1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of operations of First
Financial Bancorp. (Bancorp). It identifies trends and material changes that
occurred during the reporting periods and should be read in conjunction with
the consolidated financial statements and accompanying notes.
Bancorp is a bank and savings and loan holding company headquartered in
Hamilton, Ohio. As of December 31, 1996, Bancorp owned fourteen subsidiaries
located in western Ohio and eastern and west-central Indiana. Bancorp entered
the southern Michigan market on January 1, 1997, when a merger with Hastings
Financial Corporation, Hastings, Michigan, occurred.
First Finance Mortgage Company of Southwestern Ohio, Inc. (First
Finance) began full operations on May 8, 1996. First Finance, incorporated and
wholly owned by Bancorp, is a retail finance company and operates from an
office in Fairfield, Ohio.
On September 24, 1996, Bancorp's Board of Directors declared a 10%
stock dividend distributed on November 1, 1996, to shareholders of record as
of October 4, 1996. All per share data has been restated to reflect the stock
dividend.
On November 26, 1996, the Board of Directors approved a quarterly cash
dividend of 30 cents per share payable January 2, 1997, to shareholders of
record as of December 6, 1996.
The major components of Bancorp's operating results for the past five
years are summarized in Table 1 and discussed in greater detail on subsequent
pages which should be read in conjunction with the statistical data and
consolidated financial statements on pages 30 through 48.
RECENT MERGERS
On December 1, 1996, Bancorp paid $7,575,004 in cash for all the
outstanding common stock of Farmers State Bancorp. Upon consummation of the
merger, Farmers State Bancorp was merged out of existence and its only
subsidiary, Farmers State Bank, became a wholly owned subsidiary of Bancorp.
Farmers State Bank has its main office in Liberty, Indiana and one office in
each of the following cities: West College Corner, Rushville, Glenwood,
Carthage and Mays, Indiana. This merger was accounted for using the purchase
method of accounting and, accordingly, the consolidated financial statements
include Farmers State Bank's results of operations from the date of
acquisition.
On April 1, 1996, Bancorp issued 363,373 shares of its common stock for
all the outstanding common stock of F & M Bancorp (F&M). Upon consummation of
the merger, F&M was merged out of existence and its only subsidiary, Farmers &
Merchants Bank of Rochester (Farmers & Merchants) was merged with and into
Indiana Lawrence Bank, a wholly owned subsidiary of Bancorp. Farmers &
Merchants' three offices - two in Rochester, Indiana and one in Kewanna,
Indiana became branches of Indiana Lawrence Bank, the surviving entity. The
merger was accounted for using the pooling-of-interests method of accounting.
The consolidated financial statements for prior periods have not been restated
due to immateriality.
On October 1, 1995, Bancorp issued 442,876 shares of its common stock
for all the outstanding common stock of Bright Financial Services, Inc.
(Bright Financial). Upon consummation of the merger, Bright Financial was
merged out of existence and its only subsidiary, Bright National Bank
(Bright), became a wholly owned subsidiary of Bancorp. Bright has its main
office and one other office in Flora, Indiana, two offices in Lafayette,
Indiana, and one office in each of the following cities: Delphi, Rossville and
Burlington, Indiana. This merger was accounted for using the
pooling-of-interests method of accounting. The consolidated financial
statements for prior periods have not been restated due to immateriality.
On July 16, 1995, Bancorp issued 354,645 shares of its common stock for
all the outstanding common stock of Peoples Bank and Trust Company (Peoples).
Upon consummation of the merger, Peoples became a wholly owned subsidiary of
Bancorp. At the time of the merger, Peoples had one office located in Sunman,
Indiana. This merger was accounted for using the pooling-of-interests
accounting method. The consolidated financial statements for prior periods
have not been restated due to immateriality.
On June 1, 1994, Bancorp issued 287,699 shares of its common stock for
all the outstanding common stock of First Clyde Banc Corp. Upon consummation
of the merger, First Clyde Banc Corp was merged out of existence and its only
subsidiary, The Clyde Savings Bank Company (Clyde), became a wholly owned
subsidiary of Bancorp. Clyde has two offices in Clyde, Ohio. This merger was
accounted for as a pooling-of-interests, and accordingly, the consolidated
financial statements, including earnings per share, have been restated for the
periods prior to the merger to include the accounts and operations of Clyde.
On February 1, 1994, Bancorp issued 198,386 shares of its common stock
for all the outstanding shares of Highland Federal Savings Bank (Highland).
Upon consummation of the merger, Highland was merged into Home Federal Bank, A
Federal Savings Bank (Home Federal). Home Federal, a wholly owned subsidiary
of Bancorp, was the surviving entity with Highland's two offices, one in Mt.
Healthy, Ohio and the other in Mariemont, Ohio, becoming branches of Home
Federal. This merger was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements, including earnings per
share, have been restated for the periods prior to the merger to include the
accounts and operations of Highland.
PENDING MERGERS
On January 13, 1997, Bancorp signed a Plan and Agreement of Merger with
Southeastern Indiana Bancorp (SIB). SIB's only subsidiary, Vevay Deposit Bank,
has its main office and two other offices in Vevay, Indiana and an additional
office in East Enterprise, Indiana. Under the terms of the merger agreement,
Bancorp will pay $7,800,000 for all the outstanding common stock of SIB. Upon
consummation of the merger, SIB will be merged out of existence and Vevay
Deposit Bank will become a wholly owned subsidiary of Bancorp. Subject to
regulatory approval and approval by SIB's shareholders, the merger is expected
to occur during the second quarter of 1997. Bancorp anticipates the merger
will be accounted for using the purchase method of accounting.
On January 1, 1997, Bancorp issued 322,386 shares of its common stock
for all the outstanding common stock of Hastings Financial Corporation
(Hastings Financial). Upon consummation of the merger, Hastings Financial was
merged out of existence and its only subsidiary, National Bank of Hastings
(National Bank), became a wholly owned subsidiary of Bancorp. National Bank
has its main office in Hastings, Michigan and one other office in Wayland,
Michigan. This merger represents Bancorp's first association with a Michigan
bank. This transaction was accounted for using the pooling-of-interests method
of accounting.
OVERVIEW OF OPERATIONS
Bancorp's net earnings during 1996 were $33,940,000 or $2.32 per share,
representing a 6.77% increase over 1995 net earnings and a 0.43% increase over
1995 earnings per share. The 1996 financial results include the effect of a
$2,144,000 ($1,389,000 after tax) charge for a special assessment paid to the
Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance
Corporation (FDIC). (See "Noninterest Expenses" of this Management Discussion
and Analysis for more information concerning the special assessment.) Before
this charge, Bancorp's 1996 net earnings were 11.1% greater than 1995 net
earnings and 4.76% greater on a per share basis. Net earnings in 1995 were
$31,789,000 ($2.31 per share) reflecting a 12.8% increase over 1994 net
earnings of $28,173,000 ($2.10 per share). The 1996 earnings increase was
achieved primarily through an increase in net interest income, partially
offset by increases in noninterest expenses.
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
2
TABLE 1 - FINANCIAL SUMMARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
SUMMARY OF OPERATIONS
Interest income $ 171,275 $ 153,851 $ 133,504 $ 130,739 $ 143,439
Tax equivalent adjustment 3,510 4,286 5,482 5,922 5,875
--------- --------- ---------- ---------- -----------
Interest income - tax equivalent 174,785 158,137 138,986 136,661 149,314
Interest expense 69,707 63,516 49,587 51,880 66,958
--------- --------- ---------- ---------- -----------
NET INTEREST INCOME - TAX EQUIVALENT $ 105,078 $ 94,621 $ 89,399 $ 84,781 $ 82,356
========= ========= ========== ========== ===========
Interest income $ 171,275 $ 153,851 $ 133,504 $ 130,739 $ 143,439
Interest expense 69,707 63,516 49,587 51,880 66,958
--------- --------- ---------- ---------- -----------
Net interest income 101,568 90,335 83,917 78,859 76,481
Provision for loan losses 3,433 2,108 1,268 3,747 6,543
Noninterest income 22,097 20,558 17,462 19,589 19,814
Noninterest expenses 71,261 63,345 62,139 62,038 60,639
--------- --------- ---------- ---------- -----------
Income before income taxes and cumulative
effect of changes in accounting principles 48,971 45,440 37,972 32,663 29,113
Income tax expense 15,031 13,651 9,799 7,469 7,343
--------- --------- ---------- ---------- -----------
Income before cumulative effect of changes
in accounting principles 33,940 31,789 28,173 25,194 21,770
Cumulative effect of changes in accounting principles 1,698
--------- --------- ---------- ---------- -----------
NET EARNINGS $ 33,940 $ 31,789 $ 28,173 $ 25,194 $ 23,468
========= ========= ========== ========== ===========
Tax equivalent basis was calculated using a 35.0%
tax rate in all years presented except 1992 which
was calculated using a 34.0% tax rate.
PER SHARE DATA (1)
Income before cumulative effect of changes
in accounting principles $ 2.32 $ 2.31 $ 2.10 $ 1.88 $ 1.61
Cumulative effect of changes in accounting principles 0.13
--------- --------- ---------- ---------- -----------
NET EARNINGS $ 2.32 $ 2.31 $ 2.10 $ 1.88 $ 1.74
========= ========= ========== ========== ===========
Cash dividends declared
First Financial Bancorp $ 1.11 $ 0.98 $ 0.89 $ 0.75 $ 0.67
Jennings Union Bankcorp(2) N/A N/A N/A $ 2.00
Highland Federal Savings Bank N/A N/A $ 0.85 $ 0.75
First Clyde Banc Corp(3) N/A N/A $ 0.50 $ 2.00 $ 1.80
Average common shares outstanding (in thousands) 14,611 13,737 13,432 13,432 13,551
SELECTED YEAR-END BALANCES
Total assets $2,261,711 $2,103,375 $1,922,643 $1,810,673 $1,816,414
Earning assets 2,087,190 1,941,274 1,764,616 1,670,009 1,662,413
Investment securities held-to-maturity 78,945 93,522 135,187 438,461 457,919
Investment securities available-for-sale 290,701 294,052 242,410
Loans, net of unearned income 1,700,264 1,532,016 1,378,867 1,189,790 1,137,482
Deposits 1,879,966 1,785,562 1,587,324 1,580,546 1,604,053
Noninterest-bearing demand deposits 238,415 220,061 201,331 182,192 181,696
Interest-bearing demand deposits 317,187 302,119 266,601 277,444 249,531
Savings deposits 381,903 359,638 374,378 403,845 400,632
Time deposits 942,461 903,744 745,014 717,065 772,194
Long-term borrowings 6,506 2,820 3,983 4,564
Shareholders' equity 258,482 234,175 194,673 181,252 167,694
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 89.16% 89.01% 80.79% 74.14% 72.40%
Net charge-offs to loans 0.17% 0.10% 0.08% 0.21% 0.63%
Shareholders' equity to
Total assets 11.52% 10.98% 10.29% 9.73% 8.84%
Deposits 13.75% 13.06% 12.05% 11.10% 9.94%
Return on Assets 1.58% 1.64% 1.54% 1.41% 1.30%
Return on Equity 13.72% 14.97% 14.93% 14.54% 14.70%
Net interest margin (tax equivalent basis) 5.25% 5.24% 5.25% 5.14% 4.91%
<FN>
(1) First Financial Bancorp's per share data has been restated for all stock dividends and material pooling-of-interests
mergers through 1996.
(2) Jennings Union Bankcorp was the parent company of Union Bank & Trust Company and was merged out of existence on
January 4, 1993.
(3) First Clyde Banc Corp was the parent company of The Clyde Savings Bank Company and was merged out of existence on
June 1, 1994.
====================================================================================================================================
22 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
3
The 1995 earnings increase was achieved primarily through an increase in net
interest income.
Bancorp's return on assets before the SAIF special assessment charge
for 1996 was 1.65%. This compares with return on asset ratios of 1.64% and
1.54% for 1995 and 1994, respectively. Bancorp's return on equity before the
SAIF special assessment for 1996 was 14.3%, which compares to 15.0% and 14.9%
for 1995 and 1994, respectively. Bancorp's return on assets and return on
equity after the SAIF special assessment were 1.58% and 13.7%, respectively.
NET INTEREST INCOME
Net interest income, Bancorp's principal source of earnings, is the
excess of interest received from earning assets over interest paid on
interest-bearing liabilities. Bancorp's net interest income for the years 1992
through 1996 is shown in Table 1. For analytical purposes, a section showing
interest income on a tax equivalent basis is also presented in Table 1. The
tax equivalent adjustment recognizes the income tax savings when comparing
taxable and tax-exempt assets and assumes a 35.0% tax rate in 1996, 1995, 1994
and 1993 and a 34.0% tax rate in 1992.
The amount of net interest income is determined by the volume and mix
of earning assets, the rates earned on such earning assets and the volume, mix
and rates paid for the deposits and borrowed money that support the earning
assets. Table 2 describes the extent to which changes in interest rates and
changes in volume of earning assets and interest-bearing liabilities have
affected Bancorp's net interest income during the years indicated. The
combined effect of changes in both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate. Table
2 should be read in conjunction with the Statistical Information shown on page
30.
Tax equivalent total interest income was $174,785,000 in 1996, an
increase of $16,648,000 over 1995. Substantially all of this increase was due
to an increase of $193,643,000 in the volume of earning assets, from an
average of $1,806,276,000 during 1995 to $1,999,919,000 during 1996.
Outstanding loan balances increased $157,251,000 and investment securities
and other instruments increased $36,392,000.
Total interest expense was $69,707,000 in 1996, an increase of
$6,191,000 over 1995. The increase was due to an increase of $152,262,000 in
total interest-bearing liabilities, from an average of $1,516,752,000 during
1995 to an average of $1,669,014,000 during 1996.
Tax equivalent net interest income, the difference between tax
equivalent total interest income and total interest expense, increased
$10,457,000 during 1996 due primarily to the volume increases described above.
The increased interest income was greater than the increased interest expense,
thereby causing net interest income to increase.
Because average interest rates were stable during 1996, they did not
have a material effect on net interest income. The average yield on total
earning assets was 8.74% and 8.75% during 1996 and 1995, respectively, and the
average rate paid for interest-bearing liabilities was 4.18% and 4.19% during
1996 and 1995, respectively. This stableness in rates is reflected in
Bancorp's interest rate spread and net interest margin. The interest rate
spread (the average rate on earning assets minus the average rate on
interest-bearing liabilities) was 4.56% for both 1996 and 1995. As with
Bancorp's interest rate spread, the net interest margin (net interest income
on a tax equivalent basis divided by average earning assets) also remained
steady, increasing only one basis point (a basis point equals 0.01%) during
1996. The net interest margin was 5.25% and 5.24% for 1996 and 1995,
respectively.
Nonaccruing loans were included in the daily average loan balances used
in determining the yields in Table 2. Interest foregone on nonaccruing loans
is disclosed in Note 9 of the Notes to Consolidated Financial Statements and
is not considered to have a material effect on the reasonableness of these
presentations. In addition, the amount of loan fees included in the interest
income computation for 1996, 1995 and 1994 was $3,677,000, $2,928,000 and
$2,742,000, respectively.
During 1996 and 1995, approximately $15,076,000 and $51,193,000,
respectively, of tax-exempt municipal securities earning a tax equivalent
yield of 12.0% and 13.4%, respectively, were called by their issuers or
matured. The result of these calls and maturities has been a
TABLE 2 - VOLUME/RATE ANALYSIS - TAX EQUIVALENT BASIS (1)
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 change from 1995 due to 1995 change from 1994 due to
VOLUME RATE TOTAL VOLUME RATE TOTAL
INTEREST INCOME
Loans $ 14,210 $ 1,645 $ 15,855 $ 15,884 $ 8,238 $ 24,122
Investment securities (2)
Taxable 2,912 (175) 2,737 (3,320) 1,684 (1,636)
Tax-exempt (1,371) (761) (2,132) (3,129) (312) (3,441)
---------- ---------- --------- -------- --------- ---------
Total investment securities interest (2) 1,541 (936) 605 (6,449) 1,372 (5,077)
Interest-bearing deposits with other banks 105 (6) 99 (138) 101 (37)
Federal funds sold and securities
purchased under agreements to resell 115 (26) 89 9 134 143
---------- ---------- --------- -------- --------- ---------
TOTAL 15,971 677 16,648 9,306 9,845 19,151
INTEREST EXPENSE
Interest-bearing demand deposits 881 186 1,067 (140) 182 42
Savings deposits 345 (240) 105 (990) 430 (560)
Time deposits 5,304 18 5,322 4,567 8,322 12,889
Short-term borrowings (88) (442) (530) 615 1,015 1,630
Long-term borrowings 228 (1) 227 (46) (26) (72)
---------- ---------- --------- -------- --------- ---------
TOTAL 6,670 (479) 6,191 4,006 9,923 13,929
---------- ---------- --------- -------- --------- ---------
NET INTEREST INCOME $ 9,301 $ 1,156 $ 10,457 $ 5,300 $ (78) $ 5,222
========== ========== ========= ======== ========= =========
<FN>
(1) Tax equivalent basis was calculated using a 35.0% tax rate.
(2) Includes both investment securities held-to-maturity and investment securities available-for-sale.
====================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 23
4
continued decline in the average tax equivalent yields earned on tax-exempt
securities, from 12.3% during 1994 to 12.0% during 1995 and 11.2% during 1996.
The yield declines in tax-exempt securities during the past several years have
been counterbalanced by yield increases in loans outstanding - increases
which, absent the decline in tax equivalent yields, would have increased net
interest income, the interest rate spread and the net interest margin.
Another $19,047,000 of municipal securities earning a tax equivalent
yield of 11.7% are scheduled to mature or may be called during 1997. In the
current economic environment, Bancorp may not be able to reinvest these funds
in similar earning assets at acceptable risk levels. The loss of such
tax-exempt municipal securities will likely continue to negatively influence
Bancorp's interest rate spread and net interest margin in the future.
NONINTEREST INCOME AND NONINTEREST EXPENSES
A listing of noninterest income and noninterest expenses for 1996, 1995
and 1994 is reported in Table 3. Although the mergers that occurred during
1996 and 1995 did not materially affect net earnings, they influenced the
individual line items for noninterest income and expense. Affiliates that
joined Bancorp during 1996 and 1995 are included in the consolidated
statements of earnings starting with their date of acquisition. The two
affiliates that joined Bancorp during 1995 are therefore included in the
Consolidated Statements of Earnings for all of 1996 and only a portion of the
year during 1995. Likewise, the two affiliates that joined Bancorp during 1996
are included in the Consolidated Statements of Earnings for their respective
portions of 1996.
NONINTEREST INCOME
Noninterest income, excluding securities transactions, increased
$1,887,000 or 9.33% in 1996, while 1995 showed an increase of $1,002,000 or
5.21% from 1994.
Service charges on deposit accounts during 1996 increased $586,000 or
6.82% over 1995 primarily due to Bancorp's new affiliates. Service charges
during 1995 increased $374,000 or 4.55% from 1994 primarily due to increases
in noninterest-bearing demand deposit balances.
Trust revenues in 1996 increased $655,000 or 8.59% over 1995 and
increased $606,000 or 8.64% in 1995 over 1994. The increase during 1996 was
due to an increase of $104,444,000 in trust assets serviced, from
$1,140,997,000 at December 31, 1995, to $1,245,441,000 at December 31, 1996.
The increase during 1995 was due to a $115,609,000 increase in trust assets
serviced, from $1,025,388,000 at December 31, 1994, to $1,140,997,000 at
December 31, 1995. Nearly all of the increases in 1996 and 1995 are attributed
to new business, estate settlement fees and growth in the number of accounts.
Other income during 1996 increased $646,000 or 16.2% over 1995
primarily due to fees received for lockbox services first offered by Bancorp's
First Southwestern affiliate during 1996, increased gains on sales of real
estate mortgage loans and income contributed by the new affiliates. The
increased gain on sale of loans was primarily due to a higher volume of loan
sales during 1996 as compared to 1995.
Other income during 1995 increased $22,000 or 0.55% over 1994 primarily
due to an increase in safe deposit box rental income recognized, partially
offset by a decrease in gains on sales of other real estate owned. The
decrease in gains on sales of other real estate owned reflected a lower amount
of foreclosed real estate properties held during 1995.
Investment securities gains (losses) decreased from a net gain of
$340,000 during 1995 to a net loss of $8,000 during 1996. Investment
securities gains increased $2,094,000 in 1995, from a loss of $1,754,000 in
1994 to a gain of $340,000 in 1995. Bancorp recorded a net loss of $1,754,000
in 1994 primarily due to a restructuring of the available-for-sale securities
portfolio. Proceeds from the sales were reinvested in higher yielding
securities, which benefited future periods.
NONINTEREST EXPENSES
Noninterest expenses in 1996 increased $7,916,000 or 12.5% over 1995
and noninterest expenses in 1995 were $1,206,000 or 1.94% greater than the
amount recorded during 1994.
The largest component of noninterest expenses is salaries and employee
benefits, which increased $4,324,000 or 13.0% over 1995 primarily due to the
addition of new affiliates during 1996 and 1995 and to wage and salary
increases. Salaries and employee benefits during 1995 increased $1,966,000 or
6.28% over 1994 primarily due to wage and salary increases, an increased
number of employees (primarily due to the addition of two new subsidiaries
during 1995) and increased expense relating to the pension plan covering
substantially all employees of Bancorp and its subsidiaries.
Net occupancy expense increased $450,000 or 10.4%, and furniture and
equipment expense increased $559,000 or 16.7%, during 1996 largely
TABLE 3 - NONINTEREST INCOME & NONINTEREST EXPENSES
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------
% CHANGE % CHANGE % CHANGE
INCREASE INCREASE INCREASE
TOTAL (DECREASE) TOTAL (DECREASE) TOTAL (DECREASE)
----- --------- ----- ---------- ----- ----------
NONINTEREST INCOME
Service charges on deposit accounts $ 9,182 6.8% $ 8,596 4.5% $ 8,222 (3.4%)
Trust revenues 8,278 8.6% 7,623 8.6% 7,017 9.2%
Other 4,645 16.2% 3,999 0.6% 3,977 (15.8%)
-------- ------- --------
Subtotal 22,105 9.3% 20,218 5.2% 19,216 (2.3%)
Investment securities (losses) gains (8) N/M 340 N/M (1,754) N/M
-------- ------- --------
TOTAL $ 22,097 7.5% $20,558 17.7% $ 17,462 (10.9%)
======== ======= ======== ====== ========= =========
NONINTEREST EXPENSES
Salaries and employee benefits $ 37,586 13.0% $33,262 6.3% $ 31,296 5.6%
Net occupancy 4,790 10.4% 4,340 3.1% 4,211 (0.2%)
Furniture and equipment 3,911 16.7% 3,352 11.5% 3,006 (4.5%)
Data processing 4,773 (7.6%) 5,165 (0.8%) 5,205 9.8%
Deposit insurance 2,889 31.1% 2,204 (37.7%) 3,537 2.0%
State taxes 1,706 4.2% 1,637 (5.2%) 1,726 1.3%
Other 15,606 16.6% 13,385 1.7% 13,158 (13.0%)
-------- ------- --------
TOTAL $ 71,261 12.5% $63,345 1.9% $ 62,139 0.2%
======== ======== ======== ======= ======== ========
N/M = Not meaningful
================================================================================================================================
24 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
5
because of Bancorp's new affiliates. Increased costs for service contracts on
Bancorp's equipment also affected equipment expense.
The renegotiation of Bancorp's contract with its data processing
service provider and benefits received from an ongoing effort to standardize
computer applications among all affiliates contributed to a $392,000 or 7.59%
decrease in data processing expenses during 1996, as compared with 1995.
On September 30, 1996, the U.S. Congress enacted and President Clinton
signed an omnibus appropriations package that included provisions for
recapitalizing the Savings Association Insurance Fund (SAIF). Substantially
all savings institutions with SAIF insured deposits were required to pay a
one-time assessment of $0.657 per $100 in domestic deposits held as of March
31, 1995. Banks with SAIF insured deposits, usually obtained through mergers
with savings institutions or through purchasing deposits of failed savings
institutions from the Resolution Trust Corporation (the RTC), received a 20%
reduction in their special assessment. First Financial has two savings
institution subsidiaries - Fidelity Federal Savings Bank and Home Federal
Bank, A Federal Savings Bank - and one bank subsidiary, Bright National Bank,
that had purchased SAIF insured deposits from the RTC. These three
subsidiaries had total SAIF insured deposits of approximately $326 million at
March 31, 1995, and their special assessment totaled $2,144,000, which is
included in deposit insurance expense.
Not including the special assessment, deposit insurance expense during
1996 was $745,000, which was a $1,459,000 decrease from 1995 expense of
$2,204,000. Bancorp's subsidiaries with deposits insured by the Bank Insurance
Fund (the BIF) paid the statutory minimum of $2,000 per institution during
1996, compared with $0.23 per $100 of insured deposits during the first five
months of 1995 and $0.04 per $100 during the rest of 1995.
Deposit insurance expense decreased $1,333,000 during 1995 primarily
due to a decrease in the BIF premium paid by Bancorp's subsidiaries from $0.23
per $100 of insured deposits to $0.04 per $100, effective June 1, 1995. The
FDIC lowered the BIF premium after meeting its capitalization target of $1.25
per $100 of deposits in May, 1995.
The premium paid by Bancorp's subsidiaries on their SAIF insured
deposits during 1995, 1994 and 1993 was $0.23 per $100 of insured deposits for
all years. Because of the recapitalization of the SAIF through the special
assessment during 1996, the premium for SAIF insured deposits will decline to
$0.0644 per $100 of insured deposits for a three year period beginning January
1, 1997, and to $0.0243 per $100 for a seventeen year period beginning January
1, 1997.
Because the omnibus appropriations package referred to above requires
BIF insured banks to begin sharing in financing the interest on bonds issued
by the Financing Corporation (the FICO), which savings institutions had been
financing, BIF premiums will increase to $0.0129 per $100 of insured deposits
for a three year period beginning January 1, 1997, and to $0.0243 per $100 for
the seventeen year period beginning January 1, 2000.
According to Bancorp estimates and assuming current deposit levels, the
aggregate premium decrease for its SAIF insured deposits will be greater than
the aggregate premium increase for its BIF insured deposits. Deposit insurance
expenses during the foreseeable future are therefore expected to be
significantly less than amounts paid during the last several years.
Other noninterest expenses increased $2,221,000 or 16.6% partially due
to Bancorp's new affiliates and to smaller increases in a number of
categories.
The efficiency ratio (noninterest expenses as a percentage of
noninterest income, excluding securities transactions, plus fully tax
equivalent net interest income) reflects how much, on average, an institution
expended to generate each dollar of revenue. Bancorp's 1996 efficiency ratio
before the SAIF assessment was 54.3%, compared to ratios of 55.2% and 57.2%
for 1995 and 1994, respectively. The 1996 efficiency ratio after the SAIF
assessment was 56.0%.
INCOME TAXES
Net deferred tax assets at December 31, 1996, 1995 and 1994, were
$2,802,000, $3,369,000 and $5,904,000, respectively. Due to Bancorp's strong
historical earnings trend and the expectation that this trend will continue,
management has determined that it is more likely than not that the net
deferred tax asset will be realized. Therefore, no valuation allowance has
been established. Management will continue to evaluate quarterly the need for
a valuation allowance.
Bancorp's tax expense in 1996 totaled $15,031,000 compared to
$13,651,000 in 1995 and $9,799,000 in 1994, resulting in effective tax rates
of 30.7%, 30.0% and 25.8% in 1996, 1995 and 1994, respectively. The increase
in 1996's effective rate was primarily due to a decline in the amount of
tax-exempt investments held during 1996. The increase in 1995's effective tax
rate was primarily due to the absence of tax losses recognized on tax-exempt
municipal securities called during 1994 and to a decline in average tax-exempt
investments held during 1995 as compared to 1994.
The tax effects of securities transactions were a benefit of $77,000
during 1996, an expense of $17,000 during 1995 and a benefit of $1,634,000 in
1994.
Further analysis of income taxes is presented in Note 10 of the Notes
to Consolidated Financial Statements.
LOANS
Total loans, net of unearned income, increased $168,248,000 or 11.0%
during 1996. Approximately $76,396,000 of the increase was due to the mergers
with Farmers & Merchants and Farmers State Bank. All loan categories, except
lease financing, increased during 1996. In addition to the new affiliates, a
favorable market with respect to loan demand, combined with aggressive loan
campaigns and the pursuit of new business, led to net increases during 1996 of
$57,092,000 or 16.7% in commercial loans, $1,417,000 or 3.39% in construction
loans, $74,609,000 or 9.46% in mortgage loans, $36,165,000 or 11.0% in
installment loans and $701,000 or 4.55% in credit card loans. Lease financing
decreased $1,736,000 or 10.5% during 1996.
Bancorp's loans cover a broad range of borrowers characterizing the
western Ohio and eastern and west-central Indiana markets. There were no loan
concentrations of multiple borrowers in similar activities at December 31,
1996, which exceeded 10.0% of total loans.
Bancorp's subsidiaries consist of community banks dedicated to meeting
the financial needs of individuals and businesses living and operating in the
communities they serve. Bancorp's loan portfolio is therefore primarily
composed of residential and commercial real estate mortgage loans, commercial
loans and installment loans. At December 31, 1996, real estate mortgage loans
composed 50.8% of Bancorp's total loan portfolio and installment loans
composed another 21.5% of the total loan portfolio. Commercial loans equaled
23.4% of the total portfolio and real estate construction, credit card lending
and lease financing made up the remaining 4.30% of the portfolio.
Real estate mortgage loans are generally considered to be the safest
loan investments because of the real estate securing the loans. Installment
loans include unsecured loans, second mortgage loans, secured lines of credit,
secured and unsecured home improvement loans, automobile loans, student loans
and loans secured by savings, stocks or life insurance. Bancorp subsidiaries
offer a wide variety of commercial loans, including small business loans,
agricultural loans, equipment loans and lines of credit.
In accordance with Bancorp's decentralized management structure and
subject to Bancorp guidelines, credit underwriting and approval occur within
the subsidiary originating the loan. Depending on the subsidiary, loan
applications are approved by either a loan committee or by one or more loan
personnel with designated approval authority. Loan committees are composed of
senior management and loan personnel and, at some subsidiaries, members of the
subsidiary's board of directors. Loan applications for principal amounts
greater than a designated amount, which varies by subsidiary, require Bancorp
approval. Any plans to purchase or sell a participation in a loan also require
Bancorp approval.
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 25
6
TABLE 4 - LOAN MATURITY/RATE SENSITIVITY
DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------
Maturity
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
Commercial $ 251,844 $ 89,415 $ 56,775 $ 398,034
Real estate-construction 34,630 6,248 2,384 43,262
----------- ----------- ------------ ------------
TOTAL $ 286,474 $ 95,663 $ 59,159 $ 441,296
=========== =========== ============ ============
-----------------------------------------------------------
Sensitivity to changes in interest rates
PREDETERMINED VARIABLE
RATE RATE
Due after one year but within five years $ 36,608 $ 59,055
Due after five years 8,058 51,101
---------- -----------
TOTAL $ 44,666 $ 110,156
========== ===========
=================================================================================================
Bancorp subsidiaries receive requests to renew maturing loans as a
normal part of business. Such requests are especially common with real estate
loans that are scheduled to mature before being fully amortized and with
commercial loans. The requests are reviewed by the subsidiary's loan committee
or by designated loan personnel, as appropriate, and may be approved, approved
with modifications or disapproved. Required modifications may include, among
other items, a reduction in the loan balance, a change in the interest rate or
the initiation of monthly principal payments.
Table 4 indicates the contractual maturity of commercial loans and real
estate-construction loans outstanding at December 31, 1996. Loans due after
one year are classified according to their sensitivity to changes in interest
rates.
ASSET QUALITY
Bancorp's subsidiaries record a provision for loan losses (provision)
in the Consolidated Statements of Earnings to provide for expected credit
losses. Actual losses on loans and leases are charged against the allowance
for loan losses (allowance), which is a reserve accumulated on the
Consolidated Balance Sheets through the provision. The recorded values of the
loans and leases actually removed from the Consolidated Balance Sheets are
referred to as charge-offs and, after netting out recoveries on previously
charged off assets, become net charge-offs. Bancorp's policy is to charge off
loans when, in management's opinion, collection of principal is in doubt. All
loans charged off are subject to continuous review and concerted efforts are
made to maximize recovery.
Management records the provision, on an individual subsidiary basis, in
amounts sufficient to result in an allowance that will cover future risks
believed to be inherent in the loan portfolio of each subsidiary. Management's
evaluation in establishing the provision includes such factors as the
historical loss and recovery experience, estimated future loss for loans,
known deterioration in loans, periodic external loan evaluations, prevailing
economic conditions that might have an impact on the portfolio and ratios of
delinquencies and nonaccrual loans. The 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. The evaluation of these factors is completed at
Bancorp's subsidiaries through a group of senior officers from the financial
and lending areas.
The provision increased from $2,108,000 in 1995 to $3,433,000 in 1996.
The provision recorded during 1995 was $840,000 greater than 1994's provision
of $1,268,000. The increases during 1996 and 1995 were primarily due to the
increase in loan volume mentioned previously. The allowance at December 31,
1996, was $22,672,000 or 1.33% of loans, net of unearned income. This compares
to $20,437,000 or 1.33% of loans, net of unearned income, at December 31,
1995. Although the balance of the allowance increased $2,235,000, the
significant increase in total loans outstanding resulted in a constant
allowance to loan ratio.
The level of nonaccrual and restructured loans and leases is an
important element in assessing asset quality. Loans are classified nonaccrual
when, in the opinion of management, collection of interest is doubtful.
Nonaccrual loans at December 31, 1996, 1995 and 1994, were $4,850,000,
$2,764,000 and $2,412,000, respectively. The increase in nonaccrual loans
during 1996 occurred in the commercial, real estate mortgage and consumer loan
categories. Nonaccrual loans to total loans at December 31, 1996, 1995 and
1994, were 0.29%, 0.18% and 0.17%, respectively.
Loans are classified as restructured when management, to protect its
investment, grants concessions to the debtor that it would not otherwise
consider. Restructured loans at December 31, 1996, 1995 and 1994, were
$890,000, $517,000 and $1,429,000, respectively.
Another element associated with asset quality is Other Real Estate
Owned (OREO). OREO primarily represents properties acquired by Bancorp's
subsidiaries through loan defaults by customers. The balances of OREO at
December 31, 1996, 1995 and 1994, were $264,000, $1,677,000 and $2,116,000,
respectively. The decrease in OREO during 1996 reflects the sale of vacant
land that had a book value of $1,325,000 at December 31, 1995 and 1994.
Loans 90 days or more past due which were still accruing interest
totaled $906,000, $1,071,000 and $683,000 at December 31, 1996, 1995 and
1994, respectively.
Nonaccrual and restructured loans and leases and OREO are discussed or
summarized in Notes 1 and 9 of the Notes to Consolidated Financial Statements.
Bancorp adopted Statement of Financial Accounting Standards (SFAS) No.
114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" in January, 1995. SFAS No. 114 and SFAS No. 118 require that
lenders measure an impaired loan, as defined in the statements, at the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
If the measure of the impaired loan is less than the creditor's recorded
investment in the loan, the creditor must record a valuation allowance for the
amount of the difference. Implementation of this statement did not have a
material effect on Bancorp's allowance or provision.
26 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
7
INVESTMENT SECURITIES
Bancorp's investment securities decreased $17,928,000 or 4.63% during
1996 to a balance of $369,646,000. The decrease in the investment portfolio
was used to fund loan growth.
Bancorp follows a conservative investment policy, investing primarily
for interest rate risk management and liquidity management purposes. U.S.
Treasury Securities, generally considered to have the least credit risk and
the highest liquidity, composed 11.8% of Bancorp's investment portfolio at
December 31, 1996. All U.S. Treasury Securities were classified as available-
for-sale at that date and are available for liquidity management purposes.
Another 21.2% of the investment portfolio is composed of securities
issued by U.S. government agencies and corporations, primarily the Federal
Home Loan Bank (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA), Student Loan Marketing Association
(SLMA) and Federal Farm Credit Bank. Included in the U.S. government agencies
and corporations securities category at December 31, 1996, were structured
notes totaling $1,499,000. The structured notes held by Bancorp are multistep
coupon debentures issued by the FHLB, FHLMC, FNMA and SLMA and, accordingly,
are rated AAA. All U.S. government agencies and corporations securities were
classified as available-for-sale at December 31, 1996, and are available for
liquidity management purposes. Due to the government guarantees, either
expressed or implied, U.S. government agency and corporation obligations are
considered to have low credit risk and high liquidity.
Investments in mortgage-backed securities (MBSs), including
collateralized mortgage obligations (CMOs), composed 39.9% of the investment
portfolio at December 31, 1996. MBSs represent participations in pools of
mortgage loans, the principal and interest payments of which are passed to the
security investors. MBSs are subject to prepayment risk, especially during
periods of decreasing interest rates. Prepayments of the underlying mortgage
loans may shorten the lives of the securities, thereby affecting yields to
maturity and market values. Bancorp invests primarily in MBSs issued by U.S.
government agencies, such as FHLMC, FNMA, and the Government National Mortgage
Association (GNMA). Such securities, because of government agency guarantees,
are considered to have low credit risk and high liquidity. Accordingly, about
90.2% of Bancorp's MBSs are classified as available-for-sale.
CMOs totaled $66,852,000 at December 31, 1996, all of which were
classified as available-for-sale. CMOs are collateralized by pools of mortgage
loans or MBSs. Substantially all of the CMOs held by Bancorp are rated AAA by
Standard & Poor's Corporation or similar rating agencies. Bancorp does not own
any interest only securities, principal only securities, accrual bonds,
inverse floaters or high risk CMOs, as defined by regulatory guidelines. All
CMOs held as of December 31, 1996, passed the stress test required by the
Federal Financial Institutions Examination Council at the last testing date
and, therefore, are not considered high risk by regulatory definition.
State, county, and municipal securities composed 22.4% of Bancorp's
investment portfolio at December 31, 1996. The securities are highly
diversified as to states and issuing authorities within states, thereby
decreasing portfolio risk. Bancorp management views investments in state,
county, and municipal securities as primarily long-term investments and,
accordingly, about 75.5% of such investments at December 31, 1996, were
classified as held-to-maturity.
The remaining 4.70% of Bancorp's investment portfolio at December 31,
1996, termed "other securities," was primarily composed of stock ownership in
the Indianapolis and Cincinnati District Federal Home Loan Banks and in the
Federal Reserve Bank and in corporate debt securities. Bancorp invests only in
corporate debt securities that are rated investment grade by nationally
recognized rating organizations.
Table 5 sets forth the maturities of investment securities
held-to-maturity and investment securities available-for-sale as of December
31, 1996, and the average yields of such securities calculated on the basis of
the cost and effective yields weighted for the scheduled maturity of each
security. Tax equivalent adjustments (using a 35.0% rate) have been made in
calculating yields on tax-exempt obligations of state, counties, and
municipalities.
At December 31, 1996, the market value of Bancorp's held-to-maturity
investment securities portfolio exceeded the carrying value by $4,496,000. The
available-for-sale investment securities are reported at their market value of
$290,701,000, as required by SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." See Note 8 of the Notes to Consolidated
Financial Statements for additional information.
TABLE 5 - INVESTMENT SECURITIES
DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------------------------
Maturing
-------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
HELD-TO-MATURITY
Mortgage-backed securities(2) $ 128 9.42% $ 758 8.15% $ 3,677 6.54% $ 9,943 8.78%
State, county, and
municipal securities 6,137 9.27% 33,305 11.99% 13,829 12.22% 9,203 12.61%
Other securities 899 8.25% 1,066 6.26%
--------- --------- -------- ---------
TOTAL $ 7,164 9.15% $ 35,129 11.74% $ 17,506 11.03% $ 19,146 10.62%
========= ====== ========= ====== ======== ====== ========= ======
AVAILABLE-FOR-SALE
U.S. Treasury securities $ 16,859 6.36% $ 26,678 5.34%
Securities of other U.S.
government agencies
and corporations 38,724 6.94% 33,226 5.69% $ 4,716 7.06% $ 1,662 6.45%
Mortgage-backed securities(2) 2,690 6.31% 7,795 6.51% 11,088 6.61% 111,585 6.77%
State, county, and
municipal securities 1,940 7.92% 7,652 8.59% 8,063 8.08% 2,606 9.38%
Other securities 252 6.59% 3,430 6.20% 201 6.83% 11,534 7.06%
--------- --------- -------- ---------
TOTAL $ 60,465 6.77% $ 78,781 5.95% $ 24,068 7.18% $ 127,387 6.85%
========= ====== ========= ====== ======== ====== ========= ======
<FN>
(1) Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0%.
(2) 41.3% of the mortgage-backed securities maturing after five years are variable rate.
===================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 27
8
Bancorp's federal funds sold and securities purchased under agreements
to resell decreased $2,601,000, from $14,802,000 at December 31, 1995, to
$12,201,000 at December 31, 1996. The decrease was used to fund loan growth.
Bancorp monitors this position as part of its asset/liability management.
Bancorp does not use off-balance-sheet derivative financial instruments
(such as interest rate swaps) as defined in SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
DEPOSITS AND BORROWINGS
Bancorp's subsidiaries solicit deposits by offering a wide variety of
savings and transaction accounts, including checking accounts, regular savings
accounts, money market deposit accounts and time deposits of various
maturities and rates. In accordance with Bancorp's decentralized management
structure and in an effort to respond to local conditions, each Bancorp
subsidiary designs and prices the savings and transaction accounts offered in
its local market area.
Total deposits increased $94,404,000 or 5.29% in 1996. The two banks
that joined Bancorp during 1996 had total deposits of $105,459,000 at December
31, 1996; the other affiliates therefore experienced a slight decrease in
deposits during 1996. Looking at Bancorp totals at December 31, 1996 and 1995,
time deposits increased $38,717,000, savings deposits increased $22,265,000,
interest-bearing demand deposits increased $15,068,000 and noninterest-bearing
demand deposits increased $18,354,000. The average rate paid on time deposits
was 5.40% for both 1996 and 1995. The average rate paid on interest-bearing
demand deposits increased only seven basis points, from 2.23% in 1995 to 2.30%
in 1996, and the average rate paid for savings deposits decreased seven basis
points, from 2.57% during 1995 to 2.50% during 1996. The weighted average rate
for all interest-bearing deposits increased only two basis points, from 4.12%
during 1995 to 4.14% during 1996.
Table 6 shows the contractual maturity of time deposits of $100,000 and
over that were outstanding at December 31, 1996. These deposits represented
only 8.02% of total deposits.
Short-term borrowings increased from $58,372,000 at December 31, 1995,
to $93,779,000 at December 31, 1996. Long-term borrowings increased from
$2,820,000 at December 31, 1995, to $6,506,000 at December 31, 1996. The
increases in short-term and long-term borrowings were used to fund loan
growth.
TABLE 6 - MATURITIES OF TIME DEPOSITS GREATER THAN OR EQUAL TO $100,000*
DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
-----------------------------------------------------------
Maturing in
3 months or less $ 75,476
3 months to 6 months 27,818
6 months to 12 months 23,169
over 12 months 24,241
----------
Total $ 150,704
==========
<FN>
*All time deposits greater than or equal to $100,000 were in certificates
of deposits.
=========================================================================
LIQUIDITY
Liquidity management is the process by which Bancorp ensures that
adequate liquid funds are available for the corporation and its subsidiaries.
These funds are necessary in order for Bancorp and its subsidiaries to meet
financial commitments on a timely basis. These commitments include withdrawals
by depositors, funding credit obligations to borrowers, paying dividends to
shareholders, paying operating expenses, funding capital expenditures and
maintaining deposit reserve requirements. Liquidity is monitored and closely
managed by the asset/liability committees at Bancorp's subsidiaries.
Liquidity may be used to fund capital expenditures. Capital
expenditures were $4,381,000 for 1996 and $3,615,000 for 1995. Remodeling is a
planned and ongoing process given the 87 offices of Bancorp and its
subsidiaries. Material commitments for capital expenditures as of December 31,
1996, were $2,170,000.
Bancorp subsidiaries' source of funding is predominately deposits
within each of their respective market areas. The deposit base is diversified
among individuals, partnerships, corporations and public entities. This
diversification helps Bancorp avoid dependence on large concentrations of
funds. Bancorp does not solicit time deposits from brokers.
Liquidity is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturation of investment securities,
net cash provided by operating activities and access to other funding sources.
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. In
addition, Bancorp utilizes advances from the Federal Home Loan Bank as a
funding source. The principal source of asset-funded liquidity is investment
securities classified as available-for-sale, the market values of which
totaled $290,701,000 at December 31, 1996. Securities classified as
held-to-maturity that are maturing within a short period of time can also be a
source of liquidity. Securities classified as held-to-maturity and that are
maturing in one year or less totaled $7,164,000 at December 31, 1996. In
addition, other types of assets--such as cash and due from banks, federal
funds sold and securities purchased under agreements to resell and loans and
interest-bearing deposits with other banks maturing within one year--are
sources of liquidity.
Certain restrictions exist regarding the ability of Bancorp's
subsidiaries to transfer funds to Bancorp (see Note 6 of the Notes to
Consolidated Financial Statements). Management is not aware of any other
events or regulatory requirements which, if implemented, are likely to have a
material effect on Bancorp's liquidity.
INTEREST RATE SENSITIVITY
Interest rate risk is the exposure to Bancorp's earnings and capital
arising from changes in future interest rates. All financial institutions
assume interest rate risk as an integral part of normal operations. Managing
and measuring interest rate risk is a dynamic, multi-faceted process that
ranges from reducing the exposure of Bancorp's net interest margin to swings
in interest rates to assuring that there is sufficient capital and liquidity
to support future balance sheet growth. Bancorp manages interest rate risk
through the asset/liability committees of Bancorp's subsidiaries. The
asset/liability committees are comprised of bank officers from various
disciplines. Each subsidiary committee establishes policies and rates which
lead to the prudent investment of resources, the effective management of risks
associated with changing interest rates, the existence of adequate liquidity
and the earning of an adequate return on shareholders' equity.
Bancorp has a holding company asset/liability committee, made up of
representatives of various subsidiaries and disciplines, whose function is to
develop policies and guidelines for effective asset/liability management
throughout Bancorp's subsidiaries.
Table 7 shows Bancorp's interest rate sensitivity position based on the
distribution of earning assets and interest-bearing liabilities among the
maturity categories. Product lines repricing in time periods predetermined by
contractual agreement are included in the respective maturity categories. Some
products, such as federal funds and commercial loans which reprice overnight,
are recorded in the 1-30 days category.
Table 7 indicates that, at December 31, 1996, Bancorp had an asset-
sensitive position of $202,964,000 or 9.70% within a one year maturity range.
The asset-sensitive position indicates that maturing or repricing
interest-sensitive assets exceeded maturing or repricing interest-sensitive
liabili-
28 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
9
ties within a one-year period. An asset-sensitive position suggests that a
rising rate environment will positively influence net interest income as
earning assets will reprice upward more quickly than the underlying
interest-bearing liabilities. Likewise, a declining rate environment will
negatively influence net interest income as earning assets will reprice
downward more quickly than interest-bearing liabilities.
The rate sensitivity analysis presented in Table 7 is a static gap
model. The balances in this table are distributed among future periods based
primarily on contractual interest rate repricing dates or on contractual
maturity dates. Distributions of interest-bearing demand deposits and savings
deposits, neither of which have contractual maturity dates or set repricing
dates, reflect management's current assumptions as to repricing frequency and
to changes in deposit balances in reaction to interest rate levels. These
assumptions are based on recent historical deposit account rate changes and
changes in deposit balances. They are also influenced by the Federal Reserve
Bank and other regulators' guidance for the measurement of interest rate risk.
Another measurement technique used by Bancorp's subsidiaries to
identify and manage exposure to changing interest rates is a simulation model
that estimates the effect on net interest income and the market value of
portfolio equity caused by changes in interest rates, interest rate spreads,
the shape of the yield curve and changing product growth patterns. Liabilities
are distributed based on historical deposit rate relationships to changes in
market interest rate changes over long-term rate changes. These assumptions
are based upon the individual markets and customers and include projections of
how management expects to price in response to the marketplace and market rate
changes. However, adjustments are necessary as customer preferences,
competitive market conditions, liquidity, loan growth rates and mix change.
TABLE - RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
s ------------------------------------------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 TOTAL 1 YEAR OVER
DAYS DAYS DAYS DAYS & UNDER 1 YEAR TOTAL
------------------------------------------------------------------------------------
EARNING ASSETS
Loans, net of unearned income $ 351,755 $ 117,033 $ 132,964 $ 285,486 $ 887,238 $ 813,026 $1,700,264
Investment securities held-to-maturity
Taxable 2,515 687 4,926 8,128 9,012 17,140
Tax-exempt 4,090 6,208 1,094 5,996 17,388 44,417 61,805
Investment securities available-for-sale
Taxable 44,292 11,042 9,052 57,219 121,605 151,705 273,310
Tax-exempt 435 726 1,161 16,230 17,391
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment securities 51,332 17,937 10,146 68,867 148,282 221,364 369,646
Interest-bearing deposits with other banks 2,785 1,197 100 299 4,381 698 5,079
Federal funds sold and securities
purchased under agreements to resell 12,201 12,201 12,201
----------- --------- ---------- ---------- ---------- ---------- ----------
TOTAL EARNING ASSETS 418,073 136,167 143,210 354,652 1,052,102 1,035,088 2,087,190
INTEREST-BEARING LIABILITIES
Interest-bearing demand deposits 47,579 47,579 269,608 317,187
Savings deposits 57,285 57,285 324,618 381,903
Time deposits 115,348 143,375 164,255 227,517 650,495 291,966 942,461
Short-term borrowings 86,805 1,674 3,300 2,000 93,779 93,779
Long-term borrowings 6,506 6,506
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 307,017 145,049 167,555 229,517 849,138 892,698 1,741,836
---------- ---------- ---------- ---------- ---------- ---------- ---------
RATE SENSITIVITY GAP $ 111,056 $ (8,882) $ (24,345) $ 125,135 $ 202,964 $ 142,390 $ 345,354
========== ========== ========== ========== ========== ========== ==========
CUMULATIVE GAP $ 111,056 $ 102,174 $ 77,829 $ 202,964 $ 345,354
========== ========== ========== ========== ==========
CUMULATIVE GAP AS A
PERCENTAGE OF EARNING ASSETS 5.3% 4.9% 3.7% 9.7% 16.5%
========== ========== ========== ========= ==========
====================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 29
10
STATISTICAL INFORMATION
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ---------------------------
BALANCE INTEREST YIELD BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------- -------- ----- ------- -------- ----- ------- -------- -----
(Daily average balances and interest rates; tax equivalent basis; dollars in thousands)
EARNING ASSETS
Loans (1)
Commercial (2) $368,838 $ 36,817 9.98% $ 316,414 $ 32,581 10.30% $ 261,799 $ 23,594 9.01%
Real estate (2) 857,947 70,119 8.17% 793,379 63,400 7.99% 725,468 55,053 7.59%
Installment
and other consumer 362,164 37,094 10.24% 321,978 32,131 9.98% 262,498 25,378 9.67%
Lease financing (2) 15,653 1,154 7.37% 15,580 1,217 7.81% 15,504 1,182 7.62%
--------- -------- --------- --------- --------- ---------
Total loans 1,604,602 145,184 9.05% 1,447,351 129,329 8.94% 1,265,269 105,207 8.31%
Investment securities (3)
Taxable 294,898 19,330 6.55% 250,492 16,593 6.62% 302,307 18,229 6.03%
Tax-exempt (2) 83,251 9,314 11.19% 95,182 11,446 12.03% 121,151 14,887 12.29%
--------- -------- --------- --------- --------- ---------
Total investment securities (3) 378,149 28,644 7.57% 345,674 28,039 8.11% 423,458 33,116 7.82%
Interest-bearing deposits
with other banks 7,736 450 5.82% 5,932 351 5.92% 8,574 388 4.53%
Federal funds sold and securities
purchased under agreements
to resell 9,432 507 5.38% 7,319 418 5.71% 7,086 275 3.88%
--------- -------- --------- --------- --------- ---------
TOTAL EARNING ASSETS 1,999,919 174,785 8.74% 1,806,276 158,137 8.75% 1,704,387 138,986 8.15%
NONEARNING ASSETS
Allowance for loan losses (21,547) (19,341) (18,554)
Cash and due from banks 85,993 75,904 76,988
Accrued interest and other assets 83,159 71,076 71,179
--------- --------- ---------
TOTAL ASSETS $2,147,524 $1,933,915 $1,834,000
========== ========== ==========
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand $298,975 6,866 2.30% $ 260,419 5,799 2.23% $ 266,841 5,757 2.16%
Savings 372,169 9,317 2.50% 358,517 9,212 2.57% 397,579 9,772 2.46%
Time 920,474 49,724 5.40% 822,289 44,402 5.40% 725,479 31,513 4.34%
--------- -------- --------- --------- --------- ---------
Total interest-bearing deposits 1,591,618 65,907 4.14% 1,441,225 59,413 4.12% 1,389,899 47,042 3.38%
Borrowed funds
Short-term borrowings 73,095 3,521 4.82% 74,744 4,051 5.42% 61,109 2,421 3.96%
Long-term borrowings 4,301 279 6.49% 783 52 6.64% 1,400 124 8.86%
--------- -------- --------- --------- --------- ---------
Total borrowed funds 77,396 3,800 4.91% 75,527 4,103 5.43% 62,509 2,545 4.07%
--------- -------- --------- --------- --------- ---------
TOTAL INTEREST-BEARING LIABILITIES 1,669,014 69,707 4.18% 1,516,752 63,516 4.19% 1,452,408 49,587 3.41%
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 208,017 184,797 176,128
Other liabilities 23,043 19,970 16,712
SHAREHOLDERS' EQUITY 247,450 212,396 188,752
--------- -------- ---------- --------- ---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,147,524 $1,933,915 $1,834,000
========== ========== ==========
NET INTEREST INCOME AND
INTEREST RATE SPREAD $105,078 4.56% $ 94,621 4.56% $ 89,399 4.74%
======== ======= ========= ======= ========== ======
NET INTEREST MARGIN 5.25% 5.24% 5.25%
======= ======= ======
<FN>
(1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income.
(2) Interest income on tax-exempt investments and on certain tax-exempt loans and leases has been adjusted to a taxable
equivalent basis using a marginal federal income tax rate of 35.0%.
(3) Includes both investment securities held-to-maturity and investment securities available-for-sale.
===================================================================================================================================
30 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
11
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
1996 1995
---- -----
ASSETS
Cash and due from banks $ 110,767 $ 108,685
Interest-bearing deposits with other banks 5,079 6,882
Federal funds sold and securities purchased under agreements to resell 12,201 14,802
Investment securities held-to-maturity
(market value-$83,441 at December 31, 1996;
$100,512 at December 31, 1995) 78,945 93,522
Investment securities available-for-sale, at market 290,701 294,052
Loans
Commercial 398,034 340,942
Real estate-construction 43,262 41,845
Real estate-mortgage 863,414 788,805
Installment 366,051 329,034
Credit card 16,107 15,406
Lease financing 14,821 16,557
----------- -----------
Total loans 1,701,689 1,532,589
Less
Unearned income 1,425 573
Allowance for loan losses 22,672 20,437
----------- -----------
Net loans 1,677,592 1,511,579
Premises and equipment 42,633 39,931
Deferred income taxes 2,802 3,369
Accrued interest and other assets 40,991 30,553
----------- -----------
TOTAL ASSETS $ 2,261,711 $ 2,103,375
=========== ===========
LIABILITIES
Deposits
Noninterest-bearing $ 238,415 $ 220,061
Interest-bearing 1,641,551 1,565,501
----------- -----------
Total deposits 1,879,966 1,785,562
Short-term borrowings
Federal funds purchased and securities sold under agreements to repurchase 35,304 47,483
Federal Home Loan Bank borrowings 56,500 10,000
Other 1,975 889
----------- -----------
Total short-term borrowings 93,779 58,372
Long-term borrowings 6,506 2,820
Accrued interest and other liabilities 22,978 22,446
----------- -----------
TOTAL LIABILITIES 2,003,229 1,869,200
SHAREHOLDERS' EQUITY
Common stock -- par value $8 per share Authorized -- 25,000,000 shares
Issued -- 14,727,772 shares
in 1996 and 13,013,422 shares in 1995 117,822 104,107
Surplus 47,125 13,577
Retained earnings 93,369 115,102
Unrealized net gains on securities available-for-sale, net of tax 1,162 1,437
Restricted stock awards (220) (48)
Treasury stock, at cost, 25,907 shares (776)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 258,482 234,175
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,261,711 $ 2,103,375
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
=============================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 31
12
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------- ----------- ------------
INTEREST INCOME
Loans, including fees $ 144,941 $ 129,058 $ 104,936
Investment securities
Taxable 19,330 16,593 18,229
Tax-exempt 6,047 7,431 9,676
----------- ----------- -----------
Total investment securities interest 25,377 24,024 27,905
Interest-bearing deposits with other banks 450 351 388
Federal funds sold and securities purchased under agreements to resell 507 418 275
----------- ----------- -----------
TOTAL INTEREST INCOME 171,275 153,851 133,504
INTEREST EXPENSE
Deposits 65,907 59,413 47,042
Short-term borrowings 3,521 4,051 2,421
Long-term borrowings 279 52 124
----------- ----------- -----------
TOTAL INTEREST EXPENSE 69,707 63,516 49,587
----------- ----------- -----------
NET INTEREST INCOME 101,568 90,335 83,917
Provision for loan losses 3,433 2,108 1,268
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 98,135 88,227 82,649
NONINTEREST INCOME
Service charges on deposit accounts 9,182 8,596 8,222
Trust revenues 8,278 7,623 7,017
Investment securities (losses) gains (8) 340 (1,754)
Other 4,645 3,999 3,977
----------- ----------- -----------
TOTAL NONINTEREST INCOME 22,097 20,558 17,462
NONINTEREST EXPENSE
Salaries and employee benefits 37,586 33,262 31,296
Net occupancy 4,790 4,340 4,211
Furniture and equipment 3,911 3,352 3,006
Data processing 4,773 5,165 5,205
Deposit insurance 2,889 2,204 3,537
State taxes 1,706 1,637 1,726
Other 15,606 13,385 13,158
----------- ----------- -----------
TOTAL NONINTEREST EXPENSES 71,261 63,345 62,139
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 48,971 45,440 37,972
Income tax expense 15,031 13,651 9,799
----------- ----------- -----------
NET EARNINGS $ 33,940 $ 31,789 $ 28,173
=========== =========== ===========
NET EARNINGS PER SHARE $ 2.32 $ 2.31 $ 2.10
=========== =========== ===========
AVERAGE SHARES OUTSTANDING 14,611,371 13,736,984 13,431,828
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
====================================================================================================================================
32 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------
1996 1995 1994
--------- ---------- ----------
OPERATING ACTIVITIES
Net earnings $ 33,940 $ 31,789 $ 28,173
Adjustments to reconcile net earnings to net cash provided by
operating activities
Provision for loan losses 3,433 2,108 1,268
Provision for depreciation and amortization 4,027 3,981 3,722
Net amortization of premiums and accretion of discounts
on investment securities 715 1,114 2,025
Deferred income taxes 680 171 1,412
Realized losses (gains) on investment securities 8 (340) 1,754
Originations of mortgage loans held for sale (43,943) (33,009) (30,046)
Gains from sales of mortgage loans held for sale (667) (501) (348)
Proceeds from sales of mortgage loans held for sale 44,610 33,510 30,394
Increase in cash surrender value of life insurance (8,159) (37) (847)
Decrease (increase) in interest receivable 815 220 (3,969)
(Increase) decrease in prepaid expenses (199) 143 (48)
(Decrease) increase in accrued expenses (338) 1,041 114
(Decrease) increase in interest payable (384) 1,638 470
Other 1,113 (58) 687
--------- --------- ---------
Net cash provided by operating activities 35,651 41,770 34,761
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale 4,984 39,514 82,735
Proceeds from calls, paydowns, and maturities of investment
securities available-for-sale 150,957 58,798 90,212
Purchases of investment securities available-for-sale (133,449) (112,372) (142,217)
Proceeds from calls, paydowns, and maturities of investment
securities held-to-maturity 17,594 56,118 32,795
Purchases of investment securities held-to-maturity (3,053) (525) (8,903)
Net decrease in interest-bearing deposits with other banks 1,803 2,470 9,366
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell 23,426 (6,042) 24,240
Net increase in loans and leases (96,361) (56,235) (191,398)
Proceeds from disposal of other real estate owned 1,765 1,028 1,729
Recoveries from loans and leases previously charged off 1,173 1,202 1,113
Purchase of financial institution, net of cash acquired (6,427)
Cash acquired in merger with other financial institution 1,845 5,999
Purchases of premises and equipment (4,381) (3,615) (4,364)
--------- --------- ---------
Net cash used in investing activities (40,124) (13,660) (104,692)
FINANCING ACTIVITIES
Net (decrease) increase in total deposits (15,416) 54,765 6,778
Net increase (decrease) in short-term borrowings 35,389 (63,747) 93,984
Proceeds from long-term borrowings 5,000 49
Principal payments of long-term borrowings (1,314) (850) (3,983)
Cash dividends (16,341) (13,521) (11,809)
Purchase of common stock (994) (388)
Proceeds from exercise of stock options 231 127 151
--------- --------- ---------
Net cash provided by (used in) financing activities 6,555 (23,177) 84,733
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 2,082 4,933 14,802
Cash and cash equivalents at beginning of year 108,685 103,752 88,950
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 110,767 $ 108,685 $ 103,752
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 70,091 $ 61,878 $ 49,117
========= ========= =========
Income taxes paid $ 14,919 $ 12,140 $ 7,878
========= ========= =========
Recognition of deferred tax assets (liabilities) attributable to SFAS No. 115 $ 139 $ (2,364) $ 1,514
========= ========= =========
Acquisition of other real estate owned through foreclosure $ 375 $ 635
========= =========
Issuance of restricted stock awards $ 226 $ 33
========= =========
Transfer of investment securities to available-for-sale upon
adoption of SFAS No. 115 $ 272,856
=========
See Notes to Consolidated Financial Statements.
======================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 33
14
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON COMMON UNREALIZED RESTRICTED TREASURY TREASURY
STOCK STOCK RETAINED GAINS AND STOCK STOCK STOCK
SHARES AMOUNT SURPLUS EARNINGS (LOSSES) AWARDS SHARES AMOUNT TOTAL
------ ------ -------- -------- ---------- ---------- -------- -------- ---------
Balances at December 31,
1993, as previously
reported 9,765,603 $ 78,125 $ 15,252 $ 87,908 $ (33) $181,252
Adjustment to beginning
balance for change in
accounting method, net
of income taxes of $1,960 $ 3,638 3,638
Change in unrealized gains
and (losses), net of income
tax benefit of $3,474 (6,350) (6,350)
Net earnings 28,173 28,173
Cash dividends declared
(Bancorp - $0.89 per share;
First Clyde Banc Corp -
$0.50 per share) (11,809) (11,809)
Purchase of common stock (10,000) (80) (308) (388)
Exercise of stock options,
net of shares purchased 8,416 68 83 151
25.0% stock split 2,440,556 19,524 (19,524)
Amortization of restricted
stock awards 6 6
---------- ---------- --------- --------- ---------- -------- -------
Balances at
December 31, 1994 12,204,575 97,637 15,027 84,748 (2,712) (27) 194,673
Net earnings 31,789 31,789
Cash dividends declared
(Bancorp - $0.98 per share) (13,521) (13,521)
Shares issued in Peoples
Bank & Trust Company
merger 354,645 2,837 (867) 6,351 8,321
Shares issued in Bright
Financial Services, Inc.
merger 442,876 3,543 (653) 5,735 8,625
Change in unrealized gains
and (losses), net of income
taxes of $2,364 4,149 4,149
Exercise of stock options,
net of shares purchased 10,326 82 45 127
Restricted stock awards 1,000 8 25 (33)
Amortization of restricted
stock awards 12 12
---------- ---------- --------- --------- ---------- -------- -------
Balances at
December 31, 1995 13,013,422 104,107 13,577 115,102 1,437 (48) 234,175
Net earnings 33,940 33,940
Cash dividends declared
(Bancorp - $1.11 per share) (16,341) (16,341)
Shares issued in
F&M Bancorp merger 363,373 2,907 (1,238) 6,023 7,692
Change in unrealized gains and
(losses), net of income tax
benefit of $139 (275) (275)
Purchase of common stock (30,174) $ (994) (994)
Exercise of stock options,
net of shares purchased 5,589 45 (32) 6,934 218 231
Restricted stock awards 6,500 52 174 (226)
10% stock dividend 1,338,888 10,711 34,644 (45,355) (2,667)
Amortization of restricted
stock awards 54 54
---------- ---------- --------- --------- ---------- -------- --------- --------- --------
Balances at
December 31, 1996 14,727,772 $ 117,822 $ 47,125 $ 93,369 $ 1,162 $ (220) (25,907) $ (776) $258,482
========== ========== ========= ========= ========== ========= ======== ========= ========
==================================================================================================================================
34 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The consolidated financial statements of
First Financial Bancorp. (Bancorp), a bank and savings and loan holding
company, principally serving western Ohio and eastern and west-central
Indiana, include the accounts and operations of Bancorp and its 14 wholly
owned subsidiaries. All significant intercompany transactions and accounts
have been eliminated in consolidation. The preparation of financial statements
in conformity with generally accepted accounting principles requires the use
of management's estimates. Interest on loans, securities and other earning
assets is recognized primarily on the accrual basis. Intangible assets arising
from the acquisition of subsidiaries are being amortized over varying periods,
none of which exceeds 15 years. Core deposit intangibles are being amortized
over varying periods, none of which exceeds 10 years.
Investment securities - Bancorp adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. SFAS No. 115 classifies debt and equity
securities in three categories: trading, held-to-maturity and
available-for-sale.
Bancorp does not hold any investment securities for trading purposes.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when Bancorp has the positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at aggregate fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other than temporary, are included in investment securities
(losses) gains. The cost of securities sold is based on the specific
identification method.
Loans - Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount amortized as an adjustment
to the related loan's yield. The accrual of interest income is discontinued
when the collection of a loan or interest, in whole or in part, is doubtful.
This applies generally to all loans, including loans impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." When interest
accruals are suspended, interest income accrued in the current period is
reversed and interest accrued in the prior year is charged to the allowance
for loan losses.
Bancorp's subsidiaries sell certain mortgage loans immediately after
origination on a flow basis. Due to Bancorp's policy of selling loans on a
flow basis, loans held for sale are not material and therefore not disclosed
separately on the Consolidated Balance Sheets. Loans held for sale are carried
at the lower of cost or market value.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" requires
companies engaging in mortgage banking operations, that is, the selling of
mortgage loans, to recognize as separate assets the estimated value of rights
to service mortgage loans for others. A company that acquires mortgage
servicing rights either through origination or purchase of mortgage loans and
sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to mortgage servicing rights and
to loans without mortgage servicing rights based on their relative fair
values. This allocation increases the gain or decreases the loss from the sale
of the mortgage loans and decreases income in the future as the mortgage
servicing rights are amortized against servicing income. The adoption of this
statement by Bancorp in 1996 did not have a material impact on its
consolidated financial position or earnings.
Allowance for loan losses - The level of the allowance for loan losses
(allowance) is based upon management's evaluation of the loan and lease
portfolios, 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 pertinent 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. The level maintained is believed by management to be
adequate to cover future potential losses. The allowance is increased by
provisions charged to expense and decreased by charge-offs, net of recoveries
of amounts previously charged off.
Lease financing - Bancorp principally uses the finance method of
accounting for direct lease contracts. Under this method of accounting, a
receivable is recorded for the total amount of lease payments due and
estimated residual values. Lease income, represented by the excess of the
total contract receivable plus estimated equipment residual value over the
cost of the related equipment, is recorded over the terms of the leases at a
level rate of return on the unrecovered net investment.
Premises and equipment - Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization
are computed principally on the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred.
Other real estate owned/in-substance foreclosures - Other real estate
owned primarily represents properties acquired by Bancorp's subsidiaries
through loan defaults by customers. In accordance with SFAS No. 114, a loan is
classified as in-substance foreclosure when Bancorp's subsidiaries have taken
possession of a collateral regardless of whether formal foreclosure
proceedings take place. Loans previously classified as in-substance
foreclosure but for which Bancorp's subsidiaries had not taken possession of
the collateral have not been reclassified to loans due to immateriality. The
property is recorded at the lower of cost or fair value minus estimated costs
to sell at the date acquired or when an in-substance foreclosure exists.
Subsequently, the property is valued at the lower of the amount recorded when
the property was placed into other real estate owned/in-substance foreclosures
or fair value minus estimated costs to sell based on periodic valuations
performed by management. An allowance for losses on other real estate owned
may be maintained for subsequent valuation adjustments on a specific property
basis. Any gains or losses realized at the time of disposal are reflected in
income.
Income taxes - Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Bancorp and its subsidiaries file a consolidated federal income tax
return. Each subsidiary provides for income taxes on a separate return basis,
and remits to Bancorp amounts determined to be currently payable.
Earnings per share - Earnings per share are based upon the weighted
average number of common shares outstanding each year and include the effects
of all mergers, stock dividends and stock splits, distributed in the form of
stock dividends, declared through 1996. The assumed exercise of stock options
would not have a materially dilutive effect.
Cash flow information - For purposes of the statement of cash flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 35
16
Transfers and servicing of financial assets and extinguishment of
liabilities - SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" was released in June,
1996, and is effective for transactions occurring after December 31, 1996.
Early adoption of SFAS No. 125 is not permitted. Under the provisions of SFAS
No. 125, each party to a transaction recognizes only assets it controls and
liabilities it has incurred, derecognizes assets only when control has been
surrendered and derecognizes liabilities only when they have been
extinguished. Transactions are to be separated into components and separate
assets and liabilities may need to be recorded for the different components.
Bancorp anticipates this statement will not have a material effect on its
consolidated financial position or earnings.
Reclassifications - Certain reclassifications of prior years' amounts
have been made to conform to current year presentation. Such reclassifications
had no effect on net earnings.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
Bancorp's subsidiaries are required to maintain average reserve
balances either in the form of vault cash or reserves held on deposit with the
Federal Reserve Bank, Federal Home Loan Bank or in pass-through reserve
accounts with correspondent banks. The average amounts of these required
reserve balances for 1996 and 1995 were approximately $24,178,000 and
$21,081,000, respectively.
NOTE 3 - BUSINESS COMBINATIONS
Bancorp consummated the following business combinations in 1996, 1995 and 1994:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
ACQUISITION SHARES PURCHASE
DATE ASSETS DEPOSITS ISSUED PRICE
----------- ----------- ----------- -------- -----------
Purchase transactions
FARMERS STATE BANCORP DECEMBER 1, 1996 $ 64,860 $ 56,283 $ 7,575
Pooling-of-interests
F&M BANCORP APRIL 1, 1996 61,721 53,638 363,373
Bright Financial Services, Inc. October 1, 1995 112,813 98,251 442,876
Peoples Bank and Trust Company July 16, 1995 54,005 45,220 354,645
The Clyde Savings Bank Company June 1, 1994 68,280 60,664 287,699
Highland Federal Savings Bank February 1, 1994 52,173 43,599 198,386
=====================================================================================================================
On December 1, 1996, Bancorp purchased Farmers State Bancorp, Liberty,
Indiana in a cash transaction. Upon consummation of the merger, Farmers State
Bancorp was dissolved and its subsidiary, the $65 million Farmers State Bank,
became a wholly owned subsidiary of Bancorp. This merger was accounted for
under the purchase method of accounting, and accordingly, the consolidated
financial statements include Farmers State Bank's results of operations from
the date of merger.
On April 1, 1996, Bancorp issued 363,373 shares of its common stock in
exchange for all the outstanding common stock of F&M Bancorp, Rochester,
Indiana. Upon consummation of the merger, F&M Bancorp was merged out of
existence and its only subsidiary, the $62 million Farmers & Merchants Bank of
Rochester, was merged with and into Indiana Lawrence Bank, a wholly owned
subsidiary of Bancorp. Farmers & Merchants Bank of Rochester's offices became
branches of Indiana Lawrence Bank, the surviving entity. This merger was
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 April 1, 1996.
On July 2, 1996, Bancorp signed a Plan and Agreement of Merger with
Hastings Financial Corporation, Hastings, Michigan. Hastings Financial
Corporation is a one-bank holding company with the $50 million National Bank
of Hastings as its only subsidiary. Upon consummation of the merger, Hastings
Financial Corporation was dissolved and National Bank of Hastings became a
wholly owned subsidiary of Bancorp. The transaction was structured as an
exchange of stock and was accounted for using the pooling-of-interests method
of accounting. This merger was consummated effective January 1, 1997.
NOTE 4 - LEASE FINANCING
Leases included in the loan portfolio at December 31 were composed as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995
---- ----
Direct financing $ 12,725 $ 14,754
Leveraged 1,302 1,302
Non-recourse debt, principal and interest (936) (936)
-------- --------
Net rentals receivable 13,091 15,120
Estimated residual value of leased assets 4,202 4,184
Less unearned income 2,472 2,747
-------- --------
INVESTMENT IN LEASES, NET $ 14,821 $ 16,557
======== ========
Direct financing lease payments receivable as of December 31, 1996, for the next
five years and thereafter are as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1997 $ 5,261
1998 3,683
1999 2,312
2000 1,197
2001 253
Thereafter 19
================================================================================
36 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
17
NOTE 5 - PREMISES & EQUIPMENT
Premises and equipment at December 31 were summarized as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995
---- ----
Land and land improvements $ 8,426 $ 8,143
Buildings 43,148 38,891
Furniture and fixtures 31,619 28,423
Leasehold improvements 792 387
Construction in progress 530 2,269
----------- -----------
84,515 78,113
Less accumulated depreciation
and amortization 41,882 38,182
----------- -----------
TOTAL $ 42,633 $ 39,931
=========== ===========
NOTE 6 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Dividends paid by Bancorp are mainly provided by dividends from its
subsidiaries. However, certain restrictions exist regarding the ability of
these subsidiaries to transfer funds to Bancorp in the form of cash dividends,
loans or advances. The approval of the subsidiaries' respective primary
federal regulators is required for Bancorp's subsidiaries to pay dividends in
excess of regulatory limitations. As of December 31, 1996, Bancorp's
subsidiaries had retained earnings of $114,209,000 of which $52,201,000 was
available for distribution to Bancorp as dividends without prior regulatory
approval.
NOTE 7 - 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. 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 SFAS 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:
Standby letters of credit - These transactions 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. Bancorp has issued standby letters of credit
aggregating $9,706,000 and $10,989,000 at December 31, 1996 and 1995,
respectively.
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 - Commitments to extend credit 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 $270,232,000 and $243,430,000 at December 31, 1996 and 1995,
respectively. Management does not anticipate any material losses as a result
of these commitments.
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 37
18
NOTE 8 - INVESTMENT SECURITIES
The following is a summary of investment securities as of December 31, 1996:
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ------- -------- ------ ---------- ------- ------- --------
U.S. Treasury securities $ 43,361 $ 192 $ (16) $ 43,537
Securities of U.S. government
agencies and corporations 77,767 579 (18) 78,328
Mortgage-backed securities $14,506 $ 396 $(125) $14,777 132,683 995 (520) 133,158
State, county, and municipal
securities 62,474 4,240 (19) 66,695 19,780 500 (19) 20,261
Other securities 1,965 7 (3) 1,969 15,238 185 (6) 15,417
------- ------ ----- ------- -------- ------ ----- --------
TOTAL $78,945 $4,643 $(147) $83,441 $288,829 $2,451 $(579) $290,701
===================================================================================================================================
The following is a summary of investment securities as of December 31, 1995:
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ------ -------- -------- -------- ------ ------- --------
U.S. Treasury securities $ 68,010 $ 388 $ (16) $ 68,382
Securities of U.S. government
agencies and corporations 103,610 1,372 (78) 104,904
Mortgage-backed securities $18,060 $ 699 $(104) $ 18,655 93,831 489 (251) 94,069
State, county, and municipal
securities 72,778 6,380 (37) 79,121 11,195 344 (8) 11,531
Other securities 2,684 53 (1) 2,736 15,120 137 (91) 15,166
------- ------ ----- -------- -------- ------ ----- --------
TOTAL $93,522 $7,132 $(142) $100,512 $291,766 $2,730 $(444) $294,052
======= ====== ===== ======== ======== ====== ===== ========
===================================================================================================================================
The carrying value of investment securities as of December 31, 1994, by
category was as follows: U.S. Treasury $100,344,000, U.S. government agencies
and corporations $62,599,000, mortgage-backed $86,203,000, state, county, and
municipal $116,750,000 and other $11,701,000.
During the year ended December 31, 1996, available-for-sale securities
with a fair value at the date of sale of $5,000,000 were sold. The gross
realized losses on such sales totaled $16,000.
During the year ended December 31, 1995, available-for-sale securities
with a fair value at the date of sale of $39,220,000 were sold. The gross
realized gains on such sales totaled $297,000 and the gross realized losses
totaled $3,000.
During the year ended December 31, 1994, available-for-sale securities
with a fair value at the date of sale of $82,735,000 were sold. The gross
realized gains on such sales totaled $3,000 and the gross realized losses
totaled $1,553,000.
There were net investment gains after taxes of $69,000 and $323,000 for
the years ended December 31, 1996 and 1995, respectively and a net investment
loss after taxes of $120,000 for the year ended December 31, 1994. The
applicable income tax effects were a benefit of $77,000 in 1996, an expense of
$17,000 in 1995, and a benefit of $1,634,000 in 1994.
The carrying value of investment securities pledged to secure public
deposits and for other purposes as required by law amounted to $179,534,000 at
December 31, 1996.
The amortized cost and market value of investment securities, including
mortgage-backed securities at December 31, 1996, by contractual maturity, are
shown in the table below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- ---------
Due in one year or less $ 7,164 $ 7,186 $ 60,028 $ 60,465
Due after one year through five years 35,129 37,429 78,310 78,781
Due after five years through ten years 17,506 18,506 23,814 24,068
Due after ten years 19,146 20,320 126,677 127,387
------- ------- -------- --------
TOTAL $78,945 $83,441 $288,829 $290,701
======= ======= ======== ========
38 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
19
NOTE 9 - LOANS
Information as to nonaccrual and restructured loans at December 31 was as
follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995 1994
----- ----- ----
Principal balance
Nonaccrual loans $4,850 $2,764 $2,412
Restructured loans 890 517 1,429
------ ------ ------
TOTAL $5,740 $3,281 $3,841
====== ====== ======
Interest income effect
Gross amount of interest that would
have been recorded at original rate $ 717 $ 276 $ 203
Interest included in income 371 135 80
------ ------ ------
NET IMPACT ON INTEREST INCOME $ 346 $ 141 $ 123
====== ====== ======
================================================================================
At December 31, 1996, there were no commitments outstanding to lend
additional funds to borrowers with nonaccrual or restructured loans.
The balances of other real estate acquired through loan foreclosures,
in-substance foreclosures, repossessions or other workout situations, net of the
related allowance, totaled $264,000, $1,677,000 and $2,116,000 at December 31,
1996, 1995 and 1994, respectively.
Changes in the allowance for loan losses for the three years ended December
31 were as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year $20,437 $18,609 $18,380
Allowance acquired through merge 1,592 1,162
Provision for loan losses 3,433 2,108 1,268
Loans charged off (3,963) (2,644) (2,152)
Recoveries 1,173 1,202 1,113
------ ------ ------
BALANCE AT END OF YEAR $22,672 $20,437 $18,609
======= ======= =======
================================================================================
The 1996 and 1995 allowances for loan losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 are 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.
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $1,935,000 and $889,000,
respectively, all of which were on a nonaccrual basis. The related allowance for
loan losses on these impaired loans was $694,000 at December 31, 1996, and
$514,000 at December 31, 1995. 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 during the year ended December 31, 1996, was
approximately $1,962,000 versus $1,325,000 for the year ended December 31, 1995.
For the years ended December 31, 1996 and 1995, Bancorp recognized interest
income on those impaired loans of $54,000 and $57,000, respectively. Bancorp
recognizes income on impaired loans using the cash basis method.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Balance Sheets. The unpaid principal balances of these loans
totaled $191,066,000, $221,519,000 and $186,114,000 at December 31, 1996, 1995
and 1994, respectively.
Custodial escrow balances maintained in connection with these mortgage
loans serviced were approximately $1,417,000, $1,485,000 and $1,297,000 at
December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, Bancorp had pledged $583,376,000 of 1-4 family
mortgage loans to secure Federal Home Loan Bank borrowings.
NOTE 10 - INCOME TAXES
Income tax expense consisted of the following components:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995 1994
------ ------ ----
Current
Federal $13,098 $12,486 $7,607
State 1,228 994 780
------- ------- ------
TOTAL 14,326 13,480 8,387
Deferred expense 705 171 1,412
------- ------- ------
INCOME TAX EXPENSE $15,031 $13,651 $9,799
======= ======= ======
================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 39
20
The difference between the federal income tax rates, applied to income before
income taxes, and the effective rates were due to the following as shown in the
table below:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Income taxes computed at federal
statutory rate of 35% 17,139 $15,904 $13,290
State income taxes, net of federal tax benefit 798 646 507
Effect of tax-exempt interest (2,224) (2,687) (3,326)
Other (682) (212) (672)
------- ------- ------
INCOME TAX EXPENSE $15,031 $13,651 $9,799
======= ======= ======
================================================================================
On August 21, 1996, The Small Business Job Protection Act, which repeals
the favorable bad debt deduction method available to savings banks, was signed
into law. Bancorp's savings banks are required to change their bad debt method
to the specific charge-off method effective for the year ending December 31,
1996. As of December 31, 1996, Bancorp's two savings bank subsidiaries had a bad
debt reserve for federal tax purposes of approximately $5,600,000, all of which
represents the base year amount. A deferred tax liability has not been
recognized for the base year amount. If the savings bank subsidiaries use the
base year reserve for any reason other than to absorb loan losses, a tax
liability could be incurred. It is not anticipated that the reserve will be used
for any other purpose.
SFAS No. 109, "Accounting for Income Taxes" requires that deferred tax
assets and liabilities be carried at the enacted tax rate. The enacted tax rate
was 35% for years ended December 31, 1996, 1995 and 1994. The major components
of the temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1996 and 1995, were as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995
---------- ---------
Deferred tax assets
Allowance for loan losses $ 7,399 $ 6,091
Other real estate owned 118 182
Postretirement benefits other than
pensions liability 971 939
Other 413 196
---------- ----------
Total deferred tax assets 8,901 7,408
Deferred tax liabilities
Tax greater than book depreciation 1,129 536
Leasing activities 1,875 1,620
Federal Home Loan Bank stock basis difference 568 442
Prepaid pension asset 626 91
Deferred loan fees 284 237
Purchase accounting adjustment 320
Other 586 263
---------- ----------
Total deferred tax liabilities 5,388 3,189
---------- ----------
Net deferred tax asset recognized through
the statement of earnings 3,513 4,219
Net deferred tax liability from valuation
adjustments of investment securities
available-for-sale, recognized in equity
section of balance sheet (711) (850)
---------- ----------
TOTAL NET DEFERRED TAX ASSET $ 2,802 $ 3,369
========== ===========
================================================================================
SFAS No. 109 requires that a valuation allowance be established if
management has evidence that part or all of the deferred tax assets may not be
realized. Management has determined that it is more likely than not that all of
the deferred tax assets will be realized. Therefore, no valuation allowance is
required at this time. Management examines the deferred tax assets quarterly and
reassesses the need for a valuation allowance for future accounting periods.
40 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
21
NOTE 11 - RISK BASED CAPITAL
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
risk-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 1 ratio at December 31, 1996, was 15.9%, its Total
risk-based capital ratio was 17.2% and its Leverage ratio was 11.8%. 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 last two years.
(DOLLARS IN THOUSANDS)
DECEMBER 31,-------------------------------------------------------------------
1996 1995
---- ----
Tier I capital
Shareholders' equity $258,482 $234,175
Less intangibles 4,154 3,770
Less unrealized net
securities gains, net of tax 1,162 1,437
---------- ----------
TOTAL TIER I CAPITAL $253,166 $228,968
========== ==========
Total risk-based capital
Tier I capital $253,166 $228,968
Qualifying allowance for loan losses 19,856 19,127
---------- ----------
TOTAL RISK-BASED CAPITAL $273,022 $248,095
========== ==========
RISK WEIGHTED ASSETS $1,588,464 $1,530,181
========== ==========
RISK-BASED RATIOS
TIER I CAPITAL 15.9% 15.0%
========== ==========
TOTAL RISK-BASED CAPITAL 17.2% 16.2%
========== ==========
LEVERAGE 11.8% 11.9%
========== ==========
================================================================================
NOTE 12 - EMPLOYEE BENEFIT PLANS
Bancorp sponsors a non-contributory defined benefit pension plan covering
substantially all employees. Benefits are based on age, years of service and the
employee's compensation during a five year period of employment. The funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes.
The following tables set forth the plan's funded status and amounts
recognized in Bancorp's Consolidated Balance Sheets:
Actuarial present value of accumulated plan benefits:
(DOLLARS IN THOUSANDS)
JANUARY 1, ---------------------------------------------------------------------
Actuarial present value of accumulated plan benefits: 1996 1995
---- ----
Vested $16,498 $15,364
Nonvested 1,324 1,355
------- -------
TOTAL $17,822 $16,719
======= =======
===========================================================================================================================
(DOLLARS IN THOUSANDS)
DECEMBER 31,----------------------------------------------------------------------------------------------------------------
1996 1995
---- ----
Reconciliation of funded status:
Projected benefit obligation for service rendered to date $(21,639) $(21,883)
Plan assets at fair value, primarily listed stocks, bonds and U.S. bonds 21,963 22,101
-------- --------
Plan assets in excess of projected benefit obligation 324 218
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions (159) (175)
Prior service cost not yet recognized in net periodic pension cost 1,839 2,083
Unrecognized net asset at January 1, 1986, net of amortization (1,810) (2,103)
-------- --------
NET PENSION ASSET RECOGNIZED IN THE BALANCE SHEETS $ 194 $ 23
======== ========
===================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 41
22
YEAR END DECEMBER 31, (DOLLARS IN THOUSANDS)
----------------------------------------------------------
1996 1995 1994
------ ----- ------
The net periodic pension expense included the following components:
Service cost benefits earned during the period $ 1,324 $ 1,129 $ 1,051
Interest cost on projected benefit obligation 1,628 1,505 1,478
Actual return on plan assets (2,212) (4,300) 163
Net amortization and deferral 425 2,744 (2,013)
----------- ----------- -----------
NET PERIODIC PENSION EXPENSE $ 1,165 $ 1,078 $ 679
=========== =========== ===========
=============================================================================================================
DECEMBER 31,-------------------------------------------------------------------------------------------------
1996 1995
------ ------
Assumptions used in the actuarial present value determinations
of the projected benefit obligation were:
Weighted-average discount rate used in
determining projected benefit obligations 7.50% 7.50%
Rate of increase in future compensation 3.50% 3.50%
Long-term rate of return on plan assets 8.00% 8.00%
=============================================================================================================
Bancorp also sponsors a defined contribution 401(k) thrift plan which
covers substantially all employees. Employees may contribute up to 12.0% of
their base salaries into the plan. Under the plan, Bancorp matches $.50 for each
$1.00 an employee contributed, up to a maximum Bancorp contribution of 3.00% of
the employee's base salary. All Bancorp matching contributions vest immediately.
The plan allows for amendment or termination upon a resolution adopted by the
Board of Directors. Total Bancorp contributions to the 401(k) plan were $537,000
during 1996, $489,000 during 1995 and $435,000 during 1994.
NOTE 13 - POST RETIREMENT BENEFITS OTHER THAN PENSIONS
Some Bancorp subsidiaries maintain health care and, in limited instances,
life insurance plans for employees who retired prior to 1994. Under the current
policy, the health care plans are unfunded and pay medically necessary expenses
incurred by retirees, after subtracting payments by Medicare or other providers
and after stated deductibles have been met. Bancorp has reserved the right to
change or eliminate these benefit plans.
The following table sets forth the funded status and amounts recognized in
Bancorp's Consolidated Balance Sheets:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1995
------- ------
Actuarial present value of accumulated benefits other than pension $1,715 $2,297
Plan assets ------- ------
Accumulated obligation in excess of plan assets 1,715 2,297
Unrecognized prior service cost 380
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions 618 404
-------- --------
NET POSTRETIREMENT LIABILITY RECOGNIZED IN THE BALANCE SHEETS $2,713 $2,701
======== ========
Net periodic postretirement benefit cost includes the following
components:
Interest cost on accumulated postretirement benefit obligation $166 $179
Net amortization and deferral (14)
-------- --------
NET PERIODIC COST $152 $179
======== ========
====================================================================================================================
The discount rate used to determine the accumulated postretirement
benefit obligation was 7.50% at December 31, 1996 and 1995. For 1996, the
assumed health care cost trend rates used in determining the accumulated
postretirement benefit obligation were 10.5% for the first seven years, 8.50%
for the next five years and 6.50% thereafter. For 1995, the assumed trend was
10.5% for the first eight years, 8.50% for the next five years and 6.50%
thereafter. If the health care cost trend rate assumptions were increased by
1.00%, the accumulated postretirement benefit obligation as of December 31,
1996, would be increased by approximately $158,000.
42 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
23
NOTE 14 - STOCK OPTIONS
On April 28, 1992, the shareholders of Bancorp approved the 1991 Stock
Incentive Plan. This plan provides incentive stock options and stock awards to
certain key employees and non-qualified stock options to directors of Bancorp
who are not employees for up to 665,500 common shares of Bancorp. The options
are not exercisable for at least one year from the date of grant and are
thereafter exercisable for such periods (which may not exceed 10 years), as the
Board of Directors, or a committee thereof, may specify, provided that the
optionee has remained in the employment of Bancorp or its subsidiaries. The
Board or the committee may accelerate the exercise period for an option upon the
optionee's disability, retirement, or death. All options expire at the end of
the exercise period. Cancelled and expired options become available for issuance
and are reflected in the available for future grant figure.
Bancorp has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation" requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, because the exercise
price of Bancorp's employee stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Bancorp had accounted
for its stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.65% and 7.13%; dividend
yields of 3.57% and 3.73%; volatility factors of the expected market price of
Bancorp's common stock of 0.206 and 0.222; and a weighted average expected life
of the options of 5.45 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Bancorp's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Bancorp's
pro forma information follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
Pro forma net earnings $33,686 $31,715
Pro forma earnings per share $2.31 $2.31
====================================================================================================================================
Activity in the above plan for 1996, 1995 and 1994 is summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
NUMBER OF OPTION NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
---------------------------------------------------------------------------------
Outstanding at beginning of year 137,581 153,921 129,966
Granted 53,029 $30.45-31.59 14,921 $30.23-30.91 46,513 $27.82-29.45
Exercised (32,846) $20.58-29.45 (26,825) $19.96-30.23 (22,558) $19.96-22.91
Cancelled (1,100) $ 31.59 (2,218) $ 30.91
Expired (3,149) $ 29.45 (2,218) $ 19.96
------- ------- -------
OUTSTANDING AT END OF YEAR 153,515 $19.96-31.59 137,581 $19.96-30.91 153,921 $19.96-29.45
======= ======= =======
EXERCISABLE AT END OF YEAR 108,736 $19.96-30.23 122,660 $19.96-29.45 107,408 $19.96-22.91
======= ======= =======
AVAILABLE FOR FUTURE GRANT UNDER
THE 1991 STOCK INCENTIVE PLAN 394,057 442,815 453,300
======= ======= =======
WEIGHTED-AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR $ 6.05 $ 6.87 N/A
======= ======= =======
====================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 43
24
NOTE 15 - LOANS TO RELATED PARTIES
Loans to directors, executive officers, principal holders of Bancorp's
common stock and certain related persons totaled $16,058,000 and $18,929,000 at
December 31, 1996 and 1995, respectively.
Activity of these loans was as follows:
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1995
-----------------
Beginning balance $18,929 $19,154
Additions 4,656 6,515
Collected 7,527 6,740
Charged off 0 0
------- -------
ENDING BALANCE $16,058 $18,929
======= =======
LOANS 90 DAYS PAST DUE $0 $0
======= =======
================================================================================
Related parties of Bancorp, as defined above, were customers of and
had transactions with subsidiaries of Bancorp in the ordinary course of
business during the periods noted above. Additional transactions may be
expected in the ordinary course of business in the future. All outstanding
loans, commitments, financing leases, transactions in money market instruments
and deposit relationships included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others, and did not
involve more than a normal risk of collectibility or present other unfavorable
features.
NOTE 16 - SHAREHOLDER RIGHTS PLAN
On November 26, 1993, Bancorp adopted a "shareholder rights plan" and
declared a dividend of one "right" on each outstanding share of Bancorp common
stock.
Under the plan, each "right" would be distributed only on the 20th
business day after any one of the following events occur: 1) A public
announcement that a person or group has acquired 20 percent or more (an
"acquiring person") of Bancorp's outstanding common shares, 2) The beginning of
a tender offer or exchange offer that would result in a person or group owning
30 percent or more of the corporation's outstanding common shares, or 3) A
declaration by the Board of Directors of a shareholder as an "adverse person."
(An adverse person is a person who owns at least 10 percent of the common shares
and attempts "greenmail," or is likely to cause a material adverse impact on the
Bancorp - such as impairing customer relationships, harming the company's
competitive position or hindering the Board's ability to effect a transaction it
deems to be in the shareholders' best interest.)
In the event of such a distribution, each "right" would entitle the
holder to purchase, at an exercise price of $109, one share of common stock of
the corporation. If a person or group acquires 30 percent or more of Bancorp's
outstanding common shares or is declared an "adverse person" by the Board of
Directors of the corporation, each "right" would entitle the holder to purchase,
at an exercise price of $109, a number (to be determined under the plan) of
shares of common stock of the corporation at a price equal to 50 percent of its
then current market price. However, any "rights" held by an "acquiring person"
or an "adverse person" could not be exercised.
Additionally, each "right" holder would be entitled to receive common
stock of any acquiring company worth two times the exercise price of the
"right," should either of the following happen after a person becomes an
"acquiring person": 1) Bancorp is acquired in a merger or other transaction
other than a merger which the independent directors determine to be in the best
interest of Bancorp and its shareholders, or 2) 50 percent or more of Bancorp's
assets or earning power is sold or transferred.
Bancorp may redeem "rights" for $0.01 per "right" at any time prior to
the 20th business day following the date when a person acquires 20 percent of
the outstanding shares. Bancorp may not redeem the "rights" when a holder has
become an "adverse person."
The Board's adoption of this "rights" plan has no financial effect on
Bancorp, is not dilutive to Bancorp shareholders, is not taxable to the
corporation or its shareholders and will not change the way in which Bancorp
common shares are traded. "Rights" are not exercisable until distributed; and
all "rights" will expire at the close of business on December 6, 2003, unless
earlier redeemed by Bancorp.
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by Bancorp in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments - The carrying amounts reported in the
balance sheet for cash and short-term investments, such as interest-bearing
deposits with other banks and federal funds sold, approximated the fair value of
those instruments.
Investment securities (including mortgage-backed securities) - Fair
values for investment securities were based on quoted market prices, where
available. If quoted market prices were not available, fair values were based on
quoted market prices of comparable instruments. Refer to Note 8 for further
disclosure.
Loans - For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values were based on carrying values.
The fair values of other loans and leases, such as commercial real estate and
consumer loans were estimated by discounting the future cash flows using the
current rates at which similar loans and leases would be made to borrowers with
similar credit ratings and for the same remaining maturities. The carrying
amount of accrued interest approximated its fair value.
Deposit liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits was the amount payable on demand at
the reporting date. The carrying amounts for variable-rate certificates of
deposit approximated their fair values at the reporting date. The fair value of
fixed-rate certificates of deposit was estimated using a discounted cash flow
calculation which applies the interest rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
approximated its fair value.
Borrowings - The carrying amounts of federal funds purchased and
securities sold under agreements to repurchase and other short-term
44 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
25
borrowings approximated their fair values. The fair value of long-term
borrowings was estimated using a discounted cash flow calculation which utilizes
the interest rates currently offered for borrowings of similar remaining
maturities.
Commitments to extend credit and standby letters of credit - Pricing of
these financial instruments is based on the credit quality and relationship,
fees, interest rates, probability of funding and compensating balance and other
covenants or requirements. Loan commitments generally have fixed expiration
dates, are variable rate and contain termination and other clauses which provide
for relief from funding in the event that there is a significant deterioration
in the credit quality of the customer. Many loan commitments are expected to
expire without being drawn upon. The rates and terms of the commitments to
extend credit and the standby letters of credit are competitive with those in
Bancorp's market area. The carrying amounts are reasonable estimates of the fair
value of these financial instruments. Carrying amounts which are comprised of
the unamortized fee income and, where necessary, reserves for any expected
credit losses from these financial instruments, are immaterial. Refer to Note 7
for additional information.
Bancorp does not carry financial instruments which are held or issued for
trading purposes.
The estimated fair values of Bancorp's financial instruments at December 31
were as follows:
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
Financial assets
Cash and short-term investments $ 128,047 $ 128,047 $ 130,369 $ 130,369
Investment securities held-to-maturity 78,945 83,441 93,522 100,512
Investment securities available-for-sale 290,701 290,701 294,052 294,052
Loans
Commercial 398,034 394,197 340,942 335,377
Real estate-construction 43,262 43,152 41,845 41,650
Real estate-mortgage 863,414 878,052 788,805 761,190
Installment, net of unearned income 364,626 362,449 328,461 359,679
Credit card 16,107 16,029 15,406 15,042
Leasing 14,821 15,693 16,557 15,642
Less allowance for loan losses 22,672 20,437
----------- ----------- ----------- -----------
Net loans 1,677,592 1,709,572 1,511,579 1,528,580
Accrued interest receivable 21,613 21,613 18,494 18,494
Financial liabilities
Deposits
Noninterest-bearing 238,415 238,415 220,061 220,061
Interest-bearing demand 317,187 317,187 302,119 302,119
Savings 381,903 381,903 359,638 359,638
Time 942,461 940,563 903,744 895,303
----------- ----------- ----------- -----------
Total deposits 1,879,966 1,878,068 1,785,562 1,777,121
Short-term borrowings 93,779 93,779 58,372 58,372
Long-term borrowings 6,506 6,016 2,820 2,834
Accrued interest payable 6,422 6,422 6,125 6,125
====================================================================================================================================
NOTE 18 - FIRST FINANCIAL BANCORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
DECEMBER 31, (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
1996 1995
-------- --------
ASSETS
Cash $ 57,103 $ 40,971
Receivables from subsidiaries 2,865
Securities purchased under agreements to
resell to affiliates 15,000
Investment in subsidiaries
Commercial banks 173,636 153,270
Stock savings banks 30,312 29,967
-------- --------
Total investment in subsidiaries 203,948 183,237
Other assets 94 175
-------- --------
TOTAL ASSETS $264,010 $239,383
======== ========
LIABILITIES
Dividends payable $ 4,409 $ 3,904
Other liabilities 1,119 1,304
-------- --------
TOTAL LIABILITIES 5,528 5,208
SHAREHOLDERS' EQUITY 258,482 234,175
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $264,010 $239,383
======== ========
==============================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 45
26
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
INCOME
Interest income $ 29 $ 40 $ 21
Dividends from subsidiaries 31,211 33,572 24,273
------- ------- -------
TOTAL INCOME 31,240 33,612 24,294
EXPENSES
Salaries and employee benefits 1,091 966 863
Other 955 608 500
------- ------- -------
TOTAL EXPENSES 2,046 1,574 1,363
------- ------- -------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
NET EARNINGS OF SUBSIDIARIES 29,194 32,038 22,931
Income tax (benefit) expense (282) (95) 72
------- ------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET EARNINGS OF SUBSIDIARIES 29,476 32,133 22,859
Equity in undistributed net earnings of subsidiaries 4,464 (344) 5,314
------- ------- -------
NET EARNINGS $33,940 $31,789 $28,173
======= ======= =======
====================================================================================================================================
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, (DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
OPERATING ACTIVITIES
Net earnings $33,940 $31,789 $28,173
Adjustments to reconcile net earnings to
net cash provided by operating activities
Equity in undistributed net earnings of subsidiaries (4,464) 344 (5,314)
Provision for amortization 14 17 20
Deferred income taxes 91 104 (42)
Increase (decrease) in dividends payable 505 (1) 1,400
(Decrease) increase in accrued expenses (185) 109 15
(Increase) decrease in receivables (2,865) 2,061 (572)
------- ------- ------
Net cash provided by operating activities 27,036 34,423 23,680
INVESTING ACTIVITIES
Securities purchased under agreements to resell to affiliates 15,000 15,279 (7,702)
Capital contributions to subsidiary (1,300)
Purchase of subsidiary (7,575)
Other 75 (43) (61)
------- ------- ------
Net cash provided by (used in) investing activities 6,200 15,236 (7,763)
FINANCING ACTIVITIES
Cash dividends (16,341) (13,521) (11,809)
Purchase of common stock (994) (388)
Proceeds from exercise of stock options, net of shares purchased 231 127 151
Principal payment of long-term borrowings (850)
------- ------- ------
Net cash used in financing activities (17,104) (14,244) (12,046)
------- ------- ------
INCREASE IN CASH 16,132 35,415 3,871
Cash at beginning of year 40,971 5,556 1,685
------- ------- ------
CASH AT END OF YEAR $57,103 $40,971 $5,556
======= ======= ======
===================================================================================================================================
46 - FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT
27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
First Financial Bancorp.
We have audited the accompanying consolidated balance sheets of First
Financial Bancorp. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First Financial
Bancorp. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
First Financial Bancorp. and subsidiaries changed their method of accounting for
investment securities.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 15, 1997
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 47
28
QUARTERLY FINANCIAL AND COMMON STOCK DATA (1)
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------------------------------------------------
(Dollars in thousands, except per share data.)
1996
Interest income $ 40,937 $ 42,259 $ 43,582 $ 44,497
Interest expense 16,807 17,049 17,793 18,058
---------- ---------- ---------- ---------
Net interest income 24,130 25,210 25,789 26,439
Provision for loan losses 606 764 1,097 966
Noninterest income
Investment securities (losses) gains (3) (14) 9
All other 5,257 5,408 5,694 5,746
Noninterest expenses 17,128 16,789 19,667 17,677
---------- ---------- ---------- ---------
Income before income taxes 11,653 13,062 10,705 13,551
Income tax expense 3,827 4,017 3,125 4,062
---------- ---------- ---------- ---------
NET EARNINGS $ 7,826 $ 9,045 $ 7,580 $ 9,489
========== ========== ========== =========
Per share
NET EARNINGS $0.55 $0.61 $0.52 $0.65
========== ========== ========== =========
CASH DIVIDENDS PAID $0.27 $0.27 $0.27 $0.27
========== ========== ========== =========
Market price
High bid $32.27 $31.82 $31.82 $32.50
========== ========== ========== =========
Low bid $30.45 $28.64 $29.09 $30.22
========== ========== ========== =========
1995
Interest income $ 36,162 $ 37,144 $ 38,860 $ 41,685
Interest expense 14,495 15,476 16,152 17,393
---------- ---------- ---------- ---------
Net interest income 21,667 21,668 22,708 24,292
Provision for loan losses 393 226 532 957
Noninterest income
Investment securities gains 13 238 49 40
All other 4,860 5,026 5,042 5,290
Noninterest expenses 15,661 15,575 15,559 16,550
---------- ---------- ---------- ---------
Income before income taxes 10,486 11,131 11,708 12,115
Income tax expense 3,117 3,142 3,591 3,801
---------- ---------- ---------- ---------
NET EARNINGS $ 7,369 $ 7,989 $ 8,117 $ 8,314
========== ========== ========== =========
Per share
NET EARNINGS $0.55 $0.60 $0.59 $0.58
========== ========== ========== =========
CASH DIVIDENDS PAID $0.29 $0.24 $0.24 $0.24
========== ========== ========== =========
Market price
HIGH BID $31.59 $31.36 $32.27 $32.05
========== ========== ========== =========
LOW BID $29.55 $30.00 $30.00 $30.00
========== ========== ========== =========
<FN>
The stock of First Financial Bancorp. is listed with the National Association of Securities Dealers, Inc. (NASDAQ), under
the symbol FFBC.
(1) All financial information has been restated to reflect a 10% stock dividend distributed on November 1, 1996.
====================================================================================================================================
FIRST FINANCIAL BANCORP 1996 ANNUAL REPORT - 48