<PAGE> 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, 1998
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(a) 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.
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 2, 1999, there were issued and outstanding 36,237,836 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 2, 1999, was $903,681,000. (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, 1998 are incorporated by reference into Parts I, II and IV.
Portions of the proxy statement dated March 23, 1999 for the annual meeting of
shareholders to be held April 27, 1999 are incorporated by reference into
Part III.
<PAGE> 2
FORM 10-K CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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 1998) F-6
Additional Item - Executive Officers F-6
- -------------------------------------------------------------------------------------
PART II Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters F-8
Item 6 Selected Financial Data F-8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations F-8
Item 7a Quantitative and Qualitative Disclosures about
Market Risk F-12
Item 8 Financial Statements and Supplementary Data F-12
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure F-12
- -------------------------------------------------------------------------------------
PART III Item 10 Directors and Executive Officers of the Registrant F-13
Item 11 Executive Compensation F-13
Item 12 Security Ownership of Certain Beneficial Owners and
Management F-13
Item 13 Certain Relationships and Related Transactions F-13
- -------------------------------------------------------------------------------------
PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K F-14
- -------------------------------------------------------------------------------------
SIGNATURES F-17
</TABLE>
<PAGE> 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 fifteen wholly
owned subsidiary financial institutions: First National Bank of Southwestern
Ohio (First Southwestern), Bright National Bank (Bright National), and National
Bank of Hastings (Hastings), all national banking associations, Community First
Bank & Trust (Community First), The 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), Peoples Bank and Trust Company (Peoples Bank),
Farmers State Bank (Farmers) and Vevay Deposit Bank (Vevay), all Indiana banking
corporations, Fidelity Federal Savings Bank (Fidelity Federal), and Home Federal
Bank, a Federal Savings Bank (Home Federal), both federal savings banks. First
Finance Mortgage Company of Southwestern Ohio (First Finance) is Bancorp's only
finance company. Bancorp provides
<PAGE> 4
F-2
management and similar services for its subsidiary financial institutions. Since
it does not itself conduct any operating businesses, Bancorp must depend largely
upon its fifteen 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 17 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. First Southwestern, Community
First, Citizens First, Clyde, and Bright National also offer lease financing. In
addition, Bancorp's financial 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 and the finance company. 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, 1998, and is
incorporated herein by reference.
At December 31, 1998, Bancorp and its subsidiaries employed 1,338 employees.
Bancorp's executive office is located at 300 High Street, Hamilton, Ohio 45012,
and its telephone number is (513) 867-4700.
SUBSIDIARIES
The following table lists each of Bancorp's subsidiaries, their acquisition
dates, the number of offices that each subsidiary has, total deposits, and the
number of ATMs owned by each subsidiary:
<TABLE>
<CAPTION>
DEPOSITS
ACQUISITION 12/31/98 NUMBER OF
SUBSIDIARY/LOCATION DATE ($ IN 000) OFFICES ATMS
------------------- ----------- ---------- --------- -------
<S> <C> <C> <C> <C>
FIRST SOUTHWESTERN/
HAMILTON, OHIO 04/26/83 $811,843 30 30
COMMUNITY FIRST/
</TABLE>
<PAGE> 5
F-3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CELINA/VAN WERT, OHIO 04/29/83 531,644 21 12
UNION TRUST/
UNION CITY, INDIANA 09/01/89 42,488 3 2
INDIANA LAWRENCE/
NORTH MANCHESTER, INDIANA 09/01/89 132,981 8 3
FIDELITY FEDERAL/
MARION, INDIANA 09/21/90 62,207 3 1
CITIZENS FIRST/
HARTFORD CITY, INDIANA 10/01/90 85,437 6 4
HOME FEDERAL/
HAMILTON, OHIO 10/01/91 231,962 7 5
UNION BANK/
NORTH VERNON, INDIANA 01/04/93 80,456 3 4
CLYDE/CLYDE, OHIO 06/01/94 60,376 2 1
PEOPLES BANK/
SUNMAN, INDIANA 07/16/95 46,967 2 2
BRIGHT NATIONAL/
FLORA, INDIANA 10/01/95 111,031 7 6
FIRST FINANCE/
FAIRFIELD, OHIO 05/08/96 N/A 2 N/A
FARMERS/
LIBERTY, INDIANA 12/01/96 50,918 5 1
</TABLE>
<PAGE> 6
F-4
<TABLE>
<CAPTION>
DEPOSITS
ACQUISITION 12/31/98 NUMBER OF
SUBSIDIARY/LOCATION DATE ($ IN 000) OFFICES ATMS
------------------- ----------- ---------- --------- -------
<S> <C> <C> <C> <C>
HASTINGS/
HASTINGS, MICHIGAN 01/01/97 49,227 2 2
VEVAY/VEVAY, INDIANA 06/01/97 48,026 4 2
</TABLE>
Community First was formed on November 1, 1997 as a result of the merger of two
of Bancorp's affiliates, the Citizens Commercial Bank & Trust Company and Van
Wert National Bank. On December 8, 1997, Community First purchased the assets
and assumed the liabilities of eleven branches of KeyBank National Association.
The purchase of The Union State Bank, completed on April 1, 1998, resulted in
the addition of another branch and $53 million in deposits for Community First.
In April 1996, Bancorp acquired Farmers & Merchants Bank of Rochester,
Rochester, Indiana (F&M). Upon completion of the merger F&M was merged with
Indiana Lawrence.
In November 1995, Home Federal combined operations with Fayette Federal,
resulting in Fayette Federal operating as a division of Home Federal.
REGULATION
First Southwestern, Bright National and Hastings, as national banking
associations, are subject to supervision and regular examination by the
Comptroller of the Currency. Community First 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, Community First, Clyde,
Peoples Bank, Bright National, and Hastings are members of the Federal Reserve
System and, as such, are subject to the applicable provisions of the Federal
Reserve Act. Community First is also subject to regular examination by the
Federal Reserve System. Union Trust, Indiana Lawrence, Citizens First, Union
Bank, Peoples Bank, Farmers and Vevay, 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 Fidelity Federal is located in Indiana, it is also
subject to examination by the Indiana Department of Financial Institutions.
First Finance is subject to supervision and regular examinations by the State of
Ohio Division of Consumer Finance. All depository 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. When a bank holding company acquires a thrift institution,
it is then considered a savings and loan holding company which subjects the bank
holding company 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
<PAGE> 7
F-5
is the case in Indiana, Michigan, and Kentucky. 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 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 dealings
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.
YEAR 2000
The information contained on page 5 of the Management's Discussion and Analysis
of Financial Condition and Results of Operations (Management's Discussion and
Analysis) section
<PAGE> 8
F-6
of Bancorp's Annual Report to Shareholders for the year ended
December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 2. PROPERTIES.
The registrant and its subsidiaries operate from 61 offices in Ohio, including
Bancorp's executive office in Hamilton, Ohio, 42 offices in Indiana and two in
Michigan. Thirty 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. Nine offices are located in Mercer County, Ohio, six in Van Wert
County, Ohio, two in Preble County, Ohio, three in Warren County, Ohio, three in
Hamilton County, Ohio, two in Sandusky County, Ohio, two in Paulding County,
Ohio, one in Allen County, Ohio, three in Auglaize County, Ohio, and one in
Williams 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.
Three 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,
three in Fulton, County, Indiana, two in Union County, Indiana, three in Rush
County, Indiana, one in Clinton County, Indiana, one in Ripley County, Indiana,
one in Dearborn County, Indiana, and four in Switzerland, County, Indiana. One
office is located in Delaware County, Indiana, of which both the land and
building are leased. One office is located in Barry County, Michigan and one in
Allegan County, Michigan. All leases are comparable to other leases in the
respective market areas and 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 1998.
ADDITIONAL ITEM - EXECUTIVE OFFICERS.
Shown in the table below are the Executive Officers of Bancorp as of December
31, 1998. 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 27, 1999 or until their successors are elected and duly qualified.
All Executive Officers are chosen by the Board of Directors by a majority vote.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ----- ---------------------------------------
<S> <C> <C>
STANLEY N. PONTIUS 52 PRESIDENT AND CHIEF EXECUTIVE OFFICER, DIRECTOR
RICK L. BLOSSOM 51 SENIOR VICE PRESIDENT, CHIEF LENDING OFFICER
MARK W. IMMELT 53 SENIOR VICE PRESIDENT, TRUST SERVICES
BRIAN D. MORIARTY 56 SENIOR VICE PRESIDENT, HUMAN RESOURCES
MICHAEL R. O'DELL 47 SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY
MICHAEL T. RILEY 48 SENIOR VICE PRESIDENT, CONSUMER BANKING AND
OPERATIONS
C. DOUGLAS LEFFERSON 34 FIRST VICE PRESIDENT, COMPTROLLER
</TABLE>
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. Upon
joining Bancorp in March 1991, he assumed the responsibilities of President and
Chief Operating Officer, as well as a director. He served as Chief Operating
Officer until July 1992. Also in
<PAGE> 9
F-7
March 1991, he became President, Chief Executive Officer, and a director of
First Southwestern. Effective July 1, 1997, Mr. Pontius was promoted to Chairman
of the Board of First Southwestern and retained the position of Chief Executive
Officer until November 24, 1998.
Rick L. Blossom became Chief Lending Officer of Bancorp effective January 12,
1996. He remains Senior Vice President of Bancorp, a position he has held since
September 26, 1990. On November 24, 1998, Mr. Blossom was promoted to President
and Chief Executive Officer of First Southwestern. Mr. Blossom had served as
First Southwestern's President and Chief Operating Officer since July 1, 1997.
On January 12, 1996, he 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, a position he held
since March 1991.
Mark W. Immelt became Senior Vice President of Bancorp Trust Services on July 1,
1997. Mr. Immelt joined First Southwestern in December 1996 as Senior Vice
President and Senior Trust Officer, a position that he still retains. Before
joining First Southwestern, he spent 28 years managing personal trust, corporate
trust, employee benefit programs and private banking programs in the Northern
Indiana and Northeast Ohio area.
Brian D. Moriarty became Senior Vice President of Bancorp, responsible for the
human resources function, on January 12, 1996. Mr. Moriarty also became Senior
Vice President of First Southwestern in January 1996, where he had been First
Vice President since 1991.
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 had served as Senior Vice President and Chief
Financial Officer of First Southwestern from January 1996 to July 1997, and as
First Vice President and Comptroller of First Southwestern from 1991 to January
1996.
Michael T. Riley became Senior Vice President of Bancorp, responsible for
Marketing, data processing, operations and public relations, on January 12,
1996. Mr. Riley also became Senior Vice President of First Southwestern in
January 1996, where his duties include marketing, data processing and
operations. He had served as First Vice President of Consumer Banking for First
Southwestern since 1989.
C. Douglas Lefferson became First Vice President and Comptroller of Bancorp
effective November 25, 1998. He had served as Vice President and Chief Financial
Officer of First Southwestern since July 1997. Mr. Lefferson previously held the
title of Vice President and Comptroller of First Southwestern since December
1995 and Assistant Vice President and Assistant Comptroller since 1993.
<PAGE> 10
F-8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Bancorp had 4,321 common stock shareholders of record as of February 22, 1999.
Bancorp's common equity is listed with the National Association of Securities
Dealers, Inc. (NASDAQ) and is traded on The NASDAQ Stock Market. The information
contained on page 28 of the Notes to Consolidated Financial Statements in
Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is
incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained in Table 1 on page 2 of the Management's Discussion
and Analysis section of Bancorp's Annual Report to Shareholders for the year
ended December 31, 1998 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 in the Management's Discussion and Analysis section of
Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 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 1 through 28 of
Management's Discussion and Analysis, Consolidated Financial Statements, and
Notes to Consolidated Financial Statements in Bancorp's Annual Report to
Shareholders for the year ended December 31, 1998, provides a detailed review of
Bancorp's business activities.
INVESTMENT PORTFOLIO
At December 31, 1998, 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.
LOAN PORTFOLIO
The table below shows the composition of Bancorp's loan portfolio at the end of
each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL $ 631,906 $ 502,919 $ 398,034 $ 340,942 $ 286,635
REAL ESTATE--CONSTRUCTION 72,518 63,308 43,262 41,845 29,273
REAL ESTATE--MORTGAGE 1,042,579 927,985 863,414 788,805 746,150
INSTALLMENT 474,783 439,744 366,051 329,034 285,412
CREDIT CARD 18,521 17,369 16,107 15,406 15,599
LEASE FINANCING 29,212 27,260 14,821 16,557 16,102
---------- ---------- ---------- ---------- ----------
TOTAL LOANS $2,269,519 $1,978,585 $1,701,689 $1,532,589 $1,379,171
========== ========== ========== ========== ==========
</TABLE>
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 table on the following page summarizes
Bancorp's nonaccrual loans, restructured loans, other real estate owned, and
past due loans as of the end of each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS $ 6,152 $ 5,257 $ 4,850 $ 2,764 $ 2,412
RESTRUCTURED LOANS 78 1,581 890 517 1,429
OREO* 221 950 264 1,677 2,116
------- ------- ------- ------- -------
TOTAL NONPERFORMING ASSETS $ 6,451 $ 7,788 $ 6,004 $ 4,958 $ 5,957
======= ======= ======= ======= =======
NONPERFORMING ASSETS AS A
</TABLE>
<PAGE> 11
F-9
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERCENT OF TOTAL LOANS PLUS
OREO 0.28% 0.39% 0.35% 0.32% 0.43%
ACCRUING LOANS PAST DUE
90 DAYS OR MORE $ 1,839 $ 1,203 $ 906 $ 1,071 $ 683
*OTHER REAL ESTATE OWNED
</TABLE>
POTENTIAL PROBLEM LOANS
At December 31, 1998, Bancorp had $191,000 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, 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, 1998.
<PAGE> 12
F-10
LOAN LOSS DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
(DOLLARS IN THOUSANDS)
TRANSACTIONS IN THE ALLOWANCE FOR LOAN LOSSES:
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1 $27,510 $22,672 $20,437 $18,609 $18,380
LOANS CHARGED OFF:
COMMERCIAL 1,861 1,072 1,210 790 648
REAL ESTATE--CONSTRUCTION 28
REAL ESTATE--MORTGAGE 329 247 226 26 124
INSTALLMENT AND OTHER
CONSUMER FINANCING 3,276 2,506 2,340 1,721 1,248
LEASE FINANCING 293 57 187 107 132
------- ------- ------- ------- -------
TOTAL LOANS CHARGED OFF 5,759 3,910 3,963 2,644 2,152
------- ------- ------- ------- -------
RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF:
COMMERCIAL 246 273 346 546 384
REAL ESTATE--CONSTRUCTION 8
REAL ESTATE--MORTGAGE 58 92 54 39 41
INSTALLMENT AND OTHER
CONSUMER FINANCING 712 619 711 592 653
LEASE FINANCING 34 15 62 17 35
------- ------- ------- ------- -------
TOTAL RECOVERIES 1,050 999 1,173 1,202 1,113
------- ------- ------- ------- -------
NET CHARGE-OFFS 4,709 2,911 2,790 1,442 1,039
ALLOWANCE ACQUIRED THROUGH MERGERS
AND ACQUISITIONS 806 3,013 1,592 1,162
PROVISION FOR LOAN LOSSES 6,077 4,736 3,433 2,108 1,268
------- ------- ------- ------- -------
BALANCE AT DECEMBER 31 $29,684 $27,510 $22,672 $20,437 $18,609
======= ======= ======= ======= =======
RATIOS:
NET CHARGE-OFFS AS A PERCENT OF:
AVERAGE LOANS OUTSTANDING 0.22% 0.16% 0.17% 0.10% 0.08%
PROVISION 77.49% 61.47% 81.27% 68.41% 81.94%
ALLOWANCE 15.86% 10.58% 12.31% 7.06% 5.58%
ALLOWANCE AS A PERCENT OF:
5 YEAR MOVING AVERAGE OF
NET CHARGE-OFFS 1,151.35% 1,302.19% 759.79% 603.64% 402.18%
YEAR-END LOANS, NET OF
UNEARNED INCOME 1.31% 1.39% 1.33% 1.33% 1.35%
</TABLE>
<PAGE> 13
F-11
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:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------ -----------
$ % $ % $ % $ % $ %
------- ---- ------- ---- ------- ---- ------ ---- ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT END
OF PERIOD APPLI-
CABLE TO:
COMMERCIAL $ 6,472 28% $ 5,372 26% $ 4,826 23% $ 4,254 22% $ 4,395 21%
REAL ESTATE-
CONSTRUCTION 910 3% 246 3% 172 3% 210 3% 340 2%
REAL ESTATE-
MORTGAGE 5,018 46% 5,320 47% 3,510 51% 3,713 52% 2,552 54%
INSTALLMENT &
CREDIT CARD 8,448 22% 7,328 23% 5,419 22% 4,184 22% 3,298 22%
LEASE FINANCING 630 1% 483 1% 327 1% 196 1% 154 1%
UNALLOCATED 8,206 N/A 8,761 N/A 8,418 N/A 7,880 N/A 7,870 N/A
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
$29,684 100% $27,510 100% $22,672 100% $20,437 100% $18,609 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
$ - DOLLAR AMOUNT
% - PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS
DIVIDEND PAYOUT RATIO
The dividend payout ratios for 1998, 1997 and 1996 were 46.1%, 47.0%, and 48.1%,
respectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). In
addition, certain statements in future filings by Bancorp with the Securities
and Exchange Commission, in press releases, and in oral and written statements
made by or with the approval of Bancorp which are not statements of historical
fact constitute forward- looking statements within the meaning of the Act.
Examples of forward-looking statements include, but are not limited to,
projections of revenues; income or loss; earnings or loss per share; the payment
or non-payment of dividends; capital structure and other financial items,
statements of plans and objectives of Bancorp or its management or Board of
Directors; and statements of future economic performance and statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"intends," and other similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to, the strength of the local economies
in which operations are conducted; the effects of and changes in policies and
laws of regulatory agencies; inflation, interest rates, market and monetary
fluctuations; technological changes; mergers and acquisitions; the ability to
increase market share and control expenses; the effect of changes in accounting
policies and practices, as may be adopted by the regulatory agencies as well as
the Financial Accounting Standards Board and the Securities and Exchange
Commission; the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation; the ability to achieve satisfactory results
regarding the Year 2000 issue; and the success of Bancorp at managing the risks
involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and Bancorp undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the
<PAGE> 14
F-12
occurrence of unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information contained on pages 8 and 9 of the Management's Discussion and
Analysis section of Bancorp's Annual Report to Shareholders for the year ended
December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and report of independent auditors
included on pages 11 through 27 of the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements in Bancorp's Annual Report to
Shareholders for the year ended December 31, 1998 are incorporated herein by
reference.
The Quarterly Financial and Common Stock Data on page 28 of the Notes to
Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for
the year ended December 31, 1998 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.
<PAGE> 15
F-13
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 4
of Bancorp's Proxy Statement, dated March 23, 1999 with respect to the Annual
Meeting of Shareholders to be held on April 27, 1999, which was filed pursuant
to Regulation 14A 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 11, "Executive Compensation" on pages 12
through 16, and under "Compensation Committee Report" on pages 18 and 19 of
Bancorp's Proxy Statement dated March 23, 1999 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 through 4 of Bancorp's Proxy Statement
dated March 23, 1999 is incorporated herein by reference in response to this
item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in Note 17 of the Notes to Consolidated Financial
Statements included on page 24 of Bancorp's Annual Report to Shareholders is
incorporated herein by reference in response to this item.
<PAGE> 16
F-14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Documents filed as a part of the Report: PAGE*
----
<S> <C> <C> <C>
(1) Report of Ernst & Young LLP, Independent Auditors ........................ 27
Consolidated Balance Sheets as of December 31, 1998 and 1997............... 11
Consolidated Statements of Earnings for year ended
December 31, 1998, 1997, and 1996 ........................................ 12
Consolidated Statements of Comprehensive Income for year ended
December 31, 1998, 1997, and 1996.......................................... 12
Consolidated Statements of Cash Flows for year ended
December 31, 1998, 1997, and 1996 ........................................ 13
Consolidated Statements of Changes in Shareholders' Equity
for year ended December 31, 1998, 1997 and 1996 .......................... 14
Notes to Consolidated Financial Statements................................. 15
(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
</TABLE>
- --------------------------------------------------------------------------------
*The page numbers indicated refer to pages of the registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 which are incorporated
herein by reference.
<PAGE> 17
F-15
<TABLE>
<CAPTION>
(3) Exhibits:
Exhibit
Number
-------
<S> <C> <C>
(3)a Articles of Incorporation, as amended as of April 28, 1998.
(3)b Amended and Restated Regulations, as of April 22, 1997 and incorporated
herein by reference to Form10-K for year ended December 31, 1997.
File No. 000-12379.
(4) Rights Agreement between First Financial Bancorp and First National Bank
of Southwestern Ohio dated as of November 23, 1993.
(4.1) First Amendment to Rights Agreement dated as of May 1, 1998 and
incorporated herein by reference to Form 10-Q for the quarter ended March
31, 1998.
(10.1) See Exhibit (4) above.
(10.2) See Exhibit (4.1) above.
(10)(iii)A(1) 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.
(10)(iii)A(2) Agreement between Stanley N. Pontius and First Financial Bancorp dated
January 27, 1998 and incorporated herein by reference to Form10-K for year
ended December 31, 1997. File No. 000-12379.
(10)(iii)A(3) Agreement between Rick L. Blossom and First Financial Bancorp dated
January 27, 1998 and incorporated herein by reference to Form10-K for year
ended December 31, 1997. File No. 000-12379.
(10)(iii)A(4) Agreement between Michael R. O'Dell and First Financial Bancorp dated
January 27, 1998 and incorporated herein by reference to Form10-K for year
ended December 31, 1997. File No. 000-12379.
(10)(iii)A(5) Agreement between Mark W. Immelt and First Financial Bancorp dated
January 27, 1998 and incorporated herein by reference to Form10-K for year
ended December 31, 1997. File No. 000-12379.
(10)(iii)A(6) Agreement between Michael T. Riley and First Financial Bancorp dated
January 27, 1998 and incorporated herein by reference to Form10-K for year
ended December 31, 1997. File No. 000-12379.
(10)(iii)A(7) First Financial Bancorp Dividend Reinvestment and Share Purchase Plan,
Dated April 24, 1997 and incorporated herein by reference to a Registration
Statement on Form S-3, Registration No. 333-25745.
(13) Registrant's annual report to security holders for the year ended December
31, 1998.
(21) First Financial Bancorp. Subsidiaries.
</TABLE>
<PAGE> 18
F-16
<TABLE>
<CAPTION>
<S> <C>
(23) Consent of Ernst & Young LLP, Independent Auditors.
(27) Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
The Company will furnish, without charge, to a security holder upon request a
copy of the documents, portions of which are incorporated by reference (Annual
Report to Shareholders and Proxy Statement), and will furnish any other Exhibit
upon payment of reproductions costs.
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1998, the
registrant did not file any reports on Form 8-K.
<PAGE> 19
F-17
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 March 23, 1999
----------------------------------
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.
<TABLE>
<CAPTION>
<S> <C>
/s/ Stanley N. Pontius /s/ Michael R. O'Dell
- -------------------------------------- --------------------------------------
Stanley N. Pontius, Director Michael R. O'Dell
President and Chief Executive Officer Senior Vice President, Chief Financial
Officer, and Secretary
Date March 23, 1999 Date March 23, 1999
---------------------------------- -----------------------------------
/s/ Barry S. Porter /s/ Carl R. Fiora
- -------------------------------------- --------------------------------------
Barry S. Porter, Director Carl R. Fiora, Director
Date March 23, 1999 Date March 23, 1999
---------------------------------- -----------------------------------
/s/ Vaden Fitton /s/ Perry D. Thatcher
- -------------------------------------- --------------------------------------
Vaden Fitton, Director Perry D. Thatcher, Director
Date March 23, 1999 Date March 23, 1999
---------------------------------- -----------------------------------
/s/ Arthur W. Bidwell /s/ Stephen S. Marcum
- -------------------------------------- --------------------------------------
Arthur W. Bidwell, Director Stephen S. Marcum, Director
Date March 23, 1999 Date March 23, 1999
---------------------------------- -----------------------------------
/s/ Richard L. Alderson /s/ Steven C. Posey
- -------------------------------------- --------------------------------------
Richard L. Alderson, Director Steven C. Posey, Director
Date March 23, 1999 Date March 23, 1999
---------------------------------- ----------------------------------
/s/ C. Douglas Lefferson
- --------------------------------------
C. Douglas Lefferson, First Vice President
and Comptroller
Date March 23, 1999
----------------------------------
</TABLE>
<PAGE> 1
Exhibit 3(a)
Revised April 30, 1987
Revised April 30, 1990
Revised May 7, 1991
Revised April 27, 1993
Revised April 26, 1994
Revised April 22, 1997
Revised April 28, 1998
ARTICLES OF INCORPORATION
OF
FIRST FINANCIAL BANCORP.
The undersigned, a majority of whom are citizens of the United States,
desiring to form a corporation, for profit, under Sections 1701.01 et seq. of
the Revised Code of Ohio, do hereby certify:
FIRST. The name of said corporation shall be First Financial Bancorp.
SECOND. The place in Ohio where its principal office is to be located is
Hamilton, Butler County.
THIRD. The purposes for which it is formed are: to organize, purchase,
acquire, own, invest in, or control banks and other companies, and the shares
and securities of the same, in accordance with, and to the full extent permitted
by, the Bank Holding Company Act of 1956 and other applicable laws of the United
States, or of this State, as now or hereafter amended, and to carry on the
business of a bank holding company in accordance with such laws; and to engage
in any lawful act or activity for which corporations may be formed under
Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is Sixty Million (60,000,000) shares of common stock,
without par value.
(a) Dividends. The holders of shares of common stock shall be entitled to
receive dividends, if and when declared payable from time to time by the Board
of Directors, from any funds legally available therefor.
(b) Voting. Each outstanding share of the common stock of the corporation
shall entitle the holder thereof to one vote and the exclusive voting power for
all purposes shall be vested in the holders of common stock.
<PAGE> 2
(c) Preemptive Rights. No holder of shares of the common stock of the
corporation shall have preemptive rights to subscribe for or to purchase any
shares of the common stock of the corporation or any other securities of the
corporation, whether such share or shares are now or hereafter authorized.
(d) Purchase of Own Securities. The corporation shall be authorized to
purchase or otherwise acquire, and to hold, own, pledge, transfer or otherwise
dispose of, shares of its own common stock and other securities, subject,
however, to the laws of the State of Ohio and to federal statutes, and without
limitation to the Bank Holding Company Act of 1956 as amended and as hereinafter
may be amended or supplemented.
(e) The shareholders shall not have the right to vote cumulatively in the
election of directors effective for the Annual Meeting occurring in 1988 and
thereafter.
FIFTH. The number and qualification of directors of the corporation shall
be fixed from time to time by its Code of Regulations. The number of directors
may be increased or decreased as therein provided but the number thereof shall
in no event be less than nine. The Board of Directors shall be divided into
three classes as nearly equal in number as the then total number of directors
constituting the whole board permits, with the term of office of one class
expiring each year. At the first annual meeting of stockholders, directors of
Class I shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of Class II shall be elected to hold office
for a term expiring at the second succeeding annual meeting, and directors of
Class III shall be elected to hold office for a term expiring at the third
succeeding annual meeting. In no event shall there be less than three directors
per class. Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose terms shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. In the event of any increase in the number of directors of the
corporation, the additional directors shall be so classified that all classes of
directors shall be increased equally as nearly as may be possible. In the event
of any decrease in the number of directors of the corporation, all classes of
directors shall be decreased as equal as possible. No reduction in number of
directors shall of itself have the effect of shortening the term of an incumbent
director.
SIXTH. Each person who is or was a director, officer, employee or agent of
the corporation shall be indemnified by the corporation to the full extent
permitted by the Revised Code of Ohio against any liability, cost or expense
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as a director, officer, employee or agent. The
corporation may, but shall not be obligated to, maintain insurance, at its
expense, to protect itself and any such person against any such liability, cost
or expense.
SEVENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation in the manner
now or hereafter prescribed by the laws of Ohio, and all rights and powers
conferred herein upon stockholders and directors are granted subject to this
reservation.
EIGHTH. The amount of capital with which the corporation shall begin
business is Five Hundred ($500.00) Dollars.
IN WITNESS WHEREOF, we have hereunto subscribed our names, this 20th day of
July, 1982.
FIRST FINANCIAL BANCORP
/s/ Robert Q. Millan
-------------------------------
Robert Q. Millan
<PAGE> 3
/s/ Richard J. Fitton
-------------------------------
Richard J. Fitton
/s/ Elliott D. Levey
-------------------------------
Elliott D. Levey
<PAGE> 1
Exhibit 4
- --------------------------------------------------------------------------------
FIRST FINANCIAL BANCORP
AND
THE FIRST NATIONAL BANK OF SOUTHWESTERN OHIO
RIGHTS AGENT
----------
RIGHTS AGREEMENT
DATED AS OF NOVEMBER 23, 1993
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS.............................................................................1
SECTION 2. APPOINTMENT OF RIGHTS AGENT.....................................................................5
SECTION 3. ISSUE OF RIGHTS CERTIFICATES....................................................................5
SECTION 4. FORM OF RIGHTS CERTIFICATES.....................................................................7
SECTION 5. COUNTERSIGNATURE AND REGISTRATION...............................................................8
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST
OR STOLEN RIGHTS CERTIFICATES...................................................................8
SECTION 7. EXERCISE OF RIGHTS: PURCHASE PRICE; EXPIRATION DATE OF RIGHTS...................................9
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES............................................11
SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK..................................................11
SECTION 10. COMMON STOCK RECORD DATE.......................................................................12
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS....................13
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.....................................21
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER...........................21
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES........................................................24
SECTION 15. RIGHTS OF ACTION...............................................................................24
SECTION 16. AGREEMENT OF RIGHTS HOLDERS....................................................................25
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.............................................25
SECTION 18. CONCERNING THE RIGHTS AGENT....................................................................26
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT......................................26
SECTION 20. DUTIES OF RIGHTS AGENT.........................................................................27
SECTION 21. CHANGE OF RIGHTS AGENT.........................................................................29
SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES............................................................29
SECTION 23. REDEMPTION AND TERMINATION.....................................................................30
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 24. NOTICE OF CERTAIN EVENTS.......................................................................31
SECTION 25. NOTICES........................................................................................32
SECTION 26. SUPPLEMENTS AND AMENDMENTS.....................................................................32
SECTION 27. SUCCESSORS.....................................................................................33
SECTION 28. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC......................................33
SECTION 29. BENEFITS OF THIS AGREEMENT.....................................................................34
SECTION 30. SEVERABILITY...................................................................................34
SECTION 31. GOVERNING LAW..................................................................................34
SECTION 32. COUNTERPARTS...................................................................................34
SECTION 33. DESCRIPTIVE HEADINGS...........................................................................34
SECTION 34. COMPLIANCE WITH LAWS AND REGULATIONS...........................................................34
Exhibit A - Form of Rights Certificate.........................................................
Exhibit B - Form of Summary of Rights..........................................................
</TABLE>
iii
<PAGE> 4
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of November 23, 1993 (the
"Agreement"), between First Financial Bancorp, an Ohio corporation (the
"Company"), and The First National Bank Of Southwestern Ohio (the "Rights
Agent").
W I T N E S S E T H
-------------------
WHEREAS, on November 23, 1993 (the "Rights Dividend
Declaration Date"), the Board of Directors of the Company authorized and
declared a dividend distribution of one Right for each share of Common Stock (as
hereinafter defined) of the Company outstanding at the close of business on
December 6, 1993 (the "Record Date") and has authorized the issuance of one
Right (as such number may hereinafter be adjusted pursuant to the provisions of
Section 11 hereof) for each share of Common Stock of the Company issued between
the Record Date (whether originally issued or delivered from the Company's
treasury) and the earlier of the Distribution Date and the Expiration Date (each
as hereinafter defined), each Right initially representing the right to purchase
one share of Common Stock of the Company, upon the terms and subject to the
conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1 CERTAIN DEFINITIONS. For purposes of this Agreement,
the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of twenty percent (20%) or more of the shares of Common Stock
then outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, any Person or entity organized, appointed or established by the Company
for or pursuant to the terms of any such plan or any Person who or which would
otherwise become an Acquiring Person solely as a result of a decrease in the
number of outstanding shares of Common Stock and which has not, on or after the
date on which it would otherwise have become an Acquiring Person, acquired
beneficial ownership of any additional shares of Common Stock.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Adverse Person" shall mean any Person declared to
be an Adverse Person by the Board of Directors upon determination that the
criteria set forth in Section 11(a)(ii)(B) apply to such Person.
1
<PAGE> 5
(d) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended and in
effect on the date of this Agreement (the "Exchange Act").
(e) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; PROVIDED, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or (C)
securities issuable upon exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section
11(i) hereof in connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph (ii)
as a result of an agreement, arrangement or understanding to vote such security
if such agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act, and (B) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing), for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph (e)) or
disposing of any voting securities of the Company;
PROVIDED, however, that nothing in this paragraph (e) shall cause a person
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of, or to "beneficially own," any
2
<PAGE> 6
securities acquired through such person's participation in good faith in a firm
commitment underwriting until the expiration of forty (40) days after the date
of such acquisition.
(f) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of Ohio are
authorized or obligated by law or executive order to close.
(g) "Close of business" on any given date shall mean
5:00 P.M., Cincinnati, Ohio time, on such date; PROVIDED, however, that if such
date is not a Business Day it shall mean 5:00 P.M., Cincinnati, Ohio time, on
the next succeeding Business Day.
(h) "Common Stock" shall mean the common stock, $8.00
par value, of the Company, except that "Common Stock" when used with reference
to any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(i) "Common stock equivalents" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(j) "Continuing Director" shall mean a director who
either was a member of the Board of Directors of the Company prior to December
6, 1993 or who subsequently became a director of the Company and who was
recommended for election by, or was elected to fill a vacancy and received the
affirmative vote of, a majority of the Continuing Directors then on the Board of
Directors of the Company.
(k) "Current market price" shall have the meaning set
forth in Section 11(d)(i) hereof.
(l) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(m) "Distribution Date" shall have the meaning set forth
in Section 3(a) hereof.
(n) "Exchange Act" shall have the meaning set forth in
Section 1(d) hereof.
(o) "Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(p) "Final Expiration Date" shall mean the close of
business on December 6, 2003.
(q) "Person" shall mean any individual, firm,
corporation, partnership or other entity, and shall include any successor (by
merger or otherwise) of such entity.
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(r) "Principal Party" shall have the meaning set forth
in Section 13(b) hereof.
(s) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
(t) "Record Date" shall have the meaning set forth in
the WHEREAS clause at the beginning of this Agreement.
(u) "Redemption Price" shall have the meaning set forth
in Section 23(a) hereof.
(v) "Rights" shall have the meaning set forth in the
WHEREAS clause at the beginning of this Agreement.
(w) "Rights Certificates" shall have the meaning set
forth in Section 3(a) hereof.
(x) "Rights Dividend Declaration Date" shall have the
meaning set forth in the WHEREAS clause at the beginning of this Agreement.
(y) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii)(A) or (B) hereof.
(z) "Section 11(a)(ii) Trigger Date" shall have the
meaning set forth in Section 11(a)(iii) hereof.
(aa) "Section 13 Event" shall mean any event described
in clause (x), (y) or (z) of Section 13 (a) hereof.
(bb) "Spread" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(cc) "Stock Acquisition Date" shall mean the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(dd) "Subsidiary" shall mean, with reference to any
Person, any corporation of which an amount of voting securities sufficient to
elect at least a majority of the directors of such corporation is beneficially
owned, directly, or indirectly, by such Person or otherwise controlled by such
Person.
(ee) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
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(ff) "Trading Day" shall have the meaning set forth in
Section 11(d)(i) hereof.
(gg) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable and, if it does so, the respective duties of the Rights
Agent and any Co-Rights Agents shall be as the Company shall determine.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the close of business on the
twentieth business day after the Stock Acquisition Date (or, if the twentieth
business day after the Stock Acquisition Date occurs before the Record Date, the
close of business on the Record Date), (ii) the close of business on the
twentieth business day after the date that a tender or exchange offer by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to
the terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange
Act, if upon consummation thereof, such Person would be the Beneficial Owner of
thirty percent (30%) or more of the shares of Common Stock then outstanding or
(iii) the close of business on the twentieth business day after the Board of
Directors of the Company determines, pursuant to the criteria set forth in
Section 11(a)(ii)(B) hereof, that a Person is an Adverse Person (the earliest of
(i), (ii) and (iii), including any such date which is after the Rights Dividend
Declaration Date and prior to the Record Date, being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Company will prepare and execute, the Rights Agent
will countersign and the Rights Agent or the Company will send by first-class,
insured, postage prepaid mail, to each record holder of the Common Stock as of
the close of business on the Distribution Date, at the address of such holder
shown on the records of the Company, one or more rights certificates, in
substantially the form of Exhibit A hereto (the "Rights Certificates"),
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. If an adjustment in the number of Rights per
share of Common Stock has been made pursuant to Section 11 hereof, at the time
of distribution of the Right Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and
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<PAGE> 9
cash is paid in lieu of any fractional Rights. As of and after the Distribution
Date, the Rights will be evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights to Purchase Common Stock, in
substantially the form attached hereto as Exhibit B, by first-class, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for the Common Stock outstanding as
of the Record Date, until the earlier of the Distribution Date or the Expiration
Date, the Rights will be evidenced by such certificates for the Common Stock and
the registered holders of the Common Stock shall also be the registered holders
of the associated Rights. Until the earlier of the Distribution Date or the
Expiration Date, the transfer of any certificates representing shares of Common
Stock in respect of which Rights have been issued shall also constitute the
transfer of the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued, including without limitation shares of Common Stock issued in
connection with a stock dividend on, or a subdivision of, Common Stock or the
conversion of a security convertible into Common Stock, and all shares of stock
which are issued in connection with a reclassification to Common Stock, after
the Record Date but prior to the earlier of the Distribution Date and the
Expiration Date. Certificates representing such shares of Common Stock, or
shares representing stock into which the Common Stock has been reclassified,
shall also be deemed to be certificates for Rights, and all certificates issued
for newly issued shares or transfers of Common Stock after the Record Date shall
bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between First
Financial Bancorp (the "Company") and The First National Bank of
Southwestern Ohio (the "Rights Agent") dated as of November 23, 1993
(the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect on the date of mailing, Without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person, an
Adverse Person or any Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the stock represented by such certificates shall be evidenced by
such certificates alone and registered holders of such stock shall also be the
registered holders of the associated Rights, and the transfer of any of such
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<PAGE> 10
certificates shall also constitute the transfer of the Rights associated with
the stock represented by such certificates.
(d) If the Company purchases or acquires any Common Stock, or stock
into which the Common Stock has been reclassified, after the Record Date but
prior to the Distribution Date, any Rights associated with such stock shall be
deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with shares of stock which are no longer
outstanding. If after the Record Date but prior to the Distribution Date the
Company combines the outstanding Common Stock, or stock into which the Common
Stock has been reclassified, into a smaller number of shares, any Rights
associated with shares of stock eliminated in such combination shall be deemed
canceled and retired.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit A hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of shares of Common Stock as shall be set forth therein
at the price set forth therein (such exercise price per share of Common Stock,
the "Purchase Price"), but the amount and type of securities purchasable upon
the exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by any Person known
to be: (i) an Acquiring Person, an Adverse Person or any Associate or Affiliate
of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring
Person or an Adverse Person (or of any such Associate or Affiliate) who becomes
a transferee after the Acquiring Person or Adverse Person becomes such, or (iii)
a transferee of an Acquiring Person or an Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person or Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom such Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section 7(e)
hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent feasible)
the following legend, modified as applicable to apply to such Person:
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<PAGE> 11
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring or
Adverse Person or an Affiliate or Associate of an Acquiring or Adverse
Person (as such terms are defined in the Rights Agreement).
Accordingly, this Rights Certificate and the Rights represented hereby
may become null and void in the circumstances specified in Section 7(e)
of such Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned by the Rights Agent
and shall not be valid for any purpose unless so countersigned. If any officer
of the Company who shall have signed any of the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the certificate number and the date of
each of the Rights Certificates.
Section 6.TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of shares of Common Stock (or,
following a Triggering Event, Common Stock, other securities, cash or other
assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or
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<PAGE> 12
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof or other additional information, in either case as the
Company shall reasonably request. Thereupon the Rights Agent shall, subject to
Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for counter signature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS: PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of shares of Common Stock (or other securities, cash or other
assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) the Final Expiration Date, or
(ii) the time at which the Rights are redeemed as provided in Section 23 hereof
(the "Expiration Date").
(b) The Purchase Price for each share of Common Stock pursuant to
the exercise of a Right shall initially be $200.00, shall be subject to
adjustment from time to time as provided in Sections 11 and 13(a) hereof and
shall be payable in lawful money of the United States of America in accordance
with paragraph (c) below, except as otherwise provided herein.
(c) Subject to the Company having received any necessary regulatory
approvals, upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per share of Common Stock (or other shares,
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<PAGE> 13
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i)(A) requisition
from any transfer agent (or from the Company, if the Company is acting as its
own transfer agent) of the shares of Common Stock (or make available, if the
Rights Agent is the transfer agent for such shares) certificates for the total
number of shares of Common Stock to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or
(B) if the Company shall have elected to deposit the total number of shares of
Common Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent depositary receipts representing
such number of shares of Common Stock as are to be purchased (in which case
certificates for the shares of Common Stock represented by such receipts shall
be deposited by the transfer agent with the depositary agent) and the Company
will direct the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash, if any, to be paid
in lieu of fractional shares in accordance with Section 14 hereof or the amount
of cash, property or securities to be paid in lieu of shares of Common Stock in
accordance with Section 11(a)(iii) or (iv) hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder, and (iv) after receipt
thereof, deliver such cash, property or securities if any, to or upon the order
of the registered holder of such Rights Certificate. The payment of the Purchase
Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) may
be made in cash or by certified check or cashier's check payable to the order of
the Company. If the Company is obligated to issue other securities (including
Common Stock) of the Company, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements necessary so
that such other securities, cash and/or other property are available for
distribution by the Rights Agent, if and when appropriate.
(d) If the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights Beneficially
Owned by (i) an Acquiring Person, an Adverse Person or an Associate or Affiliate
of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring
Person or an Adverse Person (or of any such Associate or Affiliate) who becomes
a transferee after the Acquiring Person or Adverse Person becomes such, or
(iii) a transferee of an Acquiring Person or an Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person or Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom the Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect
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the avoidance of this Section 7(e), shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or Adverse Person or any of their respective Affiliates, Associates or
transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof or other additional information, in either case as the Company shall
reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that, as soon as practicable
following the Distribution Date, it will take all such action as may be
necessary, except as otherwise provided in Section 11(a)(iii) hereof, to cause
to be reserved and kept available out of its authorized and unissued shares of
Common Stock or out of its authorized and issued shares of Common Stock held in
its treasury, the number of shares of Common Stock (and, following the
occurrence of a Triggering Event, and except as otherwise provided in Section
11(a)(iii) hereof, Common Stock and/or other securities) that, as provided in
this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) So long as the shares of Common Stock issuable and deliverable
upon the exercise of the Rights may be listed on any national securities
exchange, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares of Common Stock reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
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(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Act, with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction, unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement shall have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) delivered upon exercise of rights shall, at the time of delivery of
the certificates for such shares or other securities (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of shares of Common Stock (or Common Stock
and/or other securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
Person other than, or the issuance or delivery of a number of shares of Common
Stock (or Common Stock and/or other securities, as the case may be) in respect
of a name other than that of, the registered holder of the Rights Certificates
evidencing Rights surrendered for exercise or to issue or deliver any
certificates for a number of shares of Common Stock (or Common Stock and/or
other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. COMMON STOCK RECORD DATE. Each person in whose name any
certificate for shares of Common Stock (or Common Stock and/or other securities,
as the case may be) is issued upon the exercise of Rights shall for all purposes
be deemed to have become the
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holder of record of such shares of Common Stock (or Common Stock and/or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes) was made; PROVIDED, however, that if the date of such
surrender and payment is a date upon which the Common Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares (fractional or otherwise) on, and such certificate shall be dated, the
next succeeding Business Day on which the Common Stock (or Common Stock and/or
other securities, as the case may be) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate, as such, shall not be entitled to any rights of a stockholder of
the Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) If the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Common Stock payable in shares of Common
Stock, (B) subdivide the outstanding Common Stock into a greater number of
shares, (C) combine the outstanding Common Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification and, if applicable, the number and/or kind of shares of capital
stock issuable on such date shall be appropriately adjusted so that the holder
of any Right (including any Rights received pursuant to any dividend,
subdivision or reclassification and less any Rights eliminated as a result of
any combination) exercised immediately after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the aggregate number
and kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the transfer books of the
Company were open, he or she would have owned following such exercise by virtue
of such dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
(ii) If:
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<PAGE> 17
(A) the Company or any Acquiring Person publicly
announces (including without limitation by filing a report pursuant to Section
13(d) under the Exchange Act) that any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan), alone
or together with its Affiliates and Associates, at any time after the Rights
Dividend Declaration Date, has become the Beneficial Owner of thirty percent
(30%) or more of the shares of Common Stock then outstanding, unless the event
causing the thirty percent (30%) threshold to be crossed is a transaction set
forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding shares of
Common Stock at a price and on terms determined by at least a majority of the
members of the Board of Directors who are not representatives, nominees,
Affiliates or Associates of an Acquiring Person, after reasonable inquiry and
investigation, including consultation with such persons as such members of the
Board shall deem appropriate, to be (a) at a price which is fair to shareholders
(taking into account all factors which such members of the Board deem relevant
including, without limitation, prices which could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to realize maximum
value) and (b) otherwise in the best interests of the Company and its
shareholders, or
(B) a majority of the Directors of the Company who are
not officers or employees of the Company ("Outside Directors") shall declare any
Person to be an Adverse Person, upon a determination that such Person, alone or
together with its Affiliates and Associates, has become the Beneficial Owner of
an amount of Common Stock which the Outside Directors determine to be
substantial (which amount shall in no event be less than ten percent (10%) of
the shares of Common Stock then outstanding) and a determination by the Outside
Directors, after reasonable inquiry and investigation, including consultation
with such persons as such directors shall deem appropriate, that (a) such
Beneficial Ownership by such Person is intended to cause, is reasonably likely
to cause or will cause the Company to repurchase the Common Stock beneficially
owned by such Person or to cause pressure on the Company to take action or enter
into a transaction or series of transactions intended to provide such Person
with short-term financial gain under circumstances where the Outside Directors
determine that the best long-term interests of the Company and its shareholders
would not be served by taking such action or entering into such transactions or
series of transactions at that time or (b) such Beneficial Ownership is causing
or reasonably likely to cause a material adverse impact (including, but not
limited to, impairment of relationships with customers, suppliers or employees
or impairment of the Company's ability to maintain its competitive position or
effectuate a transaction that the Outside Directors deem to be in the best
interests of the Company's shareholders) on the business or prospects of the
Company to the detriment of the Company's shareholders, or (c) such Beneficial
Ownership otherwise is determined to be not in the best interests of the Company
and its shareholders, employees, customers or communities in which the Company
and its Subsidiaries do business,
then, promptly following the first occurrence of a Section 11(a)(ii) Event,
proper provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have the right to
receive (subject to Section 11(a)(iii) hereof), upon exercise
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<PAGE> 18
thereof at the then current Purchase Price in accordance with the terms of this
Agreement, in lieu of the number of shares of Common Stock which such holder
would otherwise receive, such number of shares of Common Stock of the Company as
shall equal the result obtained by (x) multiplying the then current Purchase
Price by the number of shares of Common Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by 50% of the current market price (determined pursuant to
Section 11(d) hereof) per share of Common Stock on the date of such first
occurrence (such number of shares being referred to herein as the "Adjustment
Shares"). Notwithstanding the provisions of Section 11(a)(ii)(B) hereof, the
Board of Directors of the Company may choose not to declare a Person to be an
Adverse Person if such Person provides to the Board of Directors in writing a
statement of such Person's purpose and intention in connection with the proposed
acquisition of Common Stock, together with any other information reasonably
requested of such Person by the Board of Directors, and the Board of Directors,
based on such statement and reasonable inquiry and investigation, including
consultation with such persons as such directors shall deem appropriate,
determines to notify and notifies such Person in writing that it will not
declare such Person to be an Adverse Person; PROVIDED, HOWEVER, that the Board
of Directors may expressly condition in any manner a determination not to
declare a Person an Adverse Person on such conditions as the Board of Directors
may select, including, without limitation, such Person's not acquiring more than
a specified amount of Common Stock and/or on such Person's not taking actions
inconsistent with the purposes and intentions disclosed by such Person in the
statement provided to the Board of Directors. If the Board of Directors should
at any time determine, upon reasonable inquiry and investigation, including
consultation with such persons as such directors shall deem appropriate, that
such Person has not met or complied with any condition specified by the Board of
Directors pursuant to the preceding sentence, the Board of Directors may at any
time thereafter declare such Person to be an Adverse Person pursuant to the
provisions of this Section 11(a)(ii). The failure by the Board of Directors to
declare a Person to be an Adverse Person following such Person becoming the
Beneficial Owner of 10% or more of the outstanding Common Stock of the Company
shall not limit the Board of Directors' right at any time in the future to
declare such Person to be an Adverse Person.
(iii) If the number of shares of Common Stock which are
authorized by the Company's articles of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a) or Section 7(a) above, the
Company shall: (A) determine the excess of (1) the value of the shares of Common
Stock issuable upon the exercise of a Right (the "Current Value") over (2) the
Purchase Price (such excess, the "Spread"), and (B) with respect to each Right,
make adequate provision to substitute for that number of the shares of Common
Stock as to which additional shares of Common Stock have not been authorized for
issuance or as to which it is constrained from issuing, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Stock or other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock which the Board of
Directors of the Company has determined in good faith to have the same value as
shares of Common Stock (such shares of preferred stock, "common stock
15
<PAGE> 19
equivalents")), (4) debt securities of the Company, (5) other assets or (6) any
combination of the foregoing, having an aggregate value equal to the Current
Value, where such aggregate value has been determined by the Board of Directors
of the Company based upon the advice of one or more financial advisors selected
by the Board of Directors of the Company; PROVIDED, however, if the Company
shall not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the latest of (x) the Distribution Date,
(y) the first occurrence of a Section 11(a)(ii) Event and (z) the date on which
the Company's right of redemption pursuant to Section 23(a) expires (the latest
of (x), (y) and (z) being referred to herein as the "Section 11(a)(ii) Trigger
Date"), then the Company, as liquidated damages and in complete satisfaction of
all claims and liabilities that may arise in favor of the holders of the Rights
as a result of not having made such adequate provision, shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, shares of Common Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. If the Board of Directors of the Company shall determine in
good faith that it is likely that sufficient additional shares of Common Stock
could be authorized for issuance upon exercise in full of the Rights, the thirty
(30) day period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order
that the Company may seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company determines that some action need be
taken pursuant to the first and/or second sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the Common Stock shall be the current market price (as determined
pursuant to Section 11(d) hereof) per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the value of any "common stock equivalent" shall be
deemed to have the same value as the Common Stock on such date.
(iv) In lieu of issuing shares of Common Stock in
accordance with subparagraph (ii) of this Section 11(a), the Company may with
respect to each Right, if a majority of members of the Board of Directors who
are Continuing Directors determines that such action is in the best interests of
the Company and not contrary to the interests of the holders of Rights, make
adequate provision to substitute for such Shares of Common Stock, (x) upon the
surrender for exercise of a Right and payment of the applicable Purchase Price,
(1) cash, (2) a reduction in Purchase Price, (3) Common Stock, or other equity
securities of the Company (including without limitation common stock
equivalents), (4) debt securities of the Company, (5) other assets or (6) any
combination of the foregoing having an aggregate value equal to the Current
Value where such aggregate value has been determined by the Board of Directors
of the Company based upon the advice of one or more financial advisors selected
by the Board of Directors of the Company or (y) upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, (1) cash, (2)
Common Stock, or other equity securities of the Company (including,
16
<PAGE> 20
without limitation, common stock equivalents), (3) debt securities of the
Company, (4) other assets or (5) any combination of the foregoing, having an
aggregate value equal to the Spread where such aggregate value has been
determined by the Board of Directors of the Company based upon the advice of one
or more financial advisors selected by the Board of Directors of the Company.
(b) If the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Common Stock entitling
them to subscribe for or purchase (for a period expiring within forty-five (45)
calendar days after such record date) Common Stock or securities convertible
into Common Stock at a price per share of Common Stock (or having a conversion
price per share, if a security convertible into Common Stock) less than the
current market price (as determined pursuant to Section 11(d) hereof) per share
of Common Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date,
plus the number of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date, plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). If such subscription price may be paid by
delivery of consideration part or all of which may be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such rights or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) If the Company shall fix a record date for a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company and in an amount not exceeding one hundred twenty-five percent
(125%) of the next previous regular quarterly cash dividend), assets (other than
a dividend payable in Common Stock, but including any dividend payable in stock
other than Common Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Common Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Common Stock and the denominator
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<PAGE> 21
of which shall be such current market price (as determined pursuant to Section
11(d) hereof) per share of Common Stock. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share, of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purposes of computations made pursuant
to Section 11(a) (iii) hereof, the "current market price" per share of Common
Stock on any date shall be deemed to be the average of the daily closing prices
per share of such Common Stock for the ten (10) consecutive Trading Days
immediately following such date; PROVIDED, however, that if the current market
price per share of the Common Stock is determined during a period following the
announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day or ten (10)
Trading Day period, as set forth above, after the ex-dividend date for such
dividend or distribution or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price" shall
be properly adjusted to take into account ex-dividend trading. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the shares of Common Stock are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or
such other system then in use, or, if on any such date the shares of Common
Stock are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Common Stock selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in the Common Stock, the fair value
of such shares on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "current market price" per share shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
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<PAGE> 22
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; PROVIDED, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten-thousandth of a
share of Common Stock or other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment, or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Right and the Purchase Price thereof shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and
the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to Common
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of shares of
Common Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one ten-thousandth of a share)
obtained by (i) multiplying (x) the number of shares covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date
of any adjustment of the Purchase Price to adjust the number of Rights, in lieu
of any adjustment in the number of shares of Common Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of shares of Common Stock
for which a Right was exercisable immediately prior to such adjustment. Each
Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
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<PAGE> 23
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Common Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per share and the number of
shares which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable such number of shares of Common Stock at such adjusted Purchase
Price.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date the number of shares of Common Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the number of
shares of Common Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; PROVIDED, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(m) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(n) hereof), (ii) merge with or into any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section 11(n)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than fifty percent (50%) of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other Person
or Persons (other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(n) hereof), if (x) at the
time of or immediately
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<PAGE> 24
after such consolidation, merger, sale or transfer there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger, sale or transfer, the shareholders of the
Person who constitutes, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(n) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Common Stock, a copy of such certificate, and (c) mail a brief summary thereof
to each holder of a Rights Certificate (or, if prior to the Distribution Date,
to each holder of a certificate representing shares of Common Stock) in
accordance with Section 25 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of such adjustment unless and until it
shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) If, on or after the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(n) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(n) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
fifty percent (50%) of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which
complies with Section 11(n) hereof), then, and in each such case, proper
provision shall be made so that: (i) each holder of a Right, except as provided
in Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, such number of validly authorized and issued, fully paid,
non-assessable and freely tradeable shares
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<PAGE> 25
of Common Stock of the Principal Party (as such term is hereinafter defined),
not subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of shares of Common Stock for which a Right
is exercisable immediately prior to the first occurrence of a Section 13 Event
(or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of
a Section 13 Event, multiplying the number of such shares of Common Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) fifty percent
(50%) of the current market price (determined pursuant to Section 11(d)(i)
hereof) per share of the Common Stock of such Principal Party on the date of
consummation of such Section 13 Event (except as provided below, such number of
shares to be appropriately adjusted in a manner analogous to the applicable
adjustment in the Purchase Price provided for in Section 11 if during the
two-year period after such date of consummation an event of a type analogous to
any of the events described in Section 11 hereof shall have occurred with
respect to such shares); (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall apply only
to such Principal Party following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of shares of its Common Stock) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the first occurrence of any
Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so issued,
the Person that is the other Party to such merger or consolidation (including,
if applicable, the Company, if it is the surviving corporation); and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions;
PROVIDED, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than
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one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable after
the date of any consolidation, merger, sale or transfer mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration statement
under the Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for registration
on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. If a Section 13 Event shall occur at
any time after the occurrence of a Section 11(a)(ii) Event, the Rights which
have not theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which complies with the provisions of Section 11(a)(ii)(A) hereof
(or a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose shares
were purchased pursuant to such tender offer or exchange offer, and (iii) the
form of consideration being offered to the remaining holders of shares of Common
Stock pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer or exchange offer or to such a transaction at a
price and on terms determined by at least a majority of the members of the Board
of Directors who are not representatives, nominees, Affiliates or Associates, of
an Acquiring Person, after reasonable inquiry and investigation, including
consultation with such persons as such members of the Board shall deem
appropriate, to be (i) at a price which is fair to shareholders (taking into
account all factors which such members of the Board deem relevant including,
without limitation, prices which could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize maximum value) and
(ii) otherwise in the
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best interest of the Company and its shareholders. Upon consummation of any such
transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions
of Rights, or to distribute Rights Certificates which evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use, or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Rights or to distribute certificates
which evidence fractional shares of Common Stock. In lieu of fractional shares
of Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one (1) share
of Common Stock. For purposes of this Section 14(b), the current market value of
one (1) share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent pursuant to
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of
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<PAGE> 28
the holder of any other Rights Certificate (or, prior to the Distribution Date,
of the Common Stock), may, in his own behalf and for his own benefit, enforce,
and may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to exercise the
Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of shares of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of shares of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder
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of any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company shall pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also shall indemnify the Rights Agent for, and hold it
harmless against, any loss, liability, or expense, incurred without negligence,
bad faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the cost and expenses of defending
against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; PROVIDED, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. If at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
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(b) If at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and if at
that time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of "current market price") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after receipt of the certificate described in
Section 12 hereof setting forth any such adjustment); nor shall it by any act
hereunder be deemed to make any
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<PAGE> 31
representation or warranty as to the authorization or reservation of any shares
of Common Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock will, when so issued, be
validly authorized and issued, fully paid and non-assessable.
(f) The Company shall perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five (5) business days after the date any such officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; PROVIDED, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing
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<PAGE> 32
that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate contained in the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon sixty (60) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. The Company may remove
the Rights Agent or any successor Rights Agent upon sixty (60) days, notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Stock, by registered or certified
mail, and to the holders of the Rights Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of sixty (60) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (a) a corporation organized and
doing business under the laws of the United States, or the State of Ohio (or of
any other state of the United States), in good standing, and having a principal
office in the State of Ohio, which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000 or (b) an affiliate of a
corporation described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of
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<PAGE> 33
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares of
Common Stock following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to shares of
Common Stock so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; PROVIDED, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (i) the close of business on the twentieth
business day following a Stock Acquisition Date (or, if a Stock Acquisition Date
shall have occurred prior to the Record Date, the close of business on the
twentieth business day following the Record Date), or (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price"). Notwithstanding the foregoing, the Board of Directors
of the Company may not redeem any Rights after the close of business on the
twentieth business day following its declaration that any Person is an Adverse
Person. In addition, the Board of Directors of the Company, with the approval of
a majority of the members thereof who are not representatives, nominees,
Affiliates or Associates of any Acquiring Person or Adverse Person, may redeem
all but not less than all of the then outstanding Rights at the Redemption Price
following the occurrence of a Stock Acquisition Date but prior to any Section 13
Event in connection with any Section 13 Event in which all holders of Common
Stock are treated alike and not involving an Acquiring Person or an Adverse
Person or an Affiliate or Associate of an Acquiring Person or an Adverse Person
or any other Person in which such Acquiring Person, Adverse Person, Affiliate or
Associate has any interest, or any other Person acting directly or indirectly on
behalf of or in association with any such Acquiring Person, Adverse Person,
Affiliate or Associate. If, following the occurrence of a Stock Acquisition Date
and following the expiration of the right of redemption hereunder but prior to
any Triggering Event, (i) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Stock in one
transaction or series of transactions, not directly or indirectly involving the
Company or any of its Subsidiaries, which did not result in the occurrence of a
Triggering Event such that such Person is thereafter a Beneficial Owner of ten
percent (10%) or less of the outstanding shares of Common Stock, and (ii) there
are no other Persons, immediately following the occurrence of the event
described in clause (i), who are Acquiring Persons or Adverse Persons, then the
right of redemption shall be reinstated and thereafter be subject to the
provisions of this Section 23.
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Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of an event described in
Section 11(a)(ii)(A) until such time as the Company's right of redemption under
the first sentence of this Section 23(a) has expired. The Company may, at its
option, pay the Redemption Price in cash, shares of Common Stock (based on the
"current market price", as defined in Section 11(d)(i) hereof, of the Common
Stock at the time of redemption) or any other form of consideration deemed
appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the Transfer Agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Subsidiaries shall redeem, acquire or purchase for value
any Rights at any time or in any manner other than that specifically set forth
in this Section 23, and other than in connection with the purchase of shares of
Common Stock prior to the Distribution Date.
Section 24. NOTICE OF CERTAIN EVENTS.
(a) If the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Common Stock or to make any other distribution to the holders of
Common Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Common
Stock rights or warrants to subscribe for or to purchase any additional shares
of Common Stock or shares of stock of any class or any other securities, rights
or options, or (iii) to effect any reclassification of its Common Stock (other
than a reclassification involving only the subdivision of outstanding shares of
Common Stock), or (iv) to effect any consolidation or merger into or with any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(n) hereof), or to effect any sale or other transfer (or
to permit one or more of its Subsidiaries to effect any sale or other transfer),
in one transaction or a series of related transactions, of more than fifty
percent (50%) of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company and/or
any of its Subsidiaries in one or more transactions each of which complies with
Section 11(n) hereof), or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each
holder of a Rights Certificate, to the extent feasible and in accordance with
Section 25 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the shares of Common Stock, if
any such date is to be
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fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Common Stock for purposes of such action,
and in the case of any such other action, at least twenty (20) days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the shares of Common Stock, whichever shall be the earlier.
(b) If any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Common Stock shall be deemed thereafter
to refer to Common Stock and/or, if appropriate, other securities.
Section 25. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
First Financial Bancorporation
300 High Street
Hamilton, Ohio 45012
Attention: President
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
The First National Bank of Southwestern Ohio
30 High Street
Hamilton, Ohio 45012
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 26. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution
Date, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement without the approval of any
holders of certificates representing shares of Common Stock or Rights. From and
after the Distribution Date and subject to the penultimate
32
<PAGE> 36
sentence of this Section 26, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Rights Certificates (other
than an Acquiring Person, an Adverse Person or an Affiliate or Associate of any
such Person); PROVIDED, that, from and after the Distribution Date, this
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed if at that time the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 26, the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Agreement to the contrary, from and
after the Distribution Date no supplement or amendment shall be made which
changes the Redemption Price, the Final Expiration Date, the Purchase Price
(except as provided in Section 11(a)(iii) or 11(a)(iv) hereof) or the number of
shares of Common Stock for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
Section 27. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS,
ETC. For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company (or, as set forth
herein, certain specified members thereof) shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement, and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, but not
limited to, a determination to redeem or not redeem the Rights, to declare that
a Person is an Adverse Person or to amend this Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board of Directors of the Company in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board of Directors or the
officers of the Corporation to any liability to the holders of the Rights.
33
<PAGE> 37
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
twentieth business day following the date of such determination by the Board of
Directors of the Company.
Section 31. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Ohio and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 34. COMPLIANCE WITH LAWS AND REGULATIONS. All covenants and
obligations of the Company hereunder are subject to compliance with all
applicable laws and regulations, including without limitation obtaining any
required regulatory approvals. If any regulatory approvals are required in
connection with any action to be taken by the Company hereunder, the Company
shall use its best efforts to obtain such approvals.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
34
<PAGE> 38
Attest: FIRST FINANCIAL BANCORP
By /s/ Richard E. Weinman By /s/ Stanley N. Pontius
-------------------------------------- ---------------------------------
Name Richard E. Weinman Name Stanley N. Pontius
------------------------------------ -------------------------------
Title SR. VP/CFO/Secretary-treasurer Title President & Ceo
----------------------------------- ------------------------------
Attest: THE FIRST NATIONAL BANK OF
SOUTHWESTERN OHIO
By /s/ Richard E. Weinman By /s/ Stanley N. Pontius
-------------------------------------- ---------------------------------
Name Richard E. Weinman Name Stanley N. Pontius
------------------------------------ -------------------------------
Title SR. VP/CFO/Secretary-treasurer Title President & Ceo
----------------------------------- ------------------------------
35
<PAGE> 39
EXHIBIT A
- ---------
[Form of Rights Certificate]
Certificate No. R- ___________ Rights
NOT EXERCISABLE AFTER DECEMBER 6, 2003 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME
AN ACQUIRING OR ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING OR
ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY,
THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND
VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
FIRST FINANCIAL BANCORP
This certifies that ____________________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of November 23, 1993 (the "Rights
Agreement"), between First Financial Bancorp, an Ohio corporation (the
"Company"), and The First National Bank of Southwestern Ohio (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 P.M. (local
time) on December 6, 2003 at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one fully paid,
non-assessable share of Common Stock of the Company, at a purchase price of
$200.00 per share (the "Purchase Price"), upon presentation and
- --------
* The portion of the legend in brackets shall be inserted only if applicable,
shall be modified to apply to an Acquiring Person or an Adverse Person, as
applicable, and shall replace the preceding sentence.
36
<PAGE> 40
surrender of this Rights Certificate with the Form of Election to Purchase and
related Certificate duly executed. The Purchase Price may be paid in cash or by
certified bank check or money order payable to the order of the Company. The
number of Rights evidenced by this Rights Certificate (and the number of shares
which may be purchased upon exercise thereof) set forth above, and the Purchase
Price per share set forth above, are the number and Purchase Price as of
December 6, 1993, based on the Common Stock as constituted at such date.
Upon the occurrence of a Triggering Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse
Person, Associate or Affiliate, or (iii) under certain circumstances specified
in the Rights Agreement, a transferee of a person who, after such transfer,
became an Acquiring Person, an Adverse Person or an Affiliate or Associate of
any such Person, such Rights shall become null and void and no holder hereof
shall have any right with respect to such Rights from and after the occurrence
of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and/or
the number and kind of shares of capital stock or other securities or property
which may be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events (as such term is defined in the
Rights Agreement).
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the office of
the Company, 139 East Fourth Street, Cincinnati, Ohio 45202 and are also
available upon written request to the Company, attention Secretary, at such
address.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of shares of Common
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may (unless the Board of Directors shall have made
a determination that a Person is an Adverse Person) be redeemed by the Company
at its option at a redemption price of $.01 per
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<PAGE> 41
Right at any time prior to the earlier of the close of business on W the
twentieth business day following the Stock Acquisition Date (as such time period
may be extended pursuant to the Rights Agreement), and (ii) the Final Expiration
Date. After the expiration of the redemption period, the Company's right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to 10% or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company. In addition,
the Board of Directors of the Company may redeem, as provided in the Rights
Agreement, all but not less than all of the then outstanding Rights at the
Redemption Price following the occurrence of a Stock Acquisition Date but prior
to any Section 13 Event in connection with any Section 13 Event in which all
holders of Common Stock are treated alike and not involving an Acquiring Person
or an Adverse Person or an Affiliate or Associate of any Acquiring Person or an
Adverse Person or any other Person in which such Acquiring Person, Adverse
Person, Affiliate or Associate has any interest, or any other Person acting
directly or indirectly on behalf of or in association with any such Acquiring
Person, Adverse Person, Affiliate or Associate.
No fractional shares of Common Stock will be issued upon the
exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled
to vote or receive dividends or be deemed for any purpose the holder of shares
of Common Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of
-----------------------------------------
ATTEST: FIRST FINANCIAL BANCORP
- -------------------------------- By
Secretary -------------------------------
Title
----------------------------
38
<PAGE> 42
Countersigned:
By
----------------------------
Authorized Signature
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED
-------------------------------------------------------------
hereby sells, assigns and transfers unto
---------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated:
------------------------------
----------------------------------------
Signature
Signature Guaranteed:
39
<PAGE> 43
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person.
Dated:
------------------------------
--------------------------------
Signature
Signature Guaranteed:
40
<PAGE> 44
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: FIRST FINANCIAL BANCORP
The undersigned hereby irrevocably elects to exercise
_____________________ Rights represented by this Rights Certificate to purchase
the shares of Common Stock issuable upon the exercise of the Rights (or such
other securities of the Company or of any other person which may be issuable
upon the exercise of the Rights) and requests that certificates for such shares
be issued in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
41
<PAGE> 45
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:
------------------------------
-------------------------------
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person, an Adverse Person or an Affiliate or Associate of any such
Person (as such terms are defined pursuant to the Rights Agreement);
42
<PAGE> 46
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person, an
Adverse Person or an Affiliate or Associate of any such Person.
Dated:
------------------------------
--------------------------------
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
43
<PAGE> 47
EXHIBIT B
---------
SUMMARY OF RIGHTS TO PURCHASE
COMMON STOCK
The Board of Directors of First Financial Bancorp (the
"Company") declared on November 23, 1993 a dividend distribution of one Right
for each outstanding share of Company Common Stock to shareholders of record at
the close of business on December 6, 1993 (the "Record Date"). Each Right
entitles the registered holder to purchase from the Company one share of Common
Stock at a Purchase Price of $200.00 per share, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and The First National Bank of
southwestern, Ohio, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. Rights are not exercisable unless and until
the events described below occur. The Rights will separate from the Common Stock
and a Distribution Date will occur upon the earlier of (i) 20 business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), (ii) 20 business days following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 30% or more of such outstanding shares of Common
Stock or (iii) 20 business days after the Board of Directors of the Company
shall declare any Person to be an Adverse Person.
The Board of Directors may declare a Person to be an Adverse
Person upon a determination that such person, alone or together with its
affiliates and associates, has become the Beneficial Owner of an amount of
Common Stock which the Board of Directors determines to be substantial (which
amount shall in no event be less than 10% of the shares of Common Stock then
outstanding) and a determination by at least a majority of the Board of
Directors, after reasonable inquiry and investigation, including consultation
with such persons as such directors shall deem appropriate, that (a) such
beneficial ownership by such person is intended to cause, is reasonably likely
to cause or will cause the Company to repurchase the Common Stock beneficially
owned by such person or to cause pressure on the Company to take action or enter
into a transaction or series of transactions intended to provide such person
with short-term financial gain under circumstances where the Board of Directors
determines that the best long-term interests of the Company and its shareholders
would not be served by taking such action or entering into such transactions or
series of transactions at that time, or (b) such beneficial ownership is causing
or reasonably likely to cause a material adverse impact (including, but not
limited to, impairment of relationships with customers, suppliers or employees
or impairment of the Company's ability to maintain its competitive position or
effectuate a transaction that the Board of Directors deems to be in the best
interests of the Company's shareholders) on the business or prospects of the
Company to the detriment of the Company's shareholders, or (c)
44
<PAGE> 48
such beneficial ownership otherwise is determined to be not in the best
interests of the Company and its shareholders, employees, customers and
communities in which the Company and its subsidiaries do business. However, the
Board of Directors may choose not to declare a person to be an Adverse Person if
such person provides to the Board of Directors in writing a statement of the
person's purpose and intentions in connection with the proposed acquisition of
Common Stock, together with any other information reasonably requested of the
person by the Board of Directors, and the Board of Directors, based on such
statement and reasonable inquiry and investigation as it deems appropriate,
determines to notify and notifies such person in writing that it will not
declare the person to be an Adverse Person; provided, however, that the Board of
Directors may expressly condition in any manner a determination not to declare a
person an Adverse Person on such conditions as the Board of Directors may
select, including, without limitation, such person's not acquiring more than a
specified amount of stock and/or on such person's not taking actions
inconsistent with the purposes and intentions disclosed by such person in the
statement provided to the Board of Directors. If the Board of Directors should
at any time determine, upon reasonable inquiry and investigation, that such
person has not met or complied with any conditions specified by the Board of
Directors, the Board of Directors may at any time thereafter declare the person
to be an Adverse Person.
Until the Distribution Date, (i) the Rights will be evidenced
by the Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after the
Record Date will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on December 6, 2003, unless earlier
redeemed or exchanged by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
If (1) the Company or any Acquiring Person publicly announces
that, at any time following the Rights Dividend Declaration Date, a Person
(other than any subsidiary of the Company or any employee benefit plan of the
Company or any subsidiary of the Company) has become the Beneficial Owner of 30%
or more of the then outstanding shares of Common Stock (except pursuant to an
offer for all outstanding shares of Common Stock which certain directors
determine to be fair to and otherwise in the best interests of the Company and
its shareholders), or (2) the Board of Directors determines that a person is an
Adverse Person, then each holder of a Right will thereafter have the right to
receive, upon exercise, (a) Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the Right, or (b) at the discretion of the Board of
Directors, upon
45
<PAGE> 49
exercise and without payment of the exercise price, Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to the Spread (as defined in the Rights Agreement). Notwithstanding any of
the foregoing, following the occurrence of any of the events set forth in this
paragraph or in the second following paragraph, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any Acquiring Person or Adverse Person will not be exercisable. Rights
owned by other persons are not exercisable following the occurrence of any of
the events set forth above until such time as the Rights are no longer
redeemable by the Company as set in the first sentence of the fifth succeeding
paragraph.
For example, at an exercise price of $200.00 per Right, each
Right not owned by an Acquiring Person or an Adverse Person (or by certain
related parties) following an event set forth in the preceding paragraph would
entitle its holder to purchase $400.00 worth of Common Stock (or other
consideration, as noted above) for $200.00. Assuming that the Common Stock had a
per share value of $50.00 at such time, the holder of each valid Right would be
entitled to purchase 8 shares of Common Stock for $200.00.
If, at any time following a Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction (other
than a merger which certain directors determine to be fair to and otherwise in
the best interests of the Company and its shareholders), or (ii) 50% or more of
the Company's assets or earning power is sold or transferred, each holder of a
Right (except Rights which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Triggering Events."
The Purchase Price payable upon exercise of the Rights are
subject to adjustment from time to time (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the Common Stock, (ii) if
holders of the Common Stock are granted certain rights or warrants to subscribe
for Common Stock or convertible securities at less than the current market price
of the Common Stock, or (iii) upon the distribution to holders of the Common
Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments amount to at least 1% of the
Purchase Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Common Stock on
the last trading date prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but
not in part, at a price of $.01 per Right, at any time until the close of
business on the twentieth business day following the Stock Acquisition Date. The
Company may not redeem the Rights after 20 business days following the date of
any declaration by the Board of Directors that a person is an Adverse Person.
Notwithstanding the foregoing, the Board of Directors may redeem the Rights
46
<PAGE> 50
if such redemption is incidental to a merger or other business combination
involving the Company but not involving an Acquiring Person or an Adverse
Person. After the redemption period has expired, the Company's right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to 10% or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 per Right redemption price.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to shareholders or to the Company, shareholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock (or other consideration) of the
Company or for common stock of the acquiring company as set forth above.
Any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. From and
after the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person or Adverse Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made on or after the
Distribution Date at such time as the Rights are not redeemable.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Form 8-K dated
___________________, 1993. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is incorporated herein by reference.
47
<PAGE> 1
Exhibit 13
DIRECTORS
Barry J. Levey, Chairman of the Board, First Financial; Ohio State Senator,
4th District, Retired; Partner, Frost & Jacobs -- Middletown,
Attorneys-at-Law.
Stanley N. Pontius, President and Chief Executive Officer, First Financial,
and Chairman, First National Bank of Southwestern Ohio.
Richard L. Alderson, Partner, JSDA Properties, Ltd.
Arthur W. Bidwell, Chairman and Chief Executive Officer, Magnode Corp.
Don M. Cisle, President and Owner, Don S. Cisle Contractor, Inc.
Corinne R. Finnerty, Partner, McConnell & Finnerty, Attorneys-at-Law.
Carl R. Fiora, Retired President and Chief Executive Officer,
Armco Steel Co., L.P.
Vaden Fitton, Retired Executive, First National Bank & Trust Company of
Hamilton.
James C. Garland, President, Miami University, Oxford, Ohio.
F. Elden Houts, Chairman of the Board, Community First Bank & Trust.
Murph Knapke, Owner, Knapke Law Office.
Stephen S. Marcum, Partner, Parrish, Fryman & Marcum Co., L.P.A.
Barry S. Porter, Chief Financial Officer, The Ohio Casualty Corp.
Steven C. Posey, President, Posey Management Corp.
Perry D. Thatcher, President and CEO, Ample Industries, Inc.
DIRECTORS EMERITI
Thomas C. Blake, Merle F. Brady, Don S. Cisle, Jr., Edward N. Dohn, Richard J.
Fitton, Robert M. Jones, Charles T. Koehler, Robert W. Long, Joseph L. Marcum,
Robert Q. Millan, Frank C. Neal, James L. Pease, Jr., C. Wesley Rowles, Joel
Schmidt, Hon. C. William Verity, Jr.
OFFICERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Stanley N. Pontius
SENIOR VICE PRESIDENT, CHIEF LENDING OFFICER
Rick L. Blossom
SENIOR VICE PRESIDENT, TRUST SERVICES
Mark W. Immelt
SENIOR VICE PRESIDENT, HUMAN RESOURCES
Brian D. Moriarty
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND SECRETARY
Michael R. O'Dell
SENIOR VICE PRESIDENT, CONSUMER BANKING AND OPERATIONS
Michael T. Riley
FIRST VICE PRESIDENT, INVESTMENTS
Gary A. Eppley
FIRST VICE PRESIDENT, INFORMATION TECHNOLOGY
Rex A. Hockemeyer
FIRST VICE PRESIDENT, COMPTROLLER
C. Douglas Lefferson
COMPLIANCE OFFICER
Terence M. Fitz
AUDITOR
Daniel C. Mergy
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of
Shareholders will be held at the
Fitton Center for Creative Arts.
101 South Monument Avenue
Hamilton, Ohio
Tuesday, April 27, 1999, 2:00 p.m.
FORM 10-K
For copies of First Financial
Bancorp's Form 10-K write to:
Michael R. O'Dell
Chief Financial Officer
First Financial Bancorp
300 High Street, P.O. Box 476
Hamilton, OH 45012-0476
513-867-4811
513-785-3434 (FAX)
TRANSFER AGENT
AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Attn: Transfer Department
1-800-368-5948
908-272-1006 (FAX)
NASDAQ OTC
NATIONAL MARKET
Common Stock Symbol:
FFBC
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Financial Bancorp
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, 1998, Bancorp owned fifteen subsidiaries
located in western Ohio, Indiana, and southern Michigan. These subsidiaries
include twelve commercial banks, two savings banks, and one finance company.
First Finance Mortgage Company of Southwestern Ohio (First Finance) began
full operations on May 8, 1996. First Finance is a retail finance company and
operates from offices located in Fairfield and Middletown, Ohio. A third office
located in Forest Park, Ohio was opened in January 1999.
On April 28, 1998, Bancorp's Board of Directors declared a two-for-one
stock split, which was distributed on June 1, 1998, to shareholders of record as
of May 8, 1998. On November 24, 1998, the Board declared a 10% stock dividend
distributed on January 4, 1999, to shareholders of record as of December 4,
1998. All per share data has been restated to reflect the stock split and stock
dividend.
On November 24, 1998, the Board declared a quarterly cash dividend of 15
cents per share for each post-stock-dividend share, also payable January 4,
1999, to shareholders of record as of December 4, 1998.
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. For a thorough understanding of Bancorp's financial results and
conditions, this discussion should be read in conjunction with the statistical
data and consolidated financial statements on pages 10 through 28.
RECENT MERGERS AND ACQUISITIONS
On April 1, 1998, Bancorp paid $13,600,000 for all the outstanding common
stock of The Union State Bank (USB). Upon consummation of the merger, USB was
merged into Community First Bank & Trust (Community First), a wholly owned
subsidiary of Bancorp, and USB's only office in Payne, Ohio, became a branch
office of Community First. The merger was accounted for using the purchase
method of accounting.
Two of Bancorp's subsidiaries, The Citizens Commercial Bank & Trust
Company and Van Wert National Bank, merged during November, 1997 to form
Community First. On December 8, 1997, Community First acquired 11 branches from
KeyBank National Association. In addition to the 11 branches located in Mercer,
Auglaize, Allen, Paulding, and Williams counties of Ohio, the transaction
included the purchase of approximately $60 million of loans and the assumption
of $246 million in deposits. Following the acquisition, Community First had
total assets of $586 million and served twelve northwestern Ohio cities in six
counties.
On June 1, 1997, Bancorp paid $7,800,000 for all the outstanding common
stock of Southeastern Indiana Bancorp (SIB). Upon consummation of the merger,
SIB was merged out of existence and its only subsidiary, Vevay Deposit Bank,
became a wholly owned subsidiary of Bancorp. Vevay Deposit Bank has its main
office and two other offices in Vevay, Indiana and an additional office in East
Enterprise, Indiana. This merger was accounted for using the purchase method of
accounting and, accordingly, the consolidated financial statements include Vevay
Deposit Bank's results of operations from the date of acquisition.
On January 1, 1997, Bancorp issued 322,386 shares of its common stock for
all the outstanding common stock of Hastings Financial Corporation (Hastings
Financial). Upon consummation of the merger, Hastings Financial was merged out
of existence and its only subsidiary, National Bank of Hastings (National Bank),
became a wholly owned subsidiary of Bancorp. National Bank has its main office
in Hastings, Michigan and one other office in Wayland, Michigan. This merger
represented Bancorp's first association with a Michigan bank. This transaction
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 December 1, 1996, Bancorp paid $7,575,004 in cash for all the
outstanding common stock of Farmers State Bancorp. Upon consummation of the
merger, Farmers State Bancorp was merged out of existence and its only
subsidiary, Farmers State Bank, became a wholly owned subsidiary of Bancorp. At
the time of the merger, Farmers State Bank had its main office in Liberty,
Indiana and one office in each of the following cities: West College Corner,
Rushville, Glenwood, Carthage, and Mays, Indiana. The Glenwood office was closed
during 1997. This merger was accounted for using the purchase method of
accounting and, accordingly, the consolidated financial statements include
Farmers State Bank's results of operations from the date of acquisition.
On April 1, 1996, Bancorp issued 363,373 shares of its common stock for
all the outstanding common stock of F & M Bancorp (F&M). Upon consummation of
the merger, F&M was merged out of existence and its only subsidiary, Farmers &
Merchants Bank of Rochester (Farmers & Merchants) was merged with and into
Indiana Lawrence Bank, a wholly owned subsidiary of Bancorp. Farmers &
Merchants' three offices - two in Rochester, Indiana and one in Kewanna, Indiana
became branches of Indiana Lawrence Bank, the surviving entity. The merger was
accounted for using the pooling-of-interests method of accounting. The
consolidated financial statements for prior periods have not been restated due
to immateriality.
PENDING MERGERS
On December 31, 1998, Bancorp signed a Plan and Agreement of Merger with
Hebron Bancorp, Inc. (HBI). Under the terms of the merger agreement, Bancorp
will issue 1,222,650 shares of its common stock, subject to adjustment under
certain conditions, for all the outstanding common stock of HBI. After
consummation of the merger, HBI will be merged out of existence and HBI's only
subsidiary, Hebron Deposit Bank, will become a wholly owned subsidiary of
Bancorp. Hebron Deposit Bank has three offices located in Boone County in
northern Kentucky. Subject to regulatory approval and approval by HBI's
shareholders, the merger is expected to occur during the second quarter of 1999.
This represents Bancorp's first association with a Kentucky bank. Bancorp
anticipates the merger will be accounted for using the pooling-of-interests
method of accounting.
On December 16, 1998, Bancorp signed a Plan and Agreement of Merger with
Sand Ridge Financial Corporation (SRFC). Under the terms of the merger
agreement, Bancorp will issue 5,115,000 shares of its common stock, subject to
adjustment under certain conditions, for all the outstanding common stock of
SRFC. After consummation of the merger, SRFC will be merged out of existence and
its only subsidiary, Sand Ridge Bank, will become a wholly owned subsidiary of
Bancorp. Sand Ridge Bank operates five offices, an operations center, and a
network of 17 ATMs located in Lake County, Indiana. Its main office is located
in Highland, Indiana, which is about 20 miles southeast of Chicago. Subject to
regulatory approval and approval by SRFC's shareholders, the merger is expected
to occur during the second quarter of 1999. Bancorp anticipates the merger will
be accounted for using the pooling-of-interests method of accounting.
1
<PAGE> 3
TABLE 1 FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $ 219,511 $ 192,185 $ 171,275 $ 153,851 $ 133,504
Tax equivalent adjustment 2,318 2,946 3,510 4,286 5,482
---------- ---------- ---------- ---------- ----------
Interest income - tax equivalent 221,829 195,131 174,785 158,137 138,986
Interest expense 88,447 76,833 69,707 63,516 49,587
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME - TAX EQUIVALENT $ 133,382 $ 118,298 $ 105,078 $ 94,621 $ 89,399
========== ========== ========== ========== ==========
Interest income $ 219,511 $ 192,185 $ 171,275 $ 153,851 $ 133,504
Interest expense 88,447 76,833 69,707 63,516 49,587
---------- ---------- ---------- ---------- ----------
Net interest income 131,064 115,352 101,568 90,335 83,917
Provision for loan losses 6,077 4,736 3,433 2,108 1,268
Noninterest income 34,341 26,977 22,097 20,558 17,462
Noninterest expenses 92,739 77,677 71,261 63,345 62,139
---------- ---------- ---------- ---------- ----------
Income before income taxes 66,589 59,916 48,971 45,440 37,972
Income tax expense 22,483 19,608 15,031 13,651 9,799
---------- ---------- ---------- ---------- ----------
Net earnings $ 44,106 $ 40,308 $ 33,940(2) $ 31,789 $ 28,173
========== ========== ========== ========== ==========
Tax equivalent basis was calculated using a
35.0% tax rate in all years presented
PER SHARE DATA (1)
NET EARNINGS - BASIC $ 1.21 $ 1.11 $ 0.96 $ 0.95 $ 0.87
========== ========== ========== ========== ==========
NET EARNINGS - DILUTED $ 1.21 $ 1.10 $ 0.96 $ 0.95 $ 0.86
========== ========== ========== ========== ==========
Cash dividends declared
First Financial Bancorp $ 0.57 $ 0.52 $ 0.46 $ 0.40 $ 0.37
Average common shares outstanding (in thousands) 36,376 36,402 35,360 33,244 32,505
SELECTED YEAR-END BALANCES
Total assets $2,871,104 $2,636,111 $2,261,711 $2,103,375 $1,922,643
Earning assets 2,622,387 2,390,255 2,087,190 1,941,274 1,764,616
Investment securities held-to-maturity 34,920 58,347 78,945 93,522 135,187
Investment securities available-for-sale 313,175 332,617 290,701 294,052 242,410
Loans, net of unearned income 2,266,873 1,977,031 1,700,264 1,532,016 1,378,867
Deposits 2,326,596 2,230,178 1,879,966 1,785,562 1,587,324
Noninterest-bearing demand deposits 323,763 314,051 238,415 220,061 201,331
Interest-bearing demand deposits 243,082 281,151 317,187 302,119 266,601
Savings deposits 596,685 521,372 381,903 359,638 374,378
Time deposits 1,163,066 1,113,604 942,461 903,744 745,014
Long-term borrowings 105,335 41,054 6,506 2,820
Shareholders' equity 301,933 286,259 258,482 234,175 194,673
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 93.60% 93.40% 89.16% 89.01% 80.79%
Net charge-offs to loans 0.22% 0.16% 0.17% 0.10% 0.08%
Shareholders' equity to
Total assets 10.83% 11.60% 11.52% 10.98% 10.29%
Deposits 13.17% 14.17% 13.75% 13.06% 12.05%
Return on Assets 1.61% 1.71% 1.58% 1.64% 1.54%
Return on Equity 14.90% 14.70% 13.72% 14.97% 14.93%
Net interest margin (tax equivalent basis) 5.30% 5.39% 5.25% 5.24% 5.25%
</TABLE>
(1) First Financial Bancorp's per share data has been restated for all stock
dividends, stock splits, and material pooling-of-interests mergers through 1998.
(2) 1996 net earnings includes the effect of a $2,144,000 ($1,389,000 after tax)
charge for a special assessment paid to the Savings Association Insurance Fund
which reduced earnings by 4.0%.
2
<PAGE> 4
OVERVIEW OF OPERATIONS
Bancorp's net earnings during 1998 were $44,106,000 or $1.21 per share on
a diluted basis, representing a 9.42% increase over 1997 net earnings and a
10.0% increase over 1997 earnings per share on a diluted basis.
Bancorp's net earnings during 1997 were $40,308,000 or $1.10 per share on
a diluted basis, representing an 18.8% increase over 1996 net earnings and a
14.6% increase over 1996 earnings per share on a diluted basis. The 1996
financial results include the effect of a $2,144,000 ($1,389,000 after tax)
charge for a special assessment paid to the Savings Association Insurance Fund
(SAIF) of the Federal Deposit Insurance Corporation (FDIC). (See "Noninterest
Expenses" of this Management's Discussion and Analysis for more concerning the
assessment.) If this charge is not included in 1996's financial results,
Bancorp's 1997 net earnings were 14.1% greater than 1996 net earnings and 11.1%
greater on a diluted per share basis.
Bancorp's return on equity for 1998 was 14.9%, which compares to 14.7%
and 14.3% (before the SAIF assessment) for 1997, and 1996, respectively.
Bancorp's return on assets for 1998 was 1.61%. This compares with return on
asset ratios of 1.71% and 1.65% (before the SAIF assessment) for 1997, and 1996,
respectively. Bancorp's 1996 return on assets and return on equity including the
SAIF special assessment were 1.58% and 13.7%, respectively.
NET INTEREST INCOME
Net interest income, Bancorp's principal source of earnings, is the
excess of interest received from earning assets over interest paid on
interest-bearing liabilities. Bancorp's net interest income for the years 1994
through 1998 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 for all years presented.
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 10.
Tax equivalent interest income was $221,829,000 in 1998, an increase of
$26,698,000 or 13.7% over 1997. Substantially all of this increase was due to an
increase of $318,577,000 in the volume of earning assets, from an average of
$2,196,782,000 during 1997 to $2,515,359,000 during 1998. Average outstanding
loan balances increased $296,014,000 and investment securities and other
instruments increased $22,563,000. The increase due to volume was offset
slightly by a 6 basis point (a basis point equals 0.01%) decrease in average
yields earned on total earning assets, from 8.88% during 1997 to 8.82% during
1998. The Federal Reserve initiated three 25 basis point rate decreases
beginning on September 29, 1998 resulting in a corresponding 75 basis point
reduction in prime lending rates throughout the fourth quarter. It can be
expected that average earning asset yields will continue to be lower as a result
of these changes. Bancorp's management routinely evaluates and implements
strategies to limit or offset this effect to every extent possible.
Total interest expense was $88,447,000 in 1998, an increase of
$11,614,000 over 1997. The increase was due to an increase of $294,040,000 in
total interest-bearing liabilities, from an average of $1,827,554,000 during
1997 to an average of $2,121,594,000 during 1998.
Tax equivalent net interest income, the difference between tax equivalent
total interest income and total interest expense, increased $15,084,000 during
1998 due primarily to the volume increases described above. The increased
interest income was greater than the increased interest expense, thereby causing
net interest income to increase.
The interest rate spread and the net interest margin are two ratios
frequently used to measure differences in net interest income. Although the
average rate paid for deposits and borrowed money decreased from 4.20% during
1997 to 4.17% for 1998, the average rate earned on loans and investments
decreased
TABLE 2 VOLUME/RATE ANALYSIS - TAX EQUIVALENT BASIS (1)
<TABLE>
<CAPTION>
VOLUME RATE TOTAL VOLUME RATE TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 27,320 $ 287 $ 27,607 $ 18,702 $ 2,701 $ 21,403
Investment securities (2)
Taxable 2,254 (1,157) 1,097 405 276 681
Tax-exempt (986) (858) (1,844) (1,185) (448) (1,633)
-------- -------- -------- -------- -------- --------
Total investment securities interest (2) 1,268 (2,015) (747) (780) (172) (952)
Interest-bearing deposits with other banks 19 0 19 (225) 28 (197)
Federal funds sold and securities
purchased under agreements to resell (156) (25) (181) 103 (11) 92
-------- -------- -------- -------- -------- --------
Total 28,451 (1,753) 26,698 17,800 2,546 20,346
Interest expense
Interest-bearing demand deposits (260) (251) (511) (1,143) 121 (1,022)
Savings deposits 2,219 (458) 1,761 2,449 (227) 2,222
Time deposits 9,523 (802) 8,721 3,044 160 3,204
Short-term borrowings (1,241) (73) (1,314) 1,913 84 1,997
Long-term borrowings 3,098 (141) 2,957 748 (23) 725
-------- -------- -------- -------- -------- --------
Total 13,339 (1,725) 11,614 7,011 115 7,126
-------- -------- -------- -------- -------- --------
Net interest income $ 15,112 $ (28) $ 15,084 $ 10,789 $ 2,431 $ 13,220
======== ======== ======== ======== ======== ========
</TABLE>
(1) Tax equivalent basis was calculated using a 35.0% tax rate.
(2) Includes both investment securities held-to-maturity and investment
securities available-for-sale.
3
<PAGE> 5
more. The result was a decrease in the interest rate spread and the net interest
margin. The interest rate spread (the average rate on earning assets minus the
average rate on interest-bearing liabilities) was 4.65% for 1998 and 4.68% for
1997, a difference of three basis points. The net interest margin (net interest
income on a tax equivalent basis divided by average earning assets) decreased 9
basis points, from 5.39% during 1997 to 5.30% during 1998.
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 1998, 1997, and 1996 was $6,162,000, $4,629,000, and
$3,677,000, respectively.
During 1998, 1997, and 1996, approximately $25,300,000, $20,480,000 and
$15,076,000, respectively, of tax-exempt obligations of state and other
political subdivisions earning a tax equivalent yield of 12.8%, 15.3%, and
12.0%, respectively, were called by their issuers or matured. The result of
these calls and maturities has been a continued decline in the average tax
equivalent yields earned on tax exempt securities, from 11.2% during 1996, to
10.6% during 1997, and 9.26% during 1998. The yield declines in tax-exempt
securities during the past several years have been counterbalanced in part by
yield increases in loans outstanding and growth in total earning assets.
Another $9,600,000 of obligations of state and other political
subdivisions earning a tax equivalent yield of 10.8% are scheduled to mature or
may be called during 1999. 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 obligations of state and other political
subdivisions will likely continue to negatively influence Bancorp's interest
rate spread and net interest margin in the future.
NONINTEREST INCOME AND NONINTEREST EXPENSES
A listing of noninterest income and noninterest expenses for 1998, 1997,
and 1996 is reported in Table 3. Although the mergers that occurred during 1996
through 1998 did not materially affect net earnings, they influenced the
individual line items for noninterest income and expense. Affiliates that joined
Bancorp during the past three years are included in the Consolidated Statements
of Earnings starting with their date of acquisition.
The purchase of 11 branches from KeyBank National Association closed on
December 8, 1997. The assumption of $246 million in deposits and the purchase of
$60 million in loans were included in the branch purchase. Income and expense
for a full year are therefore reported in the Consolidated Statements of
Earnings for the first time in 1998, while the purchase had only a minor
influence on 1997 earnings.
NONINTEREST INCOME
1998 vs. 1997. Noninterest income, excluding securities transactions,
increased $6,614,000 or 24.6% in 1998.
Service charges on deposit accounts increased $1,551,000 or 14.9% over
1997 primarily due to higher total deposits created by recent mergers and
acquisitions and to pricing adjustments.
Trust revenues, which are primarily calculated using the market value of
trust assets managed, increased $2,070,000 or 20.9% over 1997. The increase was
driven by the general strength of the stock market, superior investment results
of the trust department common funds, strong investment management sales during
1998, and by pricing adjustments. As a result of these factors, the market value
of trust assets serviced increased $261,156,000 or 11.8%, from $2,222,167,000 on
December 31, 1997 to $2,483,323,000 on December 31, 1998.
Other noninterest income increased $2,993,000 or 45.2%. Contributing to
the increase were increased gains from sales of real estate loans, income as a
result of recent mergers and acquisitions, and other miscellaneous items.
1997 vs. 1996. Noninterest income, excluding securities transactions,
increased $4,818,000 or 21.8% in 1997.
Service charges on deposit accounts increased $1,216,000 or 13.2% over
1996 primarily due to higher total deposits created by recent mergers and to
pricing adjustments.
Trust revenues increased $1,627,000 or 19.7% over 1996. The increase was
driven by a $520,368,000 or 30.6% increase in the market value of trust assets
serviced, from $1,701,799,000 on December 31, 1996 to $2,222,167,000 on December
31, 1997.
Other noninterest income increased $1,975,000 or 42.5%. Contributing to
the increase were ATM guest user fees, increased gains from sales of real estate
loans, income from new affiliates, and other miscellaneous items.
<TABLE>
<CAPTION>
TABLE 3 NONINTEREST INCOME AND NONINTEREST EXPENSES
1998 1997 1996
% CHANGE % CHANGE % CHANGE
INCREASE INCREASE INCREASE
TOTAL (DECREASE) TOTAL (DECREASE) TOTAL (DECREASE)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest income
Service charges on deposit accounts $ 11,949 14.9% $ 10,398 13.2% $ 9,182 6.8%
Trust revenues 11,975 20.9% 9,905 19.7% 8,278 8.6%
Other 9,613 45.2% 6,620 42.5% 4,645 16.2%
-------- -------- --------
Subtotal 33,537 24.6% 26,923 21.8% 22,105 9.3%
Investment securities gains (losses) 804 N/M 54 N/M (8) N/M
-------- -------- --------
Total $ 34,341 27.3% $ 26,977 22.1% $ 22,097 7.5%
======== ==== ======== ==== ======== ====
Noninterest expenses
Salaries and employee benefits $ 49,798 17.5% $ 42,385 12.8% $ 37,586 13.0%
Net occupancy 5,612 11.7% 5,025 4.9% 4,790 10.4%
Furniture and equipment 4,832 10.5% 4,374 11.8% 3,911 16.7%
Data processing 5,616 13.2% 4,960 3.9% 4,773 (7.6%)
Deposit insurance 414 10.4% 375 (87.0%) 2,889 31.1%
State taxes 1,744 1.5% 1,718 0.7% 1,706 4.2%
Amortization of intangibles 4,015 N/M 1,326 N/M 657 N/M
Other 20,708 18.2% 17,514 17.2% 14,949 11.7%
-------- ---- -------- ---- -------- ----
Total $ 92,739 19.4% $ 77,677 9.0% $ 71,261 12.5%
======== ==== ======== ==== ======== ====
</TABLE>
N/M = Not meaningful
4
<PAGE> 6
NONINTEREST EXPENSES
1998 vs. 1997. Noninterest expenses in 1998 increased $15,062,000 or
19.4% over 1997.
The largest component of noninterest expenses is salaries and employee
benefits, which increased $7,413,000 or 17.5% over 1997. Additional employees
needed to support business growth and to staff the 11 branches purchased from
KeyBank, increased incentive compensation, and general increases in wages and
salaries contributed to the increase.
Net occupancy expense increased $587,000 or 11.7% primarily due to branch
acquisitions and new facilities, including a new operations center in
Middletown, Ohio.
Furniture and equipment expense increased $458,000 or 10.5% during 1998.
Increased costs for service contracts on Bancorp's equipment and costs related
to new facilities and to the 11 branches acquired from KeyBank affected
equipment expense.
One-time charges related to the conversion of three Bancorp affiliates to
a new data service provider and the transfer of the data processing system for
the offices acquired from KeyBank to Community First's system contributed to the
$656,000 or 13.2% increase in data processing expenses. Contractual fee
increases paid to Bancorp's data processing providers also contributed to the
increase.
Amortization of intangibles increased $2,619,000 due to core deposits and
goodwill resulting from the purchase of the branches from KeyBank and the merger
consummated during 1998.
Other noninterest expenses increased $3,194,000 or 18.2%. This increase
can be attributed to costs related to new facilities from mergers and branch
acquisitions and to general increases in costs. Included in this category are
costs related to the Year 2000 computer issue.
The efficiency ratio (noninterest expenses as a percentage of noninterest
income, excluding securities transactions, plus tax equivalent net interest
income) reflects how much, on average, an institution expends to generate each
dollar of revenue. Bancorp's 1998 efficiency ratio was 55.6%, compared to ratios
of 53.5% and 54.3% (before the SAIF assessment) for 1997, and 1996,
respectively. The 1996 efficiency ratio after the SAIF assessment was 56.0%.
1997 vs. 1996. Noninterest expenses in 1997 increased $6,416,000 or
9.00% over 1996.
Salaries and employee benefits increased $4,799,000 or 12.8% over 1996
primarily due to additional employees from the addition of new affiliates during
1997, and 1996, wage and salary increases, and increased health care costs.
Net occupancy expense increased $235,000 or 4.91%, and furniture and
equipment expense increased $463,000 or 11.8%, during 1997 largely because of
Bancorp's new affiliates. Increased costs for service contracts on Bancorp's
equipment also affected equipment expense.
The addition of new affiliates and contractual fee increases paid to
Bancorp's data service providers contributed to the $187,000 or 3.92% increase
in data processing expense during 1997, as compared with 1996.
Deposit insurance expense decreased substantially, from $2,889,000 during
1996 to $375,000 during 1997, an 87.0% decrease. Included in the 1996 expense is
a $2,144,000 special assessment paid to the FDIC for recapitalization of the
SAIF. The assessment was paid by Bancorp's two savings bank subsidiaries -
Fidelity Federal Savings Bank and Home Federal Bank, a Federal Savings Bank -
and by one bank subsidiary, Bright National Bank, which had purchased SAIF
insured deposits from the Resolution Trust Corporation.
Other noninterest expenses increased $3,234,000 or 20.7%. Included in
this category are costs related to the year 2000 computer issue, expenses
related to the merger of Citizens Commercial Bank & Trust Company, and Van Wert
National Bank to form Community First, expenses related to the purchase by
Community First of 11 branches from KeyBank National Association, and costs
incurred by Bancorp's new affiliates. Offsetting these costs was a gain
recognized from the sale of property.
YEAR 2000 ISSUES
Many computer systems process transactions using two digits for the year
of the transaction, rather than a full four digits. As a result, these systems
may not function properly at the beginning of the year 2000 without some
proactive hardware or software change. Bancorp has devoted significant time and
attention to the Year 2000 issue, and will repair or replace non-compliant
hardware and software prior to the new millennium.
Several regulatory agencies and authorities have issued regulations and
guidelines that financial institutions must use in measuring their progress
toward Year 2000 preparedness. Five commonly recognized phases of Year 2000
remediation are awareness, assessment, renovation, validation, and
implementation.
During 1997 and 1998, the awareness and assessment phases were completed
for all systems and service providers. Additionally, renovation was completed
for mission critical systems and validation is well underway. As in 1997,
Bancorp's Year 2000 Operating Committee continued to meet weekly during 1998 to
direct and oversee all significant Year 2000 tasks. The Operating Committee
regularly updates senior management and the Board of Directors, who have pledged
their full support to the Year 2000 project.
Bancorp has inventoried and assessed the many hardware and software
programs that must be remediated. A vendor management program has been developed
and is making significant progress toward bringing those relationships into
compliance. Bancorp realized in early 1997 that qualified personnel were
required to guide the organization through the Year 2000 Project. Some Bancorp
associates were reallocated, new employees were hired, and contract staff have
been used. Our Year 2000 Loan Committee, comprised of affiliate senior lenders,
has assessed the impact of Year 2000 on commercial and retail borrowers and has
taken steps to mitigate the risk that is inherent in those loans.
Bancorp's computer systems fall into three broad categories: those
processed through a service bureau relationship, those processed in-house, and
those processed on a personal computer or client/server platform. The service
bureau systems were renovated, validated, and implemented in 1998. The mission
critical in-house systems were renovated in 1998 and validation testing is in
progress. The mission critical personal computer and client/server systems were
renovated in 1998 and all but two have also been validated. Validation of the
two is in progress and will be completed in the first quarter, 1999. Bancorp's
Year 2000 Team continues to renovate and validate those systems that are less
than critical in nature. Implementation follows successful validation testing
and this phase is anticipated to be substantially completed by mid-year, 1999.
Bancorp has spent a great deal of time ensuring that it has an effective
program in place to address and resolve the Year 2000 issue in a timely manner.
Should Bancorp successfully complete its Year 2000 program, however, it will not
be isolated from potential impact. General disruptions in the economy or at
other significant service providers such as telecommunication and utility
companies could adversely affect Bancorp. The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.
To mitigate both controlled and uncontrolled risks, Bancorp has developed
contingency plans in the event any particular system may not function properly.
The contingency plans for information technology systems primarily call for
manual intervention where required. Management has also developed contingency
plans to support our reliance on transportation, communication, outside vendors,
etc. where possible.
During 1998, Bancorp incurred approximately $1,191,000 in noninterest
expense for costs related to Year 2000 issues, bringing the total amount charged
to operations since 1997 to $1,891,000. An additional $136,000 was capitalized.
Based on management's current assessment and anticipated reprogramming costs,
Bancorp expects to spend an additional $2,413,000, of which about $1,469,000
will be capitalized. However, there can be no assurance as to the accuracy of
these estimates.
This Year 2000 information is designated as a "Year 2000 Readiness
Disclosure" falling under the provision of the "Year 2000 Information and
Readiness Disclosure Act."
5
<PAGE> 7
TABLE 4 LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1998
Maturity
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 468,215 $126,930 $ 36,761 $ 631,906
Real estate-construction 59,562 10,249 2,707 72,518
---------- -------- --------- ---------
Total $ 527,777 $137,179 $ 39,468 $ 704,424
========== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Sensitivity to changes in interest rates
PREDETERMINED VARIABLE
RATE RATE
(Dollars in thousands)
<S> <C> <C>
Due after one year but within five years $ 49,175 $ 88,004
Due after five years 10,345 29,123
-------- --------
Total $ 59,520 $117,127
======== ========
</TABLE>
INCOME TAXES
Net deferred tax assets at December 31, 1998, 1997, and 1996 were
$1,261,000, $3,070,000, and $2,802,000, 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.
Bancorp's tax expense in 1998 totaled $22,483,000 compared to $19,608,000
in 1997 and $15,031,000 in 1996, resulting in effective tax rates of 33.8%,
32.7%, and 30.7% in 1998, 1997, and 1996, respectively. The increase in 1998 and
1997's effective rate was primarily due to a decline in the amount of tax-exempt
investment securities held during those years.
The tax effects of securities transactions were an expense of $235,000
during 1998, an expense of $5,000 during 1997, and a benefit of $77,000 during
1996.
Further analysis of income taxes is presented in Note 11 of the Notes to
Consolidated Financial Statements.
LOANS
Total loans, net of unearned income, increased $289,842,000 or 14.7%
during 1998. Approximately $40,000,000 of the increase was due to the merger of
The Union State Bank into Community First. In addition to the merger, a
favorable market with respect to loan demand, combined with aggressive loan
campaigns and the pursuit of new business, led to net increases during 1998 of
$128,987,000 or 25.6% in commercial loans, $9,210,000 or 14.5% in construction
loans, $114,594,000 or 12.3% in mortgage loans, $33,947,000 or 7.75% in
installment loans, $1,152,000 or 6.63% in credit card loans, and $1,952,000 or
7.16% in lease financing.
Bancorp's loans cover a broad range of borrowers characterizing the
western Ohio, southern Michigan, and eastern and west-central Indiana markets.
There were no loan concentrations of multiple borrowers in similar activities at
December 31, 1998, 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, 1998, real estate mortgage loans composed
46.0% of Bancorp's total loan portfolio and installment loans composed another
20.8% of the total loan portfolio. Commercial loans equaled 27.9% of the total
portfolio and real estate construction, credit card lending, and lease financing
made up the remaining 5.30% of the portfolio.
Real estate mortgage loans are generally considered to be the safest loan
investments because of the real estate securing the loans. Installment loans
include unsecured loans, second mortgage loans, secured lines of credit, secured
and unsecured home improvement loans, automobile loans, student loans, and loans
secured by savings, stocks or life insurance. Bancorp subsidiaries offer a wide
variety of commercial loans, including small business loans, agricultural loans,
equipment loans, and lines of credit.
In accordance with Bancorp's decentralized management structure and
subject to Bancorp guidelines, credit underwriting and approval occur within the
subsidiary originating the loan. Depending on the subsidiary, loan applications
are approved by either a loan committee or by one or more loan personnel with
designated approval authority. Loan committees are composed of senior management
and loan personnel and, at some subsidiaries, members of the subsidiary's board
of directors. Loan applications for principal amounts greater than a designated
amount, which varies by subsidiary, require Bancorp approval. Any plans to
purchase or sell a participation in a loan also require Bancorp approval.
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 denied. Required modifications may include, among other items,
a reduction in the loan balance, a change in the interest rate, an increase in
collateral, 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, 1998. 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 risks believed to
be inherent in the loan portfolio of each subsidiary. Management's evaluation in
establishing the provision includes such factors as historical loss and recovery
experience, known deterioration in loans, periodic external loan evaluations,
prevailing economic conditions that might have an impact on the portfolio and
ratios of delinquencies and nonaccrual loans. The evaluation is inherently
subjective as it requires material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans, that may be
susceptible to significant change. The evaluation of these factors is completed
at Bancorp's subsidiaries through a group of senior officers from the financial
and lending areas.
The provision increased from $4,736,000 in 1997 to $6,077,000 in 1998.
The provision recorded during 1997 was $1,303,000 greater than 1996's provision
of $3,433,000. The increases during 1998 and 1997 were primarily due to the
growth in the loan portfolio mentioned previously. The allowance at December
6
<PAGE> 8
31, 1998, was $29,684,000 or 1.31% of loans, net of unearned income, which
compares to $27,510,000 or 1.39% of loans, net of unearned income, at December
31, 1997.
The level of nonaccrual and restructured loans and leases is an important
element in assessing asset quality. Loans are classified as nonaccrual when, in
the opinion of management, collection of interest is doubtful. Nonaccrual loans
at December 31, 1998, 1997, and 1996, were $6,152,000, $5,257,000, and
$4,850,000, respectively. The increase in nonaccrual loans during 1998 occurred
primarily due to a transfer of three loans from the restructured classification
to nonaccrual in the commercial loan category; the nonaccrual loan increase
during 1997 occurred in the commercial, real estate-mortgage and consumer loan
categories. Nonaccrual loans to total loans at December 31, 1998, 1997, and
1996, were 0.27%, 0.27%, and 0.29%, 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, 1998, 1997, and 1996, were $78,000,
$1,581,000, and $890,000, respectively. The decrease in restructured loans
during 1998 is primarily because three restructured loans that totaled
$1,349,000 at December 31, 1997 are now being reported as nonaccrual loans. The
increase in restructured loans during 1997 is primarily due to the restructuring
of a commercial loan during the year.
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, 1998,
1997, and 1996, were $221,000, $950,000, and $264,000, respectively. The
increase in OREO during 1997 is comprised primarily of single family residences
and sales of predominately the same properties caused the decline during 1998.
Loans 90 days or more past due which were still accruing interest totaled
$1,839,000, $1,203,000, and $906,000 at December 31, 1998, 1997, and 1996,
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.
INVESTMENT SECURITIES
Bancorp's investment securities decreased $42,869,000 or 11.0% during
1998 to a balance of $348,095,000. The decrease in investment securities was
used to help fund loan portfolio growth. Bancorp follows a conservative
investment policy, investing primarily for interest rate risk management and
liquidity management purposes. U.S. Treasury Securities, generally considered to
have the least credit risk and the highest liquidity, composed 5.04% of
Bancorp's investment portfolio at December 31, 1998. All U.S. Treasury
Securities were classified as available-for-sale at that date and are available
for liquidity management purposes.
Another 24.3% 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. No structured notes were included in the U.S.
government agencies and corporations and corporations securities category at
December 31, 1998. All U.S. government agencies and corporations securities were
classified as available-for-sale at December 31, 1998, and are available for
liquidity management purposes. Due to the government guarantees, either
expressed or implied, U.S. government agency and corporation obligations are
considered to have low credit risk and high liquidity.
Investments in mortgage-backed securities (MBSs), including
collateralized mortgage obligations (CMOs) composed 48.4% of the investment
portfolio at December 31, 1998. 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 and corporations, such as FHLMC, FNMA, and the Government
National Mortgage Association (GNMA). Such securities, because of government
agency guarantees, are considered to have low credit risk and high liquidity.
Accordingly, about 95.0% of Bancorp's MBSs are classified as available-for-sale.
TABLE 5 INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31, 1998
Maturing
AFTER FIVE BUT AFTER ONE 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
Mortgage-backed securities(2) $ 314 8.98% $ 4,151 7.36% $ 3,891 9.06%
Obligations of state and other
political subdivisions $ 6,743 11.56% 11,624 9.96% 6,524 9.49% 1,157 12.07%
Other securities 269 6.74% 247 5.99%
-------- -------- -------- --------
Total $ 7,012 11.38% $ 12,185 9.86% $ 10,675 8.66% $ 5,048 9.75%
======== ======== ======== ======== ======== ======== ======== ========
AVAILABLE-FOR-SALE
U.S. Treasury securities $ 17,191 6.19% $ 360 7.66%
Securities of other U.S.
government agencies
and corporations 9,771 6.04% 56,407 6.03% $ 17,526 6.58% $ 935 6.30%
Mortgage-backed securities(2) 1,096 6.77% 37,341 6.27% 19,275 5.69% 102,405 6.53%
Obligations of state and other
political subdivisions 2,672 9.11% 11,319 7.89% 10,674 7.12% 7,997 8.01%
Other securities 455 8.47% 492 6.23% 104 6.65% 17,155 7.11%
-------- -------- -------- --------
Total $ 31,185 6.45% $105,919 6.31% $ 47,579 6.34% $128,492 6.70%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Tax equivalent basis was calculated using a marginal federal income tax rate
of 35.0%.
(2) 29.4% of the mortgage-backed securities maturing after five years
are variable rate.
7
<PAGE> 9
CMOs totaled $56,790,000 at December 31, 1998, all of which were
classified as available-for-sale. CMOs are collateralized by pools of mortgage
loans or MBSs. All of the CMOs held by Bancorp are rated AAA by Standard &
Poor's Corporation or similar rating agencies. Bancorp does not own any interest
only securities, principal only securities, accrual bonds, inverse floaters or
high risk CMOs, as defined by regulatory guidelines.
Obligations of state and other political subdivisions composed 16.9% of
Bancorp's investment portfolio at December 31, 1998. The securities are highly
diversified as to states and issuing authorities within states, thereby
decreasing portfolio risk. Bancorp management views investments in securities of
state and other political subdivisions as primarily long-term investments and,
accordingly, about 44.4% of such investments at December 31, 1998, were
classified as held-to-maturity.
The remaining 5.36% of Bancorp's investment portfolio at December 31,
1998, termed "other securities," was primarily composed of stock ownership in
the Indianapolis and Cincinnati District Federal Home Loan Banks, the Federal
Reserve Bank, and in taxable obligations of state and other political
subdivisions.
Table 5 sets forth the maturities of investment securities
held-to-maturity and investment securities available-for-sale as of December 31,
1998, 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 and other political subdivisions.
At December 31, 1998, the market value of Bancorp's held-to-maturity
investment securities portfolio exceeded the carrying value by $2,294,000. The
available-for-sale investment securities are reported at their market value of
$313,175,000, as required by SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." See Note 8 of the Notes to Consolidated
Financial Statements for additional information.
Bancorp's federal funds sold and securities purchased under agreements to
resell decreased $13,852,000, from $18,773,000 at December 31, 1997, to
$4,921,000 at December 31, 1998. The decrease was used to help fund loan growth.
Bancorp monitors this position as part of its asset/liability management.
Bancorp does not use off-balance-sheet derivative financial instruments
(such as interest rate swaps) as defined in SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
DEPOSITS AND BORROWINGS
Bancorp's subsidiaries solicit deposits by offering a wide variety of
savings and transaction accounts, including checking accounts, regular savings
accounts, money market deposit accounts, and time deposits of various maturities
and rates. In accordance with Bancorp's decentralized management structure and
in an effort to respond to local conditions, each Bancorp subsidiary designs and
prices the savings and transaction accounts offered in its local market area.
Total deposits increased $96,418,000 or 4.32% in 1998. The Union State
Bank, which joined Bancorp on April 1, 1998, had total deposits of $52,798,000
on that date. The remaining growth in deposits was used to finance loan growth.
Comparing Bancorp totals at December 31, 1998 and 1997, time deposits increased
$49,462,000, savings deposits increased $75,313,000, interest-bearing demand
deposits decreased $38,069,000, and noninterest-bearing demand deposits
increased $9,712,000.
Table 6 shows the contractual maturity of time deposits of $100,000 and
over that were outstanding at December 31, 1998. These deposits represented only
9.04% of total deposits.
Short-term borrowings increased from $52,288,000 at December 31, 1997 to
$109,363,000 at December 31, 1998. During the same period, long-term borrowings
increased from $41,054,000 at the end of 1997 to $105,335,000 at the end of
1998. The increase in short- and long-term borrowings was used to support loan
portfolio growth during 1998.
Table 6 GREATER THAN OR EQUAL TO $100,000
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in thousands)
<S> <C>
Maturing in
3 months or less $ 111,097
3 months to 6 months 46,476
6 months to 12 months 34,619
over 12 months 18,124
----------
Total $ 210,316
==========
</TABLE>
* All time deposits greater than or equal to $100,000 were in certificates of
deposit.
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 $7,504,000 for 1998 and $3,438,000 for 1997. Remodeling is a planned and
ongoing process given the 105 offices of Bancorp and its subsidiaries. Material
commitments for capital expenditures as of December 31, 1998, were $3,037,000.
Bancorp subsidiaries' source of funding is predominately deposits within
each of their respective market areas. The deposit base is diversified among
individuals, partnerships, corporations, and public entities. This
diversification helps Bancorp avoid dependence on large concentrations of funds.
Bancorp does not solicit time deposits from brokers.
Liquidity is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturation of investment securities,
net cash provided by operating activities and access to other funding sources.
The most stable source of liability-funded liquidity for both the long-term and
short-term is deposit growth and retention in the core deposit base. In
addition, Bancorp utilizes advances from the Federal Home Loan Bank as a funding
source. The principal source of asset-funded liquidity is investment securities
classified as available-for-sale, the market values of which totaled
$313,175,000 at December 31, 1998. Securities classified as held-to-maturity
that are maturing within a short period of time can also be a source of
liquidity. Securities classified as held-to-maturity and that are maturing in
one year or less totaled $7,012,000 at December 31, 1998. 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
Table 7 details the maturities and yields of interest-bearing financial
instruments at December 31, 1998, for the next five years and thereafter. Also
included with each category is the fair value of those instruments. The values
represent the contractual maturity of each instrument. For loan instruments
without contractual maturities, such as credit card loans, management has
allocated principal payments based upon historical trends of payment activity.
Where there is no set maturity, as in the case of some interest-bearing
liabilities, management has allocated the amounts based upon its expectation of
cash flows, incorporating
8
<PAGE> 10
internal core deposit studies and current expectations of customer behavior. For
loans, securities, and liabilities with contractual maturities, the table
presents principal cash flows and related weighted-average interest rates by
contractual maturities.
The data in Table 7 was aggregated by type of financial instrument -
fixed and variable rate loans, fixed and variable rate investments, other
earning assets, fixed and variable rate deposits, and other fixed and variable
rate interestbearing liabilities. First Financial Bancorp has no interest rate
swaps, interest rate caps, or interest rate floors. Therefore, data concerning
these instruments is not included in the table.
The primary source of market risk for the financial instruments presented
is interest rate risk. That is, the risk that an adverse change in market rates
will adversely affect the market value of the instruments. Generally, the longer
the maturity, the higher the interest rate risk exposure. While maturity
information does not necessarily present all aspects of exposure, it may provide
an indication of where risks are prevalent.
All financial institutions assume interest rate risk as an integral part
of normal operations. Managing and measuring interest rate risk is a dynamic,
multi-faceted process that ranges from reducing the exposure of Bancorp's net
interest margin to swings in interest rates, to assuring that there is
sufficient capital and liquidity to support future balance sheet growth. Bancorp
manages interest rate risk through the asset/liability committees of Bancorp's
subsidiaries. The asset/liability committees are comprised of bank officers from
various disciplines. Each subsidiary committee establishes policies and rates
which lead to the prudent investment of resources, the effective management of
risks associated with changing interest rates, the existence of adequate
liquidity and the earning of an adequate return on shareholders' equity.
Bancorp has a holding company asset/liability committee, made up of
representatives of various subsidiaries and disciplines, whose function is to
develop policies and guidelines for effective asset/liability management
throughout Bancorp's subsidiaries.
TABLE 7 MARKET RISK DISCLOSURE
<TABLE>
<CAPTION>
Principal Amount Maturing In:
1999 2000 2001 2002 2003 THEREAFTER
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Fixed interest rate loans $ 85,765 $ 46,606 $ 81,116 $ 92,388 $ 88,396 $ 307,071
Average interest rate 8.23% 9.88% 9.77% 9.66% 9.35% 8.09%
Variable interest rate loans 440,179 127,402 61,638 48,960 72,659 814,693
Average interest rate 8.75% 8.74% 8.32% 8.72% 8.22% 7.83%
Fixed interest rate securities 37,729 16,763 26,686 26,496 47,970 153,951
Average interest rate 7.49% 5.20% 7.61% 6.61% 5.63% 7.43%
Variable interest rate securities 468 - 88 101 - 37,843
Average interest rate 8.40% - 7.82% 7.00% - 6.34%
Other earning assets 6,436 496 487 - - -
Average interest rate 5.01% 5.96% 6.13% - - -
RATE SENSITIVE LIABILITIES
Noninterest - bearing checking 184,302 139,461 - - - -
Savings & interest- bearing checking 125,966 713,801 - - - -
Average interest rate 2.10% 2.10% - - - -
Time deposits 850,610 214,676 54,399 19,211 13,879 10,291
Average interest rate 5.18% 5.42% 5.35% 5.66% 5.39% 5.37%
Fixed interest rate borrowings 1,000 16,480 2,576 18,950 6,200 60,129
Average interest rate 5.19% 5.68% 5.11% 5.33% 4.82% 6.25%
Variable interest rate borrowings 109,363 - - - - -
Average interest rate 5.05% - - - - -
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE
TOTAL DECEMBER 31,1998
<S> <C> <C>
RATE SENSITIVE ASSETS
Fixed interest rate loans $ 701,342 $ 707,038
Average interest rate 8.78%
Variable interest rate loans 1,565,531 1,571,019
Average interest rate 8.23%
Fixed interest rate securities 309,595 311,650
Average interest rate 6.98%
Variable interest rate securities 38,500 38,739
Average interest rate 6.37%
Other earning assets 7,419 7,419
Average interest rate 5.15%
RATE SENSITIVE LIABILITIES
Noninterest - bearing checking 323,763 323,763
Savings & interest- bearing checking 839,767 839,767
Average interest rate 2.10%
Time deposits 1,163,066 1,165,824
Average interest rate 5.25%
Fixed interest rate borrowings 105,335 102,977
Average interest rate 5.87%
Variable interest rate borrowings 109,363 109,363
Average interest rate 5.05%
</TABLE>
9
<PAGE> 11
STATISTICAL INFORMATION
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
Daily average balances and interest rates; (Tax equivalent basis; dollars in
thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (1)
Commercial (2) $ 562,145 $ 55,904 9.94% $ 432,579 $ 43,732 10.11%
Real estate (2) 1,044,336 86,475 8.28% 944,080 78,613 8.33%
Installment
and other consumer 469,021 49,624 10.58% 412,564 42,793 10.37%
Lease financing (2) 28,552 2,191 7.67% 18,817 1,449 7.70%
---------- ---------- ---------- ----------
Total loans 2,104,054 194,194 9.23% 1,808,040 166,587 9.21%
Investment securities (3)
Taxable 336,265 21,108 6.28% 301,022 20,011 6.65%
Tax-exempt (2) 62,346 5,837 9.36% 72,258 7,681 10.63%
---------- ---------- ---------- ----------
Total investment securities (3) 398,611 26,945 6.76% 373,280 27,692 7.42%
Interest-bearing deposits
with other banks 4,387 272 6.20% 4,083 253 6.20%
Federal funds sold and securities
purchased under agreements
to resell 8,307 418 5.03% 11,379 599 5.26%
---------- ---------- ---------- ----------
TOTAL EARNING ASSETS 2,515,359 221,829 8.82% 2,196,782 195,131 8.88%
NONEARNING ASSETS
Allowance for loan losses (28,910) (24,470)
Cash and due from banks 107,248 94,253
Accrued interest and other assets 138,824 96,508
---------- ----------
Total assets $2,732,521 $2,363,073
========== ==========
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand $ 238,641 5,333 2.23% $ 250,005 5,844 2.34%
Savings 566,013 13,300 2.35% 472,180 11,539 2.44%
Time 1,154,832 61,649 5.34% 976,643 52,928 5.42%
---------- ---------- ---------- ----------
Total interest-bearing deposits 1,959,486 80,282 4.10% 1,698,828 70,311 4.14%
Borrowed funds
Short-term borrowings 86,444 4,204 4.86% 111,944 5,518 4.93%
Long-term borrowings 75,664 3,961 5.23% 16,782 1,004 5.98%
---------- ---------- ---------- ----------
Total borrowed funds 162,108 8,165 5.04% 128,726 6,522 5.07%
---------- ---------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 2,121,594 88,447 4.17% 1,827,554 76,833 4.20%
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 288,365 236,998
Other liabilities 26,530 24,298
SHAREHOLDERS' EQUITY 296,032 274,223
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,732,521 $2,363,073
========== ==========
NET INTEREST INCOME AND
INTEREST RATE SPREAD $ 133,382 4.65% $ 118,298 4.68%
========== ========== ========== ==========
NET INTEREST MARGIN 5.30% 5.39%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
1996
BALANCE INTEREST YIELD
Daily average balances and interest rates;
(Tax equivalent basis; dollars in thousands)
<S> <C> <C> <C>
EARNING ASSETS
Loans (1)
Commercial (2) $ 368,838 $ 36,817 9.98%
Real estate (2) 857,947 70,119 8.17%
Installment
and other consumer 362,164 37,094 10.24%
Lease financing (2) 15,653 1,154 7.37%
---------- ----------
Total loans 1,604,602 145,184 9.05%
Investment securities (3)
Taxable 294,898 19,330 6.55%
Tax-exempt (2) 83,251 9,314 11.19%
---------- ----------
Total investment securities (3) 378,149 28,644 7.57%
Interest-bearing deposits
with other banks 7,736 450 5.82%
Federal funds sold and securities
purchased under agreements
to resell 9,432 507 5.38%
---------- ----------
TOTAL EARNING ASSETS 1,999,919 174,785 8.74%
NONEARNING ASSETS
Allowance for loan losses (21,547)
Cash and due from banks 85,993
Accrued interest and other assets 83,159
----------
Total assets $2,147,524
==========
Interest-bearing liabilities
Deposits
Interest-bearing demand $ 298,975 6,866 2.30%
Savings 372,169 9,317 2.50%
Time 920,474 49,724 5.40%
---------- ----------
Total interest-bearing deposits 1,591,618 65,907 4.14%
Borrowed funds
Short-term borrowings 73,095 3,521 4.82%
Long-term borrowings 4,301 279 6.49%
---------- ----------
Total borrowed funds 77,396 3,800 4.91%
---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 1,669,014 69,707 4.18%
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 208,017
Other liabilities 23,043
SHAREHOLDERS' EQUITY 247,450
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,147,524
==========
NET INTEREST INCOME AND
INTEREST RATE SPREAD $ 105,078 4.56%
========== ========
NET INTEREST MARGIN 5.25%
========
</TABLE>
(1) Nonaccrual loans are included in average loan balance and loan fees are
included in interest income.
(2) Interest income on tax-exempt investments and
on certain tax-exempt loans and leases has been adjusted to a taxable equivalent
basis using a marginal federal income tax rate of 35.0%.
(3) Includes both
investment securities held-to-maturity and investment securities
available-for-sale.
10
<PAGE> 12
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 136,489 $ 142,334
Interest-bearing deposits with other banks 2,498 3,487
Federal funds sold and securities purchased under agreements to resell 4,921 18,773
Investment securities held-to-maturity
(market value of $37,214 at December 31, 1998;
$60,961 at December 31, 1997) 34,920 58,347
Investment securities available-for-sale, at market value
(cost of $310,264 at December 31, 1998;
$329,261 at December 31, 1997) 313,175 332,617
Loans
Commercial 631,906 502,919
Real estate-construction 72,518 63,308
Real estate-mortgage 1,042,579 927,985
Installment 474,783 439,744
Credit card 18,521 17,369
Lease financing 29,212 27,260
----------- -----------
TOTAL LOANS 2,269,519 1,978,585
Less
Unearned income 2,646 1,554
Allowance for loan losses 29,684 27,510
----------- -----------
Net loans 2,237,189 1,949,521
Premises and equipment 50,902 47,013
Goodwill 31,416 29,129
Other intangibles 11,164 11,244
Deferred income taxes 1,261 3,070
Accrued interest and other assets 47,169 40,576
----------- -----------
TOTAL ASSETS $ 2,871,104 $ 2,636,111
=========== ===========
LIABILITIES
Deposits
Noninterest-bearing $ 323,763 $ 314,051
Interest-bearing 2,002,833 1,916,127
----------- -----------
Total deposits 2,326,596 2,230,178
Short-term borrowings
Federal funds purchased and securities sold under agreements to repurchase 44,720 46,638
Federal Home Loan Bank borrowings 64,000 2,000
Other 643 3,650
----------- -----------
Total short-term borrowings 109,363 52,288
Federal Home Loan Bank long-term borrowings 105,335 41,054
Accrued interest and other liabilities 27,877 26,332
----------- -----------
TOTAL LIABILITIES 2,569,171 2,349,852
SHAREHOLDERS' EQUITY
Common stock -- no par value
Authorized -- 60,000,000 shares
Issued -- 36,320,338 shares in 1998
and 16,558,108 shares in 1997 298,285 232,593
Retained earnings 5,366 51,973
Accumulated comprehensive income 1,835 2,094
Restricted stock awards (408) (338)
Treasury stock, at cost, 118,638 and 1,319 shares (3,145) (63)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 301,933 286,259
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,871,104 $ 2,636,111
=========== ===========
See Notes to Consolidated Financial Statements.
====================================================================================================================================
</TABLE>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT 11
<PAGE> 13
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 193,924 $ 166,336 $ 144,941
Investment securities
Taxable 21,108 20,011 19,330
Tax-exempt 3,789 4,986 6,047
------------ ------------ ------------
Total investment securities interest 24,897 24,997 25,377
Interest-bearing deposits with other banks 272 253 450
Federal funds sold and securities purchased under agreements to resell 418 599 507
------------ ------------ ------------
TOTAL INTEREST INCOME 219,511 192,185 171,275
INTEREST EXPENSE
Deposits 80,282 70,311 65,907
Short-term borrowings 4,204 5,518 3,521
Long-term borrowings 3,961 1,004 279
------------ ------------ ------------
TOTAL INTEREST EXPENSE 88,447 76,833 69,707
------------ ------------ ------------
NET INTEREST INCOME 131,064 115,352 101,568
Provision for loan losses 6,077 4,736 3,433
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 124,987 110,616 98,135
NONINTEREST INCOME
Service charges on deposit accounts 11,949 10,398 9,182
Trust revenues 11,975 9,905 8,278
Investment securities gains (losses) 804 54 (8)
Other 9,613 6,620 4,645
------------ ------------ ------------
TOTAL NONINTEREST INCOME 34,341 26,977 22,097
NONINTEREST EXPENSES
Salaries and employee benefits 49,798 42,385 37,586
Net occupancy 5,612 5,025 4,790
Furniture and equipment 4,832 4,374 3,911
Data processing 5,616 4,960 4,773
Deposit insurance 414 375 2,889
State taxes 1,744 1,718 1,706
Amortization of intangibles 4,015 1,326 657
Other 20,708 17,514 14,949
------------ ------------ ------------
TOTAL NONINTEREST EXPENSES 92,739 77,677 71,261
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 66,589 59,916 48,971
Income tax expense 22,483 19,608 15,031
------------ ------------ ------------
NET EARNINGS $ 44,106 $ 40,308 $ 33,940
============ ============ ============
NET EARNINGS PER SHARE - BASIC $ 1.21 $ 1.11 $ 0.96
============ ============ ============
NET EARNINGS PER SHARE - DILUTED $ 1.21 $ 1.10 $ 0.96
============ ============ ============
AVERAGE SHARES OUTSTANDING 36,375,686 36,402,415 35,359,522
============ ============ ============
See Notes to Consolidated Financial Statements.
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
NET INCOME $ 44,106 $ 40,308 $ 33,940
Other comprehensive income, net of tax
Unrealized (losses) gains on securities
Unrealized holding gains (losses) arising during period 310 980 (206)
Less: reclassification adjustment for gains included in net income 569 49 69
-------- -------- --------
Other comprehensive income (259) 931 (275)
-------- -------- --------
COMPREHENSIVE INCOME $ 43,847 $ 41,239 $ 33,665
======== ======== ========
</TABLE>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT 12
<PAGE> 14
<TABLE>
<CAPTION>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings $ 44,106 $ 40,308 $ 33,940
Adjustments to reconcile net earnings to net cash provided by operating activities
Provision for loan losses 6,077 4,736 3,433
Provision for depreciation and amortization 7,952 5,204 4,027
Net amortization of premiums and accretion of discounts
on investment securities 301 376 715
Deferred income taxes 1,748 (158) 680
Realized (gains) losses on investment securities (804) (54) 8
Originations of mortgage loans held for sale (171,902) (65,748) (43,943)
Gains from sales of mortgage loans held for sale (1,984) (839) (667)
Proceeds from sales of mortgage loans held for sale 173,886 66,587 44,610
Increase in cash surrender value of life insurance (3,236) (3,264) (8,159)
(Increase) decrease in interest receivable (1,269) (229) 815
Decrease (increase) in prepaid expenses 484 (563) (199)
Increase (decrease) in accrued expenses 697 920 (338)
Increase (decrease) in interest payable 447 69 (384)
Other (3,270) (97) 1,113
--------- --------- ---------
Net cash provided by operating activities 53,233 47,248 35,651
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale 31,766 972 4,984
Proceeds from calls, paydowns, and maturities of investment
securities available-for-sale 153,044 127,409 150,957
Purchases of investment securities available-for-sale (145,422) (149,707) (133,449)
Proceeds from calls, paydowns, and maturities of investment
securities held-to-maturity 27,373 22,361 17,594
Purchases of investment securities held-to-maturity (2,805) (1,293) (3,053)
Net decrease in interest-bearing deposits with other banks 989 1,592 1,803
Net decrease in federal funds sold and
securities purchased under agreements to resell 13,888 5,129 23,426
Net increase in loans and leases (257,705) (164,896) (96,361)
Proceeds from disposal of other real estate owned 1,818 560 1,765
Recoveries from loans and leases previously charged off 1,050 999 1,173
Net cash (used) acquired in purchase of financial institutions (12,231) 147,963 (6,427)
Cash acquired in merger with other financial institutions 0 8,288 1,845
Purchases of premises and equipment (7,504) (3,438) (4,381)
--------- --------- ---------
Net cash used in investing activities (195,739) (4,061) (40,124)
FINANCING ACTIVITIES
Net increase (decrease) in total deposits 43,620 13,906 (15,416)
Net increase (decrease) in short-term borrowings 57,075 (41,491) 35,389
Proceeds from long-term borrowings 64,698 34,951 5,000
Principal payments of long-term borrowings (417) (403) (1,314)
Cash dividends (20,330) (18,958) (16,341)
Purchase of common stock (8,773) (282) (994)
Proceeds from exercise of stock options 788 657 231
--------- --------- ---------
Net cash provided by (used in) financing activities 136,661 (11,620) 6,555
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (5,845) 31,567 2,082
Cash and cash equivalents at beginning of year 142,334 110,767 108,685
--------- --------- ---------
Cash and cash equivalents at end of year $ 136,489 $ 142,334 $ 110,767
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 87,813 $ 76,764 $ 70,091
========= ========= =========
Income taxes paid $ 20,720 $ 21,030 $ 14,919
========= ========= =========
Recognition of deferred tax assets (liabilities) attributable to SFAS No. 115 $ 187 $ (551) $ 139
========= ========= =========
Acquisition of other real estate owned through foreclosure $ 1,147 $ 1,265 $ 375
========= ========= =========
Issuance of restricted stock awards $ 220 $ 220 $ 226
========= ========= =========
See Notes to Consolidated Financial Statements.
====================================================================================================================================
</TABLE>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT 13
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON COMMON ACCUMULATED RESTRICTED TREASURY TREASURY
STOCK STOCK RETAINED COMPREHENSIVE STOCK STOCK STOCK
SHARES AMOUNT SURPLUS EARNINGS INCOME AWARDS SHARES AMOUNT TOTAL
------ ------ ------- -------- ------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 13,013,422 $ 104,107 $ 13,577 $ 115,102 $ 1,437 $ (48) $ 234,175
Net earnings 33,940 33,940
Cash dividends declared
(Bancorp - $0.46 per share) (16,341) (16,341)
Shares issued in
F&M Bancorp merger 363,373 2,907 (1,238) 6,023 7,692
Change in unrealized gains
and (losses), net of income
tax benefit of $139 (275) (275)
Purchase of common stock (30,174) $ (994) (994)
Exercise of stock options,
net of shares purchased 5,589 45 (32) 6,934 218 231
Restricted stock awards 6,500 52 174 (226)
10% stock dividend 1,338,888 10,711 34,644 (45,355) (2,667)
Amortization of restricted
stock awards 54 54
---------- --------- --------- --------- ------- ------- -------- ------- --------
Balances at December 31, 1996 14,727,772 117,822 47,125 93,369 1,162 (220) (25,907) (776) 258,482
Net earnings 40,308 40,308
Cash dividends declared
(Bancorp - $0.52 per share) (18,958) (18,958)
Shares issued in Hastings
Financial Corporation merger 322,386 2,579 (1,733) 4,238 1 5,085
Change in unrealized gains
and (losses), net of income
tax expense of $551 931 931
Exercise of stock options,
net of shares purchased 2,471 38 (168) 23,817 787 657
10% stock dividend 1,505,479 12,025 54,896 (66,984) (212) (63)
Purchase of common stock (5,965) (282) (282)
Restricted stock awards 9 (220) 6,948 208 (3)
Amortization of restricted
stock awards 102 102
---------- --------- --------- --------- ------- ------- -------- ------- --------
Balances at December 31, 1997 16,558,108 132,464 100,129 51,973 2,094 (338) (1,319) (63) 286,259
NET EARNINGS 44,106 44,106
CASH DIVIDENDS DECLARED
(BANCORP - $0.57 PER SHARE) (20,330) (20,330)
CHANGE IN UNREALIZED GAINS
AND (LOSSES), NET OF INCOME
TAX BENEFIT OF $187 (259) (259)
PURCHASE OF COMMON STOCK (284,894) (8,773) (8,773)
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 6,135 (1,266) (314) 76,494 2,368 788
TRANSFER OF SURPLUS TO COMMON
STOCK (NO PAR VALUE) 99,812 (99,812)
2 FOR 1 STOCK SPLIT 16,560,780 (8,563)
10% STOCK DIVIDEND 3,195,315 67,275 (70,383) 95,819 3,108
RESTRICTED STOCK AWARDS (3) (220) 3,825 215 (8)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 150 150
---------- --------- --------- --------- ------- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1998 36,320,338 $ 298,285 $ 0 $ 5,366 $ 1,835 $ (408) (118,638) $(3,145) $301,933
========== ========= ========= ========= ======= ======= ======== ======= ========
See Notes to Consolidated Financial Statements.
====================================================================================================================================
</TABLE>
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT 14
<PAGE> 16
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, eastern and west-central Indiana, and southern
Michigan, include the accounts and operations of Bancorp and its 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 25 years. Core deposit intangibles are being amortized over
varying periods, none of which exceeds 10 years.
Investment securities - Statement of Financial Accounting Standards
(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.
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 impaired loans. When interest accruals
are suspended, interest income accrued in the current period is reversed and
interest accrued in the prior year is charged to the allowance for loan losses.
Bancorp's subsidiaries sell certain mortgage loans immediately after
origination on a flow basis. Due to Bancorp's policy of selling loans on a flow
basis, loans held for sale are not material and therefore not disclosed
separately on the Consolidated Balance Sheets. Loans held for sale are carried
at the lower of cost or market value.
Accounting for mortgage servicing rights standards require companies
engaging in mortgage banking operations, that is, the selling of mortgage loans,
to recognize as separate assets the estimated value of rights to service
mortgage loans for others. A company that acquires mortgage servicing rights
either through origination or purchase of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to mortgage servicing rights and to loans without
mortgage servicing rights based on their relative fair values. This allocation
increases the gain or decreases the loss from the sale of the mortgage loans and
decreases income in the future as the mortgage servicing rights are amortized
against servicing income.
Allowance for loan losses - The level of the allowance for loan losses
(allowance) is based upon management's evaluation of the loan and lease
portfolios, past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, economic conditions, and other
pertinent factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change. The level maintained is believed by management to be adequate to cover
losses inherent in the portfolio. The allowance is increased by provisions
charged to expense and decreased by charge-offs, net of recoveries of amounts
previously charged off.
Lease financing - Bancorp principally uses the finance method of
accounting for direct lease contracts. Under this method of accounting, a
receivable is recorded for the total amount of lease payments due and estimated
residual values. Lease income, represented by the excess of the total contract
receivable plus estimated equipment residual value over the cost of the related
equipment, is recorded over the terms of the leases at a level rate of return on
the unrecovered net investment.
Premises and equipment - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed principally on the straight-line method over the estimated useful lives
of the assets. Maintenance and repairs are charged to operations as incurred.
Other real estate owned - Other real estate owned represents properties
acquired by Bancorp's subsidiaries through loan defaults by customers. The
property is recorded at the lower of cost or fair value minus estimated costs to
sell at the date acquired. Subsequently, the property is valued at the lower of
the amount recorded when the property was placed into other real estate owned or
fair value minus estimated costs to sell based on periodic valuations performed
by management. An allowance for losses on other real estate owned may be
maintained for subsequent valuation adjustments on a specific property basis.
Any gains or losses realized at the time of disposal are reflected in income.
Income taxes - Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Bancorp and its subsidiaries file a consolidated federal income tax
return. Each subsidiary provides for income taxes on a separate return basis,
and remits to Bancorp amounts determined to be currently payable.
Earnings per share - SFAS No. 128, "Earnings per Share," issued in 1997
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to SFAS No. 128 requirements.
Cash flow information - For purposes of the statement of cash flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
Capital - During 1998, Bancorp declared a two-for-one stock split and
issued a 10% stock dividend. All share amounts presented in the financial
statements have been adjusted to reflect these transactions.
FIRST FINANCIAL BANCORP 15 1998 ANNUAL REPORT
<PAGE> 17
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
On August 25, 1998, the Board of Directors authorized the repurchase of
up to 5 percent of Bancorp's outstanding common shares. During 1998, Bancorp
repurchased 284,894 shares. The Board's authorization was rescinded in
conjunction with the announcement of the Sand Ridge Financial Corporation merger
agreement.
Reporting comprehensive income - SFAS No. 130, "Reporting Comprehensive
Income," was issued in June, 1997, and was effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components in a set of financial
statements. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. Bancorp adopted this statement effective
January 1, 1998. See the Consolidated Statements of Comprehensive Income.
Disclosure about segments and related information - SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
released in June, 1997, and was effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 established standards for reporting information
about operating segments. Operating segments are components of a business about
which separate financial information is available, that are evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance. Bancorp operates as one community banking segment in
contiguous geographic markets.
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
1998 and 1997 were approximately $14,118,000 and $21,707,000, respectively.
NOTE 3 - BUSINESS COMBINATIONS
Bancorp consummated the following business combinations in 1998, 1997, and 1996:
<TABLE>
<CAPTION>
ACQUISITION SHARES PURCHASE
DATE ASSETS DEPOSITS ISSUED PRICE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Purchase transactions
The Union State Bank April 1, 1998 $ 68,020 $ 52,798 $ 13,600
KeyBank Branches December 8, 1997 93,486 246,120 28,837
Southeastern Indiana Bancorp June 1, 1997 55,071 46,774 7,800
Farmers State Bancorp December 1, 1996 64,860 56,283 7,575
Pooling-of-interests
Hastings Financial Corporation January 1, 1997 49,989 44,156 322,386
F&M Bancorp April 1, 1996 61,721 53,638 363,373
</TABLE>
On April 1, 1998, Bancorp paid $13.6 million in cash for all the
outstanding common stock of The Union State Bank (USB). Upon consummation of the
merger, USB was merged into Community First Bank & Trust (Community First) and
USB's only office in Payne, Ohio, became a branch office of Community First. The
merger was accounted for using the purchase method of accounting and,
accordingly, the consolidated financial statements include USB's results of
operations from the date of acquisition.
On December 16, 1998, Bancorp signed a Plan and Agreement of Merger with
Sand Ridge Financial Corporation (Sand Ridge) in Highland, Indiana, located near
Chicago. Sand Ridge Financial Corporation is a one-bank holding company with
$527 million in assets at Sand Ridge Bank, its only subsidiary. When the merger
is completed, Sand Ridge Financial Corporation will be dissolved and Sand Ridge
Bank will become a wholly owned subsidiary of Bancorp. Subject to regulatory and
shareholder approval, the merger is expected to be completed in the second
quarter 1999 and will be accounted for using the pooling-of-interests method of
accounting.
On December 31, 1998, Bancorp signed a Plan and Agreement of Merger with
Hebron Bancorp, Inc. of Hebron, Kentucky. Hebron Bancorp, Inc. is a one-bank
holding company with $107 million in assets at Hebron Deposit Bank, its only
subsidiary. Upon consummation of the merger, Bancorp intends to dissolve Hebron
Bancorp, Inc. and Hebron Deposit Bank will become a wholly owned subsidiary of
Bancorp. Pending regulatory and shareholder approval, the merger is expected to
be consummated in the second quarter 1999 and will be accounted for using the
pooling-of-interests method of accounting. This represents Bancorp's first
association with a Kentucky Bank.
FIRST FINANCIAL BANCORP 16 1998 ANNUAL REPORT
<PAGE> 18
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 4 - LEASE FINANCING
Leases included in the loan portfolio at December 31 were composed as follows:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands)
<S> <C> <C>
Direct financing $ 21,354 $ 22,097
Leveraged 1,302 1,302
Non-recourse debt, principal and interest (936) (936)
-------- --------
Net rentals receivable 21,720 22,463
Estimated residual value of leased assets 12,986 10,580
Less unearned income 5,494 5,783
-------- --------
Investment in leases, net $ 29,212 $ 27,260
======== ========
</TABLE>
Direct financing lease payments receivable as of December 31, 1998, for the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1999 $ 7,242
2000 6,263
2001 4,677
2002 2,743
2003 428
Thereafter 1
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 were summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands)
<S> <C> <C>
Land and land improvements $ 9,756 $ 8,896
Buildings 49,289 48,109
Furniture and fixtures 37,335 34,588
Leasehold improvements 1,305 1,088
Construction in progress 2,914 676
--------- --------
100,599 93,357
Less accumulated depreciation
and amortization 49,697 46,344
--------- --------
TOTAL $ 50,902 $ 47,013
========= ========
</TABLE>
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, 1998, Bancorp's subsidiaries had
retained earnings of $114,430,000 of which $21,273,000 was available for
distribution to Bancorp as dividends without prior regulatory approval.
NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, Bancorp offers a variety of financial
instruments with off-balance-sheet risk to its customers to aid them in meeting
their requirements for liquidity and credit enhancement. These financial
instruments include standby letters of credit and commitments outstanding to
extend credit. Generally accepted accounting principles do not require these
financial instruments to be recorded in the consolidated financial statements
and, accordingly, they are not. Bancorp does not use off-balance-sheet
derivative financial instruments (such as interest rate swaps) as defined in
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments".
Bancorp's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for standby letters of credit and
commitments outstanding to extend credit is represented by the contractual
amounts of those instruments. Bancorp uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. Following is a discussion of these transactions.
Standby letters of credit - These transactions are conditional
commitments issued by Bancorp to guarantee the performance of a customer to a
third party. Bancorp's portfolio of standby letters of credit consists primarily
of performance assurances made on behalf of customers who have a contractual
commitment to produce or deliver goods or services. The risk to Bancorp arises
from its obligation to make payment in the event of the customers' contractual
default. Bancorp has issued standby letters of credit aggregating $17,242,000
and $19,210,000 at December 31, 1998 and 1997, 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
FIRST FINANCIAL BANCORP 17 1998 ANNUAL REPORT
<PAGE> 19
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Bancorp evaluates each
customer's creditworthiness on an individual basis. The amount of collateral
obtained, if deemed necessary by Bancorp upon extension of credit, is based on
management's credit evaluation of the counterparty. The collateral held varies,
but may include securities, real estate, inventory, plant, or equipment. Bancorp
had commitments outstanding to extend credit totaling $422,481,000 and
$335,092,000 at December 31, 1998 and 1997, respectively. Management does not
anticipate any material losses as a result of these commitments.
NOTE 8 - INVESTMENT SECURITIES
The following is a summary of investment securities as of December 31, 1998:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 17,461 $ 90 $ 17,551
Securities of U.S. government
agencies and corporations 83,923 736 $ (20) 84,639
Mortgage-backed securities $ 8,356 $ 249 $ (19) $ 8,586 158,959 1,249 (91) 160,117
Obligations of state and
other political subdivisions 26,048 2,058 (2) 28,104 31,741 925 (4) 32,662
Other securities 516 8 0 524 18,180 26 0 18,206
-------- ------- ----- -------- --------- ------- -------- ---------
TOTAL $ 34,920 $ 2,315 $ (21) $ 37,214 $ 310,264 $ 3,026 $ (115) $ 313,175
======== ======= ===== ======== ========= ======= ======== =========
</TABLE>
The following is a summary of investment securities as of December 31, 1997:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 44,732 $ 151 $ (4) $ 44,879
Securities of U.S. government
agencies and corporations 100,041 504 (32) 100,513
Mortgage-backed securities $ 11,398 $ 375 $ (57) $ 11,716 139,874 1,872 (190) 141,556
Obligations of state and
other political subdivisions 45,881 2,344 (53) 48,172 26,131 770 (1) 26,900
Other securities 1,068 5 0 1,073 18,483 286 0 18,769
-------- ------- ------ -------- --------- ------- -------- ---------
TOTAL $ 58,347 $ 2,724 $ (110) $ 60,961 $ 329,261 $ 3,583 $ (227) $ 332,617
======== ======= ====== ======== ========= ======= ======== =========
</TABLE>
The carrying value of investment securities as of December 31, 1996, by
category was as follows: U.S. Treasury $43,537,000, U.S. government agencies and
corporations $78,328,000, mortgage-backed $147,664,000, obligations of state and
other political subdivisions $82,735,000, and other $17,382,000.
During the year ended December 31, 1998, available-for-sale securities
with a fair value at the date of sale of $31,068,000 were sold. The gross
realized gains on such sales totaled $698,000.
During the year ended December 31, 1997, available-for-sale securities
with a fair value at the date of sale of $971,000 were sold. The gross realized
gains on such sales totaled $1,000.
During the year ended December 31, 1996, available-for-sale securities
with a fair value at the date of sale of $5,000,000 were sold. The gross
realized losses on such sales totaled $16,000.
There were net investment gains after taxes of $569,000, $49,000 and
$69,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The
applicable income tax effects were expenses of $235,000 and $5,000 in 1998 and
1997, respectively, and a benefit of $77,000 in 1996.
The carrying value of investment securities pledged to secure public
deposits and for other purposes as required by law amounted to $192,635,000 at
December 31, 1998.
The amortized cost and market value of investment securities, including
mortgage-backed securities at December 31, 1998, 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.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 7,012 $ 7,200 $ 31,049 $ 31,185
Due after one year through five years 12,185 12,872 104,852 105,919
Due after five years through ten years 10,675 11,527 46,926 47,579
Due after ten years 5,048 5,615 127,437 128,492
-------- -------- --------- ---------
Total $ 34,920 $ 37,214 $ 310,264 $ 313,175
======== ======== ========= =========
</TABLE>
FIRST FINANCIAL BANCORP 18 1998 ANNUAL REPORT
<PAGE> 20
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 9 - LOANS
Information as to nonaccrual and restructured loans at December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Principal balance
Nonaccrual loans $ 6,152 $ 5,257 $ 4,850
Restructured loans 78 1,581 890
------- ------- -------
Total $ 6,230 $ 6,838 $ 5,740
======= ======= =======
Interest income effect
Gross amount of interest that would
have been recorded at original rate $ 479 $ 474 $ 717
Interest included in income 115 165 371
------- ------- -------
NET IMPACT ON INTEREST INCOME $ 364 $ 309 $ 346
======= ======= =======
</TABLE>
At December 31, 1998, 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,
repossessions or other workout situations, net of the related allowance, totaled
$221,000, $950,000 and $264,000 at December 31, 1998, 1997 and 1996,
respectively.
Changes in the allowance for loan losses for the three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 27,510 $ 22,672 $ 20,437
Allowance acquired through mergers 806 3,013 1,592
Provision for loan losses 6,077 4,736 3,433
Loans charged off (5,759) (3,910) (3,963)
Recoveries 1,050 999 1,173
-------- -------- --------
BALANCE AT END OF YEAR $ 29,684 $ 27,510 $ 22,672
======== ======== ========
</TABLE>
The allowances for loan losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 are based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans.
At December 31, 1998, 1997, and 1996, the recorded investment in loans
that are considered to be impaired under SFAS No. 114 was $2,304,000,
$3,313,000, and $1,935,000, respectively. The related allowance for loan losses
on these impaired loans was $1,303,000 at December 31, 1998, $995,000 at
December 31, 1997, and $694,000 at December 31, 1996. 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, 1998, was approximately $3,834,000 versus $3,016,000 for the year
ended December 31, 1997, and $1,962,000 for the year ended December 31, 1996.
For the years ended December 31, 1998, 1997, and 1996, Bancorp recognized
interest income on those impaired loans of $112,000, $22,000, and $54,000,
respectively. Bancorp recognizes income on impaired loans using the cash basis
method.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Balance Sheets. The unpaid principal balances of these loans
totaled $298,556,000, $222,615,000, and $223,012,000 at December 31, 1998, 1997
and 1996, respectively.
Custodial escrow balances maintained in connection with these mortgage
loans serviced were approximately $1,908,000, $1,670,000, and $1,580,000 at
December 31, 1998, 1997, and 1996, respectively.
NOTE 10 - FEDERAL HOME LOAN BANK LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1998, consisted exclusively of
Federal Home Loan Bank (FHLB) advances with rates ranging from 4.79% to 6.90%,
with interest payable monthly. The advances were secured by certain residential
mortgage loans with a book value of $648,918,000. The advances mature as
follows: $1,000,000 in 1999, $16,480,000 in 2000, $2,576,000 in 2001,
$18,950,000 in 2002, $6,200,000 in 2003, $2,629,000 in 2006, and $57,500,000 in
2008.
FIRST FINANCIAL BANCORP 19 1998 ANNUAL REPORT
<PAGE> 21
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 11 - INCOME TAXES
Income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ 19,104 $ 18,928 $ 13,098
State 1,391 1,500 1,228
-------- -------- --------
Total 20,495 20,428 14,326
Deferred expense (benefit) 1,988 (820) 705
-------- -------- --------
INCOME TAX EXPENSE $ 22,483 $ 19,608 $ 15,031
======== ======== ========
</TABLE>
The difference between the federal income tax rates, applied to income before
income taxes, and the effective rates were due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Income taxes computed at federal statutory rate of 35% $ 23,306 $ 20,970 $ 17,139
State income taxes, net of federal tax benefit 904 975 798
Effect of tax-exempt interest (1,584) (2,017) (2,224)
Other (143) (320) (682)
-------- -------- --------
INCOME TAX EXPENSE $ 22,483 $ 19,608 $ 15,031
======== ======== ========
</TABLE>
On August 21, 1996, The Small Business Job Protection Act, which repeals
the favorable bad debt deduction method available to savings banks, was signed
into law. Bancorp's savings banks were required to change their tax bad debt
method to the specific charge-off method effective for the year ending
December 31, 1996. As of December 31, 1996, Bancorp's two savings bank
subsidiaries had a bad debt reserve for federal tax purposes of approximately
$5,600,000, all of which represents the base year amount. A deferred tax
liability has not been recognized for the base year amount. If the savings bank
subsidiaries use the base year reserve for any reason other than to absorb loan
losses, a tax liability could be incurred. It is not anticipated that the
reserve will be used for any other purpose.
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets and liabilities be carried at the enacted tax rate. The enacted tax rate
was 35% for years ended December 31, 1998, 1997, and 1996. The major components
of the temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 9,187 $ 8,288
Other real estate owned 2 44
Postretirement benefits other than pensions liability 990 980
Pension liability 326 338
Other 683 482
-------- --------
Total deferred tax assets 11,188 10,132
Deferred tax liabilities
Tax greater than book depreciation 1,251 1,105
Leasing activities 3,489 2,019
Federal Home Loan Bank stock basis difference 958 631
Deferred loan fees 782 343
Purchase accounting basis differences 1,023 614
Other 1,349 1,088
-------- --------
Total deferred tax liabilities 8,852 5,800
-------- --------
Net deferred tax asset recognized through the statement of earnings 2,336 4,332
Net deferred tax liability from valuation adjustments of investment securities
available-for-sale, recognized in equity section of balance sheet (1,075) (1,262)
-------- --------
TOTAL NET DEFERRED TAX ASSET $ 1,261 $ 3,070
======== ========
</TABLE>
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.
FIRST FINANCIAL BANCORP 20 1998 ANNUAL REPORT
<PAGE> 22
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 12 - RISK-BASED CAPITAL
The Federal Reserve established risk-based capital requirements for U.S.
banking organizations which have been adopted by the Office of Thrift
Supervision for savings and loan associations. Risk weights are assigned to
on- and off-balance sheet items in arriving at risk-adjusted total assets.
Regulatory capital is divided by risk-adjusted total assets, with the resulting
ratios compared to minimum standards to determine whether a bank has adequate
capital.
Regulatory guidelines require a 4.00% Tier 1 capital ratio, an 8.00%
Total risk-based capital ratio, and a 4.00% Leverage ratio. Tier 1 capital
consists primarily of common shareholders' equity, net of intangibles, and Total
risk-based capital is Tier 1 capital plus Tier 2 supplementary capital, which is
primarily the allowance for loan losses subject to certain limits. The Leverage
ratio is a result of Tier 1 capital divided by average total assets less certain
intangibles.
While Bancorp's subsidiaries' ratios are well above regulatory
requirements, management will continue to monitor the asset mix which affects
these ratios due to the risk weights assigned various assets, and the allowance
for loan losses, which influences the Total risk-based capital ratio.
The table below illustrates the risk-based capital calculations and
ratios for the last two years.
<TABLE>
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 301,933 $ 286,259
Less intangibles 40,605 39,169
Less unrealized net
securities gains, net of tax 1,835 2,094
----------- -----------
Total Tier 1 capital $ 259,493 $ 244,996
=========== ===========
Total risk-based capital
Tier 1 capital $ 259,493 $ 244,996
Qualifying allowance for loan losses 26,903 23,591
----------- -----------
Total risk-based capital $ 286,396 $ 268,587
=========== ===========
Risk weighted assets $ 2,149,489 $ 1,883,335
=========== ===========
Risk-based ratios
Tier 1 capital 12.1% 13.0%
=========== ===========
Total risk-based capital 13.3% 14.3%
=========== ===========
Leverage 9.6% 10.5%
=========== ===========
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
Bancorp sponsors a non-contributory defined benefit pension plan covering
substantially all employees. Plan assets are administered by the trust
departments of First National Bank of Southwestern Ohio (First Southwestern) and
Community First Bank & Trust (Community First), both subsidiaries of Bancorp.
Plan assets primarily consist of equity and debt mutual funds, stocks, corporate
bonds, and money market funds. Approximately 86.7% and 85.9% of plan assets at
December 31, 1998 and 1997, respectively, were invested in collective trust
funds with First Southwestern. Also included in plan assets was a $100,000
certificate of deposit invested with Community First at each date. The pension
plan does not own any shares of Bancorp common stock.
The following tables set forth information concerning amounts recognized in
Bancorp's Consolidated Balance Sheets and Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 24,393 $ 21,639
Service cost 1,769 1,502
Interest cost 1,811 1,734
Transfer from merged plan 320
Actuarial loss 894 2,005
Adjustment due to change in settlement rate 1,213 1,019
Benefits paid (2,992) (3,506)
-------- --------
Benefit obligation at end of year 27,408 24,393
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 23,738 22,627
Actual return on plan assets 3,128 4,572
Employer contributions 1,495 45
Transfer from merged plan 307
Benefits paid (2,992) (3,506)
-------- --------
Fair value of plan assets at end of year 25,676 23,738
-------- --------
Funded status (1,732) (655)
Unrecognized transition amount (1,342) (1,647)
Unrecognized prior service cost 1,579 1,831
Unrecognized actuarial loss (gain) 141 (751)
-------- --------
NET AMOUNT RECOGNIZED IN THE BALANCE SHEETS
(ACCRUED BENEFIT LIABILITY) $ (1,354) $ (1,222)
======== ========
</TABLE>
FIRST FINANCIAL BANCORP 21 1998 ANNUAL REPORT
<PAGE> 23
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 7.00% 7.25%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 3.50% 3.50%
COMPONENTS OF NET PERIODIC BENEFIT COST
</TABLE>
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $ 1,769 $ 1,502 $ 1,324
Interest cost 1,811 1,734 1,628
Expected return on assets (1,900) (1,765) (1,738)
Amortization of transition asset (305) (305) (293)
Amortization of unrecognized prior service cost 252 261 244
Amortization of actuarial loss 64
-------- -------- -------
NET PERIODIC PENSION COST $ 1,627 $ 1,491 $ 1,165
======== ======== =======
</TABLE>
Bancorp also sponsors a defined contribution 401(k) thrift plan which
covers substantially all employees. Employees may contribute up to 12.0% of
their base salaries into the plan. Bancorp contributions are at the discretion
of the Board of Directors. During 1998, 1997, and 1996 Bancorp contributed $.50
for each $1.00 an employee contributed, up to a maximum Bancorp contribution of
3.00% of the employee's base salary. All Bancorp matching contributions vest
immediately. Total Bancorp contributions to the 401(k) plan were $701,000 during
1998, $566,000 during 1997, and $537,000 during 1996.
NOTE 14 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Some Bancorp subsidiaries maintain health care and, in limited instances,
life insurance plans for employees who retired prior to 1994. Under the current
policy, the health care plans are unfunded and pay medically necessary expenses
incurred by retirees, after subtracting payments by Medicare or other providers
and after stated deductibles have been met. Bancorp has reserved the right to
change or eliminate these benefit plans.
The following table sets forth the funded status and amounts recognized in
Bancorp's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $ 1,669 $ 1,715
Interest cost 106 127
Plan participants' contributions 29 32
Transfer from merged plan 250
Actuarial gain (328) (338)
Benefits paid (37) (117)
-------- ---------
Benefit obligation at end of year 1,439 1,669
Fair value of plan assets at beginning and end of year 0 0
-------- ---------
Funded status (1,439) (1,669)
Unrecognized actuarial gain (1,282) (1,044)
Unrecognized prior service cost (33) (36)
-------- --------
NET POSTRETIREMENT LIABILITY RECOGNIZED IN THE BALANCE SHEETS $ (2,754) $ (2,749)
======== ========
Net periodic postretirement benefit cost includes the following
components:
Interest cost $ 106 $ 127
Amortization of unrecognized prior service cost (3) (34)
Amortization of actuarial gain (90) (40)
-------- --------
NET PERIODIC BENEFIT COST $ 13 $ 53
======== ========
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.00% at December 31, 1998, and 7.25% at December 31, 1997. The
assumed health care cost trend rates used in determining the accumulated
postretirement benefit obligation are shown in the table to the right.
If the health care cost trend rate assumptions were increased by 1.00%, the
accumulated postretirement benefit obligation as of December 31, 1998, would be
increased by approximately $121,000. If the health care cost trend rate
assumptions were decreased by 1.00%, the accumulated postretirement benefit
obligation as of December 31, 1998, would be decreased by approximately
$109,000.
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
1998 9.00%
1999 8.10% 8.10%
2000 7.30% 7.30%
2001 6.50% 6.60%
2002 6.00% 6.00%
2003 5.50% 5.50%
Thereafter 5.00% 5.00%
</TABLE>
FIRST FINANCIAL BANCORP 22 1998 ANNUAL REPORT
<PAGE> 24
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 15 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Net income--numerator for basic and diluted earnings per share -
income available to common stockholders $ 44,106 $ 40,308 $ 33,940
============ ============ =============
Denominator for basic earnings per share - weighted average shares 36,375,686 36,402,415 35,359,522
Effect of dilutive securities - employee stock options 170,858 130,321 44,616
------------ ------------ -------------
Denominator for diluted earnings per share - adjusted weighted average shares 36,546,544 36,532,736 35,404,138
============ ============ =============
Basic earnings per share $ 1.21 $ 1.11 $ 0.96
============ ============ =============
Diluted earnings per share $ 1.21 $ 1.10 $ 0.96
============ ============ =============
</TABLE>
NOTE 16 - 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 1,464,100 common shares of Bancorp. The options
are not exercisable for at least one year from the date of grant and are
thereafter exercisable for such periods (which may not exceed 10 years) as the
Board of Directors, or a committee thereof, specify, provided that the optionee
has remained in the employment of Bancorp or its subsidiaries. The Board or the
committee may accelerate the exercise period for an option upon the optionee's
disability, retirement, or death. All options expire at the end of the exercise
period. Cancelled and expired options become available for issuance and are
reflected in the available for future grant figure.
Bancorp has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and related Interpretations
in accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, because the exercise
price of Bancorp's employee stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if Bancorp had accounted
for its stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997, and 1996, respectively: risk-free interest rates of 5.59%, 6.72%, and
5.65%; dividend yields of 2.45%, 3.67%, and 3.57%; volatility factors of the
expected market price of Bancorp's common stock of 0.193, 0.195, and 0.206; and
a weighted average expected life of the options of 4.20, 7.57, and 5.45 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Bancorp's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Bancorp's pro
forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net earnings $43,321 $39,946 $33,686
======= ======= =======
Pro forma earnings per share $ 1.20 $ 1.10 $ 0.95
======= ======= =======
</TABLE>
Activity in the above plan for 1998, 1997, and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
NUMBER OF OPTION NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 411,336 371,505 332,946
Granted 190,661 $ 22.05-24.94 118,028 $12.86-15.19 128,330 $ 12.58-13.05
Exercised (122,197) $ 8.25-13.05 (76,987) $ 8.50-13.05 (79,488) $ 8.51-12.17
Cancelled (1,210) $ 12.86 (2,662) $ 13.05
Expired (7,621) $ 12.17
--------- --------- ---------
OUTSTANDING AT END OF YEAR 479,800 $ 8.25-24.94 411,336 $ 8.25-15.19 371,505 $ 8.25-13.05
========= ========= =========
EXERCISABLE AT END OF YEAR 289,118 294,455 $ 8.25-13.05 263,142 $ 8.25-12.49
========= ========= =========
AVAILABLE FOR FUTURE GRANT UNDER
THE 1991 STOCK INCENTIVE PLAN 618,409 819,300 953,619
========= ========= =========
WEIGHTED-AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR $ 4.28 $ 2.82 $ 2.50
========= ========= =========
</TABLE>
FIRST FINANCIAL BANCORP 23 1998 ANNUAL REPORT
<PAGE> 25
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 17 - LOANS TO RELATED PARTIES
Loans to directors, executive officers, principal holders of Bancorp's
common stock, and certain related persons totaled $27,674,000 and $30,692,000 at
December 31, 1998 and 1997, respectively.
Activity of these loans was as follows:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands)
<S> <C> <C>
Beginning balance $ 30,692 $ 16,058
Additions 9,545 20,502
Collected 12,563 5,868
Charged off 0 0
----------- -----------
Ending balance $ 27,674 $ 30,692
----------- -----------
Loans 90 days past due $ 0 $ 0
=========== ===========
</TABLE>
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 18 - SHAREHOLDER RIGHTS PLAN
Bancorp has a "shareholder rights plan" under which the holders of
Bancorp's common stock are entitled to receive one "right" per share held.
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 $45, one share of common stock of
the corporation. Subject to the "exchange option" described below, 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 $45,
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.
At any time after any person becomes an "acquiring person" or an "adverse
person," the plan gives Bancorp's board of directors the option (the "exchange
option") to exchange all or part of the outstanding "rights" (except "rights"
held by an "acquiring person" or an "adverse person") for shares of Bancorp's
common stock at an exchange ratio of 0.9 shares of common stock per "right." In
the event that Bancorp's board of directors adopts the "exchange option," each
"right" would only entitle the holder thereof to receive 0.9 shares of common
stock per "right." Any partial exchange would be effected pro rata based on the
number of "rights" held by each holder of "rights" included in the exchange.
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.
FIRST FINANCIAL BANCORP 24 1998 ANNUAL REPORT
<PAGE> 26
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by Bancorp in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments - The carrying amounts reported in the
balance sheet for cash and short-term investments, such as interest-bearing
deposits with other banks and federal funds sold, approximated the fair value of
those instruments.
Investment securities (including mortgage-backed securities) - Fair
values for investment securities were based on quoted market prices, where
available. If quoted market prices were not available, fair values were based on
quoted market prices of comparable instruments. Refer to Note 8 for further
disclosure.
Loans - For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values were based on carrying values.
The fair values of other loans and leases, such as commercial real estate and
consumer loans were estimated by discounting the future cash flows using the
current rates at which similar loans and leases would be made to borrowers with
similar credit ratings and for the same remaining maturities. The carrying
amount of accrued interest approximated its fair value.
Deposit liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits was the amount payable on demand at
the reporting date. The carrying amounts for variable-rate certificates of
deposit approximated their fair values at the reporting date. The fair value of
fixed-rate certificates of deposit was estimated using a discounted cash flow
calculation which applies the interest rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
approximated its fair value.
Borrowings - The carrying amounts of federal funds purchased and
securities sold under agreements to repurchase and other short-term borrowings
approximated their fair values. The fair value of long-term borrowings was
estimated using a discounted cash flow calculation which utilizes the interest
rates currently offered for borrowings of similar remaining maturities.
Commitments to extend credit and standby letters of credit - Pricing of
these financial instruments is based on the credit quality and relationship,
fees, interest rates, probability of funding, and compensating balance and other
covenants or requirements. Loan commitments generally have fixed expiration
dates, are variable rate, and contain termination and other clauses which
provide for relief from funding in the event that there is a significant
deterioration in the credit quality of the customer. Many loan commitments are
expected to expire without being drawn upon. The rates and terms of the
commitments to extend credit and the standby letters of credit are competitive
with those in Bancorp's market area. The carrying amounts are reasonable
estimates of the fair value of these financial instruments. Carrying amounts
which are comprised of the unamortized fee income and, where necessary, reserves
for any expected credit losses from these financial instruments, are immaterial.
Refer to Note 7 for additional information.
Bancorp does not carry financial instruments which are held or issued for
trading purposes.
The estimated fair values of Bancorp's financial instruments at December
31 were as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $ 143,908 $ 143,908 $ 164,594 $ 164,594
Investment securities held-to-maturity 34,920 37,214 58,347 60,961
Investment securities available-for-sale 313,175 313,175 332,617 332,617
Loans
Commercial 631,906 630,032 502,919 498,755
Real estate-construction 72,518 72,271 63,308 63,304
Real estate-mortgage 1,042,579 1,054,598 927,985 951,183
Installment, net of unearned income 472,137 471,801 438,190 434,341
Credit card 18,521 18,527 17,369 17,437
Leasing 29,212 30,828 27,260 28,628
Less allowance for loan losses 29,684 27,510
--------- --------- --------- ---------
Net loans 2,237,189 2,278,057 1,949,521 1,993,648
Accrued interest receivable 22,291 22,291 20,293 20,293
Financial liabilities
Deposits
Noninterest-bearing 323,763 323,763 314,051 314,051
Interest-bearing demand 243,082 243,082 281,151 281,151
Savings 596,685 596,685 521,372 521,372
Time 1,163,066 1,165,824 1,113,604 1,113,061
--------- --------- --------- ---------
Total deposits 2,326,596 2,329,354 2,230,178 2,229,635
Short-term borrowings 109,363 109,363 52,288 52,288
Long-term borrowings 105,335 102,977 41,054 37,751
Accrued interest payable 8,050 8,050 7,415 7,415
</TABLE>
FIRST FINANCIAL BANCORP 25 1998 ANNUAL REPORT
<PAGE> 27
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
NOTE 20 - FIRST FINANCIAL BANCORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Assets
Cash $ 40,414 $ 37,429
Investment in subsidiaries
Commercial banks 224,253 216,371
Savings banks 31,440 28,464
-------- --------
Total investment in subsidiaries 255,693 244,835
Bank premises and equipment 286 0
Other assets 11,979 9,332
-------- --------
Total assets $308,372 $291,596
======== ========
Liabilities
Dividends payable $ 5,435 $ 4,967
Other liabilities 1,004 370
-------- --------
Total liabilities 6,439 5,337
Shareholders' equity 301,933 286,259
-------- --------
Total liabilities and shareholders' equity $308,372 $291,596
======== ========
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Income
Interest income $ 56 $ 24 $ 29
Dividends from subsidiaries 51,173 45,811 31,211
-------- -------- --------
Total income 51,229 45,835 31,240
EXPENSES
Salaries and employee benefits 2,589 1,198 1,091
Other 2,000 1,945 955
-------- -------- --------
Total expenses 4,589 3,143 2,046
-------- -------- --------
Income before income taxes and equity in undistributed net earnings of subsidiaries 46,640 42,692 29,194
Income tax benefit (949) (768) (282)
-------- -------- --------
Income before equity in undistributed net earnings of subsidiaries 47,589 43,460 29,476
Equity in undistributed net earnings of subsidiaries (3,483) (3,152) 4,464
-------- -------- --------
Net earnings $ 44,106 $ 40,308 $ 33,940
======== ======== ========
</TABLE>
FIRST FINANCIAL BANCORP 26 1998 ANNUAL REPORT
<PAGE> 28
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net earnings $ 44,106 $ 40,308 $ 33,940
Adjustments to reconcile net earnings to net cash provided by operating activities
Equity in undistributed net earnings of subsidiaries 3,483 3,152 (4,464)
Provision for amortization 32 13 14
Deferred income taxes 173 (71) 91
Increase in dividends payable 468 558 505
Increase (decrease) in accrued expenses 605 (749) (185)
(Increase) decrease in receivables (2,792) 2,865 (2,865)
-------- -------- --------
Net cash provided by operating activities 46,075 46,076 27,036
Investing activities
Securities purchased under agreements to resell to affiliates 15,000
Capital contributions to subsidiaries (1,200) (39,400) (1,300)
Purchase of subsidiary (13,600) (7,800) (7,575)
Other 25 33 75
-------- -------- --------
Net cash (used in) provided by investing activities (14,775) (47,167) 6,200
Financing activities
Cash dividends (20,330) (18,958) (16,341)
Purchase of common stock (8,773) (282) (994)
Proceeds from exercise of stock options, net of shares purchased 788 657 231
-------- -------- --------
Net cash used in financing activities (28,315) (18,583) (17,104)
-------- -------- --------
Increase (decrease) in cash 2,985 (19,674) 16,132
Cash at beginning of year 37,429 57,103 40,971
-------- -------- --------
Cash at end of year $ 40,414 $ 37,429 $ 57,103
======== ======== ========
</TABLE>
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, 1998 and 1997, and the
related consolidated statements of earnings, statements of comprehensive income,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 15, 1999
FIRST FINANCIAL BANCORP 27 1998 ANNUAL REPORT
<PAGE> 29
FIRST FINANCIAL BANCORP 1998 ANNUAL REPORT
QUARTERLY FINANCIAL AND COMMON STOCK DATA (1)
<TABLE>
<CAPTION>
(Unaudited)
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
1998
Interest income $ 52,688 $ 54,578 $ 55,841 $ 56,404
Interest expense 21,217 21,823 22,884 22,523
-------- -------- -------- --------
Net interest income 31,471 32,755 32,957 33,881
Provision for loan losses 1,250 1,198 1,618 2,011
Noninterest income
Investment securities gains 44 293 157 310
All other 7,761 7,585 8,336 9,855
Noninterest expenses 22,592 22,744 23,012 24,391
-------- -------- -------- --------
Income before income taxes 15,434 16,691 16,820 17,644
Income tax expense 5,331 5,623 5,644 5,885
-------- -------- -------- --------
Net earnings $ 10,103 $ 11,068 $ 11,176 $ 11,759
======== ======== ======== ========
Per share
Net earnings - basic $ 0.28 $ 0.30 $ 0.31 $ 0.32
======== ======== ======== ========
Net earnings - diluted $ 0.27 $ 0.30 $ 0.31 $ 0.32
======== ======== ======== ========
Cash dividends paid $ 0.14 $ 0.14 $ 0.14 $ 0.14
======== ======== ======== ========
Market price
High bid $ 26.70 $ 28.98 $ 26.70 $ 31.00
======== ======== ======== ========
Low bid $ 21.82 $ 23.41 $ 22.73 $ 25.00
======== ======== ======== ========
1997
Interest income $ 45,369 $ 47,267 $ 48,918 $ 50,631
Interest expense 18,131 18,814 19,658 20,230
-------- -------- -------- --------
Net interest income 27,238 28,453 29,260 30,401
Provision for loan losses 860 1,123 1,076 1,677
Noninterest income
Investment securities gains (losses) 9 (2) 22 25
All other 6,178 6,232 7,068 7,445
Noninterest expenses 18,520 18,711 20,146 20,300
-------- -------- -------- --------
Income before income taxes 14,045 14,849 15,128 15,894
Income tax expense 4,631 4,835 4,898 5,244
-------- -------- -------- --------
Net earnings $ 9,414 $ 10,014 $ 10,230 $ 10,650
======== ======== ======== ========
Per share
Net earnings - basic $ 0.26 $ 0.28 $ 0.28 $ 0.29
======== ======== ======== ========
Net earnings - diluted $ 0.26 $ 0.27 $ 0.28 $ 0.29
======== ======== ======== ========
Cash dividends paid $ 0.12 $ 0.12 $ 0.12 $ 0.14
======== ======== ======== ========
Market price
High bid $ 15.19 $ 17.15 $ 23.07 $ 22.95
======== ======== ======== ========
Low bid $ 12.60 $ 13.95 $ 16.12 $ 21.14
======== ======== ======== ========
</TABLE>
The stock of First Financial Bancorp. is listed with the National Association of
Securities Dealers, Inc. (NASDAQ), under the symbol FFBC.
(1) First Financial Bancorp's per share data and market price information is
stated as if the two-for-one stock split declared in 1998 and the 10.0% stock
dividends declared in 1997 and 1998 occurred January 1, 1997.
- --------------------------------------------------------------------------------
FIRST FINANCIAL BANCORP 28 1998 ANNUAL REPORT
<PAGE> 1
EXHIBIT 21
FIRST FINANCIAL BANCORP. SUBSIDIARIES
First National Bank of Southwestern Ohio, organized as a national banking
association under the laws of the United States
Community First Bank & Trust, incorporated in the state of Ohio
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
The 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
Farmers State Bank, incorporated in the state of Indiana
National Bank of Hastings, organized as a national banking association under the
laws of the United States
Vevay Deposit Bank, incorporated in the state of Indiana
<PAGE> 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 15, 1999 included in the
1998 Annual Report to Shareholders of First Financial Bancorp.
We 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 15,
1999 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, 1998.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-25745) pertaining to the First Financial Bancorp. Dividend
Reinvestment and Share Purchase Plan and in the related Prospectus of our report
dated January 15, 1999 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, 1998.
Ernst & Young LLP
March 26, 1999
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 136,489
<INT-BEARING-DEPOSITS> 2,498
<FED-FUNDS-SOLD> 4,921
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 313,175
<INVESTMENTS-CARRYING> 34,920
<INVESTMENTS-MARKET> 37,214
<LOANS> 2,266,873
<ALLOWANCE> 29,684
<TOTAL-ASSETS> 2,871,104
<DEPOSITS> 2,326,596
<SHORT-TERM> 109,363
<LIABILITIES-OTHER> 27,877
<LONG-TERM> 105,335
0
0
<COMMON> 298,285
<OTHER-SE> 3,648
<TOTAL-LIABILITIES-AND-EQUITY> 2,871,104
<INTEREST-LOAN> 193,924
<INTEREST-INVEST> 24,897
<INTEREST-OTHER> 690
<INTEREST-TOTAL> 219,511
<INTEREST-DEPOSIT> 80,282
<INTEREST-EXPENSE> 88,447
<INTEREST-INCOME-NET> 131,064
<LOAN-LOSSES> 6,077
<SECURITIES-GAINS> 804
<EXPENSE-OTHER> 92,739
<INCOME-PRETAX> 66,589
<INCOME-PRE-EXTRAORDINARY> 66,589
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,106
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 8.82
<LOANS-NON> 6,152
<LOANS-PAST> 1,839
<LOANS-TROUBLED> 78
<LOANS-PROBLEM> 191
<ALLOWANCE-OPEN> 27,510
<CHARGE-OFFS> 5,759
<RECOVERIES> 1,050
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<NAME> FIRST FINANCIAL BANCORP
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