<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, 1998
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
--------------------------------
(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, 1998 the Registrant had 415,452 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, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1998
and 1997 4
Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1998 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 15
Part II. Other Information 27
<PAGE>3
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
- ---------------------------------------------- June 30, December
(Unaudited) 1998 31, 1997
ASSETS --------- --------
<S> <C> <C>
Cash on hand and non-interest-bearing deposits $ 326 $ 629
Interest-earning deposits 4,146 4,130
Federal funds sold 4,054 -
--------- --------
Total cash and cash equivalents 8,526 4,759
Securities available-for-sale, at market value 14,896 14,507
Mortgage-backed securities available-for-sale,
at market value 4,681 1,625
First mortgage loans held for sale 1,217 2,352
Mortgage-backed securities held-to-maturity,
at book value (fair market value $428) 440 864
Certificates of deposit held-to-maturity 200 2,099
Loans receivable, net of allowance for
losses of $523 45,651 52,120
Accrued interest receivable 577 526
Premises and equipment 2,732 1,891
Investment in stock of FHLB of Chicago, at cost 429 910
Other assets 637 1,029
-------- --------
Total Assets $ 79,986 $ 82,682
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Deposit accounts $ 69,317 $ 67,550
Borrowings from FHLB 2,000 6,700
Advance payments by borrowers for taxes
and insurance 226 202
Other liabilities 673 599
-------- --------
Total Liabilities 72,216 75,051
STOCKHOLDER'S EQUITY
Common Stock - $0.10 par value, 1,500,000 shares
authorized, 510,901 shares issued and 415,452
shares outstanding 51 51
Additional paid in capital 3,917 3,864
Retained earnings, substantially restricted 5,273 5,199
Treasury stock, at cost, 95,449 shares (1,525) (1,505)
Common stock purchased by:
Employee stock ownership plan (14) (41)
Management recognition and retention plans (24) (25)
Net unrealized loss on investment securities
available for sale 92 88
-------- --------
Total stockholder's equity 7,770 7,631
-------- --------
Total liabilities and stockholder's equity $ 79,986 $ 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)
Three months Six months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income
First mortgage loans $ 770 $1,180 $1,575 $2,406
Other loans 268 209 568 414
Mortgage-backed securities 39 136 75 288
Investment securities 255 109 527 199
Interest-earning deposits 67 32 116 39
------ ------ ------ ------
Total interest income 1,399 1,666 2,861 3,346
------ ------ ------ ------
Interest expense
Deposit accounts 709 754 1,420 1,486
FHLB advances 64 244 182 527
------ ------ ------ ------
Total interest expense 773 998 1,602 2,013
------ ------ ------ ------
Net interest income 626 668 1,259 1,333
Provision for loss on loans - - 24 33
------ ------ ------ ------
Net income after provision for loss
on loans 626 668 1,235 1,300
------ ------ ------ ------
Non-interest income
Loan servicing fees and charges 40 66 74 116
Service charge on deposit accounts 59 54 114 98
Gain (loss) on sales of loans 105 (153) 169 (147)
Loss on sales of securities
and mortgage-backed securities - (240) (2) (171)
Gain (loss) on sales/disposal
of assets (5) 1 (5) 1
Other 21 14 64 27
------ ------ ------ ------
Total non-interest income 220 (258) 414 (76)
</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 Six months
ended June 30, ended June 30,
-----------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Non-interest expense
Compensation and benefits 339 313 685 611
Occupancy and equipment 106 70 195 145
Data processing 26 114 45 156
Loan origination and servicing 51 15 84 27
Professional services 146 22 190 49
Advertising expenses 30 23 57 51
Other 144 139 285 248
------ ------ ------ ------
Total non-interest expense 842 696 1,541 1,287
------ ------ ------ ------
Income before income taxes $ 4 $ (286)$ 108 $ (63)
Income taxes - (92) 34 (19)
------ ------ ------ ------
Net income $ 4 $ (194) 74 (44)
====== ====== ====== ======
Basic earnings per share $ 0.01 $(0.48)$ 0.18 $(0.11)
====== ====== ====== ======
Diluted earnings per share $ 0.01 $(0.48)$ 0.18 $(0.11)
====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>6
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
Six Months Ended June 30, 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 - - 74
Other Comprehensive income,
net of tax:
Net change in unrealized
gain on investment secur
ities available for sale,
net of deferred income
taxes of $2 - - -
Other comprehensive
income - - -
Comprehensive income - - -
Release of earned ESOP
shares, 3,390 shares - 53 -
Amortization of unearned
stock awards - - -
Purchase of treasury stock,
1,000 shares, at cost - - -
-------- -------- --------
Balance June 30, 1998 $ 51 $ 3,917 $ 5,273
======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>7
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
Six Months Ended June 30, 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 - - -
Other Comprehensive income,
net of tax:
Net change in unrealized
gain on investment secur
ities available for sale,
net of deferred income
taxes of $2 - - -
Other comprehensive
income - - -
Comprehensive income - - -
Release of earned ESOP
shares, 3,390 shares - 27 -
Amortization of unearned
stock awards - - 1
Purchase of treasury stock,
1,000 shares, at cost (20) - -
-------- ------- --------
Balance June 30, 1998 $ (1,525) $ (14) $ (24)
======== ======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>8
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
(Continued)
Accumulated
Other
Comprehensive
(Dollars in Thousands) Income Total
-------- --------
<S> <C> <C>
Balance December 31, 1997 $ 88 $ 7,631
Net income - 74
Other Comprehensive income,
net of tax:
Net change in unrealized
gain on investment secur-
ities available for sale,
net of deferred income
taxes of $2 4 4
Other comprehensive -------
income 4
-------
Comprehensive income 78
Release of earned ESOP
shares, 3,390 shares - 80
Amortization of unearned
stock awards - 1
Purchase of treasury stock,
1,000 shares, at cost - (20)
-------- --------
Balance June 30, 1998 $ 92 $ 7,770
======== ========
</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)
Six months ended June 30,
---------------------------
1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 74 $ (44)
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 5 21
Net excess servicing fees and
originated mortgage servicing
rights 53 -
Management recognition and
retention plans 1 -
Employee stock ownership plan 80 60
Provision for losses on loans and
foreclosed real estate 24 33
(Gain)Loss on sale of:
Loans (169) 147
Investment and mortgage-backed
securities 2 171
Other 5 (1)
Depreciation of premises and
equipment 90 68
Originations of loans held for sale,
net of origination fees and
principal collected (17,779) (2,009)
Proceeds from sales of loans held
for sale 18,910 1,086
Net cash flows due to other changes in:
Accrued interest receivable (51) 4
Other assets 431 99
Other liabilities 71 130
------- -------
Net cash provided by (used in)
operating activities 1,747 (235)
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations, net of principal
collected on loans 7,241 1,065
Purchases of:
Loan participations (712) (564)
Mortgage-backed securities available
for sale (3,430) -
</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)
Six months ended June 30,
---------------------------
(Dollars in Thousands) 1998 1997
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES (continued)
<S> <C> <C>
Purchases of:
Securities available for sale (7,268) (12,183)
Certificates of deposit
held to maturity (100) (3,098)
Proceeds from:
Sales of:
Loans - 19,685
Mortgage-backed securities available
for sale - 6,954
Securities available for sale 1,000 166
FHLB Stock 481 238
REO - 122
Maturities, calls and redemptions of:
Certificates of deposit held to
maturity 1,999 -
Securities available for sale 5,900 1,100
Principal collected on mortgage-backed
securities and collateralized mortgage
obligations 774 428
Purchases of premises and equipment (936) (132)
------- -------
Net cash provided by
investing activities 4,949 13,781
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 1,767 2,691
Net decrease in advances from the
FHLB of Chicago (4,700) (12,750)
Repurchases of common stock (20) (155)
Net increase (decrease) in advance
payments by borrowers for taxes
and insurance 24 (34)
------- -------
Net cash used in
financing activities (2,929) (10,248)
------- -------
Net increase in cash and
cash equivalents 3,767 3,298
Cash and equivalents at beginning of period 4,759 1,652
------- -------
Cash and equivalents at end of period $ 8,526 $ 4,950
======= =======
</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)
Six months ended June 30,
---------------------------
(Dollars in Thousands) 1998 1997
------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid (received) for:
Interest $ 1,560 $ 1,952
Income taxes - (129)
Noncash items
Transfer of portfolio loans to REO - 122
Transfer of loans for sale to portfolio 81 -
</TABLE>
See accompanying notes to unaudited consolidated financial
statements
<PAGE>12
FIRST FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 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
statements of financial condition as of June 30, 1998 and 1997,
the statements of income for the three and six months ended June
30, 1998 and 1997, the statement of stockholders' equity for the
six months ended June 30, 1998, and the statements of cash flows
for the six months ended June 30, 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 and six
months ended June 30, 1998 and 1997. All material intercompany
accounts and transactions have been eliminated in consolidation.
(2) Earnings Per Share
Basic earnings per share information for the three and six months
ended June 30, 1998 and 1997 is based on the weighted average
number of common shares outstanding during the respective periods
of 408,766 and 401,863 for the three month periods and 408,213
and 400,970 for the six month periods. The Bank's ESOP held
3,393 unallocated shares as of June 30, 1998, and the Recognition
and Retention Plans held 3,043 unallocated shares. Diluted
earnings per share shows the dilutive effect of additional common
shares issuable under stock options and the effect of unearned
stock awards.
(3) Commitments and Contingencies
Commitments to originate mortgage loans at June 30, 1998 were
$1.3 million, of which, $1.2 were fixed rate loans with rates of
7.00% to 12.00%. The Company had commitments to sell mortgage
loans totaling $2.2 million at June 30, 1998. As of June 30,
1998, remaining balances in loans sold under recourse agreements
totaled $1.0 million while unused adjustable rate lines of credit
and unused credit card lines totaled $2.9 and $1.6 million,
respectively. Commitments to fund commercial, commercial real
estate, and multifamily loan participations totaled $0.7 million.
<PAGE>13
The Bank has pledged certain mortgage-backed securities and U.S.
agency securities worth $8.3 million at June 30, 1998 as
collateral for deposits in excess of federal deposit insurance
limitations.
(4) 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.
Effective for fiscal years beginning after June 15, 1999, a new
accounting standard, Statement of Financial Accounting Standards
No. 133. "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") must be adopted. This statement
establishes accounting and reporting standards for derivative
financial instruments and for hedging activities. Upon adoption
of the statement, all derivatives must be recognized at fair
value as either assets or liabilities in the statement of
financial position. Changes in the fair value of derivatives not
designated as hedging instruments are to be recognized currently
in earnings. Gains or losses on derivatives designated as
hedging instruments are either to be recognized currently in
earnings or are to be recognized as a component of other
comprehensive income, depending on the intended use of the
derivatives and the resulting designations. Upon adoption,
retroactive application of this statement to financial statements
of prior periods is not permitted. The Company anticipates this
standard will have no impact on its consolidated financial
position and results of operations.
<PAGE>14
(5) Pending acquisition
On May 7, 1998 the Company signed a definitive agreement of
merger that provides for the acquisition of the Registrant and
its wholly-owned banking subsidiary, by Blackhawk Bancorp, Inc
("Blackhawk"), Beloit, Wisconsin. Under the terms of the
definitive agreement, Blackhawk will acquire all of the
outstanding shares of the Registrant through an exchange for cash
pursuant to a merger.
<PAGE>15
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.
<PAGE>16
The following discussion reviews the Company's financial
condition and results of operations and should be read in
conjunction with the unaudited Consolidated Financial Statements
included in this 10-QSB.
REGULATORY CAPITAL REQUIREMENTS
Current federal regulations, as mandated by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), require institutions to have a minimum regulatory
tangible capital equal to 1.5% of total assets, a minimum 3% core
capital ratio, and a minimum 8% risk-based capital ratio. Core
capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred
stock and related surplus, minority interests in equity
accounts of consolidated subsidiaries, less intangibles other
than certain purchased mortgage servicing rights ("PMSRs").
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.
<PAGE>17
<TABLE>
<CAPTION>
At June 30, 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% $1,202 9.24% $7,402 7.74% $6,200
Core (1) 3.00 2,404 9.24 7,402 6.24 4,998
Risk-Based (2) 8.00 3,606 17.49 7,883 9.49 4,277
Total assets for regulatory purposes $80,142
Total risk-weighted assets 45,075
</TABLE>
(1) Percentages represent percent of total assets for regulatory
purposes.
(2) Percentages represent percent of total risk weighted assets.
<TABLE>
<CAPTION>
At June 30, 1998, the difference between stockholders' equity
in accordance with generally accepted accounting principles
(GAAP) and regulatory capital are summarized as follows:
(In Thousands)
<S> <C>
GAAP capital $ 7,426
Net unrealized gain on securities
available-for-sale (24)
------
Capital for regulatory purposes 7,402
General loan loss allowances 490
Originated mortgage servicing rights
fair value (9)
------
Risk-based capital $ 7,883
======
</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.
<PAGE>18
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 18.0% at
June 30, 1998. The Bank's relatively high ratio as of June 30,
1998 is primarily the result of the shorter maturity ladder the
Company has developed in its investment portfolio and the net
cash and cash equivalents as a result of the cash flows from
prepayments on loans and mortgage-related securities.
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 June 30, 1998, cash and cash
equivalents totaled $8.5 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 provided by operating activities for the six months ended
June 30, 1998, consisted sales of mortgage loans held for sale of
$18.9 million offset by originations of such loans of $17.8
million. Cash flows used in operating activities for the six
months ended June 30, 1997 consisted primarily of originations of
mortgage loans held for sale of $2.0 million offset by sales on
of such loans of $1.1 million.
Cash flows provided by investing activities for the six months
ended June 30, 1998 consisted primarily of principal collected on
loans receivable net of originations of $7.2 million, as well as
maturities of securities available for sale and certificates of
deposit of $5.9 million and $2.0 million respectively and
proceeds from the sale of securities available-for-sale and FHLB
stock totaling $1.5 million. These cash inflows were partially
offset by purchases of securities and mortgage-backed securities
available for sale totaling $10.7 million and purchases of loan
participations of $0.7 million and premises and equipment of $0.9
million as the Company completed and opened its newest facility
in Rockford, Illinois on March 23, 1998. 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 the purchases of securities
available for sale and certificates of deposit of $12.2 million
and $3.1 million respectively as well as the purchases of loan
participations of $0.6 million.
<PAGE>19
Cash used in financing activities for the six months ended
June 30, 1998 consisted of net repayments of borrowings from the
FHLB Chicago of $4.7 million offset by an increase in deposit
accounts of $1.8 million. Deposits increased as a result of the
opening of the new facility in Rockford. That facility gathered
$3.9 million from its opening in late March to June 30, 1998.
Certificate of deposit balances decreased in the Company's other
facilities which partially offset the opening of the Rockford
facility the increased balances in other deposit products in the
Belvidere facilities. 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 of fixed rate fixed term advances,
offset by a net increase in deposit accounts of $2.7 million.
At June 30, 1998, the Bank had outstanding loan commitments of
$1.3 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 June 30, 1998
totaled $21.1 million. Management believes that a significant
portion of such deposits will remain with the Company.
Changes in Financial Condition
As of June 30, 1998, total assets of the Company were $80.0
million, a decrease of $2.7 million, or 3.3%, from December 31,
1997 assets of $82.7 million.
Cash and cash equivalents totaled $8.5 million at June 30, 1998,
an increase of $3.8 million, or 79.2% from December 31, 1997.
Securities available for sale totaled $14.9 million at June 30,
1998, an increase of $0.4 million, or 2.7% from December 31,
1997.
Mortgage-backed securities held to maturity and available for
sale totaled $5.1 million at June 30, 1998, an increase of $2.6
million, or 105.7%, from the December 31, 1997 total of $2.5
million as purchases of $3.4 million more than offset principal
payments totaling $0.8 million.
Certificates of deposit held-to-maturity decreased $1.9 million
for the six months ended June 30, 1998 to $0.2 million from the
December 31, 1997 total of $2.1 million as maturities were
reinvested in alternative investments.
Net loans receivable totaled $45.7 million at June 30, 1998 as
compared to $52.1 million at December 31, 1997, a decrease of
$6.4 million, or 12.4%. The favorable interest rate environment
that existed much of the year allowed mortgage borrowers a
significant opportunity to refinance mortgage loans originated
since early 1994. With much of the Company's new origination
volume during the six months ended June 30, 1998 in the 15 to 30
year fixed rate mortgage product, not generally retained in the
Company's portfolio, the Company experienced a $4.5 million
decrease in portfolio 1-4 family first mortgage loans. In
addition, a $1.2 million dollar decrease in home equity and home
improvement loans occurred as borrowers consolidated debts upon
refinance.
<PAGE>20
Premises and equipment increased $0.8 million or 44.5% to $2.7
million at June 30, 1998 from $1.9 million at December 31, 1997.
The increase was due to the Company's new branch facility in
Rockford, Illinois, which opened for business March 23, 1998.
Deposit accounts totaled $69.3 million at June 30, 1998 as
compared to $67.6 million at December 31, 1997, an increase of
$1.7 million, or 2.6%. With the opening of the Company's newest
facility in Rockford, Illinois, deposits in the amount of $3.9
million were attracted through promotional products and the
Company's core Free Checking offer. In an effort to reduce
funding costs, the Company was not as aggressive in other markets
with certificates of deposit and focused on transaction, money
market and savings deposits. The Company was successful in
reducing its cost of funds on deposit liabilities 17 basis points
to 4.27% for the six months ended June 30, 1998 from the same
period during 1997.
ASSET QUALITY
<TABLE>
<CAPTION>
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, 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 10 7
Other mortgage loans - -
Other loans 122 34
----- -----
Total 132 41
Loans delinquent 89 days or less
First mortgage loans
1-4 family residential
first mortgage loans 479 380
Other mortgage loans - 289
Other loans 65 115
----- -----
Total 544 784
----- -----
Total non-performing loans $ 676 $ 825
===== =====
Total real estate owned, net of
related allowances for losses - -
----- -----
Total non-performing assets $ 676 $ 825
Total non-performing loans
to net loans receivable 1 1.44% 1.51%
Total non-performing loans
to total assets 0.85 1.00
Total non-performing loans and REO
to total assets 0.85 1.00
</TABLE>
1) Net loans receivable includes loans held for sale.
<PAGE>21
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 June 30, 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 $523,000 at June 30, 1998, which
represented 77.4% 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.
<PAGE>22
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 JUNE
30, 1998 AND 1997.
GENERAL
Net income for the three months ended June 30, 1998 was $4,000
compared to a net loss of $194,000 for the three months ended
June 30, 1997, an increase of $198,000. Excluding after-tax
merger related expenses of $74,000 during the 1998 period and
charges related to restructuring the Company's balance sheet and
data system conversion charges of $334,000 during the same period
in 1997 earnings decreased $62,000, to $78,000 for the three
months ended June 30, 1998 from $140,000 for the three months
ended June 30, 1998. The $62,000 decrease was driven by an
increase in non-interest expense of $143,000 (excluding merger
related expenses of $112,000 in the 1998 period and system
conversion and balance sheet restructuring charges of $109,000 in
the 1997 period) and a decrease in the net interest margin of
$42,000, partially offset by an increase in non-interest income
of $81,000 (excluding losses of $397,000 related to the balance
sheet restructuring in the 1997 period).
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $626,000 for the quarter ended June 30, 1998 as
compared to $668,000 for the quarter ended June 30, 1997, a
decrease of $42,000, or 6.3%. The decrease in net interest
income in the 1998 period was due to the decrease in interest-
earning assets as a result of restructuring the Company's
balance sheet late in the second quarter of 1997. Interest
income on interest-earning assets totaled $1,399,000 for the
three months ended June 30, 1998 as compared to $1,666,000 for
the same period in 1997, a decrease of $267,000 or 16.0%.
Interest expense on interest-bearing liabilities totaled $773,000
for the three months ended June 30, 1998, as compared to $998,000
for the same period in 1997, a decrease of $225,000 or 22.5%.
The Company's net interest margin increased 22 basis points to
3.11% for the three months ended June 30, 1998 from 2.89% for the
three months ended June 30, 1997.
<PAGE>23
PROVISION FOR LOAN LOSSES
The Company did not record provisions for loan losses during the
three months ended June 30, 1998 and 1997. Prepayments on loans
during the 1998 period and sales of loans during the 1997 period
combined with improved delinquency rates during through the
quarters reduced the need for additional loan loss provisions.
NON-INTEREST INCOME
Non-interest income increased $478,000, to $220,000 for
the three months ended June 30, 1998 from a loss of $258,000 for
the same period in 1997. Excluding losses related to
restructuring the Company's balance sheet during the second
quarter 1997, the increase was $81,000. Gains on sales of
mortgage loans of $105,000 increased $258,000 over the 1997 total
for the same period which included losses of $157,000 related to
the sale of long term fixed rate mortgage loans. Additionally,
losses of $240,000 were incurred in the 1997 period related to
sales of mortgage-backed securities in conjunction with the
balance sheet restructuring. Fee income on loans, deposits and
investment products decreased slightly to $120,000 for the three
months ended June 30, 1998 from $134,000 for the three months
ended June 30, 1997. Much of this decrease was the result of
accelerated amortization of mortgage servicing rights as serviced
loans prepayments accelerated in during 1998 due to favorable
interest rates.
NON-INTEREST EXPENSE
Non-interest expense increased $146,000, or 21.0%, to $842,000
for the three months ended June 30, 1998 from $696,000 for the
three months ended June 30, 1997. Exclusive of merger related
charges of $112,000 in the 1998 period and data processing
conversion and balance sheet restructuring charges during the
1997 period of $109,000 the increase was $143,000. The increase
was the result of increases in: i.)occupancy and equipment,
$36,000, as the Company's new facility in Rockford opened; ii.)
loan origination and servicing expenses, $36,000, as the volume
of origination activity increased substantially from quarter to
quarter; iii.) compensation and benefits, $26,000, as staffing
levels increased with the new facility in Rockford; iv.) and
other expenses, $28,000, as telecommunication, ATM deployment,
postage and supply expenses increased.
<PAGE>24
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 during 1997, totaled $10.9 million and $0.6
million during the three months ended June 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 during the second quarter
of 1997. Gains on sales of mortgage loans, net of a valuation
allowance, for the three months ended June 30, 1998 also
increased to $105,000 compared to $4,000 (excluding the $157,000
loss associated with the restructuring sale) for the same period
in 1997. The increase was volume driven.
INCOME TAXES
For the three months ended June 30, 1998 income tax expense
increased $92,000 to $0 for the three months ended June 30,
1998 from a benefit of $92,000 for the three months ended June
30, 1997, as net income before income taxes increased.
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED JUNE 30,
1998 AND 1997.
GENERAL
Net income for the six months ended June 30, 1998 was $74,000
compared to a net loss of $44,000 for the six months ended June
30, 1997, an increase of $118,000. Excluding after-tax merger
related expenses, of $74,000 during the 1998 period and charges
related to restructuring the Company's balance sheet and data
system conversion charges of $334,000 during the same period in
1997 earnings decreased $142,000, to $148,000 from $290,000 for
the six months ended June 30, 1997. The $142,000 decrease was
driven by an increase in non-interest expense of $251,000
(excluding merger related expenses of $112,000 during the 1998
period, and data system conversion and balance sheet
restructuring expenses of $109,000 during the 1997 period) and a
decrease in the net interest margin of $74,000, partially offset
by an increase in non-interest income of $93,000 (excluding
balance sheet restructuring expenses of $397,000 in the 1997
period).
NET INTEREST INCOME
The Company's net interest income before provision for loan
losses was $1,259,000 for the six months ended June 30, 1998 as
compared to $1,333,000 for the six months ended June 30, 1997, a
decrease of $74,000, or 5.6%. The decrease in net interest
income in the 1998 period was due to the decrease in interest-
earning assets as a result of restructuring the Company's
balance sheet late in the second quarter of 1997. Interest
income on interest-earning assets totaled $2,861,000 for the six
months ended June 30, 1998 as compared to $3,346,000 for the
same period in 1997, a decrease of $485,000 or 14.5%. Interest
expense on interest-bearing liabilities totaled $1,602,000 for
the six months ended June 30, 1998, as compared to $2,013,000 for
the same period in 1998, a decrease of $411,000 or 20.4%. The
Company's net interest margin increased 19 basis points to 3.08%
for the six months ended June 30, 1998 from 2.89% for the
six months ended June 30, 1997.
<PAGE>25
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six months ended June 30,
1998 was $24,000 as compared to $33,000 for the six months ended
June 30, 1997. The 1998 amount relates to provisions taken
during the first quarter based on anticipated growth in the loan
portfolio for the year. The 1997 provision similarly was the
result of first quarter provisions based upon projected portfolio
growth which was offset by the sale $20.0 million in long term
fixed rate fixed term mortgages.
NON-INTEREST INCOME
Non-interest income increased $490,000, to $414,000 for
the six months ended June 30, 1998 from a loss of $76,000 for the
same period in 1997. Excluding losses related to restructuring
the Company's balance sheet during the second quarter 1997, the
increase was $93,000. Gains on sales of mortgage loans of
$169,000 increased $316,000 over the 1997 total for the same
period which included losses of $157,000 related to the sale of
previously portfolio long term fixed rate mortgage loans. Losses
on sales of investment and mortgage-backed securities decreased
$169,000 to a loss of $2,000 for the six months ended June 30,
1998 from a loss of $171,000 for the same period in 1997. Losses
of $240,000 were incurred in the 1997 period related to sales of
mortgage-backed securities in conjunction with the balance sheet
restructuring. Fee income on deposits increased $16,000 to
$114,000 for the six months ended June 30, 1998 from $98,000 for
the 1997 period. Other non-interest income also increased as the
Company's insurance and securities subsidiary increased sales
over 1997. Loan servicing fees decreased $42,000 to $74,000 for
the six months ended June 30, 1998 from $116,000 for the six
months ended June 30, 1997 due to accelerated amortization of
mortgage servicing rights during 1998.
NON-INTEREST EXPENSE
Non-interest expense increased $254,000, or 19.7%, to $1,541,000
for the six months ended June 30, 1998 from $1,287,000 for the
six months ended June 30, 1997. Exclusive of merger related
charges of $112,000 in the 1998 period and data processing
conversion and balance sheet restructuring charges during the
1997 period of $109,000 the increase was $251,000. The increase
was the result of increases in: i.)compensation and benefits of
$74,000, as staffing levels increased with the new facility in
Rockford and support staff added for the lending function; ii.)
loan origination and servicing expenses of $57,000, as the volume
of origination activity increased substantially for the six
months ended June 30, 1998 from the six months ended June 30,
1997; iii.) occupancy and equipment, $50,000 of as the new
facility in Rockford opened; iv.) and other expenses of $62,000,
as telecommunication, ATM deployment, postage and supply expenses
increased.
<PAGE>26
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 during 1997, totaled $18.9 million and $1.0
million during the six months ended June 30, 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 during the second quarter
of 1997. Gains on sales of mortgage loans, net of a valuation
allowance, for the six months ended June 30, 1998 also increased
to $169,000 compared to $10,000 (excluding the $157,000 loss
associated with the restructuring sale) for the same period in
1997. The increase was volume driven.
INCOME TAXES
For the six months ended June 30, 1998 income tax expense
increased $53,000 to $34,000 for the six months ended June 30,
1998 from a benefit of $19,000 for the six months ended June 30,
1997, as net income before income taxes increased.
<PAGE>27
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 the quarter ended June 30, 1998, the Registrant file
one Form 8-K. On May 7, 1998 the Company signed a definitive
agreement of merger that provides for the acquisition of the
Registrant and its wholly-owned banking subsidiary, by Blackhawk
Bancorp, Inc ("Blackhawk"), Beloit, Wisconsin. Under the terms
of the definitive agreement, Blackhawk will acquire all of the
outstanding shares of the Registrant through an exchange for cash
pursuant to a merger.
<PAGE>28
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, 1998 By: /s/ Steven C. Derr
--------------------
Steven C. Derr
President
Principal Executive Officer
Dated: August 14, 1998 By: /s/ Keith D. Hill
--------------------
Keith D. Hill
Treasurer
Principal Financial Officer
Principal Accounting Officer
<PAGE>29
EXHIBIT INDEX
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 326
<INT-BEARING-DEPOSITS> 4,146
<FED-FUNDS-SOLD> 4,054
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,577
<INVESTMENTS-CARRYING> 640
<INVESTMENTS-MARKET> 628
<LOANS> 45,651
<ALLOWANCE> 523
<TOTAL-ASSETS> 79,986
<DEPOSITS> 69,317
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 898
<LONG-TERM> 1,000
51
0
<COMMON> 0
<OTHER-SE> 7,720
<TOTAL-LIABILITIES-AND-EQUITY> 79,986
<INTEREST-LOAN> 2,143
<INTEREST-INVEST> 718
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,861
<INTEREST-DEPOSIT> 1,420
<INTEREST-EXPENSE> 1,602
<INTEREST-INCOME-NET> 1,259
<LOAN-LOSSES> 24
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 1,541
<INCOME-PRETAX> 108
<INCOME-PRE-EXTRAORDINARY> 108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<YIELD-ACTUAL> 7.40
<LOANS-NON> 676
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 531
<CHARGE-OFFS> 33
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 523
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 523
</TABLE>
