1
FORM 10-Q
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 SEPTEMBER 30, 1995
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 0-12379
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FIRST FINANCIAL BANCORP.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1042001
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(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
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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 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
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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 November 1, 1995
----------------------------- ----------------------------------
Common stock, $8.00 par value 13,011,517
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FIRST FINANCIAL BANCORP.
INDEX
Page No.
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PART I-FINANCIAL INFORMATION
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 1
Consolidated Statements of Earnings -
Nine and Three Months Ended
September 30, 1995 and 1994 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II-OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 14
3
PART I - FINANCIAL INFORMATION
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
September 30, December 31,
1995 1994
------------ -----------
ASSETS
Cash and due from banks $ 93,539 $ 103,752
Interest-bearing deposits with other banks 5,512 8,055
Federal funds sold and securities purchased
under agreements to resell 8,006 97
Investment securities held-to-maturity, at cost
(market value - $112,376 at September 30, 1995 and
$140,319 at December 31, 1994) 105,849 135,187
Investment securities available-for-sale,
at market value (cost of $247,147 at September 30, 1995
and $246,637 at December 31, 1994) 248,540 242,410
Loans
Commercial 321,846 286,635
Real estate-construction 36,730 29,273
Real estate-mortgage 753,777 746,150
Installment 315,097 285,412
Credit card 14,086 15,599
Lease financing 14,968 16,102
----------- -----------
Total loans 1,456,504 1,379,171
Less
Unearned income 612 304
Allowance for loan losses 19,364 18,609
----------- -----------
Net loans 1,436,528 1,360,258
Premises and equipment 37,710 37,999
Deferred income taxes 3,964 5,904
Accrued interest and other assets 29,741 28,981
----------- -----------
TOTAL ASSETS $1,969,389 $1,922,643
=========== ===========
LIABILITIES
Deposits
Noninterest-bearing $ 192,099 $ 201,331
Interest-bearing 1,448,951 1,385,993
----------- -----------
Total deposits 1,641,050 1,587,324
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 64,332 81,609
Other 21,645 41,510
----------- -----------
Total short-term borrowings 85,977 123,119
Accrued interest and other liabilities 21,801 17,527
TOTAL LIABILITIES ----------- -----------
1,748,828 1,727,970
SHAREHOLDERS' EQUITY
Common stock - par value, $8 per share
Authorized - 25,000,000 shares
Issued - 12,568,641 in 1995, 12,204,575 in 1994 100,549 97,637
Surplus 14,241 15,027
Retained earnings 104,957 84,748
Unrealized net gain (losses) on securities
available-for-sale, net of deferred income taxes 865 (2,712)
Restricted stock awards (51) (27)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 220,561 194,673
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,969,389 $1,922,643
=========== ===========
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)
Nine months ended Three months ended
September 30, September 30,
------------------------------------------
1995 1994 1995 1994
---------- -------- --------- ---------
INTEREST INCOME
Loans, including fees $ 94,305 $ 76,459 $ 32,920 $ 26,897
Investment securities
Taxable 11,751 13,800 4,013 4,569
Tax-exempt 5,758 7,349 1,744 2,344
--------- --------- --------- ---------
Total investment interest 17,509 21,149 5,757 6,913
Interest-bearing deposits with
other banks 224 298 85 90
Federal funds sold and securities
purchased under agreements to resell 128 281 98 13
--------- --------- --------- ---------
TOTAL INTEREST INCOME 112,166 98,187 38,860 33,913
INTEREST EXPENSE
Deposits 42,747 34,634 15,244 11,905
Short-term borrowings 3,376 1,342 908 742
Long-term borrowings 0 124 0 38
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 46,123 36,100 16,152 12,685
--------- --------- --------- ---------
NET INTEREST INCOME 66,043 62,087 22,708 21,228
Provision for loan losses 1,151 657 532 298
--------- --------- --------- ---------
Net interest income after
provision for loan losses 64,892 61,430 22,176 20,930
NONINTEREST INCOME
Service charges on deposit accounts 6,314 6,154 2,171 2,085
Trust income 5,706 5,308 1,882 1,697
Investment securities gains (losses) 300 (618) 49 (520)
Other 2,908 3,179 989 939
--------- --------- --------- ---------
Total noninterest income 15,228 14,023 5,091 4,201
NONINTEREST EXPENSES
Salaries and employee benefits 24,321 23,446 8,406 7,772
Net occupancy expenses 3,260 3,165 1,119 1,074
Furniture and equipment expenses 2,415 2,217 799 707
Data processing expenses 3,977 3,863 1,357 1,305
Deposit insurance expense 1,860 2,652 77 884
State taxes 1,224 1,318 413 419
Other 9,738 9,583 3,388 3,355
--------- --------- --------- ---------
Total noninterest expenses 46,795 46,244 15,559 15,516
--------- --------- --------- ---------
Income before income taxes 33,325 29,209 11,708 9,615
Income tax expense 9,850 7,552 3,591 2,454
--------- --------- --------- ---------
NET EARNINGS $ 23,475 $ 21,657 $ 8,117 $ 7,161
========= ========= ========= =========
Net earnings per common share $ 1.91 $ 1.77 $ 0.65 $ 0.59
========= ========= ========= =========
Cash dividends declared per share $ 0.78 $ 0.66 $ 0.26 $ 0.22
========= ========= ========= =========
Average shares outstanding 12,311,609 12,213,201 12,513,795 12,214,452
========== ========== ========== ==========
See notes to consolidated financial statements.
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine months ended
September 30,
----------------------
1995 1994
---------- ---------
OPERATING ACTIVITIES
Net earnings $ 23,475 $ 21,657
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 1,151 657
Provision for depreciation and amortization 2,985 2,607
Net amortization of investment security
premiums and accretion of discounts 864 1,507
Deferred income taxes (102) (596)
Realized investment security (gains) losses (300) 618
Originations of mortgage loans held for sale (18,247) (28,575)
Gains from sales of mortgage loans held for sale (254) (322)
Proceeds from sale of mortgage loans held for sale 18,501 28,897
Increase in interest receivable (601) (2,311)
Increase in prepaid expenses (509) (1,069)
Increase in accrued expenses 2,384 639
Increase in interest payable 1,744 479
Other (345) (2,230)
---------- ----------
Net cash provided by operating activities 30,746 21,958
INVESTING ACTIVITIES
Proceeds from sales of securities available-for-sale 34,188 33,715
Proceeds from calls, paydowns and maturities of
securities available-for-sale 35,871 78,901
Purchases of securities available-for-sale (59,442) (109,913)
Proceeds from calls, paydowns and maturities of
securities held-to-maturity 37,236 28,105
Purchases of securities held-to-maturity (520) (9,159)
Net decrease in interest-bearing deposits
with other banks 3,740 10,725
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell (1,184) 20,751
Net increase in loans and leases (54,777) (131,384)
Recoveries from loans and leases previously charged off 881 843
Proceeds from disposal of other real estate owned 833 1,667
Cash acquired in merger 2,577 0
Purchases of premises and equipment (2,232) (2,954)
---------- ----------
Net cash used in investing activities (2,829) (78,703)
FINANCING ACTIVITIES
Net increase in total deposits 8,506 5,403
Net (decrease) increase in short-term borrowings (37,142) 69,654
Principal payments of long-term borrowings 0 (3,983)
Cash dividends declared (9,617) (7,903)
Purchase of treasury stock 0 (189)
Proceeds from exercise of stock options, net of shares
purchased 123 151
---------- ----------
Net cash (used in) provided by financing activities (38,130) 63,133
---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,213) 6,388
Cash and cash equivalents at beginning of period 103,752 88,926
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,539 $ 95,314
========== ==========
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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine months ended
September 30,
-----------------------
1995 1994
---------- ----------
Supplemental disclosures
Interest paid $ 45,171 $ 35,621
========== ==========
Income taxes paid $ 8,260 $ 6,734
========== ==========
Recognition of deferred tax (liabilities) assets
attributable to FASB Statement No. 115 $ (2,042) $ 486
========== ==========
Acquisition of other real estate owned through
foreclosure $ 371 $ 192
========== ==========
Issuance of restricted stock awards $ 33
==========
Transfer of securities to available-for-sale upon
adoption of FASB Statement No. 115 $272,856
==========
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 bank and savings and loan
holding company, include the accounts of Bancorp and its wholly-owned
subsidiaries - First National Bank of Southwestern Ohio, Citizens Commercial
Bank & Trust Company, Van Wert National Bank, Union Trust Bank, Indiana
Lawrence Bank, Fidelity Federal Savings Bank, Citizens First State Bank,
Fayette Federal Savings Bank, Home Federal Bank - A Federal Savings Bank,
Union Bank & Trust Company, The Clyde Savings Bank Company and Peoples Bank and
Trust Company. 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 currently exceeds 15 years. Core deposit balances are being amortized
over varying periods, none of which currently exceeds 10 years.
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.
The Consolidated Statements of Cash Flows has been presented utilizing the
indirect method. For purposes of the Consolidated Statements of Cash Flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
The assumed exercise of stock options would not have a materially dilutive
effect, therefore, fully diluted earnings per share is not presented.
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 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.
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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 September
30, 1995, Bancorp had issued standby letters of credit aggregating $9,871,000
compared to $9,976,000 issued as of December 31, 1994. 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 $211,802,000 at September 30, 1995 and
$216,802,000 at December 31, 1994. Management does not anticipate any material
losses as a result of these commitments.
NOTE 3: BUSINESS COMBINATIONS
On July 16, 1995, Bancorp issued 354,645 shares of its common stock in exchange
for all the outstanding common stock of Peoples Bank and Trust Company, Sunman,
Indiana. The acquisition of the $54 million bank has been accounted for as an
immaterial pooling-of-interests and accordingly, the consolidated financial
statements, including earnings per share, have not been restated for periods
prior to July 16, 1995.
NOTE 4: PENDING MERGERS
On September 12, 1995, Bancorp announced the signing of a Definitive Agreement
of Merger with F&M Bancorp of Rochester, Indiana. F&M Bancorp is a one-bank
holding company with the $60 million Farmers & Merchants Bank as its only
subsidiary. Bancorp intends to merge Farmers & Merchants Bank into Indiana
Lawrence Bank. Subject to required shareholder and regulatory approval, this
merger is expected to be consummated during the second quarter of 1996 and be
accounted for using the pooling-of-interests method of accounting.
NOTE 5: SUBSEQUENT EVENTS
On October 1, 1995, Bancorp issued 442,876 shares of its common stock in
exchange for all the outstanding common stock of Bright Financial Services,
Inc. (Bright Financial), Flora, Indiana. Upon consummation of the merger,
Bright Financial was dissolved and its subsidiary, the $113 million Bright
National Bank, became a wholly-owned subsidiary of Bancorp. Bancorp also
acquired Bright Financial's 23.1911% joint venture investment in Independent
Bankers Life Insurance of Indiana (Independent Bankers Life), operating out of
Roachdale, Indiana. Independent Bankers Life is a joint venture of five
community bank holding companies. The only purpose of this insurance company is
to write credit life and disability insurance for consumer loans. This merger
was accounted for as an immaterial pooling-of-interests and accordingly, the
consolidated financial statements, including earnings per share, will not be
restated for periods prior to October 1, 1995.
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NOTE 6: ACCOUNTING CHANGES
Bancorp adopted FASB Statement No. 114 "Accounting by Creditors for Impairment
of a Loan", as amended by FASB Statement No. 118 "Accounting by Creditors for
Impairment of a Loan -Income Recognition and Disclosures" effective January 1,
1995. The adoption of the standard did not have a material impact on Bancorp's
financial position or results of operations. For additional disclosures refer
to the MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ALLOWANCE FOR LOAN LOSSES and NONPERFORMING/UNDERPERFORMING
ASSETS sections.
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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
1995 1994
-------------------------------------- -----------------------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
NET EARNINGS $ 8,117 $ 7,989 $ 7,369 $ 6,516 $ 7,161
AVERAGE CONSOLIDATED BALANCE SHEET ITEMS:
LOANS LESS UNEARNED INCOME 1,449,366 1,418,520 1,394,024 1,345,953 1,291,400
INVESTMENT SECURITIES 332,720 321,336 347,172 393,912 421,654
OTHER EARNING ASSETS 13,269 4,084 7,056 5,696 9,761
---------- ---------- ---------- ---------- ----------
TOTAL EARNING ASSETS 1,795,355 1,743,940 1,748,252 1,745,561 1,722,815
TOTAL ASSETS 1,923,339 1,868,384 1,871,532 1,878,577 1,851,992
DEPOSITS 1,618,998 1,573,997 1,551,899 1,576,111 1,567,006
SHAREHOLDERS' EQUITY 216,164 203,469 197,050 192,414 191,555
KEY RATIOS:
AVERAGE EQUITY TO AVERAGE TOTAL ASSETS 11.24% 10.89% 10.53% 10.24% 10.34%
RETURN ON AVERAGE TOTAL ASSETS 1.69% 1.71% 1.57% 1.39% 1.55%
RETURN ON AVERAGE EQUITY 15.02% 15.71% 14.96% 13.55% 14.95%
NET INTEREST MARGIN (FULLY TAX EQUIVALENT) 5.28% 5.22% 5.23% 5.30% 5.24%
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
gradually declined over the periods presented as a result of a decline in
tax-exempt assets. As shown below, net interest income on a fully tax
equivalent basis has increased $1,152,000 over the third quarter of 1994.
Continued loan growth, particularly in commercial and installment loans,
contributed to higher net interest income in the third quarter of 1995.
QUARTER ENDED
1995 1994
---------------------------------- --------------------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
INTEREST INCOME $38,860 $37,144 $36,162 $35,317 $33,913
INTEREST EXPENSE 16,152 15,476 14,495 13,487 12,685
------- ------- ------- ------- -------
NET INTEREST INCOME 22,708 21,668 21,667 21,830 21,228
TAX EQUIVALENT ADJUSTMENT TO INTEREST INCOME 1,008 1,111 1,191 1,308 1,336
------- ------- ------- ------- -------
NET INTEREST INCOME (FULLY TAX EQUIVALENT) $23,716 $22,779 $22,858 $23,138 $22,564
======= ======= ======= ======= =======
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RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net interest income is
illustrated in the table below. As shown, increases in rates had a significant
impact on both interest income and interest expense for the nine month and
three month periods ended September 30, 1995 in comparison to 1994. The
increase in rates had slightly more impact on interest income than interest
expense. The primary factor, however, for increased net interest income for
the periods presented was a significant increase in the volume of earning
assets. 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.
NINE MONTHS THREE MONTHS
ENDED ENDED
SEP. 30, 1995 CHANGE DUE TO: SEP. 30, 1995 CHANGE DUE TO:
------------------- -------------------
OVER 1994 RATE VOLUME OVER 1994 RATE VOLUME
------------- -------- -------- --------------- --------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INTEREST INCOME $ 13,979 $ 9,663 $ 4,316 $ 4,947 $ 3,477 $ 1,470
INTEREST EXPENSE 10,023 8,930 1,093 3,467 3,174 293
-------- -------- -------- ---------- --------- -------
NET INTEREST INCOME $ 3,956 $ 733 $ 3,223 $ 1,480 $ 303 $ 1,177
======== ======== ======== ========== ========= =======
OPERATING RESULTS
Net operating income represents net earnings before net securities
transactions. Net operating income for the first nine months of 1995 was
$23,191,000 which was an increase of $2,036,000 or 9.62% over that reported in
the same period in 1994. This increase in net operating income can be
primarily attributed to an increase in net interest income of $3,956,000 or
6.37%. Noninterest income, excluding securities transactions, for the first
nine months of 1995 increased 1.96% in comparison to the same period in 1994.
These positive variances were offset by increases in provision for loan losses,
noninterest expense and income tax expense. The increase in income tax expense
is discussed in the next section. The increase in noninterest expense was only
1.19%. This marginal increase in noninterest expense was achievable in part
due to the receipt of refunds from the Federal Deposit Insurance Corporation
(FDIC) on deposit insurance premiums paid. These refunds were received at
Bancorp's commercial banking subsidiaries in the third quarter of 1995.
Net operating income for the third quarter of 1995 increased $919,000 or 12.9%
over the same period in 1994 due to the same reasons discussed above.
INCOME TAXES
For the first nine months of 1995, income tax expense was $9,850,000 compared
to $7,552,000 for the same period in 1994, or an increase of $2,298,000. In
1995, $9,834,000 of the tax expense was related to operating income with a tax
expense of $16,000 related to securities transactions. In the first nine
months of 1994, income tax expense related to operating income was $8,672,000
with a tax benefit related to securities transactions of $1,120,000. The
increase in taxes on operating income was due to the increase in operating
income before taxes and securities transactions of $3,198,000 or 10.7% over
that reported for the first nine months of 1994 and a higher effective tax rate
for the period in 1995. The higher effective tax rate was primarily
attributable to the effect of calls and decreased income from tax-exempt
securities.
For the third quarter of 1995, income tax expense was $3,591,000 compared to
$2,454,000 for the same period in 1994, or an increase of $1,137,000. In 1995,
$3,599,000 of the tax expense was related to operating income with a tax
benefit of $8,000 related to securities transactions. In the third quarter of
1994, income tax expense related to operating income was $2,994,000 with a tax
benefit related to securities transactions of $540,000.
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NET EARNINGS
Net earnings for the first nine months of 1995 were $1,818,000 or 8.39% greater
than that recorded during the same period in 1994. As was discussed
previously, net operating income was $23,191,000 which was 9.62% greater than
the same period in 1994. Net securities gains through September 30, 1995 were
$284,000 compared to $502,000 for the same period in 1994.
Net earnings for the quarter ending September 30, 1995 were $956,000 or
13.4% greater than that recorded during the same period in 1994. Net operating
income was $8,060,000 which was 12.9% greater than the same period in 1994.
Net securities gains for the quarter ended September 30, 1995 were $57,000
compared to $20,000 for the same period in 1994.
ALLOWANCE FOR LOAN LOSSES
Beginning in 1995, Bancorp adopted FASB Statement No. 114. Under the new
standard, the 1995 allowance for loan losses related to loans that are
identified for evaluation in accordance with FASB Statement No. 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. Prior to
1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. 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, current 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 September 30, 1995, the recorded investment in loans that are considered to
be impaired under FASB Statement No. 114 was $863,000, all of which were on a
nonaccrual basis. The related allowance for loan losses on these impaired
loans was $513,000. There were no 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 nine months and quarter ended September
30, 1995, was approximately $1,478,000 and $2,001,000, respectively. For the
nine months ended September 30, 1995, Bancorp recognized interest income on
those impaired loans of $57,000. Bancorp did not recognize any interest income
on impaired loans during the third quarter. Bancorp recognizes income on
impaired loans using the cash basis method. The table below indicates the
activity in the allowance for loan losses for the quarters presented.
QUARTER ENDED
1995 1994
---------------------------- ------------------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD $18,948 $18,904 $18,609 $18,441 $18,504
ALLOWANCE ACQUIRED THROUGH MERGER 206
PROVISION FOR LOAN LOSSES 532 226 393 611 298
LOANS CHARGED OFF (551) (565) (367) (713) (643)
RECOVERIES 229 383 269 270 282
-------- -------- -------- -------- --------
NET CHARGE OFFS (322) (182) (98) (443) (361)
-------- -------- -------- -------- --------
BALANCE AT END OF PERIOD $19,364 $18,948 $18,904 $18,609 $18,441
======== ======== ======== ======== ========
RATIOS:
ALLOWANCE TO PERIOD END LOANS,
NET OF UNEARNED INCOME 1.33% 1.33% 1.34% 1.35% 1.40%
RECOVERIES TO CHARGE OFFS 41.56% 67.79% 73.30% 37.87% 43.86%
ALLOWANCE AS A MULTIPLE OF
NET CHARGE OFFS 60.14X 104.11X 192.90X 42.01X 51.08X
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NONPERFORMING/UNDERPERFORMING ASSETS
The table below shows the categories which are included in nonperforming and
underperforming assets.
Nonperforming assets decreased $626,000 or 9.86% in the third quarter of 1995
when compared to the third quarter of 1994. In that same period, accruing
loans past due 90 days or more decreased $63,000. Accruing loans, including
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, will be classified as "Accruing loans 90 days
or more past due" until they become current.
QUARTER ENDED
1995 1994
---------------------------- ------------------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
-------- -------- -------- -------- --------
NONACCRUAL LOANS $ 3,522 $ 3,631 $ 3,457 $ 2,412 $ 2,938
RESTRUCTURED LOANS 551 571 1,173 1,429 1,245
OREO/ISF* 1,648 1,616 1,669 2,116 2,164
-------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS 5,721 5,818 6,299 5,957 6,347
ACCRUING LOANS PAST DUE
90 DAYS OR MORE 881 859 700 683 944
-------- -------- -------- -------- --------
TOTAL UNDERPERFORMING ASSETS $ 6,602 $ 6,677 $ 6,999 $ 6,640 $ 7,291
======== ======== ======== ======== ========
NONPERFORMING ASSETS AS A PERCENT
OF LOANS, NET OF UNEARNED INCOME
PLUS OREO/ISF 0.39% 0.41% 0.45% 0.43% 0.48%
======== ======== ======== ======== ========
UNDERPERFORMING ASSETS AS A PERCENT
OF LOANS, NET OF UNEARNED INCOME
PLUS OREO/ISF 0.45% 0.47% 0.50% 0.48% 0.55%
======== ======== ======== ======== ========
*OTHER REAL ESTATE OWNED/IN-SUBSTANCE FORECLOSURE
In accordance with FASB Statement No. 114, a loan is classified as in-substance
foreclosure when Bancorp has taken possession of the collateral regardless of
whether formal foreclosure proceedings take place. Loans previously classified
as in-substance foreclosure but for which Bancorp had not taken possession of
the collateral have not been reclassified to loans due to immateriality. At
December 31, 1994, loans classified as in-substance foreclosure were $70,000.
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 third quarter of 1995 Bancorp's
deposit liabilities had increased by 3.38% from December 31, 1994. Another
source of funding is through short-term borrowings. Bancorp's short-term
borrowings decreased to $85,977,000 at September 30, 1995, compared to
$123,119,000 at December 31, 1994. This higher level of short-term funding was
required at December 31, 1994 in anticipation of maturing investment
securities.
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At September 30, 1995,
securities maturing in one year or less amounted to $74,809,000, representing
21.1% 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
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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 September 30,
1995, amounted to $455,855,000, representing 23.2% 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 September 30, 1995, Bancorp had classified $248,540,000 in investment
securities available-for-sale. 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.
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 $2,232,000 for the first
nine months of 1995. In addition, remodeling is a planned and ongoing process
given the 69 offices of Bancorp and its subsidiaries. Material commitments for
capital expenditures as of September 30, 1995 were approximately $253,000.
Management believes that Bancorp has sufficient liquidity to fund its current
commitments.
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
ratio compared to a minimum standard to determine whether a bank has adequate
capital.
Fully phased-in guidelines require 4.00% for Tier I capital, which consists
mainly of common shareholders' equity net of intangibles, and 8.00% for total
capital (Tier I plus Tier II supplementary capital).
Bancorp's Tier I ratio at September 30, 1995, was 15.0% and its total capital
ratio was 16.2%. While Bancorp's ratios are well above the guidelines,
management will continue to monitor the asset mix, product pricing, and the
allowance for loan losses, which are the areas determined to be most affected
by these requirements. The following table illustrates the risk-based capital
calculations and ratios for the past five quarters.
QUARTER ENDED
1995 1994
---------------------------------- ----------------------
SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
TIER I CAPITAL:
SHAREHOLDER'S EQUITY $ 220,561 $ 207,279 $ 201,252 $ 194,673 $ 194,033
LESS: INTANGIBLE ASSETS 3,711 3,883 4,056 4,230 4,446
LESS: UNREALIZED NET SECURITIES
GAINS (LOSSES) 865 759 (384) (2,712) (934)
---------- ---------- ---------- ---------- ----------
TOTAL TIER I CAPITAL $ 215,985 $ 202,637 $ 197,580 $ 193,155 $ 190,521
========== ========== ========== ========== ==========
TOTAL RISK-BASED CAPITAL:
TIER I CAPITAL $ 215,985 $ 202,637 $ 197,580 $ 193,155 $ 190,521
QUALIFYING ALLOWANCE FOR LOAN LOSSES 18,052 17,603 17,290 17,074 16,803
---------- ---------- ---------- ---------- ----------
TOTAL RISK-BASED CAPITAL $ 234,037 $ 220,240 $ 214,870 $ 210,229 $ 207,324
========== ========== ========== ========== ==========
RISK WEIGHTED ASSETS $1,444,180 $1,408,270 $1,383,180 $1,365,882 $1,344,203
========== ========== ========== ========== ==========
RISK-BASED RATIOS:
TIER I 14.96% 14.39% 14.28% 14.14% 14.17%
========== ========== ========== ========== ==========
TOTAL RISK-BASED CAPITAL 16.21% 15.64% 15.53% 15.39% 15.42%
========== ========== ========== ========== ==========
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ACCOUNTING AND REGULATORY MATTERS
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 122 on accounting for mortgage servicing rights. This Statement is
required to be adopted for financial statements for fiscal years beginning
after December 15, 1995. Bancorp is in the process of analyzing the Statement
and at this time its financial impact is unknown but is expected to be
immaterial.
On August 8, 1995, the Federal Deposit Insurance Corporation (FDIC) voted to
retroactively lower the deposit insurance premiums commercial banks pay from
$0.23 to $0.04 per $100 in insured deposits for well-capitalized institutions.
In September of 1995, Bancorp's commercial banking subsidiaries received
refunds on excess deposit insurance premiums paid from June to September.
Accordingly, these refunds are reflected in the September 30, 1995 Consolidated
Financial Statements. Premiums for thrifts were not revised. Bancorp currently
has approximately $300,000,000 in deposits at its thrift subsidiaries insured
under the Savings Association Insurance Fund (SAIF). Currently, the SAIF
reserves are considered underfunded and regulatory discussions continue
regarding options for restoring SAIF levels. These discussions include the
possibility of a one-time charge to thrifts in the fourth quarter of 1995 or
early 1996, which could have a material negative impact on Bancorp's thrifts.
Management is not aware of any other events or regulatory recommendations
which, if implemented, are likely to have a material effect on Bancorp's
liquidity, capital resources, or operations.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended September 30, 1995, the registrant did not
file any reports on Form 8-K.
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SIGNATURE
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)
Date November 7, 1995 /s/ Michael R. O'Dell
--------------------- ------------------------
Michael R. O'Dell,
Comptroller
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