-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MS/66Mk5JjJs9Wgfwtvo0duI5EcupNfV8T362rx3R4qWtl1OFwq0vhNUt0cOa9pS fx2L2xaEQNGbU2pOFQ6Urg== 0000950152-96-001114.txt : 19960325 0000950152-96-001114.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950152-96-001114 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANCORP /OH/ CENTRAL INDEX KEY: 0000708955 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311042001 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12379 FILM NUMBER: 96537603 BUSINESS ADDRESS: STREET 1: THIRD & HIGH ST CITY: HAMILTON STATE: OH ZIP: 45011 BUSINESS PHONE: 5138674700 MAIL ADDRESS: STREET 1: THIRD & HIGH ST CITY: HAMILTON STATE: OH ZIP: 45011 10-K 1 FIRST FINANCIAL BANCORP 10-K 1 ------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------ (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 Commission File Number 0-12379 FIRST FINANCIAL BANCORP. (Exact name of registrant as specified in its charter) ------------------- Ohio 31-1042001 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 High Street 45011 Hamilton, Ohio (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (513) 867-4700 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $8 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] As of March 1, 1996, there were issued and outstanding 13,022,970 shares of Registrant's Common Stock. The aggregate market value of the voting stock held by non-affiliates of the Registrant computed by reference to the sales price of the last trade of such stock as of March 1, 1996, was $442,781,000. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the Registrant that such person is an affiliate of the Registrant.) DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Annual Report to Shareholders for the year ended December 31, 1995 are incorporated by reference into Parts I and II. Portions of the proxy statement dated March 15, 1996 for the annual meeting of shareholders to be held April 23, 1996 are incorporated by reference into Part III. ------------------------------------------------------------------------ 2 FORM 10-K CROSS REFERENCE INDEX
Page ---- PART I Item 1 Business F-1 Item 2 Properties F-5 Item 3 Legal Proceedings F-6 Item 4 Submission of Matters to a Vote of Security Holders (during the fourth quarter of 1995) F-6 Additional Item - Executive Officers F-6 - ---------------------------------------------------------------------------------------------------------------------------- PART II Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters F-7 Item 6 Selected Financial Data F-7 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations F-7 Item 8 Financial Statements and Supplementary Data F-10 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure F-10 - ---------------------------------------------------------------------------------------------------------------------------- PART III Item 10 Directors and Executive Officers of the Registrant F-11 Item 11 Executive Compensation F-11 Item 12 Security Ownership of Certain Beneficial Owners and Management F-11 Item 13 Certain Relationships and Related Transactions F-11 - ---------------------------------------------------------------------------------------------------------------------------- PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K F-12 - ---------------------------------------------------------------------------------------------------------------------------- SIGNATURES F-14
3 F-1 PART I ITEM 1. BUSINESS. First Financial Bancorp. - ------------------------ First Financial Bancorp., an Ohio corporation (Bancorp), is a bank and savings and loan holding company that engages in the business of commercial banking, and other permissible activities closely related to banking, through twelve wholly owned subsidiaries, First National Bank of Southwestern Ohio (First Southwestern), Van Wert National Bank (Van Wert National), Bright National Bank (Bright National), all national banking associations, Citizens Commercial Bank & Trust Company (Citizens Commercial), Clyde Savings Bank Company (Clyde), both Ohio banking corporations, Union Trust Bank (Union Trust), Indiana Lawrence Bank (Indiana Lawrence), Citizens First State Bank (Citizens First), Union Bank & Trust Company (Union Bank), and Peoples Bank and Trust Company (Peoples Bank), all Indiana banking corporations, Fidelity Federal Savings Bank (Fidelity Federal), and Home Federal Bank, A Federal Savings Bank (Home Federal), both federal savings banks. Bancorp provides management and similar services for its twelve subsidiary financial institutions. Since it does not itself conduct any operating businesses, Bancorp must depend largely upon its twelve subsidiaries for funds with which to pay the expenses of its operation and, to the extent applicable, any dividends on its outstanding shares of stock. For further information see Note 6 of the Notes to Consolidated Financial Statements appearing on page 38 of Bancorp's Annual Report to Shareholders, which is incorporated by reference in response to this item. Bancorp was formed in 1982 for the purpose of becoming the parent holding company of First Southwestern. For additional information, please see "Subsidiaries" on page F-2. Bancorp is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Bancorp is also a savings and loan holding company under the savings and loan holding company provisions of the Home Owners' Loan Act of 1933, as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). As such, Bancorp is subject to strict regulation regarding the acquisition of additional financial institutions and the conduct, through subsidiaries, of non-banking activities (see "Regulation" on page F- 3). Bancorp faces strong competition from both financial institutions and other non-financial organizations. Its competitors include local and regional financial institutions, savings and loans, and bank holding companies, as well as some of the largest banking organizations in the United States. In addition, other types of financial institutions, such as credit unions, also offer a wide range of loan and deposit services that are directly competitive with those offered by Bancorp's subsidiaries. The consumer is also served by brokerage firms and mutual funds that provide checking services, credit cards, and other services similar to those offered by Bancorp's subsidiaries. Major stores compete for loans by offering credit cards and retail installment contracts. It is anticipated that competition from entities other than financial institutions will continue to grow. The range of banking services provided by Bancorp's subsidiaries to their customers includes commercial lending, real estate lending, consumer credit, credit card, and other personal loan financing. Fidelity Federal and Home Federal are full service savings banks with their primary business being the promotion of thrift through the solicitation of savings accounts from the general public and the promotion of home ownership through the granting of mortgage loans, primarily to finance the purchase, construction, and improvement of residential real estate. First 4 F-2 Southwestern, Citizens Commercial, Van Wert National, Citizens First, Clyde, and Bright National also offer lease financing. In addition, the institutions offer deposit services that include interest-bearing and noninterest-bearing deposit accounts and time deposits. Most subsidiaries provide safe deposit facilities. A full range of trust and asset management services is provided by Bancorp's subsidiaries, excluding the savings banks. Each subsidiary retains its local identity and operates under the direction of its own board of directors and officers. Bancorp and its subsidiaries operate in one business segment--the financial institutions industry. Foreign transactions are nominal. Information regarding statistical disclosure required by Industry Guide 3 is included in Bancorp's Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference. At December 31, 1995, Bancorp and its subsidiaries employed 1,173 employees. Bancorp's executive office is located at 300 High Street, Hamilton, Ohio 45011, and its telephone number is (513)867-4700. Subsidiaries - ------------ First Southwestern was formed as the result of a consolidation of the First National Bank and Trust Company of Hamilton and the First National Bank of Middletown in 1980. On April 26, 1983, Bancorp acquired all of the outstanding capital stock of First Southwestern. At December 31, 1995, First Southwestern had 29 offices located in Butler, Warren, Preble, and Hamilton Counties in Ohio with total deposits of $769 million. First Southwestern has a total of 29 automated teller machines (ATM) of which four ATM's are at sites other than branches. Bancorp acquired 100% of the outstanding stock of Citizens Commercial on April 29, 1983. Citizens Commercial operates five offices and two ATM's in Mercer County, Ohio, one of which is at a site other than a branch with deposits of $182 million at December 31, 1995. On July 31, 1988, NB Banc Corp, the parent holding company of Van Wert National, merged into and out of existence with Bancorp leaving Van Wert National as a wholly owned subsidiary of Bancorp. Van Wert National operates five offices and has two ATM's in Van Wert County, Ohio with deposits of $104 million at December 31, 1995. Union Trust merged with Bancorp on September 1, 1989, as a wholly owned subsidiary. Union Trust has one ATM and operates two offices in Randolph County, Indiana and had $36 million in deposits on December 31, 1995. On September 1, 1989, ILB Financial Corp. was merged into and out of existence with Bancorp. ILB Financial Corp. was the one bank holding company of Indiana Lawrence. This merger resulted in Indiana Lawrence becoming a wholly owned subsidiary of Bancorp. As of December 31, 1995, Indiana Lawrence had deposits of $75 million, one ATM, and operated five offices in Wabash County, Indiana. Fidelity Federal merged with Bancorp on September 21, 1990 as a wholly owned subsidiary. Fidelity Federal operates three offices in Grant County, Indiana. Total deposits at December 31, 1995 were $55 million. 5 F-3 Citizens First joined Bancorp on October 1, 1990 as two separate entities, Trustcorp Bank, Hartford City, and Trustcorp Bank, Dunkirk. These two entities were purchased from Society Corporation for cash. On that same date, Trustcorp Bank, Hartford City was renamed Citizens First State Bank of Hartford City and Trustcorp Bank, Dunkirk was renamed Citizens First State Bank of Dunkirk. On July 1, 1991, those two banks merged to become one wholly owned subsidiary of Bancorp. Citizens First operates four offices in Blackford County, Indiana, one office in Jay County, Indiana, and one office in Delaware County, Indiana. Citizens First has four ATM's of which one is at a site other than branches, and had total deposits of $88 million at December 31, 1995. Bancorp purchased Home Federal on October 1, 1991. In November, 1995, Home Federal and Fayette Federal combined operations, with Fayette Federal operating as a division of Home Federal. Home Federal operates five offices in Butler County, Ohio, two offices in Hamilton County, Ohio, one office in Fayette County, Indiana and one office in Franklin County, Indiana, with total deposits of $241 million at December 31, 1995. Home Federal has five ATM's of which three are at sites other than branches. On January 4, 1993, Jennings Union Bankcorp, the parent holding company of Union Bank, merged into and out of existence with Bancorp leaving Union Bank as a wholly owned subsidiary of Bancorp. Union Bank operates two offices in Jennings County, Indiana with total deposits at December 31, 1995 of $71 million. On June 1, 1994, First Clyde Banc Corp., the parent holding company of Clyde, merged into and out of existence with Bancorp leaving Clyde as a wholly owned subsidiary of Bancorp. Clyde operates two offices and one ATM in Sandusky County in Ohio, with $60 million in total deposits as of December 31, 1995. On July 16, 1995, Peoples Bank and Trust Company merged with Bancorp. Located in Sunman, Indiana, Peoples Bank operates one office in Ripley County, Indiana with total deposits of $43 million at December 31, 1995. On October 1, 1995, Bright Financial Services, Inc., Flora, Indiana merged with and into Bancorp leaving its subsidiary, Bright National Bank, as a wholly owned Bancorp subsidiary. With deposits at December 31, 1995 of $103 million, Bright National operates four offices in Carroll County, Indiana, two offices in Tippecanoe County, Indiana and one office in Clinton County, Indiana. Regulation - ---------- First Southwestern, Van Wert National and Bright National, as national banking associations, are subject to supervision and regular examination by the Comptroller of the Currency. Citizens Commercial and Clyde, as Ohio state chartered banks, are subject to supervision and regular examination by the Superintendent of Banks of the State of Ohio. First Southwestern, Citizens Commercial, Van Wert National, Clyde, Peoples Bank and Bright National are members of the Federal Reserve System and, as such, are subject to the applicable provisions of the Federal Reserve Act. Citizens Commercial is also subject to regular examination by the Federal Reserve System. Union Trust, Indiana Lawrence, Citizens First, Union Bank and Peoples Bank, as Indiana state chartered banks, are subject to supervision and regular examination by the Indiana Department of Financial Institutions. Fidelity Federal and Home Federal, as federal savings banks, are subject to supervision and regular examination by the Office of Thrift Supervision. Since 6 F-4 Fidelity Federal is located in Indiana, it is also subject to examination by the Indiana Department of Financial Institutions. All twelve institutions are insured by the Federal Deposit Insurance Corporation and are subject to the provisions of the Federal Deposit Insurance Act. To the extent that the information below consists of summaries of certain statutes or regulations, it is qualified in its entirety by reference to the statutory or regulatory provisions described. Bancorp is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the Act), which requires a bank holding company to register under the Act and to be subject to supervision and examination by the Board of Governors of the Federal Reserve System. As a bank holding company, Bancorp is required to file with the Board of Governors an annual report and such additional information as the Board of Governors may require pursuant to the Act. The Act requires prior approval by the Board of Governors of the acquisition by a bank holding company, or any subsidiary thereof, of 5% or more of the voting stock or substantially all the assets of any bank within the United States. Prior to the passage of FIRREA, it was not possible for bank holding companies, such as Bancorp, to acquire "healthy" thrift institutions. Although such acquisitions are now authorized, mergers between bank holding companies and thrift institutions must be approved by the Federal Reserve Board and the Office of Thrift Supervision. Once a bank holding company acquires a thrift institution, it is then considered a savings and loan holding company, as well, which is subject to regulation and examination by the Office of Thrift Supervision. As a bank holding company located in the State of Ohio, Bancorp is not permitted to acquire a bank or other financial institution located in another state unless such acquisition is specifically authorized by the statutes of such state, as is the case in Indiana. The Act further provides that the Board of Governors shall not approve any such acquisition that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States, or the effect of which may be to substantially lessen competition or to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The Act also prohibits a bank holding company, with certain exceptions, from acquiring 5% or more of the voting stock of any company that is not a bank and from engaging in any business other than banking or performing services for its banking subsidiaries without the approval of the Board of Governors. In addition, the acquisition of a thrift institution must be approved by the Office of Thrift Supervision pursuant to the savings and loan holding company provisions of the Home Owners' Loan Act of 1933, as amended by FIRREA. The Board of Governors is also authorized to approve, among other things, the ownership of shares by a bank holding company in any company the activities of which the Board of Governors has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Board of Governors has, by regulation, determined that certain activities, including mortgage banking, operating small loan companies, factoring, furnishing certain data processing operations, holding or operating properties used by banking subsidiaries or acquired for such future use, providing certain investment and financial advice, leasing (subject to certain conditions) real or personal property, providing management consulting advice to certain depository institutions, providing securities brokerage services, arranging commercial real estate equity financing, underwriting and dealing in government obligations and money market instruments, providing consumer financial counseling, operating a collection agency, owning and operating a savings 7 F-5 association, operating a credit bureau and conducting certain real estate investment activities and acting as insurance agent for certain types of insurance, are closely related to banking within the meaning of the Act. It also has determined that certain other activities, including real estate brokerage and syndication, land development, and property management, are not related to credit transactions and are not permissible. The Act and the regulations of the Board of Governors prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services. The Act also imposes certain restrictions upon dealing by affiliated banks with the holding company and among themselves including restrictions on interbank borrowing and upon dealings in respect to the securities or obligations of the holding company or other affiliates. The earnings of banks, and therefore the earnings of Bancorp (and its subsidiaries), are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System. An important function of the Federal Reserve Board is to regulate the national supply of bank credit in an effort to prevent recession and to restrain inflation. Among the procedures used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These procedures are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use also may affect interest rates charged on loans or paid for deposits. Monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effect, if any, of such policies upon the future business and earnings of Bancorp cannot accurately be predicted. Bancorp makes no attempt to predict the effect on its revenues and earnings of changes in general economic, industrial, and international conditions or in legislation and governmental regulations. ITEM 2. PROPERTIES. The registrant and its subsidiaries operate from 50 offices in Ohio, including Bancorp's executive office in Hamilton, Ohio and 26 offices in Indiana. Twenty-eight of the offices are located in Butler County, Ohio, of which four branches are built on leased land and there are seven branches wherein the land and building are leased. Excess space in three facilities is leased to third parties. Five offices are located in Mercer County, Ohio, five in Van Wert County, Ohio, three in Preble County, Ohio, three in Warren County, Ohio, three in Hamilton County, Ohio, and two in Sandusky County, Ohio. Five offices are located in Wabash County, Indiana, of which one office is built on leased land with a purchase option on the land. Two offices are in Randolph County, Indiana, three in Grant County, Indiana, one in Jay County, Indiana, four in Blackford County, Indiana, one in Fayette County, Indiana, one in Franklin County, Indiana, two in Jennings County, Indiana, four in Carroll County, Indiana, two in Tippecanoe County, Indiana and one in Clinton County, Indiana. One office is located in Delaware County, Indiana, of which both the land and building are leased. All leases are comparable to other leases in the respective market areas and 8 F-6 do not contain provisions detrimental to the registrant or its subsidiaries. ITEM 3. LEGAL PROCEEDINGS. Except for routine litigation incident to their business, the registrant and its subsidiaries are not a party to any material pending legal proceedings and none of their property is the subject of any such proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to the shareholders during the fourth quarter of 1995. ADDITIONAL ITEM - EXECUTIVE OFFICERS. Listed below are the Executive Officers of Bancorp as of December 31, 1995. The Executive Officers will serve until the first meeting of the Board of Directors following the next annual meeting of shareholders, scheduled to be held on April 23, 1996 or until their successors are elected and duly qualified. All Executive Officers are chosen by the Board of Directors by a majority vote.
Name Age Position - ---------------------- --- ----------------------------------------------- Stanley N. Pontius 49 President and Chief Executive Officer, Director Richard E. Weinman 61 Executive Vice President, Chief Financial Officer, Secretary, and Treasurer James J. Ashburn 65 Senior Vice President Rick L. Blossom 48 Senior Vice President, Chief Lending Officer
The following is a brief description of the business experience over the past five years of the individuals named above. Stanley N. Pontius became Chief Executive Officer of Bancorp in July, 1992. Mr. Pontius was Chief Operating Officer from March, 1991 until July, 1992. Upon joining Bancorp in March, 1991 he assumed the responsibilities of President and Chief Operating Officer, as well as a director. He also became President, Chief Executive Officer, and a director of First Southwestern. Prior to coming to Bancorp, Mr. Pontius served as President and Chief Executive Officer of Bank One, Mansfield, Mansfield, Ohio from 1988 to 1991. Richard E. Weinman retired in the first quarter 1996, after forty years of service with First Southwestern and 12 years with Bancorp. Mr. Weinman became Executive Vice President, Chief Financial Officer, Secretary and Treasurer in December, 1994. Since December 30, 1988, Mr. Weinman had served as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of Bancorp. Mr. Weinman has served as Bancorp's Principal Financial Officer since its formation in 1982. In December of 1994, Mr. Weinman also became Executive Vice President and Chief Financial Officer of First Southwestern. Since October, 1991, Mr. Weinman had been Senior Vice President and Chief Financial Officer of First Southwestern. Mr. Weinman was Cashier of First Southwestern from November 1980 to October 1991. He served as Senior Vice President of First Southwestern for over five years. 9 F-7 James J. Ashburn became Senior Vice President of Bancorp on December 30, 1988. He had been Vice President of Bancorp since April, 1983. He has served as a Senior Vice President and Senior Trust Officer of First Southwestern for over five years. Rick L. Blossom became Chief Lending Officer of Bancorp effective January 12, 1996. Mr. Blossom remains Senior Vice President of Bancorp, a position he has held since September 26, 1990. On January 12, 1996, he also became Executive Vice President of First Southwestern, retaining his Chief Lending Officer status. He previously held the title of Senior Vice President/Retail Lending of First Southwestern. On March 4, 1991, he was promoted to Chief Lending Officer of First Southwestern, while retaining his Senior Vice President status. He had served as First Vice President/Retail Lending of First Southwestern since March, 1989. Michael R. O'Dell became Senior Vice President, Chief Financial Officer and secretary of Bancorp on January 12, 1996. He had served as Bancorp's Comptroller since December, 1994. Mr. O'Dell was also promoted to Senior Vice President and Chief Financial Officer of First Southwestern in January, 1996. He had served as First Vice President and Comptroller since 1991. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. Bancorp had 3,938 common stock shareholders of record as of March 1, 1996. Bancorp's common equity is listed with the National Association of Securities Dealers, Inc. (NASDAQ) and is traded on the Over-the-Counter Market. The information contained on page 48 of Bancorp's Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference in response to this item. ITEM 6. SELECTED FINANCIAL DATA. The information contained in Table 1 on page 22 of Bancorp's Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information contained on pages 21 through 31 of Bancorp's Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference in response to this item. The financial and statistical data presented on the following pages, when viewed along with the financial and statistical data presented in pages 21 through 48 of Bancorp's Annual Report to Shareholders, provides a detailed review of Bancorp's business activities. Investment Portfolio - -------------------- At December 31, 1995, Bancorp's investment portfolio included no investments which were not issued by the U.S. Government, its agencies, or corporations and which exceeded ten percent of Bancorp's shareholders' equity. 10 F-8 Loan Portfolio - -------------- The following table shows the composition of Bancorp's loan portfolio at the end of each of the last five years:
December 31 ------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Commercial $ 340,942 $ 286,635 $ 247,052 $ 237,935 $ 236,050 Real estate--construction 41,845 29,273 31,597 15,283 28,831 Real estate--mortgage 788,805 746,150 665,390 658,689 701,150 Installment 329,034 285,412 214,600 195,947 210,461 Credit card 15,406 15,599 16,703 17,946 19,216 Lease financing 16,557 16,102 14,872 13,035 11,115 ---------- ---------- ---------- ---------- ---------- Total loans $1,532,589 $1,379,171 $1,190,214 $1,138,835 $1,206,823 ========== ========== ========== ========== ==========
Nonperforming Assets - -------------------- The accrual of interest on a loan is discontinued and interest collected on such loan is credited to loan principal if, in the opinion of management, full collection of principal is doubtful. The following table summarizes Bancorp's nonaccrual loans, restructured loans, other real estate owned/in-substance foreclosures, and past due loans as of the end of each of the last five years:
December 31 --------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (Dollars in thousands) Nonaccrual loans $ 2,764 $ 2,412 $ 4,679 $ 9,216 $18,847 Restructured loans 517 1,429 605 719 1,868 OREO and ISF* 1,677 2,116 3,673 9,549 4,528 ------- ------- ------- ------- ------- Total nonperforming assets $ 4,958 $ 5,957 $ 8,957 $19,484 $25,243 ======= ======= ======= ======= ======= Nonperforming assets as a percent of total loans plus OREO and ISF 0.32% 0.43% 0.75% 1.70% 2.08% Accruing loans past due 90 days or more 1,071 683 1,321 1,547 1,940 *Other Real Estate Owned and In-Substance Foreclosures
As a result of management's continued effort to improve asset quality, OREO and ISF decreased $439,000 in 1995, $1,557,000 in 1994 and $5,876,000 in 1993. Of the $5,021,000 increase in 1992 compared to 1991, approximately 30.0% was farming properties with the majority of the remaining increase being commercial real estate properties. Of the $25.2 million in total nonperforming assets in 1991, 52.0% were a result of the acquisition of two financial institutions each of which had a large amount in nonperforming assets. These nonperforming assets were known in advance of the acquisitions and were taken into consideration in their pricing. 11 F-9 Potential Problem Loans - ----------------------- At December 31, 1995, Bancorp had $3,354,000 in loans for which payments were presently current, but the borrowers were experiencing financial difficulties. These loans are a combination of commercial, real estate, and installment loans and are not included as part of nonaccrual loans, nor are they included within restructured loans or loans past due 90 days or more and still accruing. However, these loans are subject to constant monitoring by management, and their status is reviewed on a continual basis. These loans were considered by management in determining the adequacy of the recorded allowance for loan losses at December 31, 1995. Loan Loss Data - --------------
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (Dollars in thousands) Transactions in the allowance for loan losses: Balance at January 1 $18,609 $18,380 $17,014 $17,739 $14,061 Loans Charged off: Commercial 790 648 1,634 3,600 2,136 Real estate--construction 1,059 64 Real estate--mortgage 26 124 320 1,763 726 Installment and other consumer financing 1,721 1,248 1,580 1,936 3,037 Lease financing 107 132 155 44 52 ------- ------- ------- ------- ------- Total loans charged off 2,644 2,152 3,689 8,402 6,015 ------- ------- ------- ------- ------- Recoveries of loans previously charged off: Commercial 546 384 538 346 505 Real estate--construction 8 56 10 Real estate--mortgage 39 41 65 143 123 Installment and other consumer financing 592 653 676 582 558 Lease financing 17 35 29 7 21 ------- ------- ------- ------- ------- Total recoveries 1,202 1,113 1,308 1,134 1,217 ------- ------- ------- ------- ------- Net charge-offs 1,442 1,039 2,381 7,268 4,798 Allowance acquired through mergers and acquisitions 1,162 3,090 Provision for loan losses 2,108 1,268 3,747 6,543 5,386 ------- ------- ------- ------- ------- Balance at December 31 $20,437 $18,609 $18,380 $17,014 $17,739 ======= ======= ======= ======= ======= Ratios: Net charge-offs as a percent of: Average loans outstanding 0.10% 0.08% 0.21% 0.63% 0.56% Provision 68.41% 81.94% 63.54% 111.08% 89.08% Allowance 7.06% 5.58% 12.95% 42.72% 27.05% Allowance as a percent of: 5 year moving average of net charge-offs 603.64% 402.18% 347.24% 313.95% 381.86% Year-end loans, net of unearned income 1.33% 1.35% 1.54% 1.50% 1.47%
12 F-10 Allocation of the Allowance for Loan Losses - ------------------------------------------- The following table shows an allocation of the allowance for loan losses for each of the five years indicated:
December 31 --------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------- ------------- ------------- ------------ ------------ $ % $ % $ % $ % $ % ------- ---- ------- ---- ------- ---- ------ ---- ------ ---- Balance at End (Dollars in thousands) of Period Appli- cable to: Commercial $ 4,254 22% $ 4,395 21% $ 4,457 21% $ 5,088 21% $ 4,377 20% Real estate- construction 210 3% 340 2% 300 3% 64 1% 462 2% Real estate- mortgage 3,713 52% 2,552 54% 4,305 56% 4,796 58% 5,367 58% Installment & credit card 4,184 22% 3,298 22% 3,104 19% 3,308 19% 4,316 19% Lease financing 196 1% 154 1% 512 1% 733 1% 113 1% Unallocated 7,880 N/A 7,870 N/A 5,702 N/A 3,025 N/A 3,104 N/A ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- $20,437 100% $18,609 100% $18,380 100% $17,014 100% $17,739 100% ======= ==== ======= ==== ======= ==== ======= ==== ======= ==== $ - Dollar Amount % - Percent of Loans in Each Category to Total Loans
Dividend Payout Ratio - --------------------- The dividend payout ratios for 1995, 1994 and 1993 were 42.5%, 41.9%, and 39.2%, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements and report of independent auditors included on pages 32 through 47 of the Annual Report to Shareholders for the year ended December 31, 1995 are incorporated herein by reference. The Quarterly Financial and Common Stock Data on page 48 of the Annual Report to Shareholders for the year ended December 31, 1995 is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No disagreements with accountants on any accounting or financial disclosure occurred during the periods covered by this report. 13 F-11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information called for by Item 10 is contained under "Shareholdings of Directors, Executive Officers, and Nominees for Director" on pages 2 through 5 of Bancorp's Proxy Statement, dated March 15, 1996 with respect to the Annual Meeting of Shareholders to be held on April 23, 1996 which was filed pursuant to Regulation 14(A) of the Securities Exchange Act of 1934 and which is incorporated herein by reference in response to this item. Reference is also made to "Additional Item - Executive Officers" included in Part I of this Form 10-K in partial response to Item 10. ITEM 11. EXECUTIVE COMPENSATION. The information appearing under "Meetings of the Board of Directors and Committees of the Board" on page 6, "Executive Compensation" on pages 7 through 11, and under "Compensation Committee Report" on pages 12 through 13 of Bancorp's Proxy Statement dated March 15, 1996 is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information appearing under "Shareholdings of Directors, Executive Officers, and Nominees for Director" on pages 2 and 3 of Bancorp's Proxy Statement dated March 15, 1996 is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information appearing in Note 14 of the Notes to Consolidated Financial Statements included on page 44 of Bancorp's Annual Report to Shareholders is incorporated herein by reference in response to this item. 14 F-12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of the Report: Page* ----- (1) Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . 47 Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . 32 Consolidated Statements of Earnings for year ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Statements of Cash Flows for year ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 34 Consolidated Statements of Changes in Shareholders' Equity for year ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 35 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 36 (2) Financial Statement Schedules: Schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions, or are inapplicable, and therefore have been omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
_______________________________________________________________________________ *THE PAGE NUMBERS INDICATED REFER TO PAGES OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 WHICH ARE INCORPORATED HEREIN BY REFERENCE. 15 F-14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST FINANCIAL BANCORP. By: /s/ Stanley N. Pontius --------------------------------- Stanley N. Pontius, Director President and Chief Executive Officer Date 2-27-96 - ------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. (Signed) /s/ Richard J. Fitton (Signed) /s/ Michael R. O'Dell - ----------------------------------------- ---------------------------------------- Richard J. Fitton, Director Michael R. O'Dell, Chairman of the Board Senior Vice President, Chief Financial Officer, and Secretary Date 2-27-96 Date 2-27-96 ------------------------------------- ----------------------------------- (Signed) /s/ Stanley N. Pontius (Signed) /s/ Murph Knapke - ----------------------------------------- ---------------------------------------- Stanley N. Pontius Murph Knapke, Director President and Chief Executive Officer Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------ (Signed) /s/ Carl R. Fiora (Signed) /s/ Barry Levey - ----------------------------------------- ---------------------------------------- Carl R. Fiora, Director Barry Levey, Director Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------ (Signed) /s/ Charles T. Koehler (Signed) /s/ Arthur W. Bidwell - ----------------------------------------- ---------------------------------------- Charles T. Koehler, Director Arthur W. Bidwell, Director Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------
16 F-15 SIGNATURES (CONT'D) (Signed) /s/ Elden Houts (Signed) /s/ Vaden Fitton - ----------------------------------------- ---------------------------------------- F. Elden Houts, Director Vaden Fitton, Director Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------ (Signed) /s/ Lauren N. Patch (Signed) /s/ Don M. Cisle - ----------------------------------------- ---------------------------------------- Lauren N. Patch, Director Don M. Cisle, Director Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------ (Signed) /s/ Thomas C. Blake (Signed) /s/ Joseph M. Gallina - ----------------------------------------- ---------------------------------------- Thomas C. Blake, Director Joseph M. Gallina, Comptroller Date 2-27-96 Date 2-27-96 ------------------------------------- ------------------------------------ (Signed) /s/ Barry S. Porter - ----------------------------------------- Barry S. Porter, Director Date 2-27-96 -------------------------------------
17 1995 FIRST FINANCIAL BANCORP ANNUAL REPORT TABLE OF CONTENTS Service Creed ............................................................. 1 Letter to Shareholders .................................................... 3 Editorial Review .......................................................... 6 Affiliate Office Locations ................................................ 17 Bancorp Board of Directors and Officers ................................... 20 Affiliate Directors and Officers .......................................... 20 Management's Discussion and Analysis ...................................... 21 Consolidated Financial Statements ......................................... 32 Notes to Consolidated Financial Statements ................................ 36 Quarterly Financial and Common Stock Data ................................. 48 SHAREHOLDER INFORMATION ANNUAL MEETING The Annual Meeting of Shareholders will be held in Hamilton, Ohio, at the Fitton Center for Creative Arts, 101 South Monument Avenue, on Tuesday, April 23, 1996, beginning at 2:00 p.m. FORM 10-K Copies of First Financial Bancorp's Form 10-K may be obtained by writing to: Michael R. O'Dell, Comptroller First Financial Bancorp 300 High Street, P.O. Box 476 Hamilton, Ohio 45012-0476 513-425-7573 (FAX) TRANSFER AGENT AND REGISTRAR First National Bank of Southwestern Ohio Trust Division 2 North Main Street, P.O. Box 220 Middletown, Ohio 45042-0220 513-425-7569 513-425-7573 (FAX) NASDAQ OTC NATIONAL MARKET Common Stock Symbol: FFBC 18 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP 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, 1995, Bancorp owned twelve subsidiaries located primarily in western Ohio and eastern and west-central Indiana. Also, as of December 31, 1995, Bancorp was in the process of incorporating a new subsidiary to be named First Finance Mortgage Company of Southwestern Ohio, Inc. Management currently intends to conduct business under the name of "First Finance." This new organization will be a finance company and is expected to open during the first quarter of 1996 in Fairfield, Ohio. On November 28, 1995, the Board of Directors approved a regular quarterly cash dividend of 30 cents per share payable January 2, 1996, to shareholders of record as of December 8, 1995. 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 31 through 48. RECENT AND PENDING MERGERS On September 11, 1995, Bancorp signed a Plan and Agreement of Merger with F&M Bancorp (F&M). F&M's only subsidiary, Farmers & Merchants Bank of Rochester (Farmers & Merchants), has its main office and one other office in Rochester, Indiana and one office in Kewanna, Indiana. Upon consummation of the merger, F&M will be merged out of existence and Farmers & Merchants will be merged with and into Indiana Lawrence Bank, a wholly owned subsidiary of Bancorp. Farmers & Merchants' offices will become branches of Indiana Lawrence Bank, the surviving entity. Subject to regulatory approval and approval by F&M's shareholders, the merger is expected to occur during the second quarter of 1996. Bancorp anticipates the merger will be accounted for using the pooling-of-interests accounting method. 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. 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. 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. 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 offices 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. On January 4, 1993, Bancorp issued 287,414 shares of its common stock for all the outstanding common stock of Jennings Union Bankcorp. Upon consummation of the merger, Jennings Union Bankcorp was merged out of existence and its only subsidiary, Union Bank & Trust Company (Union), became a wholly owned subsidiary of Bancorp. The 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 Union. OVERVIEW OF OPERATIONS - ---------------------- Bancorp's earnings during 1995 reached a record $31,789,000 or $2.55 per share, representing a 12.8% growth over 1994's net earnings and a 10.4% increase over 1994 earnings per share. Net earnings in 1994 were $28,173,000 ($2.31 per share), reflecting an 11.8% increase from 1993 net earnings of $25,194,000 ($2.06 per share). The 1995 earnings increase was achieved primarily through an increase in net interest income. The 1994 earnings increase was achieved through an increase in net interest income and a reduction in the provision for loan losses, which was due to Bancorp's improved asset quality. Key industry performance ratios increased in 1995 over the previous two years. Bancorp's return on assets was 1.64%, 1.54% and 1.41% for 1995, 1994 and 1993, respectively. Bancorp's return on equity for 1995 was 15.0% compared to 14.9% and 14.5% for 1994 and 1993, 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 1991 through 1995 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 1995, 1994 and 1993 and a 34.0% tax rate in prior years. 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 31. Tax equivalent total interest income was $158,137,000 in 1995, an increase of $19,151,000 over 1994. Approximately $9,845,000 of this increase was due to an increase in average rates earned from 8.15% during 1994 to 8.75% during 1995. The increase 21 19 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP TABLE 1 * FINANCIAL SUMMARY (Dollars in thousands, except per share data)
1995 1994 1993 1992 1991 ----- ----- ---- ----- ----- Summary of operations Interest income $ 153,851 $ 133,504 $ 130,739 $ 143,439 $ 152,649 Tax equivalent adjustment 4,286 5,482 5,922 5,875 6,222 ------- ------- ------- ------- ------- Interest income - tax equivalent 158,137 138,986 136,661 149,314 158,871 Interest expense 63,516 49,587 51,880 66,958 85,140 ------- ------- ------- ------- ------- Net interest income - tax equivalent $ 94,621 $ 89,399 $ 84,781 $ 82,356 $ 73,731 ======= ======= ======= ======= ======= Interest income $ 153,851 $ 133,504 $ 130,739 $ 143,439 $ 152,649 Interest expense 63,516 49,587 51,880 66,958 85,140 ------- ------- ------- ------- ------- Net interest income 90,335 83,917 78,859 76,481 67,509 Provision for loan losses 2,108 1,268 3,747 6,543 5,387 Noninterest income 20,558 17,462 19,589 19,814 16,124 Noninterest expenses 63,345 62,139 62,038 60,639 54,616 ------- ------- ------- ------- ------- Income before income taxes and cumulative effect of changes in accounting principles 45,440 37,972 32,663 29,113 23,630 Income tax expense 13,651 9,799 7,469 7,343 5,030 Income before cumulative effect of changes in ------- ------- ------- ------- ------- accounting principles 31,789 28,173 25,194 21,770 18,600 Cumulative effect of changes in accounting principles 1,698 ------ ------- ------- ------- ------- Net earnings $ 31,789 $ 28,173 $ 25,194 $ 23,468 $ 18,600 ======= ======= ======= ======= ======= Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0% in 1995, 1994 and 1993 and a 34.0% tax rate for all other years presented Per share data (1) Income before cumulative effect of changes in accounting principles 2.55 $ 2.31 $ 2.06 $ 1.77 $ 1.51 Cumulative effect of changes in accounting principles 0.14 ---- ---- ---- ---- ---- Net earnings $ 2.55 $ 2.31 $ 2.06 $ 1.91 $ 1.51 ====== ====== ====== ==== ===== Cash dividends declared First Financial Bancorp $ 1.08 $ 0.98 $ 0.82 $ 0.74 $ 0.66 Jennings Union Bankcorp (2) N/A N/A $ 2.00 $ 2.00 Highland Federal Savings Bank N/A $ 0.85 $ 0.75 $ 0.75 First Clyde Banc Corp (3) N/A $ 0.50 $ 2.00 $ 1.80 $ 1.60 Average common shares outstanding (in thousands) 12,488 12,211 12,211 12,319 12,358 Selected year-end balances Total assets $ 2,103,375 $ 1,922,643 $ 1,810,673 $ 1,816,414 $ 1,860,955 Earning assets 1,941,274 1,764,616 1,670,009 1,662,413 1,721,867 Investment securities held-to-maturity 93,522 135,187 438,461 457,919 319,266 Investment securities available-for-sale 294,052 242,410 Investment securities held for sale 123,572 Loans, net of unearned income 1,532,016 1,378,867 1,189,790 1,137,482 1,204,860 Deposits 1,785,562 1,587,324 1,580,546 1,604,053 1,663,310 Noninterest-bearing demand deposits 220,061 201,331 182,192 181,696 155,888 Interest-bearing demand deposits 302,119 266,601 277,444 249,531 224,274 Savings deposits 359,638 374,378 403,845 400,632 354,170 Time deposits 903,744 745,014 717,065 772,194 928,978 Long-term borrowings 2,820 3,983 4,564 5,119 Shareholders' equity 234,175 194,673 181,252 167,694 154,207 Ratios based on average balances Loans to deposits 89.01% 80.79% 74.14% 72.40% 73.54% Net charge-offs to loans 0.10% 0.08% 0.21% 0.63% 0.44% Shareholders' equity to Total assets 10.98% 10.29% 9.73% 8.84% 8.77% Deposits 13.06% 12.05% 11.10% 9.94% 9.82% Return on Assets 1.64% 1.54% 1.41% 1.30% 1.11% Return on Equity 14.97% 14.93% 14.54% 14.70% 12.64% Net interest margin (tax equivalent basis) 5.24% 5.25% 5.14% 4.91% 4.72% (1) First Financial Bancorp's per share data has been restated for all stock dividends and material pooling-of-interests mergers through 1995. (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 20 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP in rates earned was due to a general increase in market rates and to a shift in average asset balances of approximately $77,784,000 from securities into higher yielding loans. The remaining $9,306,000 of the $19,151,000 increase in tax equivalent total interest income was due to an increase of $101,889,000 in average total earning assets during 1995. Outstanding loan balances increased $182,082,000 while investment securities and other instruments decreased $80,193,000. Total interest expense was $63,516,000 in 1995, an increase of $13,929,000 over 1994. Most of the increase, approximately $9,923,000, was due to increases in average rates paid on deposits and borrowings, from 3.41% during 1994 to 4.19% during 1995. The increase in rates was primarily due to a general increase in market rates and to a shift in average balances of approximately $45,484,000 from lower rate interest-bearing demand and savings deposit accounts to higher rate time deposit accounts. The remaining $4,006,000 of the $13,929,000 increase was due to an increase of $64,344,000 in average total interest-bearing liabilities during 1995. Tax equivalent net interest income, the difference between tax equivalent total interest income and total interest expense, increased $5,222,000 during 1995. The $9,306,000 effect of the volume increase in earning assets was greater than the $4,006,000 effect of the volume increase in interest-bearing deposits, thereby contributing $5,300,000 to the increase in net interest income. This volume increase was slightly offset by rate influences on net interest income. The $9,845,000 effect of the rate increase in earning assets was less than the $9,923,000 effect of the rate increase in interest-bearing liabilities, resulting in a $78,000 decrease to net interest income. 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 1995, 1994 and 1993 was $2,928,000, $2,742,000 and $2,592,000, respectively. Bancorp's interest rate spread (the average rate on earning assets minus the average rate on interest-bearing liabilities) declined slightly from 4.74% for 1994 to 4.56% for 1995. This decrease was the result of the cost of interest-bearing liabilities increasing 78 basis points (a basis point equals 0.01%) while the yield on earning assets increased only 60 basis points. This trend is likely to continue into 1996. The 1994 interest rate spread of 4.74% was greater than the 1993 spread of 4.64% due to the yield on earning assets declining less than the cost of interest-bearing liabilities. 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 declined, but by only one basis point. The net interest margin was 5.24%, 5.25% and 5.14% for 1995, 1994 and 1993, respectively. During 1995 and 1994, approximately $51,193,000 and $16,134,000, respectively, of tax-exempt municipal securities earning a tax equivalent yield of 13.4% and 12.5%, respectively, were called by their issuers or matured. Bancorp believes another $12,620,000 of municipal securities earning a tax equivalent yield of 11.9% may be called or mature during 1996. 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 the interest rate spread and net interest margin in the future. NONINTEREST INCOME - ------------------ A listing of noninterest income for 1995, 1994 and 1993 is reported in Table 3. Noninterest income, excluding investment securities transactions, increased $1,002,000 or 5.21% in 1995, while 1994 showed a decrease of $444,000 or 2.26% from 1993. Service charges on deposit accounts increased $374,000 or 4.55% over 1994 primarily due to increases in noninterest-bearing demand deposit balances. Service charges during 1994 decreased $291,000 or 3.42% from 1993 mainly as a result of a decrease in the number of insufficient fund charges on checking accounts. TABLE 2 * VOLUME/RATE ANALYSIS - TAX EQUIVALENT BASIS(1)
1995 change from 1994 due to 1994 change from 1993 due to ------------------------------------------------------------------------------ VOLUME RATE TOTAL VOLUME RATE TOTAL ------------------------------------------------------------------------------ (Dollars in thousands) Interest income Loans $ 15,884 $ 8,238 $ 24,122 $ 9,015 $ (3,323) $ 5,692 Investment securities (2) Taxable (3,320) 1,684 (1,636) (1,037) (97) (1,134) Tax-exempt (3,129) (312) (3,441) (1,188) (324) (1,512) ---------- ----------- ---------- ---------- ---------- ---------- Total investment securities interest (2) (6,449) 1,372 (5,077) (2,225) (421) (2,646) Interest-bearing deposits with other banks (138) 101 (37) (301) 111 (190) Federal funds sold and securities purchased under agreements to resell 9 134 143 (716) 185 (531) ---------- ----------- ---------- ---------- ---------- ---------- Total 9,306 9,845 19,151 5,773 (3,448) 2,325 Interest expense Interest-bearing demand deposits (140) 182 42 30 (998) (968) Savings deposits (990) 430 (560) 139 (1,587) (1,448) Time deposits 4,567 8,322 12,889 (467) (937) (1,404) Short-term borrowings 615 1,015 1,630 1,238 393 1,631 Long-term borrowings (46) (26) (72) (198) 94 (104) ---------- ----------- ---------- ---------- ---------- ---------- Total 4,006 9,923 13,929 742 (3,035) (2,293) ---------- ----------- ---------- ---------- ---------- ---------- Net interest income $ 5,300 $ (78) $ 5,222 $ 5,031 $ (413) $ 4,618 ========== =========== ========== ========== ========== ========== (1) Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0%. (2) Includes both investment securities held-to-maturity and investment securities available-for-sale.
23 21 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP Trust revenues in 1995 increased $606,000 or 8.64% over 1994 and increased $592,000 or 9.21% in 1994 over 1993. The increase during 1995 was due to an increase of $115,609,000 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 1995 and 1994 are attributed to new business, estate settlement fees and growth in the number of accounts. Other income during 1995 increased $22,000 or 0.55% over 1994 primarily due to an increase in safe deposit box rental income, partially offset by a decrease in gains from sales of other real estate owned. The decrease in gains from sales of other real estate owned reflects a lower amount of foreclosed real estate properties held during 1995. See the "Asset Quality" section on page 26 for more information on other real estate owned. Other income in 1994 decreased $745,000 or 15.8% from 1993. A significant portion of 1994's decrease is due to reduced gains on the sale of loans and a decrease in the amount of safe deposit box rent. Bancorp's subsidiaries sell certain fixed rate mortgage loans immediately after origination. Due to interest rate increases which occurred in 1994, the demand for fixed rate mortgage loans decreased and resulted in a reduction in loan sale activity and related gains. 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. Net gains were recorded by Bancorp during 1995 primarily due to the proceeds from sales of $39,514,000 of securities available-for-sale. Bancorp recorded $1,754,000 gross losses on the sale of $82,735,000 of securities available-for-sale during 1994. A $71,000 loss was reported in 1993 due to the sale and call of $17,869,000 of investment securities. Bancorp expects 1996 noninterest income to increase over 1995 due to increased deposit balances, which would result in an increase in service charges on deposit accounts. In addition to the growth of deposits, Bancorp's subsidiaries conduct periodic reviews of noninterest income and service charges. Through the review of these charges, Bancorp is able to offset some increases in operational expenses. While Bancorp expects trust revenues to increase due to increased trust balances, trust revenues are based on the market value of the trust portfolios. These market values are, of course, dependent upon the condition of the economy. NONINTEREST EXPENSES - -------------------- A listing of noninterest expenses for 1995, 1994 and 1993 is reported in Table 3. Noninterest expenses in 1995 increased $1,206,000 or 1.94% over 1994 and 1994 expenses increased $101,000 or 0.16% over 1993. The stability of noninterest expenses reflects management's rigorous efforts to closely monitor and control these expenses. The largest component of noninterest expenses is salaries and employee benefits, which increased $1,966,000 or 6.28% over 1994 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. Salaries and employee benefits in 1994 rose $1,663,000 or 5.61% over 1993 due to wage and salary increases. Deposit insurance expenses decreased during 1995 primarily due to a decrease in the Bank Insurance Fund (BIF) premium charged by the Federal Deposit Insurance Corporation (FDIC) from a range of $0.23 to $0.31 per $100 of insured deposits to a range of $0.04 to $0.31 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 exact amount paid by a bank depends on its capitalization and other qualitative factors considered by the FDIC. Bancorp affiliates are considered well capitalized and have historically paid the minimum premium amount. Ten of Bancorp's twelve subsidiaries are insured by the BIF and received the premium reduction. Bancorp's remaining two affiliates are insured by the Savings Association Insurance Fund (SAIF). Also, one bank subsidiary purchased SAIF insured deposits from the Resolution Trust Corporation. These deposits continue to be insured by the SAIF. As the SAIF has not yet reached its capitalization target, SAIF insured institutions will continue paying the higher premium rates during the foreseeable future. Both the House of Representatives and the Senate are considering bills that would require an immediate recapitalization of the SAIF through the levying of a one-time special assessment on all SAIF insured institutions. The assessment, if passed and signed by the President, will be based on insured deposits as of March 31, 1995. The amount of the assessment will be determined by the FDIC's calculation TABLE 3 * NONINTEREST INCOME & NONINTEREST EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- % CHANGE % CHANGE % CHANGE INCREASE INCREASE INCREASE TOTAL (DECREASE) TOTAL (DECREASE) TOTAL (DECREASE) ------------------------------------------------------------------------------- (Dollars in thousands) Noninterest income Service charges on deposit accounts $ 8,596 4.5% $ 8,222 (3.4%) $ 8,513 9.0% Trust revenues 7,623 8.6% 7,017 9.2% 6,425 8.7% Other 3,999 0.6% 3,977 (15.8%) 4,722 10.3% ----------- ----------- ----------- Subtotal 20,218 5.2% 19,216 (2.3%) 19,660 9.2% Investment securities gains (losses) 340 N/M (1,754) N/M (71) N/M ----------- ----------- ----------- Total $ 20,558 17.7% $ 17,462 (10.9%) $ 19,589 (1.1%) =========== ====== =========== ====== =========== ====== Noninterest expenses Salaries and employee benefits $ 33,262 6.3% $ 31,296 5.6% $ 29,633 4.9% Net occupancy 4,340 3.1% 4,211 (0.2%) 4,219 9.4% Furniture and equipment 3,352 11.5% 3,006 (4.5%) 3,147 (2.5%) Data processing 5,165 (0.8%) 5,205 9.8% 4,741 0.3% Deposit insurance 2,204 (37.7%) 3,537 2.0% 3,468 (2.4%) State taxes 1,637 (5.2%) 1,726 1.3% 1,704 4.0% Other 13,385 1.7% 13,158 (13.0%) 15,126 (1.6%) ----------- ----------- ----------- Total $ 63,345 1.9% $ 62,139 0.2% $ 62,038 2.3% =========== ====== =========== ====== =========== ====== N/M = Not meaningful
24 22 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP of the amount needed to reach the $1.25 per $100 of insured deposits capitalization target. An assessment of between $0.80 and $0.85 per $100 of insured deposits is generally considered necessary to recapitalize the SAIF. If the assessment rate is $0.85 per $100, Bancorp estimates that its two SAIF insured subsidiaries and its bank subsidiary with SAIF insured deposits will be assessed an aggregate total of approximately $2,900,000. The Emerging Issues Task Force of the Financial Accounting Standards Board has issued an opinion that SAIF member institutions should not accrue a liability for the special assessment until the legislation is enacted and signed by the President. Accordingly, Bancorp has not accrued a liability for the potential assessment. The efficiency ratio (noninterest expenses as a percentage of noninterest income, excluding investment securities transactions, plus tax equivalent net interest income) reflects how much, on average, an institution expended to generate each dollar of revenue. The combined effect of an increase in net interest income with the stability of noninterest expenses resulted in improvements in the efficiency ratio. Bancorp's efficiency ratio for 1995, 1994 and 1993 was 55.2%, 57.2% and 59.4%, respectively. Salary and employee benefits are expected to show a moderate increase in 1996. The expense, however, will be especially dependent on the status of health care costs. Net occupancy and equipment will probably increase due to anticipated capital expenditures. Bancorp is in the process of converting all subsidiaries to a standard data processing system within the next three years. Conversion costs for these five subsidiaries and contractual increases based on inflation will result in increased data processing expenses. Once all the subsidiaries are converted to a standard data processing system, the costs should be maintained, if not decline. The reduction in FDIC expense, which was effective in mid-1995, will show a full year's effect in 1996. State franchise taxes are expected to increase at a minimal level. INCOME TAXES - ------------ In August, 1993, President Clinton signed the Omnibus Budget Reconciliation Act of 1993, which was effective for tax years beginning on or after January 1, 1993. This act included a provision increasing the top corporate income tax rate from 34.0% to 35.0% for taxable income over $10,000,000. Net deferred tax assets at December 31, 1995, 1994 and 1993 were $3,369,000, $5,904,000 and $5,802,000, 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 1995 totaled $13,651,000 compared to $9,799,000 in 1994 and $7,469,000 in 1993, resulting in effective tax rates of 30.0%, 25.8% and 22.9% in 1995, 1994 and 1993, respectively. 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 investment securities transactions was a tax expense of $17,000 during 1995 and tax benefits of $1,634,000 and $463,000 in 1994 and 1993, respectively. 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 $153,149,000 or 11.1% during 1995 and $189,077,000 or 15.9% in 1994. Approximately $101,444,000 of the 1995 increase was due to the addition of two new subsidiaries. All loan categories, except credit cards, increased during 1995 and all loan categories, except real estate-construction and credit cards increased in 1994. A favorable market with respect to loan demand, combined with aggressive loan campaigns and the pursuit of new business, led to net increases during 1995 of $54,307,000 or 18.9% in commercial loans, $12,572,000 or 42.9% in construction loans, $42,655,000 or 5.72% in mortgage loans, $43,353,000 or 15.2% in installment loans, net of unearned income, and $455,000 or 2.83% in lease financing. Credit card lending decreased $193,000 or 1.24% during 1995. 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, 1995 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, 1995, real estate mortgage loans composed 51.5% of TABLE 4 * LOAN MATURITY/RATE SENSITIVITY
- -------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 - -------------------------------------------------------------------------------------------------------------------------------- Maturity ----------------------------------------------------- AFTER ONE BUT WITHIN WITHIN FIVE AFTER FIVE ONE YEAR YEARS YEARS TOTAL ----------------------------------------------------- (Dollars in thousands) Commercial $ 208,676 $ 72,426 $ 59,840 $ 340,942 Real estate - construction 30,131 7,787 3,927 41,845 -------------- ------------- ------------- ---------- Total $ 238,807 $ 80,213 $ 63,767 $ 382,787 ============== ============= ============= ==========
Sensitivity to changes in interest rates ------------------------- PREDETERMINED VARIABLE RATE RATE ------------------------- (Dollars in thousands) Due after one year but within five years $ 19,904 $ 60,309 Due after five years 14,742 49,025 -------------- ---------- Total $ 34,646 $ 109,334 ============== ==========
25 23 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP Bancorp's total loan portfolio and installment loans composed another 21.4% of the total loan portfolio. Commercial loans equaled 22.3% of the total portfolio and real estate-construction, credit card lending and lease financing made up the remaining 4.80% of the portfolio. Residential 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. 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, 1995. 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 nonaccruals. 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 $1,268,000 in 1994 to $2,108,000 in 1995. The increase was primarily due to the increase in loan volume mentioned previously. The allowance on December 31, 1995 was $20,437,000 or 1.33% of loans, net of unearned income. This compares to $18,609,000 or 1.35% of loans, net of unearned income, at December 31, 1994. Although the balance of the allowance increased $1,828,000, the significant increase in total loans outstanding resulted in a constant allowance to loan ratio. The provision decreased $2,479,000 in 1994, from $3,747,000 in 1993 to $1,268,000 in 1994, due to improvement in asset quality. 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, 1995, 1994 and 1993 were $2,764,000, $2,412,000 and $4,679,000, 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, 1995, 1994 and 1993 were $517,000, $1,429,000 and $605,000, 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, 1995, 1994 and 1993 were $1,677,000, $2,116,000 and $3,673,000, respectively. Loans 90 days or more past due which were still accruing interest totaled $1,071,000, $683,000 and $1,321,000 at December 31, 1995, 1994 and 1993, 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 No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS No. 114) as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," (SFAS No. 118) 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. INVESTMENT SECURITIES - --------------------- Bancorp's investment securities increased $9,977,000 or 2.64% during 1995 to a balance of $387,574,000. The major portion of this growth was due to the addition of two new subsidiaries and occurred primarily in the U.S. government agencies and corporations component of the investments portfolio. 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 17.6% of Bancorp's investment portfolio at December 31, 1995. All U.S. Treasury Securities were classified as available-for-sale at that date and are available for liquidity management purposes. Another 27.1% 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, 1995 were structured notes totaling $8,338,000. 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 agency and corporation securities 26 24 FIRST FINANCIAL BANCORP * 1995 ANNUAL REPORT * FIRST FINANCIAL BANCORP were classified as available-for-sale at December 31, 1995 and are available for liquidity management purposes. Due to the government guarantees, 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 28.9% of the investment portfolio at December 31, 1995. 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. CMOs totaled $62,937,000 at December 31, 1995, 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 other high risk CMOs. All CMOs held as of December 31, 1995 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 21.8% of Bancorp's investment portfolio at December 31, 1995. The securities are 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 86.3% of such investments at December 31, 1995 were classified as held-to-maturity. The remaining 4.60% of Bancorp's investment portfolio at December 31, 1995, 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, 1995, 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, 1995, the market value of Bancorp's held-to-maturity investment securities portfolio exceeded the carrying value by $6,990,000. The available-for-sale investment securities are reported at their market value of $294,052,000, as required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS No. 115). See Note 8 of the Notes to Consolidated Financial Statements for additional information. Bancorp's federal funds sold and securities purchased under agreements to resell increased $14,705,000, from $97,000 at December 31, 1994 to $14,802,000 at December 31, 1995. The increase was primarily for liquidity purposes. Bancorp monitors this position as part of its asset/liability management. Bancorp adopted the provisions of SFAS No. 115 for investments held as of, or acquired after, January 1, 1994. Securities with a market value of $272,856,000 were reclassified as available-for-sale at that time. In accordance with SFAS No. 115, prior period financial statements were not restated to reflect the change in accounting principle. As of January 1, 1994, the cumulative effect (net of $1,960,000 in deferred income taxes) of adopting SFAS No. 115 was to increase shareholders' equity by $3,638,000 to reflect unrealized holding gains on securities classified as available-for-sale, previously carried at amortized cost or lower of cost or market. TABLE 5 * INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Maturing ----------------------------------------------------------------------------------------------------- AFTER ONE BUT AFTER FIVE BUT WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) ----------------------------------------------------------------------------------------------------- (Dollars in thousands) Held-to-Maturity Mortgage-backed securities (2) $ 739 8.03% $ 4,775 6.75% $ 12,546 8.86% State, county, and municipal securities $ 7,830 11.66% 35,783 12.10% 19,319 12.17% 9,846 12.55% Other securities 718 7.59% 1,966 7.87% ----------- ---------- ----------- ---------- Total $ 8,548 11.32% $ 38,488 11.81% $ 24,094 11.10% $ 22,392 10.48% =========== ===== ========== ===== =========== ===== ========== ===== Available-for-Sale U.S. Treasury securities $ 53,871 5.92% $ 14,511 6.59% Securities of other U.S. government agencies and corporations 10,415 6.96% 83,021 6.74% $ 9,563 6.52% $ 1,905 6.65% Mortgage-backed securities (2) 143 5.63% 6,487 5.90% 6,359 6.38% 81,080 5.98% State, county, and municipal securities 727 8.09% 5,209 9.07% 4,048 7.20% 1,547 9.03% Other securities 3,099 6.22% 106 7.01% 11,961 6.14% ----------- ---------- ----------- ---------- Total $ 65,156 6.11% $ 112,327 6.77% $ 20,076 6.62% $ 96,493 6.06% =========== ===== ========== ===== =========== ===== ========== ===== (1) Tax equivalent basis was calculated using a marginal federal income tax rate of 35.0%. (2) 56.8% of the mortgage-backed securities maturing after five years are variable rate.
27 25 In November, 1995, the Financial Accounting Standards Board (FASB) released a special report titled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" (Guide). The Guide permitted businesses to make a one-time reassessment of the classification of all securities held. Under the provisions of the Guide, a business was able to make a one-time reclassification of securities from held-to-maturity to available-for-sale without calling into question the intent to hold other debt securities to maturity. Such reassessment and reclassification was required to occur no later than December 31, 1995. Bancorp management analyzed the investment portfolio during this period and decided that classification adjustments were not needed. Bancorp does not use off-balance-sheet derivative financial instruments (such as interest rate swaps) as defined in Statement of Financial Accounting Standards 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 marketing area. Total deposits increased $198,238,000 or 12.5% in 1995. Approximately $145,660,000 of this increase was due to the addition of two subsidiaries during 1995. Time deposits increased $158,730,000, interest-bearing demand accounts increased $35,518,000 and noninterest-bearing demand deposits increased $18,730,000. These increases were partially offset by a decline in savings deposits of $14,740,000. The average rate paid on time deposits increased 106 basis points, from 4.34% in 1994 to 5.40% in 1995, while the average rate paid on total interest-bearing deposits increased only 74 basis points, from 3.38% in 1994 to 4.12% in 1995. Table 6 shows the contractual maturity of time deposits of $100,000 and over that were outstanding at December 31, 1995. These deposits represented only 8.35% of total deposits. Short-term borrowings decreased from $123,119,000 at December 31, 1994 to $58,372,000 at December 31, 1995. This decrease in borrowings was due to increased deposit funding. Long-term borrowings at December 31, 1995 totaled $2,820,000, while no long-term borrowings were outstanding at December 31, 1994. 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 $3,615,000 for 1995 and $4,364,000 for 1994. Capital expenditures for 1995 included approximately $800,000 for construction of a new branch. Remodeling is a planned and ongoing process given the 76 offices of Bancorp and its subsidiaries. Material commitments for capital expenditures as of December 31, 1995 were $2,276,000. A significant portion of these commitments are associated with plans for an additional branch office presently under construction and construction of a lockbox facility. Bancorp subsidiaries' source of funding is predominately deposits within each of their respective market areas. The deposit base is diversified between 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 maturity 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 $294,052,000 at December 31, 1995. 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 $8,548,000 at December 31, 1995. 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 TABLE 6 * MATURITIES OF TIME DEPOSITS GREATER THAN OR EQUAL TO $100,000*
DECEMBER 31, 1995 -------------------- Maturing in (Dollars in thousands) 3 months or less $ 80,790 3 months to 6 months 25,561 6 months to 12 months 17,952 over 12 months 24,791 -------- Total $149,094 ======== *All time deposits greater than or equal to $100,000 were in certificates of deposit.
28 26 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 various 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 shows that, at December 31, 1995, Bancorp had a liability-sensitive position of $7,050,000 or 0.40% within a one-year maturity range. The liability-sensitive position indicates that maturing or repricing interest-sensitive liabilities exceeded maturing or repricing interest-sensitive assets within a one-year period. A liability-sensitive position suggests that a rising rate environment will negatively influence net interest income and a declining rate environment will positively influence net interest income. As evidenced by this low ratio, Bancorp's various asset/liability committees are devoted to protecting interest rate margins and net interest income during periods of rising interest rates. 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' proposed guidelines 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 7 * RATE SENSITIVITY ANALYSIS DECEMBER 31, 1995
TOTAL 1 YEAR OVER 1-30 DAYS 31-90 DAYS 91-180 DAYS 181-365 DAYS & UNDER 1 YEAR TOTAL (Dollars in thousands) Earning assets Loans, net of unearned income $324,985 $107,134 $120,519 $288,327 $840,965 $691,051 $1,532,016 Investment securities held-to-maturity Taxable 1,872 158 1,809 3,839 18,831 22,670 Tax-exempt 1,885 2,732 1,398 4,313 10,328 60,524 70,852 Investment securities available-for-sale Taxable 65,210 19,927 19,112 33,264 137,513 145,460 282,973 Tax-exempt 578 103 160 841 10,238 11,079 -------- -------- -------- -------- -------- -------- ---------- Total investment securities 69,545 22,920 20,670 39,386 152,521 235,053 387,574 Interest-bearing deposits with other banks 3,691 400 2,297 100 6,488 394 6,882 Federal funds sold and securities purchased under agreements to resell 14,802 14,802 14,802 ------- ------- ------- ------- --------- ------- --------- Total earning assets 413,023 130,454 143,486 327,813 1,014,776 926,498 1,941,274 Interest-bearing liabilities Interest-bearing demand deposits 116,739 69,642 186,381 115,738 302,119 Savings deposits 110,452 85,093 195,545 164,093 359,638 Time deposits 119,599 134,417 137,083 189,139 580,238 323,506 903,744 Short-term borrowings 56,372 2,000 58,372 58,372 Long-term borrowings 7 255 17 1,011 1,290 1,530 2,820 -------- -------- -------- -------- -------- -------- ---------- Total interest-bearing liabilities 403,169 134,672 139,100 344,885 1,021,826 604,867 1,626,693 -------- -------- -------- -------- -------- -------- ---------- Rate sensitivity gap $ 9,854 $ (4,218) $ 4,386 $(17,072) $ (7,050) $321,631 $ 314,581 ========= ========= ========= ======== ========== ========= ========== Cumulative gap $ 9,854 $ 5,636 $ 10,022 $ (7,050) $314,581 ========= ========= ========= ======== ========== ========= ========== Cumulative gap as a percentage of earning assets 0.5% 0.3% 0.5% (0.4%) 16.2% ========= ========= ========= ======== ========== ========= =========
29 27 CAPITAL ADEQUACY - ---------------- The Federal Reserve established risk-based capital requirements for U.S. banking organizations which have been adopted by the Office of Thrift Supervision for savings and loan associations. Risk weights are assigned to on-and off-balance sheet items in arriving at risk-adjusted total assets. Regulatory capital is divided by risk-adjusted total assets, with the resulting ratio compared to a minimum standard to determine whether a bank has adequate capital. Regulatory guidelines require a 4.00% Tier 1 capital ratio and an 8.00% Total capital ratio. Tier 1 capital consists primarily of common shareholders' equity, net of intangibles, and total capital is Tier 1 capital plus Tier 2 supplementary capital, which is primarily the allowance for loan losses subject to certain limits. Bancorp's Tier 1 ratio at December 31, 1995 was 15.0% and its Total risk-based capital ratio was 16.2%. While Bancorp subsidiaries' ratios are well above regulatory requirements, management will continue to monitor the asset mix, which affects both ratios due to the risk weights assigned various assets, and the allowance for loan losses, which influences the Total capital ratio. Table 8 illustrates the risk-based capital calculations and ratios for the last two years. TABLE 8 * RISK-BASED CAPITAL
DECEMBER 31, 1995 1994 ----- ----- (Dollars in thousands) Tier 1 capital Shareholders' equity $ 234,175 $ 194,673 Less intangibles 3,770 4,230 Less unrealized net investment securities gains (losses) 1,437 (2,712) ------------ ----------- Total Tier 1 capital $ 228,968 $ 193,155 ============ =========== Total risk-based capital Tier 1 capital $ 228,968 $ 193,155 Qualifying allowance for loan losses 19,127 17,074 ------------ ----------- Total risk-based capital $ 248,095 $ 210,229 ============ =========== Risk weighted assets $ 1,530,181 $ 1,365,882 ============ =========== Risk-based ratios Tier 1 15.0% 14.1% ============ =========== Total risk-based capital 16.2% 15.4% ============ ===========
30 28 STATISTICAL INFORMATION
1995 1994 1993 (Unaudited) 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) $ 316,414 $ 32,581 10.30% $ 261,799 $ 23,594 9.01% $ 236,566 $ 19,768 8.36% Real estate (2) 793,379 63,400 7.99% 725,468 55,053 7.59% 686,306 56,546 8.24% Installment and other consumer 321,978 32,131 9.98% 262,498 25,378 9.67% 220,726 22,043 9.99% Lease financing (2) 15,580 1,217 7.81% 15,504 1,182 7.62% 14,191 1,158 8.16% ---------- --------- ---------- -------- ---------- -------- Total loans 1,447,351 129,329 8.94% 1,265,269 105,207 8.31% 1,157,789 99,515 8.60% Investment securities (3) Taxable 250,492 16,593 6.62% 302,307 18,229 6.03% 319,489 19,363 6.06% Tax-exempt (2) 95,182 11,446 12.03% 121,151 14,887 12.29% 130,779 16,399 12.54% ---------- --------- ---------- -------- ---------- -------- Total investment securities (3) 345,674 28,039 8.11% 423,458 33,116 7.82% 450,268 35,762 7.94% Interest-bearing deposits with other banks 5,932 351 5.92% 8,574 388 4.53% 15,676 578 3.69% Federal funds sold and securities purchased under agreements to resell 7,319 418 5.71% 7,086 275 3.88% 26,803 806 3.01% ---------- --------- ---------- -------- ---------- -------- Total earning assets 1,806,276 158,137 8.75% 1,704,387 138,986 8.15% 1,650,536 136,661 8.28% Nonearning assets Allowance for loan losses (19,341) (18,554) (17,927) Cash and due from banks 75,904 76,988 74,477 Accrued interest and other assets 71,076 71,179 74,755 ---------- ---------- ---------- Total assets $1,933,915 $1,834,000 $1,781,841 ========== ========== ========== Interest-bearing liabilities Deposits Interest-bearing demand $ 260,419 5,799 2.23% $ 266,841 5,757 2.16% $ 265,655 6,725 2.53% Savings 358,517 9,212 2.57% 397,579 9,772 2.46% 392,649 11,220 2.86% Time 822,289 44,402 5.40% 725,479 31,513 4.34% 736,031 32,917 4.47% ---------- --------- ---------- -------- ---------- -------- Total interest-bearing deposits 1,441,225 59,413 4.12% 1,389,899 47,042 3.38% 1,394,335 50,862 3.65% Borrowed funds Short-term borrowings 74,744 4,051 5.42% 61,109 2,421 3.96% 27,618 790 2.86% Long-term borrowings 783 52 6.64% 1,400 124 8.86% 4,120 228 5.53% ---------- --------- ---------- -------- ---------- -------- Total borrowed funds 75,527 4,103 5.43% 62,509 2,545 4.07% 31,738 1,018 3.21% ---------- --------- ---------- -------- ---------- -------- Total interest-bearing liabilities 1,516,752 63,516 4.19% 1,452,408 49,587 3.41% 1,426,073 51,880 3.64% Noninterest-bearing liabilities Noninterest-bearing demand deposits 184,797 176,128 167,262 Other liabilities 19,970 16,712 15,179 Shareholders' equity 212,396 188,752 173,327 Total liabilities and ---------- --------- ---------- -------- ---------- -------- shareholders' equity $1,933,915 $1,834,000 $1,781,841 ========== ========== ========== Net interest income and interest rate spread $ 94,621 4.56% $ 89,399 4.74% $ 84,781 4.64% ========= ===== ======== ===== ======== ===== Net interest margin 5.24% 5.25% 5.14% ===== ===== ===== (1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income. (2) Interest income on tax-exempt investment securities and on certain tax-exempt loans and leases has been adjusted to a tax 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 in 1995 and 1994.
31 29 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 1994 ---- ---- (Dollars in thousands) Assets Cash and due from banks $ 108,685 $ 103,752 Interest-bearing deposits with other banks 6,882 8,055 Federal funds sold and securities purchased under agreements to resell 14,802 97 Investment securities held-to-maturity (market value-$100,512 at December 31, 1995; $140,319 at December 31, 1994) 93,522 135,187 Investment securities available-for-sale, at market 294,052 242,410 Loans Commercial 340,942 286,635 Real estate-construction 41,845 29,273 Real estate-mortgage 788,805 746,150 Installment 329,034 285,412 Credit card 15,406 15,599 Lease financing 16,557 16,102 ------------ ----------- Total loans 1,532,589 1,379,171 Less Unearned income 573 304 Allowance for loan losses 20,437 18,609 ------------ ----------- Net loans 1,511,579 1,360,258 Premises and equipment 39,931 37,999 Deferred income taxes 3,369 5,904 Accrued interest and other assets 30,553 28,981 ------------ ----------- Total assets $ 2,103,375 $ 1,922,643 ============ =========== Liabilities Deposits Noninterest-bearing $ 220,061 $ 201,331 Interest-bearing 1,565,501 1,385,993 ------------ ----------- Total deposits 1,785,562 1,587,324 Short-term borrowings Federal funds purchased and securities sold under agreements to repurchase 49,483 81,609 Other 8,889 41,510 ------------ ----------- Total short-term borrowings 58,372 123,119 Long-term borrowings 2,820 Accrued interest and other liabilities 22,446 17,527 ------------ ----------- Total liabilities 1,869,200 1,727,970 Shareholders' equity Common stock -- par value $8 per share Authorized -- 25,000,000 shares Issued and outstanding -- 13,013,422 shares in 1995 and 12,204,575 shares in 1994 104,107 97,637 Surplus 13,577 15,027 Retained earnings 115,102 84,748 Unrealized net gains (losses) on investment securities available-for-sale, net of tax 1,437 (2,712) Restricted stock awards (48) (27) ------------ ----------- Total shareholders' equity 234,175 194,673 ------------ ----------- Total liabilities and shareholders' equity $ 2,103,375 $ 1,922,643 ============ =========== See Notes to Consolidated Financial Statements.
32 30 CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ----------- ---------- ---------- (Dollars in thousands, except per share data) Interest income Loans, including fees $ 129,058 $ 104,936 $ 99,333 Investment securities Taxable 16,593 18,229 19,363 Tax-exempt 7,431 9,676 10,659 ----------- ---------- ---------- Total investment securities interest 24,024 27,905 30,022 Interest-bearing deposits with other banks 351 388 578 Federal funds sold and securities purchased under agreements to resell 418 275 806 ----------- ---------- ---------- Total interest income 153,851 133,504 130,739 Interest expense Deposits 59,413 47,042 50,862 Short-term borrowings 4,051 2,421 790 Long-term borrowings 52 124 228 ----------- ---------- ---------- Total interest expense 63,516 49,587 51,880 ----------- ---------- ---------- Net interest income 90,335 83,917 78,859 Provision for loan losses 2,108 1,268 3,747 ----------- ---------- ---------- Net interest income after provision for loan losses 88,227 82,649 75,112 Noninterest income Service charges on deposit accounts 8,596 8,222 8,513 Trust revenues 7,623 7,017 6,425 Investment securities gains (losses) 340 (1,754) (71) Other 3,999 3,977 4,722 ----------- ---------- ---------- Total noninterest income 20,558 17,462 19,589 Noninterest expenses Salaries and employee benefits 33,262 31,296 29,633 Net occupancy 4,340 4,211 4,219 Furniture and equipment 3,352 3,006 3,147 Data processing 5,165 5,205 4,741 Deposit insurance 2,204 3,537 3,468 State taxes 1,637 1,726 1,704 Other 13,385 13,158 15,126 ----------- ---------- ---------- Total noninterest expenses 63,345 62,139 62,038 ----------- ---------- ---------- Income before income taxes 45,440 37,972 32,663 Income tax expense 13,651 9,799 7,469 ----------- ---------- ---------- Net earnings $ 31,789 $ 28,173 $ 25,194 =========== ========== ========== Net earnings per share $ 2.55 $ 2.31 $ 2.06 =========== ========== ========== Average shares outstanding 12,488,168 12,210,753 12,211,405 =========== ========== ========== See Notes to Consolidated Financial Statements.
33 31 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ----------- ---------- ---------- (Dollars in thousands) Operating activities Net earnings $ 31,789 $ 28,173 $ 25,194 Adjustments to reconcile net earnings to net cash provided by operating activities Provision for loan losses 2,108 1,268 3,747 Provision for depreciation and amortization 3,981 3,722 4,118 Net amortization of premiums and accretion of discounts on investment securities 1,114 2,025 2,077 Deferred income taxes 171 1,412 (450) Realized (gains) losses on investment securities (340) 1,754 71 Originations of mortgage loans held for sale (33,009) (30,046) (93,189) Gains from sales of mortgage loans held for sale (501) (348) (1,281) Proceeds from sales of mortgage loans held for sale 33,510 30,394 94,470 Decrease (increase) in interest receivable 220 (3,969) 1,106 Decrease (increase) in prepaid expenses 143 (48) (1,126) Increase in accrued expenses 1,041 114 2,980 Increase (decrease) in interest payable 1,638 470 (600) Other (95) (160) 1,118 --------- --------- --------- Net cash provided by operating activities 41,770 34,761 38,235 Investing activities Proceeds from sales of investment securities available-for-sale 39,514 82,735 Proceeds from calls, paydowns and maturities of investment securities available-for-sale 58,798 90,212 Purchases of investment securities available-for-sale (112,372) (142,217) Proceeds from calls, paydowns and maturities of investment securities held-to-maturity 56,118 32,795 Purchases of investment securities held-to-maturity (525) (8,903) Proceeds from maturities of investment securities 86,689 Proceeds from sales and calls of investment securities 17,869 Purchases of investment securities (87,378) Net decrease (increase) in interest-bearing deposits with other banks 2,470 9,366 (2,738) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (6,042) 24,240 28,223 Net increase in loans and leases (56,235) (191,398) (55,760) Proceeds from disposal of other real estate owned 1,028 1,729 7,702 Recoveries from loans and leases previously charged off 1,202 1,113 1,308 Cash acquired in merger with other financial institutions 5,999 Purchases of premises and equipment (3,615) (4,364) (4,948) --------- --------- --------- Net cash used in investing activities (13,660) (104,692) (9,033) Financing activities Net increase (decrease) in total deposits 54,765 6,778 (23,354) Net (decrease) increase in short-term borrowings (63,747) 93,984 1,967 Proceeds from long-term borrowings 49 Principal payments of long-term borrowings (850) (3,983) (581) Cash dividends (13,521) (11,809) (9,865) Purchase of common stock (388) (2,087) Proceeds from exercise of stock options 127 151 296 --------- --------- --------- Net cash (used in) provided by financing activities (23,177) 84,733 (33,624) --------- --------- --------- Increase (decrease) in cash and cash equivalents 4,933 14,802 (4,422) Cash and cash equivalents at beginning of year 103,752 88,950 93,372 --------- --------- --------- Cash and cash equivalents at end of year $ 108,685 $ 103,752 $ 88,950 ========= ========= ========= Supplemental disclosures Interest paid $ 61,878 $ 49,117 $ 52,588 ========= ========= ========= Income taxes paid $ 12,140 $ 7,878 $ 7,164 ========= ========= ========= Recognition of deferred tax (liabilities) assets attributable to SFAS No. 115 $ (2,364) $ 1,514 ========= ========= Acquisition of other real estate owned through foreclosure $ 635 ========= Issuance of restricted stock awards $ 33 $ 8 ========= ========= Transfer of investment securities to available-for-sale upon adoption of SFAS No. 115 $ 272,856 ========= See Notes to Consolidated Financial Statements.
34 32 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON UNREALIZED RESTRICTED COMMON STOCK RETAINED GAINS STOCK STOCK SHARES AMOUNT SURPLUS EARNINGS (LOSSES) AWARDS TOTAL ------------ ------ ------- -------- -------- ------ ----- (Dollars in thousands) Balances at December 31, 1992 7,484,760 $ 59,878 $ 16,707 $ 91,139 $ (30) $167,694 Net earnings 25,194 25,194 Cash dividends declared (Bancorp - $0.82 per share; Highland Federal Savings Bank - $0.85 per share; First Clyde Banc Corp - $2.00 per share) (9,865) (9,865) Purchase of common stock (50,200) (403) (1,684) (2,087) Exercise of stock options, net of shares purchased 10,636 85 211 296 Restricted stock awards 200 2 6 (8) Employee stock awards 336 3 12 15 33.3% stock split 2,319,871 18,560 (18,560) Amortization of restricted stock awards 5 5 ---------- -------- -------- -------- ---------- -------- Balances at December 31, 1993 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 (losses), net of income tax benefit of $3,474 (6,350) (6,350) Net earnings 28,173 28,173 Cash dividends declared (Bancorp - $0.98 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 - $1.08 per share) (13,521) (13,521) Shares issued in Peoples Bank and 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 (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 ========== ======= ======== ======== ======== ========== ========
35 33 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 12 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 currently exceeds 10 years. Investment securities - Bancorp adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS No. 115) 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 gains (losses). The cost of securities sold is based on the specific identification method. Mortgage-backed securities - Since 1994, mortgage-backed securities have been recorded according to their classification under SFAS No. 115, as discussed above. Prior to 1994, mortgage-backed securities were stated at lower of aggregate cost or market. Aggregate cost is net of unearned discounts and premiums which are accreted or amortized into interest income using a method that approximates a level yield over the estimated remaining lives of the securities. 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," (SFAS No. 114). 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 fixed rate 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," (SFAS No. 122) was released in May, 1995. This statement requires that companies engaging in mortgage banking operations, that is, the selling of mortgage loans, 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. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. Bancorp anticipates that the adoption of this statement, based on current mortgage sale levels, will not have a material impact on its consolidated financial position or earnings. Allowance for loan losses - The level of the allowance for loan losses 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. Bancorp adopted SFAS No. 114, as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," in the first quarter of 1995. Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The adoption of SFAS No. 114 did not have a material effect on the consolidated financial statements. 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 less 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 36 34 real estate owned/in-substance foreclosures or fair value less 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 and stock splits, distributed in the form of stock dividends, declared through 1995. The assumed exercise of stock options would not have a materially dilutive effect. Stock-based compensation - SFAS No. 123, "Accounting for Stock-Based Compensaton," (SFAS No. 123) was released in October, 1995. This statement encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees. Compensation expense is to be calculated using models that meet certain requirements described in SFAS No 123. Companies that choose not to record compensation expense for these grants must still disclose pro forma net income and earnings per share as if compensation expense had been recorded. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. Bancorp is in the process of analyzing this statement and has not determined the impact that adoption will have on its consolidated financial position or earnings. Cash flow information - For purposes of the statement of cash flows, Bancorp considers cash and due from banks as cash and cash equivalents. Long-lived assets - SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was released in March, 1995. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment when events or changes in circumstances indicate that an asset's recorded value may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. Bancorp anticipates that adoption of 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 1995 and 1994 were approximately $21,081,000 and $20,162,000, respectively. NOTE 3 * BUSINESS COMBINATIONS - ------------------------------ On October 1, 1995, Bancorp issued 442,876 shares of its common stock in exchange for all the outstanding common stock of Bright Financial Services, Inc. (Bright Financial), Flora, Indiana. Upon consummation of the merger, Bright Financial was dissolved and its subsidiary, the $113 million Bright National Bank, became a wholly owned subsidiary of Bancorp. This merger was accounted for as an immaterial pooling-of-interests and the consolidated financial statements, including earnings per share, have not been restated for periods prior to October 1, 1995. On July 16, 1995, Bancorp issued 354,645 shares of its common stock in exchange for all the outstanding common stock of Peoples Bank and Trust Company, Sunman, Indiana. The merger with this $54 million bank has been accounted for as an immaterial pooling-of-interests and the consolidated financial statements, including earnings per share, have not been restated for periods prior to July 16, 1995. On September 11, 1995, Bancorp signed a Plan and Agreement of Merger with F&M Bancorp, Rochester, Indiana. F&M Bancorp is a one-bank holding company with the $60 million Farmers & Merchants Bank of Rochester as its only subsidiary. Upon consummation of the merger, Bancorp intends to dissolve F&M Bancorp and merge Farmers & Merchants Bank of Rochester into one of Bancorp's subsidiaries, Indiana Lawrence Bank. Subject to required shareholder and regulatory approval, this merger is expected to be consummated during the second quarter of 1996 and be accounted for using the pooling-of-interests method of accounting. Bancorp consummated the following business combinations in 1995, 1994 and 1993:
BUSINESS COMBINATIONS MERGER DATE ASSETS DEPOSITS SHARES ISSUED - --------------------- ------------- ------ -------- ------------- Pooling-of-interests (Dollars in thousands) 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 Union Bank & Trust Company January 4, 1993 74,797 66,558 287,414
37 35 NOTE 4 * LEASE FINANCING - ------------------------ Leases included in the loan portfolio at December 31 were as follows:
1995 1994 ---- ---- (Dollars in thousands) Direct financing $ 14,754 $ 14,102 Leveraged 1,302 1,302 Non-recourse debt, principal and interest (936) (936) ----------- ----------- Net rentals receivable 15,120 14,468 Estimated residual value of leased assets 4,184 4,131 Less unearned income 2,747 2,497 ------------ ----------- Investment in leases, net $ 16,557 $ 16,102 ============ ===========
Direct financing lease payments receivable as of December 31, 1995 for the next five years and thereafter are as follows:
DIRECT FINANCING LEASES ------------------------ (Dollars in thousands) 1996 $ 5,593 1997 4,343 1998 2,774 1999 1,467 2000 529 Thereafter 48
NOTE 5 * PREMISES AND EQUIPMENT - ------------------------------- Premises and equipment at December 31 were summarized as follows:
1995 1994 ---- ----- (Dollars in thousands) Land and land improvements $ 8,143 $ 7,100 Buildings 38,891 36,474 Furniture and fixtures 28,423 25,961 Leasehold improvements 387 344 Construction in progress 2,269 2,538 ------------ ----------- 78,113 72,417 Less accumulated depreciation and amortization 38,182 34,418 ------------ ----------- Total $ 39,931 $ 37,999 ============ ===========
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, 1995, Bancorp's subsidiaries had retained earnings of $105,303,000 of which $39,231,000 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 and to reduce its own exposure to fluctuations in interest rates. These financial instruments include standby letters of credit and commitments outstanding to extend credit. Generally accepted accounting principles do not require these financial instruments to be recorded in the consolidated financial statements, and accordingly, they are not. Bancorp does not use off-balance-sheet derivative financial instruments (such as interest rate swaps) as defined in 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 $10,989,000 and $9,976,000 at December 31, 1995 and 1994, 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 investment securities, real estate, inventory, plant or equipment. Bancorp had commitments outstanding to extend credit totaling $243,430,000 and $216,802,000 at December 31, 1995 and 1994, respectively. Management does not anticipate any material losses as a result of these commitments. 38 36 NOTE 8 * INVESTMENT SECURITIES - ------------------------------ The net investment gain after taxes was $323,000 for the year ended December 31, 1995. There was a net investment loss after taxes of $120,000 for the year ended December 31, 1994 and a net investment gain after taxes of $392,000 for the year ended December 31, 1993. The applicable income tax effects were an expense of $17,000 in 1995 and benefits of $1,634,000 and $463,000 for 1994 and 1993, respectively. The carrying value of investment securities pledged to secure public deposits and for other purposes as required by law amounted to $169,522,000 at December 31, 1995. The following is a summary of investment securities as of December 31, 1995:
Held-to-Maturity Available-for-Sale AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE -------- ----- -------- ------ --------- ----- -------- ------ (Dollars in thousands) (Dollars in thousands) 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 following is a summary of investment securities as of December 31, 1994:
Held-to-Maturity Available-for-Sale AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE --------- ----- -------- ------ --------- ----- -------- ----- (Dollars in thousands) (Dollars in thousands) U.S. Treasury securities $ 101,298 $ (954) $100,344 Securities of U.S. government agencies and corporations 63,743 (1,144) 62,599 Mortgage-backed securities $ 21,828 $ 302 $ (769) $ 21,361 66,775 $ 29 (2,429) 64,375 State, county, and municipal securities 108,805 5,979 (360) 114,424 7,861 155 (71) 7,945 Other securities 4,554 42 (62) 4,534 6,960 187 7,147 -------- ------ ------- -------- --------- ----- ------- -------- Total $135,187 $6,323 $(1,191) $140,319 $ 246,637 $ 371 $(4,598) $242,410 ======== ====== ======= ======== ========= ===== ======= ========
The carrying value of investment securities as of December 31, 1993, by category was as follows: U.S. Treasury $155,933,000, U.S. government agencies and corporations $26,416,000, mortgage-backed $114,169,000, state, county, and municipal $129,905,000, and other $12,038,000. 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. During the year ended December 31, 1993, gross realized gains on investment securities totaled $12,000 and the gross realized losses totaled $83,000. The amortized cost and market value of investment securities, including mortgage-backed securities at December 31, 1995, 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.
Held-to-Maturity Available-for-Sale ------------------ ------------------ AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE -------- ------ ------- ------ (Dollars in thousands) Due in one year or less $ 8,548 $ 8,680 $ 64,924 $ 65,156 Due after one year through five years 38,488 41,367 110,889 112,327 Due after five years through ten years 24,094 26,120 19,829 20,076 Due after ten years 22,392 24,345 96,124 96,493 ------- -------- -------- -------- Total $93,522 $100,512 $291,766 $294,052 ======= ======== ======== ========
39 37 NOTE 9 * LOANS - -------------- Information as to nonaccrual and restructured loans at December 31 was as follows:
1995 1994 1993 ---- ---- ---- (Dollars in thousands) Principal balance Nonaccrual loans $ 2,764 $ 2,412 $ 4,679 Restructured loans 517 1,429 605 ----------- ----------- ------------ Total $ 3,281 $ 3,841 $ 5,284 =========== =========== ============ Interest income effect Gross amount of interest that would have been recorded at original rate $ 276 $ 203 $ 485 Interest included in income 135 80 160 ----------- ----------- ------------ Net impact on interest income $ 141 $ 123 $ 325 =========== =========== ============
At December 31, 1995, 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 $1,677,000, $2,116,000 and $3,673,000 at December 31, 1995, 1994 and 1993, respectively. Changes in the allowance for loan losses for the three years ended December 31 were as follows:
1995 1994 1993 ---- ---- ---- (Dollars in thousands) Balance at beginning of year $ 18,609 $ 18,380 $ 17,014 Allowance acquired through mergers 1,162 Provision for loan losses 2,108 1,268 3,747 Loans charged off (2,644) (2,152) (3,689) Recoveries 1,202 1,113 1,308 ----------- ----------- ----------- Balance at end of year $ 20,437 $ 18,609 $ 18,380 =========== =========== ===========
Bancorp did not have an allowance for other real estate owned at December 31, 1995 and 1994. At December 31, 1993, Bancorp had an allowance of $404,000 for other real estate owned. Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The unpaid principal balances of these loans totaled $221,519,000, $186,114,000 and $173,667,000, at December 31, 1995, 1994 and 1993, respectively. Custodial escrow balances maintained in connection with these mortgage loans serviced were approximately $1,485,000, $1,297,000 and $1,343,000 at December 31, 1995, 1994 and 1993, respectively. Bancorp adopted SFAS No. 114, as amended by SFAS No. 118 in the first quarter of 1995. Under the new standard, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. At December 31, 1995, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $889,000, all of which were on a nonaccrual basis. The related allowance for loan losses on these impaired loans was $514,000. There were no impaired loans that as a result of write-downs did not have an allowance for loan losses. The average recorded investment in impaired loans during the year ended December 31, 1995 was approximately $1,325,000. For the year ended December 31, 1995, Bancorp recognized interest income on those impaired loans of $57,000. Bancorp recognizes income on impaired loans using the cash basis method. NOTE 10 * INCOME TAXES - ---------------------- Income tax expense consisted of the following components:
1995 1994 1993 ---- ---- ---- (Dollars in thousands) Current Federal $ 12,486 $ 7,607 $ 7,190 State 994 780 729 ----------- ---------- ----------- Total 13,480 8,387 7,919 Deferred expense (benefit) 171 1,412 (450) ----------- ---------- ----------- Income tax expense $ 13,651 $ 9,799 $ 7,469 =========== ========== ===========
40 38 The difference between the federal income tax rates, applied to income before income taxes, and the effective rates were due to the following:
1995 1994 1993 ---- ---- ---- (Dollars in thousands) Income taxes computed at federal statutory rate of 35% $ 15,904 $ 13,290 $ 11,432 State income taxes, net of federal tax benefit 646 507 474 Effect of tax-exempt interest (2,687) (3,326) (4,043) Other (212) (672) (394) ------------ ----------- ----------- Income tax expense $ 13,651 $ 9,799 $ 7,469 ============ =========== ===========
At December 31, 1995, approximately $5,800,000 was included in Bancorp's retained earnings for which no provision for federal income taxes had been made. This amount represents an allocation of Bancorp's savings and loan affiliates' earnings to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create taxable income which would be subject to the then-current corporate tax rate. SFAS No. 109, "Accounting for Income Taxes," (SFAS No. 109) 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, 1995, 1994 and 1993. The major components of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 1995 and 1994 were as follows:
1995 1994 ---- ---- (Dollars in thousands) Deferred tax assets Allowance for loan losses $ 6,091 $ 5,839 Other real estate owned 182 193 Postretirement benefits other than pensions liability 939 949 Other 196 443 ------- ------- Total deferred tax assets 7,408 7,424 Deferred tax liabilities Tax greater than book depreciation 536 335 Leasing activities 1,620 1,629 Federal Home Loan Bank stock basis difference 442 357 Prepaid pension asset 91 378 Deferred loan fees 237 105 Other 263 230 ------- ------- Total deferred tax liabilities 3,189 3,034 Net deferred tax asset recognized through the statement of earnings 4,219 4,390 Net deferred tax (liability) asset from valuation adjustments of investment securities available-for- sale, recognized in equity section of balance sheet (850) 1,514 ------- ------- Total net deferred tax asset $ 3,369 $ 5,904 ======= =======
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. 41 39 NOTE 11 * EMPLOYEE BENEFIT PLAN - ------------------------------- Bancorp and its subsidiaries have 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:
January 1, 1995 1994 ---- ---- (Dollars in thousands) Actuarial present value of accumulated plan benefits: Vested $ 15,364 $ 15,597 Nonvested 1,355 513 ---------- ----------- Total $ 16,719 $ 16,110 ========= ===========
December 31, 1995 1994 ---- ---- (Dollars in thousands) Reconciliation of funded status: Projected benefit obligation for service rendered to date $ (21,883) $ (19,989) Plan assets at fair value, primarily listed stocks, bonds and U.S. bonds 22,101 19,464 ----------- ----------- Plan assets in excess of (less than) projected benefit obligation 218 (525) Unrecognized net (gain) loss from past experience different from that assumed and effects of changes in assumptions (175) 1,751 Prior service cost not yet recognized in net periodic pension cost 2,083 2,327 Unrecognized net asset at January 1, 1986, net of amortization (2,103) (2,452) ----------- ----------- Net pension asset recognized in the balance sheets $ 23 $ 1,101 =========== ===========
The net periodic pension expense (benefit) included the following components:
Year ended December 31, 1995 1994 1993 ---- ---- ---- (Dollars in thousands) Service cost benefits earned during the period $ 1,129 $ 1,051 $ 891 Interest cost on projected benefit obligation 1,505 1,478 1,211 Actual return on plan assets (4,300) 163 (1,389) Net amortization and deferral 2,744 (2,013) (820) ----------- ----------- ---------- Net periodic pension expense (benefit) $ 1,078 $ 679 $ (107) =========== =========== ==========
December 31, 1995 1994 ---- ---- 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%
42 40 NOTE 12 * POSTRETIREMENT - ------------------------ BENEFITS OTHER THAN PENSIONS - ---------------------------- Some Bancorp subsidiaries maintain health care and, in limited instances, life insurance plans for current retired employees. 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:
1995 1994 ---- ---- (Dollars in thousands) Actuarial present value of accumulated benefits other than pension $ 2,297 $ 2,474 Plan assets ----------- ---------- Accumulated obligation in excess of plan assets 2,297 2,474 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions 404 170 ----------- ---------- Net postretirement liability recognized in the balance sheets $ 2,701 $ 2,644 =========== ===========
Net periodic postretirement benefit cost includes the following components:
1995 1994 ---- ---- (Dollars in thousands) Interest cost on accumulated postretirement benefit obligation $ 179 $ 166 Net amortization and deferral (14) ----------- ---------- Net periodic cost $ 179 $ 152 =========== ===========
The discount rate used to determine the accumulated postretirement benefit obligation was 7.50% at December 31, 1995 and 1994. For 1995, the assumed health care cost trend rates used in determining the accumulated postretirement benefit obligation were 10.5% for the first eight years, 8.50% for the next five years and 6.50% thereafter. For 1994, the assumed trend was 10.5% for the first nine 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, 1995 would be increased by approximately $216,000. NOTE 13 * 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 605,000 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 as the Board of Directors, or a committee thereof, specify (which may not exceed 10 years), 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 makes no recognition in the financial statements of the options until such options are exercised. All options were granted at not less than the fair market value at the date of grant. Outstanding stock options have not been considered as common stock equivalents in the computation of earnings per share because the assumed exercise of stock options would not have a materially dilutive effect. Activity in the plan for 1995, 1994 and 1993 is summarized as follows:
1995 1994 1993 NUMBER OF NUMBER OF NUMBER OF SHARES OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE --------- ------------ -------- ------------ --------- ------------ Outstanding at beginning of year 139,928 118,151 76,908 Granted 13,564 $ 33.25-34.00 42,284 $ 30.60-32.40 68,584 $ 25.20 Exercised (24,386) $ 21.95-33.25 (20,507) $ 21.95-25.20 (27,341) $21.95-22.64 Cancelled (2,016) $ 34.00 Expired (2,016) $ 21.95 ------- ------- ------- Outstanding at end of year 125,074 $ 21.95-34.00 139,928 $ 21.95-32.40 118,151 $21.95-25.20 ======= ======= ======= Exercisable at end of year 111,510 $ 21.95-32.40 97,644 $ 21.95-25.20 49,566 $21.95-22.64 ======= ======= ======= Available for future grant under the 1991 Stock Incentive Plan 402,559 412,091 454,375 ======= ======= =======
43 41 NOTE 14 * LOANS TO RELATED PARTIES - ---------------------------------- Loans to directors, executive officers, principal holders of Bancorp's common stock and certain related persons totaled $18,929,000 and $19,154,000 at December 31, 1995 and 1994, respectively. Activity of these loans was as follows:
1995 1994 ---- ---- (Dollars in thousands) Beginning balance $ 19,154 $ 18,274 Additions 6,515 4,701 Collected 6,740 3,821 Charged off 0 0 ----------- ----------- Ending balance $ 18,929 $ 19,154 =========== =========== 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 15 * 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 $120, 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 $120, 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 16 * 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 similar 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 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. 44 42 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:
1995 1994 ----------------------------------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------------------------------------------------- (Dollars in thousands) Financial assets Cash and short-term investments $ 130,369 $ 130,369 $ 111,904 $ 111,904 Investment securities held-to-maturity 93,522 100,512 135,187 140,319 Investment securities available-for-sale 294,052 294,052 242,410 242,410 Loans Commercial 340,942 335,377 286,635 289,151 Real estate-construction 41,845 41,650 29,273 28,881 Real estate-mortgage 788,805 761,190 746,150 732,439 Installment, net of unearned income 328,461 359,679 285,108 279,868 Credit card 15,406 15,042 15,599 15,397 Leasing 16,557 15,642 16,102 16,848 Less allowance for loan losses 20,437 18,609 ----------- ---------- ----------- ---------- Net loans 1,511,579 1,528,580 1,360,258 1,362,584 Accrued interest receivable 18,494 18,494 18,178 18,178 Financial liabilities Deposits Noninterest-bearing 220,061 220,061 201,331 201,331 Interest-bearing demand 302,119 302,119 266,601 266,601 Savings 359,638 359,638 374,378 374,378 Time 903,744 895,303 745,014 734,918 ----------- ---------- ----------- ---------- Total deposits 1,785,562 1,777,121 1,587,324 1,577,228 Short-term borrowings 58,372 58,372 123,119 123,119 Long-term borrowings 2,820 2,834 Accrued interest payable 6,125 6,125 3,672 3,672
NOTE 17 * FIRST FINANCIAL BANCORP. (PARENT - ------------------------------------------ COMPANY ONLY) FINANCIAL INFORMATION - -----------------------------------
BALANCE SHEETS December 31, ------------------------ 1995 1994 ------------------------ (Dollars in thousands) Assets Cash $ 40,971 $ 5,556 Receivables from subsidiaries 2,061 Securities purchased under agreements to resell to affiliates 15,000 30,279 Investment in subsidiaries Commercial banks 153,270 129,464 Stock savings banks 29,967 32,169 ------------ ----------- Total investment in subsidiaries 183,237 161,633 Other assets 175 246 ------------ ----------- Total assets $ 239,383 $ 199,775 ============ =========== Liabilities Dividends payable $ 3,904 $ 3,905 Other liabilities 1,304 1,197 ------------ ----------- Total liabilities 5,208 5,102 Shareholders' equity 234,175 194,673 ------------ ----------- Total liabilities and shareholders' equity $ 239,383 $ 199,775 ============ ===========
45 43 STATEMENTS OF EARNINGS
Year ended December 31, ---------------------------------------- 1995 1994 1993 ---------------------------------------- (Dollars in thousands) Income Interest income $ 40 $ 21 $ 3 Dividends from subsidiaries 33,572 24,273 18,445 ------------ ----------- ----------- Total income 33,612 24,294 18,448 Expenses Salaries and employee benefits 966 863 638 Other 608 500 1,003 ------------ ----------- ----------- Total expenses 1,574 1,363 1,641 ------------ ----------- ----------- Income before income taxes and equity in undistributed net earnings of subsidiaries 32,038 22,931 16,807 Income tax (benefit) expense (95) 72 (813) ------------ ----------- ----------- Income before equity in undistributed net earnings of subsidiaries 32,133 22,859 17,620 Equity in undistributed net earnings of subsidiaries (344) 5,314 7,574 ------------ ----------- ----------- Net earnings $ 31,789 $ 28,173 $ 25,194 ============ =========== ===========
STATEMENT OF CASH FLOWS
Year ended December 31, ---------------------------------------- 1995 1994 1993 ---------------------------------------- (Dollars in thousands) Operating activities Net earnings $ 31,789 $ 28,173 $ 25,194 Adjustments to reconcile net earnings to net cash provided by operating activities Equity in undistributed net earnings of subsidiaries 344 (5,314) (7,574) Provision for amortization 17 20 (189) Deferred income taxes 104 (42) (153) (Decrease) increase in dividends payable (1) 1,400 291 Increase (decrease) in accrued expenses 109 15 (400) Decrease (increase) in receivables 2,061 (572) 17,211 ------------ ----------- ----------- Net cash provided by operating activities 34,423 23,680 34,380 Investing activities Securities purchased under agreements to resell to affiliates 15,279 (7,702) (22,577) Other (43) (61) (28) ------------ ----------- ----------- Net cash provided by (used in) investing activities 15,236 (7,763) (22,605) Financing activities Cash dividends (13,521) (11,809) (9,865) Purchase of common stock (388) (2,087) Proceeds from exercise of stock options, net of shares purchased 127 151 296 Issuance of employee stock awards 15 Principal payment of long-term borrowings (850) ------------ ----------- ----------- Net cash used in financing activities (14,244) (12,046) (11,641) ------------ ----------- ----------- Increase in cash 35,415 3,871 134 Cash at beginning of year 5,556 1,685 1,551 ------------ ----------- ----------- Cash at end of year $ 40,971 $ 5,556 $ 1,685 ============ =========== ===========
46 44 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, 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. Ernst & Young LLP Cincinnati, Ohio January 16, 1996 47 45 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) 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 $ 0.60 $ 0.66 $ 0.65 $ 0.64 =========== =========== ========== =========== Cash dividends paid $ 0.32 $ 0.26 $ 0.26 $ 0.26 =========== =========== ========== =========== Market price High bid $ 34.75 $ 34.50 $ 35.50 $ 35.25 =========== =========== ========== =========== Low bid $ 32.50 $ 33.00 $ 33.00 $ 33.00 =========== =========== ========== =========== 1994 Interest income $ 31,735 $ 32,539 $ 33,913 $ 35,317 Interest expense 11,653 11,762 12,685 13,487 ----------- ----------- ---------- ----------- Net interest income 20,082 20,777 21,228 21,830 Provision for loan losses 169 190 298 611 Noninterest income Investment securities gains (losses) 6 (104) (520) (1,136) All other 5,098 4,822 4,721 4,575 Noninterest expenses 15,389 15,339 15,516 15,895 ----------- ----------- ---------- ----------- Income before income taxes 9,628 9,966 9,615 8,763 Income tax expense 2,626 2,472 2,454 2,247 ----------- ----------- ---------- ----------- Net earnings $ 7,002 $ 7,494 $ 7,161 $ 6,516 =========== =========== ========== =========== Per share Net earnings $ 0.57 $ 0.61 $ 0.59 $ 0.54 =========== =========== ========== =========== Cash dividends paid $ 0.22 $ 0.22 $ 0.22 $ 0.22 =========== =========== ========== =========== Market price High bid $ 39.80 $ 31.60 $ 32.20 $ 33.75 =========== =========== ========== =========== Low bid $ 29.20 $ 30.00 $ 30.20 $ 29.50 =========== =========== ========== =========== 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 for 1994 has been restated to reflect (a) the merger of Highland Federal Savings Bank into Home Federal Bank, A Federal Savings Bank on February 1, 1994; (b) the merger with First Clyde Banc Corp on June 1, 1994; and (c) a five-for-four stock split distributed in the form of a 25.0 percent stock dividend on December 1, 1994. Both mergers were accounted for as a pooling-of-interests.
48 46 F-13 (3) Exhibits:
Exhibit Number ------- (3)a* Articles of Incorporation (3)b* Restated Code of Regulations, revised April 27, 1993 and incorporated herein by reference to Exhibit (3)b to Form 10-K for the year ended December 31, 1993. (10)* First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24, 1991 and incorporated herein by reference to a Registration Statement on Form S-8, Registration No. 33-46819. (11) Computation of Consolidated Net Earnings Per Share for the Year Ended December 31, 1995, 1994 and 1993. (13) Registrant's annual report to security holders for the year ended December 31, 1995. (22) First Financial Bancorp. Subsidiaries. (23) Consent of Ernst & Young LLP, Independent Auditors. (27) Financial Data Schedule
(b) Reports on Form 8-K: During the fourth quarter of the year ended December 31, 1995, the registrant did not file any reports on Form 8-K. - -------------------------------------------------------------------------------- *COPIES OF THIS EXHIBIT HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. SHAREHOLDERS MAY OBTAIN A COPY OF ANY EXHIBIT, UPON PAYMENT OF REPRODUCTION COSTS, BY WRITING JOSEPH M. GALLINA, COMPTROLLER, FIRST FINANCIAL BANCORP, 2 NORTH MAIN STREET, MIDDLETOWN, OHIO, 45042. EX-11 2 EXHIBIT 11 1 EXHIBIT 11 FIRST FINANCIAL BANCORP. COMPUTATION OF CONSOLIDATED NET EARNINGS PER SHARE FOR THE YEAR ENDED DECEMBER 31
1995 1994 1993** ---- ---- ---- Weighted Average: - ----------------- Net earnings $31,789,000 $28,173,000 $25,194,000 =========== =========== =========== Weighted average number of shares outstanding 12,488,168 12,210,753 12,211,405 =========== =========== =========== Per share (net earnings divided by the weighted average number of shares outstanding) $ 2.55 $ 2.31 $ 2.06 =========== =========== =========== Primary: - -------- Net earnings $31,789,000 $28,173,000 $25,194,000 =========== =========== =========== Adjusted weighted average number of shares outstanding 12,511,352 12,233,727 12,228,865 =========== =========== =========== Per share (net earnings divided by the adjusted weighted average number of shares outstanding) $ 2.54 $ 2.30 $ 2.06 =========== =========== =========== Fully Diluted: - -------------- Net earnings $31,789,000 $28,173,000 $25,194,000 =========== =========== =========== Adjusted weighted average number of shares outstanding 12,515,316 12,240,573 12,243,270 =========== =========== =========== Per share (net earnings divided by the adjusted weighted average number of shares outstanding) $ 2.54 $ 2.30 $ 2.06 =========== =========== ===========
- ------------------------------------------------------------------------------- ** Per share data has been restated for a five-for-four stock split distributed in the form of a 25% stock dividend on December 1, 1994. EX-22 3 EXHIBIT 22 1 EXHIBIT 22 FIRST FINANCIAL BANCORP. SUBSIDIARIES First National Bank of Southwestern Ohio, organized as a national banking association under the laws of the United States Citizens Commercial Bank & Trust Company, incorporated in the state of Ohio Van Wert National Bank, organized as a national banking association under the laws of the United States Union Trust Bank, incorporated in the state of Indiana Indiana Lawrence Bank, incorporated in the state of Indiana Fidelity Federal Savings Bank, organized as a federal stock savings bank under the laws of the United States Citizens First State Bank, incorporated in the state of Indiana Home Federal Bank, A Federal Savings Bank, organized as a federal stock savings bank under the laws of the United States Union Bank & Trust Company, incorporated in the state of Indiana Clyde Savings Bank Company, incorporated in the state of Ohio Peoples Bank and Trust Company, incorporated in the state of Indiana Bright National Bank, organized as a national banking association under the laws of the United States First Finance Mortgage Company of Southwestern Ohio, Inc., incorporated in the state of Ohio EX-23 4 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of First Financial Bancorp. of our report dated January 16, 1996, included in the 1995 Annual Report to Shareholders of First Financial Bancorp. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-46819) pertaining to the First Financial Bancorp. 1991 Stock Incentive Plan and in the related Prospectus of our report dated January 16, 1996, with respect to the consolidated financial statements of First Financial Bancorp. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP, March 19, 1996 Cincinnati, Ohio EX-27 5 EX-27
9 0000708955 FIRST FINANCIAL BANCORP 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 108,685 6,882 14,802 0 294,052 93,522 100,512 1,532,016 20,437 2,103,375 1,785,562 58,372 22,446 2,820 104,107 0 0 130,068 2,103,375 129,058 24,024 769 153,851 59,413 63,516 90,335 2,108 340 63,345 45,440 45,440 0 0 31,789 $2.55 $2.54 8.75 2,764 1,071 517 3,354 18,609 2,644 1,202 20,437 20,437 0 0
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