<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 September 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 (I.R.S. Employer Identification
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
--------------------------------------------------
(Registrants 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 October 31, 1997 the Registrant had 415,149 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
September 30, 1997 3
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1997 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 18
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION
-----------------------------------------------------------
(Unaudited)
September 30,
1997
-------------------
ASSETS (Dollars in Thousands)
<S> <C>
Cash on hand and non-interest-earning deposits $564
Interest-earning deposits 1,463
-------------------
Total cash and cash equivalents 2,027
Securities available-for-sale, at market value 16,614
Mortgage-backed securities available-for-sale, at market value 1,693
Investment securities held-to-maturity (market value of $75) 75
Mortgage-backed securities held-to-maturity (market value of $986) 985
Certificates of deposit 2,798
First mortgage loans held-for-sale 1,374
Loans receivable, net of allowance for losses of $490 54,751
Accrued interest receivable 602
Premises and equipment 1,606
Investment in stock of Federal Home Loan Bank of Chicago, at cost 910
Other assets 807
-------------------
Total assets $84,242
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $67,852
Borrowings from FHLB 8,200
Advance payments by borrowers for taxes and insurance 84
Other liabilities 593
-------------------
Total liabilities 76,729
-------------------
COMMITMENTS AND CONTINGENCIES (See footnotes)
STOCKHOLDERS' EQUITY
Common Stock - $0.10 par value, 1,500,000 shares authorized,
509,598 shares issued and 415,149 shares outstanding 51
Additional paid-in capital 3,844
Retained earnings, substantially restricted 5,150
Treasury stock, at cost, (1,505)
Common stock purchased by:
Employee stock ownership plan (54)
Management recognition and retention plans (25)
Net unrealized gain on investment securities available for sale 52
-------------------
Total stockholders' equity 7,513
-------------------
Total liabilities & stockholders' equity $84,242
===================
</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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest income:
First mortgage loans $887 $1,218 $3,293 $3,313
Other loans 250 187 664 502
Mortgage-backed securities 42 150 330 469
Investment securities 314 151 513 393
Interest-earning deposits 16 6 55 37
------------ ------------ ------------ ------------
Total interest income 1,509 1,712 4,855 4,714
------------ ------------ ------------ ------------
Interest expense:
Deposit accounts 754 738 2,240 2,223
FHLB advances 119 290 646 521
------------ ------------ ------------- ------------
Total interest expense 873 1,028 2,886 2,744
------------ ------------ ------------ ------------
Net interest income 636 684 1,969 1,970
Provision for loss on loans 0 70 33 125
Net interest income after provision for loss on loans 636 614 1,936 1,845
------------ ------------ ------------ ------------
Non-interest income:
Loan servicing fees and charges 55 54 171 132
Service charges on deposit accounts 52 41 150 133
(Loss) gain on sales of loans 45 23 (102) 64
Loss on sales of investments securities 0 0 (171) (14)
Loss on sales/disposal of assets (1) (1) 0 (10)
Other 26 18 53 45
------------ ------------ ------------ ------------
Total non-interest income 177 135 101 350
------------ ------------ ------------ ------------
Non-interest expense:
Compensation and benefits 336 289 947 890
Occupancy and equipment 71 61 216 178
Data processing 40 38 196 121
Federal deposit insurance premiums 11 458 24 534
Loan origination and servicing 25 44 52 116
Professional fees 21 18 70 70
Advertising and promotion 26 12 77 44
Other 109 93 320 287
------------ ------------ ------------ ------------
Total non-interest expense 639 1,013 1,902 2,240
------------ ------------ ------------ ------------
Income (loss) before income taxes 174 (264) 135 (45)
Income taxes (benefit) 55 (95) 36 (26)
------------ ------------ ------------ ------------
Net income (loss), before extraordinary item $119 ($169) $99 ($19)
------------ ------------ ------------ ------------
Extraordinary item, net of tax benefit of $12 0 0 (24) 0
------------- ------------ ------------ ------------
Net income (loss), after extraordinary item $119 ($169) $75 ($19)
------------- ------------ ------------ ------------
Primary earnings (loss) per share, before extraordinary item $0.29 ($0.38) $0.24 ($0.04)
Extraordinary item per share, net of tax benefit of $12 $0.00 $0.00 ($0.06) $0.00
------------ ------------ ------------ ------------
Primary earnings (loss) per share, after extraordinary item $0.29 ($0.38) $0.18 ($0.04)
============ ============= ============= ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
<PAGE>5
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended September 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 -- -- 75 -- -- -- -- 75
Release of earned ESOP
shares, 1,695 shares -- 47 -- -- 41 -- -- 88
Purchase of treasury stock,
9,681 shares, at cost -- -- -- (155) -- -- -- (155)
Amortization of unearned
stock awards -- -- -- -- -- 1 -- 1
Net change in unrealized loss
on investment securities
available for sale, net of
deferred income taxes of $93 -- -- -- -- -- -- -- 179
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 $51 $3,844 $5,150 ($1,505) ($54) ($25) $52 $7,513
========== ========== ========== ========== ========== ========== ========== ==========
</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)
Nine Months Ended
September 30,
-----------------------
1997 1996
-----------------------
(Dollars in Thousands)
<S>
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net income $75 ($19)
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 15
Net excess servicing fees and originated mortgage servicing rights 7 24
Management recognition and retention plans 1 5
Employee stock ownership plan 88 67
Provision for losses on loans and foreclosed real estate 33 126
(Gain) loss on sale of:
Loans 102 (64)
Investment and mortgage-backed securities 171 14
Other 2 9
Depreciation of premises and equipment 99 78
Originations of loans held for sale, net of origination fees and principal collected (6,174) (5,941)
Proceeds from sales of loans held for sale 4,834 5,940
Increase (decrease) in cash flows due to other changes in:
Accrued interest receivable (85) (123)
Other assets 185 (135)
Other liabilities 26 507
-------- ---------
Net cash (used in) provided by operating activities (621) 503
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations net of principal collected on loans 669 (15,140)
Purchases of:
Whole loan participations (1,738) (7,763)
Mortgage-backed securities available for sale 0 (1,250)
Certificates of deposit (3,098) 0
Securities available for sale (13,219) (3,901)
Stock of the FHLB of Chicago 0 (667)
Proceeds from:
Sales of loans 19,685 0
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 1,350 4,000
Maturities and calls of investment securities held to maturity 0 200
Maturities of certificates of deposit 300 0
Sales of FHLB Stock 238 0
Sale of REO 122 0
Principal collected on mortgage-backed securities and collateralized mortgage obligations 534 1,081
Purchase of premises and equipment (321) (255)
-------- ---------
Net cash provided by (used in) investing activities 11,642 (22,959)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposit accounts 2,014 (346)
Net increase (decrease) in advances from the Federal Home Loan
Bank of Chicago (12,250) 22,550
Issuance of common stock 0 33
Repurchase of common stock (155) (381)
Net increase (decrease) in advance payments by borrowers for taxes and insurance (255) (82)
-------- ---------
Net cash (used in) provided by financing activities (10,646) 21,774
-------- ---------
Net increase (decrease) in cash and cash equivalents 375 (682)
Cash and cash equivalents at beginning of period 1,652 2,558
-------- ---------
Cash and equivalents at end of period $2,027 $1,876
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for (refunded from):
Interest $2,867 $2,652
Income Taxes (179) 70
Noncash Items
Transfer of held for sale loans to portfolio, at market 0 41
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
September 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 only of
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 fiscal year ending December 31, 1997.
The unaudited consolidated financial statements consist of the
statement of financial condition as of September 30, 1997, the
statements of income for the three and nine months ended September
30, 1997 and 1996, the statement of stockholder's equity for the
nine months ended September 30, 1997, and the statements of cash
flows for the nine months ended September 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
nine months ended September 30, 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 and nine
months ended September 30, 1997 and 1996 is based on the weighted
average number of common shares outstanding during the respective
periods of 410,349 and 448,901 for the three months ended September
30, and 410,242 and 453,268 for the nine months ended September 30.
The Bank's ESOP held 8,478 unallocated shares as of September 30,
1996, 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 September 30, 1997 were
$0.3 million, of which $0.1 million were fixed rate loans with
rates ranging from 7.750% to 11.990% with a weighted average rate
of 8.331%. Commitments to sell mortgage loans totaled $1.3 million at
September 30, 1997. As of September 30, 1997 remaining balances of
loans sold under recourse agreements totaled $1.3 million, unused
adjustable rate lines of credit totaled $3.6 million, unused lines
of credit on credit cards totaled $1.8 million and commitments to
fund participations in commercial loans totaled $1.2 million.
The Bank has pledged certain mortgage-backed securities and U.S.
agency securities worth $7.1 million at September 30, 1997 as
collateral for deposits in excess of federal deposit insurance
limitations.
<PAGE>9
(4) PENDING ACCOUNTING CHANGES
Statement of Financial Accounting Standards ("SFAS") No. 125
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments 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.
In February 1997, the FASB issued SFAS 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 dilutions 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.
In June 1997, the FASB adopted SFAS No. 130, "Reporting
Comprehensive Income". According to the Statement, all items of
"comprehensive income" are to be reported in a "financial statement
that is displayed with the same prominence as other financial
statements". Comprehensive income is defined as the equity of a
business enterprise during a period from transactions and other
events and circumstances from nonowner sources. Along with net
income, examples of comprehensive income include foreign currency
translation adjustments, unrealized holding gains and losses on
available for sale securities, changes in the market value of a
futures contract that qualifies as a hedge of an asset reported at
fair value, and minimum pension liability adjustments. Currently
the comprehensive income of the Company would consist primarily of
net income and unrealized holding gains and losses on available-for-sale
securities. This statement becomes effective for fiscal years beginning
after December 15, 1997.
In June 1997, the FASB adopted SFAS No. 131 "Disclosures About
Segments of an Enterprise and Related Information." This
statement, which supersedes SFAS No. 14, requires public companies
to report financial and descriptive information about their
reportable operating segments on both an annual and interim basis.
SFAS No. 131 mandates a disclosure of a measure of segment
profit/loss, certain revenue and expense items and segment assets.
In addition, the statement requires reporting information on the
entity's products and services, countries in which the entity earns
revenues and holds assets, and major customers. This statement
requires changes in disclosures and would not affect the financial
condition of the Company. This statement becomes effective for
fiscal years beginning after December 15, 1997.
(5) 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 the
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 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.
<PAGE>11
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.
At September 30, 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)
Tangible 1 1.50% $1,261 8.41% $7,066 6.91% $5,805
Core 1 3.00 2,522 8.41 7,066 5.41 4,544
Risk-Based 2
Current 8.00 3,983 15.12 7,528 7.12 3,545
Total assets for regulatory purposes $84,057
Total risk-weighted assets 49,792
1 Percentages represent percent of total assets for regulatory purposes.
2 Percentages represent percent of total risk weighted assets.
At September 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 $7,083
Originated mortgage servicing rights fair value 3
Net unrealized loss on securities available for sale (14)
Capital for regulatory purposes $7,066
General loan loss allowances 462
Risk-based capital $7,528
<PAGE>12
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 17.74% at
September 30, 1997. The Bank's relatively high liquidity ratio as
of September 30, 1997 is the result of the net cash and short term
securities acquired after the balance sheet restructuring
undertaken in the second quarter of 1997.
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 September 30, 1997, cash and cash equivalents totaled
$2.0 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 nine months ended September
30, 1997, consisted primarily of originations, net of origination
fees and principal repayments of mortgage loans held for sale of
$6.2 million, partially offset by proceeds from sales of such loans
of $4.8 million. Cash flows provided by operating activities for
the nine months ended September 30, 1996 consisted primarily of
sales of mortgage loans held for sale of $5.9 million offset by
$5.9 million in originations, net of origination fees and principal
repayments of such loans.
Cash flows provided by investing activities for the nine months
ended September 30, 1997 consisted primarily of sales of fixed rate
mortgage loans of $19.7 million, mortgage backed securities of $7.0
million, maturities of $1.7 million of securities and certificates
of deposit, principal collected on portfolio loans in excess of
originations of $0.7 million, and principal collected on mortgage-
backed securities of $0.5 million. Partially offsetting such
sources of funds were purchases of securities and certificates of
deposit totaling $13.2 million and $3.1 million respectively as
well as purchases of whole loan participations of $1.7 million and
investment in premises and equipment of $0.3 million. Cash flows
used in investing activities for the nine months ended September
30, 1996 consisted primarily of $15.1 million in portfolio loan
originations, net of principal collected, purchases of whole loan
participations of $7.8 million, purchases of mortgage-backed and
investment securities of $5.2 million, offset by sales, maturities,
calls and principal repayments of such securities of $6.0 million.
Cash flows used in financing activities for the nine months ended
September 30, 1997 consisted primarily of net repayments on FHLB
advances of $12.3 million, including prepayments of $7.5 million on
fixed rate, fixed term advances, offset by a net increase in
deposit accounts of $2.0 million. Cash flows provided by financing
activities for the nine months ended September 30, 1996 consisted
of net borrowings from the FHLB Chicago of $22.6 million, outflows
from deposit accounts of $0.3 million and repurchase of common
stock totaling $0.4 million as the Company completed its OTS-approved
5% stock repurchase program, repurchasing 23,594 shares.
<PAGE>13
At September 30, 1997, the Bank had outstanding loan commitments of
$1.6 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 September 30, 1997, totaled $21.8
million. Management believes that a significant portion of such
deposits will remain with the Bank.
ChANGES IN FINANCIAL CONDITION
As of September 30, 1997, total assets of the Company were $84.2
million, a decrease of $10.3 million, or 10.9%, from December 31,
1996 assets of $94.5 million.
Cash and cash equivalents totaled $2.0 million at September 30,
1997, an increase of $0.3 million, or 22.9% from December 31, 1996.
Investment securities held to maturity and available for sale
totaled $16.7 million at September 30, 1997, an increase of $11.8
million from December 31, 1996, a direct result of the
restructuring of the Company's balance sheet during the second
quarter of 1997. Mortgage-backed securities held to maturity and
available for sale totaled $2.7 million at September 30, 1997, a
decrease of $7.5 million from December 31, 1996 as the Company sold
$7.0 million of such securities through the restructuring in
addition to the recurring amortization and prepayments..
First mortgage loans held for sale totaled $1.4 million at
September 30, 1997 and commitments to sell first mortgage loans at
September 30, 1997 of $1.3 million. The Company had no first
mortgage loans held for sale as of December 31, 1996.
Net loans receivable totaled $54.8 million at September 30, 1997 as
compared to $73.8 million at December 31, 1996, a decrease of $19.0
million, or 25.7%. 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 1,411 loans with
a balance of $70.4 million at September 30, 1997, as compared to
1,074 loans with a balance of $52.6 million at December 31, 1996.
Deposit accounts totaled $67.9 million at September 30, 1997 as
compared to $65.8 million at December 31, 1996, an increase of $2.1
million, or 3.1%. As a result of the Totally Free Checking
campaign launched by the Company in February 1997, an 11.1%
increase in checking and NOW balances was experienced through the
first nine months of the year. The Company anticipates attracting
core deposits as well as enhancing fee income and cross sales
through the program.
Advances from the Federal Home Loan Bank of Chicago totaled $8.2
million at September 30, 1997, a decrease of $12.3 million from
December 31, 1996. The advances were repaid as a part of the
previously mentioned restructuring.
<PAGE>14
ASSET QUALITY
The following table sets forth information regarding loans
delinquent more than 90 days, non-performing loans less than 90
days delinquent and real estate owned.
At September At December
30, 1997 31, 1996
------------ --------------
(Dollars in Thousands)
Loans delinquent 90 days or more
Accruing:
First mortgage loans:
1-4 family residential $ - $ -
Other loans 3 -
------ ------
Total $ 3 $ -
Non-accruing:
First mortgage loans
1-4 family residential $ 4 $ 113
Other first mortgage - 4
Other loans 30 27
------ ------
Total $ 34 $ 144
Loans delinquent 89 days or less
Non-accruing:
First mortgage loans
1-4 family residential $ 128 $ -
Other loans 188 2
------ ------
Total 316 2
Total non-performing loans $ 353 $ 146
====== ======
Total real estate owned, net of related
allowances for losses $ 0 $ 0
Total non-performing assets $ 353 $ 146
====== ======
Total non-performing loans
to net loans receivable 1 0.63% 0.20%
Total non-performing loans
to total assets 0.42 0.15
Total non-performing loans and REO to
total assets 0.42 0.15
1 Net loans receivable includes loans held for sale of $1,374,000
at September 30, 1997.
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
September 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.
<PAGE>15
The allowance for loan loss was $490,000 at September 30, 1997,
which represented 138.8% 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 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 SEPTEMBER 30,
1997 and 1996.
GENERAL
Net income for the three months ended September 30, 1997 was
$119,000 compared to a net loss of $169,000 for the three months
ended September 30, 1996, an increase of $288,000. Excluding the
after tax effect of the FDIC/SAIF assessment, a non-recurring
event, net income for the three months ended September 30, 1996 was
$107,000. After excluding the non-recurring events, the increase
in the earnings from year to year was primarily due to the decrease
in provision for loan losses. The Company's calculations of
reserve requirements did not indicated a need for loan loss
allowances during the three months ended September 30, 1997. Net
interest income before provision for loan losses decreased 7.0% to
$636,000 for the three months ended September 30, 1997 as interest
earning assets decreased and long fixed rate mortgages were
replaced by short term securities. Non-interest income increased
31.1% primarily due to servicing income on loans sold, gains on
sales of mortgage loans and deployment of ATM machines. Non-interest
expense, exclusive of the $417,000 SAIF assessment, increased 7.2%
as increased compensation and advertising expenses were partially
offset by savings in deposit insurance premiums and FDIC premiums.
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $636,000 for the three months ended September 30, 1997
as compared to $684,000 for the three months ended September 30,
1996 a decrease of $48,000, or 7.0%. This decrease in net
interest income in the 1997 period was primarily due to a
decrease in the interest earning asset base and the shift from
higher coupon fixed rate mortgage loans into shorter term lower
rate securities. Total interest income decreased $203,000 to
$1,509,000 for the three months ended September 30, 1997.
Interest expense decreased $155,000 to $873,000 for the three
months ended September 30, 1997. As a result of the
restructuring and subsequent loan production, the Company did
realize an increase in its net interest margin to 3.01% for the
three months ended September 30, 1997 from 2.85% for the same
period in 1996 despite a shift to short term securities and
certificates of deposit for a significant portion of the balance
sheet during the second quarter of 1997. This margin improvement
was one of the primary goals of restructuring the balance sheet.
PROVISION FOR LOAN LOSSES
The Company did not record a provision for loan losses for the
three months ended September 30, 1997 as the reserves were
evaluated as adequate throughout the quarter. During the three
months ended September 30, 1996, a provision of $70,000 was
recorded. Driving the 1996 provision was exceptional growth in
the loan portfolio as well as coverage for the Company's newly
issued credit card portfolio. That product has seasoned over the
course of the past year allowing management to maintain the
provision with no change to the allowances recorded for that
product during 1996.
<PAGE>16
NON-INTEREST INCOME
Non-interest income increased $42,000, or 31.1%, to $177,000 for
the three months ended September 30, 1997 from $135,000 for the
same period in 1996. Over half of the increase was the result of
profits on sales of mortgage loans improving to $45,000 from
$23,000 as the Banks' volume increased in secondary market
originations. The primary reasons for the balance of the increase
was the $11,000, or 26.8%, increase in fees on deposit accounts and
the and an $8,000, or 44.4%, increase in other non-interest income
driven by fees collected on the operation of ATM machines.
NON-INTEREST EXPENSE
Non-interest expense increased $43,000, or 7.2%, to $639,000 for
the three months ended September 30, 1997 from $569,000, net of
the FDIC/SAIF assessment, for the three months ended September 30,
1996. The increase was due primarily to increases of $47,000,
$16,000 and $14,000 respectively in compensation and benefits,
other non-interest operating expenses and advertising expenses.
The primary reason for the increase in compensation expense is
additional staff over 1996 levels. Other non-interest expenses
increased as ATM operating expenses began and outsourcing
arrangements were increased. Advertising expenses increased as a
result of the Totally Free Checking campaign designed to attract
core deposit accounts.
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the secondary
mortgage market totaled $3.7 million and $2.4 million during the
three months ended September 30, 1997 and 1996, respectively. Gain
on sales of mortgage loans, net of a valuation allowance, for the
three months ended September 30, 1997 totaled $45,000 compared to
$23,000 for the same period in 1996.
INCOME TAXES
For the three months ended September 30, 1997 income tax expense
increased $150,000, to an expense of $55,000 from a benefit of
$95,000 for the three months ended September 30, 1996. The
FDIC/SAIF assessment drove the income tax expense down in 1996.
Exclusive of the assessment, the provision for income taxes would
have been $46,000 during 1996.
RESULTS OF OPERATIONS - COMPARISON OF NINE MONTHS ENDED SEPTEMBER 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-backed obligations. In addition, $7.5
million in fixed rate, fixed term FHLB advances were prepaid.
During the third quarter of 1996, the Company incurred the
expense of a special assessment on its deposit balances for the
recapitalization of the FDIC/SAIF fund. This assessment reduced
1996 earnings by $276,000, net of taxes.
Exclusive of these non-recurring items, net income for the nine
months ended September 30, 1997 was $361,000, an increase of
$104,000, or 40.5%, over net income of $257,000 for the nine months
ended September 30, 1996. An increase of $91,000 in net interest
income after provision for loan losses and an increase in non-interest
income of $148,000 (excluding charges related to the aforementioned
restructure) were partially offset by an increase in non-interest expense
(excluding charges related to the aforementioned FDIC/SAIF premium)
of $79,000.
<PAGE>17
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $1,969,000 for the nine months ended September 30,
1997 as compared to $1,970,000 for the nine months ended
September 30, 1996, effectively unchanged. The decrease in net
interest income in the 1997 period is the result of a decrease in
earning assets and the shift from fixed rate mortgage loans to
short term securities for a portion of the balance sheet. The
Company experienced and improvement in the net interest margin
for the nine months ended September 30, 1997 to 2.98%, from 2.92%
for the same period in 1990.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses decreased $92,000 for the
nine months ended September 30, 1997 to $33,000 from $125,000 for
the nine months ended September 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 the result of the
sale of the majority of the fixed rate mortgage loan portfolio in
the balance sheet restructuring and the diminished rate of growth
in the loan portfolio, net of the sale, in the 1997 period as
compared to 1996.
NON-INTEREST INCOME
Exclusive of the charges taken to restructure the balance sheet
totaling $397,000 before tax, non-interest income increased
$148,000 to $498,000 for the nine months ended September 30, 1997
from $350,000 for the nine months ended September 30, 1996. The
primary contributor to the increase was the $69,000 in gains on
securities sales, net of the $240,000 losses due to the
restructure, which was an increase of $83,000 from the loss of
$14,000 incurred for the nine months ended September 30, 1996.
Also contributing to the increase in non-interest income was a
increase of $39,000, or 29.5%, in loans servicing fees and charges
resulting primarily from increased income on loan servicing and
increased fees on credit cards. In addition, fees on deposit
account recorded a $17,000, or 12.8%, increase to $150,000 for the
nine months ended September 30, 1997 from $133,000 for the nine
months ended September 30, 1996.
NON-INTEREST EXPENSE
Excluding the $417,000 assessment for FDIC/SAIF recapitalization
during the 1996 period, non-interest expenses increased $79,000, or
4.3%, to $1,902,000 from $1,823,000. The company accrued expenses
related to a scheduled data processing conversion during the nine
months ended September 30, 1997 totaling $76,000. This charge
accounts for the majority of the growth in non-interest expense.
Compensation expense increased $57,000 to $947,000 for the nine
months ended September 30, 1997 from $890,000 for the same period
in 1996 due in part to increased staffing levels in the latter part
of 1997 and in part to lower loan origination volumes in 1997 which
resulted in a decrease in the amount of direct costs capitalized
under SFAS No. 91 as compared to the nine months ended September
30, 1996. Increases of $38,000 in occupancy and equipment,
primarily from increased depreciation on new equipment, $33,000 in
advertising expense from the Totally Free Checking campaign, and
$33,000 in other expenses related to ATM operations and account
servicing costs were partially offset by decreases in loan
originating and servicing expenses of $64,000 as commissions on
originations dropped and $93,000 in deposit insurance costs
(excluding aforementioned FDIC/SAIF assessment) as the deposit
insurance rate was lowered in 1997 for members of the FDIC/SAIF.
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 $4.8 million and $5.9 million during the nine
months ended September 30, 1997 and 1996, respectively. Gain on
sales of mortgage loans, excluding the sale related to the
restructure, for the nine months ended September 30, 1997 totaled
$55,000 compared to $64,000 for the same period in 1996, a decrease
of 14.1%.
INCOME TAXES
For the nine months ended September 30, 1997 the Company recorded
a provision for income taxes of $36,000, as compared to an income
tax benefit of $26,000 for the nine months ended September 30,
1996.
<PAGE>18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and lawsuits incidental to the
Registrant's business in which the Registrant is periodically
involved. In the opinion of management, no material loss is
expected from any such pending claims of lawsuits.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the period covered by this report.
ITEM 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
During toe quarter ended September 30. 1997, the Registrant
filed two Form 8-K's. On July 9, 1997, the Company announced the
resignation of Jack R. Manley from the Board of Directors of the
Company and its wholly owned subsidiary.
On July 31, 1997, the Registrant announced earnings for its operations
for the period ended June 30, 1997.
<PAGE>19
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: November 14, 1997 By:/s/ Steven C. Derr
---------------------------
Steven C. Derr
President
Principal Executive Officer
Dated: November 14, 1997 By: /s/ Keith D. Hill
---------------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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<INVESTMENTS-HELD-FOR-SALE> 18,307
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