<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, 1997
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 (I.R.S. Employer Identication
of Incorporation or Organization) 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, 1997 the Registrant had 415,488 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 March 31, 1997 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 9
-----------------------------------
Part II. Other Information 15
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
(Unaudited)
March 31, 1997
----------------------
(Dollars In Thousands)
<S> ASSETS <C>
Cash on hand and non-interest-earning deposits $636
Interest-earning deposits 1,269
---------
Total cash and cash equivalents 1,905
Investment securities available for sale, at fair market va 4,766
Mortgage-backed securities available for sale, at fair mark 8,896
Investment securities held to maturity (fair market value o 77
Mortgage-backed securities held to maturity (fair market va 1,050
Loans receivable, net of allowance for losses of $501 72,408
Accrued interest receivable 548
Real estate owned 122
Premises and equipment 1,402
Investment in stock of Federal Home Loan Bank of Chicago, a 1,148
Other assets 834
---------
Total assets $93,156
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $67,793
Borrowings from FHLB 16,950
Advance payments by borrowers for taxes and insurance 524
Other liabilities 620
---------
Total liabilities 85,887
---------
COMMITMENTS AND CONTINGENCIES (See footnotes)
STOCKHOLDERS' EQUITY
Common Stock - $0.10 par value, 1,500,000 shares authorized,
509,598 shares issued and 415,488 shares outstanding 51
Additional paid-in capital 3,816
Retained earnings, substantially restricted 5,225
Treasury stock, at cost, 94,110 shares (1,500)
Common stock purchased by:
Employee stock ownership plan (81)
Management recognition and retention plans (26)
Net unrealized loss on investment securities available for (216)
----------
Total stockholders' equity 7,269
----------
Total liabilities & stockholders' equity $93,156
==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>4
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1997 1996
------------- --------------
(Dollars in Thousands)
(Except for per share data)
<S> <C> <C>
Interest income:
First mortgage loans $1,226 $921
Other loans 205 150
Mortgage-backed securities 152 161
Investment securities 90 122
Interest-earning deposits 7 23
------------- --------------
Total interest income 1,680 1,377
------------- --------------
Interest expense:
Deposit accounts 732 749
FHLB advances 283 25
------------- --------------
Total interest expense 1,015 774
------------- --------------
Net interest income 665 603
Provision for loss on loans 33 31
------------- --------------
Net interest income after provision for loss on 632 572
------------- --------------
Non-interest income:
Loan servicing fees and charges 50 28
Service charges on deposit accounts 44 38
Gain on sales of loans 6 23
Gain(loss) on sales of investments and mortgage-backed sec 69 (14)
Other 13 13
------------- --------------
Total non-interest income 182 88
------------- --------------
Non-interest expense:
Compensation and benefits 298 325
Occupancy and equipment 75 59
Data processing 42 43
Federal deposit insurance premiums 2 38
Loan origination and servicing 12 34
Other 162 148
------------- --------------
Total non-interest expense 591 647
------------- --------------
Income before income taxes 223 13
Income taxes 73 1
------------- --------------
Net income $150 $12
============= ==============
Primary earnings per share $0.37 $0.03
============= ==============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>5
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1997 1996
(Dollars in Thousands)
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1997
(Unaudited)
(Dollars in Thousands)
Net
Unrealized
Loss on
Additional Unearned Unearned Securites
Common Paid-in Retained Treasury ESOP Stock Available-
Stock Capital Earnings Stock Shares Awards for-Sale Total
--------- ---------- ---------- ----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $51 $3,797 $5,075 ($1,350) ($95) ($26) ($127) $7,325
Net income -- -- 150 -- -- -- -- 150
Release of earned ESOP
shares, 1,695 shares -- 19 -- -- 14 -- -- 33
Purchase of treasury stock,
9,388 shares, at cost -- -- -- (150) -- -- -- (150)
Net change in unrealized loss
on investment securities
available for sale, net of
deferred income taxes of $4 -- -- -- -- -- -- (89) (89)
--------- ---------- ---------- ----------- ---------- --------- ---------- ---------
Balance, March 31, 1997 $51 $3,816 $5,225 ($1,500) ($81) ($26) ($216) $7,269
========= ========== ========== =========== ========== ========= ========== =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>6
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
---------- ----------
(Dollars In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $150 $12
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 15 (10)
Net excess servicing fees and originated mortgage servicing rights 3 22
Management recognition and retention plans 0 8
Employee stock ownership plan 33 22
Provision for losses on loans and foreclosed real estate 33 31
(Gain) loss on sale of:
Loans (6) (23)
Investment and mortgage-backed securities (69) 14
Depreciation of premises and equipment 34 24
Originations of loans held for sale, net of origination fees and principal collected (438) (1,928)
Proceeds from sales of loans held for sale 441 1,532
Net cash flows due to other changes in:
Accrued interest receivable (31) (31)
Other assets 143 (55)
Other liabilities 73 39
--------- ----------
Net cash provided by (used in) operating activities 381 (343)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations net of principal collected on loans 1,242 (5,424)
Purchases of:
Whole loan participations 0 (7,763)
Mortgage-backed securities available for sale 0 (1,250)
Investment securities available for sale (502) (1,094)
Stock of the FHLB of Chicago 0 (20)
Proceeds from:
Sales of investment securities available for sale 0 736
Maturities, calls, and redemptions of investment securities available for sale 516 1,800
Principal collected on mortgage-backed securities and collateralized mortg 176 283
Purchase of premises and equipment (50) (13)
--------- ----------
Net cash provided by (used in) investing activities 1,382 (12,745)
--------- ----------
</TABLE>
<PAGE>7
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued) Three Months Ended
March 31,
1997 1996
--------- ----------
(Dollars In Thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposit accounts 1,955 3,534
Net increase (decrease) in advances from the Federal Home Loan
Bank of Chicago (3,500) 10,000
Repurchase of common stock (150) 0
Net increase (decrease) in advance payments by borrowers for taxes and ins 185 174
--------- ----------
Net cash (used in) provided by financing activities (1,510) 13,708
--------- ----------
Net increase in cash and cash equivalents 253 620
Cash and cash equivalents at beginning of period 1,652 2,558
--------- ----------
Cash and equivalents at end of period $1,905 $3,178
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest $928 $772
Income Taxes (118) 0
Noncash Items
Transfer of portfolio loans to REO 122 0
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>8
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 1997 and 1996
(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, 1997.
The unaudited consolidated financial statements consist of the statement of
financial condition as of March 31, 1997, the statements of income for the
three months ended March 31, 1997 and 1996, the statement of stockholders'
equity for the three months ended March 31, 1997, and the statements of cash
flows for the three months ended March 31, 1997 and 1996, 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, 1997 and 1996. All material intercompany
accounts and transactions have been eliminated in consolidation.
(2) EARNINGS PER SHARE
Primary earnings per share information for the three months ended March 31,
1997 and 1996 is based on the weighted average number of common shares
outstanding during the respective periods of 408,776 and 464,149. The Bank's
ESOP held 11,868 unallocated shares as of March 31, 1997, and the Recognition
and Retention Plans held 3,043 unallocated shares. Fully diluted earnings per
share is not separately disclosed since the effect of dilution is immaterial.
(3) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans at March 31, 1997 were $0.4 million,
all of which were fixed rate loans with rates of 8.500%. The Company had no
commitments to sell mortgage loans at March 31, 1997. As of March 31, 1997
remaining balances in loans sold under recourse agreements totaled
$1.5 million and unused adjustable rate lines of credit and unused credit card
lines totaled $5.3 million.
The Bank has pledged certain mortgage-backed securities and U.S. agency
securities worth $7.0 million at March 31, 1997 as collateral for deposits in
excess of federal deposit insurance limitations.
<PAGE>9
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.
When used in this 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "are expected
to", "estimate", "is anticipated", "project", "will continue, "will likely
result" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
factors addressed within the discussion below could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
The Company does not undertake -- and specifically declines any obligation --
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
The following discussion reviews the Company's financial condition and results
of operations and should be read in conjunction with the unaudited Consolidated
Financial Statements included in this 10-QSB.
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").
<PAGE>10
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.
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.
[CAPTION]
<TABLE>
At March 31, 1997, the Bank was in compliance with the capital requirements,
summarized as follows:
Regulatory
Capital
Requirement Actual Capital Excess Capital
% Amount % Amount % Amount
---- ---------- ---- --------- ---- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible 1 1.50% $1,396 7.60% $7,074 6.10% $5,678
Core 1 3.00 2,792 7.60 7,074 4.60 4,282
Risk-Based 2
Current 8.00 4,010 15.08 7,557 7.08 3,547
Total assets for regulatory purposes $93,052
Total risk-weighted assets 50,126
-------------------------------------------------------------------
1 Percentages represent percent of total assets for regulatory purposes.
2 Percentages represent percent of total risk weighted assets.
</TABLE>
[CAPTION]
<TABLE>
At March 31 , 1997, the difference between stockholder's equity in accordance with generally accepted
accounting principles (GAAP) and regulatory capital are summarized as follows:
(In Thousands)
<S> <C>
GAAP capital $6,846
Originated mortgage servicing rights fair value (3)
Net unrealized loss on securities available for sale 231
-------
Capital for regulatory purposes 7,074
General loan loss allowances 483
-------
Risk-based capital $7,557
=======
</TABLE>
<PAGE>11
LIQUIDY 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 7.6% at March 31, 1997.
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, 1997, cash and
cash equivalents totaled $1.9 million as compared to $1.7 million at
December 31, 1996.
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 provided by operating activities for
the three months ended March 31, 1997, consisted primarily of sale of mortgage
loans of $0.4 million offset by the origination of mortgage loans held for sale
of $0.4 million. 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 investing activities for the three months ended
March 31, 1997 consisted primarily of: i.) $1.2 million in principal collected
on portfolio loans, net of originations; ii.) maturities, calls and redemptions
of securities available for sale of $0.5 million and; iii.) principal
collected on mortgage-backed securities of $0.2 million partially offset by the
purchase of $0.5 million of securities available for sale . Cash flows used
in investing activities for the three months ended March 31, 1996 consisted
primarily of purchases of whole loan participations of $7.8 million,
originations of portfolio loans of $5.4 million, net of principal collected
and purchases of mortgage-backed and securities held for sale of $2.3 million
offset by sales, maturities and calls of such securities of $2.5 million and
principal collected on mortgage-backed securities of $0.3 million.
Cash flows used in financing activities for the three months ended March 31,
1997 consisted of net repayments on borrowings from the FHLB Chicago of $3.5
million, partially offset by $2.0 million in inflows to deposit accounts as the
Company was more effectively able to compete in the local deposit market with
reduced FDIC insurance premiums and a net increase in advanced payments for
taxes and insurance of $0.2 million. Cash provided by financing activities
for the three months ended March 31, 1996 consisted of a net borrowings from
the FHLB Chicago of $10.0 million as management grew the balance sheet during
the quarter ended March 31, 1996 to more effectively utilize excess capital,
an increase in deposit accounts of $3.5 million and a net increase in advance
payments for taxes and insurance of $0.2 million.
At March 31, 1997, the Bank had outstanding loan commitments of $0.4 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, 1997 totaled
$10.5 million. Management believes that a significant portion of such deposits
will remain with the Company.
CHANGES IN FINANCIAL CONDITION
As of March 31, 1997, total assets of the Company were $93.2 million, a
decrease of $1.3 million, or 1.4%, from December 31, 1996 assets of $94.5
million.
Cash and cash equivalents totaled $1.9 million at March 31, 1997, an increase
of $0.2 million, or 15.3% from December 31, 1996.
<PAGE>12
Securities held to maturity and available for sale totaled $4.8 million at
March 31, 1997, unchanged from December 31, 1996. Mortgage-backed securities
totaled $9.9 million at March 31, 1997, a decrease of $0.3 million from the
December 31, 1996 total of $10.2 million. The decrease was primarily due to
principal repayments of $0.2 million on mortgage-backed securities.
Net loans receivable totaled $72.4 million at March 31, 1997 as compared to
$73.8 million at December 31, 1996, a decrease of $1.4 million, or 1.9%. The
decreased is largely attributable to the impact of restructuring the mortgage
origination operations.
Deposit accounts totaled $67.8 million at March 31, 1997 as compared to $65.8
million at December 31, 1996, an increase of $2.0 million, or 3.0%. The primary
reason for the increase was the Company's ability to attract conventional
depositors through CD "sales" as well as the introduction of "Totally Free
Checking" in Boone County. The Company continues to maintain lower cost of
funds, at 4.86% for the three months ended March 31, 1997, than its peers.
ASSET QUALITY
[CAPTION]
<TABLE>
The following table sets forth information regarding loans delinquent more than 90 days, non-
performing less than 90 days and real estate owned.
At March At December
31, 1997 31, 1996
------------ -------------
(Dollars in Thousands)
<S> <C> <C>
Loans delinquent 90 days or more
Accruing:
First mortgage loans:
1-4 family residential $ - $ 196
Other loans - 3
Total ------------ -------------
- 199
Non-accruing:
First mortgage loans
1-4 family residential - 113
Other mortgage loans - 4
Other loans 28 27
------------ -------------
Total 28 144
Loans delinquent 89 days or less
1-4 family residential first mortgage loans 97 -
Other loans 26 2
------------ -------------
Total 123 2
Total non-performing loans $ 151 $ 146
============ =============
Total real estate owned, net of related
allowances for losses 122 0
Total non-performing assets $ 273 $ 146
============ =============
Total non-performing loans
to net loans receivable 1 0.21% 0.20%
Total non-performing loans
to total assets 0.16 0.15
Total non-performing loans and REO to
total assets 0.29 0.15
- ----------------------------------------------------------------
1 Net loans receivable includes loans held for sale.
</TABLE>
<PAGE>13
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, 1997 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 $501,000 at March 31, 1997, which represented
331.8% of non-performing loans and 183.5% of non-performing assets. These
ratios compare to 320.6% of non-performing loans and 320.6% of non-performing
assets at December 31, 1996.
Loan impairment is reported when full payment under the loan term is not
expected. Impairment is evaluated in total for smaller-balance loans of a
similar nature such as the Company's residential mortgage, consumer and credit
card loans and on an individual loan basis for other loans. If a loan is
impaired, a portion of the allowance is allocated so that the loan is reported,
net, at the present value of estimated future cash flows using the loan's
existing rate, or the loan's market price or the fair value of the collateral,
if the loan is collateral dependent. Loans are evaluated for impairment when
payments are delayed, typically 90 days or more, or when the internal grading
system indicates a doubtful classification.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997
AND 1996.
GENERAL
Net income for the three months ended March 31, 1997 was $150,000 compared to
$12,000 for the three months ended March 31, 1996, an increase of $138,000.
The primary components of this increase were: i.) an increase of $60,000, or
10.5%, in net interest income after provision for loan losses to $632,000 for
the three months ended March 31, 1997 from $572,000 for the three months ended
March 31, 1996, as average interest-earning assets increased 17.1%, ii.) an
increase in non-interest income of $94,000, or 106.8%, to $182,000 for the
three months ended March 31, 1997 from $88,000 for the three months ended
March 31, 1996, and iii.) a decrease in non-interest expense of $56,000, or
8.7%, to $591,000 for the three months ended March 31, 1997 from $647,000 for
the three months ended March 31, 1996.
NET INTEREST INCOME
The Company's net interest income before provision for loan losses was $665,000
for the quarter ended March 31, 1997 as compared to $603,000 for the quarter
ended March 31, 1996, an increase of $62,000, or 10.3%. This increase in net
interest income in the 1997 period was primarily due to an increase in average
earning assets of 17.1%. Interest income on interest-earning assets totaled
$1,680,000 for the three months ended March 31, 1997 as compared to $1,377,000
for the same period in 1996, an increase of $303,000 or 22.0%. Interest expense
on interest-bearing liabilities totaled $1,015,000 for the three months ended
March 31, 1997, as compared to $774,000 for the same period in 1996, an increase
of $241,000, or 31.1%. The Company's net interest spread decreased 38 basis
points to 2.63% for the three months ended March 31, 1997 from 3.01% for the
three months ended March 31, 1996. The decrease primarily resulted from an
increase in the cost of funds as borrowings comprised a greater portion of the
liability portfolio to facilitate growth of the balance sheet.
<PAGE>14
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses was $33,000 for the three months ended
March 31, 1997 compared to $31,000 for the three months ended March 31, 1996.
The provision for the 1997 period primarily resulted from current and projected
growth and diversification from mortgages in the loan portfolio.
Non-Interest Income Non-interest income increased $94,000, or 106.8%, to
$182,000 for the three months ended March 31, 1997 from $88,000 for the same
period in 1996. Contributing $83,000 of the increase were gains on sales of
securities in the 1997 period of $69,000, reversing a year earlier loss of
$14,000. Additionally, loan servicing fees and charges increased $22,000,
or 78.6%, as the Company recognized an impairment of $15,000 on originated
mortgage servicing rights during the 1996 period. Partially offsetting the
aforementioned increases, was a decrease of $17,000 in gains on sales of
mortgages to $6,000 for the three months ended March 31, 1997 from $23,000 for
the three months ended March 31, 1996 as origination volumes declined from the
previous year.
NON-INTEREST EXPENSE
Non-interest expense decreased $56,000, or 8.7%, to $591,000 for the three
months ended March 31, 1997 from $647,000 for the three months ended March 31,
1996. The decrease was primarily the result of a decrease in FDIC insurance
premiums of $36,000 to $2,000 for the three months ended March 31, 1997 from
$38,000 for the three months ended March 31, 1996 as the Company began to
benefit from the passage of the Deposit Insurance Funds Act of 1996. In
addition, compensation and benefits decreased $27,000 to $298,000 for the
three months ended March 31, 1997 from $325,000 for the three months ended
March 31, 1996 as improved efficiencies continued and loan origination and
servicing costs decreased $22,000 as origination volumes decreased and reduced
commissions paid. Partially offsetting the aforementioned decreases in
non-interest expenses was an increase of $16,000 in occupancy and equipment to
$75,000 for the three months ended March 31, 1997 from $59,000 for the three
months ended March 31, 1996. The increase was the result of increased
investment in technology to improve products and service levels as well as to
continue the development servicing and operational efficiencies.
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary mortgage
market totaled $0.4 million and $1.5 million during the three months ended
March 31, 1997 and 1996, respectively. The decrease was due to a decline in
the amount of originations in the 1997 period. Gains on sales of mortgage
loans, net of a valuation allowance, for the three months ended March 31, 1997
totaled $6,000 compared to $23,000 for the same period in 1996, a decrease of
73.9%.
INCOME TAXES
For the three months ended March 31, 1997 income tax expense increased $72,000
to $73,000 for the three months ended March 31, 1997 from $1,000 for the three
months ended March 31, 1996, as net income before income taxes increased.
<PAGE>15
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 OF 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 8-K
During the quarter ended March 31, 1997, the Registrant filed one Form 8-K
dated January 10, 1997, which announced the adoption of a Director Emeritus
Program and that Morton I. Silver, a member of the Board of Directors had
retired and agreed to become the first Director Emeritus of the Registrant.
The Registrant also announced the nomination of James V. Twyning to the Board
of Directors to replace Mr. Silver.
<PAGE>16
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 12, 1997 By: /s/ Steven C. Derr
---------------- ---------------------
Steven C. Derr
President
Principal Executive Officer
Dated: May 12, 1997 By: /s/ Keith D. Hill
---------------- ---------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<PAGE>17
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