<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 June 30, 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 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, 1997 the Registrant had 415,195 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, 1997 3
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity for the
Six Months Ended June 30, 1997 5
Consolidated Statements of Cash Flows for the Six months
Ended June 30, 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 10
Part II. OTHER INFORMATION 20
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
-----------------------------------------------------------
(Unaudited)
June 30, 1997
-------------------
ASSETS (Dollars in Thousands)
<S> <C>
Cash on hand and non-interest-earning deposits $504
Interest-earning deposits 4,446
------------
Total cash and cash equivalents 4,950
Securities available-for-sale, at market value 15,752
Mortgage-backed securities available-for-sale, at market value 1,742
Investment securities held-to-maturity (market value of $76) 76
Mortgage-backed securities held-to-maturity (market value of $990) 1,042
Certificates of deposit held-to-maturity 3,098
First mortgage loans held-for-sale 930
Loans receivable, net of allowance for losses of $497 53,174
Accrued interest receivable 513
Premises and equipment 1,451
Investment in stock of Federal Home Loan Bank of Chicago, at cost 910
Other assets 893
------------
Total assets $84,531
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $68,529
Borrowings from FHLB 7,700
Advance payments by borrowers for taxes and insurance 305
Other liabilities 682
------------
Total liabilities 77,216
------------
COMMITMENTS AND CONTINGENCIES (See footnotes)
STOCKHOLDERS' EQUITY
Common Stock - $0.10 par value, 1,500,000 shares authorized,
509,598 shares issued and 415,195 shares outstanding 51
Additional paid-in capital 3,830
Retained earnings, substantially restricted 5,031
Treasury stock, at cost, (1,505)
Common stock purchased by:
Employee stock ownership plan (68)
Management recognition and retention plans (26)
Net unrealized gain on investment securities available for 2
------------
Total stockholders' equity 7,315
------------
Total liabilities & stockholders' equity $84,531
============
</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 June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income:
First mortgage loans $1,180 $1,174 $2,406 $2,095
Other loans 209 165 414 315
Mortgage-backed securities 136 158 288 319
Investment securities 109 120 199 242
Interest-earning deposits 32 8 39 31
------------- ------------- ------------- -------------
Total interest income 1,666 1,625 3,346 3,002
------------- ------------- ------------- -------------
Interest expense:
Deposit accounts 754 736 1,486 1,485
FHLB advances 244 206 527 231
------------- ------------- ------------- -------------
Total interest expense 998 942 2,013 1,716
------------- ------------- ------------- -------------
Net interest income 668 683 1,333 1,286
Provision for loss on loans 0 24 33 55
------------- ------------- ------------- -------------
Net interest income after provision for loss on 668 659 1,300 1,231
------------- ------------- ------------- -------------
Non-interest income:
Loan servicing fees and charges 66 50 116 78
Service charges on deposit accounts 54 54 98 92
(Loss) gain on sales of loans (153) 18 (147) 41
Loss on sales of investments securities (240) 0 (171) (14)
Gain (loss) on sales/disposal of assets 1 (9) 1 (9)
Other 14 14 27 27
------------- ------------- ------------- -------------
Total non-interest income (258) 127 (76) 215
------------- ------------- ------------- -------------
Non-interest expense:
Compensation and benefits 313 276 611 601
Occupancy and equipment 70 58 145 117
Data processing 114 40 156 83
Federal deposit insurance premiums 11 38 13 76
Loan origination and servicing 15 38 27 72
Professional fees 22 29 49 52
Advertising and promotion 23 14 51 32
Other 104 87 211 194
------------- ------------- ------------- -------------
Total non-interest expense 672 580 1,263 1,227
------------- ------------- ------------- -------------
Income (loss) before income taxes (262) 206 (39) 219
Income taxes (benefit) (92) 68 (19) 69
------------- ------------- ------------- -------------
Net income (loss), before extraordinary item ($170) $138 ($20) $150
------------- ------------- ------------- -------------
Extraordinary item, net of tax benefit of $12 (24) 0 (24) 0
------------- ------------- ------------- -------------
Net income (loss), after extraordinary item ($194) $138 ($44) $150
============= ============= ============= =============
Primary earnings (loss) per share, before extraordinary item ($0.42) $0.30 ($0.05) $0.32
Extraordinary item per share, net of tax benefit of $12 ($0.06) $0.00 ($0.06) $0.00
------------- ------------- ------------- -------------
Primary earnings (loss) per share, after extraordinary item ($0.48) $0.30 ($0.11) $0.32
============= ============= ============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>5
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1997
(Unaudited)
(Dollars in Thousands)
Net
Unrealized
Loss On
Additional Unearned Unearned Securities
Common Paid-in Retained Treasury ESOP Stock Available-
Stock Capital Earnings Stock Shares Awards for-Sale Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(In Thousands)
<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 loss -- -- (44) -- -- -- -- (44)
Release of earned ESOP
shares, 3,390 shares -- 33 -- -- 27 -- -- 60
Purchase of treasury stock,
9,681 shares, at cost -- -- -- (155) -- -- -- (155)
Net change in unrealized loss
on investment securities
available for sale, net of
deferred income taxes of $6 -- -- -- -- -- -- -- 129
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1997 $51 $3,830 $5,031 ($1,505) ($68) ($26) $2 $7,315
========== ========== ========== ========== ========== ========== ========== ==========
</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)
Six Months Ended
June 30,
----------------------
1997 1996
----------------------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ($44) $150
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 21 (12)
Net excess servicing fees and originated mortgage servicing rights 0 24
Management recognition and retention plans 0 9
Employee stock ownership plan 60 44
Provision for losses on loans and foreclosed real estate 33 55
(Gain) loss on sale of:
Loans 147 (41)
Investment and mortgage-backed securities 171 14
Other (1) 9
Depreciation of premises and equipment 68 49
Originations of loans held for sale, net of origination fees and principal collected (2,009) (4,916)
Proceeds from sales of loans held for sale 20,771 3,506
Increase (decrease) in cash flows due to other changes in:
Accrued interest receivable 4 (79)
Other assets 99 (127)
Other liabilities 130 352
---------- ----------
Net cash used in operating activities 19,450 (963)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations net of principal collected on loans 1,065 (11,092)
Purchases of:
Whole loan participations (564) (7,844)
Mortgage-backed securities available for sale 0 (1,250)
Certificates of deposit held to maturity (3,098) 0
Securities available for sale (12,183) (2,796)
Stock of the FHLB of Chicago 0 (414)
Proceeds from:
Sales of securities available for sale 166 736
Sales of mortgage-backed securities available for sale 6,954 0
Maturities and calls of securities available for sale 1,100 2,800
Maturities and calls of investment securities held to maturity 0 200
Sales of FHLB Stock 238 0
Sale of REO 122 0
Principal collected on mortgage-backed securities and collateralized mort 428 779
Purchase of premises and equipment (132) (100)
---------- ----------
Net cash provided by (used in) investing activities (5,904) (18,981)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposit accounts 2,691 1,124
Net increase (decrease) in advances from the Federal Home Loan
Bank of Chicago (12,750) 17,900
Repurchase of common stock (155) (96)
Net increase (decrease) in advance payments by borrowers for taxes and insurance (34) 233
---------- ----------
Net cash (used in) provided by financing activities (10,248) 19,161
---------- ----------
Net increase (decrease) in cash and cash equivalents 3,298 (783)
Cash and cash equivalents at beginning of period 1,652 2,558
---------- ----------
Cash and equivalents at end of period $4,950 $1,775
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $1,952 $1,657
Income Taxes (129) 0
Noncash Items
Transfer of portfolio loans to held for sale 19,962 0
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
JUNE 30, 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 June 30, 1997, the statements of income for the
three and six months ended June 30, 1997 and 1996, the statement of
stockholder's equity for the six months ended June 30, 1997, and the
statements of cash flows for the six months ended June 30, 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 and six months ended June 30, 1997 and 1996.
All material intercompany accounts and transactions have been eliminated in
consolidation.
(3) EARNINGS PER SHARE
Primary earnings per share information for the three and six months ended June
30, 1997 and 1996 is based on the weighted average number of common shares
outstanding of 405,069 and 462,767, respectively, for the three months ended
June 30 and 407,282 and 463,043, respectively, for the six months ended
June 30. The Bank's ESOP held 10,173 unallocated shares as of June 30,
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.
(4) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans at June 30, 1997 were $0.6 million, of
which $0.5 million were fixed rate loans with rates ranging from 7.25% to
11.99% with a weighted average rate of 8.12%. Commitments to sell mortgage
loans totaled $0.4 million at June 30, 1997. As of June 30, 1997 remaining
balances in loans sold under recourse agreements totaled $1.4 million and
unused adjustable rate lines of credit and letters of credit totaled $5.9
million, of which $1.8 million is attributed to the Company's credit card
program.
The Bank has pledged certain mortgage-backed securities and U.S. agency
securities worth $7.4 million at June 30, 1997 as collateral for deposits in
excess of federal deposit insurance limitations.
(5) PENDING ACCOUNTING CHANGES
Financial Accounting Standards No. 125 "Accounting for Transfers of Servicing
and Financial Assets and Extinguishment of Liabilities," was issued by the
Financial Accounting Standards Board ("FASB") in 1996. It revises the
accounting for transfers of financial assets, such as loans and securities,
and for distinguishing between sales and secured borrowings. It is effective
for some transactions in 1997 and others in 1998. The Company anticipates the
Standard will have no material effect on its financial statements.
<PAGE>9
On March 3, 1997, the FASB issued statement No. 128, Earnings Per Share, which
is effective for financial statements beginning with year end 1997. Basic
earnings per share will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential dilution
of stock options and other common stock equivalents. All prior calculations
will be restated to be comparable to the new methods. As the Company has not
had significant dilution from stock options, the new calculation methods will
not significantly affect the future basic earnings per share and diluted
earnings per share.
(6) RECENT REGULATORY DEVELOPMENTS
A bill has been introduced in the Congress that would eliminate the federal
thrift charter and require the conversion of a federal thrift to a national
bank, state bank or state thrift charter within two years of its passage.
Such legislation would also convert the Company to a bank holding company from
its current thrift holding company status. The proposed legislation calls for
the grandfathering of thrifts' powers not available to a bank at the time of
conversion. Such powers, however, would be lost upon change in control or
inability to maintain Qualified Thrift Lender status. Under the proposal the
Office of the Comptroller of Currency ("OCC") or the state banking regulator
would become the Bank's supervisory authority and the Federal Reserve Bank
would supervise the holding company. The OTS, the Company's current regulator
would merge with the OCC.
At this time, the Company is unable to ascertain whether the bill will be
enacted, and if enacted, what changes may be made prior to enactment. For
this reason it is difficult to predict the impact of this legislation on the
Company, its subsidiaries and their operations.
<PAGE>10
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 such 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 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").
<PAGE>11
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.
At June 30, 1997, 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)
Tangible (1) 1.50% $1,266 8.17% $6,895 6.67% $ 5,629
Core (1) 3.00 2,532 8.17 6,895 5.17 4,363
Risk-Based (2)
Current 8.00 3,804 15.52 7,379 7.52 3,575
Total assets for regulatory purposes $84,386
Total risk-weighted assets 47,553
(1) Percentages represent percent of total assets for regulatory purposes.
(2) Percentages represent percent of total risk weighted assets.
At June 30, 1997, the difference between stockholder's equity in accordance
with generally accepted accounting principles (GAAP) and regulatory capital
are summarized as follows:
(In Thousands)
GAAP capital $6,894
Originated mortgage servicing rights fair value (20)
Net unrealized gain on securities available for sale 21
------
Capital for regulatory purposes $6,895
General loan loss allowances 484
Risk-based capital $7,379
======
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.
<PAGE>12
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 15.43% at June 30, 1997. The Bank's relatively high liquidity ratio as of
June 30, 1997 is the result of the net cash and short term securities the Bank
acquired after the balance sheet restructuring undertaken in the second
quarter.
During the second quarter of 1997, the Company took actions to restructure its
balance sheet for the purposes of reducing interest rate risk, improving the
Company's net interest margin through the redeployment of the funds, and
diversifying the Company's balance sheet. As a result of these actions, the
Company realized charges totaling $286,000, net of taxes. The restructuring
included the sale of substantially all of the Company's fixed rate one- to
four-family mortgage loans and the majority of its mortgage-backed securities
and collateralized mortgage obligations. In addition, $7.5 million in fixed
rate, fixed maturity FHLB advances were also prepaid.
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, 1997, cash and cash
equivalents totaled $5.0 million as compared to $1.7 million at December 31,
1996.
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, 1997, consisted primarily of the originations of
loans held for sale, net of principal collections, of $2.0 million offset by
sales of such loans totaling $1.1 million. 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 investing activities for the six months ended June 30,
1997 consisted primarily of sales of fixed rate mortgage loans of $19.7
million and principal collected on portfolio loans in excess of originations,
of $1.1 million, the sale of mortgage-backed securities available for sale of
$7.0 million, maturities of securities available for sale of $1.1 million and
principal repayments on mortgage-backed securities of $0.4 million.
Offsetting such sources of funds were purchases of securities available for
sale and certificates of deposit of $12.2 million and $3.1 million
respectively as well as purchases of loan participations of $0.6 million.
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 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.
<PAGE>13
Cash flows used in financing activities for the six months ended June 30, 1997
consisted of net repayments on FHLB advances of $12.8 million, including
prepayments of $7.5 million on fixed rate, fixed term advances, offset by a
net increase in deposit accounts of $2.7 million. Cash flows provided by
financing activities for the six months ended June 30, 1996 consisted of net
borrowings from the FHLB Chicago of $17.9 million, 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.
At June 30, 1997, the Company had outstanding loan commitments of $0.6
million. The Company 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,
1997 totaled $20.9 million. Management believes that a significant portion of
such deposits will remain with the Company.
CHANGES IN FINANCIAL CONDITION
As of June 30, 1997, total assets of the Company were $84.5 million, a
decrease of $10.0 million, or 10.6%, from December 31, 1996 assets of $94.5
million.
Cash and cash equivalents totaled $5.0 million at June 30, 1997, an increase
of $3.3 million, or 199.6% from December 31, 1996.
Securities held to maturity and available for sale totaled $15.8
million at June 30, 1997, an increase of $11.0 million from December 31, 1996.
The increase was the direct result of the restructuring of the Company's
balance sheet. In addition, mortgage-backed securities totaled $2.8 million
at June 30, 1997, a decrease of $7.4 million from the December 31, 1996 total
of $10.2 million. This decrease was also the result of restructuring the
Company's balance sheet during the second quarter as $7.0 million were sold in
addition to the recurring amortization and prepayments on the securities.
First mortgage loans held for sale totaled $0.9 million at June 30, 1997 and
commitments to sell first mortgage loans at June 30, 1997 were $0.4 million.
The Company had no first mortgage loans held for sale at December 31, 1996.
Net loans receivable totaled $53.2 million at June 30, 1997 as compared to
$73.8 million at December 31, 1996, a decrease of $20.6 million, or 28.0%.
The primary reason for the decrease was the previously cited sale of $20.0
million in long term fixed rate mortgage loans. Loans serviced for others
totaled 1,422 loans with a balance of $70.5 million at June 30, 1997 as
compared to 1,074 loans with a balance of $52.6 million at December 31, 1996
as the fixed rate loans were sold servicing retained.
Deposit accounts totaled $68.5 million at June 30, 1997 as compared to $65.8
million at December 31, 1996, an increase of $2.7 million, or 4.1%.
Contributing to this increase was an 11.4% increase in checking and NOW
balances and a 6.7% increase in savings account balance from December 31,
1996. The increase in core deposits is the result of the Company's Totally
Free Checking promotion which was launched of in February 1997. The Company
anticipates attracting core deposits as well as enhancing fee income and cross
sales through the program.
<PAGE>14
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.
At June At December
30, 1997 31, 1996
--------- ------------
(Dollars in Thousands)
----------------------
Loans delinquent 90 days or more
Accruing:
First mortgage loans:
1-4 family residential $ 3 $ -
Other loans - -
---- -----
Total $ 3 $ -
Non-accruing:
First mortgage loans
1-4 family residential $ - $ 113
Other first mortgage - 4
Other loans 186 27
---- -----
Total $ 186 $ 144
Loans delinquent 89 days or less
Non-accruing:
First mortgage loans
1-4 family residential $ 27 -
Other loans 134 $ 2
---- -----
Total $ 161 2
Total non-performing loans $ 350 $ 146
==== =====
Total real estate owned, net of
related allowances for losses $ 0 $ 0
Total non-performing assets $ 350 $ 146
==== =====
Total non-performing loans
to net loans receivable (1) 0.65% 0.20%
Total non-performing loans
to total assets 0.41 0.15
Total non-performing loans and REO
to total assets 0.41 0.15
(1) Net loans receivable includes loans held for sale.
<PAGE>15
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. During 1997, management
implemented a loan classification system with moderately tighter standards
than previously utilized. The delinquencies have been and are expected to
remain relatively stable, and management believes that the provision balance
at June 30, 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 $497,000 at June 30, 1997, which represented
141.2% of non-performing loans and non-performing assets. These ratios
compare to 320.6% of non-performing loans and 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 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 the 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 doubtful classification.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND
1996.
GENERAL
During the second quarter of 1997, the Company took actions to restructure its
balance sheet for the purposes of reducing interest rate risk, improving the
Company's net interest margin through the redeployment of the funds, and
diversifying the Company's balance sheet. As a result of those actions, the
company realized charges totaling $286,000, net of taxes. The restructuring
included the sale of substantially all of the Company's fixed rate one- to
four-family mortgage loans and the majority of its mortgage-backed securities
and collateralized mortgage obligations. In addition $7.5 million in fixed
rate, fixed maturity FHLB advances were also prepaid.
Net income after extraordinary items for the three months ended June 30, 1996
was $140,000, net of charges related to restructuring the Company's balance
sheet and data system conversion charges, compared to $138,000 for the three
months ended June 30, 1996, an increase of $2,000, or 1.4%. Including the
aforementioned charges, the Company recorded a net loss after extraordinary
items of $194,000 for the three months ended June 30, 1997.
<PAGE>16
NET INTEREST INCOME
The Company's net interest income before provision for loan losses was
$668,000 for the three months ended June 30, 1997, a decrease of $15,000 from
the same period in 1996. The primary reason for the decrease was the higher
cost of liabilities associated with the fixed rate FHLB advances the Company
had borrowed in the latter half of 1996. Interest income on interest-earning
assets totaled $1.7 million for the three months ended June 30, 1997 as
compared to $1.6 million for the same period in 1996, an increase of $0.1
million or 2.5%. Interest expense on interest-bearing liabilities totaled
$1.0 million for the three months ended June 30, 1997, as compared to $0.9
million for the same period in 1996, an increase of $0.1 million, or 5.9%.
The Company's net interest margin decreased 16 basis points to 2.89% for the
three months ended June 30, 1997 from 3.05% for the three months ended June
30, 1996. The primary reason for the decrease in the margin was the use of
fixed rate, fixed term FHLB advances during the 1997 period over short term
variable rate advances.
PROVISION FOR LOAN LOSSES
The Company did not record a provision for loan losses for the three months
ended June 30, 1997. This compares to the $33,000 for the three months ended
June 30, 1996. The elimination of the provision in the 1997 period was a
result of consistency in loan balances and overall portfolio quality. The
exception to the consistency in balances occurred in the fixed rate mortgage
loan portfolio where the Company sold the majority of its holdings during the
quarter. The reduction in the mortgage loan portfolio as a result of the sale
decreased the amount of required reserves for mortgage loans as computed by
the Company's model. The portfolio activity during three months ended June
30, 1997 contrasts with the growth seen in the portfolio during the same
period in 1996. In addition, the Company's credit card portfolio has seasoned
over the course of the past year allowing management to maintain with no
change the allowances recorded for that product during 1996.
NON-INTEREST INCOME
Exclusive of charges related to the restructuring, non-interest income
increased $12,000, or 9.4%, to $139,000 for the three months ended June 30,
1997 from $127,000 for the same period in 1996. The increase was primarily
attributable to increases in loan servicing fees and charges of $16,000 to
$66,000 for the three months ended June 30 ,1997 from $50,000 for the same
period in 1996. The increase related to decreased valuations against mortgage
servicing rights in the 1997 period. Net of restructuring charges of
$157,000, gain on sale of loans decreased $14,000 or 77.8% to $4,000 for the
three months ended June 30, 1997 from $18,000 for the same period in 1996.
This decrease was the result of lower origination volumes during the 1997
period. Partially offsetting the decrease in gain on sales of loans was the
gain on sale of assets of $1,000 during the three months ended June 30, 1997
compared to a loss of $9,000 during 1996.
NON-INTEREST EXPENSE
Exclusive of data processing charges of $76,000 associated with the Company's
upcoming system conversion, non-interest expense increased $16,000, or 2.8%,
to $596,000 for the three months ended June 30, 1997 from $580,000 for the
three months ended June 30, 1996. Including those charges, non-interest
expense increased $92,000, to $672,000 for the three months ended June 30,
1997. The increase, outside of the conversion charges, was the result of
increases in compensation, occupancy, promotion, and other expenses, partially
offset by decreases in FDIC insurance premiums, loan origination and servicing
expenses and professional fees. Compensation increased $37,000 due to lower
origination volumes in the 1997 period, which led to capitalization of less
direct costs under SFAS No. 91, Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Direct Costs of Leases, as
compared to the three months ended June 30, 1996. Occupancy and equipment
increased $12,000, primarily as a result of increased depreciation for
hardware and software additions as well as increased real estate taxes.
Promotional expenses increased $9,000 as the Company has undertaken a direct
mail campaign during 1997 in conjunction with its Totally Free Checking
program. Partially offsetting these increases was a decrease in FDIC
insurance premiums of $27,000 as rates were reduced at the beginning of 1997
after the Company contributed to the recapitalization of the SAIF in the third
quarter of 1996. In addition the Bank experienced a decrease in loan
origination and servicing fees as origination volume declined in the 1997
quarter.
<PAGE>17
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary mortgage
market, excluding the $20.0 million sold in the restructuring, totaled $0.4
million and $2.0 million during the three months ended June 30, 1997 and 1996,
respectively. The decrease was due primarily to a reduction in the amount of
originations in the 1997 period. Gain on sales of mortgage loans, net of a
valuation allowance and the restructuring, for the three months ended June 30,
1997 totaled $4,000 compared to $18,000 for the same period in 1996, a
decrease of 77.8%.
INCOME TAXES
For the three months ended June 30, 1997 the Company recorded an income tax
benefit of $92,000, as compared to expense of $68,000 for the three months
ended June 30, 1996.
EXTRAORDINARY ITEM
The Company recorded extraordinary charges related to the early retirement of
fixed rate debt, net of tax, of $24,000 during the three months ended June 30,
1997. The charges relate to the prepayment of $7.5 million in fixed rate
advances with the Federal Home Loan Bank of Chicago. The advances were
prepaid as a step in the balance sheet restructuring plan. The Company's net
loss before this extraordinary item for the three months ended June 30, 1997
was $170,000.
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
GENERAL
During the second quarter of 1997, the Company took actions to restructure its
balance sheet for the purposes of reducing interest rate risk, improving the
Company's net interest margin through the redeployment of the funds, and
diversifying the Company's balance sheet. As a result of those actions, the
Company realized charges totaling $286,000, net of taxes during the period.
The restructuring included the sale of substantially all of the Company's
fixed rate one- to four-family mortgage loans and the majority of its
mortgage-backed securities and collateralized mortgage obligations. In
addition $7.5 million in fixed rate, fixed maturity FHLB advances were also
prepaid.
Net income after extraordinary items for the six months ended June 30, 1997
was $292,000, exclusive of charges related to restructuring the Company's
balance sheet and data system conversion charges, compared to $150,000 for the
six months ended June 30, 1996, an increase of $142,000, or 94.7%. Including
the aforementioned charges, the Company recorded a net loss after
extraordinary items of $44,000 for the six months ended June 30, 1997.
<PAGE>18
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, 1997, an increase of $0.1 million
from the same period in 1996. The primary reason for the increase was the
increase in the Company's earning assets. Interest income on interest-earning
assets totaled $3.3 million for the six months ended June 30, 1997 as compared
to $3.0 million for the same period in 1996, an increase of $0.3 million or
11.5%. Interest expense on interest-bearing liabilities totaled $2.0 million
for the six months ended June 30, 1997, as compared to $1.7 million for the
same period in 1996, an increase of $0.3 million, or 17.3%. The Company's net
interest margin decreased 23 basis points to 2.89% for the six months ended
June 30, 1997 from 3.06% for the six months ended June 30, 1996. The primary
reason for the decrease in the margin was the use of fixed rate, fixed term
FHLB advances during the 1997 period over short term variable rate advances.
The yield on assets remained consistent at 7.18% while the cost of deposit
liabilities declined 4 basis points.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses for the six months ended June
30, 1997 of $33,000. This compares to $55,000 for the six months ended June
30, 1996. The reduction in the provision in the 1997 period was a result of
reduced growth in the loan portfolio and management's judgement as to the
adequacy of overall reserves. The reduced growth was offset by the sale of
the majority of the fixed rate mortgage loan portfolio in the balance sheet
restructuring. This contrasts with the growth seen in the portfolio during
the same period in 1996.
NON-INTEREST INCOME
Exclusive of gains and losses on sales of loans, investments and fixed assets,
non-interest income increased $44,000, or 22.3%, to $241,000 for the six
months ended June 30, 1997 from $197,000 for the same period in 1996. The
increase was primarily attributable to increases in loan servicing fees and
charges of $38,000 to $116,000 for the six months ended June 30 ,1997 from
$78,000 for the same period in 1996. The increase related to decreased
valuations against mortgage servicing rights in the 1997 period and increased
fees on credit cards. Deposit service charges also increased for the six
months ended June 30, 1997 to $98,000 from $92,000 for the six months ended
June 30, 1996. Increased fees on checking accounts constituted the majority
of that increase as the Company was successful in attracting accounts through
its new Totally Free Checking program. Net losses on sales and disposals of
loans, securities and assets totaled $317,000 for the six months ended June
30, 1997 while the Company recorded a net gain of $18,000 for the same period
in 1996. Of the net $317,000 in losses for 1997, $397,000 related to the
Company's balance sheet restructuring. Partially offsetting those losses were
gains on sales of current production loans of $10,000, down from $41,000 for
the same period in 1996 as a result of decreased originations, and $69,000 on
the distribution of a unit investment trust held by the Company during 1997.
NON-INTEREST EXPENSE
Exclusive of data processing charges of $76,000 associated with the Company's
upcoming system conversion, non-interest expense decreased $40,000, or 3.3%,
to $1,187,000 for the six months ended June 30, 1997 from $1,227,000 for the
six months ended June 30, 1996. Including those charges non-interest expense
increased $36,000, to $1,263,000 for the six months ended June 30, 1997. The
decrease, exclusive of the conversion charges, was primarily the result of
decreases in FDIC insurance premiums and loan origination and servicing
charges, partially offset by increases in compensation and benefits, occupancy
and equipment and other expenses. FDIC insurance premiums decreased $63,000,
or 82.9%, as rates were reduced at the beginning of 1997 after the Company
contributed to recapitalization of the SAIF in the third quarter of 1996.
Loan origination and servicing fees decreased with the decrease in
originations for the six months ended June 30, 1997. Compensation increased
$10,000 primarily due to lower origination volumes in the 1997 period, which
led to capitalization of less direct costs under SFAS No. 91 as compared to
the six months ended June 30, 1996. Occupancy and equipment increased
$28,000, primarily as a result of increased depreciation for hardware and
software additions as well as increased real estate taxes. Other expenses
increased $17,000 for the six months ended June 30, 1997 to $211,000 as a
result of various operating expenses associated with the growth of the Company
and expansion of its product offerings.
<PAGE>19
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary mortgage
market, excluding the $20.0 million sold in the restructure, totaled $0.8
million and $3.5 million during the six months ended June 30, 1997 and 1996,
respectively. The decrease is due primarily to a reduction in the amount of
originations in the 1997 period. Gain on sales of mortgage loans, net of a
valuation allowance and the restructuring, for the six months ended June 30,
1997 totaled $10,000 compared to $41,000 for the same period in 1996, a
decrease of 75.6%.
INCOME TAXES
For the six months ended June 30, 1997 the Company recorded an income tax
benefit of 24,000, as compared to expense of $69,000 for the six months ended
June 30, 1996.
EXTRAORDINARY ITEM
The Company recorded an extraordinary charge related to the early retirement
of fixed rate debt, net of tax, of $24,000 during the six months ended June
30, 1997. The charges relate to the prepayment of $7.5 million in fixed rate
advances with the Federal Home Loan Bank of Chicago. The advances were
prepaid as an element of the plan to restructure the balance sheet. The
Company's net loss before this extraordinary item for the six months ended
June 30, 1997 was $20,000.
<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 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 16, 1997:
1. The election of Charles G. Popp, James V. Twyning, and Richard
E. Winkelman as directors, joining directors continuing in
office, Jack R. Manley, Steven C. Derr and Nancy K. Sylvester.
The election of the new directors are for terms of one year
for Charles G. Popp and three years each for James V. Twyning
and Richard E. Winkelman 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, 1997.
All of the above items were approved by shareholders at the Meeting. The
election of Charles G. Popp for the term of one year or until his successor
has been elected was approved by a vote of 273,687 in favor, 51,818 withheld
and 1,955 excepting. The election of James V. Twyning for the term of three
years or until his successor has been elected was approved by a vote of
273,687 in favor, 51,818 withheld and 1,955 excepting. The election of
Richard E. Winkelman for the term of three years or until his successor has
been elected was approved by a vote of 273,687 in favor, 51,818 withheld and
1,955 excepting. The appointment of Crowe, Chizek and Company LLP as auditors
for the Company for the fiscal year ending December 31, 1997 by a vote of
303,687 in favor, 16,832 against and 6,941 abstaining.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, the Registrant filed two Form 8-K's.
On April 22, 1997, the Company announced earnings for its operations during
the first quarter of 1997.
On June 23, 1997, the Company announced plans to restructure its balance sheet
and the anticipated impact of those actions on its earnings for the second
quarter.
<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 14, 1997 By: /s/ STEVEN C. DERR
-------------------------------
Steven C. Derr
President
Principal Executive Officer
Dated: August 14, 1997 By: /s/ KEITH D. HILL
-------------------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
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<PERIOD-END> JUN-30-1997
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