1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MARCH 31, 2000
--------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to _________________
Commission file number 0-12379
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FIRST FINANCIAL BANCORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1042001
---------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 High Street, Hamilton, Ohio 45011
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 867-4700
------------------
Indicate by check mark whether the registrant (1) has filed all 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.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 28, 2000
-------------------------- -----------------------------
Common stock, No par value 46,545,096
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FIRST FINANCIAL BANCORP.
INDEX
Page No.
--------
Part I-Financial Information
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 1
Consolidated Statements of Earnings -
Three Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Changes in Shareholders" Equity
Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
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PART I - FINANCIAL INFORMATION
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in thousands)
March 31, December 31,
2000 1999
----------- ----------
ASSETS
Cash and due from banks $ 171,741 $ 225,837
Interest-bearing deposits with other banks 13,290 8,867
Federal funds sold and securities purchased
under agreements to resell 451 5,621
Investment securities held-to-maturity, at cost
(market value - $32,485 at March 31, 2000 and
$32,498 at December 31, 1999) 31,880 31,765
Investment securities available-for-sale, at market 544,759 490,126
Loans
Commercial 776,881 769,454
Real estate-construction 121,798 111,458
Real estate-mortgage 1,469,340 1,467,591
Installment 632,029 623,091
Credit card 20,743 22,408
Lease financing 45,983 46,508
----------- ----------
Total loans 3,066,774 3,040,510
Less
Unearned income 4,263 4,134
Allowance for loan losses 40,192 39,340
----------- ----------
Net loans 3,022,319 2,997,036
Premises and equipment 58,950 59,004
Goodwill 29,699 30,077
Other intangibles 10,042 10,522
Deferred income taxes 8,290 8,008
Accrued interest and other assets 80,851 73,830
----------- ----------
TOTAL ASSETS $3,972,272 $3,940,693
=========== ==========
LIABILITIES
Deposits
Noninterest-bearing $ 417,941 $ 408,712
Interest-bearing 2,632,846 2,582,501
----------- ----------
Total deposits 3,050,787 2,991,213
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 101,148 83,353
Federal Home Loan Bank borrowings 270,550 294,235
Other 1,848 4,530
----------- ----------
Total short-term borrowings 373,546 382,118
Long-term borrowings 142,856 161,799
Accrued interest and other liabilities 31,897 33,024
----------- ----------
TOTAL LIABILITIES 3,599,086 3,568,154
SHAREHOLDERS' EQUITY
Common stock - no par value
Authorized - 160,000,000 shares
Issued - 46,913,096 in 2000 and 46,869,107 in 1999 374,237 373,447
Retained earnings 12,700 5,904
Accumulated comprehensive income (7,165) (6,398)
Restricted stock awards (1,107) (414)
Treasury stock, at cost, 295,600 shares in 2000
and 0 shares in 1999 (5,479) 0
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 373,186 372,539
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,972,272 $3,940,693
=========== ==========
See notes to consolidated financial statements.
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands, except per share data)
Three months ended
March 31,
----------------------
2000 1999
------- -------
INTEREST INCOME
Loans, including fees $67,110 $58,488
Investment securities
Taxable 6,320 5,970
Tax-exempt 2,165 2,353
------- -------
Total investment interest 8,485 8,323
Interest-bearing deposits with
other banks 131 56
Federal funds sold and securities
purchased under agreements to resell 41 71
------- -------
TOTAL INTEREST INCOME 75,767 66,938
INTEREST EXPENSE
Deposits 26,011 23,769
Short-term borrowings 5,323 1,551
Long-term borrowings 1,838 1,902
------- -------
TOTAL INTEREST EXPENSE 33,172 27,222
------- -------
NET INTEREST INCOME 42,595 39,716
Provision for loan losses 2,361 2,532
------- -------
Net interest income after
provision for loan losses 40,234 37,184
NONINTEREST INCOME
Service charges on deposit accounts 4,322 3,715
Trust revenues 3,588 3,437
Investment securities gains 14 55
Other 2,228 2,889
------- -------
Total noninterest income 10,152 10,096
NONINTEREST EXPENSES
Salaries and employee benefits 16,316 15,007
Net occupancy 1,929 1,829
Furniture and equipment 1,566 1,556
Data processing 1,976 1,673
Deposit insurance 147 142
State taxes 625 505
Amortization of intangibles 842 943
Other 6,020 6,012
------- -------
Total noninterest expenses 29,421 27,667
------- -------
Income before income taxes 20,965 19,613
Income tax expense 7,095 6,532
------- -------
NET EARNINGS $13,870 $13,081
======= =======
Net earnings per share - basic $ 0.30 $ 0.28
======= =======
Net earnings per share - diluted $ 0.30 $ 0.28
======= =======
Cash dividends declared per share $ 0.15 $ 0.14
======= =======
Average basic shares outstanding 46,812,024 46,819,427
========== ==========
Average diluted shares outstanding 46,906,676 46,991,822
========== ==========
See notes to consolidated financial statements.
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
---------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 13,870 $ 13,081
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 2,361 2,532
Provision for depreciation and amortization 2,298 3,348
Net (accretion) amortization of investment security
premiums and accretion of discounts (85) 273
Realized investment security gains (14) (55)
Originations of mortgage loans held for sale (17,742) (60,767)
Gains from sales of mortgage loans held for sale (197) (988)
Proceeds from sale of mortgage loans held for sale 17,939 61,755
Deferred income taxes 87 (1,331)
Increase in interest receivable (759) (982)
Increase in cash surrender value of life insurance (4,047) (3,252)
Increase in prepaid expenses (1,571) (1,162)
Increase in accrued expenses 5,113 5,108
Increase (decrease) in interest payable 798 (604)
Decrease in dividends payable (6,980) (795)
Other (819) (1,975)
--------- ---------
Net cash provided by operating activities 10,252 14,186
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale 0 12,483
Proceeds from calls, paydowns and maturities of
investment securities available-for-sale 12,307 52,766
Purchases of investment securities available-for-sale (40,878) (37,516)
Proceeds from, paydowns and maturities of
investment securities held-to-maturity 2,119 3,281
Purchases of investment securities held-to-maturity (2,120) 0
Net increase in interest-bearing deposits
with other banks (4,423) (6,531)
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell 5,170 (6,421)
Net increase in loans and leases (55,817) (63,618)
Recoveries from loans and leases previously charged off 580 604
Proceeds from disposal of other real estate owned 544 102
Purchases of premises and equipment (1,353) (2,620)
--------- ---------
Net cash used in investing activities (83,871) (47,470)
FINANCING ACTIVITIES
Net increase (decrease) in total deposits 59,574 (17,725)
Net (decrease) increase in short-term borrowings (8,572) 21,200
Net (decrease) increase in long-term borrowings (18,943) 9,100
Cash dividends declared (7,074) (5,778)
Purchase of common stock (5,479) 0
Proceeds from exercise of stock options,
net of shares purchased 17 548
--------- ---------
Net cash provided by financing activities 19,523 7,345
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (54,096) (25,939)
Cash and cash equivalents at beginning of period 225,837 164,500
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 171,741 $ 138,561
========= =========
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
---------------------
2000 1999
-------- --------
Supplemental disclosures
Interest paid $ 32,374 $ 27,930
======== ========
Income taxes paid $ 2,763 $ 1,162
======== ========
Recognition of deferred tax assets
attributable to FASB Statement No. 115 $ 369 $ 629
======== ========
Acquisition of other real estate owned through
foreclosure $ 450 $ 67
======== ========
Issuance of restricted stock awards $ 772 $ 143
======== ========
Securitization of loans $ 27,206 $ 0
======== ========
See notes to consolidated financial statements.
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS" EQUITY
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
------------------------
2000 1999
--------- ---------
Balances at January 1, as restated $ 372,539 $ 358,265
Net earnings 13,870 13,081
Other comprehensive income, net of taxes:
Change in unrealized gains on securities,
available for sale (767) (1,908)
--------- ---------
Comprehensive income 13,103 11,173
Cash dividends declared (7,074) (5,778)
Purchase of common stock (5,479) 0
Exercise of stock options, net shares purchased 17 548
Amortization of restricted stock awards 80 42
--------- ---------
Balance at March 31 $ 373,186 $ 364,250
========= =========
See notes to consolidated financial statements.
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of the management of First Financial Bancorp.
("Bancorp"), all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation have been included.
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of Bancorp, a financial holding company,
include the accounts of Bancorp and its wholly-owned subsidiaries - First
National Bank of Southwestern Ohio, Community First Bank & Trust, Union Trust
Bank, Indiana Lawrence Bank, Fidelity Federal Savings Bank, Citizens First State
Bank, Home Federal Bank, a Federal Savings Bank, Union Bank & Trust Company, The
Clyde Savings Bank Company, Peoples Bank and Trust Company, Bright National
Bank, First Finance Mortgage Company of Southwestern Ohio (dba Community First
Finance), Farmers State Bank, National Bank of Hastings, Vevay Deposit Bank,
Sand Ridge Bank, Hebron Deposit Bank, and First Financial Service Corporation.
All significant intercompany transactions and accounts have been eliminated in
consolidation. Intangible assets arising from the acquisition of subsidiaries
are being amortized over varying periods, none of which exceeds 25 years. Core
deposit balances are being amortized over varying periods, none of which
currently exceeds 10 years.
Bancorp received authorization from the Federal Reserve on March 13, 2000 to
convert from a bank and savings and loan holding company to a financial holding
company. Bancorp is now permitted to own and operate insurance agencies and
certain other financial services firms under the provisions of the
Gramm-Leach-Bliley Act enacted on November 12, 1999.
On March 29, 2000, Bancorp signed a letter of intent to purchase the Ohio City
Insurance Agency which was founded in 1997 with headquarters in Ohio City, Ohio.
Bancorp completed the purchase of the Ohio City Insurance Agency on May 1, 2000.
The financial impact of Ohio City Insurance Agency and the purchase price for
the transaction are not material.
The accompanying financial statements have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include all information and
footnotes necessary to be in conformity with generally accepted accounting
principles.
NOTE 2: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, Bancorp offers a variety of financial
instruments with off-balance sheet risk to its customers to aid them in meeting
their requirements for liquidity and credit enhancement and to reduce its own
exposure to fluctuations in interest rates. These financial instruments include
standby letters of credit and commitments outstanding to extend credit.
Generally accepted accounting principles do not require these financial
instruments to be recorded in the consolidated financial statements, and
accordingly, they are not. Bancorp does not use off-balance sheet derivative
financial instruments (such as interest rate swaps) as defined in the Financial
Accounting Standards Board's (FASB) Statement No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments".Bancorp's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for
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standby letters of credit and commitments outstanding to extend credit is
represented by the contractual amounts of those instruments. Bancorp uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. Following is a discussion of these
transactions.
Standby letters of credit are conditional commitments issued by Bancorp to
guarantee the performance of a customer to a third party. Bancorp's portfolio of
standby letters of credit consists primarily of performance assurances made on
behalf of customers who have a contractual commitment to produce or deliver
goods or services. The risk to Bancorp arises from its obligation to make
payment in the event of the customers' contractual default. As of March 31,
2000, Bancorp had issued standby letters of credit aggregating $18,780,000
compared to $18,028,000 issued as of December 31, 1999. Management conducts
regular reviews of these instruments on an individual customer basis, and the
results are considered in assessing the adequacy of Bancorp's allowance for loan
losses. Management does not anticipate any material losses as a result of these
letters of credit.
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Bancorp evaluates each customer's creditworthiness on an
individual basis. The amount of collateral obtained, if deemed necessary by
Bancorp upon extension of credit, is based on management's credit evaluation of
the counterparty. The collateral held varies, but may include securities, real
estate, inventory, plant, or equipment. Bancorp had commitments outstanding to
extend credit totaling $510,251,000 at March 31, 2000 and $508,366,000 at
December 31, 1999. Management does not anticipate any material losses as a
result of these commitments.
NOTE 3: COMPREHENSIVE INCOME
In 1998, Bancorp adopted FASB No. 130, Reporting Comprehensive Income. The
statement establishes standards for the reporting and display of comprehensive
income. Bancorp elected to present the required disclosures in the Consolidated
Statement of Changes in Shareholders Equity. Disclosure of the reclassification
adjustments for the three months ended March 31, 2000 and 1999 are shown below.
Three months ended
March 31,
---------------------
2000 1999
------- -------
Other comprehensive income, net of tax:
Unrealized holding losses arising during period $ (759) $(1,874)
Less: reclassification adjustment
for gains included in net income 8 34
------- -------
Other comprehensive loss $ (767) $(1,908)
======= =======
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NOTE 4: MERGER AND RESTRUCTURING CHARGES
In the second quarter of 1999, Bancorp recorded merger and restructuring charges
of approximately $6.9 million before taxes or $5.5 million after taxes to
coincide with its mergers with Sand Ridge Financial Corporation (Sand Ridge) and
Hebron Bancorp, Inc. (Hebron) and its plan for some operational consolidation,
affiliate restructuring and the discontinuation of a product line.
The components of these charges and the remaining unpaid amounts at December 31,
1999 and March 31, 2000 are shown in the following table. During the first
quarter, based on current information, estimated liabilities associated with the
merger and restructuring charges were reduced by $353,000. As of March 31, 2000,
of the four facilities to be disposed of, two properties have been sold and one
facility remains to be sold. Bancorp has decided to retain one property for use
in another capacity due to a new initiative at an affiliate. Bancorp expects
that the remaining balance in the liability account will be substantially
utilized during 2000.
(Dollars in thousands)
Charges Remaining
Accrued Liability Liability
Description of Charges in 1999 12/31/99 3/31/00
- ---------------------- ------- -------- -------
Merger costs $2,899 $ 219 $ 25
Disposals of property 1,574 115 115
Discontinued product line 1,100 167 167
Operations/affiliate restructuring 1,357 523 197
------ ------ ------
Total $6,930 $1,024 $ 504
====== ====== ======
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
2000 1999
---------- --------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
Net earnings $ 13,870 $ 13,992 $ 14,535 $ 8,715 $ 13,081
Net earnings-adjusted (a) 14,169
Net earnings per share-basic 0.30 0.30 0.31 0.19 0.28
Net earnings per share-diluted 0.30 0.30 0.31 0.19 0.28
Net earnings per share-diluted-adjusted (a) 0.30
Average Consolidated Balance Sheet Items:
Loans less unearned income 3,066,552 3,022,313 2,933,882 2,796,591 2,657,522
Investment securities 536,148 531,709 549,441 558,475 577,436
Other earning assets 13,304 13,958 12,787 18,576 10,678
---------- ---------- ---------- ---------- ----------
Total earning assets 3,616,004 3,567,980 3,496,110 3,373,642 3,245,636
Total assets 3,904,639 3,865,437 3,757,969 3,610,779 3,505,738
Deposits 2,990,226 2,985,289 2,892,952 2,907,268 2,827,604
Shareholders' equity 372,424 369,442 366,022 368,271 360,234
Key Ratios:
Average equity to average total assets 9.54% 9.56% 9.74% 10.20% 10.28%
Return on average total assets 1.43% 1.44% 1.53% 0.97% 1.51%
Return on average total assets-adjusted (a) 1.57%
Return on average equity 14.98% 15.03% 15.75% 9.49% 14.73%
Return on average equity-adjusted (a) 15.36%
Net interest margin (fully tax equivalent) 4.88% 4.86% 4.92% 5.03% 5.13%
(a) Excluding after-tax merger and restructuring charges of $5.5 million in the
second quarter of 1999.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the amount by which
interest and fees generated by earning assets exceed the interest costs of
liabilities obtained to fund them. For analytical purposes, interest income
presented in the table below has been adjusted to a tax equivalent basis
assuming a 35% marginal tax rate for interest earned on tax-exempt assets such
as municipal loans, tax-free leases and investments. This is to recognize the
income tax savings which facilitates a comparison between taxable and tax-exempt
assets. The tax equivalent adjustment to interest income has been declining due
to increased calls and maturities of tax-exempt securities. As shown below, net
interest income on a fully tax equivalent basis has increased $2,787,000 or
6.79% over the first quarter of 1999. Continued loan growth in all major loan
categories contributed to higher net interest income in the first quarter of
2000.
Quarter Ended
2000 1999
------- ------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- ------- ------- ------- -------
(Dollars in thousands)
Interest income $75,767 $74,382 $72,274 $68,804 $66,938
Interest expense 33,172 31,927 30,269 27,776 27,222
------- ------- ------- ------- -------
Net interest income 42,595 42,455 42,005 41,028 39,716
Tax equivalent adjustment to interest income 1,246 1,278 1,318 1,312 1,338
------- ------- ------- ------- -------
Net interest income (fully tax equivalent) $43,841 $43,733 $43,323 $42,340 $41,054
======= ======= ======= ======= =======
RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net interest income is
illustrated in the following table. As shown, the primary factor for the
increased net interest income was the increased volume of average earning
assets, specifically, a 15.4% increase in average loans,
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somewhat offset by the increased volume of interest-bearing liabilities. Also,
the recent increase in interest rates had a greater impact on interest-bearing
liabilities than on earning assets, thereby effectively causing a reduction to
net interest income. The change in interest due to the combined effect of both
rate and volume has been allocated to the volume and rate variance on a prorated
basis.
Three Months
Ended Change Due To:
Mar. 31, 2000 -------------------
Over 1999 Rate Volume
-------- --------- --------
(Dollars in thousands)
Interest income $ 8,829 $ 1,084 $ 7,745
Interest expense 5,950 2,311 3,639
-------- --------- --------
Net interest income $ 2,879 $ (1,227) $ 4,106
======== ========= ========
OPERATING RESULTS
Net operating income represents net earnings before net securities transactions.
Net operating income for the first three months of 2000 was $13,862,000 which
was an increase of $815,000 or 6.25% over that reported in the same period in
1999. This increase in net operating income can be primarily attributed to an
increase in net interest income of $2,879,000 or 7.25%. The increase in net
interest income was driven by the loan growth. Noninterest income, excluding
securities transactions, for the first three months of 2000 increased $97,000 or
0.97% in comparison to the same period in 1999. Continued strong growth in
service charges on deposit accounts was offset by the decrease in gain on loan
sales. The increase in trust fees was less than has been the trend due to lower
market values on several large holdings. The increase in noninterest expense was
6.34% primarily as a result of increased salary and employee benefit expense.
Bancorp's adjusted diluted earnings per share on a "cash basis", which excludes
the effect of amortization of goodwill and core deposits, (tax effected when
applicable), were $0.31 for the first three months of 2000 which is a 6.90%
increase over the $0.29 for the same period in 1999. These calculations were
specifically formulated by Bancorp and may not be comparable to similarly titled
measures reported by other companies.
INCOME TAXES
For the first three months of 2000, income tax expense was $7,095,000 compared
to $6,532,000 for the same period in 1999, or an increase of $563,000. In 2000,
$7,089,000 of the tax expense was related to operating income with a tax expense
of $6,000 related to securities transactions. In the first three months of 1999,
income tax expense related to operating income was $6,511,000 with a tax expense
related to securities transactions of $21,000. The increase in taxes on
operating income was due to the increase in operating income before taxes and
securities transactions of $1,393,000 or 7.14% over that reported for the first
three months of 1999 and a slightly higher effective tax rate for the period in
2000.
NET EARNINGS
Net earnings for the first three months of 2000 were $13,870,000 or 6.03%
greater than that recorded during the same period in 1999. As was discussed
previously, net operating income was $13,862,000 which was 6.25% greater than
the same period in 1999. Net securities gains through March 31, 2000 were $8,000
compared to $34,000 for the period ending March 31, 1999.
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ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to cover losses inherent in the portfolio. Management's periodic
evaluation of the adequacy of the allowance is based on Bancorp's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, economic conditions, and other relevant factors. This evaluation
is inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change.
At March 31, 2000 and 1999, the recorded investment in loans that are considered
to be impaired with an allowance under FASB Statement No. 114 was $6,141,000 and
$3,191,000, respectively, all of which were on a nonaccrual basis. The related
allowance for loan losses on these impaired loans was $2,426,000 at March 31,
2000 and $492,000 at March 31, 1999. There were $55,000 and $56,000 in 2000 and
1999, respectively in impaired loans that as a result of write-downs did not
have an allowance for loan losses. The average recorded investment in impaired
loans for the respective quarters ended March 31, 2000 and 1999, was
approximately $3,706,000 and $2,973,000. For the three months ended March 31,
2000, Bancorp recognized interest income on those impaired loans of $5,000
compared to $17,000 for the same period in 1999. Bancorp recognizes income on
impaired loans using the cash basis method. The table on the following page
indicates the activity in the allowance for loan losses for the quarters
presented.
Quarter Ended
2000 1999
-------- -----------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance at beginning of period $ 39,340 $ 38,729 $ 37,505 $ 36,319 $ 34,800
Provision for discontinued product lines 1,100
Provision for loan losses 2,361 3,205 2,117 1,378 2,532
Loans charged off (2,089) (3,113) (1,869) (2,762) (1,617)
Recoveries 580 519 976 1,470 604
-------- -------- -------- -------- --------
Net charge offs (1,509) (2,594) (893) (1,292) (1,013)
-------- -------- -------- -------- --------
Balance at end of period $ 40,192 $ 39,340 $ 38,729 $ 37,505 $ 36,319
======== ======== ======== ======== ========
Ratios:
Allowance to period end loans,
net of unearned income 1.31% 1.30% 1.30% 1.31% 1.34%
Recoveries to charge offs 27.76% 16.67% 52.22% 53.22% 37.35%
Allowance as a multiple of
net charge offs 26.63X 15.17X 43.37X 29.03X 35.85X
NONPERFORMING/UNDERPERFORMING ASSETS
The table on the following page shows the categories which are included in
nonperforming and underperforming assets.
Nonperforming assets have increased $8,335,000 in the first quarter of 2000 when
compared to the first quarter of 1999. While it appears that the nonperforming
assets have increased significantly, loan volume has also increased
significantly. In the first quarter of 2000 when compared to the first quarter
of 1999, accruing loans past due 90 days or more decreased $194,000.
Restructured loans have decreased $929,000, primarily due to one unsecured
commercial loan which was moved to nonaccrual status the first quarter of 2000.
Nonaccrual loans have increased $7,868,000, which is composed primarily of
commercial, multi-family and 1-4 family residential investment properties. Other
real estate owned increased $1,396,000 in the first quarter of 2000 compared to
the first quarter of 1999, primarily from foreclosures on commercial,
multi-family and 1-4 family residential mortgage loans. Accruing loans,
including
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loans impaired under FASB Statement No. 114, which are past due 90 days or more
where there is not a likelihood of becoming current are transferred to
nonaccrual loans. However, those loans which management feels will become
current and therefore accruing, are classified as "Accruing loans 90 days or
more past due" until they become current.
Quarter Ended
2000 1999
------- ----------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- ------- ------- ------- -------
(Dollars in thousands)
Nonaccrual loans $15,019 $11,283 $10,430 $ 9,219 $ 7,151
Restructured loans 637 2,244 1,354 1,411 1,566
OREO 1,551 1,707 354 332 155
------- ------- ------- ------- -------
Total nonperforming assets 17,207 15,234 12,138 10,962 8,872
Accruing loans past due
90 days or more 2,252 2,777 3,318 3,796 2,446
------- ------- ------- ------- -------
Total underperforming assets $19,459 $18,011 $15,456 $14,758 $11,318
======= ======= ======= ======= =======
Nonperforming assets as a percent
of loans, net of unearned income
plus OREO 0.56% 0.50% 0.41% 0.38% 0.33%
======= ======= ======= ======= =======
Underperforming assets as a percent
of loans, net of unearned income
plus OREO 0.64% 0.59% 0.52% 0.52% 0.42%
======= ======= ======= ======= =======
*Other real estate owned
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which Bancorp provides for the continuing
flow of funds necessary to meet its financial commitments on a timely basis.
These commitments include withdrawals by depositors, funding credit commitments
to borrowers, shareholder dividends, paying expenses of operations, and funding
capital expenditures.
Liquidity is derived primarily from deposit growth, maturing loans, the maturity
of investment securities, access to other funding sources and markets, and a
strong capital position. The most stable source of liability-funded liquidity
for both the long-term and short-term is deposit growth and retention in the
core deposit base. At the end of the first quarter of 2000 Bancorp's deposit
liabilities had increased by 1.99% from December 31, 1999. Another source of
funding is through short-term borrowings. Bancorp's short-term borrowings
decreased to $373,546,000 at March 31, 2000, compared to $382,118,000 at
December 31, 1999, a decrease of $8,572,000 or 2.24%.
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At March 31, 2000,
securities maturing in one year or less amounted to $35,854,000 representing
6.22% of the total of the investment securities portfolio. In addition, other
types of assets such as cash and due from banks, federal funds sold and
securities purchased under agreements to resell, as well as loans and
interest-bearing deposits with other banks maturing within one year, are sources
of liquidity. Total asset-funded sources of liquidity at March 31, 2000,
amounted to $741,015,000 representing 18.7% of total assets. Sources of
long-term asset funded liquidity are derived from the maturity of investment
securities and maturing loans in excess of one year.
At March 31, 2000, Bancorp had classified $544,759,000 in investment securities
available-for-sale, of which approximately $229,341,000 were pledged to secure
public deposits. Management examines Bancorp's liquidity needs in establishing
this classification in accordance with the Financial Accounting Standards Board
Statement No. 115 on accounting for certain investments in debt and equity
securities.
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Liquidity is very important and as such is both monitored and managed closely by
the asset/liability committee at each affiliate. Liquidity may be used to fund
capital expenditures. Capital expenditures were $1,353,000 for the first three
months of 2000. In addition, remodeling is a planned and ongoing process given
the 115 offices of Bancorp and its subsidiaries. Material commitments for
capital expenditures as of March 31, 2000 were approximately $1,635,000.
Management believes that Bancorp has sufficient liquidity to fund its current
commitments.
One balance sheet management item of note, Bancorp's cash and due from banks
decreased significantly as Y2K reserves were reduced to normal levels.
CAPITAL ADEQUACY
The Federal Reserve established risk-based capital requirements for U.S. banking
organizations which have been adopted by the Office of Thrift Supervision for
savings and loan associations. Risk weights are assigned to on-and off-balance
sheet items in arriving at risk-adjusted total assets. Regulatory capital is
divided by risk-adjusted total assets, with the resulting ratios compared to
minimum standards to determine whether a bank has adequate capital.
Regulatory guidelines require a 4.00% Tier 1 capital ratio, an 8.00% Total
risk-based capital ratio and a 4.00% Leverage ratio. Tier 1 capital consists
primarily of common shareholders' equity, net of intangibles, and Total
risked-based capital is Tier 1 capital plus Tier 2 supplementary capital, which
is primarily the allowance for loan losses subject to certain limits. The
Leverage ratio is a result of Tier 1 capital divided by average total assets
less certain intangibles.
Bancorp's Tier I ratio at March 31, 2000, was 12.4%, its Total risked-based
capital was 13.7% and its Leverage ratio was 8.88%. While Bancorp subsidiaries'
ratios are well above regulatory requirements, management will continue to
monitor the asset mix which affects these ratios due to the risk weights
assigned various assets, and the allowance for loan losses, which influences the
Total risk-based capital ratio.
The table below illustrates the risk-based capital calculations and ratios for
the quarters presented.
Quarter Ended
2000 1999
----------- -----------------------------------------------------------------
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Tier I Capital:
Shareholder's equity $ 373,186 $ 372,539 $ 367,940 $ 361,158 $ 364,250
Less: Certain intangibles 36,854 37,610 38,364 38,992 39,802
Less: Accumulated comprehensive
Income (7,165) (6,398) (3,987) (2,470) 3,041
----------- ----------- ----------- ----------- -----------
Total Tier I capital $ 343,497 $ 341,327 $ 333,563 $ 324,636 $ 321,407
=========== =========== =========== =========== ===========
Total risk-based capital:
Tier I capital $ 343,497 $ 341,327 $ 333,563 $ 324,636 $ 321,407
Qualifying allowance for loan losses 34,617 35,636 35,280 33,462 31,517
----------- ----------- ----------- ----------- -----------
Total risk-based capital $ 378,114 $ 376,963 $ 368,843 $ 358,098 $ 352,924
=========== =========== =========== =========== ===========
Risk Weighted Assets $ 2,763,814 $ 2,847,221 $ 2,818,936 $ 2,672,881 $ 2,516,585
=========== =========== =========== =========== ===========
Risk-based ratios:
Tier I 12.43% 11.99% 11.83% 12.15% 12.77%
=========== =========== =========== =========== ===========
Total risk-based capital 13.68% 13.24% 13.08% 13.40% 14.02%
=========== =========== =========== =========== ===========
Leverage 8.88% 8.92% 9.04% 9.01% 9.27%
=========== =========== =========== =========== ===========
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FORWARD-LOOKING INFORMATION
The Form 10-Q should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report and in the First
Financial Bancorp. Annual Report on Form 10-K for the year ended December 31,
1999.
Management's analysis may contain forward-looking statements that are provided
to assist in the understanding of anticipated future financial performance.
However, such performance involves risks and uncertainties which may cause
actual results to differ materially. For a discussion of certain factors that
may cause such forward-looking statements to differ materially from actual
results, refer to the 1999 Form 10-K.
ACCOUNTING AND REGULATORY MATTERS
Management is not aware of any events or regulatory recommendations which, if
implemented, are likely to have a material effect on Bancorp's liquidity,
capital resources, or operations.
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PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, the registrant did
not file any reports on Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST FINANCIAL BANCORP.
------------------------
(Registrant)
/s/ Michael R. O'Dell /s/ C. Douglas Lefferson
- ----------------------------------------- ------------------------
Michael R. O'Dell, Senior Vice C. Douglas Lefferson
President, Chief Financial Comptroller
Officer and Secretary (Principal Accounting Officer)
Date May 11, 2000 Date May 11, 2000
------------------------------------ --------------------------
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