<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-22394
FIRST FINANCIAL BANCORP, INC.
(exact name of small business issuer 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
--------------------------------
(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 / /
As of April 30, 1998 the Registrant had 415,452 shares of
common stock, $0.10 par value per share, issued and outstanding.
Transitional Small Business Disclosure Format:
YES / / NO /X/
<PAGE>2
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements - Unaudited Number
Consolidated Statement of Financial Condition
as of March 31, 1998 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 1998 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 9
Notes to Unaudited Consolidated Financial
Statements 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II. Other Information 24
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------- March 31, December
(Unaudited) 1998 31, 1997
(Dollars in thousands)
ASSETS --------- ---------
<S> <C> <C>
Cash on hand and non-interest-bearing deposits $ 750 $ 629
Interest-earning deposits 2,386 4,130
--------- ---------
Total cash and cash equivalents 3,136 4,759
Securities available-for-sale, at fair value 17,519 14,507
Mortgage-backed securities available-for-sale,
at fair value 2,008 1,625
First mortgage loans held for sale 2,960 2,352
Mortgage-backed securities held-to-maturity,
at amortized cost (fair value $602 and $835) 618 864
Certificates of deposit held to maturity 1,000 2,099
Loans receivable, net of allowance for losses
of $542 and $531 50,077 52,120
Accrued interest receivable 613 526
Premises and equipment 2,507 1,891
Federal Home Loan Bank Stock 910 910
Other assets 769 1,029
--------- ---------
Total Assets $ 82,117 $ 82,682
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Deposit accounts $ 67,146 $ 67,550
Advances from FHLB 6,350 6,700
Advance payments by borrowers for taxes and insurance 275 202
Other liabilities 628 599
--------- ---------
Total Liabilities 74,399 75,051
STOCKHOLDER'S EQUITY
Common Stock - $0.10 par value, 1,500,000 shares
authorized, 510,901 and 509,848 shares issued 51 51
Additional paid in capital 3,893 3,864
Retained earnings, substantially restricted 5,269 5,199
Treasury stock, at cost, 95,449 and 94,449 shares (1,525) (1,505)
Common stock purchased by:
Employee stock ownership plan (27) (41)
Management recognition and retention plans (24) (25)
Accumulated other comprehensive income 81 88
--------- ---------
Total stockholder's equity 7,718 7,631
--------- ---------
Total liabilities and stockholder's equity $ 82,117 $ 82,682
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>4
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------
(Unaudited)
(Dollars in thousands)
Three months ended March 31,
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Interest income
First mortgage loans $ 805 $ 1,226
Other loans 300 205
Mortgage-backed securities 36 152
Securities 272 90
Interest-earning deposits 49 7
------------- ------------
Total interest income 1,462 1,680
------------- ------------
Interest expense
Deposit accounts 711 732
FHLB advances 118 283
------------- ------------
Total interest expense 829 1,015
------------- ------------
Net interest income 633 665
Provision for loss on loans 24 33
------------- ------------
Net interest income after provision
for loss on loans 609 632
------------- ------------
Non-interest income
Loan servicing fees and charges 34 50
Service charges on deposit accounts 55 44
Gain on sales of loans 64 6
Gain (loss) on sales of securities and
mortgage-backed securities (2) 69
Other 43 13
------------- ------------
Total non-interest income 194 182
Non-interest expense
Compensation and benefits 346 298
Occupancy and equipment 89 75
Data processing 19 42
Loan origination and servicing 33 12
Professional services 44 27
Advertising expenses 27 29
Other 141 108
------------- ------------
Total non-interest expense 699 591
------------- ------------
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>5
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------
(Unaudited)
(Continued)
Three months ended March 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
Income before income taxes $ 104 $ 223
Income taxes 34 73
------------- ------------
Net income $ 70 $ 150
============= ============
Basic earnings per share $0.17 $0.37
============= ============
Diluted earnings per share $0.17 $0.37
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>6
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
----------------------------------------------
Three Months Ended March 31, 1998 (Unaudited)
Additional
Common Paid in Retained
(Dollars in Thousands) Stock Capital Earnings
-------- -------- --------
<S> <C> <C> <C>
Balance December 31, 1997 $ 51 $ 3,864 $ 5,199
Net income - - 70
Net change in unrealized
gain on investment secur-
ities available-for-sale,
net of deferred income
taxes of $4 - - -
Comprehensive income - - -
Release of earned ESOP
shares, 1,695 shares - 29 -
Amortization of unearned
stock awards - - -
Purchase of treasury stock,
1,000 shares, at cost - - -
-------- -------- --------
Balance March 31, 1998 $ 51 $ 3,893 $ 5,269
======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>7
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
----------------------------------------------
Three Months Ended March 31, 1998 (Unaudited)
(Continued)
Unearned
Treasury Unearned Stock
(Dollars in Thousands) Stock ESOP Awards
-------- -------- --------
<S> <C> <C> <C>
Balance December 31, 1997 $ (1,505) $ (41) $ (25)
Net income - - -
Net change in unrealized
gain on investment secur-
ities available-for-sale,
net of deferred income
taxes of $4 - - -
Comprehensive income - - -
Release of earned ESOP
shares, 1,695 shares - 14 -
Amortization of unearned
stock awards - - 1
Purchase of treasury stock,
1,000 shares, at cost (20) - -
-------- ------- --------
Balance March 31, 1998 $ (1,525) $ (27) $ (24)
======== ======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>8
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
----------------------------------------------
Three Months Ended March 31, 1998 (Unaudited)
(Continued)
Accumulated
Other
Comprehensive
(Dollars in Thousands) Income Total
-------- --------
<S> <C> <C>
Balance December 31, 1997 $ 88 $ 7,631
Net income - 70
Net change in unrealized
gain on investment secur-
ities available-for-sale,
net of deferred income
taxes of $4 (7) (7)
--------
Comprehensive income 63
Release of earned ESOP
shares, 1,695 shares - 43
Amortization of unearned
stock awards - 1
Purchase of treasury stock,
1,000 shares, at cost - (20)
-------- --------
Balance March 31, 1998 $ 81 $ 7,718
======== ========
</TABLE>
See notes to accompanying unaudited consolidated financial
statements
<PAGE>9
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------
(Unaudited)
Three months ended March 31,
---------------------------
1998 1997
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 70 $ 150
Adjustments to reconcile net cash
provided by (used in) operating
activities:
Amortization of:
Premiums, discounts and deferred
fees on loans, mortgage-backed
and investment securities (10) 15
Net excess servicing fees and
originated mortgage servicing
rights 25 3
Management recognition and
retention plans 1 -
Employee stock ownership plan 43 33
Provision for losses on loans 24 33
(Gain)Loss on sale of:
Loans (64) (6)
Investment and mortgage-backed
securities 2 (69)
Depreciation of premises and
equipment 38 34
Originations of loans held for sale,
net of origination fees and
principal collected (8,906) (438)
Proceeds from sales of loans held
for sale 8,273 441
Net cash flows due to other changes in:
Accrued interest receivable (87) (31)
Other assets 279 143
Other liabilities 29 73
------- -------
Net cash (used in) provided by
operating activities (283) 381
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations, net of principal
collected on loans 2,379 1,242
Purchases of:
Loan participations (311) -
Mortgage-backed securities available
for sale (475) -
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>10
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
----------------------------------------------
(Unaudited)
Three months ended March 31,
---------------------------
(Dollars in Thousands) 1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES (continued)
Purchases of:
Securities available for sale (6,258) (502)
Certificates of deposit held to
maturity
Proceeds from: (100) -
Sales of securities available for
sale 1,000 -
Maturities, calls and redemptions of
securities available for sale 2,250 516
Maturities of certificates of deposit
held to maturity 1,199 -
Principal collected on mortgage-backed
securities and collateralized mortgage
obligations 331 176
Purchases of premises and equipment (654) (50)
------- -------
Net cash (used in) provided by
investing activities (639) 1,382
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease)increase in deposit
accounts (404) 1,955
Net decrease in advances from the
FHLB of Chicago (350) (3,500)
Repurchases of common stock (20) (150)
Net increase (decrease) in advance
payments by borrowers for taxes
and insurance 73 185
------- -------
Net cash used in
financing activities (701) (1,510)
------- -------
Net (decrease) increase in cash
cash equivalents (1,623) 253
Cash and equivalents at beginning of period 4,759 1,652
------- -------
Cash and equivalents at end of period $ 3,136 $ 1,905
======= =======
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial
Statements
<PAGE>11
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
----------------------------------------------
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid (received) for:
Interest $ 813 $ 928
Income taxes - (118)
Noncash items
Transfer of portfolio loans to REO - 122
Transfer of loans for sale to portfolio 46 -
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>12
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 1998 and 1997
(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, 1998.
The unaudited consolidated financial statements consist of the
statement of financial condition as of March 31, 1998, the
statements of income for the three months ended March 31, 1998
and 1997, the statement of stockholders' equity for the three
months ended March 31, 1998, and the statements of
cash flows for the three months ended March 31, 1998 and 1997,
which include the accounts of First Financial Bancorp, Inc. (the
"Company") and its wholly-owned subsidiary, First Federal Savings
Bank (the "Bank") and the Bank's wholly-owned subsidiary, First
Financial Services of Belvidere Illinois, Inc., for the three
months ended March 31, 1998 and 1997. All material intercompany
accounts and transactions have been eliminated in consolidation.
(2) Subsequent Event
First Financial Bancorp, Inc. entered into a merger agreement
with Blackhawk Bancorp, Inc. of Beloit, Wisconsin on May 7, 1998.
The merger is structured as a cash transaction with Blackhawk
paying $30.00 per share for each First Financial share of common
stock, subject to adjustment to $29.00 per share under certain
circumstances. The completion of the transaction is subject to
approval of First Financial shareholders and regulatory
authorities, among other conditions.
(3) Earnings Per Share
A reconciliation of the numerators and denominators for earnings
per common share computations for the quarters ended March 31 is
presented below (dollars and shares in thousands).
<PAGE13>
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Basic earnings per share
Net income $ 70 $ 150
====== ======
Weighted average common shares outstanding 408 400
====== ======
Basic earnings per share 0.17 0.37
====== ======
Earnings per share assuming dilution
Net income available to common
stockholders $ 70 $ 150
====== ======
Weighted average common shares outstanding 408 400
Add: diluteive effect of assumed exercises:
Incentive stock options 6 5
Weighted average common and dilutive 414 405
potential shares outstanding ====== ======
Diluted earnings per share 0.17 0.37
====== ======
</TABLE>
(4) Commitments and Contingencies
Commitments to originate mortgage loans at March 31, 1998 were
$0.6 million, all of which were fixed rate loans with rates of
6.875% to 7.625%. The Company had commitments to sell mortgage
loans totaling $7.1 million at March 31, 1998, including $4.2
million in loans yet to be closed. As of March 31, 1998
remaining balances in loans sold under recourse agreements
totaled $1.1 million while unused adjustable rate lines of credit
and unused credit card lines totaled $3.7 and $1.8 million,
respectively. Commitments to fund commercial, commercial real
estate, and multifamily loan participations totaled $1.0 million.
The Bank has pledged certain mortgage-backed securities and U.S.
agency securities worth $6.4 million at March 31, 1998 as
collateral for deposits in excess of federal deposit insurance
limitations.
(5) New accounting standards
Effective for fiscal years beginning after December 15, 1997, a
new accounting standard (SFAS 130), comprehensive income is now
reported for all periods. Comprehensive income includes both net
income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on
securities available-for-sale. Comprehensive income has been
disclosed in the statement of stockholder's equity.
Effective for fiscal years beginning after December 15, 1997, a
new accounting standard (SFAS 131), establishes standards for the
way the public enterprises report information about operating
segments in interim financial reports issued to shareholders.
This standard will have no impact on the Company.
<PAGE>14
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. 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 Form 10-QSB.
REGULATORY CAPITAL REQUIREMENTS
Current federal regulations, as mandated by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), require institutions to have a minimum regulatory
tangible capital equal to 1.5% of total assets, a minimum 3% core
capital ratio, and a minimum 8% risk-based capital ratio. Core
capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred
stock and related surplus, minority interests in equity
accounts of consolidated subsidiaries, less intangibles other
than certain purchased mortgage servicing rights ("PMSRs").
<PAGE>15
The risk-based capital standard for savings institutions requires
the maintenance of total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of 8%.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a
risk weight of 0% to 100%, as assigned by the OTS capital
regulation, based on the risks OTS believes are inherent in the
type of asset. The components of core capital are equivalent to
those discussed above under the 3% leverage standard. The
components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate
preferred stock, and allowance for loans and lease losses.
Allowance for loan and leases losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-adjusted assets.
Overall, the amount of supplementary capital included in total
capital cannot exceed 100% of core capital.
FDICIA (Federal Deposit Insurance Corporation Improvement Act of
1991) required that the OTS (and other federal banking agencies)
revise, in 1993, risk-based capital standards, with appropriate
transition rules, to ensure that they take into account interest
rate risk, concentration of credit risk and the risks of
nontraditional activities. On August 31, 1993, the OTS issued a
final rule which sets forth the methodology for calculating an
interest rate risk component that was incorporated into the OTS
regulatory capital rule effective January 1, 1994. Savings
institutions with assets less than $300 million and risk-based
capital ratios in excess of 12% are not subject to the interest
rate risk component. The rule also provides that the Director of
the OTS may waive or defer an institution's interest rate risk
component on a case-by-case basis. The Bank has been notified
that it is currently exempt from the interest rate risk
component.
<TABLE>
<CAPTION>
At March 31, 1998, the Bank was in compliance with the capital
requirements, summarized as follows:
Regulatory
Capital
Requirement Actual Capital Excess Capital
% Amount % Amount % Amount
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) 1.50% $1,236 8.83% $7,269 7.33% $6,033
Core (1) 3.00 2,471 8.83 7,269 5.83 4,477
Risk-Based (2)
Current 8.00 3,879 16.03 7,771 8.03 3,892
Total assets for regulatory purposes $82,368
Total risk-weighted assets 48,484
(1) Percentages represent percent of total assets for regulatory
purposes.
(2) Percentages represent percent of total risk weighted assets.
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
At March 31 , 1998, the difference between stockholder's equity
in accordance with generally accepted accounting principles
(GAAP) and regulatory capital are summarized as follows:
(In Thousands)
<S> <C>
GAAP capital $ 7,281
Net unrealized gain on securities
available-for-sale (12)
------
Capital for regulatory purposes 7,269
General loan loss allowances 512
Originated mortgage servicing rights
fair value (10)
------
Risk-based capital $ 7,771
======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal
and interest payments on loans and mortgage-backed securities,
custodial account balances held for borrowers of serviced loans
and advances from the Federal Home Loan Bank of Chicago
("FHLB-Chicago"). While maturities and scheduled amortization of
loans and mortgage-backed securities are predictable sources of
funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and
competition.
The Bank is required to maintain minimum levels of liquid assets
as defined by OTS regulations. This requirement, which may be
varied at the direction of the OTS depending upon economic
conditions and deposit flows, is based upon a percentage of the
balance of net deposits and short term borrowings. The required
ratio is currently 4.0%. The Bank's liquidity ratio was 14.5% at
March 31, 1998. The Bank's relatively high ratio as of March 31,
1998 is primarily the result of the net cash and short term
securities acquired after the balance sheet restructuring
undertaken in the second quarter of 1997.
<PAGE>17
The Company's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending, and investing activities
during any given period. At March 31, 1998, cash and cash
equivalents totaled $3.1 million as compared to $4.8 million at
December 31, 1997.
The Company's cash flows are comprised of three classifications:
cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities. Cash
flows used in operating activities for the three months ended
March 31, 1998, consisted primarily of origination of mortgage
loans held for sale of $8.9 million offset by sales of such loans
of $8.3 million. Cash flows provided by operating activities for
the three months ended March 31, 1997 consisted primarily of
sales of mortgage loans of $0.4 million offset by the origination
of mortgage loans held for sale of $0.4 million.
Cash flows used in investing activities for the three months
ended March 31, 1998 consisted primarily of purchases of loan
participations, certificates of deposit, securities and mortgage-
backed securities available for sale of $7.1 million offset by
maturities, calls, and sales of investment securities
of $4.4 million, net principal collections on portfolio loans of
$2.4 million and principal repayments on mortgage-backed
securities of $0.3 million. Also contributing to the funds usage
in investing activities was the $0.7 million in fixed asset
purchases primarily stemming from the completion of the Company's
newest facility in Rockford, Illinois. Cash flows provided by
investing activities for the three months ended March 31, 1997
consisted primarily of: i.) $1.2 million in principal collected
on portfolio loans, net of originations; ii.) maturities, calls
and redemptions of securities available for sale of $0.5 million
and; iii.) principal collected on mortgage-backed securities of
$0.2 million partially offset by the purchase of $0.5 million of
securities available for sale.
Cash flows used in financing activities for the three months ended
March 31, 1998 consisted of net repayments of borrowings from the
FHLB Chicago of $0.4 million and a decrease in deposit accounts
of $0.4 million partially offset by a net increase in advanced
payments for taxes and insurance of $0.1 million. Deposit
outflows represent the net activity between decreased certificate
account balances and increased demand deposits and savings
deposits. Cash flows used in financing activities for the three
months ended March 31, 1997 consisted of net repayments on
borrowings from the FHLB Chicago of $3.5 million, partially
offset by $2.0 million in inflows to deposit accounts as the
Company was more effectively able to compete in the local deposit
market with reduced FDIC insurance premiums and a net increase in
advanced payments for taxes and insurance of $0.2 million.
<PAGE>18
At March 31, 1998, the Bank had outstanding loan commitments of
$0.6 million. The Bank anticipates that it will have the
resources available to meet its current loan origination and
purchase commitments. Certificates of deposit which are
scheduled to mature in less than one year from March 31, 1998
totaled $19.8 million. Management believes that a significant
portion of such deposits will remain with the Company.
Changes in Financial Condition
As of March 31, 1998, total assets of the Company were $82.1
million, a decrease of $0.6 million, or 0.7%, from December 31,
1997 assets of $82.7 million.
Cash and cash equivalents totaled $3.1 million at March 31, 1998,
a decrease of $1.6 million, or 34.1% from December 31, 1997.
Securities held-to-maturity and available-for-sale totaled $17.5
million at March 31, 1998, an increase of $3.2 million, or 20.8%
from December 31, 1997. The increase was the result of $2.0
million of leveraged transactions the Company entered into during
the three months ended March 31, 1998. The Company achieved this
leverage by funding securities purchases with FHLB advances. The
remainder of the increase resulted from reinvestment of loan
portfolio cash flows.
Mortgage-backed securities totaled $2.6 million at March 31,
1998, an increase of $0.1 million from the December 31, 1997
total of $2.5 million as purchases of $0.5 million more than
offset principal payments.
Net loans receivable totaled $50.1 million at March 31, 1998 as
compared to $52.1 million at December 31, 1997, a decrease of
$2.0 million, or 3.9%. The quarter's favorable interest rate
environment allowed mortgage borrowers a significant opportunity
to refinance mortgage loans originated since early 1994. Much of
the new origination volume during the three months ended March
31, 1998 was in the 15 to 30 year fixed rate mortgage product
which the Company does not retain in portfolio. This resulted in
the $1.0 million decrease in total mortgage loans. An equivalent
decrease in non-mortgage loans was driven by repayments of
short-term bridge loans on real estate.
Premises and equipment increased $0.6 million or 32.6% to $2.5
million at March 31, 1998 from $1.9 million at December 31, 1997.
The increase was due to the investment in the Company's new
branch facility in Rockford, Illinois, which opened for business
March 23, 1998.
Deposit accounts totaled $67.1 million at March 31, 1998 as
compared to $67.6 million at December 31, 1997, a decrease of
$0.5 million, or 0.6%. In an effort to reduce funding costs, the
Company was not as aggressive in the certificate of deposit
market and focused on transaction, money market and savings
deposits. The Company was successful in reducing its cost of
funds on deposit liabilities 15 basis points to 4.29% for the
three months ended March 31, 1998.
<PAGE>19
ASSET QUALITY
The following table sets forth information regarding loans
delinquent more than 90 days, non-performing less than 90 days
and real estate owned.
<TABLE>
<CAPTION>
At March At December
31, 1998 31, 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Loans delinquent 90 days or more
Accruing:
Total $ - $ -
Non-accruing:
First mortgage loans
1-4 family residential 90 7
Other mortgage loans 147 -
Other loans 53 34
----- -----
Total 290 41
Loans delinquent 89 days or less
First mortgage loans
1-4 family residential
first mortgage loans 466 380
Other mortgage loans - 289
Other loans 135 115
----- -----
Total 601 784
----- -----
Total non-performing loans $ 891 $ 825
===== =====
Total real estate owned, net of
related allowances for losses - -
----- -----
Total non-performing assets $ 891 $ 825
Total non-performing loans
to net loans receivable (1) 1.68% 1.51%
Total non-performing loans
to total assets 1.09 1.00
Total non-performing loans and REO
to total assets 1.09 1.00
(1) Net loans receivable includes loans held for sale.
</TABLE>
<PAGE>20
The consumer loan porfolio accounted for 59.1%, or $39,000, of
the increase in non-performing loans as non-performing credit
card and home equity lines of credit increased through the first
quarter of 1998 as the portfolios continued to season. The
remaining 40.9% of the increase in non-performing loans, or
$27,000, came from the mortgage portfolio. These loans,
constituting the majority of the non-performing loans, have a
weighted average loan to value of 60.9%, and private mortgage
insurance coverage on those loans exceeding an 80.0% loan to
value thereby minimizing the Company's exposure to losses.
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 the second quarter of 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 March 31, 1998 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 $542,000 at March 31, 1998, which
represented 61.0% of non-performing loans and non-performing
assets. These ratios compare to 64.4% of non-performing loans
and non-performing assets at December 31, 1997.
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
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.
<PAGE>21
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED MARCH
31, 1998 AND 1997.
GENERAL
Net income for the three months ended March 31, 1998 was $70,000
compared to $150,000 for the three months ended March 31, 1997, a
decrease of $80,000. Excluding after-tax securities gains of
$46,000 during the 1997 period earnings decreased $34,000 from
$104,000. The decrease was driven by an increase in non-interest
expense of $108,000 and a decrease in the net interest margin of
$32,000, partially offset by an increase in fee-based income of
$25,000 and gains on sales of loans of $58,000.
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $633,000 for the quarter ended March 31, 1998 as
compared to $665,000 for the quarter ended March 31, 1997, a
decrease of $32,000, or 4.8%. The decrease in net interest
income in the 1998 period was due to the decrease in interest-
earning assets as a result the restructuring the Company's
balance sheet during the second quarter of 1997. Interest income
on interest-earning assets totaled $1,462,000 for the three
months ended March 31, 1998 as compared to $1,680,000 for the
same period in 1997, a decrease of $218,000 or 13.0%. Interest
expense on interest-bearing liabilities totaled $829,000 for the
three months ended March 31, 1998, as compared to $1,015,000 for
the same period in 1997, a decrease of $186,000, or 18.4%. The
Company's net interest margin increased 22 basis points to 3.04%
for the three months ended March 31, 1998 from 2.82% for the
three months ended March 31, 1997. Much of the increase in net
interest margin was derived from a decrease in the cost of
interest bearing liabilities of 18 basis points.
PROVISION FOR LOAN LOSSES
The Bank's provision for loan losses was $24,000 for the three
months ended March 31, 1998 compared to $33,000 for the three
months ended March 31, 1997. The provision for the 1998 period
primarily resulted from current and projected growth in the loan
portfolio as well as continued diversification. The provision
for the 1998 period decreased due to the lower net portfolio
growth assumptions as compared to the 1997 period.
<PAGE>22
NON-INTEREST INCOME
Non-interest income increased $12,000, or 6.6%, to $194,000 for
the three months ended March 31, 1998 from $182,000 for the same
period in 1997. Gains on sales of mortgage loans of $64,000
increased $58,000, or nearly eleven times the $6,000 total for
the same period in 1997. Additionally, other non-interest income
increased $30,000 for the three months ended March 31, 1998, or
230.8%, over the 1997 total of $13,000. Much of this increase
was the result of sales of investments products by the Bank's
insurance and brokerage subsidiary. The increases in these fee
categories were offset by the $71,000 decrease in gains on sales
of securities. Fee income from loans and deposits netted a
decrease of $5,000 for the three months ended March 31, 1998.
Increased fee income on deposits resulting from transaction
accounts was offset by declines in loan fees as refinancing
activity during the quarter increased the levels of servicing
rights amortization.
NON-INTEREST EXPENSE
Non-interest expense increased $108,000, or 18.3%, to $699,000
for the three months ended March 31, 1998 from $591,000 for the
three months ended March 31, 1997. The increase was primarily
the result of increases in compensation and benefits as staffing
levels increased to support lending origination capacity and a
new facility in Rockford. Other expenses increased $33,000 for
the three months ended March 31, 1998 from $108,000 for the three
months ended March 31, 1997 as postage and supplies increased with
the opening of a new facility and the adoption of a new logo for the
bank. Additionally FDIC insurance premiums increased as a rebate
had been applied to the 1997 period which resulted in lower premiums
for that three month period. Loan origination and servicing fees
increased $21,000 to $33,000 for the three months ended March 31,
1998 as mortgage loan originations increased substantially resulting
in increased commissions to loan originators. Smaller increases in
occupancy and equipment, with a new facility, and professional
services, were substantially offset by the decrease in data
processing expenditures as a result of the November 1997 data
processing conversion the Company undertook.
SECONDARY MORTGAGE MARKET LOAN ACTIVITY
Proceeds from the sales of first mortgage loans into the
secondary mortgage market totaled $8.0 million and $0.4 million
during the three months ended March 31, 1998 and 1997,
respectively. The increase was due to the favorable interest
rate environment during the 1998 period and the effects of loan
originators that had joined the Company after March 31, 1997.
Gains on sales of mortgage loans, net of a valuation allowance,
for the three months ended March 31, 1998 also increased to
$64,000 compared to $6,000 for the same period in 1997, an
increase of nearly eleven-fold. The increase was volume driven.
<PAGE>23
INCOME TAXES
For the three months ended March 31, 1998 income tax expense
decreased $39,000 to $34,000 for the three months ended March 31,
1998 from $73,000 for the three months ended March 31, 1997, as
net income before income taxes decreased.
<PAGE>24
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 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
(a) Exhibits
See attached Exhibits Index
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
March 31, 1998.
<PAGE>25
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
Signatures
In accordance with the requirements of the Securities
Exchanges Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
First Financial Bancorp, Inc.
(Registrant)
Dated: May 14, 1998 By: /s/ Steven C. Derr
-------------------
Steven C. Derr
President
Principal Executive Officer
Dated: May 14, 1998 By: /s/ Keith D. Hill
-------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<PAGE>26
EXHIBIT INDEX
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 750
<INT-BEARING-DEPOSITS> 2,386
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,527
<INVESTMENTS-CARRYING> 1,618
<INVESTMENTS-MARKET> 1,602
<LOANS> 50,077
<ALLOWANCE> 542
<TOTAL-ASSETS> 82,117
<DEPOSITS> 67,146
<SHORT-TERM> 5,350
<LIABILITIES-OTHER> 903
<LONG-TERM> 1,000
51
0
<COMMON> 0
<OTHER-SE> 7,667
<TOTAL-LIABILITIES-AND-EQUITY> 82,117
<INTEREST-LOAN> 1,105
<INTEREST-INVEST> 357
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,462
<INTEREST-DEPOSIT> 711
<INTEREST-EXPENSE> 829
<INTEREST-INCOME-NET> 633
<LOAN-LOSSES> 24
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 699
<INCOME-PRETAX> 104
<INCOME-PRE-EXTRAORDINARY> 104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 7.4
<LOANS-NON> 889
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 98
<ALLOWANCE-OPEN> 531
<CHARGE-OFFS> 8
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 542
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 542
</TABLE>
