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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER : 0-12499
FIRST FINANCIAL BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-28222858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
701 SOUTH HAM LANE, LODI, CALIFORNIA 95242
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(209)-367-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO 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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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 1,306,996 shares of Common Stock, no
par value, outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the registrant was approximately $8,279,530 (based on the
$8.50 average of bid and ask prices per share on March 1, 1996.)
DOCUMENTS INCORPORATED BY REFERENCE PART OF FORM 10-K INTO WHICH INCORPORATED
- ----------------------------------- -----------------------------------------
Annual Report to Shareholders for the year
ended December 31, 1995. Part II, Items 5, 6, 7
Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1996. Part III, Items 10, 11, 12, 13
The Index to Exhibits is on page 23
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FIRST FINANCIAL BANCORP
1995 FORM 10-K
TABLE OF CONTENTS
PART 1
- ------
ITEM 1. BUSINESS.................................................... 3
General..................................................... 3
The Bank.................................................... 3
Bank Services............................................... 3
Sources of Business......................................... 3
Competition................................................. 4
Employees................................................... 4
Supervision and Regulation.................................. 4
The Company......................................... 4
The Bank............................................ 5
Officers............................................ 5
Recent Legislation and Regulations Affecting Banking 6
Average Balance Sheets...................................... 11
Analysis of Net Interest Earnings........................... 12
Analysis of Changes in Interest Income & Expense............ 13
Interest Rate Sensitivity................................... 14
Investment Portfolio........................................ 15
Loan Portfolio.............................................. 16
Summary of Loan Loss Experience............................. 17
Deposits.................................................... 18
Return on Average Equity and Assets......................... 18
ITEM 2. PROPERTIES................................................... 19
ITEM 3. LEGAL PROCEEDINGS............................................ 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 19
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 19
ITEM 6. SELECTED FINANCIAL DATA...................................... 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 20
PART III............................................................. 20
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 20
ITEM 11 EXECUTIVE COMPENSATION....................................... 20
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
............................................................. 20
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K............................................. 20
Signatures........................................................... 22
Index to Exhibits.................................................... 23
2
PART I
ITEM 1. BUSINESS
General:
-------
First Financial Bancorp (the "Company") was incorporated under the laws of
the State of California on May 13, 1982, and operates principally as a bank
holding company for its wholly owned subsidiary, Bank of Lodi, N.A. (the
"Bank"). The Company is registered under the Bank Holding Company Act of
1956, as amended. The Bank is the sole subsidiary of the Company and its
principal source of income. The Company also owns the office building
where the Bank's Lodi Branch and administrative offices are located as well
as the land upon which the Bank's Woodbridge Branch is located. The
Company receives income from the Bank and other parties from leases
associated with these properties. All references herein to the "Company"
include the Bank, unless the context otherwise requires.
The Bank:
--------
The Bank was organized on May 13, 1982 as a national banking association.
The application to organize the Bank was accepted for filing by the
Comptroller of the Currency (OCC) on September 8, 1981, and preliminary
approval was granted on March 27, 1982. On July 18, 1983 the Bank received
from the Comptroller a Certificate of Authority to Commence the Business of
Banking.
The Bank's main office is located at 701 South Ham Lane, Lodi, California,
with branch offices in Woodbridge and Lockeford California. The Bank's
primary service area, from which the Bank attracts 95% of its business, is
the city of Lodi and the surrounding area. This area is estimated to have
a population approaching 70,000 persons, with a median annual family income
of approximately $30,000. The area includes residential developments,
neighborhood shopping centers, business and professional offices and
manufacturing and agricultural concerns.
Bank Services:
-------------
The Bank offers a wide range of commercial banking services to individuals
and business concerns located in and around its primary service area.
These services include personal and business checking and savings accounts
(including interest-bearing negotiable order of withdrawal ("NOW") accounts
and/or accounts combining checking and savings accounts with automatic
transfers), and time certificates of deposit. The Bank also offers
extended banking hours at its drive-through window, night depository and
bank-by-mail services, and travelers' checks (issued by an independent
entity). The Bank issues MasterCard credit cards and acts as a merchant
depository for cardholder drafts under both VISA and MasterCard. In
addition, it provides note and collection services and direct deposit of
social security and other government checks.
The Bank engages in a full complement of lending activities, including
commercial, SBA, residential mortgage, consumer/installment, and short-term
real estate loans, with particular emphasis on short and medium-term
obligations. Commercial lending activities are directed principally
towards businesses whose demand for funds falls within the Bank's lending
limit, such as small to medium-sized professional firms, retail and
wholesale outlets and manufacturing and agricultural concerns. Consumer
lending is oriented primarily to the needs of the Bank's customers, with an
emphasis on automobile financing and leasing. Consumer loans also include
loans for boats, home improvements, debt consolidation, and other personal
needs. Real estate loans include short-term "swing" loans and construction
loans. Residential mortgages are generally sold into the secondary market
for these loans. Small Business Administration (SBA) loans are made
available to small to medium-sized businesses.
Sources of Business
-------------------
Management seeks to obtain sufficient market penetration through the full
range of services described above and through the personal solicitation of
the Bank's officers, directors and shareholders. All officers are
responsible for making regular calls on potential customers to solicit
business and on existing customers to obtain referrals. Promotional
efforts are directed toward individuals and small to medium-sized
businesses. The Bank's customers are able in their dealings with the Bank
to be served by bankers who have commercial loan experience, lending
authority, and the time to serve their banking needs quickly and
competently. Bankers are assigned to customers and not transferred from
office to office as in many major chain or regional banks. In order to
expedite decisions on lending transactions, the Bank's loan committee meets
on a regular basis and is available where immediate authorization is
important to the customer.
The risk of non-payment (or deferred payment) of loans is inherent in
commercial banking. Furthermore, the Bank's marketing focus on small to
medium-sized businesses may involve certain lending risks not inherent in
loans to larger companies. Smaller
3
companies generally have shorter operating histories, less sophisticated
internal record keeping and financial planning capabilities, and greater
debt-to-equity ratios. Management of the Bank carefully evaluates all loan
applicants and attempts to minimize its credit risk through the use of
thorough loan application and approval procedures.
Consistent with the need to maintain liquidity, management of the Bank
seeks to invest the largest portion of the Bank's assets in loans of the
types described above. Loans are generally limited to less than 75% of
deposits and capital funds. The Bank's surplus funds are invested in the
investment portfolio, made up of both taxable and non-taxable debt
securities of the U.S. government, U.S. government agencies, states, and
municipalities. On a day to day basis, surplus funds are invested in
federal funds and other short-term money market instruments.
Competition:
-----------
The banking business in California generally, and in the northern portion
of San Joaquin County where the Bank is located, is highly competitive with
respect to both loans and deposits and is dominated by a relatively small
number of major banks with branch office networks and other operating
affiliations throughout the State. The Bank competes for deposits and
loans with these banks, as well as with savings and loan associations,
thrift and loan associations, credit unions, mortgage companies, insurance
companies and other lending institutions. Among the advantages certain of
these institutions have over the Bank are their ability (i) to finance
extensive advertising campaigns, (ii) to allocate a substantial portion of
their investment assets in securities with higher yields (not available to
the Bank if its investments are to be diversified) and (iii) to make funds
available for loans in geographic regions with the greatest demand. In
competing for deposits, the Bank is subject to the same regulations with
respect to interest rate limitations on time deposits as other depository
institutions. See "Supervision and Regulation" below.
Many of the major commercial banks operating in the Bank's service area
offer certain services, such as international banking and trust services,
which are not offered directly by the Bank, and such banks, by virtue of
their greater capitalization, have substantially higher lending limits than
the Bank. In addition, other entities, both public and private, seeking to
raise capital through the issuance and sale of debt and equity securities
compete with the Bank for the acquisition of funds for deposit.
In order to compete with other financial institutions in its primary
service area, the Bank relies principally on local promotional activities,
personal contacts by its officers, directors, employees and shareholders,
extended hours and specialized services. The Bank's promotional activities
emphasize the advantages of dealing with a locally-owned and headquartered
institution sensitive to the particular needs of the community. The Bank
also assists customers in obtaining loans in excess of the Bank's lending
limit or services not offered by the Bank by arranging such loans or
services in participation with or through its correspondent banks.
The State Bank Parity Act, effective January 1, 1996, eliminates certain
existing disparities between California state chartered banks and national
banking associations, such as the Bank, by authorizing the California
Superintendent of Banks (the "Superintendent") to address such disparities
through a streamlined rulemaking process.
Employees:
---------
As of December 31, 1995, the Company employed 65 full-time equivalent
employees, including three executive officers. Management believes that the
Company's relationship with its employees is good.
SUPERVISION AND REGULATION
The Company
-----------
The common stock of the Company is subject to the registration requirements
of the Securities Act of 1933, as amended, and the qualification
requirements of the California Corporate Securities Law of 1968, as
amended. The Bank's common stock, however, is exempt from such
requirements. The Company is also subject to the periodic reporting
requirements of Section 15(d) of the Securities Exchange Act of 1934, as
amended, which include, but are not limited to, annual, quarterly and other
current reports with the Securities and Exchange Commission.
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956 (the "Act") and is subject to supervision by the Board
of Governors of the Federal Reserve System (the "Board"). As a bank
holding company, the Company must file with the Board quarterly reports,
annual reports, and such other additional information as the Board may
require pursuant to the Act. The Board may also make examinations of the
Company and its subsidiaries.
4
The Act requires prior approval of the Board for, among other things, the
acquisition by a bank holding company of direct or indirect ownership or
control of more than 5% of the voting shares, or substantially all the
assets, of any bank, or for a merger or consolidation by a bank holding
company with any other bank holding company. The Act also prohibits the
acquisition by a bank holding company or any of its subsidiaries of voting
shares, or substantially all the assets, of any bank located in a state
other than the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted, unless the statutes of the
state in which the bank to be acquired is located expressly authorize such
acquisition.
With certain limited exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank or bank holding company and
from engaging directly or indirectly in any activity other than banking or
managing or controlling banks or furnishing services to, or performing
services for, its authorized subsidiaries. A bank holding company may,
however, engage in or acquire an interest in a company that engages in
activities that the Board has determined to be so closely related to
banking or to managing or controlling banks as to be properly incident
thereto. In making such a determination, the Board is required to consider
whether the performance of such activities reasonably can be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, which outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Board
is also empowered to differentiate between activities commenced de novo and
activities commenced by the acquisition, in whole or in part, of a going
concern.
Additional statutory provisions prohibit a holding company and any
subsidiary banks from engaging in certain tie-in arrangements in connection
with the extension of credit, sale or lease of property or furnishing of
services. Thus, a subsidiary bank may not extend credit, lease or sell
property, or furnish any services, or fix or vary the consideration for any
of the foregoing on the condition that: (i) the customer must obtain or
provide some additional credit, property or service from or to such bank
other than a loan, discount, deposit or trust service; or (ii) the customer
must obtain or provide some additional credit, property or service from or
to the company or any other subsidiary of the company; or (iii) the
customer may not obtain some other credit, property to service from
competitors, except reasonable requirements to assure soundness of the
credit extended. These anti-tying restrictions also apply to bank holding
companies and their non-bank subsidiaries as if they were banks.
The Company's ability to pay cash dividends is subject to restrictions set
forth in the California General Corporation Law. See Item 5 below for
further information regarding the payment of cash dividends by the Company
and the Bank.
The Company is a bank holding company within the meaning of Section 3700 of
the California Financial Code. As such, the Company and its subsidiaries
are subject to examination by, and may be required to file reports with,
the Superintendent. Regulations have not yet been proposed or adopted to
implement the Superintendent's powers under this statute.
The Bank:
--------
The Bank, as a national banking association whose accounts are insured by
the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum
legal limits and is subject to regulation, supervision, and regular
examination by the OCC. The Bank is a member of the Federal Reserve
System, and, as such, is subject to certain provisions of the Federal
Reserve Act and regulations issued by the Board. The Bank is also subject
to applicable provisions of California law, insofar as they are not in
conflict with, or preempted by, federal law. The regulations of these
various agencies govern most aspects of the Bank's business, including
reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and location
of branch offices.
Officers:
--------
In addition to the directors and executive officers listed in the Proxy
Statement for the Annual Meeting of Shareholders to be held on April 23,
1996, which is incorporated herein by reference in Part III of this report,
Leon Zimmerman, age 53, is President and Chief Executive Officer of the
Bank and of the Company; David M. Philipp, age 33, is Executive Vice-
President, Chief Financial Officer and Secretary of the Bank, and Senior
Vice-President, Chief Financial Officer and Secretary of the Company; and
Richard K. Helton, age 46, is Senior Vice President and Chief Credit
Officer of the Bank.
Prior to joining the Bank in April, 1990, Mr. Zimmerman was a general
contractor building moderately priced homes and earlier served as Vice-
President-Loan Administrator for Bank of Salinas. Mr. Zimmerman has nearly
30 years of banking experience at various levels of responsibility with
institutions in the San Joaquin Valley. Mr. Zimmerman was promoted from
Executive Vice
5
President and Chief Credit Officer of the Bank to President and Chief
Executive Officer of the Bank effective August 25, 1994. He was promoted
from Executive Vice President of the Company to President and Chief
Executive Officer of the Company effective August 24, 1995.
Prior to joining the Company and the Bank in April, 1992, Mr. Philipp was
the Budget Director and Financial Analyst for Merksamer Jewelers, Inc., at
that time the eighth largest jewelry retailer in the United States,
headquartered in Sacramento, California. Prior to joining Merksamer
Jewelers, Inc., Mr. Philipp was a Supervising Senior Accountant in the
audit department of the Sacramento office of KPMG Peat Marwick. While at
KPMG Peat Marwick, Mr. Philipp specialized in providing audit and
accounting services to financial institution, agribusiness, and
broadcasting clients. Mr. Philipp is a CPA and holds a Bachelor of Science
in Business Administration, Accountancy from California State University.
Prior to joining the Bank in 1995, Mr. Helton was Senior Vice President and
Credit Administrator with Central Sierra Bank. Prior to joining Central
Sierra Bank in 1984, Mr. Helton was Vice President and Senior Credit
Officer for Bay Area Bank (1981-1984) and he served in various positions
with First Interstate Bank of California from 1973 until 1981.
Recent Legislation and Regulations Affecting Banking:
----------------------------------------------------
From time to time, new laws are enacted which increase the cost of doing
business, limit permissible activities, or affect the competitive balance
between banks and other financial institutions. Proposals to change the
laws and regulations governing the operations and taxation of bank holding
companies, banks and other financial institutions are frequently made in
Congress, in the California legislature and before various bank holding
company and bank regulatory agencies. The likelihood of any major changes
and the impact such changes might have are impossible to predict. Certain
significant recently proposed or enacted laws and regulations are discussed
below.
INTERSTATE BANKING. Since 1986, California has permitted California banks
and bank holding companies to be acquired by banking organizations based in
other states on a "reciprocal" basis (i.e., provided the other state's laws
permit California banking organizations to acquire banking organizations in
that state on substantially the same terms and conditions applicable to
local banking organizations). Some increase in merger and acquisition
activity among California and out-of-state banking organizations has
occurred as a result of this law, as well as increased competition for
loans and deposits.
The federal Riegle-Neal Interstate Banking and Branching Efficiency Act,
enacted late in 1994, authorizes the Board, generally without regard to
conflicting requirements of state law, after one year from the date of
enactment (i.e. after September 29, 1995) to approve interstate
acquisitions of entire banks or branches by adequately capitalized and
managed bank holding companies, and (after June 1, 1997) authorizes the
other federal banking agencies to approve similar acquisitions by banks
unless (prior to that date) states enact laws specifically prohibiting such
acquisitions. States also may "opt in" to this authority at an earlier
date if they enact laws specifically permitting such acquisitions. The law
forbids the federal banking agencies from approving any interstate
acquisition under authority of the law which would result in a
concentration of deposits greater than 10% of total United States deposits
or 30% of total deposits in the state in which the acquired bank or branch
is located. The law also authorizes the appropriate federal agency after
18 months from the date of enactment (i.e. after March 29, 1996) to approve
the consolidation of banks located in different states but operated by the
same bank holding company.
The new law contains several provisions designed to impose Community
Reinvestment Act standards (see discussion of the Community Reinvestment
Act, or "CRA," below) upon interstate banking operations authorized by the
law. A separate CRA analysis must be done for each state in which a multi-
state banking operation approved under the law exists, and the federal
banking agencies are required to adopt regulations which (after June 1,
1997) will prevent interstate branching authority from being used primarily
as a means of deposit production. Such regulations will require the
appropriate federal agency of an out-of-state bank or bank holding company,
whenever it determines that such bank's level of lending in the host state
relative to the deposits which it holds in the host state is less than one-
half the average of the total loans relative to total deposits in the host
state for banks whose home state is the host state, to review such bank's
operations in the host state in order to determine whether it is meeting
the credit needs of the host state communities in which it operates. If
the agency reaches a negative conclusion, it is authorized to order the
closure of the host state branches of the out-of-state bank. Finally, the
law requires that banks which determine to close branches located in low or
moderate income areas acquired under the law must notify their customers
how to write to the appropriate federal agency to complain about the
closing. The agency, if it determines that any such complaint is not
frivolous, must convene a meeting of concerned organizations and
individuals to explore the feasibility of putting in place adequate
alternative sources of banking services for the affected communities. This
provision, the law states, is not intended to affect the ability of a bank
to close a branch.
6
The Caldera, Weggeland and Killea California Interstate Banking and
Branching Act of 1995, effective October 2, 1995, amends the California
Financial Code to, among other matters, regulate the operations of state
banks to eliminate conflicts with, and to implement the, Riegle-Neal Act
described above. The Caldera Act includes (i) an election to permit early
interstate merger transactions; (ii) a prohibition against interstate
branching through the acquisition of a branch business unit located in
California without acquisition of the whole business unit of the California
bank; and (iii) a prohibition against interstate branching through de novo
establishment of California branch offices. The Caldera Act mandates that
initial entry into California by an out-of-state institution be
accomplished by acquisition of or merger with an existing whole bank which
has been in existence for at least five years.
CAPITAL REQUIREMENTS. Beginning in 1989, the federal bank regulatory
agencies have imposed upon all FDIC-insured financial institutions a
variable system of risk-based capital requirements which replaced the
former system of uniform minimum capital requirements and is designed to
make capital requirements more sensitive to asset risk and off-balance
sheet exposure.
Under the risk-based capital guidelines, the Bank is required to maintain
capital equal to at least 8 percent of its assets, weighted by risk.
Assets and off-balance sheet items are categorized by the guidelines
according to risk, and certain assets considered to present less risk than
others permit maintenance of capital at less than the 8 percent ratio. For
example, most home mortgage loans are placed in a 50 percent risk category
and therefore require maintenance of capital equal to 4 percent of such
loans, while commercial loans are placed in a 100 percent risk category and
therefore require maintenance of capital equal to 8 percent of such loans.
The guidelines establish two categories of qualifying capital: Tier 1
capital comprising core capital elements, and Tier 2 comprising
supplementary capital requirements. At least one-half of the required
capital must be maintained in the form of Tier 1 capital. For the Bank,
Tier l capital includes only common stockholders' equity and retained
earnings, but qualifying perpetual preferred stock would also be included
without limit if the Bank were to issue such stock. Tier 2 capital
includes, among other items, limited life (and in the case of banks,
cumulative) preferred stock, mandatory convertible securities, subordinated
debt and a limited amount of reserves for loan and lease losses.
The Bank also is required to maintain a minimum leverage ratio of 3 percent
Tier 1 capital to total assets (the "leverage ratio"). The leverage ratio
constitutes a minimum requirement for well-run banking organizations.
Other banking organizations (including those experiencing or anticipating
significant growth) are required to maintain a minimum leverage ratio
ranging generally from 4 to 5 percent.
The minimum leverage standard in conjunction with the risk-based capital
ratio now constitutes the basis for determining the capital adequacy of all
national banking associations, but overall capital assessments by bank
regulators include analysis of such additional factors as interest rate
exposure, liquidity, earnings, and portfolio quality and concentrations.
In addition, the federal banking agencies have proposed to incorporate an
interest-rate risk component (interest rate risk is the risk that changes
in market interest rates might adversely affect a bank's financial
condition) into the guidelines, with the goal of ensuring that institutions
with high levels of interest-rate risk have sufficient capital to cover
their exposures.
As of December 31, 1995, the Bank's total risk-based capital ratio was
approximately 15.1% percent and its leverage ratio was approximately 9.0%
percent. The Bank does not presently expect that compliance with the risk-
based capital guidelines or minimum leverage requirements will have a
materially adverse effect on its business in the reasonably foreseeable
future.
As required by the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the federal financial institution agencies solicited
comments in September 1993 on a method of incorporating an interest rate
risk component into the current risk-based capital guidelines, with the
goal of ensuring that institutions with high levels of interest rate risk
have sufficient capital to cover their exposures. Interest rate risk is
the risk that changes in market interest rate might adversely affect a
bank's financial condition. Under the proposal, intearest rate risk
exposures would be quantified by weighing assets, liabilities and off-
balance sheet items by risk factors which approximate sensitivity to
interest rate fluctuations. As proposed, institutions identified as having
an interest rate risk exposure greater than a defined threshold would be
required to allocate additional capital to support this higher risk.
Higher individual capital allocations could be required by the bank
regulators based on supervisory concerns. The agencies adopted a final
rule effective September 1, 1995 which is substantially similar to the
proposed rule, except that the final rule does not establish (1) a
measurement framework for assessing the level of a bank's interest rate
exposure; nor (2) a minimum level of exposure above which a bank will be
required to hold additional capital for interest rate risk if it has a
significant exposure or a weak interest rate risk management process. The
agencies also solicited comments on and are continuing their analysis of a
proposed policy statement which would establish a framework to measure and
monitor interest rate exposure.
7
DEPOSIT INSURANCE ASSESSMENTS. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") directed the FDIC to establish two
separate financial industry deposit insurance funds, the Bank Insurance
Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"), and
required that deposit insurance premiums be increased in order to restore
deposit insurance funds depleted due to the high level of deposit insurance
payouts. FDICIA also requires that, once the BIF or SAIF are restored to a
required level of funding, the FDIC reset deposit insurance rates for the
fund at levels sufficient to maintain the fund at the required level.
In 1992, the FDIC adopted a recapitalization schedule for the BIF and
established a risk-based deposit insurance assessment system to replace the
uniform assessment rate system previously applicable to BIF members. The
regulation requires each insured bank to be assigned to one of three
capital groups and one of three supervisory subgroups within each capital
group, based upon financial data reported by each bank and supervisory
evaluations by the bank's primary federal regulatory agency. The three
capital groups are substantially similar to the capital groupings under the
Prompt Corrective Action Regulations described below, except that the
bottom three categories are grouped together as "Undercapitalized." The
three subgroup categories distinguish banks which are financially sound,
have weaknesses, or pose a substantial probability of loss to the BIF.
During 1994, the assessment rates ranged from $0.23 to $0.31 per $100 of
deposits across the capital group and supervisory subgroup framework.
In late 1994 and early 1995, the FDIC proposed two significant changes to
the deposit insurance assessment system to (i) redefine the deposit
assessment base which has been defined to equal an institution's total
domestic deposits, plus or minus certain adjustments, but without
significantly impacting total industry-wide assessments (although
significant changes in assessments of individual institutions may occur)
and (ii) establish a new assessment rate schedule, using the present group
and subgroup categories, but with assessment rates varying from $0.04 to
$0.31 per $100 of deposits, resulting in a spread between the minimum and
maximum rates of $0.27 rather than the present $0.08.
On August 8, 1995, the FDIC voted to reduce the deposit insurance
assessment rates to a range from $0.04 to $0.31 per $100 of deposits and
subsequently, on November 14, 1995, the FDIC voted again to further reduce
the assessment rates to a range from $0.00 to $0.27 per $100 of deposits,
subject to a minimum $2,000 annual assessment for all institutions
regardless of classification within the capital group and supervisory
subgroup as follows:
Supervisory Subgroup
----------------------
Capital Group A B C
- ---------------
1 $0.00 $0.03 $0.17
2 0.03 0.10 0.24
3 0.10 0.24 0.27
The above assessment rates are effective for the first semiannual
assessment period of 1996. Based upon the above risk-based assessment rate
schedule, the Company's and the Bank's current capital ratios, the Bank's
current level of deposits, and assuming no change in the assessment rate
applicable to the Bank during 1996, the Company estimates that its annual
noninterest expense attributed to assessments will decrease by
approximately $101,000 during 1996.
PROMPT CORRECTIVE ACTION. Pursuant also to FDICIA, the Board, FDIC, and
the Comptroller in 1992 adopted a system of Prompt Corrective Action
Regulations (the "PCA Regulations") based upon the system of risk-based
capital described above. The PCA Regulations establish five capital
categories in descending order (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized), assignment to which depends upon the institution's total
risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage
ratio. For example, a well capitalized bank must have total risk-based
capital not less than 10% and a leverage ratio of 5% or higher, while an
undercapitalized institution is one with total risk-based capital less than
8% and a leverage ratio below 3%. Regulatory authorities may assign a
well-capitalized, adequately capitalized or undercapitalized bank to the
next lower capitalization category if such bank is in an unsafe or unsound
condition or has engaged in unsafe or unsound activities.
8
The PCA Regulations establish procedures for classifying institutions
within the capital categories, for filing and reviewing capital restoration
plans required to be developed by all undercapitalized institutions, and
for issuing directives by the regulatory agencies. Institutions classified
in one of the three undercapitalized categories are subject to certain
mandatory and discretionary supervisory actions, which include increased
monitoring and review, implementation of capital restoration plans, asset
growth restrictions, limitations upon expansion and new business
activities, requirements to augment capital, restrictions upon deposit
gathering and interest rates, replacement of senior executive officers and
directors, and requiring divestiture or sale of the institution. Any
institution classified as "critically undercapitalized" must be placed in
conservatorship or receivership within 90 days unless some other course of
action is warranted, and are also subject to other mandatory restrictions
on their activities and operations.
FDICIA contains numerous other provisions which affect or may affect the
Bank, such as (1) the requirement that the regulatory agencies promulgate
certain standards of "safety and soundness" applicable in such areas as
asset quality and earnings, employee compensation and stock valuation, and
(2) the requirement that an insured institution provide at least 90 days'
written notice to the FDIC and its customers prior to closing any branch
office. Implementation of the various provisions of FDICIA is subject to
the adoption of regulations by the various federal banking agencies and to
certain phase-in periods.
COMMUNITY REINVESTMENT ACT. In October 1994, the federal financial
institution regulatory agencies jointly proposed a comprehensive revision
of their regulations implementing the Community Reinvestment Act ("CRA"),
enacted in 1977 to promote lending by financial institutions to individuals
and businesses located in low and moderate income areas. In May 1995, the
proposed CRA regulations were published in final form effective as of July
1, 1995. The revised regulations included transitional phase-in provisions
which generally require mandatory compliance not later than July 1, 1997,
although earlier voluntary compliance is permissible.
Under the former CRA regulations, compliance was evaluated by an assessment
of the institution's methods for determining, and efforts to meet, the
credit needs of such borrowers. This system was highly criticized by
depository institutions and their trade groups as subjective, inconsistent
and burdensome, and by consumer representatives for its alleged failure to
aggressively penalize poor CRA performance by financial institutions. The
revised CRA regulations emphasize an assessment of actual performance
rather than of the procedures followed by a bank, to evaluate compliance
with the CRA. Overall CRA compliance continues to be rated across a four-
point scale from "outstanding" to "substantial noncompliance," and
continues to be a factor in review of applications to merge, establish new
branches or form bank holding companies. In addition, any bank rated in
"substantial noncompliance" with the revised CRA regulations may be subject
to enforcement proceedings.
The regulations provide that "small banks," which are defined to include
any independent bank with total assets of less than $250 million, are to be
evaluated by means of a so-called "streamlined assessment method" unless
such a bank elects to be evaluated by one of the other methods provided in
the regulations. The differences between the evaluation methods may be
summarized as follows:
(1) The "streamlined assessment method" presumptively applicable to small
banks requires that a bank's CRA compliance be evaluated pursuant to five
"assessment criteria," including its (i) loan-to-deposit ratio (as adjusted
for seasonal variations and other lending-related activities, such as sales
to the secondary market or community development lending), (ii) percentage
of loans and other lending-related activities in the bank's service
area(s), (iii) distribution of loans and other lending-related activities
among borrowers of different income levels, given the demographic
characteristics of its service area(s), (iv) geographic distribution of
loans and other lending-related activities within its service area(s), and
(v) record of response to written complaints, if any, about its CRA
performance.
(2) The "lending, investments and service tests method" is applicable to
all banks larger than $250 million which are not wholesale or limited
purpose banks and do not elect to be evaluated by the "strategic plan
assessment method." Central to this method is the requirement that such
banks collect and report to their primary federal banking regulators
detailed information regarding home mortgage, small business and farm and
community development loans which is then used to evaluate CRA compliance.
At a bank's option, data regarding consumer loans and any other loan
distribution it may choose to provide also may be collected and reported.
Using such data, the Board will evaluate a bank's (i) lending performance
according to the geographic distribution of its loans, the characteristics
of its borrowers, the number and complexity of its community development
loans, the innovativeness or flexibility of its lending practices to meet
low and moderate income credit needs and, at the bank's election, lending
by affiliates or through consortia or third-parties in which the bank has
an investment interest; (ii) investment performance by measure of the
bank's
9
"qualified investments," that is, the extent to which the bank's
investments, deposits, membership shares in a credit union, or grants
primarily benefit low or moderate income individuals and small businesses
and farms, address affordable housing or other needs not met by the private
market, or assist any minority or women-owned depository institution by
donating, selling on favorable terms or providing on a rent-free basis any
branch of the bank located in a predominantly minority neighborhood; and
(iii) service performance by evaluating the demographic distribution of the
bank's branches and ATMs, its record of opening and closing them, the
availability of alternative retail delivery systems (such as telephone
banking, banking by mail or at work, and mobile facilities) in low and
moderate income geographies and to low and moderate income individuals, and
(given the characteristics of the bank's service areas and the its capacity
and constraints) the extent to which the bank provides "community
development services" (services which primarily benefit low and moderate
income individuals or small farms and businesses or address affordable
housing needs not met by the private market) and their innovativeness and
responsiveness.
(3) Wholesale or limited purpose banks which do not make home mortgage,
small farm or business or consumer loans to retail customers may elect,
subject to agency approval of their status, to be evaluated by the
"community development test method," which assesses the number and amount
of the bank's community development loans, qualified investments and
community development services and their innovativeness and complexity.
(4) Any bank may request to be evaluated by the "strategic plan assessment
method" by submitting a strategic plan which the Board approves. Such a
plan must involve public participation in its preparation, and contain
measurable goals for meeting low and moderate income credit needs through
lending, investments and provision of services. Such plans generally would
be evaluated by the Board by measuring strategic plan goals against
standards similar to those which would be applied in evaluating a bank
according to the "lending, investments and service tests method."
The federal financial institution regulatory agencies jointly issued a
final rule, effective as of January 1, 1996, to make certain technical
corrections to the revised CRA regulations. Among other matters, the rule
clarifies the transition from the form CRA regulations to the revised CRA
regulations by confirming that when an institution either voluntarily or
mandatorily becomes subject to the performance tests and standards of the
revised regulations, the institution must comply with all of the
requirements of the revised regulations and is no longer subject to the
provisions of the former CRA regulations.
The Bank has a current rating of "satisfactory" CRA compliance, and
believes that it would not have received any lower rating if the
regulations had been in effect when the Bank was last examined for CRA
compliance in April, 1994.
10
STATISTICAL INFORMATION
The following selected information should be read in conjunction with the
Company's entire consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference into Items 7 and 8 herein.
FIRST FINANCIAL BANCORP AND SUBSIDIARY
AVERAGE BALANCE SHEETS
For the Year Ended For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
(in thousands) (in thousands) (in thousands)
--------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
ASSETS:
Cash & Due from banks 3,582 3.54% 3,864 3.79% 3,630 3.73%
Federal funds sold 3,490 3.44% 3,306 3.24% 5,839 5.99%
Interest-bearing deposits in banks - 0.00% 59 0.06% 100 0.10%
Investment securities 29,709 29.33% 26,033 25.54% 15,485 15.89%
Loans (net of allowance for loan losses 55,428 54.71% 59,532 58.40% 62,930 64.58%
and deferred income)
Premises and equipment, net 6,552 6.47% 6,818 6.69% 7,080 7.27%
Other assets 2,546 2.51% 2,331 2.29% 2,377 2.44%
------- ------ ------- ------ ------ ------
TOTAL ASSETS 101,307 100.00% 101,943 100.00% 97,441 100.00%
======= ====== ======= ====== ====== ======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits 86,080 84.97% 87,319 85.65% 84,000 86.21%
Note payable 2,600 2.57% 2,632 2.58% 2,660 2.73%
Other liabilities 1,309 1.29% 1,071 1.05% 764 0.78%
Stockholders' equity 11,318 11.17% 10,921 10.71% 10,017 10.28%
------- ------ ------- ------ ------ ------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 101,307 100.00% 101,943 100.00% 97,441 100.00%
======= ====== ======= ====== ====== ======
11
ANALYSIS OF NET INTEREST EARNINGS
For the Year Ended For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
(in thousands) (in thousands) (in thousands)
-------------------------------------------------------------------------------------------------------
Average Income/ Average Income/ Average Income/
Balance Expenses Yield Balance Expenses Yield Balance Expense Yield
------- --------- ------- ------- ------------ ------- ------- ------------ -------
EARNING ASSETS:
Interest-bearing deposits -- -- -- 59 3 5.08% 100 5 5.00%
in banks
Investment securities (a) 29,709 1,777 5.98% 20,033 1,415 5.44% 15,485 899 5.81%
Federal funds sold 3,490 200 5.73% 3,306 134 4.05% 5,839 170 2.91%
Loans (b) 56,450 6,112 10.83% 60,518 5,910 9.77% 64,080 5,833 9.10%
------ ------ ------ ------ ------ ------ ------ ------ ------
89,649 8,089 9.02% 89,916 7,462 8.30% 85,504 6,907 8.08%
====== ====== ====== ====== ====== ====== ====== ====== ======
(a) Income on tax-exempt securities has not been adjusted to a tax equivalent basis.
(b) Nonaccrual loans are included in the loan totals for each year.
LIABILITIES:
Noninterest bearing 7,140 -- -- 6,107 -- -- 5,250 -- --
deposits
Savings, money market, & 46,370 1,187 2.56% 50,348 1,280 2.54% 46,584 1,245 2.67%
NOW deposits
Time deposits 32,570 1,672 5.13% 30,864 1,205 3.90% 32,166 1,235 3.84%
Note payable 2,600 279 10.73% 2,632 282 10.71% 2,660 285 10.71%
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL LIABILITIES 88,680 3,138 3.54% 89,951 2,767 3.08% 86,660 2,765 3.19%
====== ====== ====== ====== ====== ====== ====== ====== ======
NET SPREAD 5.48% 5.22% 4.89%
====== ====== ======
Earning Income Earning Income Earning Income
Assets (Expense) Yield Assets (Expense) Yield Assets (Expense) Yield
------ -------- ------ ------ --------- ------ ------ --------- ------
Yield on average earning 89,649 8,089 9.02% 89,916 7,462 8.30% 85,504 6,907 8.08%
assets
Cost of funds for average 89,649 (3,138) (3.50)% 89,916 (2,767) (3.08)% 85,504 (2,765) (3.23)%
earning assets ------ ------ ------ ------ ------ ------ ------ ------ ------
NET INTEREST MARGIN 89,649 4,951 5.52% 89,916 4,695 5.22% 85,504 4,142 4.84%
====== ====== ====== ====== ====== ====== ====== ====== ======
12
ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
1995 compared to 1994 1994 compared to 1993 1993 compared to 1992
(in thousands) (in thousands) (in thousands)
---------------------------------------------------------------------------------------------
Change due to: Change due to: Change due to:
INTEREST INCOME: Volume Rate Total Volume Rate Total Volume Rate Total
-------- ------ ------ ------- ---------- ----------- ------- ---------- ----------
Interest-bearing deposits in banks (3) -- (3) (2) -- (2) (4) (1) (5)
Investment securities (2) 364 362 590 (74) 516 251 (106) 145
Federal funds sold 11 55 66 (74) 38 (36) 79 (18) 61
Loans (44) 246 202 (324) 401 77 (448) (345) (793)
--- --- --- ---- --- --- ---- ---- ----
TOTAL INTEREST INCOME (38) 665 627 190 365 555 (122) (470) (592)
=== === === ==== === === ==== ==== ====
INTEREST EXPENSE:
Noninterest-bearing deposits -- -- -- -- -- -- -- -- --
Savings, money market, & NOW accounts (18) (75) (93) 122 (87) 35 111 (363) (252)
Time deposits (28) 495 467 (50) 20 (30) (232) (394) (626)
Note payable 3 (6) (3) (3) - (3) (10) 7 (3)
--- --- --- ---- --- --- ---- ---- ----
TOTAL INTEREST EXPENSE (43) 414 371 69 (67) 2 (131) (750) (881)
=== === === ==== === === ==== ==== ====
Changes not solely attributable to volume or rate have been allocated to
the rate component.
13
INTEREST RATE SENSITIVITY
By Repricing Interval
---------------------------------------------------------------------------------------------------------
(in thousands) Within three After three After six After one After five Noninterest Total
December 31, 1995 months months, within months, year, years bearing funds
six months within one within five
year years
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Federal funds sold 3,300 -- -- -- -- -- 3,300
Investment securities 16,430 6,491 1,142 9,058 3,824 -- 36,945
Loans 34,969 685 2,084 11,095 3,011 -- 51,844
Noninterest earning assets -- -- -- -- -- 11,883 11,883
and allowance for loan
losses
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 54,699 7,176 3,226 20,153 6,835 11,883 103,972
LIABILITIES AND
STOCKHOLDERS' EQUITY
Savings, money market & 47,837 -- -- -- -- -- 47,837
NOW deposits
Time deposits 10,390 7,420 11,677 4,029 -- -- 33,516
Note payable 7 7 2,571 -- -- -- 2,585
Other liabilities and -- -- -- -- -- 12,171 12,171
stockholders' equity
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND 58,234 7,427 14,248 4,029 -- 20,034 103,972
STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap (3,535) (251) (11,022) 16,124 6,835 (8,151) --
Cumulative Interest Rate (3,535) (3,786) (14,808) 1,316 8,151 -- --
Sensitivity Gap
The interest rate gaps reported in the table arise when assets are funded
with liabilities having different repricing intervals. Since these gaps
are actively managed and change daily as adjustments are made in interest
rate views and market outlook, positions at the end of any period may not
be reflective of the Company's interest rate sensitivity in subsequent
periods. Active management dictates that longer-term economic views are
balanced against prospects for short-term interest rate changes in all
repricing intervals. For purposes of the above analysis, repricing of
fixed-rate instruments is based upon the contractual maturity of the
applicable instruments. Actual payment patterns may differ from
contractual payment patterns.
14
INVESTMENT PORTFOLIO
Book Value at December 31 (in thousands):
----------------------------------------------------------
1995 1994 1993
------ ------ ------
Security Type Amount Yield(a) Amount Yield(a) Amount Yield(a)
- ---------------------------------------- ------ ------- ------- ------ ------- ------
U.S. TREASURY SECURITIES:
Within 1 year 999 5.54% 2,798 5.36% 2,765 3.79%
After 1 year, within 5 years 600 8.09% 1,594 6.81% 2,403 5.53%
After 5 years, within 10 years -- -- -- -- -- --
After 10 years -- -- -- -- -- --
----------------------------------------------------------
TOTAL U.S. TREASURY 1,599 6.49% 4,392 5.89% 5,168 4.60%
U.S. AGENCY SECURITIES:
Within 1 year 8,265 4.95% 9,218 6.34% 5,191 3.35%
After 1 year, within 5 years 7,106 6.16% 6,218 5.07% 3,659 4.95%
After 5 years, within 10 years 998 6.83% 255 5.43% 329 5.60%
After 10 years -- -- 592 5.05% 646 5.03%
----------------------------------------------------------
TOTAL U.S. AGENCY 16,368 6.00% 16,283 5.79% 9,825 4.13%
COLLATERALIZED MORTGAGE OBLIGATIONS:
Within 1 year 1,142 5.89% 1,527 5.76% 1,079 5.34%
After 1 year, within 5 years 523 5.59% 980 5.70% 1,643 5.13%
After 5 years, within 10 years 35 6.00% 41 6.00% -- --
After 10 years 603 7.97% 126 7.01% -- --
----------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE 2,303 6.36% 2,674 5.80% 2,722 5.35%
OBLIGATIONS
MUNICIPAL SECURITIES:
Within 1 year 500 6.10% 396 6.19% 100 7.30%
After 1 year, within 5 years 1,787 6.74% 1,577 6.67% 1,536 6.50%
After 5 years, within 10 years 3,109 6.96% 3,920 6.81% 4,317 6.90%
After 10 years -- -- 103 6.30% 205 6.45%
----------------------------------------------------------
TOTAL MUNICIPALS 5,596 6.80% 5,996 6.72% 6,158 6.79%
OTHER DEBT SECURITIES:
Within 1 year 267 7.65% 249 6.25% -- --
After 1 year, within 5 years 8 8.20% -- -- -- --
After 5 years, within 10 years 747 8.54% -- -- -- --
After 10 years 1,007 7.11% -- -- -- --
----------------------------------------------------------
TOTAL OTHER DEBT SECURITIES 2,029 7.27% 249 6.25% -- --
MONEY MARKET MUTUAL FUND 8,640 5.77% 3,615 5.38% -- --
FEDERAL AGENCY STOCK 83 6.00% 83 6.00% 83 5.71%
UNREALIZED HOLDING GAIN/(LOSS) 327 -- (192) -- -- --
----------------------------------------------------------
36,945 6.18% 33,100 5.97% 23,956 5.06%
==========================================================
(a) The yields on tax-exempt obligations have not been computed on a tax-
equivalent basis.
15
LOAN PORTFOLIO
Types of Loans
Outstanding at December 31 (in thousands):
------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Commercial 41,538 44,847 48,478 47,217 42,073
Real estate construction 7,549 9,809 10,182 15,658 23,846
Installment and other 2,757 2,656 2,804 3,259 3,600
------ ------ ------ ------ ------
51,844 57,312 61,464 66,132 69,519
====== ====== ====== ====== ======
Maturities and Sensitivity to Changes in Interest Rates (in thousands)
Due: Fixed Rate Floating Rate Total
---------- ------------- ------
In 1 year or less 3,584 16,234 19,818
After 1 year through 5 years 11,095 15,887 26,982
After 5 years 3,011 2,033 5,044
------ ------ ------
TOTAL LOANS 17,690 34,154 51,844
====== ====== ======
Scheduled repayments are reported in the maturity category in which the
payments are due.
Nonaccrual and Past Due Loans at
December 31 (in thousands):
-----------------------------------
1995 1994 1993 1992 1991
----- ---- ------ ------ ------
Nonaccrual loans 987 765 714 1,373 1,063
Accruing loans past due more
than 90 days 118 40 237 218 154
----- ---- ------ ------ -----
1,105 805 951 1,591 1,217
===== ==== ====== ====== =====
The company's nonaccrual policy is discussed in note 1(c) to the
consolidated financial statements.
Interest income recorded on these loans was approximately $13,000, $14,000,
$22,000, $43,000 and $25,000 in 1995, 1994, 1993, 1992 and 1991,
respectively.
Interest income foregone or reversed on these loans was approximately
$161,000, $74,000, $57,000, $142,000 and $137,000 in 1995, 1994, 1993, 1992
and 1991, respectively.
16
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the Allowance for Loan Losses (in thousands)
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
Balance at beginning of period 1,127 924 1,334 823 628
CHARGE-OFFS:
Commercial 357 98 676 232 19
Real estate 30 -- 41 14 133
Consumer 95 77 46 87 51
----- ----- ----- ----- ----
TOTAL CHARGE-OFFS 482 175 763 333 203
RECOVERIES:
Commercial 174 37 21 1 30
Real estate -- -- -- -- --
Consumer 25 18 5 7 8
----- ----- ----- ----- ----
TOTAL RECOVERIES 199 55 26 8 38
Net charge-offs 283 120 737 325 165
Additions charged to operations 115 323 327 836 360
----- ----- ----- ----- ----
BALANCE AT END OF PERIOD 959 1,127 924 1,334 823
===== ===== ===== ===== ====
RATIO OF NET CHARGE-OFFS TO AVERAGE 0.51% 0.20% 1.15% 0.47% 0.27%
LOANS OUTSTANDING ===== ===== ===== ===== ====
Footnote 1(g) to the consolidated financial statement discusses the factors
used in determining the provision for loan losses and the adequacy of the
allowance for loan losses.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)
December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 December 31, 1991
------------------ ------------------ ------------------ ------------------ ------------------
Loan Category Amount % Amount % Amount % Amount % Amount %
-------- Loans -------- Loans -------- Loans -------- Loans -------- Loans
-------- -------- -------- -------- --------
Commercial 295 84.29% 376 78.25% 140 79.22% 617 71.40% 273 62.70%
Real estate 38 10.86% 121 17.12% 45 16.20% 75 23.67% 268 34.40%
Consumer 17 4.85% 4 4.63% 2 4.58% 47 4.93% 65 2.90%
Unallocated 608 N/A 626 N/A 737 N/A 595 N/A 217 N/A
--- ------- ----- ------- --- ------- ----- ------- --- -------
959 100.00% 1,127 100.00% 924 100.00% 1,334 100.00% 823 100.00%
=== ====== ===== ====== === ====== ===== ====== === ======
17
DEPOSITS
Average amount and average rate paid on deposits (in thousands)
For the Year Ended For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
------------------------------------------------------------------------------------------
Type Average Amount Average Rate Average Amount Average Rate Average Amount Average Rate
- ----
Demand - non-interest bearing 7,140 N/A 6,106 N/A 5,250 N/A
NOW accounts 18,020 2.01% 19,645 1.95% 16,310 2.17%
Money market accounts 12,560 2.95% 14,464 2.89% 16,024 2.93%
Savings 15,790 2.87% 16,240 2.86% 14,250 2.96%
Time deposits 32,570 5.13% 30,864 3.56% 32,166 3.84%
------ ---- ------ ---- ------ ----
86,080 3.32% 87,319 2.84% 84,000 2.95%
====== ==== ====== ==== ====== ====
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31 (IN
THOUSANDS):
1995
------
Three months of loss 3,663
Four months to six months 2,290
Seven months to twelve months 4,472
Over twelve months 1,701
------
TOTAL TIME DEPOSITS OF $100,000 OR MORE 12,126
======
RETURN ON AVERAGE EQUITY AND ASSETS
For the Year Ended December 31:
----------------------------------
1995 1994 1993
---------- ---------- ----------
Return on average assets 0.83% 0.33% 0.77%
Return on average equity 7.45% 3.09% 7.45%
Dividend payout ratio 23.44% -- 17.50%
Average equity to average assets 11.17% 10.71% 10.28%
18
ITEM 2. PROPERTIES
The Company owns a 0.861 acre lot located at the corner of Ham Lane and
Tokay Street, Lodi, California. In 1990, the Company completed
construction of a 34,000 square foot, tri-level commercial building for the
main branch and administrative offices of the Company and the Bank on this
lot. The Company and the Bank use approximately 75% of the leasable space
in the building and the remaining area is either leased or available for
lease as office space to other tenants. The Bank has multi-year leases at
market rates for a total of 17,400 square feet and one other tenant has
leased 1,922 square feet for a five year period with renewal options. All
lease payments to the Company are tied to changes in the Consumer Price
Index and are adjusted on an annual basis. This expansion has enabled the
Bank to better serve its customers with more teller windows, four drive-
through lanes and expanded safe deposit box capacity.
The Bank assumed a ground lease on 1.7 acres of land at 19000 North Highway
88, Lockeford, California. The building previously occupying the Lodi site
was moved to Lockeford, California, and has become the permanent branch
office of the Bank at that location. A temporary office was opened by the
Bank on January 8, 1990 at this location in a 1,100 square foot building.
The permanent office was opened on April 1, 1991. The temporary office,
along with a portion of the permanent building, are leased by the Bank to
two tenants.
The Company also owns a 10,000 square foot lot located on Lower Sacramento
Road in the unincorporated San Joaquin County community of Woodbridge,
California. The entire parcel has been leased to the Bank on a long term
basis at market rates. The Bank has constructed, furnished and equipped a
1,437 square foot branch office on the parcel and commenced operations of
the Woodbridge Branch on December 15, 1986.
ITEM 3. LEGAL PROCEEDINGS
There are no material proceedings adverse to the Company or the Bank to
which any director, officer, affiliate of the Company or 5% shareholder of
the Company or the Bank, or any associate of any such director, officer,
affiliate or 5% shareholder of the Company or the Bank is a party, and none
of the above persons has a material interest adverse to the Company or the
Bank.
Neither the Company nor the Bank is a party to any pending legal or
administrative proceeding (other than ordinary routine litigation
incidental to the Company's or the Bank's business) and no such proceedings
are known to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is contained under the caption
"MARKET PRICE OF COMPANY'S STOCK" at page 9 of the Company's Annual Report
to Shareholders for the year ended December 31, 1995, and is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is contained under the caption
"SELECTED FINANCIAL DATA" at page 10 of the Company's Annual Report to
Shareholders for the year ended December 31, 1995 and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
19
The information required by this item is contained under the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" at page 1 of the Company's Annual Report to Shareholders for
the year ended December 31, 1995 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEMS 10, 11, 12 AND 13.
The information required by these items is contained at pages 2 through 9
of the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1996, and is incorporated herein by
reference. The definitive Proxy Statement will be filed with the
Commission within 120 days after the close of the Company's fiscal year
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
PAGE REFERENCE TO ANNUAL
(A) FINANCIAL STATEMENTS AND SCHEDULES REPORT TO SHAREHOLDERS*
Independent Auditors' Report 11
Consolidated Balance Sheets as of
December 31, 1995 and 1994. 12
Consolidated Statements of Income
Years Ended 1995, 1994, and 1993 14
Consolidated Statements of Stockholders' Equity
Years Ended 1995, 1994, and 1993 13
Consolidated Statements of Cash Flows
Years Ended 1995, 1994, and 1993 15
Notes to Consolidated Financial Statements 16
----------
*The pages of the Company's Annual Report to Shareholders for the year ended
December 31, 1995 listed above, are incorporated herein by reference in
response to Item 8 of this report.
(B) REPORTS ON FORM 8-K
On November 3, 1995, the Company filed a Current Report on Form 8-K
regarding its press release of the same date, reporting the Company's
results of operations for the quarter ended September 30, 1995, and the
declaration of a cash dividend of $.05 per share, payable November 30,
1995.
20
(C) EXHIBITS
Exhibit No. Description
11 Statement re computation of earnings per share is
incorporated herein by reference to page 24 of the Company's
Annual Report to Shareholders for the year ended December 31,
1995.
13 First Financial Bancorp 1995 Annual Report to Shareholders -
portions which have been incorporated by reference herein are
filed with this report, and portions which have not been
incorporated herein are provided for information purposes
only.
23 Consent of Experts
(D) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are included in this report on the basis
that they are either inapplicable or the information required to be set
forth therein is contained in the financial statements incorporated herein
by reference.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 29th day of March, 1996.
FIRST FINANCIAL BANCORP
/s/ LEON J. ZIMMERMAN
---------------------------
Leon J. Zimmerman
(President & Chief Executive Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CAPACITY DATE
-------- ----
/s/ BOZANT KATZAKIAN Director and Chairman March 29, 1996
- -------------------------- of the Board
Bozant Katzakian
/s/ ANGELO J. ANAGNOS Director March 29, 1996
- --------------------------
Angelo J. Anagnos
/s/ RAYMOND H. COLDANI Director March 29, 1996
- --------------------------
Raymond H. Coldani
/s/ BENJAMIN R. GOEHRING Director March 29 1996
- --------------------------
Benjamin R. Goehring
/s/ MICHAEL D. RAMSEY Director March 29, 1996
- --------------------------
Michael D. Ramsey
/s/ FRANK M. SASAKI Director March 29, 1996
- --------------------------
Frank M. Sasaki
/s/ WELDON D. SCHUMACHER Director March 29, 1996
- --------------------------
Weldon D. Schumacher
/s/ DENNIS SWANSON Director March 29, 1996
- --------------------------
Dennis Swanson
/s/ DAVID M. PHILIPP Senior Vice President, March 29, 1996
- -------------------------- Chief Financial Officer
David M. Philipp and Secretary (Principal
Financial and Accounting
Officer)
22
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
11 Statement re computation of earnings per share is incorporated
herein by reference to page 24 of theCompany's Annual Report to
Shareholders for the year ended December 31, 1995.
13 First Financial Bancorp 1995 Annual Report to Shareholders - 27
portions which have been incorporated by reference herein are
filed with this report, and portions which have not been
incorporated herein are provided for information purposes only.
23 Consent of Experts 59
23