,233 ($460) ($149) ($31) ($448) $7,872
Net income -- -- 150 -- -- -- -- 150
Amortization of RRP's -- -- -- -- -- 9 -- 9
Release of earned ESOP
shares, 3,390 shares -- 17 -- -- 27 -- -- 44
Purchase of treasury stock,
6,000 shares, at cost -- -- -- (96) -- -- -- (96)
Net change in unrealized loss
on investment securities
available for sale, net of
deferred income taxes of -- -- -- -- -- -- (106) (106)
--------- ---------- ----------- ---------- ---------- ---------- -------------- --------
Balance, June 30, 1996 $50 $3,694 $5,383 ($556) ($122) ($22) ($554) $7,873
--------- ---------- ----------- ---------- ---------- ---------- -------------- -------
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>6
</TABLE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------
(Uaudited)
Six Months Ended
June 30,
--------------------
1996 1995
--------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $150 $253
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 (12) 10
Net excess servicing fees and originated mortgage servicing 24 10
Management recognition and retention plans 9 76
Employee stock ownership plan 44 45
Provision for losses on loans and foreclosed real estate 55 4
FHLB stock dividends 0 (7)
(Gain) loss on sale of:
Loans (41) (69)
Investment and mortgage-backed securities 14 0
Other 9 0
Depreciation of premises and equipment 49 38
Originations of loans held for sale, net of origination fees (4,916) (2,195)
Proceeds from sales of loans held for sale 3,506 2,032
Increase (decrease) in cash flows due to other changes in:
Accrued interest receivable (79) (21)
Other assets (127) (210)
Other liabilities 352 242
-------- ---------
Net cash (used in) provided by operating activities (963) 208
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations net of principal collected on loans (11,092) (1,569)
Purchases of:
Whole loan participations (7,844) 0
Mortgage-backed securities available for sale (1,250) 0
Investment securities available for sale (2,796) (455)
Stock of the FHLB of Chicago (414) (34)
Proceeds from:
Sales of investment securities available for sale 736 0
Maturities and calls of investment securities available for sale 2,800 500
Maturities and calls of investment securities held to maturity 200 500
Principal collected on mortgage-backed securities 779 300
Purchase of premises and equipment (100) (70)
-------- ---------
Net cash used in investing activities (18,981) (828)
<PAGE>7
</TABLE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------
(Unaudited)
(Continued)
<S> <C> <C>
Six Months Ended
June 30,
----------------------
1996 1995
----------------------
(In Thousands)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposit accounts 1,124 4,716
Issuance of common stock 0 5
Repurchase of common stock (96) (27)
Borrowings on advances from the FHLB of Chicago 24,500 3,250
Principal payments on advances from the FHLB of Chicago (6,600) (6,250)
Net increase in advance payments by borrowers for taxes and in 233 246
-------- --------
Net cash provided by financing activities 19,161 1,940
-------- --------
Net Increase (decrease) in cash and cash equivalents (783) 1,320
Cash and cash equivalents at beginning of period 2,558 1,899
-------- --------
Cash and equivalents at end of period $1,775 $3,219
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $1,657 $1,270
Income Taxes 0 45
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
JUNE 30, 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 June 30, 1996, the statements of income for the three
and six months ended June 30, 1996 and 1995, the statement of stockholder's
equity for the six months ended June 30, 1996, and the statements of cash flows
for the six months ended June 30, 1996 and 1995, which include the accounts of
First Financial Bancorp of, 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
and six months ended June 30, 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 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.
<PAGE>9
(3) EARNINGS PER SHARE
Primary earnings per share information for the three and six months ended June
30, 1996 and 1995 is based on the weighted average number of common shares
outstanding of 462,767 and 478,546, respectively, for the three months ended
June 30, 1996 and 463,048 and 476,648, respectively, for the six months ended
June 30, 1996. The Bank's ESOP held 16,953 unallocated shares as of June 30,
1996, and the Recognition and Retention Plans held 2,066 unallocated shares.
Fully diluted earnings per share is not separately disclosed since the effect of
dilution is immaterial.
(4) COMMITMENTS AND CONTIGENCIES
Commitments to originate mortgage loans at June 30, 1996 were $3.5 million, of
which $2.1 million were fixed rate loans with rates ranging from 7.625% to
10.0% with a weighted average rate of 8.341%. Commitments to sell mortgage
loans totaled $1,295,758 at June 30, 1996. As of June 30, 1996 remaining
balances in loans sold under recourse agreements totaled $1.8 million and
unused adjustable rate lines of credit totaled $5.1 million, of which $1.8
million is attributed to the Company's new credit card program launched in
April, 1996.
The Bank has pledged certain mortgage-backed securities and U.S. agency
securities worth $4.4 million at June 30, 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") 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 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.
(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 though 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 six months ended June 30, 1996, the Company capitalized $14,000 of
originated mortgage servicing rights and gains on sales of loans were increased
by that amount. During the six months ended June 30, 1996, the company
recognized an impairment of $15,000 on originated mortgage servicing rights with
a book value of $80,000. This impairment was the result of increased
prepayments due to higher levels of refinancing activity during the six months
for long term fixed rate loans similar to those which the Company services.
(6) SFAS NO. 123
During 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" which provides new accounting guidelines over the treatment of
employee stock options. The Statement gives entities a choice of either
adopting a new fair value method of accounting for employee stock options and
expensing any related compensation costs in the income statement, or continuing
to apply Accounting Principles Board Opinion No. 25 and provide proforma
disclosure of the effect for financial statements beginning after December 15,
1995. The company currently intends to adopt the disclosure method of the
Statement.
<PAGE>10
(7) SFAS NO. 125
In June of 1996 the Financial Accounting Standards Board released Statement No.
125 (SFAS 125) "Accounting for Transfers and Extinguishment of Liabilities."
SFAS provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. SFAS 125 applies to
transfers and extinguishments after December 31, 1996 and early or retroactive
application is not permitted.
(8) OTHER MATERIAL EVENTS
On April 5, 1996 the Company announced the nomination of Nancy Sylvester to the
Board of Directors to replace Neal Brandt, who had previously been nominated but
had subsequently advised the Company of his inability to serve if elected. The
Company also announced the intention of the Board of Directors to vote proxies
received for the election of Mr. Brandt in favor of Ms. Sylvester at the Annual
Meeting of Stockholders.
By letter dated April 10, 1996, the Office of Thrift Supervision ("OTS") advised
the Company that it did not object to the repurchase by the Company of up to 5%
of its issued and outstanding capital stock in open market purchases commencing
April 1, 1996 and ending on September 30, 1996. Pursuant to this non-objection,
the Company announced its expectations to repurchase up to 23,594 shares of its
common stock, subject to the availability of the Company's stock. Through June
30, 1996, the Company had completed the repurchase of 6,000 shares under the
program.
<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 stockholder's 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 earlier 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. 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.
<PAGE>12
At June 30, 1996, the Bank was in compliance with the capital requirements,
summarized as follows:
<TABLE>
<CAPTION>
Regulatory
Capital
Requirement Actual Capital Excess Capital
% Amount % Amount % Amount
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible 1 1.50% $1,423 7.56% $7,170 6.06% $5,747
Core 1 3.00 2,847 7.56 7,170 4.56 4,323
Risk-Based 2
Current 8.00 3,949 15.22 7,511 7.22 3,562
Total assets for regulatory purposes $94,895
Total risk-weighted assets 49,364
</TABLE>
1 Percentages represent percent of total assets for regulatory purposes.
2 Percentages represent percent of total risk weighted assets.
At June 30, 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 $6,592
Net unrealized loss on securities available for sale 578
------
Capital for regulatory purposes $7,170
General loan loss allowances 347
Originated mortgage servicing rights (6)
Risk-based capital $7,511
======
</TABLE>
Liquidity and Capital Resources
The Bank'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 11.01% at June 30, 1996. The Bank's relatively high liquidity ratio as of
June 30, 1996 reflects mangement's decision to maintain a relatively liquid
position.
The Bank'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 Bank's operating, financing, lending, and investing
activities during any given period. At June 30, 1996, cash and cash equivalents
totaled $1.8 million as compared to $2.6 million at December 31, 1995.
<PAGE>13
The Bank'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 six
months ended June 30, 1996, consisted primarily of originations of loans held
for sale of $4.9 million offset by proceeds from sales of such loans of $3.5
million. Cash flows provided by operating activities for the six months ended
June 30, 1995 consisted primarily of sales of mortgage loans held for sale of
$2.0 million offset by $2.2 million in originations of such loans.
Cash flows used in investing activities for the six months ended June 30, 1996
consisted primarily of $11.1 million in portfolio loan originations and $7.8
million in purchases of loans, net of principal collected, purchases of
mortgage-backed securities of $1.3 million and purchases of investment
securities available for sale of $2.8 million offset by proceeds from sales,
maturities and calls of investment securities of $3.7 million and principal
repayment on mortgage backed securities of $0.8 million. Cash flows used in
investing activities for the six months ended June 30, 1995 consisted primarily
of originations of portfolio loans of $1.6 million, net of principal collected,
offset by maturities and calls of investment securities of $1.0 million.
Cash flows provided by financing activities for the six months ended June 30,
1996 consisted of borrowings from the FHLB Chicago of $24.5 million, offset by
$6.6 million in principal repayments on such borrowings as well as inflows to
deposit accounts of $1.1 million and a net increase of $0.2 million in advanced
payments for taxes and insurance. Cash provided by financing activities for the
six months ended June 30, 1995 consisted of borrowings from the FHLB Chicago of
$3.25 million, offset by $6.25 million in principal repayments on such
borrowings, a net increase in deposit accounts of $4.7 million and a net
increase in advance payments for taxes and insurance of $0.2 million.
At June 30, 1996, the Bank had outstanding loan commitments of $3.5 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan origination and purchase commitments. Certificates of deposit
which are scheduled to mature in less than one year from June 30, 1996 totaled
$26.5 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 of the aforementioned deposit insurance premium
differential results in a disparity between the rates paid by the Company versus
hose paid by competitors in the local market.
CHANGES IN FINANCIAL CONDITION
As of June 30, 1996, total assets of the Company were $94.5 million, an increase
of $19.6 million, or 26.2%, from December 31, 1995 assets of $74.9 million.
Cash and cash equivalents totaled $1.8 million at June 30, 1996, a decrease of
$0.8 million, or 30.6% from December 31, 1995.
Investment securities held to maturity and available for sale totaled $8.9
million at June 30, 1996, a decrease of $0.9 million from December 31, 1995.
The primary reason for the decrease was the sale of two securities in the first
quarter totaling $0.7 million. Mortgage-backed securities totaled $10.1 million
at June 30, 1996, an increase of $0.3 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 offset by principal repayments of $0.8 million and
declining market values on the available for sale portfolio.
First mortgage loans held for sale totaled $1.8 million at June 30, 1996 as
compared to $0.4 million at December 31, 1995, an increase of $1.4 million, or
367.5%. The primary reason for the increase in the held for sale portfolio was
the increase in the mortgage pipeline as a whole. Commitments to sell first
mortgage loans at June 30, 1996 were $1.3 million compared to $0.3 million in
commitments at December 31, 1995.
<PAGE>14
Net loans receivable totaled $68.7 million at June 30, 1996 as compared to $49.8
million at December 31, 1995, an increase of $18.9 million, or 37.9%. The
increased balance is primarily attributable to management directing more
originations, due to the decision to retain 15 year mortgages, to the Bank's
portfolio to increase the interest income of the Bank combined with the $7.8
million purchase of adjustable rate mortgages in the first quarter. Loans
serviced for others totaled 1,092 loans with a balance of $52.9 million at June
30, 1996 as compared to 1,155 loans with a balance of $55.8 million at December
31, 1995.
Deposit accounts totaled $67.4 million at June 30, 1996 as compared to $66.2
million at December 31, 1995, an increase of $1.2 million, or 1.7%. 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 believes that
it continues to maintain lower cost of funds than its peers.
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 June At December
30, 1996 31, 1995
--------- ------------
(Dollars in Thousands)
----------------------
<S> <C> <C>
Loans delinquent 90 days or more
Accruing:
First mortgage loans:
1-4 family residential $ 23 $ 196
Other loans 1 3
---- -----
Total $ 24 $ 199
Non-accruing:
First mortgage loans
1-4 family residential $ 160 $ 52
Other loans 108 118
---- -----
Total $ 268 $ 200
Loans delinquent 89 days or less
Other loans $ 2 $ 19
---- -----
Total 2 19
Total non-performing loans $ 294 $ 418
==== =====
Total real estate owned, net of related
allowances for losses $ 0 $ 0
Total non-performing assets $ 294 $ 418
==== =====
Total non-performing loans
to net loans receivable 1 0.42% 0.83%
Total non-performing loans
to total assets 0.31 0.56
Total non-performing loans and REO to
total assets 0.31 0.56
</TABLE>
<PAGE>15
1. Net loans receivable includes loans held for sale.
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. During the second quarter, significant
consideration was given to effects of entering the credit card market upon the
allowance for loan losses. 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
June 30, 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 $378,000 at June 30, 1996, which represented
128.57% 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 JUNE 30, 1996 AND 1995.
GENERAL
Net income for the three months ended June 30, 1996 was $138,000 compared to
$120,000 for the three months ended June 30, 1995, an increase of $18,000, or
15.0%. The increase in net income for the period ended June 30, 1996 was
primarily attributable to an increase of $23,000 in net interest income after
provision for loan losses from to $659,000 for the three months ended June 30,
1996 from $636,000 for the same period in 1995.
NET INTEREST INCOME
The Company's net interest income before provision for loan losses was $0.7
million for the quarter ended June 30, 1996, an increase of $0.1 million from
the same period in 1995. Interest income on interest-earning assets totaled
$1.6 million for the three months ended June 30, 1996 as compared to $1.3
million for the same period in 1995, an increase of $0.3 million or 23.8%.
Interest expense on interest-bearing liabilities totaled $0.9 million for the
three months ended June 30, 1996, as compared to $0.7 million for the same
period in 1995, an increase of $0.2 million, or 39.6%. The increase in net
interest income was due to an increase of $18.4 million, or 25.8% in the
average balance of interest earning assets for the three months ended June 30,
1996 reflecting management's decision to retain in portfolio 15 year mortgage
loans. This increase more than offsets a decrease in the Company's net spread.
The Company's net interest spread decreased 68 basis points to 2.96% for the
three months ended June 30, 1996 from 3.64% for the three months ended June 30,
1995. An increase in FHLB advances as well as an increased concentration in
adjustable rate loans, with lower initial yields, caused the Company's spread
to decline.
<PAGE>16
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses was $24,000 for the three months ended June
30, 1996 compared to $2,000 for the three months ended June 30, 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 as well as the results of provisions recorded against credit card
receivables. The credit card program was launched at the end of the second
quarter and the Company has yet to accumulate meaningful portfolio experience.
However, management is comfortable with the conservative allowance being
recorded.
NON-INTEREST INCOME
Non-interest income decreased $201,000, or 61.3%, to $127,000 for the three
months ended June 30, 1996 from $328,000 for the same period in 1995. The
decrease was primarily attributable to a decrease in other income of $187,000,
or 93.0% to $14,000 for the three months ended June 30, 1996 from $201,000 for
the three months ended June 30, 1995. Of this $187,000 decrease in other
income, $191,000 directly relates to the insurance proceeds collected in June,
1995 upon the death of then President and CEO, David L. Beasley in April, 1995.
Gain on sale of loans decreased $19,000 or 51.4% to $18,000 for the three months
ended June 30, 1996 from $37,000 for the same period in 1995. This decrease was
the result of management's decision to retain 15 year mortgages in portfolio.
Also contributing to the decrease was the disposal of $9,000 of assets as the
Company upgraded its technology. These decreases were partially offset by
increases in loan servicing fees and charges, and service charges on deposit
accounts.
NON-INTEREST EXPENSE
Non-interest expense decreased $205,000, or 26.1%, to $580,000 for the three
months ended June 30, 1996 from $785,000 for the three months ended June 30,
1995. The decrease was due primarily to a decrease of $260,000 in compensation
and benefits to $276,000 for the three months ended June 30, 1996 from $536,000
for the three months ended June 30, 1995. Of this $260,000, $206,000 directly
relates to the benefit expenses recorded upon the death of Mr. Beasley in
1995. This decrease was partially offset by increases in loan origination and
servicing, occupancy and equipment, data processing, federal deposit insurance
premiums and other non-interest expenses. Loan origination and servicing
increased $30,000 due to additional commissions paid on a higher volume of
originations during the three months ended June 30, 1996. The increase of
$8,000 in occupancy and equipment is reflective of the fact that the Company has
been making investments in technology over the course of the past year. Data
processing increased $5,000 as a result of increase per item charges reflecting
the increases in deposit accounts for the three months ended June 30, 1996.
Federal deposits insurance premiums increased $4,000 as a result of an increase
in deposits.
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary mortgage
market totaled $2.0 million and $1.1 million during the three months ended June
30, 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 June
30, 1996 totaled $18,000 compared to $37,000 for the same period in 1995, a
decrease of 51.4%.
INCOME TAXES
For the three months ended June 30, 1996 income tax expense increased $9,000, or
15.3% to $68,000 from $59,000 for the three months ended June 30, 1995, as net
income before income taxes increased.
<PAGE>17
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
GENERAL
Net income for the six months ended June 30, 1996 was $150,000 compared to
$253,000 for the six months ended June 30, 1995, a decrease of $103,000, or
40.7%. The decrease in net income for the period ended June 30, 1996 is
attributable to: i) a decrease in other income net of $191,000 of insurance
proceeds during 1995, of $60,000; ii) an increase of $62,000, net of benefit
expenses recorded in the amount of $206,000 during 1995 due to the passage of
the Company's then President and CEO, David L. Beasley; iii) an increase in
provision for loss of loans of $51,000.
NET INTEREST INCOME
The Company's net interest income before provision for loan losses was $1.3
million for the six months ended June 30, 1996, unchanged from the six months
ended June 30, 1995 as the Company experienced corresponding increases in
total interest income and total interest expense of $411,000 and $413,000,
respectively. Interest income on interest-earning assets totaled $3.0 million
for the six months ended June 30, 1996 as compared to $2.6 million for the
same period in 1995, an increase of $0.4 million or 15.9%. Interest expense on
interest-bearing liabilities totaled $1.7 million for the six months ended June
30, 1996, as compared to $1.3 million for the same period in 1995, an increase
of $0.4 million, or 31.7%. The Company's net interest spread decreased 59 basis
points to 2.98% for the six months ended June 30, 1996 from 3.57% for the six
months ended June 30, 1995. An increase in FHLB advances as well as an
increased concentration in adjustable rate loans, with lower initial yields,
caused the Company's spread to decline.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses was $55,000 for the six months ended June
30, 1996 compared to $4,000 for the six months ended June 30, 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 as well as the results of provisions recorded against credit card
receivables. The credit card program was launched at the end of the second
quarter and the Company has yet to accumulate meaningful portfolio experience.
However, management is comfortable with the conservative allowance being
recorded.
NON-INTEREST INCOME
Non-interest income decreased $251,000, or 53.9%, to $215,000 for the six months
ended June 30, 1996 from $466,000 for the same period in 1995. The decrease
was primarily attributable to a decrease in other income of $208,000, or 88.5%
to $27,000 for the six months ended June 30, 1996 from $235,000 for the six
months ended June 30, 1995. Of this $208,000 decrease, $191,000 directly
relates to the insurance proceeds collected in June, 1995 upon the death of Mr.
Beasley in 1995. Gain on sale of loans decreased $28,000 or 40.6%, to $41,000
for the six months ended June 30, 1996 from $69,000 for the same period in 1995.
This decrease was the result of management's decision to retain 15 year
mortgages in portfolio. Also contributing to the decrease was a loss on the
sale of two securities of $14,000 and the disposal of $9,000 of assets as the
Company upgraded its technology.
<PAGE>18
NON-INTEREST EXPENSE
Non-interest expense decreased $144,000, or 10.5%, to $1,227,000 for the six
months ended June 30, 1996 from $1,371,000 for the six months ended June 30,
1995. The decrease was due primarily to a decrease of $275,000 in compensation
and benefits to $601,000 for the six months ended June 30, 1996, from $876,000
for the six months ended June 30, 1995. Of this $275,000 decrease, $206,000
directly related to the benefit expenses recorded upon the death of Mr. Beasley
in 1995. The remaining $69,000 decrease is the result of management's efforts
to create efficiencies and reduce staff. This decrease was partially offset by
increases in loan origination and servicing, occupancy and equipment, data
processing, federal deposit insurance premiums and other non-interest expenses.
Loan origination and servicing increased $48,000 as mortgage originations
increased 276.71% to $19.7 million for the six months ended June 30, 1996
from $5.2 million for the six months ended June 30, 1995 as well as additional
commissions paid on a higher volume of originations during the six months ended
June 30, 1996. Non-interest expense increased $41,000 as a result of costs
incidental to facilities' upgrades, increased marketing efforts and the
introduction of new products. The increase of $22,000 in occupancy and
equipment was reflective of the fact that the Company has been making
investments in technology over the course of the past year. Data processing
increased $12,000 as a result of increased per item charges reflecting the
increases in deposit and loan accounts for the six months ended June 30, 1996.
Federal deposits insurance premiums increased $8,000 as a result of an increase
in deposits.
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary mortgage
market totaled $3.5 million and $2.0 million during the six months ended June
30, 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 six months ended June
30, 1996 totaled $41,000 compared to $69,000 for the same period in 1995, a
decrease of 40.6%.
INCOME TAXES
For the six months ended June 30, 1996 income tax expense decreased 57,000, or
45.2%, to $69,000, from $126,000 for the six months ended June 30, 1995, as net
income before income taxes decreased.
<PAGE>19
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 or lawsuits.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS
The following items were presented to shareholders at the Company's annual
meeting on April 17, 1996:
1. The election of Steven C. Derr and Nancy Sylvester as directors,
joining the directors continuing in office, Jack Manley, Morton
Silver, and Richard Winkelman. The election of the new directors
are for terms of three years or until their successors have been
elected and qualified.
2. The ratification of the appointment of Crowe, Chizek and Company
LLP as auditors for the Company for the fiscal year ending
December 31, 1996.
All of the above items were approved by shareholders at the Meeting. The
election of Steven C. Derr for the term of three years or until his successor
has been elected was approved by a vote of 305,529 in favor, 0 withheld. The
election of Nancy Sylvester for the term of three years or until her successor
has been elected was approved by a vote of 303,004 in favor, 0 withheld, and
2,525 abstaining. The appointment of Crowe, Chizek and Company LLP as auditors
for the Company for the fiscal year ending December 31, 1996 by a vote of
305,104 in favor, 0 against and 425 abstaining.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended June 30, 1996, the Registrant filed two Form 8-K's. On
April 4, 1996, the Company announced the nomination of Nancy Sylvester to the
Board of Directors to replace Neal Brandt, who had previously been nominated
and had subsequently advised the Registrant of his inability to serve if
elected. The Company also announced the intention of the Board of Directors to
vote proxies received for the election of Mr. Brandt in favor of Ms. Sylvester
at the Annual Meeting of Stockholders.
On April 17, 1996, the Registrant announced approval by regulatory authorities
for the Company to buy back up to 23,594 shares of its publicly traded common
stock commencing April 1, 1996, and ending on September 30, 1996.
<PAGE>20
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: AUGUST 12, 1996 By:
------------------------------------------
Steven C. Derr
President
Principal Executive Officer
Dated: AUGUST 12, 1996 By:
------------------------------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<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: AUGUST 12, 1996 By: /s/ STEVEN C. DERR
-------------------------------
Steven C. Derr
President
Principal Executive Officer
Dated: August 12, 1996 By: /s/ KEITH D. HILL
-------------------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 397
<INT-BEARING-DEPOSITS> 1,378
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,777
<INVESTMENTS-CARRYING> 1,210
<INVESTMENTS-MARKET> 1,159
<LOANS> 68,730
<ALLOWANCE> 378
<TOTAL-ASSETS> 94,486
<DEPOSITS> 67,354
<SHORT-TERM> 11,200
<LIABILITIES-OTHER> 1,359
<LONG-TERM> 6,700
50
0
<COMMON> 0
<OTHER-SE> 7,823
<TOTAL-LIABILITIES-AND-EQUITY> 94,486
<INTEREST-LOAN> 2,410
<INTEREST-INVEST> 592
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,002
<INTEREST-DEPOSIT> 1,485
<INTEREST-EXPENSE> 1,716
<INTEREST-INCOME-NET> 1,286
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,227
<INCOME-PRETAX> 219
<INCOME-PRE-EXTRAORDINARY> 219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 2.98
<LOANS-NON> 268
<LOANS-PAST> 24
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 244
<ALLOWANCE-OPEN> 309
<CHARGE-OFFS> 17
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 347
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 347
</TABLE>
