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As filed with the Securities and Exchange Commission on March 3, 1999
File No. 333-73283
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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First Financial Bancorp.
(Exact name of registrant as specified in Its charter)
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Ohio 6711 31-1042001
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(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
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Third and High Streets
Hamilton, Ohio 45011
(513) 867-4700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Michael R. O'Dell
Senior Vice President, Chief Financial Officer and Secretary
First Financial Bancorp.
Third and High Streets
Hamilton, Ohio 45011
(513) 867-4700 (Name,
(Address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Neil Ganulin John A. Burgess
Frost & Jacobs LLP Barnes & Thornburg
2500 PNC Center 600 1st Source Bank Center
201 East Fifth Street 100 North Michigan
Cincinnati, Ohio 45202 South Bend, Indiana 46601-1632
(513) 651-6800 (219) 237-1156
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
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FIRST FINANCIAL BANCORP. CROSS REFERENCE SHEET
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FORM S-4 ITEM PROXY STATEMENT CAPTION
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1. Forepart of Registration Statement and Facing Page of Registration Statement; Cross Reference Sheet; Outside
Outside Front Cover Page of Prospectus Front Cover Page of Proxy Statement-Prospectus; Letter to Shareholders
2. Inside Front and Outside Back Cover Pages Table of Contents; Where You Can Find More Information
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Questions And Answers About The Merger; Summary; Summary Of Selected
Charges and Other Information Unaudited Consolidated Financial Data And Per Share Data; Risk
Factors; Comparative Market and Dividend Information; Principal
Shareholders and Ownership By Management
4. Terms of the Transaction Summary; The Merger; The Merger Agreement; Comparison of Common
Stock and Shareholders' Rights
5. Pro-forma Financial Information Pro-forma Unaudited Consolidated Balance Sheet; Pro-forma Unaudited
Consolidated Statements of Earnings
6. Material Contacts with the Company Being Summary; The Merger; The Merger Agreement
Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed to
Be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by Not Applicable
Reference
12. Information with Respect to S-2 or S-3 Information About First Financial; Comparative Market And Dividend
Registrants Information; Where You Can Find More Information
13. Incorporation of Certain Information by Where You Can Find More Information
Reference
14. Information with Respect to Registrants Not Applicable
Other Than S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies other Information About the Business of Sand Ridge Financial; Sand Ridge
than S-3 or S-2 Companies Financial's Consolidated Financial Statements; Management's
Discussion and Analysis of Financial Condition and Results of
Operations of Sand Ridge Financial; Comparative Market and Dividend
Information; Comparison of Common Stock and Shareholders' Rights
18. Information if Proxies, Consents or Notice of Special Meeting of Shareholders; Summary; The Special
Authorizations are to be Solicited Meeting; The Merger; The Merger Agreement; Principal Shareholders
and Ownership By Management; Information About the Business of Sand
Ridge Financial; Where You Can Find More Information
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or
in an Exchange Offer
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SAND RIDGE FINANCIAL CORPORATION
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2611 Highway Avenue
Highland, Indiana 46322
Phone: (219) 865-9500
Fax: (219) 864-4204
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Sand Ridge Financial Corporation has approved a merger
agreement which will result in Sand Ridge Financial Corporation merging into
First Financial Bancorp. and Sand Ridge Bank becoming a wholly owned subsidiary
of First Financial Bancorp. Before we can complete this merger, the merger
agreement must be approved by Sand Ridge shareholders.
First Financial Bancorp. is a bank holding company and savings and loan holding
company owning community banks and savings and loans in various communities in
Ohio, Indiana and Michigan. At December 31, 1998, First Financial had total
assets of approximately $2.9 billion, deposits of approximately $2.3 billion and
shareholders' equity of approximately $302 million.
We expect that, for each share of Sand Ridge Financial common stock which you
own just before the merger, you will be entitled to receive 85.25 shares of
First Financial common stock. This exchange ratio may change, however, under
certain circumstances as explained in the Summary in the accompanying Proxy
Statement-Prospectus. First Financial common stock trades on the NASDAQ National
Market (Symbol "FFBC"). Sand Ridge Financial common stock does not trade on any
stock exchange or national market. You can obtain current stock prices for First
Financial from a newspaper, on the Internet or by calling your broker.
YOUR VOTE IS VERY IMPORTANT. Please take the time to vote, whether or not you
plan to attend the Sand Ridge Financial Special Meeting of Shareholders. If you
sign, date and mail your proxy card without indicating how you want to vote, we
will vote your proxy in favor of the merger. If you do not return your card, or
if you do not instruct your broker how to vote any shares held for you in
"street" name, the effect will be a vote against the merger.
The Special Meeting of Shareholders will be: May 12, 1999, 9:00 a.m. local time,
at the main office of Sand Ridge Bank, 2611 Highway Avenue, Highland, Indiana.
This Proxy Statement-Prospectus provides you with detailed information about the
proposed merger. We encourage you to read it carefully.
We are very enthusiastic about the merger and the opportunity to become part of
First Financial Bancorp. The Board of Directors of Sand Ridge recommends that
you vote FOR the merger agreement.
Sincerely,
Bruce E. Leep
Chairman of the Board, President
and Chief Executive Officer
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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This Proxy Statement-Prospectus is dated April __, 1999 and was first mailed to
shareholders on or about April __, 1999.
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SAND RIDGE FINANCIAL CORPORATION
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 1999
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Sand Ridge Financial Corporation will hold a Special Meeting of Shareholders
(the "Special Meeting") at the main office of Sand Ridge Bank, 2611 Highway
Avenue, Highland, Indiana 46322, at 9:00 a.m. local time on May 12, 1999 to vote
on:
1. The Plan and Agreement of Merger dated December 16, 1998 by and between
First Financial Bancorp. and Sand Ridge Financial Corporation (the
"Merger Agreement") providing for the merger of Sand Ridge Financial
into First Financial Bancorp. (the "Merger") with the result that Sand
Ridge Bank (a wholly owned subsidiary of Sand Ridge Financial
Corporation) will become a wholly owned subsidiary of First Financial.
2. A proposal to permit the Special Meeting to be adjourned or postponed,
in the discretion of the proxies, for the purpose, among others, of
allowing additional time for the solicitation of votes to approve the
Merger Agreement.
3. Any other matters that properly come before the Special Meeting or any
adjournment or postponement of the Special Meeting.
Sand Ridge Financial stockholders at the close of business on April 1, 1999 are
receiving notice of and may vote at the Special Meeting. The approval of the
Plan and Agreement of Merger requires the affirmative vote of at least
two-thirds of the outstanding shares of Sand Ridge Financial common stock.
Shareholders of Sand Ridge Financial entitled to vote at the Special Meeting are
or may be entitled to assert dissenters' rights under the Indiana Business
Corporation Law (I.C. 23-1-44), which is attached to this Proxy
Statement-Prospectus as Appendix C.
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE PROMPTLY, whether or not you plan to attend the Special Meeting. If you
attend the Special Meeting, you may vote in person if you wish, even if you
previously returned your proxy card.
---------------------------------
Terry L. Saxsma, Vice President,
Secretary/Treasurer
April ___, 1999
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF
THE PLAN AND AGREEMENT OF MERGER.
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PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF WE COMPLETE
THE MERGER, WE WILL SEND YOU INSTRUCTIONS ON HOW TO EXCHANGE YOUR STOCK
CERTIFICATES.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................................................... 1
SUMMARY
The Companies...........................................................................................4
The Merger..............................................................................................4
SUMMARY OF SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA.................................... 8
NOTES TO SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA......................................10
SUMMARY OF PRO-FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION...............................................11
PRO-FORMA UNAUDITED CONSOLIDATED BALANCE SHEET..................................................................12
PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS.........................................................13
NOTES TO THE PRO-FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS..............................................16
RISK FACTORS....................................................................................................18
THE SPECIAL MEETING
Time And Place; Purpose................................................................................22
Voting And Revocation Of Proxies.......................................................................22
Solicitation Of Proxies................................................................................22
Record Date And Voting Rights..........................................................................23
THE MERGER
Background Of And Reasons For The Merger...............................................................24
Opinion Of Financial Advisor To Sand Ridge Financial...................................................27
Management Following The Merger........................................................................32
Interest Of Certain Persons In The Merger..............................................................33
Dissenters' Rights.....................................................................................34
Federal Income Tax Consequences Of The Merger .........................................................37
Accounting Treatment...................................................................................39
Restrictions On Resale Of First Financial Common Stock.................................................39
Regulatory Considerations .............................................................................40
THE MERGER AGREEMENT
Structure Of The Merger ...............................................................................42
Surrender Of Stock Certificates .......................................................................42
Effective Time Of The Merger...........................................................................43
Fractional Interests ..................................................................................43
Conditions To Consummation Of The Merger...............................................................43
Termination Of The Merger .............................................................................45
First Financial Average Closing Price And Termination Of The Merger....................................45
INFORMATION ABOUT FIRST FINANCIAL
Recent Developments....................................................................................48
General ...............................................................................................49
INFORMATION ABOUT THE BUSINESS OF SAND RIDGE FINANCIAL
General................................................................................................50
Competition............................................................................................50
Regulation ............................................................................................51
Properties ............................................................................................51
Legal Proceedings......................................................................................51
Certain Transactions With Sand Ridge Financial.........................................................51
Selected Financial Data................................................................................52
Analysis Of Net Interest Income........................................................................53
Interest Income And Expense Rate/Volume Analysis.......................................................54
Securities.............................................................................................54
Loan Portfolio.........................................................................................55
Deposits...............................................................................................58
Return On Equity And Assets............................................................................59
Short-Term Borrowings..................................................................................59
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TABLE OF CONTENTS, CONTINUED
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PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT...............................................................60
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature of Trading Market................................................................................62
Dividends...............................................................................................64
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
Authorized But Unissued Shares..........................................................................65
Dividend Rights.........................................................................................65
Directors...............................................................................................66
Quorum For Shareholders' Meetings.......................................................................67
Meeting Participation By Use of Communication Equipment.................................................67
Voting Rights...........................................................................................67
Special Meetings........................................................................................68
Notice Of Shareholder Meetings..........................................................................68
Preemptive Rights.......................................................................................68
Redemption And Assessment...............................................................................68
Two-Thirds Majority Vote Required.......................................................................69
Amendments To Articles And Regulations/Code Of By-Laws..................................................69
Provisions Affecting Business Combinations And Changes In Control.......................................70
First Financial Shareholder Rights Plan.................................................................72
Transfer Agent And Registrar............................................................................72
ADJOURNMENT OF THE SPECIAL MEETING...............................................................................73
EXPERTS..........................................................................................................74
LEGAL MATTERS....................................................................................................74
WHERE YOU CAN FIND MORE INFORMATION..............................................................................75
SAND RIDGE FINANCIAL CORPORATION--MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996....................................................................F-1
SAND RIDGE FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
Report Of Independent Auditors....................................................................... F-15
Consolidated Balance Sheets - December 31, 1998 and 1997..............................................F-16
Consolidated Statements Of Income -
Years Ended December 31, 1998, 1997 and 1996........................................................F-17
Consolidated Statements Of Comprehensive Income -
Years Ended December 31, 1998, 1997 and 1996........................................................F-18
Consolidated Statements Of Changes In Shareholders' Equity -
Years Ended December 31, 1998, 1997 and 1996........................................................F-19
Consolidated Statements Of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996........................................................F-20
Notes To Consolidated Financial Statements............................................................F-22
APPENDICES
Plan and Agreement of Merger....................................................................Appendix A
Fairness Opinion................................................................................Appendix B
Indiana Code Chapter 44. Dissenters' Rights....................................................Appendix C
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY DO SAND RIDGE FINANCIAL CORPORATION AND FIRST FINANCIAL BANCORP.
WANT TO MERGE?
A: Sand Ridge Financial believes shareholder value will increase and that
its customers will benefit through an affiliation with First Financial.
The Merger will expand First Financial's presence into a new market
with a bank it believes has excellent potential for profitable growth.
Q. WHAT CHANGES WILL I SEE IN SAND RIDGE BANK?
A: Virtually none. Sand Ridge Bank's name will not change and customers
will continue to be served by the same employees and officers. The bank
will continue to be guided by its present Board of Directors.
Q. HOW WILL I BENEFIT?
A. Sand Ridge Financial's Board of Directors believes you will benefit
from the financial terms of the Merger and from the greater
marketability and liquidity of First Financial's stock. It is actively
traded on the Nasdaq National Market (common stock symbol: FFBC); Sand
Ridge Financial's stock is not actively traded.
Q. WHAT WILL I RECEIVE FOR MY SAND RIDGE FINANCIAL SHARES?
A. You will receive 85.25 shares of First Financial common stock for each
share of Sand Ridge Financial common stock which you own just before
the Merger. First Financial will not issue fractional shares. Instead,
you will receive cash for any fractional shares, based on the average
closing price of First Financial common stock, as described in the
Merger Agreement. Based on the closing price of First Financial common
stock on April __, 1999, the value of 85.25 shares of First Financial
common stock was $______. The number of shares of First Financial
common stock to be received by Sand Ridge Financial shareholders may
increase if the market value of First Financial common stock decreases
relative to a peer group of other financial institution holding
companies. See the Plan and Agreement of Merger, incorporated as
Appendix A in this Proxy Statement-Prospectus, for more information.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We hope to complete the Merger as soon as possible after the Special
Meeting, assuming the required shareholder approval is obtained. The
Merger is also subject to required regulatory approvals and other
conditions which must be met or waived before the Merger can occur.
Either Sand Ridge Financial or First Financial may terminate the Merger
if it does not occur on or before July 31, 1999.
1
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Q. WHAT DO I DO NOW?
A. After reviewing this document and the Merger Agreement, indicate on
your proxy card how you want to vote, sign it and return it to us as
soon as possible in the enclosed return envelope. You may attend the
special shareholders' meeting and vote your shares in person rather
than completing and returning your proxy card.
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A. If you sign and return a proxy card and do not indicate how you wish to
vote, your proxy will be voted in favor of the Merger.
Q. WHAT WILL HAPPEN IF I DON'T VOTE?
A. If you do not return the proxy card or vote in person at the Special
Meeting, it will have the same effect as if you voted "no." Please
remember that the required vote of shareholders is based on the total
number of outstanding shares and not the number of shares which are
actually voted. For this reason, we encourage you to complete and
return your proxy card.
Q. WHAT IF I RETURN MY PROXY AND THEN CHANGE MY MIND?
A. You may revoke your proxy at any time prior to its exercise by
submitting a written notice of revocation, properly completing a proxy
of later date, or by attending the special shareholders' meeting and
voting in person. See "THE SPECIAL MEETING - Voting And Revocation of
Proxies" for more information.
Q. IF MY SHARES ARE HELD IN "STREET" NAME BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A. Your broker will request instructions from you as to how you wish your
shares to be voted and will vote your shares according to your
instructions.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the Merger is completed, you will receive written
instructions for exchanging your stock certificates.
Q. WHAT RIGHTS DO I HAVE IF I DISSENT FROM THE MERGER?
A. If you dissent from the Merger and follow certain procedures described
in Indiana Code Chapter 23-1-44, you will be entitled to receive the
fair value of your Sand Ridge Financial common stock in cash. See "THE
MERGER - Dissenters' Rights" for information on dissenters' rights and
how to exercise them. A copy of Chapter 23-1-44 is included in this
Proxy Statement - Prospectus as Appendix C.
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Q. WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS OF THE MERGER?
A. We expect the exchange of Sand Ridge Financial common stock for First
Financial common stock to be tax free for federal income tax purposes.
Sand Ridge Financial shareholders will recognize income or gain,
however, on cash received for fractional shares or for cash received as
a result of perfected dissenters' rights. See "THE MERGER Federal
Income Tax Consequences Of The Merger" for more information concerning
the tax consequences of the Merger.
Q. DO I NEED TO READ THE ENTIRE PROXY STATEMENT-PROSPECTUS,
INCLUDING APPENDICES?
A. Absolutely. Much of the Proxy Statement-Prospectus summarizes
information set forth in greater detail elsewhere in the document or in
the appendices to this document. Each summary is qualified in its
entirety by reference to the document being summarized. For example,
the summary of the Plan and Agreement of Merger contained in "THE
MERGER AGREEMENT" is qualified in its entirety by reference to the full
text of the Plan and Agreement of Merger, a copy of which is included
in this Proxy Statement-Prospectus as Appendix A. If there are any
differences, the information in the Plan and Agreement of Merger will
control over the information in the summary. As a result, to fully
understand the Merger and your rights as a Sand Ridge Financial
shareholder, you will need to read carefully this entire document
including appendices.
Q. WHO CAN I CONTACT IF I HAVE MORE QUESTIONS ABOUT THE MERGER?
A. If you have questions concerning the Merger, please call Bruce E. Leep,
Chairman of the Board of Directors, President and Chief Executive
Officer of Sand Ridge Financial, at (219) 864-4204.
3
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SUMMARY
This summary highlights selected information from this document. It does not
contain all the information that is important to you. You should read this
entire document carefully. For additional information, see "Where You Can
Find More Information" (page 75).
We call this document a Proxy Statement-Prospectus. It is a Proxy Statement
sent by Sand Ridge Financial to you and the other shareholders of Sand Ridge
Financial. It also is a Prospectus of First Financial Bancorp. covering the
shares of First Financial common stock which you and the other shareholders
of Sand Ridge Financial will receive if the Merger is completed. These First
Financial Bancorp. shares have been registered with the Securities and
Exchange Commission. Sand Ridge Financial has supplied the information in
this document which relates to it, and First Financial Bancorp. has supplied
the information which relates to it.
THE COMPANIES (PAGES 48 AND 50)
FIRST FINANCIAL BANCORP.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
(513) 867-4700
First Financial is a bank holding company and savings and loan holding company
that, through its subsidiaries, provides a full range of banking services to its
customers located in selected communities in Ohio, Indiana and Michigan. First
Financial has 105 offices in those three states and at December 31, 1998 had
total assets of approximately $2.9 billion, deposits of approximately $2.3
billion and shareholders' equity of approximately $302 million.
SAND RIDGE FINANCIAL CORPORATION
2611 Highway Avenue
Highland, Indiana 46322
(219) 838-9500
Sand Ridge Financial is a one-bank holding company whose only subsidiary is an
Indiana state chartered bank which operates in Highland, Indiana, which is
approximately 20 miles southeast of Chicago. Sand Ridge Bank offers a
diversified selection of loan and investment products to its customers.
THE MERGER (PAGE 42)
GENERAL
We propose a merger as a result of which Sand Ridge Financial will be acquired
by and merged into First Financial, and Sand Ridge Financial's wholly owned
subsidiary, Sand Ridge Bank, will become a wholly owned subsidiary of First
Financial. We hope to complete the Merger by the end of July 1999. The Merger
Agreement is the document that governs the Merger. We have attached this
agreement as Appendix A to this Proxy Statement-Prospectus, and we encourage you
to read it.
WHAT YOU WILL RECEIVE IN THE MERGER
The Merger Agreement provides that you will receive 85.25 shares of First
Financial common stock for each share of Sand Ridge Financial common stock which
you own just before the Merger. If (i) the average closing price, as defined in
the Merger Agreement, of First Financial common stock falls below $23.2671, (ii)
the SRFC Ratio (the average closing price divided by $26.5909) is less than the
value of an index of peer financial institution holding companies (the "Index
Ratio") and (iii) First Financial agrees to issue additional shares, the number
of shares of First Financial common stock set forth in the preceding sentence
that you will receive as a result of the Merger will increase. If the conditions
set forth in subclauses (i) and (ii) above are satisfied and First Financial
does not agree to issue additional shares, the Sand Ridge Financial Board of
Directors may cancel the Merger as provided in the Merger Agreement. The Sand
Ridge Financial Board of Directors has not decided yet whether it will cancel
the Merger in this event.
You will receive only whole shares of First Financial stock and cash in payment
for any fractional share. First Financial's stock trades on the Nasdaq National
Market under the symbol "FFBC". On April ____, 1999, the last reported sale of
First Financial common stock as reported on the Nasdaq National Market was
$_________ per share.
The Sand Ridge Financial common stock is not traded on an established public
market. The last known trading price of Sand Ridge Financial was $1,100 per
share on December 8, 1998. Since there is not an established public trading
market for the shares of Sand Ridge Financial common stock, the stock is not
liquid and the price indicated above may not reflect the prices which would be
paid for such shares on an active market.
You can obtain current stock price quotations for First Financial common stock
("FFBC") from a newspaper, on the Internet or by calling your broker.
4
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REASONS FOR THE MERGER (PAGE 24)
The Sand Ridge Financial Board of Directors believes the Merger will benefit
both you and Sand Ridge Financial for a number of reasons, including:
1. First Financial's offer was valued at 310% of book value by Hovde
Financial, Inc., Sand Ridge Financial's investment advisor.
2. First Financial's stock is actively traded on the Nasdaq National Market;
Sand Ridge Financial's stock is not actively traded.
3. First Financial's offer does not have any current, adverse tax consequences
to Sand Ridge Financial shareholders, except for cash received for
fractional shares and cash paid dissenting shareholders who exercise
dissenters' rights.
4. Sand Ridge Financial shareholders will receive higher dividends after the
Merger than Sand Ridge Financial is currently paying.
5. The banking philosophy of First Financial emphasizes community banking and
autonomy of its subsidiaries; Sand Ridge Bank will continue to operate as a
separate subsidiary with minimal changes to employees.
THE SPECIAL MEETING OF SHAREHOLDERS (PAGE 22)
We will hold a special meeting of Sand Ridge Financial shareholders at the main
office of Sand Ridge Bank, 2611 Highway Avenue, Highland, Indiana 46322, at 9:00
a.m. local time, on May 12, 1999. At this meeting, we will ask you:
1. To approve the Merger Agreement;
2. To permit the Special Meeting to be adjourned or postponed for the purpose
of allowing additional time for the solicitation of votes to approve the
Merger Agreement, if necessary; and
3. To act on any other matters that properly may be presented for a vote.
Currently, we know of no other matters to be presented at the meeting.
OUR RECOMMENDATION (PAGE 24)
The Board of Directors of Sand Ridge Financial believes that the Merger is fair
to you and in your best interests. The Board unanimously recommends that you
vote "FOR" approval of the Merger Agreement
RECORD DATE; VOTING POWER (PAGE 23)
You may vote at the Special Meeting if you owned Sand Ridge Financial shares as
of the close of business on April 1, 1999. You will have one vote for each share
of Sand Ridge Financial common stock owned on that date.
VOTING REQUIRED AND VOTING AGREEMENT (PAGE 23)
To approve the Merger, Sand Ridge Financial shareholders holding at least
two-thirds of the outstanding shares of Sand Ridge Financial common stock must
vote to approve the Merger Agreement.
Together the directors and executive officers of Sand Ridge Financial can vote
28.2% of the shares entitled to vote at the Special Meeting. Based upon the
unanimous recommendations of the Board, we expect Sand Ridge Financial's
directors and officers to vote all of their shares to approve the Merger
Agreement.
EXCHANGE OF CERTIFICATES (PAGE 42)
If the Merger is completed, your shares of Sand Ridge Financial common stock
will be converted into shares of First Financial common stock, and you will need
to exchange your Sand Ridge Financial stock certificates for First Financial
stock certificates.
If we complete the Merger, we will send you detailed instructions on how to
exchange your stock certificates. Please do not send us any stock certificates
until you receive these instructions.
5
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WHAT WE NEED TO DO TO COMPLETE THE MERGER (PAGE 43 )
The completion of the Merger depends on a number of conditions being met. These
conditions are set forth in the Merger Agreement. Some of the conditions are:
1. Sand Ridge Financial shareholders must approve the Merger Agreement.
2. Sand Ridge Financial and First Financial must receive all required
regulatory approvals and certain waiting periods required by law must have
passed;
3. There must be no governmental order blocking completion of the Merger, and
no governmental proceeding trying to block the Merger;
4. Sand Ridge Financial and First Financial must receive legal opinions
confirming that the Merger will be treated as a reorganization for U.S.
federal income tax purposes; and
5. Sand Ridge Financial and First Financial must receive a letter from its
independent accountants stating that the Merger will qualify for
"pooling-of-interests" accounting treatment.
Unless prohibited by law, either First Financial or Sand Ridge Financial could
waive a condition to the Merger that has not been satisfied and complete the
Merger anyway.
We cannot be certain whether or when any of these conditions will be satisfied
or waived if permissible. We cannot be certain that we will complete the Merger.
TERMINATION OF THE MERGER AGREEMENT (PAGE 45)
The two companies can agree at any time to terminate the Merger Agreement
without completing the Merger, even if the Sand Ridge Financial shareholders
have already approved the Merger. Either company also can terminate the Merger
Agreement for a number of reasons, including:
1. if any court or governmental body has issued a final order prohibiting the
Merger;
2. if the Merger is not completed by July 31, 1999;
3. if the Sand Ridge Financial shareholders do not approve the Merger; or
4. if the other company materially violates any of its representations,
warranties or obligations under the Merger Agreement.
First Financial can terminate the Merger Agreement if the holders of 7.5% or
more of the outstanding shares of Sand Ridge Financial common stock will be
entitled to receive cash in exchange for their Sand Ridge Financial shares
pursuant to perfected dissenters' rights under the Indiana law.
Sand Ridge Financial can terminate the Merger Agreement if:
1. The average trading price of First Financial common stock drops below
$23.2671 per share; and
2. The ratio obtained by dividing First Financial's average trading price by
$26.5909 is less than the specified ratio for a group of peer institutions;
and
3. First Financial chooses not to issue additional shares of common stock
within the limits required by the Merger Agreement.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 37)
We expect that neither of the two companies nor the shareholders of Sand Ridge
Financial will recognize any gain or loss for U.S. federal income tax purposes
in the Merger, except in connection with any cash that Sand Ridge Financial
shareholders receive instead of fractional shares. Sand Ridge Financial and
First Financial will each receive a legal opinion that this is the case.
However, these opinions do not bind the Internal Revenue Service, which could
take a different view. This tax treatment will not apply to any Sand Ridge
Financial shareholder who exercises dissenters' rights under Indiana law.
Determining the actual tax consequences of the Merger to you as a taxpayer can
be complicated. The tax treatment will depend on your specific situation and on
many variables not within our control. You should consult your tax advisor for a
full understanding of the Merger's tax consequences.
6
<PAGE> 13
ACCOUNTING TREATMENT (PAGE 39)
We expect the Merger to qualify as a "pooling-of-interests," which means that,
for accounting and financial reporting purposes, First Financial will treat Sand
Ridge Financial as if it had always been a part of First Financial.
OPINION OF FINANCIAL ADVISOR (PAGE 27)
Among the other factors considered in deciding to approve the Merger, Sand Ridge
Financial's Board of Directors considered the opinion of its financial advisor,
Hovde Financial, Inc., that the value of the First Financial shares to be
received for each share of Sand Ridge Financial common stock is fair to the
holders of Sand Ridge Financial common stock from a financial point of view. We
have attached this opinion to this Proxy Statement-Prospectus as Appendix B.
You should read the opinion carefully to understand the procedures followed,
assumptions made, matters considered and limitations on the review undertaken by
Hovde Financial, Inc., in rendering its opinion.
MANAGEMENT OF FIRST FINANCIAL AFTER THE MERGER (PAGE 32)
The current directors and executive officers of First Financial will remain
unchanged after the Merger except that First Financial will appoint Bruce E.
Leep, a member of the Board of Directors of Sand Ridge Bank, as a director of
First Financial promptly after the consummation date of the Merger.
INTERESTS OF SAND RIDGE FINANCIAL'S DIRECTORS AND EXECUTIVE OFFICERS IN THE
MERGER (PAGE 33)
Some directors and officers of Sand Ridge Financial have interests in the Merger
that are different from your interests. The Merger Agreement contains certain
provisions regarding the continuation or modification of benefits available to
employees of Sand Ridge Financial. These modifications apply to all of Sand
Ridge Financial's employees. The Board of Directors of Sand Ridge Financial was
aware of these interests and took them into account in approving the Merger
Agreement.
DIFFERENCES IN RIGHTS OF SHAREHOLDERS (PAGE 65)
The Indiana Business Corporation Law and Sand Ridge Financial's Certificate of
Incorporation and Bylaws currently govern your rights as a shareholder of Sand
Ridge Financial. First Financial is an Ohio corporation and, if the Merger is
completed, the Ohio General Corporation Law and First Financial's Articles of
Incorporation and Regulations will govern your shareholder rights.
DISSENTERS' RIGHTS (PAGE 34)
Indiana law permits holders of Sand Ridge Financial common stock to dissent from
the Merger and to have the fair value of their stock appraised by a court and
paid to them in cash. To do this, holders of dissenting shares must follow
required procedures, including filing notices with us and either abstaining or
voting against the Merger. If you dissent from the Merger and follow the
required procedures, your shares of Sand Ridge Financial common stock will not
become shares of First Financial common stock. Instead, your only right will be
to receive the appraised value of your shares in cash. We have attached the
applicable provisions of Indiana law related to dissenters' rights to this Proxy
Statement-Prospectus as Appendix C.
REGULATORY APPROVALS (PAGE 40)
We cannot complete the Merger until the proposed transaction receives the
approval of the Federal Reserve Board and 15 days expire after the receipt of
such approval. Such 15 day period will become a 30 day period, however, if the
United States Department of Justice issues an adverse comment relating to
competitive factors. In addition, the Merger is also subject to approval by the
Indiana Department of Financial Institutions. Approvals were received from the
Federal Reserve Board and the Indiana Department of Financial Institutions on
March 11, 1999.
RECENT DEVELOPMENTS (PAGE 48)
First Financial signed a plan and agreement of merger with Hebron Bancorp, Inc.,
Hebron, Kentucky ("Hebron Bancorp") on December 31, 1998. Shareholders of Hebron
Bancorp will receive 20.3775 shares of First Financial Common Stock for each
share of Hebron Bancorp stock. After the merger, Hebron Deposit Bank, Hebron
Bancorp's only subsidiary, will become a wholly owned subsidiary of First
Financial. Subject to numerous conditions, including shareholder and regulatory
approval, the completion of this merger is not certain.
7
<PAGE> 14
SUMMARY OF SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SAND RIDGE FINANCIAL (HISTORICAL)
Net earnings (A) $ 5,448 $ 4,993 $ 4,884 $ 4,158 $ 3,639
Total assets (period end) 557,173 456,094 416,544 393,138 363,566
Long-term borrowings (period end) 13,712 4,686 3,500 0 0
Net earnings per common share - basic (A) (1) 90.80 83.21 81.39 69.30 60.66
Net earnings per common share - diluted 90.80 83.21 81.39 69.30 60.66
(A) (1)
Dividends declared per share 18.00 17.00 16.00 15.00 14.00
Book value per share (period end) (2) 742.21 661.34 576.49 516.70 404.64
Average shares outstanding (B) 60,000 60,000 60,000 60,000 60,000
Shares outstanding (period end) (B) 60,000 60,000 60,000 60,000 60,000
HEBRON BANCORP, INC. (HISTORICAL)
Net earnings (A) $ 1,419 $ 1,531 $ 1,263 $ 1,027 $ 816
Total assets (period end) 111,658 99,114 96,017 90,844 82,063
Long-term borrowings (period end) 1,730 1,127 1,194 1,260 1,320
Net earnings per common share - basic (A) (1) 24.24 26.17 21.59 17.56 13.95
Net earnings per common share - diluted 24.24 26.17 21.59 17.56 13.95
(A) (1)
Dividends declared per share 5.50 5.00 4.00 2.50 2.20
Book value per share (period end) (2) 196.65 176.36 152.21 134.24 120.50
Average shares outstanding (B) (4) 58,533 58,500 58,500 58,500 58,500
Shares outstanding (period end) (B) (4) 60,000 58,500 58,500 58,500 58,500
FIRST FINANCIAL (HISTORICAL)
Net earnings (A) $ 44,106 $ 40,308 $ 33,940 $ 31,789 $ 28,173
Total assets (period end) 2,871,104 2,636,111 2,261,711 2,103,375 1,922,643
Long-term borrowings (period end) 105,335 41,054 6,506 2,820 0
Net earnings per common share - basic (A) (1) 1.21 1.11 0.96 0.95 0.87
Net earnings per common share - diluted 1.21 1.10 0.96 0.95 0.86
(A) (1)
Dividends declared per share (3) 0.57 0.52 0.46 0.41 0.37
Book value per share (period end) (2) 8.34 7.86 7.27 6.76 5.99
Average shares outstanding (B) (5) 36,375,686 36,402,415 35,359,522 33,243,500 32,505,024
Shares outstanding (period end) (B) (5) 36,201,700 36,424,937 35,578,513 34,641,729 32,488,579
</TABLE>
- -----------
See Notes To Selected Unaudited Consolidated Financial Data And Per Share Data
on page 10.
8
<PAGE> 15
SUMMARY OF SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA,
CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
PRO-FORMA FIRST FINANCIAL & SAND RIDGE
FINANCIAL (6)
Net earnings (A) $ 49,554 $ 45,301 $ 38,824 $ 35,947 $ 31,812
Net earnings per common share - basic (A) 1.19 1.09 0.96 0.94 0.85
(1)
Net earnings per common share - diluted 1.19 1.08 0.96 0.93 0.84
(A) (1)
Dividends declared per share - First 0.57 0.52 0.46 0.41 0.37
Financial
Book value per share (period end) (2) 8.39 7.85 7.21 6.67 5.82
Average shares outstanding (B) 41,490,686 41,517,415 40,474,522 38,358,500 37,620,024
Shares outstanding (period end) (B) 41,316,700 41,539,937 40,693,513 39,756,729 37,603,579
PRO-FORMA SAND RIDGE FINANCIAL ONE SHARE
EQUIVALENT ASSUMING MERGER OF FIRST
FINANCIAL & SAND RIDGE FINANCIAL AND 85.25
EXCHANGE RATIO (7)
Net earnings per common share - basic (A) $101.45 $92.92 $81.84 $80.14 $72.46
(1)
Net earnings per common share - diluted 101.45 92.07 81.84 79.28 71.61
(A) (1)
Dividends declared per share 48.59 44.33 39.22 34.95 31.54
Book value per share (2) 715.25 669.21 614.65 568.62 496.16
PRO-FORMA FIRST FINANCIAL, SAND RIDGE
FINANCIAL & HEBRON BANCORP, INC. (8)
Net earnings (A) $ 50,973 $ 46,832 $ 40,087 $ 36,974 $ 32,628
Net earnings per common share - basic (A) 1.19 1.10 0.96 0.93 0.84
(1)
Net earnings per common share - diluted 1.19 1.09 0.96 0.93 0.83
(A) (1)
Dividends declared per share - First 0.57 0.52 0.46 0.41 0.37
Financial
Book value per share (period end) (2) 8.42 7.86 7.21 6.66 5.82
Average shares outstanding (B) 42,713,366 42,740,065 41,697,172 39,581,150 38,842,674
Shares outstanding (period end) (B) 42,539,350 42,762,587 41,916,163 40,979,379 38,826,229
PRO-FORMA SAND RIDGE FINANCIAL ONE SHARE
EQUIVALENT ASSUMING MERGER OF FIRST
FINANCIAL, SAND RIDGE FINANCIAL & HEBRON
BANCORP AND 85.25 EXCHANGE RATIO (7)
Net earnings per common share - basic (A) $101.45 $93.78 $81.84 $79.28 $71.61
(1)
Net earnings per common share - diluted 101.45 92.92 81.84 79.28 70.76
(A) (1)
Dividends declared per share 48.59 44.33 39.22 34.95 31.54
Book value per share (2) 717.81 670.07 614.65 567.77 496.16
</TABLE>
- --------------------
(A) Before cumulative effect of changes in accounting principles.
(B) Average and period end shares outstanding are not rounded to the nearest
thousand.
See Notes To Selected Unaudited Consolidated Financial Data And Per Share Data
on page 10.
9
<PAGE> 16
NOTES TO SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
(1) Earnings per common share - basic is calculated by dividing net
earnings for the period by the average number of common shares
outstanding for the period. Earnings per common share - diluted for
First Financial includes the assumed exercise of outstanding stock
options. Sand Ridge Financial and Hebron Bancorp do not have any
potentially dilutive instruments outstanding.
(2) Book value per share is calculated by dividing total shareholders'
equity at the end of the period by the number of shares outstanding at
the end of the period.
(3) Dividend information on First Financial's subsidiaries which have
merged with First Financial under the pooling-of-interests method after
January 1, 1994 has not been recalculated or added to First Financial's
historical dividend information. First Financial has adjusted
historical information to reflect the issuance of stock splits and
dividends.
(4) Hebron Bancorp owned 97.5% of the outstanding stock of Hebron Deposit
Bank at December 31, 1997, 1996, 1995 and 1994. As of December 31,
1998, the minority shareholders of Hebron Deposit Bank had traded their
bank stock for shares of Hebron Bancorp, thereby increasing the total
outstanding stock of Hebron Bancorp to 60,000 shares and making Hebron
Deposit Bank a wholly owned subsidiary of Hebron Bancorp. The proforma
financial data assumes 60,000 shares of Hebron Bancorp were outstanding
at January 1, 1994.
(5) The shares outstanding data for First Financial has been adjusted to
reflect treasury stock transactions.
(6) The PRO-FORMA FIRST FINANCIAL & SAND RIDGE FINANCIAL reflects the
combined results of First Financial and Sand Ridge Financial after
giving effect to the pooling-of-interests method of accounting. For
illustrative purposes, the combined results assume the Merger was
consummated on January 1, 1994.
The per share data, average shares outstanding and shares outstanding
(period end) were calculated assuming the issuance of 5,115,000 shares
of First Financial Common Stock for all outstanding shares of Sand
Ridge Financial.
(7) Upon consummation of the Merger, each Sand Ridge Financial shareholder
will be entitled to receive First Financial shares equal to the total
number of shares of Sand Ridge Financial Common Stock owned by such
shareholder multiplied by the Exchange Ratio. The Exchange Ratio will
be appropriately adjusted in the event of the subdivision or split of
the outstanding First Financial Common Stock, a capital reorganization,
or a reclassification or recapitalization affecting First Financial
Common Stock. Since the Exchange Ratio is not determinable at the
printing of this Proxy Statement-Prospectus, the one share equivalent
pro-forma net earnings, dividends and book value per share for Sand
Ridge Financial was calculated assuming an Exchange Ratio of 85.25 and
are shown for illustrative purposes only.
(8) The PRO-FORMA FIRST FINANCIAL, SAND RIDGE FINANCIAL & HEBRON BANCORP,
INC. reflects the combined results of First Financial, Sand Ridge
Financial and Hebron Bancorp, Inc. after giving effect to the
pooling-of-interests method of accounting. For illustrative purposes,
the combined results assume the mergers were consummated on January 1,
1994.
The per share data, average shares outstanding and shares outstanding
(period end) were calculated assuming the issuance of 5,115,000 shares
of First Financial Common Stock for all outstanding shares of Sand
Ridge Financial and the issuance of 1,222,650 shares of First Financial
Common Stock for all outstanding shares of Hebron Bancorp, Inc.
10
<PAGE> 17
SUMMARY OF PRO-FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
The following pro-forma unaudited consolidated balance sheet as of
December 31, 1998 and the pro-forma unaudited consolidated statements of
earnings for the years ended December 31, 1998, 1997 and 1996 indicate the
pro-forma effects of the mergers of Sand Ridge Financial and Hebron Bancorp,
Inc. ("Hebron Bancorp") into First Financial and the issuance of shares of First
Financial Common Stock in exchange for all of the outstanding shares of Sand
Ridge Financial and Hebron Bancorp common stock using the pooling-of-interests
method of accounting. Each share of Sand Ridge Financial Common Stock and Hebron
Bancorp Common Stock will be canceled and extinguished in consideration and
exchange for a number of shares of First Financial Common Stock equal to their
respective exchange ratios. The pro-forma information has been calculated
assuming the issuance of 5,115,000 shares of First Financial Common Stock for
Sand Ridge Financial Common Stock and the issuance of 1,222,650 shares of First
Financial Common Stock for Hebron Bancorp Common Stock. These are the aggregate
number of shares to be issued according to the respective merger agreements.
The pro-forma information for First Financial and Sand Ridge Financial
is based on their historical financial statements, giving effect to the
accounting method proposed and the assumptions and adjustments in the
accompanying notes to the pro-forma financial statements. Hebron Bancorp uses a
June 30 fiscal year. For purposes of the pro-forma unaudited consolidated
financial statements, their statements of earnings have been adjusted to reflect
the years ended December 31. Even though Hebron Bancorp uses a June 30 fiscal
year for reporting purposes, its internal books and records are maintained on a
calendar year basis. Hebron Bancorp's internal financial statements were
therefore used for the pro-forma financial information on the following pages.
These pro-forma unaudited statements are presented for illustrative
purposes only and may not be indicative of the results that actually would have
occurred if the combination had been in effect on the dates indicated or which
may be obtained in the future. The pro-forma unaudited financial statements
should be read in conjunction with the audited and unaudited financial
statements and related notes set forth or incorporated by reference in this
Proxy Statement-Prospectus.
11
<PAGE> 18
PRO-FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
First Sand Ridge Consolidated
Financial Financial Hebron Pro-forma
--------- --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 136,489 $ 25,223 $ 2,788 $ 164,500
Interest-bearing
Deposits with other
Banks 2,498 100 0 2,598
Federal funds sold and
Securities purchased
Under agreements to
Resell 4,921 0 3,733 8,654
Investment securities 348,095 205,623 33,927 587,645
Loans, net of unearned
Income and allowance
for loan losses 2,237,189 313,614 68,543 2,619,346
Premises and equipment 50,902 6,077 1,127 58,106
Accrued interest and
Other assets 91,010 6,536 1,540 99,086
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,871,104 $ 557,173 $ 111,658 $ 3,539,935
=========== =========== =========== ===========
LIABILITIES
Deposits $ 2,326,596 $ 449,102 $ 96,369 $ 2,872,067
Short term borrowings 109,363 44,419 1,282 155,065
Long term borrowings 105,335 13,712 1,730 120,776
Accrued interest and
Other liabilities 27,877 5,407 478 33,762
----------- ----------- ----------- -----------
TOTAL LIABILITIES 2,569,171 512,640 99,859 3,181,670
SHAREHOLDERS' EQUITY
Common stock 298,285 600 (B) 120 (D) 306,709
Surplus 0 4,600 (B) 3,104 (D) 0
Retained earnings 5,366 36,411 8,383 50,160
Accumulated comprehensive income 1,835 2,922 192 4,949
Restricted stock awards (408) 0 0 (408)
Treasury stock, at cost (3,145) 0 0 (3,145)
----------- ----------- ----------- -----------
TOTAL SHAREHOLDERS
EQUITY 301,933 44,533 11,799 358,265
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,871,104 $ 557,173 $ 111,658 $ 3,539,935
=========== =========== =========== ===========
</TABLE>
- --------------------
See Notes to the Pro-forma Unaudited Consolidated Financial Statements on page
16.
12
<PAGE> 19
PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
First Sand Ridge Consolidated
Financial Financial Hebron Pro-forma
--------- --------- ------ ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 193,924 $ 24,295 $ 6,344 $ 224,563
Investment securities 24,897 10,898 1,315 37,110
Other 690 149 254 1,093
----------- ----------- ----------- -----------
Total interest income 219,511 35,342 7,913 262,766
INTEREST EXPENSE:
Deposits 80,282 16,556 3,752 100,590
Short-term borrowings 4,204 597 76 4,877
Long-term borrowings 3,961 898 108 4,967
----------- ----------- ----------- -----------
Total interest expense 88,447 18,051 3,936 110,434
----------- ----------- ----------- -----------
Net interest income 131,064 17,291 3,977 152,332
Provision for loan
Losses 6,077 2,050 120 8,247
----------- ----------- ----------- -----------
Net interest income
After provision for
Loan losses 124,987 15,241 3,857 144,085
NONINTEREST INCOME 34,341 4,533 545 39,419
NONINTEREST EXPENSES 92,739 12,681 2,431 107,851
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 66,589 7,093 1,971 75,653
Income tax expense 22,483 1,645 552 24,680
----------- ----------- ----------- -----------
NET EARNINGS $ 44,106 $ 5,448 $ 1,419 $ 50,973
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE
Basic $ 1.21 $ 90.80 $ 24.24 $ 1.19
=========== =========== =========== ===========
Diluted $ 1.21 $ 90.80 $ 24.24 $ 1.19
=========== =========== =========== ===========
AVERAGE SHARES
OUTSTANDING 36,375,686 60,000 (A) 58,533 (C) 42,713,336
=========== =========== =========== ===========
</TABLE>
- --------------------
See Notes to the Pro-forma Unaudited Consolidated Financial Statements on page
16.
13
<PAGE> 20
PRO-FORMA UNAUDITED CONSOLIDATED
STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
First Sand Ridge Consolidated
Financial Financial Hebron Pro-forma
--------- --------- ------ ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 166,336 $ 22,642 $ 6,443 $ 195,421
Investment securities 24,997 8,498 1,180 34,675
Other 852 982 146 1,980
----------- ----------- ----------- -----------
Total interest income 192,185 32,122 7,769 232,076
INTEREST EXPENSE:
Deposits 70,311 15,719 3,273 89,303
Short-term borrowings 5,518 69 133 5,720
Long-term borrowings 1,004 469 80 1,553
----------- ----------- ----------- -----------
Total interest expense 76,833 16,257 3,486 96,576
----------- ----------- ----------- -----------
Net interest income 115,352 15,865 4,283 135,500
Provision for loan
Losses 4,736 1,800 120 6,656
----------- ----------- ----------- -----------
Net interest income
After provision for
Loan losses 110,616 14,065 4,163 128,844
NONINTEREST INCOME 26,977 3,851 384 31,212
NONINTEREST EXPENSES 77,677 11,229 2,323 91,229
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 59,916 6,687 2,224 68,827
Income tax expense 19,608 1,694 693 21,995
----------- ----------- ----------- -----------
NET EARNINGS $ 40,308 $ 4,993 $ 1,531 $ 46,832
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE
Basic $ 1.11 $ 83.21 $ 26.17 $ 1.10
=========== =========== =========== ===========
Diluted $ 1.10 $ 83.21 $ 26.17 $ 1.09
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING
36,402,415 60,000 (A) 58,500 (C) $42,740,065
=========== =========== =========== ===========
</TABLE>
- --------------------
See Notes to the Pro-forma Unaudited Consolidated Financial Statements on page
16.
14
<PAGE> 21
PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
First Sand Ridge Consolidated
Financial Financial Hebron Pro-forma
--------- --------- ------ ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 144,941 $ 21,149 $ 5,707 $ 171,797
Investment securities 25,377 7,448 1,474 34,299
Other 957 335 151 1,443
----------- ----------- ----------- -----------
Total interest income 171,275 28,932 7,332 207,539
INTEREST EXPENSE:
Deposits 65,907 14,052 3,419 83,378
Short-term borrowings 3,521 271 148 3,940
Long-term borrowings 279 149 81 509
----------- ----------- ----------- -----------
Total interest expense 69,707 14,472 3,648 87,827
----------- ----------- ----------- -----------
Net interest income 101,568 14,460 3,684 119,712
Provision for loan
Losses 3,433 1,440 156 5,029
----------- ----------- ----------- -----------
Net interest income
After provision for
Loan losses 98,135 13,020 3,528 114,683
NONINTEREST INCOME 22,097 3,277 373 25,747
NONINTEREST EXPENSES 71,261 9,499 2,057 82,817
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 48,971 6,798 1,844 57,613
Income tax expense 15,031 1,914 581 17,526
=========== =========== =========== ===========
NET EARNINGS $ 33,940 $ 4,884 $ 1,263 $ 40,087
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE
Basic $ 0.96 $ 81.39 $ 21.59 $ 0.96
=========== =========== =========== ===========
Diluted $ 0.96 $ 81.39 $ 21.59 $ 0.96
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING
35,359,522 60,000 (A) 58,500 (C) 41,697,172
=========== =========== =========== ===========
</TABLE>
- --------------------
See Notes to the Pro-forma Unaudited Consolidated Financial Statements on page
16.
15
<PAGE> 22
NOTES TO THE PRO-FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
Reclassification of information has been made at times to provide
consistency in the presentation of financial information for the corporations
involved. These reclassifications are not material in nature and had no effect
on net earnings.
Listed below are certain costs that are directly attributable to the
Merger with Sand Ridge Financial and some of these can reasonably be expected to
be included in the expenses of First Financial during the next 12 months. At
December 31, 1998, Sand Ridge Financial had not expensed any costs related to
the Merger. The following costs were not considered in the preparation of the
Pro-forma Unaudited Consolidated Financial Statements.
<TABLE>
<CAPTION>
Classification Amount
-------------- ------
(Dollars in thousands)
<S> <C>
Legal $ 245
Accounting 225
Financial advisor 2,000
Regulatory filing fees 25
Other 70
------
Total $2,565
======
</TABLE>
(A) First Financial is offering to exchange an aggregate total of 5,115,000
shares of First Financial Common Stock for outstanding shares of Sand
Ridge Financial Common Stock. The exact number of First Financial
shares to be issued for each share of Sand Ridge Financial Common Stock
will be calculated by dividing 5,115,000 by the aggregate number of
shares of Sand Ridge Financial Common Stock issued and outstanding
immediately prior to the consummation date of the Merger (the
"Effective Time"). The Exchange Ratio will be appropriately adjusted in
the event of the subdivision or split of the outstanding First
Financial Common Stock, a capital reorganization, or a reclassification
or recapitalization affecting First Financial Common Stock.
If the Merger was consummated on April __, 1999, the Exchange Ratio
would be 85.25 shares of First Financial Common Stock for each share of
Sand Ridge Financial Common Stock.
(B) First Financial Common Stock and Sand Ridge Financial Common Stock do
not have par values. Sand Ridge Financial Common Stock, however, has a
stated value of $10.00 per share, while First Financial Common Stock
does not have a stated value. Since First Financial Common Stock does
not have a stated value, its capital accounts do not include an
"additional paid-in capital" or "surplus" account. As a result, Sand
Ridge Financial's additional paid in capital was transferred to its
"common stock" account in the "consolidated pro-forma" column, as shown
in the table below:
<TABLE>
<CAPTION>
Sand Ridge Transfer Sand Ridge
Financial From Financial
Actual Surplus Pro-forma
------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Common stock $ 600 $ 4,600 $5,200
Surplus 4,600 (4,600) 0
------ ------- ------
Total common stock and surplus $5,200 $ 0 $5,200
====== ======= ======
</TABLE>
16
<PAGE> 23
The consolidated pro-forma shareholders' equity per share was
calculated assuming the issuance of 5,115,000 shares of First Financial
Common Stock, which is the number of shares that would have been issued
if the Merger was effective April __, 1999. The use of the number of
shares is for illustrative purposes only and does not attempt to
predict the actual number of shares that will be exchanged in the
Merger.
(C) First Financial is offering to exchange an aggregate total of 1,222,650
shares of First Financial Common Stock for outstanding shares of Hebron
Bancorp Common Stock. The exact number of First Financial shares to be
issued for each share of Hebron Bancorp Common Stock will be calculated
by dividing 1,222,650 by the aggregate number of shares of Hebron
Bancorp Common Stock issued and outstanding immediately prior to the
effective time for this merger. The exchange ratio will be
appropriately adjusted in the event of the subdivision or split of the
outstanding First Financial Common Stock, a capital reorganization, or
a reclassification or recapitalization affecting First Financial Common
Stock.
If the merger was consummated on April __, 1999, the exchange ratio
would be 20.3775 shares of First Financial Common Stock for each share
of Hebron Bancorp Common Stock.
(D) First Financial Common Stock and Hebron Bancorp Common Stock do not
have par values. Hebron Bancorp Common Stock, however, has a stated
value of $2.00 per share, while First Financial Common Stock does not
have a stated value. Since First Financial Common Stock does not have a
stated value, its capital accounts do not include an "additional
paid-in capital" or "surplus" account. As a result, Sand Ridge
Financial's additional paid in capital was transferred to its "common
stock" account in the "consolidated pro-forma" column, as shown in the
table below:
<TABLE>
<CAPTION>
Hebron Transfer Hebron
Bancorp From Bancorp
Actual Surplus Pro-forma
------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Common stock $ 120 $3,104 $3,224
Surplus 3,104 (3,104) 0
------ ------ ------
Total common stock and surplus $3,224 $ 0 $3,224
====== ====== ======
</TABLE>
17
<PAGE> 24
RISK FACTORS
In making your determination as to how to vote on the Merger, you should
consider the following factors:
Risks Relating To The Merger
- ----------------------------
THE EXCHANGE RATIO IS FIXED AND WILL NOT BE ADJUSTED TO REFLECT CHANGES IN STOCK
VALUE PRIOR TO THE CONSUMMATION OF THE MERGER , UNLESS FIRST FINANCIAL'S MARKET
PRICE PER SHARE DECREASES RELATIVE TO A PEER GROUP OF FINANCIAL INSTITUTION
HOLDING COMPANIES.
The precise value of the merger consideration to be paid to Sand Ridge
Financial's shareholders will not be known at the time of the Special Meeting.
The Merger Agreement provides that shareholders will receive 85.25 shares of
First Financial common stock for each share of Sand Ridge Financial common
stock. This exchange ratio is fixed and will not be adjusted to reflect any
changes in the value of First Financial common stock between the date of the
Merger Agreement and the consummation date of the Merger, except for a decline
in the market value of First Financial common stock relative to a peer group of
other financial institution holding companies. See "THE MERGER AGREEMENT - First
Financial Average Closing Price And Termination Of The Merger" for more
information.
AFTER THE SPECIAL MEETING, SAND RIDGE FINANCIAL'S BOARD MAY AGREE TO REVISED
MERGER CONSIDERATION OR COULD TERMINATE THE MERGER IN CERTAIN EVENTS.
The merger consideration that you receive in the Merger could be different than
the currently contemplated exchange ratio or the Merger could be canceled even
though a majority of Sand Ridge Financial's shareholders voted in favor of the
Merger. If First Financial's average closing price, as defined in the Merger
Agreement, is less than $23.2671 and if the SRFC Ratio (the average closing
price divided by $26.5909) is less than an index of financial institution
holding company stocks listed in the Merger Agreement (the "Index Ratio"), Sand
Ridge Financial's Board of Directors may, at its option, request First Financial
to increase the number of First Financial Common Stock shares to be issued in
the Merger, according to a formula described in the Merger Agreement. If First
Financial decides not to increase the number of shares to be issued and without
resoliciting the approval of Sand Ridge Financial's shareholders, Sand Ridge
Financial's board will have the authority to either consummate the Merger for
the consideration previously described or terminate the Merger.
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<PAGE> 25
First Financial's average closing price, the SRFC Ratio and the Index Ratio will
not be computed any sooner than two days following the date of the Special
Meeting of shareholders. Therefore, Sand Ridge Financial's Board of Directors
will not be able to determine if it has the right to request an increased number
of First Financial common stock shares, and if it has such right, whether it
will exercise such right, until after the date of the Special Meeting of
shareholders. If the above conditions are satisfied and First Financial decides
not to increase the number of shares of First Financial common stock to be
issued, Sand Ridge Financial's Board of Directors may elect to terminate the
Merger Agreement even though it has been approved by a majority of the
shareholders of Sand Ridge Financial.
As of the date of this Proxy Statement-Prospectus, the average closing price of
First Financial common stock was $_______, the SRFC Ratio would be ______% and
the Index Ratio would be ______%. If the valuation date was the date of this
Proxy Statement-Prospectus, Sand Ridge Financial's Board of Directors
[would/would not] have the option of terminating the Merger Agreement. See "THE
MERGER AGREEMENT - First Financial Average Closing Price And Termination Of The
Merger" for more information.
SAND RIDGE FINANCIAL'S SHAREHOLDERS WILL HAVE NO CONTROL OF FIRST FINANCIAL'S
FUTURE OPERATIONS.
Sand Ridge Financial's shareholders own 100% of Sand Ridge Financial and, in the
aggregate, have the power to approve or reject any matters requiring the
approval of shareholders under Indiana law and Sand Ridge Financial's Articles
of Incorporation. After Sand Ridge Financial Corporation and Hebron Bancorp
merge with and into First Financial, Sand Ridge Financial's shareholders, in the
aggregate, will own approximately 12.02% of the outstanding shares of First
Financial, based on First Financial shares outstanding at December 31, 1998.
Even if all former Sand Ridge Financial shareholders vote in concert on items
which may be presented to First Financial shareholders, they will probably not
have a major impact on whether such items are approved or rejected.
Post-Merger Risks
- -----------------
FIRST FINANCIAL'S ACQUISITION STRATEGY COULD POSE RISKS.
First Financial has grown through acquisitions during recent years and
anticipates that it will make additional acquisitions in the future. First
Financial may need to issue additional common stock to pay for future
acquisitions, which would further dilute the ownership interest of First
Financial shareholders, including former Sand Ridge Financial shareholders.
Future acquisitions may also require First Financial to use substantial cash or
other liquid assets or to incur debt. If this occurs, First Financial may be
more susceptible to economic downturns and competitive pressures.
19
<PAGE> 26
FIRST FINANCIAL NEEDS TO BE PREPARED FOR THE YEAR 2000.
Potential system disruptions that may occur because of the Year 2000 issue could
adversely affect First Financial's operations and profitability. Although First
Financial has devoted significant resources in both money and time to the
remediation of its systems in preparation for the Year 2000 and believes its
systems will be Year 2000 compliant, some factors are not within First
Financial's control and could disrupt its operations. Such factors could include
increased withdrawal demand as the year 2000 approaches and the affect on First
Financial's liquidity and the Year 2000 preparedness of First Financial's loan
customers and the risk for increased loan losses. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - YEAR 2000
ISSUES" in First Financial's 1998 Annual Report to its shareholders, which is
incorporated by reference, for a more thorough discussion of First Financial's
Year 2000 preparations.
THE FINANCIAL SERVICES INDUSTRY IS EXTREMELY COMPETITIVE.
First Financial's affiliates compete with other commercial banks, thrift
institutions and other financial service providers. Competitors now include
securities dealers, brokers, mortgage bankers, investment advisors, finance
companies and insurance companies. Many of the newer competitors offer one-stop
financial services to their customers that may include services that banks may
not have been able or legally permitted to offer their customers in the past.
The increasingly competitive environment is largely the result of changes in
regulation and technology and continuing consolidation of the banking and thrift
industry. First Financial's ability to increase shareholder value will depend,
in part, on its ability to offer financial services, products, and delivery
systems that meet the needs and demands of its customers.
ECONOMIC CHANGES COULD AFFECT FIRST FINANCIAL'S PROFITABILITY.
First Financial's income is heavily dependent on its net interest income - the
difference between earnings from interest-earning assets such as loans and
investments and the rates paid for interest-bearing liabilities such as deposits
and borrowings. These rates are highly sensitive to many factors beyond First
Financial's control, including general economic conditions, the policies of
various governmental and regulatory agencies, and general interest rate levels.
Fluctuations in these areas may adversely affect the profitability of First
Financial.
GOVERNMENTAL REGULATION AND LEGISLATION COULD LIMIT FIRST FINANCIAL'S FUTURE
GROWTH.
First Financial and its subsidiaries are subject to regulation and supervision
by various federal and state governmental agencies. Regulations issued by these
agencies may change in the future and could negatively influence First
Financial's ability to expand services and increase the value of its business.
20
<PAGE> 27
The regulation of the national supply of bank credit in an effort to prevent
recession and restrain inflation is an important function of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). 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 on 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 may also affect interest
rates charged on loans or paid for deposits. Such policies and procedures of the
Federal Reserve Board will likely have significant impact on the operating
results of the banking industry in general. The effect, if any, upon the future
business and earnings of First Financial cannot accurately be predicted.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.
This document, including information included or incorporated by reference
herein, contains or may contain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of each of First Financial and Sand Ridge Financial,
including statements preceded by, followed by or that include the words
"believes", "expects", "anticipates" or similar expressions. These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, those risks described above.
21
<PAGE> 28
THE SPECIAL MEETING
Sand Ridge Financial Corporation, an Indiana corporation ("Sand Ridge
Financial"), is mailing this Proxy Statement-Prospectus to holders of shares of
its common stock ("Sand Ridge Financial Common Stock") on or about April __,
1999, together with a notice of a Special Meeting of Shareholders and a form of
proxy solicited by the Board of Directors of Sand Ridge Financial for use at the
Special Meeting.
Time And Place; Purpose
- -----------------------
The Special Meeting will be at the main office of Sand Ridge Bank, 2611
Highway Avenue, Highland, Indiana 46322, starting at 9:00 a.m., local time, on
May 12, 1999. At the Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Merger Agreement. Pursuant to the Merger
Agreement, Sand Ridge Financial will be merged into First Financial and Sand
Ridge Bank will become a wholly owned subsidiary of First Financial.
Voting And Revocation Of Proxies
- --------------------------------
You may use the accompanying proxy card if you are unable to attend the
Special Meeting in person or wish to have your shares voted by proxy even if you
do attend the Special Meeting. You may revoke any proxy that you give at any
time before it is exercised, either by submitting a written notice of revocation
or a properly executed proxy of a later date, or by attending the Special
Meeting and voting in person. You should address the written notice of
revocation and other communications with respect to the revocation of Sand Ridge
Financial proxies to Sand Ridge Financial Corporation, 2611 Highway Avenue,
Highland, Indiana 46322, Attention "Secretary."
All shares of Sand Ridge Financial Common Stock represented by properly
executed proxies received prior to or at the Special Meeting and not revoked
before they are exercised will be voted in accordance with the instructions
indicated in such proxies. If you do not specify how your proxy is to be voted,
it will be voted "FOR" the Merger Agreement.
Solicitation Of Proxies
- -----------------------
Sand Ridge Financial will pay the expenses of solicitation of proxies
for the Special Meeting. In addition to solicitation by mail, proxies may be
solicited in person by directors, officers and employees of Sand Ridge without
additional compensation and by telephone, teletype, facsimile or similar method.
Sand Ridge will also make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxy material to beneficial owners
and to secure their voting instructions, if necessary. Sand Ridge Financial will
reimburse these record holders for their reasonable expenses in forwarding such
materials.
22
<PAGE> 29
Record Date And Voting Rights
- -----------------------------
RECORD DATE. The Sand Ridge Financial Board has fixed the close of
business on April 1, 1999 as the record date for determining the Sand Ridge
Financial shareholders entitled to notice of and to vote at the Special Meeting
(the "Record Date"). You will be entitled to vote at the Special Meeting if you
are a shareholder of record on the close of business on the Record Date. As of
the Record Date, there were 60,000 shares of Sand Ridge Financial Common Stock
outstanding and entitled to vote.
VOTING RIGHTS. Each share of Sand Ridge Financial Common Stock entitles
its holder to one vote.
VOTE REQUIRED. As permitted by the Indiana Business Corporation Law
(the "IBCL") and the Sand Ridge Financial Certificate of Incorporation, the
affirmative vote of the holders of two-thirds of the shares of Sand Ridge
Financial Common Stock outstanding on the Record Date is required to approve and
adopt the Merger Agreement.
As of the close of business on the Record Date, there were 60,000
shares of Sand Ridge Financial Common Stock outstanding and entitled to vote,
and there were 337 holders of record of shares of Sand Ridge Financial Common
Stock. On such date, the directors and executive officers of Sand Ridge
Financial as a group beneficially owned 16,918 shares of Sand Ridge Financial
Common Stock, an amount equal to 28.2% of the shares of Sand Ridge Financial
Common Stock issued and outstanding on such date. The directors and executive
officers have indicated their intention to vote for the Merger.
If less than two-thirds of the outstanding shares of Sand Ridge
Financial Common Stock are present at the Special Meeting, we expect that the
Special Meeting will be postponed or adjourned for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes. At any
subsequent reconvening of the Special Meeting, we will vote all proxies in the
same manner as they would have been voted at the original convening of the
Special Meeting, except for any proxies that have been revoked or withdrawn.
ABSTENTIONS AND BROKER NON-VOTES. A properly executed proxy marked
"Abstain" will not be voted on the Merger Agreement proposal. Also, brokers who
hold Sand Ridge Financial Common Stock in "street" name for customers cannot
vote these shares on the Merger Agreement proposal without specific instructions
from their customers.
SINCE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF SAND RIDGE FINANCIAL COMMON
STOCK, YOUR FAILURE TO VOTE, YOUR ABSTENTION OR, IF YOUR SHARES ARE HELD IN
"STREET" NAME, YOUR FAILURE TO INSTRUCT YOUR BROKER ALL WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER. ACCORDINGLY, THE SAND RIDGE FINANCIAL BOARD
URGES YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
23
<PAGE> 30
THE MERGER
This section of the Proxy Statement-Prospectus describes certain of the
more important aspects of the Merger. The following description does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, which is set forth in Appendix A to this Proxy Statement-Prospectus.
All shareholders are urged to read the Merger Agreement in its entirety.
Background Of And Reasons For The Merger
- ----------------------------------------
As part of its continuing efforts to maximize shareholder value, Sand
Ridge Financial's Board of Directors has considered various strategic options
from time to time, including the possibility of seeking a merger with another
financial institution.
In recent years, there has been, and there continues to be, substantial
consolidation in the United States banking and financial services industry. This
trend is necessarily of concern to smaller institutions like Sand Ridge
Financial because larger entities that emerge from consolidations may acquire
substantial competitive advantages. Sand Ridge Financial has been dedicated to
the goal of providing superior banking services, and in analyzing strategic
alternatives has always sought to ensure that the alternatives being considered
can reasonably be expected to result in improved services as well as enhanced
shareholder value.
In May of 1998, the Sand Ridge Financial Board decided to obtain
independent assistance in a strategic review of available options. The Sand
Ridge Financial Board retained outside financial advisors, Hovde Financial, Inc.
("Hovde"), to assist Sand Ridge Financial in reviewing market conditions and in
evaluating strategic alternatives. Prior to retaining Hovde, some of the
directors of the Sand Ridge Financial Board interviewed members of an unrelated
client to whom Hovde had provided investment banking services. In making its
selection, the Sand Ridge Financial Board determined to its satisfaction that
Hovde had extensive experience in advising financial institutions regarding
strategic alternatives, had a sizeable staff with the desired qualifications and
provided a fee estimate that was fair and reasonable.
Hovde presented its strategic review materials to Sand Ridge
Financial's Board on June 4, 1998. After careful and thorough discussion of the
various alternatives, Sand Ridge Financial's Board determined to consider the
merger of Sand Ridge Financial.
In seeking potential acquirers, Sand Ridge Financial's Board had a
number of criteria for selecting a merger partner. The criteria included:
a. active and broad marketability of acquirer's stock;
b. a control premium that reflected Sand Ridge Financial's
financial condition;
c. attractive relative valuation of acquirer's stock with
prospects for price appreciation better than those for Sand
Ridge Financial's stock;
d. a transaction with little or no adverse tax consequences for
the shareholders;
e. possible higher dividends for shareholders;
24
<PAGE> 31
f. a sizeable acquirer with a diversified product base and
revenue stream;
g. benefit plans which were comparable to Sand Ridge Financial's
plans;
h. minimal dislocation of employees;
i. a willingness to retain Sand Ridge Bank as a separate
subsidiary;
j. an acquirer which was a good corporate citizen;
k. an acquirer which would maintain a diverse and competitive
source of commercial bank products and services for Sand Ridge
Financial's customers; and
l. as few contingencies as possible to closing.
The Board authorized Hovde to contact a number of other bank holding
companies to assess their interest in pursuing a strategic affiliation with Sand
Ridge Financial. Institutions contacted included companies which Sand Ridge
Financial and Hovde believed would have strategic interest in Sand Ridge
Financial and the financial ability to acquire Sand Ridge Financial. After
receipt of written preliminary indications of interest from five companies,
subject to due diligence, three companies were offered the opportunity to
conduct a detailed business review of Sand Ridge Financial in order to formulate
a firm offer which would not be conditional upon the performance of a further
business review by the offeror. All three companies availed themselves of this
opportunity. In October, 1998, each of the three conducted in-depth examinations
of the books, records and operations of Sand Ridge Financial and had discussions
with executive management and the Board of Directors.
Upon conclusion of their examinations, each of the companies that had
conducted a business review submitted offers for stock.
After careful review of the consideration offered and of the merger
selection criteria, the Sand Ridge Financial Board determined on November 3,
1998, that the stock offer from First Financial was the most attractive offer.
The stock offer from First Financial was at a fixed Exchange Ratio, except in
certain limited circumstances, of 85.25 shares of First Financial common Stock
for each share of Sand Ridge Financial's Common Stock, producing a price of
approximately $2,266.00 per Sand Ridge Financial share, based on First
Financial's share price on October 29, 1998.
In addition to determining that the consideration offered by First
Financial was superior to other offers, the Sand Ridge Financial Board
determined that First Financial and First Financial's offer favorably satisfied
the merger criteria previously established by the Sand Ridge Financial Board.
Specifically, the Sand Ridge Financial Board found that, among favorable
criteria, First Financial's offer would:
a. afford a control premium to the shareholders of Sand Ridge
Financial because the offer was valued by Hovde at
approximately 310% of book value;
b. provide a marketable security to Sand Ridge Financial
shareholders because First Financial stock is actively traded
on the Nasdaq National Market;
c. provide no current, adverse tax consequence to Sand Ridge
Financial shareholders, except for cash received for fractional
shares and cash paid to dissenting shareholders who exercise
dissenter's rights;
d. provide higher dividends for Sand Ridge Financial shareholders;
25
<PAGE> 32
e. provide for a merger with a bank holding company with $2.9
billion in assets and which operates five Ohio, one Michigan
and nine Indiana financial institution affiliates with a total
of 105 banking office locations;
f. provide benefit plans comparable to Sand Ridge Financial plans;
g. maintain a diverse and competitive source of commercial bank
products and services for Sand Ridge Financial's customers;
h. retain Sand Ridge Bank as a separate subsidiary which would
allow autonomy in Sand Ridge Bank's operations thereby also
probably resulting in minimal dislocation of employees;
i. provide for only one business contingency, other than
contingencies that would be required in the normal course for
any merger transaction, that the transaction be treated as a
pooling-of-interests for accounting purposes; and
j. provide a price protection mechanism, permitting Sand Ridge
Financial to terminate the Merger if there is a sustained
decline in First Financial's Common Stock value relative to a
peer group of comparable companies, unless First Financial
elects to adjust the Exchange Ratio to increase the number of
First Financial shares exchanged for each share of Sand Ridge
Financial Common Stock.
In addition, the banking philosophy of First Financial, emphasizing
community banking and the autonomy of its subsidiaries, was of major importance
to the Sand Ridge Financial Board.
In reviewing its initial merger criteria as well as the consideration
offered by each potential merger party, the Sand Ridge Financial Board
determined that the offer from First Financial was superior because it provided
a higher consideration and favorably met more of the criteria considered by the
Sand Ridge Financial Board.
After these deliberations, the Sand Ridge Financial Board, with the
assistance of Hovde and Barnes & Thornburg, general legal counsel, entered into
negotiations toward a definitive agreement with First Financial. Following
negotiation of the Merger Agreement, the Sand Ridge Financial Board concluded
that the Merger would be in the best interest of Sand Ridge Financial and its
shareholders. On December 16, 1998, the Sand Ridge Financial Board approved the
Merger and the Merger Agreement. Based on its review, the Sand Ridge Financial
Board concluded the proposed Merger would be in the best interests of the
shareholders of Sand Ridge Financial and its customers, and of the communities
which Sand Ridge Financial serves. Accordingly, the Sand Ridge Financial Board
recommends that Sand Ridge Financial shareholders vote "FOR" the Merger.
26
<PAGE> 33
Opinion Of Financial Advisor To Sand Ridge Financial
- ----------------------------------------------------
In addition to the December 16, 1998 preliminary fairness opinion,
Hovde Financial, Inc. ("Hovde") has delivered to the Sand Ridge Financial Board
its updated fairness opinion, dated as of the date of this Proxy
Statement-Prospectus that, based upon and subject to the various considerations
set forth in such opinion, the Exchange Ratio is fair from a financial point of
view to the holders of Sand Ridge Financial Common Stock as of such date. In
requesting Hovde's advice and opinion, no limitations were imposed by Sand Ridge
Financial upon Hovde with respect to the investigations made or procedures
followed by it in rendering its opinion. The full text of the updated fairness
opinion of Hovde, which describes the procedures followed, assumptions made,
matters considered and limitations on the review undertaken, and which does not
materially differ from the December 16, 1998 preliminary fairness opinion, is
attached hereto as Appendix B. Holders of Sand Ridge Financial Common Stock
should read this opinion in its entirety.
Hovde is a nationally recognized investment banking firm and, as part
of its investment banking business, is continually engaged in the valuation of
financial institutions in connection with mergers and acquisitions, private
placements and valuations for other purposes. As a specialist in securities of
financial institutions, Hovde has experience in, and knowledge of, banks,
thrifts and bank and thrift holding companies. Sand Ridge Financial's Board of
Directors selected Hovde to act as its financial advisor in connection with the
Merger on the basis of the firm's reputation and expertise in transactions such
as the Merger.
Hovde will receive a fee contingent upon the completion of the Merger
for services rendered in connection with advising Sand Ridge Financial regarding
the Merger, including the fairness opinion and financial advisory services
provided to Sand Ridge Financial, plus reimbursement of out-of-pocket expenses.
As of the date of the preliminary fairness opinion, such fee would be
approximately $2.0 million and Hovde has received approximately $400,000 of such
fee.
HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, OF THE EXCHANGE RATIO, AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF SAND RIDGE FINANCIAL COMMON STOCK AS TO HOW SUCH HOLDER SHOULD
VOTE AT THE SAND RIDGE FINANCIAL MEETING. THE SUMMARY OF THE OPINION OF HOVDE
SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The following is a brief summary of the analyses performed by Hovde in
connection with its fairness opinion:
During the course of its engagement, and as a basis for arriving at its
opinion, Hovde reviewed and analyzed material bearing upon the financial and
operating condition of Sand Ridge Financial and First Financial and material
prepared in connection with the Merger, including, among other things, the
following: (i) the Merger Agreement; (ii) certain historical publicly available
information concerning Sand Ridge Financial and First Financial; (iii) the
nature and terms of recent merger transactions; and (iv) financial and other
information provided to Hovde by
27
<PAGE> 34
the management of Sand Ridge Financial and First Financial. Hovde conducted
meetings and had discussions with members of senior management of Sand Ridge
Financial and First Financial for purposes of reviewing the future prospects of
Sand Ridge Financial and First Financial. Hovde also took into account its
experience in other transactions, as well as its knowledge of the commercial
banking and thrift industries and its general experience in securities
valuations.
In rendering its opinion, Hovde assumed, without independent
verification, the accuracy and completeness of the financial and other
information and relied upon the accuracy of the representations of the parties
contained in the Merger Agreement. Hovde has not made any independent evaluation
or appraisal of any properties, assets or liabilities of Sand Ridge Financial.
Hovde assumed and relied upon the accuracy and completeness of the publicly
available and other financial and other information provided to it, relied upon
the representations and warranties of Sand Ridge Financial and First Financial
made pursuant to the Merger Agreement, and did not independently attempt to
verify any of such information.
In connection with its opinion, Hovde performed various analyses with
respect to Sand Ridge Financial. The following is a brief summary of such
analyses, certain of which were presented to the Sand Ridge Financial Board by
Hovde on December 16, 1998.
IMPLIED OFFER VALUE ANALYSIS BASED ON FIRST FINANCIAL HISTORICAL
TRADING VALUATION. Hovde reviewed the implied offer value per share to Sand
Ridge Financial Common Stock based on the price of First Financial Common Stock
at different intervals during the period commencing 90 trading days prior to
December 14, 1998, using the 5-day, 10-day, 15-day, 20-day, 30-day, 60-day and
90-day average closing price of First Financial Common Stock during such period.
Using such average closing prices, Hovde observed that the implied value per
share to Sand Ridge Financial Common Stock was between $2,250.47 and $2,595.33
during such period.
ANALYSIS OF SELECTED MERGERS. As part of its analysis, Hovde reviewed
comparable mergers involving banks headquartered in the Midwest announced since
January 1, 1997, in which the total assets of the seller were between $250
million and $1 billion and the tangible equity to assets ratio of the seller was
between 6.0% and 12.0% (15 transactions) (the "Midwest Merger Group"). For each
transaction in the Midwest Merger Group, Hovde calculated the multiple of the
Offer Value to the acquired company's earnings per share ("EPS") for the twelve
months preceding ("LTM") the announcement date of the transaction; the multiple
of the Offer Value to the acquired company's book value per share and tangible
book value per share; and the tangible book value premium to core deposits, each
as of the announcement date of the transaction.
The calculations for the Midwest Merger Group yielded a range of
multiples of offer value to LTM EPS of 15.5x to 30.2x, with an average of 20.7x
and a median of 21.0x; a range of multiples of offer value to book value of
1.39x to 3.78x, with an average of 2.53x and a median of 2.62x; a range of
multiples of offer value to tangible book value of 1.43x to 4.03x, with an
average of 2.68x and a median of 2.74x; and a range of tangible book value
premium to core deposits of 5.19% to 31.38%, with an average of 18.65% and a
median of 19.66%.
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<PAGE> 35
Hovde compared these multiples with the corresponding multiples for the
Merger, valuing the shares of First Financial Common Stock that would be
received pursuant to the Merger Agreement at $2,514.88 per share of Sand Ridge
Financial Common Stock. In calculating the multiples for the Merger, Hovde used
Sand Ridge Financial's EPS for the 12 months ended September 30, 1998, and Sand
Ridge Financial's book value per share, tangible book value per share, and total
deposits as of September 30, 1998. Hovde calculated that Sand Ridge Financial's
LTM EPS for such 12 month period, book value per share, tangible book value per
share and tangible book value premium to core deposits as of September 30, 1998
were 25.5 times, 3.35 times, 3.35 times, and 26.38%, respectively.
DISCOUNTED CASH FLOW ANALYSIS. Hovde performed a discounted cash flow
analysis to determine a present value per share of Sand Ridge Financial Common
Stock assuming Sand Ridge Financial continued to operate as a stand-alone entity
and was acquired at a later date. This present value was determined by
projecting Sand Ridge Financial's after-tax net income for the five years ended
December 31, 1998 through 2002. The "terminal value" per share (i.e., the
projected 2002 value per share) of Sand Ridge Financial Common Stock was
determined by applying a price to earnings multiple of 20.7 times against Sand
Ridge Financial's projected earnings at December 31, 2002. The present value of
the terminal value was then determined using an annual discount rate of 11.0%.
The above calculations resulted in a net present value per fully diluted share
of Sand Ridge Financial Common Stock of $1,926.44 per share.
CONTRIBUTION ANALYSIS. Hovde prepared a contribution analysis showing
percentages of assets, loans, deposits and common equity at September 30, 1998,
and estimated 1998 net income and estimated 1999 net income that would be
contributed to the combined company on a pro-forma basis by Sand Ridge Financial
and First Financial. This analysis showed, assuming an Exchange Ratio of 85.25,
that Sand Ridge Financial, as of September 30, 1998, would contribute 15.85% of
pro-forma consolidated total assets, 11.71% of net loans, 16.36% of total
deposits, 12.96% of common equity, 11.90% of estimated 1998 net income and
12.00% of estimated 1999 net income. This analysis showed that holders of Sand
Ridge Financial Common Stock would own approximately 12.32% of the pro-forma
common shares outstanding of First Financial.
FINANCIAL IMPLICATIONS TO HOLDERS OF SAND RIDGE FINANCIAL COMMON STOCK.
Hovde prepared an analysis of the financial implications of the First Financial
offer to a holder of Sand Ridge Financial Stock. This analysis indicated that on
a pro-forma equivalent basis, assuming the Exchange Ratio of 85.25 and excluding
any potential cost saving and revenue enhancement opportunities, a stockholder
of Sand Ridge Financial would achieve approximately 3.5% accretion in earnings
per share, an increase in dividends per share of approximately 170.0% and a
decrease in book value per share of approximately 5.4% in 1998 as a result of
the consummation of the Merger. Assuming that the projected earnings per share
and dividends per share do not materially change from historical growth rate
levels, the holders of Sand Ridge Financial Common Stock will experience an
increase of approximately 14.7% in earnings per share, an increase of
approximately 212.6% in dividends per share, and a decrease of approximately
14.5% in book value per share in 2002 as a result of the consummation of the
Merger.
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COMPARATIVE SHAREHOLDER RETURNS. Hovde presented an analysis of
comparative theoretical stockholder returns in several scenarios, including Sand
Ridge Financial remaining independent, Sand Ridge Financial being acquired in
2002, Sand Ridge Financial being acquired by First Financial through the Merger
and Sand Ridge Financial being acquired by First Financial through the Merger
with First Financial in turn being acquired in 2002. This analysis, which was
based on the net present value of projected dividend streams and projected
common stock valuations (using the current price-to-earnings multiples),
indicated total shareholder returns of 13.99% if Sand Ridge Financial remained
independent, 27.58% for a merger in 2002, 37.07% based on the acceptance of the
offer from First Financial at the Exchange Ratio of 85.25 First Financial shares
per Sand Ridge Financial share, and 43.65% based on the acceptance of the offer
from First Financial at the Exchange Ratio of 85.25 First Financial shares per
Sand Ridge Financial share and First Financial in turn being acquired in 2002.
Although the summary set forth above does not purport to be a complete
description of the analyses performed by Hovde, the most material aspects of the
analyses performed by Hovde in rendering its opinion have been summarized above.
However, the preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Hovde believes that its analysis and
the summary set forth above must be considered as a whole and that selecting
portions of its analysis, without considering all factors and analysis, would
create an incomplete view of the process underlying the analysis by which Hovde
reached its opinion. In addition, Hovde may have given various analyses more or
less weight than other analyses. Also, Hovde may have deemed various assumptions
more or less probable than other assumptions so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Hovde's view of the actual value of Sand Ridge Financial or the combined
company.
In performing its analysis, Hovde made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Sand Ridge Financial and
First Financial. The analysis performed by Hovde is not necessarily indicative
of actual value or actual future results, which may be significantly more or
less favorable than suggested by such analysis. Such analysis was prepared
solely as part of Hovde's analysis of the fairness of the Exchange Ratio, from a
financial point of view, to the holders of Sand Ridge Financial Common Stock.
The analysis does not purport to be an appraisal or to reflect the prices at
which a company might actually be sold or the prices at which any securities may
trade at the present time or at any time in the future. Hovde used in its
analysis various projections of future performance prepared by the management of
Sand Ridge Financial. The projections are based on numerous variables and
assumptions, which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those assumed in the projections and any related analysis.
Hovde's opinion does not address the relative merits of the Merger as compared
to any other business combination in which Sand Ridge Financial might engage. In
addition, as described above, Hovde's opinion to the Sand Ridge Financial Board
was one of many factors taken into consideration by the Sand Ridge Financial
Board in making its determination to approve the Merger Agreement.
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<PAGE> 37
Based upon the foregoing analyses and other investigations and
assumptions set forth in its opinion, without giving specific weightings to any
one factor or comparison, Hovde determined that the Exchange Ratio was fair from
a financial point of view to the holders of Sand Ridge Financial Common Stock.
Hovde's fairness opinion does not take into account any adjustment to the Merger
Consideration that may be provided for in the Merger Agreement.
THE SUMMARY OF THE PRESENTATION BY HOVDE TO THE SAND RIDGE FINANCIAL
BOARD AS SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH
PRESENTATION. THE PREPARATION OF A FAIRNESS OPINION INVOLVES VARIOUS
DETERMINATIONS AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF FINANCIAL
ANALYSES AND THE APPLICATION OF THOSE METHODS TO THE PARTICULAR CIRCUMSTANCES,
AND, THEREFORE, SUCH AN OPINION IS NOT READILY SUSCEPTIBLE TO SUMMARY
DESCRIPTION. FURTHERMORE, IN ARRIVING AT ITS OPINION, HOVDE DID NOT ATTRIBUTE
ANY PARTICULAR WEIGHT TO ANY ANALYSIS OR FACTOR CONSIDERED BY IT, BUT RATHER
MADE QUALITATIVE JUDGMENTS AS TO THE SIGNIFICANCE AND RELEVANCE OF EACH ANALYSIS
AND FACTOR. ACCORDINGLY, HOVDE BELIEVES THAT ITS ANALYSES AND THE SUMMARY SET
FORTH ABOVE MUST BE CONSIDERED AS A WHOLE AND THAT SELECTING PORTIONS OF ITS
ANALYSES, WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN
INCOMPLETE VIEW OF THE PROCESS UNDERLYING THE ANALYSES SET FORTH IN ITS REPORT
TO THE SAND RIDGE FINANCIAL BOARD AND ITS FAIRNESS OPINION. IN PERFORMING ITS
ANALYSES, HOVDE MADE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE
BEYOND THE CONTROL OF SAND RIDGE FINANCIAL OR FIRST FINANCIAL. THE ANALYSES
PERFORMED BY HOVDE ARE NOT NECESSARILY INDICATIVE OF ACTUAL VALUES OR ACTUAL
FUTURE PERFORMANCE.
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Management Following The Merger
- -------------------------------
If the Merger is consummated, Sand Ridge Financial and First Financial
will merge into a single corporation and First Financial will be the surviving
corporation. The directors of First Financial at the Effective Time of the
Merger will be the directors of the surviving corporation until their respective
successors are duly elected and qualified. The Merger Agreement includes an
agreement by First Financial to appoint promptly after the Effective Time a
mutually agreeable member of Sand Ridge Bank's Board of Directors to First
Financial's Board of Directors. First Financial intends to appoint Mr. Bruce E.
Leep and Mr. Leep has agreed to accept the appointment. Subject to the authority
of the Board of Directors as provided by law and the Regulations of the
surviving corporation, the officers of First Financial at the Effective Time
will be the officers of the Surviving Corporation.
If the Merger is consummated, Sand Ridge Bank, Sand Ridge Financial's
only subsidiary, will become a wholly owned subsidiary of First Financial. The
directors of Sand Ridge Bank at the Effective Time will continue to be directors
until their successors are duly elected and qualified by First Financial as sole
shareholder. Subject to the authority of the Board of Directors of Sand Ridge
Bank as provided by its Code of By-Laws and as provided by law, the officers of
Sand Ridge Bank at the Effective Time will continue to be the officers of Sand
Ridge Bank until their successors are duly elected and qualified.
Effective January 18, 1999, Mr. James C. Hall was appointed
president-elect of Sand Ridge Bank. Prior to joining Sand Ridge Bank, Mr. Hall
was president and chief executive officer of Fidelity Federal Savings Bank
("Fidelity"), a wholly owned subsidiary of First Financial. Mr. Hall is still an
employee and a director of Fidelity. Upon completion of the Merger, Mr. Leep,
who is currently chairman, president and chief executive officer of Sand Ridge
Bank, will retire from the office of president, but continue as chairman and
chief executive officer, and Sand Ridge Bank will elect Mr. Hall as a director
and president and chief operating officer of Sand Ridge Bank. At that time, Mr.
Hall will resign as a director of Fidelity. However, Mr. Hall will remain an
employee of Fidelity while serving as an officer of Sand Ridge Bank, until the
First Financial Bancorp. Thrift Plan is extended to eligible employees of Sand
Ridge Bank, pursuant to the terms of the Merger Agreement. It is anticipated
that this will take place on January 1, 2000. Until the Effective Time, First
Financial will reimburse Fidelity's expenses for employing Mr. Hall.
First Financial and Sand Ridge Bank have entered into the foregoing
arrangement in anticipation of the retirement of Mr. Leep. First Financial and
Sand Ridge Bank agree that, if the Merger is completed, Mr. Hall will be the
appropriate person to succeed Mr. Leep. In order to ensure a smooth transition
between Mr. Leep and Mr. Hall, it is the desire of both First Financial and Sand
Ridge Bank that Mr. Hall become acquainted with the operations, employees and
customers of Sand Ridge Bank as soon as possible. In order to maintain Mr.
Hall's employment should the Merger be terminated, and in order to preserve Mr.
Hall's benefits as an employee of First Financial, Mr. Hall will remain an
employee of Fidelity until the time specified above.
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Interest Of Certain Persons In The Merger
- -----------------------------------------
The directors and officers of Sand Ridge Financial and Sand Ridge Bank
have certain interests in the Merger in addition to their interests as
shareholders of Sand Ridge Financial generally. The Board of Directors of Sand
Ridge Financial was aware of these interests and considered them, among others,
in approving the Merger Agreement.
The Merger Agreement contains certain provisions regarding employee
benefits. As soon as practicable after the Effective Date of the Merger, First
Financial will make available to eligible employees and officers of Sand Ridge
Bank employee benefit plans comparable to the plans then made available to
similarly situated employees of other First Financial subsidiaries. Employee
benefit plans, fringe benefits and other employee practices and policies in
effect at Sand Ridge Bank immediately prior to the Effective Time will continue
in effect until modified or terminated by First Financial.
The First Financial Bancorp. Thrift Plan (the "Thrift Plan"), which is
a 401-K Plan, and the First Financial Bancorp. Employees' Pension Plan (the
"First Financial Pension Plan") cover the majority of the employees of First
Financial and its subsidiaries. All employees who are 21 years of age and have
completed one year of service are covered. The Thrift Plan is voluntary and
participants may contribute up to 12.0% of base salary to the plan. Subject to
the limitation described below, First Financial subsidiaries contribute $0.50
for each $1.00 a participant contributes. The matching contribution by First
Financial subsidiaries is limited to 3.00% of each participant's base salary and
all contributions become fully vested when made. Participants are 100% vested in
the First Financial Pension Plan after five years of credited service. For more
information about First Financial's Thrift Plan and the First Financial Pension
Plan, see First Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, previously incorporated by reference.
The Sand Ridge Bank Profit Sharing and 401(k) Plan contains provisions
for a 401(k) plan (the "Sand Ridge Bank 401(k) Plan") and a profit sharing plan
(the "Sand Ridge Bank Profit Sharing Plan"). The Sand Ridge Bank 401(k) Plan
will continue in effect until the first January 1 or July 1 coinciding with or
next following the Effective Time (the "Initial Entry Date"), at which time
participants in the Sand Ridge Bank 401(k) Plan will become fully vested in
their plan accounts to the extent required by Law. No contributions will be
permitted to the Sand Ridge Bank 401(k) Plan with respect to compensation paid
after the Initial Entry Date. Contributions to the Sand Ridge Bank Profit
Sharing Plan will be made, but only with respect to operations before the
Initial Entry Date. On or after the Initial Entry Date, the Sand Ridge Bank
401(k) Plan may be maintained as a frozen plan for an indefinite period or
merged into First Financial's Thrift Plan. As of the Initial Entry Date, Sand
Ridge Bank employees and officers may participate in First Financial's Thrift
Plan. Service with Sand Ridge Bank prior to the Effective Time will be counted
for eligibility and vesting purposes under the Thrift Plan.
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If the Merger is consummated, Sand Ridge Bank employees will be
eligible to participate in the First Financial Pension Plan. The Sand Ridge Bank
Profit Sharing Plan will either continue as a frozen plan or will be terminated
and participants' accounts distributed in accordance with the terms of the Sand
Ridge Bank Profit Sharing Plan, the Internal Revenue Code, and the Employee
Retirement Income Security Act of 1974 ("ERISA").
If any employee of Sand Ridge Financial or Sand Ridge Bank at the
Effective Time is terminated without cause within one year of the Effective
Time, Sand Ridge Bank, as a subsidiary of First Financial, will pay the
employee, upon receipt of a release of all claims in a form satisfactory to Sand
Ridge Bank and First Financial, a termination fee equal to the greater of four
weeks' salary or one week's salary multiplied by the number of full years of
service with Sand Ridge Bank.
The directors and executive officers of Sand Ridge Financial have
indicated their intention to vote the shares of Sand Ridge Financial Common
Stock held by them in favor of the Merger Agreement. On the Record Date, such
directors and executive officers as a group beneficially owned an aggregate of
16,918 shares of Sand Ridge Financial Common Stock, which represented 28.2% of
the shares issued and outstanding at that date.
Dissenters' Rights
- ------------------
Under Indiana Code Chapter 23-1-44, any holder of record of Sand Ridge
Financial Common Stock who does not vote in favor of the Merger may exercise
dissenting shareholder rights and demand payment in cash for the fair value of
such holder's shares by complying with the requirements of Chapter 23-1-44. For
purposes of Chapter 23-1-44, the fair value of a dissenting shareholder's shares
is the value of the shares immediately before the effectuation of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger unless
the exclusion would be inequitable.
Set forth below is a summary of the procedures relating to the exercise
of statutory dissenters' rights ("Dissenters' Rights"). THIS SUMMARY DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY EXPRESS REFERENCE TO
APPLICABLE INDIANA LAW, INCLUDING INDIANA CODE CHAPTER 23-1-44, A COPY OF WHICH
IS APPENDED AS APPENDIX C TO THIS PROXY STATEMENT AND INCORPORATED HEREIN. ANY
SHAREHOLDER OF SAND RIDGE FINANCIAL CONTEMPLATING EXERCISING DISSENTERS' RIGHTS
WITH RESPECT TO SAND RIDGE FINANCIAL COMMON STOCK IS URGED TO REVIEW CAREFULLY
SUCH PROVISIONS AND TO CONSULT AN ATTORNEY, BECAUSE DISSENTERS' RIGHTS WILL BE
LOST IF THE PROCEDURAL REQUIREMENTS UNDER CHAPTER 23-1-44 ARE NOT FULLY AND
PRECISELY SATISFIED. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF CHAPTER 23-1-44 IN ORDER FOR HOLDERS TO PERFECT
DISSENTERS' RIGHTS.
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Under Chapter 23-1-44, a Sand Ridge Financial shareholder of record for
the Special Meeting who desires to assert Dissenters' Rights must (i) deliver to
Sand Ridge Financial before the shareholder vote is taken written notice of the
shareholder's intent to demand payment in cash for shares owned if the Merger is
effectuated, and (ii) not vote the shareholder's shares in favor of the Merger,
either in person or by proxy. Dissenting shareholders cannot dissent as to only
some but not all of the shares of Sand Ridge Financial Common Stock registered
in their names, except in limited circumstances. Dissenting shareholders may
send their written notice to Terry L. Saxsma, Vice President,
Secretary/Treasurer, Sand Ridge Financial Corporation, 2611 Highway Avenue, P.O.
Box 1929, Highland, IN 46322.
In the event the Merger is approved by the Sand Ridge Financial
shareholders, Sand Ridge Financial (hereinafter sometimes referred to for
purposes of this section as the "Corporation") must mail or deliver a written
notice of dissenters' rights (the "Notice to Dissenters") to each dissenting
shareholder satisfying the above conditions within ten (10) days after
shareholder approval has occurred, which Notice to Dissenters must:
(a) state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed Merger, which was December 16, 1998, and
requires that the dissenting shareholder certify whether or
not that shareholder acquired beneficial ownership of the
shares before that date;
(d) set a date by which the Corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more
than sixty (60) days after the date the Notice to Dissenters
is delivered; and
(e) be accompanied by a copy of Indiana Code Chapter 23-1-44.
A Sand Ridge Financial shareholder who is sent such a Notice to
Dissenters must then (i) demand payment for the shareholder's shares of Sand
Ridge Financial Common Stock, (ii) certify whether the shareholder acquired
beneficial ownership of the Sand Ridge Financial Common Stock before the date
set forth in the Notice to Dissenters and (iii) deposit the shareholder's
certificates representing shares of Sand Ridge Financial Common Stock in
accordance with the terms of the Notice to Dissenters. IF THE SAND RIDGE
FINANCIAL SHAREHOLDER FAILS TO TAKE THESE STEPS, HE OR SHE WILL NOT BE ENTITLED
TO PAYMENT FOR THE SHAREHOLDER'S SHARES THROUGH THE DISSENTERS' RIGHTS PROCESS
AND WILL BE CONSIDERED TO HAVE VOTED HIS OR HER SHARES IN FAVOR OF THE MERGER.
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A SAND RIDGE FINANCIAL SHAREHOLDER WHO DESIRES TO EXERCISE DISSENTERS'
RIGHTS CONCERNING THE MERGER BUT WHO DOES NOT COMPLY WITH THE PRELIMINARY
CONDITIONS DESCRIBED ABOVE WILL BE CONSIDERED NOT TO BE ENTITLED TO RIGHTS UNDER
INDIANA CODE CHAPTER 23-1-44. SHAREHOLDERS WHO EXECUTE AND RETURN THE ENCLOSED
PROXY BUT DO NOT SPECIFY A CHOICE ON THE MERGER PROPOSAL WILL BE DEEMED TO HAVE
VOTED IN FAVOR OF THE MERGER AND ACCORDINGLY TO HAVE WAIVED THEIR DISSENTER'S
RIGHTS, UNLESS THE SHAREHOLDER REVOKES THE PROXY PRIOR TO ITS BEING VOTED AND
SATISFIES THE OTHER REQUIREMENTS OF INDIANA CODE CHAPTER 23-1-44.
Upon consummation of the Merger, the Corporation will pay each
dissenting shareholder who has complied with all statutory requirements and the
dissenter's notice, and who was the beneficial owner of Sand Ridge Financial
Common Stock prior to December 16, 1998 (the date the Merger proposal was first
publicly announced), the Corporation's estimate of the fair value of the shares
as of the time immediately prior to the Merger, excluding any appreciation in
value in anticipation of the Merger. For those dissenters who became beneficial
owners of shares on or after December 16, 1998, the Corporation will upon
consummation of the Merger provide the Corporation's estimate of fair value, but
may withhold payment of the fair value of the shares until the dissenting
shareholder agrees to accept the estimated fair value amount in full
satisfaction of the dissenting shareholder's demand or until the Corporation is
otherwise directed by a court of competent jurisdiction.
If the dissenting shareholder believes the amount paid or estimated by
the Corporation is less than the fair value for his or her shares of Sand Ridge
Financial Common Stock or if the Corporation fails to make payment to the
dissenting shareholder within sixty (60) days after the date set for demanding
payment, the dissenting shareholder may notify the Corporation in writing of the
shareholder's own estimate of the fair value of his or her shares and demand
payment of his or her estimate (less the amount of any payment made by the
Corporation for the shares to the dissenting shareholder). Such a demand for
payment must be made in writing within thirty (30) days after the Corporation
has made payment for the dissenting shareholder's shares or has offered to pay
the Corporation's estimate of fair value for the dissenting shareholder's
shares. The Corporation will not give further notice to the dissenting
shareholder of this deadline. A dissenting shareholder who fails to make the
demand within this time waives the right to demand payment for the shareholder's
shares.
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The Corporation can elect to agree with the dissenting shareholder's
fair value demand or if a demand for payment remains unsettled, the Corporation
must commence a proceeding in the circuit or superior court of Lake County
within sixty (60) days after receiving the payment demand from the dissenting
shareholder and petition the court to determine the fair value of the shares. If
the Corporation fails to commence the proceeding within the sixty (60) day
period, it must pay each dissenting shareholder whose demand remains unsettled
the amount demanded. The Corporation must make all dissenting shareholders whose
demands remain unsettled parties to the proceeding and all parties must be
served a copy of the petition. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. Each dissenting shareholder made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of the
dissenting shareholder's shares, plus interest, exceeds the amount paid by the
Corporation.
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, and shall assess these costs and the fees and expenses
of counsel and experts for the respective parties against the parties in amounts
the court finds equitable.
Every Sand Ridge Financial shareholder who does not deliver a notice of
intent to demand payment for his or her shares as aforesaid, or who votes in
favor of the Merger, is bound by the vote of the assenting shareholders and will
have no right to dissent and to demand payment of the fair value of the
shareholder's shares of Sand Ridge Financial Common Stock as a result of the
Merger. Such a shareholder will only be entitled to the same consideration
described herein to be offered to every other assenting Sand Ridge Financial
shareholder as a result of the Merger. Voting against the Merger does not in
itself constitute the notice of intent to demand payment required by Indiana
Code Chapter 23-1-44.
The Board of Directors of Sand Ridge Financial has determined that the
Merger is advisable and in the best interest of Sand Ridge Financial's
shareholders and has recommended that the Sand Ridge Financial shareholders vote
in favor of the Merger.
Federal Income Tax Consequences Of The Merger
- ---------------------------------------------
Assuming that (i) the Merger constitutes a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code; (ii) after the
transaction, First Financial, as successor of Sand Ridge Financial, will hold
substantially all of Sand Ridge Financial's assets; and (iii) in the
transaction, the Sand Ridge Financial shareholders will exchange an amount of
stock constituting control of Sand Ridge Financial solely for First Financial
Common Stock; the following is a summary of the tax consequences which will
result:
(1) No gain or loss will be recognized by Sand Ridge Financial
shareholders who exchange all of their Sand Ridge Financial
Common Stock for First Financial Common Stock pursuant to the
Merger, except to the extent of any cash received in lieu of
receipt of a fractional share of First Financial Common Stock.
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(2) The basis of the First Financial Common Stock (including
fractional share interests) received by Sand Ridge Financial
shareholders who exchange all of their Sand Ridge Financial
Common Stock for First Financial Common Stock will be the same
as the basis of the Sand Ridge Financial Common Stock
surrendered in exchange therefor.
(3) The holding period of the First Financial Common Stock
(including fractional share interests) received by Sand Ridge
Financial shareholders who exchange all of their Sand Ridge
Financial Common Stock for First Financial Common Stock will
include the period during which the Sand Ridge Financial
Common Stock was held, provided the Sand Ridge Financial
Common Stock was held as a capital asset on the date of the
exchange.
(4) Where a cash payment is received by a Sand Ridge Financial
shareholder in lieu of fractional shares of First Financial
Common Stock, the cash payment will be treated as a
distribution in redemption of the fractional share interest by
First Financial.
(5) Any Sand Ridge Financial shareholder who perfects dissenters'
rights and receives solely cash in exchange for such
shareholder's Sand Ridge Financial Common Stock shall be
treated as having received such cash as a distribution in
redemption of the Sand Ridge Financial Common Stock subject to
the provisions and limitations of Section 302 of the Internal
Revenue Code.
(6) No gain or loss will be recognized by Sand Ridge Financial or
First Financial in connection with the transaction.
Receipt of a favorable ruling from the Internal Revenue Service or an
opinion of tax counsel with respect to the above is a condition precedent to
consummation of the Merger. Any such opinion will be subject to certain
representations of Sand Ridge Financial, First Financial and certain Sand Ridge
Financial shareholders. Further, any such opinion will be based on current law,
which could be amended, revoked or modified with or without retroactive effect
in a manner which would change such opinion. Such opinion will not be binding on
the IRS, nor will the IRS be precluded from taking a contrary position. If
litigated by the IRS, there can be no assurances that a court will agree with
any such opinion.
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THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON THE
CODE, TREASURY REGULATIONS, CASE LAW AND INTERNAL REVENUE SERVICE RULINGS AS IN
EFFECT ON THE DATE HEREOF WITHOUT CONSIDERATION OF THE FACTS AND CIRCUMSTANCES
OF ANY PARTICULAR SITUATION OF ANY SAND RIDGE FINANCIAL SHAREHOLDER. THIS
DISCUSSION ASSUMES THAT SAND RIDGE FINANCIAL SHAREHOLDERS HOLD THEIR SAND RIDGE
FINANCIAL COMMON STOCK AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF
THE CODE. SPECIAL TAX CONSIDERATIONS NOT DISCUSSED HEREIN MAY BE APPLICABLE TO
PARTICULAR CLASSES OF TAXPAYERS, SUCH AS BROKER-DEALERS, INSURANCE COMPANIES,
TAX EXEMPT ORGANIZATIONS, FINANCIAL INSTITUTIONS, FOREIGN CORPORATIONS, OR TO
ANY SHAREHOLDER WHO ACQUIRED SAND RIDGE FINANCIAL COMMON STOCK THROUGH THE
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. EACH
SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF EXISTING AND PROPOSED FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
Accounting Treatment
- --------------------
It is anticipated that the Merger will be accounted for as a
pooling-of-interests. First Financial and Sand Ridge Financial shall receive
letters at the Effective Time from Ernst & Young LLP and Crowe, Chizek and
Company LLP regarding the appropriateness of pooling-of-interests accounting for
the Merger under Accounting Principles Board Opinion 16 if the Merger is closed
and consummated in accordance with the terms of the Merger Agreement.
Restrictions On Resale Of First Financial Common Stock
- ------------------------------------------------------
The issuance of the shares of First Financial Common Stock in
connection with the Merger has been registered under the Securities Act. Such
shares may be traded freely and without restriction under federal and state
securities laws by those shareholders not deemed to be "affiliates" of Sand
Ridge Financial as that term is defined in Rules 144 and 145 under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by, or are under common control with Sand Ridge Financial at the time
of the Sand Ridge Financial Special Meeting. Accordingly, affiliates of Sand
Ridge Financial will generally include the directors and executive officers of
Sand Ridge Financial as well as Sand Ridge Financial's largest shareholders. In
general, shares of First Financial Common Stock received by affiliates of Sand
Ridge Financial pursuant to the Merger may not be publicly resold without
registration under the Securities Act except pursuant to the volume and manner
of sale limitations and other requirements provided in Rules 144 and 145. This
Proxy Statement-Prospectus does not cover any resales of First Financial Common
Stock received by affiliates of Sand Ridge Financial. Any owner of Sand Ridge
Financial Common Stock who becomes an affiliate of First Financial will be
subject to similar restrictions under Rule 144.
Pursuant to the terms of the Merger Agreement, in order for the Merger
to qualify for
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pooling-of-interests accounting treatment, none of the shares of First Financial
Common Stock held by shareholders who are affiliates of First Financial or Sand
Ridge Financial may be sold until such time as financial results covering at
least thirty days of post-Merger combined operations of First Financial and Sand
Ridge Financial have been published (the "Publication Date"). As a result, no
shareholder who is an affiliate of First Financial or Sand Ridge Financial will
be permitted to sell any shares of First Financial Common Stock for the period
from the Effective Time to the Publication Date.
In addition, in order to preserve the proposed tax-free status of the
Merger and in order to ensure that the continuity of shareholder interest
requirements related thereto, and set forth in Treasury Regulation Section
1.368-1, will be satisfied with respect to the Merger, certain shareholders of
Sand Ridge Financial participating in the Merger and First Financial will be
required to execute letters indicating that such shareholders have no present
plans or intentions to sell or dispose of the First Financial common shares
received by such shareholders in connection with the Merger to any person
"related," as defined in Treasury Regulation Section 1.368-1(e)(3), to First
Financial and that First Financial and any such "related" person has no
intention to acquire any shares of such First Financial Common Stock.
Except as provided above, there will be no restrictions on the transfer
of shares of First Financial Common Stock issued by First Financial pursuant to
the Merger.
Regulatory Considerations
- -------------------------
The proposed transaction requires the approval of the Federal Reserve
Board under section 3(a)(5) of the Bank Holding Company Act of 1956, as amended.
The Bank Holding Company Act provides that the Federal Reserve Board may not
approve any transaction which would result in a monopoly or which 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 any
transaction the effect of which in any section of the United States may be
substantially to lessen competition or to tend to create a monopoly or which in
any other manner might restrain trade, unless the Federal Reserve Board
determines that the anti-competitive effects of the proposed Merger 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 Merger may generally not be consummated for fifteen days after the
receipt of Federal Reserve Board approval. Such fifteen day period will become
thirty days, however, if the United States Department of Justice issues an
adverse comment relating to competitive factors. During such fifteen or thirty
day period, the United States Department of Justice may commence legal action
challenging the Merger under the Federal anti-trust Laws. If the Justice
Department does not commence a legal action during such period, the Merger may
be consummated and the Justice Department may not thereafter challenge the
transaction except in an action commenced under Section 2 of the Sherman
Anti-Trust Act.
The Merger is also subject to approval by the Indiana Department of
Financial Institutions
40
<PAGE> 47
under Chapter 28-2-16 of the Indiana Code, which provides for foreign bank
holding company acquisitions.
Applications requesting approval were submitted to the Federal Reserve
Board on February 1, 1999, and to the Indiana Department of Financial
Institutions on February 4, 1999. Approvals were received from the Federal
Reserve Board and the Indiana Department of Financial Institutions on March 11,
1999.
The approvals of the Federal Reserve Board and the Indiana Department
of Financial Institutions are not to be interpreted as the opinion of the
regulatory authorities that the Merger is favorable to Sand Ridge Financial
shareholders, including from a financial point of view, or that these regulatory
authorities have considered the adequacy of the terms of the Merger. The
approvals do not constitute an endorsement or a recommendation of the Merger by
the regulatory authorities.
41
<PAGE> 48
THE MERGER AGREEMENT
Structure Of The Merger
- -----------------------
If the Merger is approved by Sand Ridge Financial shareholders at the
Special Meeting by at least a two-thirds (2/3rds) majority vote of the
outstanding shares of Sand Ridge Financial Common Stock and if the other
conditions required for the consummation of the transactions contemplated by the
Merger Agreement are satisfied or waived, Sand Ridge Financial will merge with
and into First Financial in a transaction in which the following will occur at
the Effective Time:
(a) Each of the then outstanding shares of Sand Ridge Financial
will be canceled and extinguished in consideration and
exchange for a number of shares of First Financial Common
Stock equal to the Exchange Ratio (except for fractional
shares and shares of shareholders who exercise dissenters'
rights, for which cash shall be paid in exchange);
(b) Sand Ridge Financial will merge with and into First Financial
at the Effective Time and First Financial will be the
continuing, surviving and resulting corporation in the Merger;
and
(c) Sand Ridge Bank will become a wholly owned subsidiary of First
Financial.
Surrender Of Stock Certificates
- -------------------------------
The Merger Agreement provides for the surrender of Sand Ridge Financial
Common Stock certificates by the holders thereof before such holders may receive
certificates evidencing First Financial Common Stock. The Registrar and Transfer
Company will act as the exchange agent (the "Exchange Agent").
As soon as practicable after the Effective Time, First Financial will
cause the Exchange Agent to prepare and mail to each holder of record of an
outstanding certificate or certificates representing shares of Sand Ridge
Financial a letter of transmittal containing instructions for the surrender of
the certificate or certificates. Upon surrender of the Sand Ridge Financial
certificate or certificates in accordance with instructions set forth in the
letter of transmittal, such holder shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of First Financial
into which the shares represented by the certificate or certificates so
surrendered shall have been converted, without interest.
42
<PAGE> 49
The Exchange Agent shall not be obligated to deliver certificates for
First Financial Common Stock to a former shareholder of Sand Ridge Financial
until such former shareholder surrenders his or her certificate or certificates
representing shares of Sand Ridge Financial or, in lieu thereof, an appropriate
affidavit of loss and an indemnity agreement or bond as may be required by First
Financial. Until so surrendered for exchange, each such stock certificate
formerly representing shares of Sand Ridge Financial Common Stock will be deemed
for all corporate purposes (except for the payment of dividends, which will be
subject to the exchange of stock certificates as above provided) to evidence the
ownership of the number of shares of common stock of the surviving corporation
that the holder thereof would be entitled to receive upon its surrender to First
Financial.
Effective Time Of The Merger
- ----------------------------
The Effective Time is to be the later of the dates of filing of
articles of merger with the Secretaries of State of Indiana and Ohio and is
expected to be as soon as practicable after the approval of the Merger Agreement
by Sand Ridge Financial shareholders, the satisfaction of all conditions set
forth in the Merger Agreement, or at such later date as may be agreed upon by
Sand Ridge Financial and First Financial.
No assurance can be provided that the necessary shareholder approval
will be obtained or that other conditions precedent to the Merger will be
satisfied. In the event the Merger is not consummated on or before July 31,
1999, either party may terminate the Merger Agreement or the parties may agree
to extend the time for completion of the Merger.
Fractional Interests
- --------------------
No fractional shares of First Financial Common Stock will be issued as
a result of the Merger. In lieu thereof, Sand Ridge Financial shareholders
having a fractional interest will be paid in cash by First Financial for the
fractional interest. Such payment shall be equal to the fractional interest
multiplied by the Average Closing Price, as defined in the Merger Agreement.
Conditions To Consummation Of The Merger
- ----------------------------------------
Consummation of the Merger is subject to a number of conditions, each
of which may be waived by the party entitled thereto to the extent permissible
by applicable law, including the following:
(a) The receipt of all required regulatory approvals for the
completion of the Merger and the expiration of any applicable
waiting periods, with no such approval or authorization
containing any provision which would be materially adverse to
the merged businesses of Sand Ridge Financial and First
Financial;
(b) The validity or legality of the transactions contemplated by
the Merger Agreement shall not have been materially questioned
43
<PAGE> 50
by any suit, action, investigation by any governmental body or
other legal or administrative proceedings;
(c) The receipt of all consents required for the consummation of
the Merger or for the prevention of any default under any
contract, agreement or permit of First Financial or Sand Ridge
Financial which, if not obtained or made, is reasonably likely
to have, individually or in the aggregate, a material adverse
effect on the combined business affairs of First Financial and
Sand Ridge Financial;
(d) Compliance by First Financial and Sand Ridge Financial with
their respective covenants and the truth of all
representations and warranties as of the Effective Time;
(e) The absence of any material adverse change in the financial
condition, operations, corporate status or business of First
Financial and its subsidiary banks or Sand Ridge Financial or
Sand Ridge Bank since December 31, 1997;
(f) The receipt of opinions from First Financial's special counsel
and from Sand Ridge Financial's special counsel with respect
to various corporate matters, due execution and delivery of
the Merger Agreement and various other Merger related matters;
(g) The receipt of a favorable ruling from the Internal Revenue
Service or an opinion of counsel, in form and substance
satisfactory to First Financial and Sand Ridge Financial, to
the effect that, under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), no taxable gain or loss
will be recognized by Sand Ridge Financial, First Financial or
their respective shareholders as a result of the Merger,
except in respect of fractional share interests or dissenters
receiving cash;
(h) The receipt of letters from Ernst & Young LLP and Crowe,
Chizek and Company LLP regarding the appropriateness of
pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion 16 if the Merger is closed
and consummated in accordance with the terms of the Merger
Agreement;
(i) The receipt by First Financial of a letter from Sand Ridge
Financial identifying all persons who are, at the date of the
Special Meeting, "affiliates" of Sand Ridge Financial for
purposes of Rule 145 under the Securities Act of 1933 and for
purposes of qualifying the Merger for pooling-of-interests
accounting treatment and the receipt on or prior to the
Effective Time from each person so identified of an agreement
to restrict the transfer of First Financial Common Stock
received; and
(j) The approval of the Merger Agreement by Sand Ridge Financial
shareholders at the Special Meeting by at least a two-thirds
(2/3rds) majority vote of the outstanding Sand Ridge Financial
shares.
No assurance can be given that all of the conditions to the Merger will
be satisfied or waived by any party permitted to do so.
44
<PAGE> 51
Termination Of The Merger
- -------------------------
The Merger may be terminated at any time prior to the Effective Time
under any one or more of the following circumstances:
(a) By the mutual consent of the Boards of Directors of Sand Ridge
Financial and First Financial;
(b) By First Financial if the holders of 7.50% or more of the
outstanding shares of Sand Ridge Financial Common Stock will
be entitled to receive cash in exchange for their Sand Ridge
Financial shares pursuant to perfected dissenters' rights
under the Indiana Business Corporation Law;
(c) By Sand Ridge Financial or First Financial if, prior to the
Effective Time, the conditions to such party's obligation to
consummate the Merger are not met;
(d) By either Sand Ridge Financial or First Financial if the
requisite approval of the shareholders of Sand Ridge Financial
is not obtained or if the Merger is not consummated on or
before July 31, 1999; or
(e) By Sand Ridge Financial if the Average Closing Price, as
defined in the Merger Agreement, of First Financial Common
Stock is less than $23.2671; the SRFC Ratio is less than the
Index Ratio, as both terms are defined in the Merger
Agreement; and First Financial decides not to increase the
Exchange Ratio according to the method described in the Merger
Agreement.
First Financial Average Closing Price And Termination Of The Merger
- -------------------------------------------------------------------
The Merger Agreement contains a provision that permits Sand Ridge
Financial to terminate the Merger Agreement if there is a significant and
prolonged decline in the per share market price of First Financial Common Stock
that is not coincidental with a decline in the stock prices of certain other
financial institution holding companies unless First Financial elects to
increase the Exchange Ratio.
The following discussion uses the terms defined below:
o VALUATION DATE - the second trading day after the day that is the latest of
(i) the day of expiration of the last waiting period with respect to any of
the required regulatory approvals, (ii) the day on which the last of the
required regulatory approvals is obtained, and (iii) the day on which the
required Sand Ridge Financial stockholder approval is obtained.
o AVERAGE CLOSING PRICE - the average of the daily closing sales price of
First Financial Common Stock, as reported on the Nasdaq National Market for
the 20 consecutive trading
45
<PAGE> 52
days, in which at least 1,000 shares were traded, ending on the Valuation
Date.
o SRFC RATIO - the number obtained by dividing First Financial's Average
Closing Price by $26.5909.
o INDEX GROUP - 31 specified financial institution holding companies, 17 with
headquarters in Ohio and 14 with headquarters in Indiana. All specified
companies are publicly traded and have not announced an acquisition
transaction at any time during the period beginning on the date of the
Merger Agreement and ending on the valuation date. If the common stock of
any of the specified companies ceases to be publicly traded or if an
acquisition transaction involving any of the specified companies is
announced, that company will be removed from the Index Group.
o INDEX PRICE - the price obtained by dividing the sum of the December 15,
1998, closing sales price of each of the stocks in the Index Group by the
number of holding companies composing the Index Group. December 15, 1998 is
the day before the public announcement of the Merger Agreement.
o AVERAGE INDEX PRICE - the price resulting from dividing (i) the sum of the
average of the daily closing sales price for the common stock of each
financial institution composing the Index Group during the 20 consecutive
trading days ending on the Valuation Date by (ii) the number of financial
institutions composing the Index Group.
o INDEX RATIO - the number obtained by dividing the Average Index Price by
the Index Price and subtracting 0.125 from the quotient.
Prior to making any decision to terminate, or allow the termination of,
the Merger Agreement, each of the Sand Ridge Financial and the First Financial
Boards would consult with its respective financial and other advisors and would
consider all financial and other information it deemed relevant to its decision.
It is not possible to know whether the Price-Based Termination right will be
triggered until after the Valuation Date. The Sand Ridge Financial Board has
made no decision as to whether it would exercise its right to terminate the
Merger Agreement if the termination right has been triggered. In considering
whether to exercise its termination right in such situation, the Sand Ridge
Financial Board would, consistent with its fiduciary duties, take into account
all relevant facts and circumstances that exist at such time and would consult
with its financial advisors and legal counsel. Approval and adoption of the
Merger Agreement by the stockholders of Sand Ridge Financial at the Special
Meeting will confer on the Sand Ridge Financial Board the power, consistent with
its fiduciary duties, to elect to consummate the Merger in the event the
termination right is triggered, whether or not there is any increase in the
Exchange Ratio and without any further action by, or resolicitation of, the
stockholders of Sand Ridge Financial.
46
<PAGE> 53
The Merger may be terminated and abandoned upon a majority vote of Sand
Ridge Financial's Board of Directors at any time during the ten-day period
commencing on the Valuation Date if both of the following conditions are
satisfied:
(a) the Average Closing Price is less than $23.2671, and
(b) the SRFC Ratio is less than the Index Ratio.
Prompt written notice must be given to First Financial if Sand Ridge
Financial's Board of Directors elects to exercise this termination right. During
the five days commencing with the receipt of the written notice, First Financial
will have the option to avoid the termination of the Merger Agreement by
electing to increase the Exchange Ratio to the lesser of:
(a) the quotient obtained by dividing $1,983.52 by the Average
Closing Price, or
(b) the quotient obtained by multiplying the Index Ratio and the
Exchange Ratio, as then in effect, and dividing the resulting
product by the SRFC Ratio.
Prompt written notice of First Financial's decision will be provided
Sand Ridge Financial. If First Financial decides to increase the Exchange Ratio,
the Merger Agreement will remain in effect in accordance with its original
terms, except for the modification of the Exchange Ratio. If First Financial
decides not to increase the Exchange Ratio, Sand Ridge Financial will have five
days after receipt of First Financial's written notice to provide First
Financial with written notice of either its election to withdraw its termination
request or its election to have the termination of the Merger Agreement become
effective at the close of business on the second business day after First
Financial's receipt of the final notice.
47
<PAGE> 54
INFORMATION ABOUT FIRST FINANCIAL
Information about First Financial is included in the First Financial
Form 10-K, incorporated herein by reference.
Recent Developments
- -------------------
PENDING MERGER WITH HEBRON BANCORP, INC. First Financial signed a plan
and agreement of merger with Hebron Bancorp, Inc., Hebron, Kentucky ("Hebron
Bancorp") on December 31, 1998. The consideration to be paid to Hebron Bancorp
shareholders pursuant to the merger agreement is fixed at 1,222,650 shares of
First Financial Common Stock in exchange for all outstanding shares of Hebron
Bancorp common stock. After the merger, Hebron Deposit Bank, Hebron Bancorp's
only subsidiary, will become a wholly owned subsidiary of First Financial.
As of December 31, 1998, Hebron Bancorp had total assets of
approximately $111.7 million, loans outstanding of $69.5 million, total deposits
of $96.4 million and total shareholders' equity of $11.8 million. Its
equity-to-assets ratio at December 31, 1998 was 10.6%. Hebron Bancorp had net
earnings for the six months ended December 31, 1998, of approximately $614,000
or $10.48 per share. See "PRO-FORMA UNAUDITED CONSOLIDATED BALANCE SHEET" and
"PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS."
The merger with Hebron Bancorp is subject to numerous conditions
including, among others, regulatory and shareholder approvals. First Financial
is unable to predict when or whether such conditions will be satisfied.
Accordingly, there can be no assurance that the proposed merger with Hebron
Bancorp will be consummated. Provided all conditions are met and approvals
obtained, the proposed merger with Hebron Bancorp is anticipated to be completed
during the second quarter of 1999.
If the Merger had been effective December 31, 1998, former shareholders
of Sand Ridge Financial would have owned approximately 12.4% of the combined
company. But if the merger with Hebron Bancorp had occurred on the same date,
the percentage ownership of former shareholders of Sand Ridge Financial would
have been reduced to 12.0% as the result of issuing 1,222,650 shares of First
Financial Common Stock in exchange for shares of Hebron common stock.
48
<PAGE> 55
General
- -------
First Financial is a corporation organized under the laws of the State
of Ohio and is registered as a bank holding company as well as a savings and
loan holding company. Its principal executive offices are located in Hamilton,
Ohio. First Financial owns the following subsidiaries:
Bank subsidiaries:
First National Bank of Southwestern Ohio, Hamilton, Ohio
Community First Bank & Trust , Celina, Ohio
Union Trust Bank, Union City, Indiana
Indiana Lawrence Bank, North Manchester, Indiana
Citizens First State Bank, Hartford City, Indiana
Union Bank & Trust Company, North Vernon, Indiana
The Clyde Savings Bank Company, Clyde, Ohio
Peoples Bank and Trust Company, Sunman, Indiana
Bright National Bank, Flora, Indiana
Farmers State Bank, Liberty, Indiana
National Bank of Hastings, Hastings, Michigan
Vevay Deposit Bank, Vevay, Indiana
Savings bank subsidiaries:
Fidelity Federal Savings Bank, Marion, Indiana
Home Federal Bank, a Federal Savings Bank, Hamilton, Ohio
Finance company subsidiary:
First Finance Mortgage Company of Southwestern Ohio, Inc.,
Hamilton, Ohio
At December 31, 1998, First Financial had total assets of approximately
$2.9 billion, deposits of approximately $2.3 billion and shareholders' equity of
approximately $302 million. See "Item 1. Business" in the First Financial Form
10-K, which has previously been incorporated herein by reference.
49
<PAGE> 56
INFORMATION ABOUT THE BUSINESS OF SAND RIDGE FINANCIAL
General
- -------
Sand Ridge Financial, a bank holding company, was established in 1984
and is headquartered in Highland, Indiana, which is twenty miles southeast of
Chicago. The holding company's wholly owned subsidiary, Sand Ridge Bank, was
chartered by the State of Indiana as a state bank in 1969. Sand Ridge's primary
market area includes the cities of Highland, Schererville and Hammond, Indiana
and the contiguous areas within Lake County, Indiana. The economic base of Sand
Ridge Bank's primary market area is primarily retail, but also includes
industrial companies and Great Lakes commercial and service companies.
As of December 31, 1998, Sand Ridge Financial had total assets of
approximately $557 million, total deposits of approximately $449 million and
shareholders' equity of approximately $45 million. It had 241 employees at
December 31, 1998.
Sand Ridge Bank offers a diversified selection of loan and investment
products. At December 31, 1998, approximately 39.3% and 41.9% of its lending
portfolio was comprised of commercial and real estate loans, respectively. The
balance of its loan portfolio is comprised primarily of installment loans.
Lendable funds are obtained primarily from deposits and loan principal payments.
Sand Ridge Bank offers a full line of checking and NOW accounts, savings,
certificates of deposit and individual retirement accounts. In addition to
originating loans, Sand Ridge Bank invests in U.S. treasury and government
agency securities, mortgage-backed securities, corporate notes and municipal
securities.
Competition
- -----------
Sand Ridge Bank competes for deposits and loans with other commercial
banks, savings associations, savings banks, and credit unions. Competition from
entities other than financial institutions has become significant. Such deposit
competitors include insurance companies and issuers of commercial paper and
other securities, such as shares in money market and stock mutual funds. Loan
competitors include consumer finance companies, leasing companies, insurance
companies and mortgage brokers. Major retail corporations compete for loans by
offering retail installment contracts.
Sand Ridge Bank competes for loan originations primarily through
interest rates and loan fee charges and through the efficiency and quality of
services it provides to borrowers. The primary factors in competing for deposits
are interest rates, quality of service and convenience of office location.
Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable.
50
<PAGE> 57
Regulation
- ----------
Sand Ridge Financial, as a bank holding company, is subject to
supervision and/or regular examination by the Federal Reserve Board. Sand Ridge
Bank, as a state bank and a nonmember of the Federal Reserve, is subject to
supervision and regular examination by the Indiana Department of Financial
Institutions and by the Federal Deposit Insurance Corporation.
Properties
- ----------
Sand Ridge Bank conducts its business through its main office, two
stand-alone branch offices, two supermarket branches and a network of 18 ATMs.
The Main Office and a stand-alone branch are located in Highland and another
stand-alone branch is located in Schererville, Indiana. The supermarket branches
are located in Van Til's supermarket in Hammond and Strack and Van Til's
supermarket in Schererville. The ATMs are located within Lake County. An
operations center is located in Schererville.
The main office, stand-alone branch offices and operations center are
owned by Sand Ridge Bank. The two supermarket branches are leased. In addition,
Sand Ridge Bank owns a parcel of vacant land located in St. John, Indiana, which
is considered a possible future branch location, and two buildings adjacent to
its Highland branch facility. The two Highland buildings are currently leased to
others. Sand Ridge Financial does not directly own any real property.
Legal Proceedings
- -----------------
Neither Sand Ridge Financial nor Sand Ridge Bank is presently involved
in any legal proceedings of a material nature. From time to time, Sand Ridge
Bank is a party to legal proceedings incidental to its business to enforce its
security interests in collateral pledged to secure loans made by Sand Ridge
Bank.
Certain Transactions With Sand Ridge Financial
- ----------------------------------------------
At December 31, 1998, certain directors and executive officers of Sand
Ridge Financial and members of their immediate families were indebted to Sand
Ridge Bank in the aggregate amount of approximately $2,375,000. Such
indebtedness was incurred in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons. All such loans were
current at December 31, 1998 and are not considered to involve more than the
normal risk of collectibility or to present other unfavorable features.
51
<PAGE> 58
Selected Financial Data
- -----------------------
The following table sets forth certain information concerning the financial
condition, earnings and other data regarding Sand Ridge Financial Corporation at
the dates and for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION AND OTHER DATA
Assets $ 557,173 $ 456,094 $ 416,544 $ 393,138 $ 363,566
Investment securities
Held-to-maturity - - - - 17,948
Available-for-sale 205,623 154,483 124,205 124,588 85,623
Loans receivable, net of unearned
income, deferred loan fees and allowance
for loan losses 313,614 268,729 256,115 242,999 233,696
Deposits 449,102 378,676 361,280 336,022 307,903
Long-term FHLB advances 14,390 4,686 3,500 - -
Shareholders' equity 44,533 39,681 34,589 31,002 24,279
Year Ended December 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
EARNINGS AND OTHER DATA
Interest income $ 35,342 $ 32,122 $ 28,932 $ 27,354 $ 23,248
Interest expense 18,051 16,257 14,472 14,058 10,933
----------- ----------- ----------- ----------- -----------
Net interest income 17,291 15,865 14,460 13,296 12,315
Provision for loan losses 2,050 1,800 1,440 1,040 840
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 15,241 14,065 13,020 12,256 11,475
Other income 4,533 3,851 3,277 2,999 2,723
Other expenses 12,681 11,229 9,499 9,567 9,276
----------- ----------- ----------- ----------- -----------
Earnings before income taxes 7,093 6,687 6,798 5,688 4,922
Income taxes 1,645 1,694 1,914 1,530 1,283
----------- ----------- ----------- ----------- -----------
Net earnings $ 5,448 $ 4,993 $ 4,884 $ 4,158 $ 3,639
=========== =========== =========== =========== ===========
Net earnings per share $ 90.80 $ 83.21 $ 81.39 $ 69.30 $ 60.66
=========== =========== =========== =========== ===========
Dividends per share $ 18.00 $ 17.00 $ 16.00 $ 15.00 $ 14.00
Return on equity (net earnings
divided by average equity) 12.90% 13.74% 15.06% 15.24% 15.30%
Return on assets (net earnings
divided by average total assets) 1.08% 1.13% 1.20% 1.09% 1.07%
Dividend payout ratio (dividends
declared per share divided by
net earnings per share) 19.82% 20.43% 19.66% 21.65% 23.08%
Book value per common share $ 742.21 $ 661.34 $ 576.49 $ 516.70 $ 404.64
Average shareholders' equity
to average total assets 8.41% 8.23% 7.99% 7.17% 6.97%
</TABLE>
52
<PAGE> 59
Analysis Of Net Interest Income
- -------------------------------
The following table sets forth for the years ended December 31, 1998, 1997 and
1996 the average balances of major categories of interest-earning assets and
interest-bearing liabilities, interest income earned and interest expense paid
during such periods and the related weighted average rates for Sand Ridge
Financial Corporation.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ---------------------------- -------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $287,835 $24,295 8.44% $267,162 $22,642 8.48% $255,482 $21,149 8.28%
Securities available for sale (2) 186,532 10,897 5.84 136,684 8,498 6.22 124,115 7,448 6.00
Federal funds sold 2,648 141 5.32 17,247 973 5.64 5,925 316 5.33
Interest-bearing balances with
financial institutions 100 9 9.00 100 9 9.00 239 19 7.95
-------- ------- -------- ------- -------- -------
Total interest-earning assets 477,115 35,342 7.41 421,193 32,122 7.63 385,761 28,932 7.50
Noninterest-earning assets:
Allowance for loan losses (3,884) (2,940) (3,664)
Cash and due from financial
institutions 13,801 11,799 12,030
SFAS No. 115 adjustment 4,283 2,149 1,678
Other assets 10,919 9,413 10,211
-------- -------- --------
Total assets $502,234 $441,614 $406,016
======== ======== ========
Interest-bearing liabilities:
Savings, NOW and money market $183,131 5,606 3.06 $174,340 5,703 3.27 $176,346 5,800 3.29
Other time deposits 197,230 10,950 5.55 176,428 10,016 5.68 146,484 8,252 5.63
Federal funds purchased 3,628 207 5.71 342 18 5.26 3,233 178 5.51
Securities sold under agreements
to repurchase 6,323 344 5.44 899 51 5.67 1,574 93 5.91
Advances from FHLB 15,942 898 5.63 7,847 469 5.98 2,642 149 5.64
Other 1,002 46 4.59 - - - - - -
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 407,256 18,051 4.43 359,856 16,257 4.52 330,279 14,472 4.38
------- ------- -------
Noninterest-bearing liabilities
Demand deposits 47,866 41,427 38,977
Other liabilities 4,867 3,983 4,334
-------- -------- --------
Total liabilities 459,989 405,266 373,590
Shareholders' equity 42,245 36,348 32,426
-------- ------- -------
Total liabilities and
shareholders' equity $502,234 $441,614 $406,016
======== ======== ========
Net interest income, interest rate spread $17,291 2.98% $15,865 3.11% $14,460 3.12%
======= ======= =======
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.62% 3.77% 3.75%
Average interest-earning assets to average
interest-bearing liabilities 117.15% 117.04% 116.80%
</TABLE>
- --------------------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding and loan fees are included in interest
on loans receivable. The inclusion of nonaccrual loans and fees does not
have a material effect on either the average balance or the average yield.
(2) Interest income on tax-exempt securities has not been adjusted to a taxable
equivalent basis.
53
<PAGE> 60
Interest Income And Expense Rate/Volume Analysis
- ------------------------------------------------
The table below describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Sand Ridge Financial Corporation's interest income and
expense during the periods indicated. For each category of interest earning
assets and interest bearing liabilities, information is provided on changes
attributable to (i) changes in volume (change in volume multiplied by prior year
rate), (ii) changes in rate (change in rate multiplied by prior year volume) and
(iii) total changes in rate and volume. The combined effects of changes in both
volume and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
-------------------------------- -----------------------------------
Increase (decrease) Increase (decrease)
due to due to
---------------------- ----------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans $ 1,745 $ (92) $ 1,653 $ 977 $ 516 $ 1,493
Securities available for sale (1) 2,939 (540)
2,399 774 276 1,050
Federal funds sold (780) (52) (832) 638 19 657
Interest-bearing balances with
financial institutions -- -- -- (12) 2 (10)
------- ------- ------- ------- ------- -------
Total interest income 3,904 (684) 3,220 2,377 813 3,190
Interest expense attributable to:
Savings, NOW and
money market 279 (376) (97) (66) (31) (97)
Other time deposits 1,159 (225) 934 1,699 65 1,764
Federal funds purchased 187 2 189 (152) (8) (160)
Securities sold under
agreements to repurchase 295 (2) 293 (38) (4) (42)
Advances from FHLB 457 (28) 429 311 9 320
Other 46 -- 46 -- -- --
------- ------- ------- ------- ------- -------
Total interest expense 2,423 (629) 1,794 1,754 31 1,785
------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income $ 1,481 $ (55) $ 1,426 $ 623 $ 782 $ 1,405
======= ======= ======= ======= ======= =======
</TABLE>
(1) Interest income on tax-exempt securities has not been adjusted to a
tax equivalent basis.
Securities
- ----------
The following table sets forth the carrying amount of securities classified as
available for sale at December 31, 1998, 1997 and 1996. Sand Ridge Financial
Corporation did not have any securities classified as held to maturity at these
three dates. Securities classified as available for sale are recorded at fair
value.
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
December 31,
------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
U.S. treasury and
government agencies $ 37,257 $ 19,364 $ 16,709
Obligations of states and
political subdivisions 109,990 69,431 59,198
Other corporate securities 200 2,678 414
Mortgage-backed securities 55,918 61,629 46,509
Marketable equity securities 2,258 1,381 1,375
---------- ---------- ----------
Total $ 205,623 $ 154,483 $ 124,205
========== ========== ==========
</TABLE>
54
<PAGE> 61
The following table presents the contractual maturities or terms to repricing of
debt securities available for sale and the weighted average yield at December
31, 1998.
<TABLE>
<CAPTION>
After After
One but Five but
Within one year within five years within ten years After ten years Totals
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. treasury and
government agencies $ 5,297 5.89% $ 5,072 5.99% $26,888 6.37% $ -- --% $ 37,257 6.25%
Obligations of states and
political subdivisions 1,870 6.77 13,444 5.94 23,291 5.61 71,385 5.05 109,990 5.30
Other corporate securities -- -- 200 10.09 -- -- -- -- 200 10.09
Mortgage-backed securities -- -- -- -- -- -- 55,918 5.43 55,918 5.43
------- ------- ------- -------- --------
$ 7,167 6.12% $18,716 6.00% $50,179 6.02% $127,303 5.22% $203,365 5.52%
======= ==== ======= ==== ======= ==== ======== ==== ======== ====
</TABLE>
(1) Yield on tax-exempt securities has not been adjusted to a taxable
equivalent basis
At December 31, 1998 there were no holdings of securities of any one issuer,
other than the U.S. government and its agencies and corporations, in an amount
greater than 10% of shareholders' equity.
Loan Portfolio
- --------------
LOAN PORTFOLIO COMPOSITION. Sand Ridge Financial Corporation's primary lending
areas are the cities of Highland, Schererville and Hammond, Indiana and the
contiguous areas in Lake County, Indiana.
The following table presents certain information regarding the composition of
Sand Ridge Financial Corporation's loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $125,056 $105,181 $102,464 $ 92,767 $ 78,810
Real estate-mortgage 131,519 94,362 85,202 86,872 93,843
Real estate-construction 1,687 2,160 3,600 2,869 589
Installment 57,226 68,159 65,845 63,448 63,922
Credit card 2,786 2,686 2,010 1,241 --
-------- -------- -------- -------- --------
Total loans 318,274 272,548 259,121 247,197 237,164
Deferred loan fees (519) (567) (639) (826) (893)
Allowance for loan losses (4,141) (3,252) (2,367) (3,372) (2,575)
-------- -------- -------- -------- --------
Net loans $313,614 $268,729 $256,115 $242,999 $233,696
======== ======== ======== ======== ========
</TABLE>
At December 31, 1998, Sand Ridge Financial Corporation did not have any
concentrations of loans exceeding 10% of total loans not otherwise disclosed in
the loan categories in the table above.
55
<PAGE> 62
LOAN MATURITY SCHEDULE. The following table sets forth certain information at
December 31, 1998 regarding commercial and real estate-construction loans
maturing or repricing, based on the earlier of contractual terms to maturity or
the next scheduled repricing date for variable rate loans:
<TABLE>
<CAPTION>
After one After five
Within but within but within After
one year five years ten years ten years Total
-------- ---------- --------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 55,673 $ 34,845 $ 22,121 $ 12,417 $ 125,056
Real estate - construction 1,687 -- -- -- 1,687
---------- ---------- ---------- ---------- ----------
Total $ 57,360 $ 34,845 $ 22,121 $ 12,417 $ 126,743
========== ========== ========== ========== ==========
</TABLE>
The following table sets forth the dollar amount of all commercial and real
estate-construction loans due after one year at December 31, 1998 that have
predetermined interest rates and have floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates Adjustable rates
------------- ----------------
(In thousands)
<S> <C> <C>
Commercial $ 14,429 $ 54,954
Real estate - construction -- --
-------- --------
Total $ 14,429 $ 54,954
======== ========
</TABLE>
DELINQUENT LOANS AND NONPERFORMING ASSETS. All loans are reviewed on a regular
basis and are placed on nonaccrual status when, in the opinion of management,
the collection of interest is doubtful. Loans are classified as restructured
when management, to protect its investment, grants concessions that would not
otherwise be considered to a debtor. Other real estate owned ("OREO") represents
real estate acquired by Sand Ridge Financial Corporation as a result of loan
defaults by customers. The following table summarizes Sand Ridge Financial
Corporation's nonaccrual loans, restructured loans, OREO and past due loans.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,114 $ 2,643 $ 5,834 $ 873 $ 657
Restructured loans 215 -- -- -- --
Other real estate owned -- 200 -- -- --
Accruing loans past due
90 days or more 719 188 203 146 170
------- ------- ------- ------- -----
Total nonperforming assets $ 2,048 $ 3,031 $ 6,037 $ 1,019 $ 827
======= ======= ======= ======= =====
Nonperforming assets as a
percent of total loans plus OREO 0.64% 1.11% 2.33% 0.41% 0.35%
</TABLE>
Interest income which would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income which would
have been recorded $ 152 $ 388 $ 510 $ 83 $ 40
Interest income recognized 82 61 103 120 35
------- ------- ------- ------- -----
Interest income foregone $ 70 $ 327 $ 407 $ (37) $ 5
======= ======= ======= ======= =====
</TABLE>
56
<PAGE> 63
At December 31, 1998, Sand Ridge Financial Corporation had approximately $2.4
million in loans not currently classified as nonaccrual or 90 days past due and
accruing where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such borrowers to
comply with the present loan repayment terms and which may result in future
disclosure of such loans. These loans are subject to constant monitoring by
management and are considered in determining the adequacy of Sand Ridge
Financial Corporation's allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES. Sand Ridge Financial Corporation maintains an
allowance to absorb anticipated losses on loans. Additions to the allowance for
loan losses are charged to the provision for loan losses on the statement of
income. Management reviews on a quarterly basis the allowance for loan losses as
it relates to a number of relevant factors, including, but not limited to,
trends in the level of nonperforming assets, current and anticipated economic
conditions in the primary lending area, past loss experience, loan
concentrations, composition of the loan portfolio and possible losses arising
from specific problem loans. While management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in evaluating the adequacy of the allowance for loan losses.
The following table sets forth an analysis of Sand Ridge Financial Corporation's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $318,274 $272,548 $259,121 $247,197 $237,164
Average loans outstanding
during period $287,835 $267,162 $255,482 $240,044 $219,928
Allowance for loan losses
balance at beginning of period $ 3,252 $ 2,367 $ 3,372 $ 2,575 $ 2,386
Charge-offs:
Commercial 1,073 979 2,299 134 510
Real estate - mortgage 4 10 14 -- 97
Real estate - construction -- -- -- -- --
Installment and credit card 436 522 480 411 178
-------- -------- -------- -------- --------
Total charge-offs 1,513 1,511 2,793 545 785
Recoveries:
Commercial 258 430 186 168 60
Real estate - mortgage 11 16 4 -- 24
Real estate - construction -- -- -- -- --
Installment and credit card 83 150 158 134 50
-------- -------- -------- -------- --------
Total recoveries 352 596 348 302 134
Net charge-offs (recoveries) 1,161 915 2,445 243 651
Provision for loan losses 2,050 1,800 1,440 1,040 840
-------- -------- -------- -------- --------
Allowance for loan losses
balance at end of period $ 4,141 $ 3,252 $ 2,367 $ 3,372 $ 2,575
======== ======== ======== ======== ========
Ratio of net charge-offs (recoveries)
during the period to average loans
outstanding during the period .40% .34% .96% .10% .30%
</TABLE>
57
<PAGE> 64
The following table provides an allocation of Sand Ridge Financial Corporation's
allowance for loan losses by category for the periods indicated. The allowance
can be allocated by category only on an approximate basis. The allocation of
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
Allowance for Loan Losses
At December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $1,180 $1,421 $1,134 $ 683 $ 825
Real estate - mortgage 166 131 118 255 522
Real estate - construction -- -- -- -- --
Installment and credit card 515 499 419 105 95
Unallocated 2,280 1,201 696 2,329 1,133
------ ------ ------ ------ ------
Total $4,141 $3,252 $2,367 $3,372 $2,575
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Percentage of Loans
To Total Loans
At December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial 39.29% 38.59% 39.54% 37.53% 33.23%
Real estate - mortgage 41.32% 34.63% 32.88% 35.14% 39.57%
Real estate - construction .53% .79% 1.39% 1.16% .25%
Installment and credit card 18.86% 25.99% 26.19% 26.17% 26.95%
Unallocated N/A N/A N/A N/A N/A
------ ------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
Deposits
- --------
Deposits have traditionally been the primary source of Sand Ridge Financial
Corporation's funds for use in lending and other investment activities. Deposits
are attracted principally within the area of Lake County, Indiana, through the
offering of a broad selection of deposit instruments, including checking and NOW
accounts, money market deposit accounts, regular passbook savings accounts, term
certificate accounts and retirement savings plans. Sand Ridge Financial
Corporation has not and does not presently use brokers to attract deposits.
The average balance of and the average rate paid on various deposit categories
for 1998, 1997 and 1996 is disclosed elsewhere herein in the table showing
"Analysis Of Net Interest Income."
The following table presents the amount of Sand Ridge Financial Corporation's
time deposits of $100,000 or more by the time remaining until maturity as of
December 31, 1998:
<TABLE>
<CAPTION>
Maturity December 31, 1998
-------- -----------------
(In thousands)
<S> <C>
Three months or less $21,333
Over three through six months 4,837
Over six through twelve months 6,513
Over twelve months 6,076
-------
Total $38,759
=======
</TABLE>
58
<PAGE> 65
Return On Equity And Assets
- ---------------------------
The following table sets forth certain performance ratios of Sand Ridge
Financial Corporation for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Return on assets (net income
divided by total assets) 1.08% 1.13% 1.20%
Return on equity (net income
divided by average equity) 12.90% 13.74% 15.06%
Dividend payout ratio (dividends
declared per share divided by
net income per share) 19.82% 20.43% 19.66%
Equity to assets ratio (average
equity divided by average assets) 8.41% 8.23% 7.99%
</TABLE>
Short-Term Borrowings
- ---------------------
This information is not required as there were no categories of short-term
borrowings for which the average balance outstanding during the period was 30
percent or more of shareholders' equity at the end of the period.
59
<PAGE> 66
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT
For information regarding the principal shareholders of First Financial and
ownership of First Financial Common Stock by First Financial's directors and
executive officers, see "Item 12. Security Ownership of Certain Beneficial
Owners and Management" in the First Financial Form 10-K, which is incorporated
herein by reference.
The following table sets forth certain information with respect to the only
persons known to Sand Ridge Financial to own beneficially more than 5% of the
outstanding common stock of Sand Ridge Financial as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name and Address Shares Outstanding
---------------- ------ -----------
<S> <C> <C>
Bruce E. Leep 7,544 12.57%
Sand Ridge Financial Corporation
2611 Highway Avenue
Highland, Indiana 46322
E. Kenneth Leep 6,559 10.93%
Sand Ridge Financial Corporation
2611 Highway Avenue
Highland, Indiana 46322
Van Der Molen Sand Ridge LLC 5,786 9.64%
Richard L. Van Der Molen, Trustee
1 North 335 Indian Knoll Road
West Chicago, Illinois 60185
</TABLE>
60
<PAGE> 67
The following table sets forth certain information regarding the number
of shares of common stock of Sand Ridge Financial beneficially owned by each
director of Sand Ridge Financial and by all directors and executive officers of
Sand Ridge Financial as a group as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name Shares Outstanding
---- ------ -----------
<S> <C> <C>
Bruce E. Leep 7,544 (1) 12.57%
E. Kenneth Leep 6,559 (2) 10.93%
Richard E. Olszewski 50 (3) 0.08%
Rhett L. Tauber 50 (4) 0.08%
Gerald Van Prooyen 1,571 (5) 2.62%
Samuel Van Til 102 (6) 0.17%
Carl Wolak 260 (7) 0.43%
All executive officers and
directors as a group
(9 persons) 16,918 28.20%
</TABLE>
--------------------
(1) Of these, 3,034 shares are owned by Mr. Bruce E. Leep's wife,
for which Mr. Leep disclaims beneficial ownership, and 387
shares are owned by the Sand Ridge Financial Employee Profit
Sharing Trust, of which Mr. Leep is a committee member.
(2) Of these, 2,336 shares are owned by Mr. E. Kenneth Leep's wife
and 380 shares are owned by their children, for which Mr. Leep
disclaims beneficial ownership.
(3) All of Mr. Olszewski's shares are owned jointly with his wife.
(4) All of Mr. Tauber's shares are owned jointly with his wife.
(5) Of these, 24 shares are owned by a revocable trust, of which
Mr. Van Prooyen is the trustee, and 624 shares are owned by
Mr. Van Prooyen's wife. Mr. Van Prooyen disclaims beneficial
ownership of the shares owned by the trust and his wife.
(6) All of Mr. Van Til's shares are owned jointly with his wife.
(7) Of these, 10 shares are owned by Mr. Wolak's wife, for which
Mr. Wolak disclaims beneficial ownership, and 150 shares are
owned jointly with his wife.
61
<PAGE> 68
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature Of Trading Market
- ------------------------
The First Financial Common Stock is quoted on the Nasdaq National
Market under the symbol "FFBC". On April __, 1999, the last reported sale price
of First Financial Common Stock as reported on the Nasdaq National Market was
$_____ per share.
The Sand Ridge Financial Common Stock is not traded on an established
public market. The last known trading price of Sand Ridge Financial Common Stock
was $1,100 per share on December 8, 1998 for two shares. As there is not an
established public trading market for the shares of Sand Ridge Financial Common
Stock, the stock is not liquid and the price indicated above may not reflect the
prices which would be paid for such shares on an active market. This information
should not necessarily be relied upon when determining the value of a
shareholder's investment.
The following table sets forth, for the periods indicated, the high and
low sales prices per share of First Financial Common Stock as reported on the
Nasdaq National Market. All prices have been adjusted to give retroactive effect
to stock dividends and stock splits.
<TABLE>
<CAPTION>
FIRST FINANCIAL FIRST FINANCIAL
HIGH BID LOW BID
-------- -------
1995
----
<S> <C> <C>
First Quarter $13.05 $12.21
Second Quarter 12.96 12.40
Third Quarter 13.33 12.40
Fourth Quarter 13.24 12.40
1996
----
First Quarter 13.34 12.58
Second Quarter 13.15 11.84
Third Quarter 13.15 12.02
Fourth Quarter 13.43 12.49
1997
----
First Quarter 15.19 12.60
Second Quarter 17.15 13.95
Third Quarter 23.07 16.12
Fourth Quarter 22.95 21.14
1998
----
First Quarter 26.70 21.82
Second Quarter 28.98 23.41
Third Quarter 26.70 22.73
Fourth Quarter 31.00 25.00
1999
----
First Quarter -- --
</TABLE>
62
<PAGE> 69
The following information reflects actual trade transactions in Sand
Ridge Financial Common Stock made during 1996, 1997 and 1998, for which
management is aware of both the number of shares traded and the selling price.
Management is aware of three other trades not listed below, but is not aware of
the selling price for such trades. The information should not necessarily be
relied upon when determining the value of a shareholder's investment.
<TABLE>
<CAPTION>
Sand Ridge Financial Trades In
----------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Number of trades 7 11 13
Number of shares traded 1,350 510 269
Selling price $439.89-$569.67 $569.67-$700.00 $925.00-$1,100.00
</TABLE>
As of __________ __, 1999, there were approximately _______ holders of
record of First Financial Common Stock. As of April 1, 1999, Sand Ridge
Financial had 337 shareholders of record.
63
<PAGE> 70
Dividends
- ---------
The following table sets forth the per share cash dividends declared on
First Financial and Sand Ridge Financial Common Stock, respectively, for each
quarter since January 1, 1996. First Financial dividends have been adjusted to
give retroactive effect to all stock dividends and stock splits.
<TABLE>
<CAPTION>
FIRST SAND RIDGE
FINANCIAL FINANCIAL
--------- ---------
<S> <C> <C>
1996
----
First Quarter .11
Second Quarter .11
Third Quarter .11
Fourth Quarter .12 16.00
1997
----
First Quarter .12
Second Quarter .12
Third Quarter .14
Fourth Quarter .14 17.00
1998
----
First Quarter .14
Second Quarter .14
Third Quarter .14
Fourth Quarter .15 18.00
1999
----
First Quarter .15 --
</TABLE>
In the Merger Agreement, First Financial and Sand Ridge Financial
agreed that if the Effective Time is after First Financial's record date for its
first quarter, 1999 regular dividend, Sand Ridge Financial shareholders will
receive a quarterly dividend of $4.75 per share on April 1, 1999.
The future dividend policy of First Financial is subject to the
discretion of First Financial's Board of Directors, cash needs, general business
conditions and dividends from subsidiaries.
For certain restrictions on the payment of dividends by First Financial
and Sand Ridge Financial, see "COMPARISON OF COMMON STOCK AND SHAREHOLDERS'
RIGHTS--Dividend Rights."
64
<PAGE> 71
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
The following summary comparison of the terms of the common stock of
Sand Ridge Financial and First Financial, and the rights of holders thereof,
does not purport to be complete and is qualified in its entirety by reference to
First Financial's Articles of Incorporation, Sand Ridge Financial's Articles of
Incorporation, First Financial's Regulations and Sand Ridge Financial's Code of
By-Laws. Various features of the Articles of Incorporation and Regulations of
First Financial differ from Sand Ridge Financial's Articles of Incorporation and
Code of By-Laws. The following discussion summarizes the differences that are
deemed to be material by First Financial.
Authorized But Unissued Shares
- ------------------------------
First Financial's Articles of Incorporation authorize the issuance of
60,000,000 shares, without par value, of First Financial Common Stock, of which
36,320,338 shares were issued and outstanding at December 31, 1998. At its
upcoming annual meeting of shareholders, First Financial is proposing to
increase its authorized common shares to 160,000,000 shares. The remaining
authorized but unissued shares of First Financial Common Stock may be issued
upon authorization of the Board of Directors without prior shareholder approval.
Sand Ridge Financial's Articles of Incorporation authorize the issuance
of 200,000 shares, without par value, of Sand Ridge Financial Common Stock, of
which 60,000 shares were issued and outstanding at December 31, 1998.
Dividend Rights
- ---------------
The holders of Sand Ridge Financial and First Financial Common Stock
are entitled to dividends and other distributions when, as and if declared by
their respective Boards of Directors out of funds legally available therefor.
Subject to certain regulatory restrictions, dividends may be paid in cash,
property or shares of common stock, unless the entity is insolvent or the
dividend payment would render it insolvent.
The amount of dividends, if any, that might be declared by First
Financial following the purchase will necessarily depend upon many factors,
including, without limitation, future earnings, capital requirements, business
conditions of subsidiaries (since First Financial will be dependent upon
dividends paid to it by its subsidiaries) and the discretion of First
Financial's Board of Directors. Dividends paid to First Financial by its
subsidiary financial institutions are subject to the regulations of various
regulatory authorities. A Federal Reserve Board Policy Statement provides that
cash dividends paid by a bank holding company should meet the following two
guidelines: (1) the organization's net income available to common shareholders
over the past year should be sufficient to fully fund the dividends and (2) the
prospective rate of earnings retention by the organization appears consistent
with capital needs, asset quality, and overall financial condition. First
Financial has complied with the first guideline since its organization in 1983
and believes it has also complied with the second guideline.
65
<PAGE> 72
Directors
- ---------
After the Merger, Sand Ridge Financial's Board of Directors will cease
to exist and First Financial's Board of Directors will be the Board of Directors
for the Surviving Corporation, except that Bruce E. Leep, a member of Sand Ridge
Bank's Board of Directors, will be appointed to First Financial's Board promptly
after the Effective Time. First Financial does NOT have a similar agreement with
Hebron Bancorp, Inc.
The number of directors of First Financial can be no less than nine and
no more than 25. First Financial currently has 15 directors, not including the
Sand Ridge Bank director who will be appointed to First Financial's Board
promptly after the Effective Time, divided into three classes of directors. The
size of the Board can be increased or decreased at any time by:
a. the affirmative vote of two-thirds (2/3rds) of the whole
authorized number of directors, or
b. the affirmative vote of the holders of at least two-thirds
(2/3rds) of the outstanding voting power of First Financial at
a meeting of shareholders, at which a quorum is present,
called for the purpose of electing directors.
First Financial's Board of Directors may not, under provisions of First
Financial's Regulations, increase the authorized number of directors by more
than three positions during any period between annual meetings.
First Financial directors are elected to three-year terms, with the
term of office of one class expiring each year. Shareholders of First Financial
annually elect only one of the three classes. This method of election could be
considered an impediment for a takeover of control of First Financial by third
parties.
Sand Ridge Financial's Code of By-Laws provides for a Board of
Directors of seven persons. All directors are elected by the shareholders to
one-year terms at each annual meeting, except that the Board of Directors may
fill vacancies occurring on the Board of Directors, including vacancies
resulting from an increase in the number of directors on the Board.
Nominations for the election of First Financial directors may be made
by the Board of Directors, a committee appointed by the Board of Directors or by
any shareholder entitled to vote in the election of directors. Shareholders
intending to nominate director candidates for election must deliver written
notice thereof to the Secretary of First Financial no later than (i) 90 days
prior to the date one year from the date of the immediately preceding annual
meeting of shareholders with respect to an election to be held at an annual
meeting of shareholders, or (ii) the close of business on the tenth day
following the date on which a meeting notice is first given to shareholders with
respect to an election to be held at a special meeting of shareholders. The
written notice must set forth certain information, as described in the
Regulations, concerning the shareholder and the person being nominated. Any
person not nominated in compliance with the prescribed procedures will not be
eligible for election as a director. Sand Ridge Financial's Code of By-Laws does
not describe the method for making nominations for the election of directors.
66
<PAGE> 73
A majority of First Financial's directors in office at any time, though
less than a majority of the whole authorized number of directors, may, by a vote
of a majority of their number, fill any director's office that is created by an
increase in the number of directors or by a vacancy. Any directors so chosen
will hold office for the remaining length of the term; a vote by First Financial
shareholders is not required. A majority of Sand Ridge Financial's directors
then in office is required to fill any vacancies in Sand Ridge Financial's Board
or fill any newly created director positions. Any directors so chosen may hold
office only until the next annual or special meeting of the shareholders.
Any director of Sand Ridge Financial may be removed, with or without
cause, by the affirmative vote of at least two-thirds (2/3rds) of the
outstanding shares of Sand Ridge Financial Common Stock at a meeting of
shareholders called for that purpose. A First Financial director may be removed
only if a court of law finds such director guilty of a felony or if the director
has breached his or her fiduciary duty under the laws of Ohio.
First Financial's Regulations have an age limitation preventing
election or re-election of directors who have reached the age of 70 years or
older. Sand Ridge Financial's Articles of Incorporation and Code of By-Laws do
not contain such an age limitation, but as a matter of policy all directors in
fact resign at age 70.
Quorum For Shareholders' Meetings
- ---------------------------------
Except as provided by law, the holders of record of a majority of
outstanding shares, in person or by proxy, are required for a quorum at all
First Financial and Sand Ridge Financial shareholders' meetings.
Meeting Participation By Use Of Communication Equipment
- -------------------------------------------------------
Sand Ridge Financial's Code of By-Laws allows any or all directors to
participate in a Board of Directors meeting or a committee meeting by using a
conference telephone or similar communication equipment by means of which all
persons participating in the meeting can communicate with each other. First
Financial's Articles of Incorporation and Regulations make no provision for
meeting participation using communication equipment, but Ohio statutes allow
directors to participate in a directors' meeting using such equipment.
Voting Rights
- -------------
The holders of Sand Ridge Financial Common Stock and First Financial
Common Stock are entitled to one vote per share on all matters presented for
shareholder vote. Shareholders of First Financial or Sand Ridge Financial do not
have cumulative voting rights in the election of directors.
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Special Meetings
- ----------------
Special meetings of the shareholders of First Financial may be called
for any purpose by the Chairman of the Board of Directors; by the President; by
the Vice President authorized to exercise the authority of the President upon
his absence, death or disability; by resolution of the directors; or by holders
of not less than 50% percent of the outstanding voting power of First Financial.
Special meetings of the shareholders of Sand Ridge Financial may be
called by the President, by the Board of Directors, or by shareholders holding
of record not less than one-fourth (1/4th) of all shares of Sand Ridge Financial
Common Stock outstanding and entitled to vote on the business proposed to be
transacted at the meeting. The President shall also call a special meeting upon
the written request of a majority of the members of the Board of Directors or
shareholders holding of record a majority of all shares of common stock
outstanding and entitled to vote on the business for which the meeting is being
called. Any request for a special meeting shall state the purpose or purposes of
the proposed meeting.
Notice Of Shareholder Meetings
- ------------------------------
First Financial and Sand Ridge Financial have similar notification
requirements. Notice of shareholder meetings shall be mailed, postage prepaid,
to every shareholder of record at the address appearing on the respective
company's books at least ten days prior to the date of the meeting.
Preemptive Rights
- -----------------
As permitted by law, neither First Financial's nor Sand Ridge
Financial's Articles of Incorporation provide for preemptive rights.
Redemption And Assessment
- -------------------------
Shares of First Financial and Sand Ridge Financial Common Stock are not
subject to further call or assessment. A bank holding company may redeem or
purchase shares of its Common Stock with funds legally available therefor,
provided it gives prior notice to the Federal Reserve Board if the consideration
to be paid for the purchase or redemption, when aggregated with the
consideration paid for all purchases or redemptions for the preceding twelve
months, equals or exceeds 10% of its consolidated net worth. This prior
notification is not required if the bank holding company (a) exceeds the
thresholds established for a "well-capitalized" institution both before and
after the redemption, (b) received a composite "1" or "2" rating at its most
recent regulatory inspection, and (c) is not the subject of any unresolved
supervisory issues. First Financial currently meets these three requirements and
is not required to notify the Federal Reserve Board before purchasing shares of
its common stock. Redemptions may not be made when First Financial is insolvent
or, as a result of the redemption, would be rendered insolvent. Redemptions or
repurchases of Sand Ridge Financial Common Stock are also subject to regulatory
limitations.
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Two-Thirds Majority Vote Required
- ---------------------------------
The Articles of Incorporation for Sand Ridge Financial require a two-thirds
(2/3rds) majority vote of the outstanding shares of Sand Ridge Financial Common
Stock for:
a. Removal of any or all members of the Board of Directors;
b. Approval of any merger or consolidation of Sand Ridge
Financial or any of its subsidiaries, except for a merger or
consolidation of one or more subsidiaries with each other or
with the holding company;
c. The liquidation or dissolution of Sand Ridge Financial;
d. Any sale, exchange or other disposition of (but not any bona
fide security interest in or mortgage, pledge or other
encumbrance on) all or substantially all of the assets of Sand
Ridge Financial; and
e. Any amendment or repeal of the two-thirds (2/3rds) voting
requirement for the above four items.
See "Directors" and "Amendments to Articles and Regulations/Code of
By-Laws" of this section for discussions of those actions requiring a two-thirds
(2/3rds) affirmative vote of outstanding shares of First Financial Common Stock.
Amendments To Articles And Regulations/Code of By-Laws
- ------------------------------------------------------
Any provision of First Financial's Articles of Incorporation may be
amended, altered, changed or repealed by following the procedures prescribed by
the then current laws of the State of Ohio.
Any section of Sand Ridge Financial's Articles of Incorporation may be
amended or repealed by following the procedures prescribed by the then current
laws of the State of Indiana, except for repeal or amendment of the section of
the Articles requiring a two-thirds (2/3rds) majority vote of outstanding shares
of Sand Ridge Financial Common Stock entitled to vote, as described in
"Two-Thirds Majority Vote Required."
Sand Ridge Financial's Code of By-Laws may be altered, amended or
repealed by a majority vote of the number of authorized members of the Board of
Directors. Since Sand Ridge Financial's Code of By-Laws currently authorizes a
Board of seven members, the affirmative vote of four members is necessary to
alter, amend, or repeal provisions of the Code of By-Laws.
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First Financial's Regulations may be amended, altered, repealed or
replaced by the affirmative vote of at least two-thirds (2/3rds) of shares
outstanding at a meeting of shareholders called for such purpose, unless the
change or changes is recommended by the affirmative vote of two-thirds (2/3rds)
of the whole authorized number of directors. If recommended by the affirmative
vote of two-thirds (2/3rds) of the whole authorized number of directors, the
affirmative vote of a majority of the outstanding shares will be required for
approval.
Provisions Affecting Business Combinations And Changes In Control
- -----------------------------------------------------------------
Ohio law governs the rights of shareholders of First Financial. Chapter
1704 of the Ohio Revised Code (the "ORC") may be viewed as having an
anti-takeover effect. This statute, in general, prohibits an "issuing public
corporation," the definition of which includes First Financial, from entering
into a "Chapter 1704 Transaction" with the beneficial owner, or affiliates of
such beneficial owner, of 10.0% or more of the outstanding shares of the
corporation (an "interested shareholder") for at least three years following the
date on which the interested shareholder attains such 10.0% ownership, unless
the board of directors of the corporation approves, prior to such person
becoming an interested shareholder, either the transaction or the acquisition of
shares resulting in a 10.0% ownership position. A "Chapter 1704 Transaction" is
broadly defined to include, among other things, a merger or consolidation with;
a sale of substantial assets to; or the receipt of a loan, guaranty or other
financial benefit, which is not proportionately received by all shareholders,
from the interested shareholder. Following the expiration of such three-year
period, a Chapter 1704 Transaction with the interested shareholder is permitted
only if either (i) the transaction is approved by the holders of at least
two-thirds of the voting power of the corporation or such different proportion
as is set forth in the corporation's articles of incorporation, including a
majority of the outstanding shares excluding those owned by the interested
shareholder, or (ii) the business combination results in the shareholders other
than the interested shareholder receiving a prescribed "fair price" for their
shares. One significant effect of Chapter 1704 is to encourage a person to
negotiate with the board of directors of a corporation prior to becoming an
interested shareholder.
In addition, Section 1707.043 of the ORC requires a person or entity
that makes a proposal to acquire the control of a corporation to repay to that
corporation any profits made from trades in the corporation's stock within
eighteen months after making the control proposal.
Section 1701.831 of the ORC (the "Control Share Acquisition Statute")
requires shareholder approval of any proposed "control share acquisition" of an
Ohio corporation. A "control share acquisition" is the acquisition, directly or
indirectly, by any person, including any individual, partnership, corporation,
limited liability company, society, association or two or more persons who have
a joint or common interest, of shares of a corporation that, when added to all
other shares of the corporation that may be voted, directly or indirectly, by
the acquiring person, would entitle such person to exercise or direct the
exercise of 20.0% or more, but less than 33-1/3%, of the voting power of the
corporation in the election of directors or 33-1/3% or more, but less than a
majority, of such voting power or a majority or more of such voting power. Under
the Control Share Acquisition Statute, the control share acquisition must be
approved in advance by the holders of a majority of the outstanding voting
shares represented at a meeting at which a quorum is
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present and by the holders of a majority of the portion of the outstanding
voting shares represented at such a meeting excluding the voting shares owned by
the acquiring shareholder and certain "interested shares," including shares
owned by officers elected or appointed by the directors of the corporation and
by directors of the corporation who are also employees of the corporation.
The purpose of the Control Share Acquisition Statute is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover. The provisions of the Control Share Acquisition Statute
grant to the shareholders of First Financial the assurance that they will have
adequate time to evaluate the proposal of the acquiring person, that they will
be permitted to vote on the issue of authorizing the acquiring person's purchase
program to go forward in the same manner and with the same proxy information
that would be available to them if a proposed merger of First Financial were
before them and, most importantly, that the interests of all shareholders will
be taken into account in connection with such vote and the probability will be
increased that they will be treated equally regarding the price to be offered
for their common shares if the implementation of the proposal is approved.
The Control Share Acquisition Statute applies not only to traditional
offers but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Statute could render
approval of any control share acquisition difficult in that the transaction must
be authorized at a special meeting of shareholders, at which a quorum is
present, by the affirmative vote of the majority of the voting power represented
and by a majority of the portion of such voting power excluding interested
shares. Any corporate defense against persons seeking to acquire control may
have the effect of discouraging or preventing offers which some shareholders
might find financially attractive. On the other hand, the need on the part of
the acquiring person to convince the shareholders of First Financial of the
value and validity of the offer may cause such offer to be more financially
attractive in order to gain shareholder approval.
In addition, Section 1701.59 of the ORC provides that, in determining
what such director reasonably believes to be in the best interests of the
corporation, the director may consider, in addition to the interests of the
corporation's shareholders, any of the interests of the corporation's employees,
suppliers, creditors and customers, the economy of the State of Ohio and the
United States, community and societal considerations and the long-term as well
as the short-term interests of the corporation and its shareholders, including
the possibility that these interests may be best served by the continued
independence of the corporation.
Although First Financial believes that these provisions are in its best
interests, you should be aware that such provisions could be disadvantageous to
you because the overall effect of these statutes may be to render more difficult
or discourage the removal of incumbent management or the assumption of effective
controls by other persons.
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First Financial Shareholder Rights Plan
- ---------------------------------------
On November 26, 1993, First Financial adopted a shareholder rights plan
(the "Plan") and declared a dividend of one right on each outstanding share of
First Financial Common Stock ("Right") to shareholders of record as of December
6, 1993. Each share of First Financial Common Stock issued after December 6,
1993 will include one Right. Under the Plan, the Rights will actually be
distributed only if one or more of certain designated actions involving First
Financial Common Stock occur. See Note 18 of First Financial's 1997 Financial
Statements for more information on the Plan.
Transfer Agent and Registrar
- ----------------------------
The registrar and transfer agent for First Financial Common Stock is
The Registrar and Transfer Company, Cranford, New Jersey.
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ADJOURNMENT OF THE SPECIAL MEETING
The shareholders of Sand Ridge Financial are being asked to approve a
proposal to permit the adjournment of the Special Meeting, if necessary, to
solicit additional proxies with respect to the approval of the Merger Agreement.
The Merger Agreement must be approved by the affirmative vote of at least
two-thirds of the outstanding shares of Sand Ridge Financial Common Stock. If
such matter does not receive the requisite number of proxy votes at the Special
Meeting and does not receive a sufficient number of negative proxy votes to
assure the failure of the matter, the Board of Directors may decide to adjourn
the Special Meeting to solicit additional proxies. If the Board of Directors
decides to adjourn the Special Meeting with respect to the Merger Agreement, the
Chairman of the Special Meeting will request a motion that the Special Meeting
be adjourned for up to 30 days. An adjournment of up to 30 days would not
require either the setting of a new meeting date or the giving of notice of the
adjourned meeting.
Each proxy given in connection with the Special Meeting will be voted
on a motion for adjournment in accordance with the instructions contained
therein. If no contrary instructions are given, each proxy will be voted in
favor of any motion to adjourn the Special Meeting. The holders of the majority
of the shares of Sand Ridge Financial represented in person or by proxy at the
Special Meeting will be required to approve a motion to adjourn the Special
Meeting.
If a motion to adjourn the Special Meeting is approved, no vote will be
taken on the Merger Agreement at the Special Meeting on May 12, 1999 but the
Merger Agreement will be voted upon at the adjourned meeting. Unless revoked
prior to its use, any proxy solicited for the Special Meeting will continue to
be valid and will be voted in accordance with the instructions contained therein
at the adjourned meeting.
Since the Board of Directors recommends that the shareholders vote for
the Merger Agreement, the Board of Directors similarly recommends that the
shareholders vote FOR the proposal to adjourn the Special Meeting, which will
facilitate the approval of the Merger Agreement. Such an adjournment would be
disadvantageous to shareholders who oppose the Merger Agreement because the
adjournment will give Sand Ridge Financial additional time to solicit votes in
favor of the Merger Agreement, thereby increasing the chances of passing the
Merger Agreement proposal. Sand Ridge Financial has no reason to believe that an
adjournment of the Special Meeting will be required.
If a quorum is not present at the Special Meeting, none of the
proposals will be acted upon, and the Board of Directors will adjourn the
Special Meeting to a later date in order to solicit additional proxies to assure
the presence of a quorum. The proposal to approve a motion to adjourn the
Special Meeting does not apply to an adjournment relating to the absence of a
quorum.
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EXPERTS
The consolidated financial statements of First Financial incorporated
by reference in First Financial's Annual Report on Form 10-K for the year ended
December 31, 1998, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Sand Ridge Financial at
December 31, 1998 and 1997 and for the years ending December 31, 1998, 1997 and
1996 appearing in this Proxy Statement-Prospectus have been audited by Crowe,
Chizek and Company LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of First Financial Common Stock to be issued
in the Merger described herein and certain additional legal matters will be
passed upon by Frost & Jacobs LLP, 2500 PNC Center, 201 East Fifth Street,
Cincinnati, Ohio 45202.
Barnes & Thornburg, 600 1st Source Bank Center, 100 North Michigan,
South Bend, Indiana 46601-1632 will pass upon certain legal matters in
connection with the Merger for Sand Ridge Financial and issue the tax opinion.
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WHERE YOU CAN FIND MORE INFORMATION
First Financial files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them which means that we can disclose important information to you by
referring you to other documents. The information incorporated by reference is
considered to be part of this prospectus and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. First Financial's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "First Financial Form 10-K");
2. The following information set forth in the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" section of the 1998 Annual Report of First Financial
to its shareholders:
a. The information in the table set forth on page 28 under the
caption "Quarterly Financial And Common Stock Data."
b. The information in the table set forth on page 2 under the
caption "Table 1 - Financial Summary."
c. The information set forth on pages 1 through 9 under the
caption "Management's Discussion And Analysis Of Financial
Condition And Results of Operations."
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Secretary
First Financial Bancorp.
Third and High Streets
Hamilton, Ohio 45011
(513) 867-4700
You should rely only on the information incorporated by reference or
provided in this Proxy Statement-Prospectus. First Financial has not authorized
anyone else to provide you with different information. First Financial is not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this Proxy
Statement-Prospectus is accurate as of any date other than the date on the front
of this document.
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SAND RIDGE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
Years ended December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
The following discussion and analysis provides information about the
consolidated financial condition and results of operations of Sand Ridge
Financial Corporation (the "Corporation") and its wholly-owned subsidiary Sand
Ridge Bank (the "Bank"). 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.
EARNINGS SUMMARY
Consolidated net income of the Corporation for the year ended December 31, 1998
was $5,448,000 or $90.80 per share. This represented an increase of 9.11% or
$455,000 over 1997 earnings. Net income for 1997 was $4,993,000 ($83.21 per
share) reflecting a 2.23% or $109,000 increase over 1996 earnings of $4,884,000
($81.39 per share). The increase in net income during 1998 was impacted by
growth in the volume of net interest-earning assets and an increase in
noninterest income compared to 1997.
Two often cited ratios for analysis of financial institutions are return on
average assets (ROA) and return on average equity (ROE). ROA was 1.08%, 1.13%
and 1.20% for the years ended December 31, 1998, 1997 and 1996. ROE for 1998 was
12.90%, 1997 was 13.74% and 1996 was 15.06%.
RESULTS OF OPERATIONS (1998 compared to 1997)
Net interest income, the Corporation's principal source of earnings, is the
excess of interest received from interest-earning assets over interest paid on
interest-bearing liabilities. The Corporation's net interest income for the
years 1996 through 1998 is shown in the table "Analysis of Net Interest Income"
that is incorporated in this document.
The amount of net interest income is determined by the volume and mix of earning
assets, the rates earned on such interest-earning assets and the volume, mix and
rates paid for the deposits and borrowed money that fund the interest-earning
assets. The table "Interest Income And Expense Rate/Volume Analysis" that is
incorporated in this document describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Corporation'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.
- --------------------------------------------------------------------------------
F-1
<PAGE> 83
Total interest income was $35,342,000 in 1998, an increase of $3,220,000 or
10.02% over 1997. This increase was primarily the result of an increase in the
average volume of interest-earning assets. Average outstanding loans and
securities available for sale increased $20,673,000 and $49,848,000 as compared
to 1997.
Total interest expense was $18,051,000 in 1998, an increase of $1,794,000 or
11.04% over 1997. This change was predominately due to an increase of
$47,400,000 in the volume of average interest-bearing liabilities, from an
average of $359,856,000 during 1997 to an average of $407,256,000 during 1998.
The increase in average interest-bearing liabilities during 1998 was due to the
increases in savings, NOW and money market accounts, other time deposits,
federal funds purchased, securities sold under agreements to repurchase,
advances from FHLB and other of $8,791,000, $20,802,000, $3,286,000, $5,424,000,
$8,095,000 and $1,002,000.
Net interest income, the difference between total interest income and total
interest expense, increased $1,426,000 during 1998 primarily due to increases in
the volume of net interest-earning assets as described above. The increased
interest income was greater than the increased interest expense, thereby causing
net interest income to increase.
The net interest rate spread and the net interest margin are two ratios
frequently used to measure differences in interest income and interest expense.
The net interest rate spread (the average rate on interest-earning assets minus
the average rate on interest-bearing liabilities) was 2.98% for 1998 and 3.11%
for 1997, a decrease of 13 basis points. The net interest margin (net interest
income divided by average interest-earning assets) decreased 15 basis points to
3.62% during 1998 from 3.77% during 1997.
The Corporation records a provision for loan losses in the Consolidated
Statement of Income to provide for expected loan losses. Actual losses on loans
are charged against the allowance for loan losses, which is an allowance
accumulated in the Consolidated Balance Sheet through the provision. The
recorded values of uncollectable loans are removed from the Consolidated Balance
Sheet and referred to as charge-offs and, after netting out recoveries on
previously charged off assets, become net charge-offs. The Corporation's policy
is to charge off loans when, in management's opinion, collection of principal is
doubtful. All loans charged off are subject to continuous review and concerted
efforts are made to maximize recovery.
Management records the provision for loan losses in amounts sufficient to result
in an allowance that will cover collection risks believed to be inherent in the
loan portfolio. Management's evaluation in establishing the provision for loan
losses includes such factors as historical loss and recovery experience,
estimated future charge-offs for loans, known deterioration in loans and
prevailing economic conditions that might have an impact on the loan portfolio.
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 by an internal loan review analyst and reviewed by a
group of senior officers from the financial and lending departments.
- --------------------------------------------------------------------------------
F-2
<PAGE> 84
The provision for loan losses increased from $1,800,000 in 1997 to $2,050,000 in
1998. The provision recorded during 1998 was $250,000 greater than 1997's
provision. The increase in the provision for loan losses in 1998 was partially
the result of needing to replenish the allowance for charged off loans primarily
in the commercial loan portfolio. The Corporation has experienced gross charged
off loans of $1,513,000, $1,511,000 and $2,793,000 in 1998, 1997 and 1996.
Management has recognized the need to continue to provide for the allowance for
loan losses due to the inherent risks in the loan portfolios. The most
significant inherent risks have been identified in the commercial loan
portfolio. Total loans have increased 16.78% during 1998 and commercial loans,
at 39.29% of total loans at December 31, 1998, continue to increase as a percent
of total loans. The allowance for loan losses at December 31, 1998, was
$4,141,000 or 1.30% of total loans which compares to $3,252,000 or 1.19% of
total loans at December 31, 1997. Management continues to identify and evaluate
the adequacy of the allowance for loan losses by monitoring past due and problem
loans.
Impaired loans totaled $298,000 at December 31, 1998, a decrease of $2,484,000
from December 31, 1997. The decrease was partially due to the removal of the
Bennett Funding loans from the balance of impaired loans due to their partial
repayment during 1998 under a settlement agreement. Impaired loans also
decreased due to charged off loans during 1998 that were previously considered
impaired.
The level of nonperforming loans is an important element in assessing asset
quality. Some loans are classified as nonaccrual when, in the opinion of
management, collection of interest is doubtful. Nonaccrual loans decreased
$1,529,000 from $2,643,000 at December 31, 1997 to $1,114,000 at December 31,
1998. The decrease in nonaccrual loans during 1998 occurred primarily as a
result of the settlement on the Bennett Funding loans during 1998 and charged
off loans. Total nonperforming loans were $2,048,000 at December 31, 1998
compared to $3,031,000 at December 31, 1997. Management has determined that the
allowance for loan losses has been adequately funded to provide for potential
losses on nonperforming loans.
Noninterest income increased $682,000 or 17.71% in 1998. Net realized gains on
securities available for sale increased $34,000 from a gain of $85,000 during
1997 to a gain of $119,000 during 1998. The Corporation received $12,059,000 in
proceeds on sales of securities available for sale during 1998. Service charges
on deposit accounts increased $223,000 or 10.37% over 1997 primarily due to an
increase in average deposits during 1998. Investment commissions increased
$154,000 or 43.48%in 1998 primarily due to increased sales of investment
products offered through the Bank.
Noninterest expenses increased $1,453,000 or 12.94% in 1998. The largest
component of noninterest expenses is salaries and employee benefits, which
increased $931,000 or 16.61% over 1997 primarily due to additional employees
required to service the Corporation's growth as well as normal annual wage and
salary increases. Other expenses increased 18.25% or $426,000 in 1998 as
compared to 1997 due to various operational cost increases from the growth of
the Corporation, as total assets at December 31, 1998 increased 22.16% over the
amount at December 31, 1997.
- --------------------------------------------------------------------------------
F-3
<PAGE> 85
Income tax expense decreased $50,000 for 1998 as compared to 1997. This decrease
was primarily due to a $813,000 increase in tax-exempt interest income from 1997
to 1998 resulting in a $276,000 decrease in income tax expense. This decrease
was only partial offset by an increase in income tax expense resulting from an
increase in income before income taxes.
Securities available for sale increased $51,140,000 or 33.10% during 1998. All
securities are classified as available for sale at December 31, 1998 and are
available for liquidity and asset-liability management purposes. The Corporation
follows a conservative investment policy, investing primarily for interest rate
risk management and liquidity management purposes and to also provide additional
interest income.
U.S. Treasury securities, generally considered to have the least credit risk and
the highest liquidity, composed 3.95% of the Corporation's investment portfolio
at December 31, 1998.
Another 14.17% of the securities portfolio balance at December 31, 1998 was
composed of securities issued by U.S. government agencies and corporations,
primarily the Federal Home Loan Bank (FHLB), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association (FNMA). Due to the
government guarantees, either expressed or implied, U.S. government agency and
corporate obligations are considered to have low credit risk and high liquidity.
Mortgage-backed securities (MBSs), including collateralized mortgage obligations
(CMOs), composed 27.19% of the securities 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. The
Corporation invests primarily in MBSs issued by U.S. government agencies, such
as FHLMC, FNMA and Government National Mortgage Association (GNMA). Such
securities, because of government agency guarantees, are considered to have low
credit risk and high liquidity.
State, county and municipal securities composed 53.49% of the Corporation's
security portfolio at December 31, 1998. These securities are highly diversified
as to states and issuing authorities within states, thereby decreasing portfolio
risk.
Total loans, net of deferred loan fees, increased $45,774,000 or 16.83% during
1998. The majority of the increase was from growth in commercial and real
estate-mortgage loans which increased $19,875,000 or 18.90% and $37,157,000 or
39.38% during 1998. This increase was achieved as the Corporation took advantage
of continued commercial and mortgage loan demand in both new and refinanced
loans during 1998 due to the low interest rate environment as compared to
historical interest rates.
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F-4
<PAGE> 86
The Corporation solicits deposits by offering a wide variety of savings and
transaction accounts, including checking accounts, regular savings accounts,
money market accounts and other time deposits of various maturities and rates.
Total deposits increased $70,426,000 or 18.60% during 1998. The growth in
deposits was used to help finance the growth in the loan and securities
portfolios.
Advances from the Federal Home Loan Bank increased $32,704,000 to $44,390,000
during 1998 from $11,686,000. These advances are secured by a blanket collateral
agreement using the Bank's real estate-mortgage loans and U.S. government and
federal agency securities as collateral. The proceeds from the advances were
also used to help finance the growth in the loan and securities portfolios.
RESULTS OF OPERATIONS (1997 compared to 1996)
Total interest income was $32,122,000 in 1997, an increase of $3,190,000 or
11.03% over 1996. This change was a result of an increase in both the average
volume of interest-earning assets and the yield on interest-earning assets. The
average volume of outstanding loans, securities available for sale and federal
funds sold increased $11,680,000, $12,569,000 and $11,322,000 compared to 1996.
The yield on loans, securities available for sale and federal funds sold
increased 0.20%, 0.22% and 0.31% compared to 1996.
Total interest expense was $16,257,000 in 1997, an increase of $1,785,000 or
12.33% over 1996. This change was predominately due to an increase of
$29,577,000 in the average volume of interest-bearing liabilities, from an
average of $330,279,000 during 1996 to an average of $359,856,000 during 1997.
The increase in the average volume of interest-bearing liabilities was primarily
due to the $29,944,000 increase in the average volume of other time deposits
from $146,484,000 in 1996 to $176,428,000 in 1997.
Net interest income, the difference between total interest income and total
interest expense, increased $1,405,000 during 1997 due to increases in both
volume and rate as described above. The increased interest income was greater
than the increased interest expense, thereby causing net interest income to
increase.
The net interest rate spread and the net interest margin are two ratios
frequently used to measure differences in interest income and interest expense.
The net interest rate spread (the average rate on interest-earning assets minus
the average rate on interest-bearing liabilities) was 3.11% for 1997 and 3.12%
for 1996, a difference of one basis point. The net interest margin (net interest
income divided by average interest-earning assets) increased two basis points to
3.77% during 1997 from 3.75% during 1996.
The provision for loan losses increased $360,000 from $1,440,000 in 1996 to
$1,800,000 in 1997. The increase during 1997 was due to the increase in total
loans, net of deferred fees, of 5.22% and also provided for a 28 basis point
increase in the allowance for loan losses to total loans ratio. The allowance
for loan losses at December 31, 1997, was $3,252,000 or 1.19% of total loans
which compares to $2,367,000 or 0.91% of total loans at December 31, 1996. The
increase in both the
- --------------------------------------------------------------------------------
F-5
<PAGE> 87
provision and the allowance for loan losses during 1997 was primarily due to the
growth in the loan portfolio, a need to replenish the allowance for loan losses
for $915,000 in net charge-offs recorded during 1997 and increasing the
allowance for risks related to a $600,000 increase in total impaired loans,
excluding impaired Bennett Funding loans (see discussion of Bennett Funding
loans later herein), from $1.3 million at December 31, 1996 to $1.9 million at
December 31, 1997. The allowance allocated to these impaired loans increased
$157,000 from $282,000 at December 31, 1996 to $439,000 at December 31, 1997.
Impaired loans totaled $2.8 million at December 31, 1997, including $862,000
related to Bennett Funding, compared to $5.8 million at December 31, 1996,
including $4.5 million related to Bennett Funding. The decline in the balance of
impaired Bennett Funding loans from December 31, 1996 to December 31, 1997 was
due to significant payments received during 1997 under a settlement agreement
with the Bennett Funding bankruptcy trustee. No portion of the allowance for
loan losses was allocated for the Bennett Funding loans at December 31, 1997 or
1996 as full payment on the remaining balance, after recording a $1.7 million
charge-off in 1996, was expected based on the agreement with the bankruptcy
trustee.
The level of nonaccrual loans 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 decreased $3.2 million from
$5.8 million at December 31, 1996 to $2.6 million at December 31, 1997. The
decrease in nonaccrual loans during 1997 occurred primarily as a result of $3.6
million in settlement payments received on the Bennett Funding loans during
1997.
Noninterest income increased $574,000 or 17.52% in 1997 as compared to 1996. Net
realized gain (loss) on securities available for sale increased $113,000 from a
loss of $28,000 during 1996 to a gain of $85,000 during 1997. During 1997, the
Corporation received $17.2 million in proceeds from sales of securities
available for sale. Service charges on deposit accounts increased $451,000 or
26.63% over 1996 and represented the majority of the increase in noninterest
income. This increase was achieved as the result of implementing a free checking
account product and replacing the lost monthly service charge income with higher
services charges for overdraft and non-sufficient fund transactions.
Noninterest expenses increased $1.7 million or 18.21% in 1997 as compared to
1996. The largest component of noninterest expenses is salaries and employee
benefits, which increased $770,000 or 15.93% in 1997 as compared to 1996
primarily due to additional employees needed to service a 9.49% growth in total
assets, normal annual wage and salary increases and related increases in
employee benefits. Furniture and equipment expense increased $146,000 or 16.58%
in 1997 as compared to 1996. Marketing expense increased $148,000 or 42.67%
primarily due to increased promotional efforts to generate home equity line of
credit loans and deposits. Other expenses also increased $457,000 or 24.39% in
1997 as compared to 1996 primarily due to increases in ATM interchange fees,
credit card processing fees, telephone expense and postage.
Income tax expense decreased $220,000 in 1997 as compared to 1996. This decrease
was primarily due to an increase of $622,000 in tax exempt interest income that
resulted in a $211,000 reduction of income tax expense in 1997 as compared to
1996.
- --------------------------------------------------------------------------------
F-6
<PAGE> 88
Net loans increased $12.6 million or 4.93% during 1997. The majority of the
increase was from growth in real estate-mortgage loans which increased $9.2
million or 10.75%. This increase was achieved as the Corporation took advantage
of continued mortgage loan demand for both new and loan refinancing taking place
during 1997 due to the low interest rate environment during 1997 as compared to
historical interest rates.
Securities available for sale increased $30.3 million or 24.38% during 1997. All
securities were classified as available for sale at December 31, 1997 to be
available for liquidity and asset-liability management purposes. The Corporation
follows a conservative investment policy, investing primarily for interest rate
risk management and liquidity management purposes and to also provide additional
interest income.
The Corporation solicits deposits by offering a wide variety of savings and
transaction accounts, including checking accounts, regular savings accounts,
money market accounts and other time deposits of various maturities and rates.
Total deposits increased $17.4 million or 4.81% during 1997. The growth in
deposits was used to help finance the growth in the loan and securities
portfolios.
Federal funds purchased and securities sold under agreements to repurchase
increased $8.2 million and $8.0 million during 1997. These funds were also used
to help finance the growth in the loan and securities portfolios.
LIQUIDITY
The Corporation manages its liquidity position through the Bank. The purpose of
liquidity management is to fund loan demand, meet the withdrawal needs of
customers and provide for operating expenses. Sources of liquidity are cash and
funds due from financial institutions, interest-bearing balances with financial
institutions, federal funds sold, sale and/or maturity of securities classified
as available for sale and principal repayments on loans. The Corporation also
has a borrowing relationship with the Federal Home Loan Bank of Indianapolis.
This relationship allows the Corporation to borrow funds using the Bank's real
estate mortgage loans, held in portfolio, as collateral. This ability to borrow
funds allows for another source of liquidity. Management believes its current
liquidity level is sufficient to meet anticipated growth.
The consolidated statements of cash flows indicates the concerted level of
emphasis management has placed upon maximizing interest income from earning
assets. While cash and cash equivalents have fluctuated from a low of
$14,950,000 at the beginning of 1996 to a high of $26,076,000 at year end 1996,
and to $25,223,000 at December 31, 1998, management has structured its balance
sheet to increase the overall net interest margin on average interest-earning
assets by using funds obtained from deposits and borrowings to invest in the
origination of loans and the purchase of securities available for sale. Cash and
due from financial institutions at reporting periods may fluctuate due to
various operational activities, however, the average balance of cash and due
from financial institutions has been $12,030,000 during 1996, $11,799,000 during
1997 and $13,801,000 during 1998, demonstrating that management of liquidity and
noninterest-earning funds has been consistent.
- --------------------------------------------------------------------------------
F-7
<PAGE> 89
Liquid assets include cash and due from financial institutions, securities
available for sale, federal funds sold and interest-bearing balances with
financial institutions. Core deposits are defined as customer account balances
that are loyal to a particular financial institution. Core deposits exclude
public funds and brokered deposits or "hot money."
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Liquid Assets (in millions) $230.9 $177.6
Core Deposits (in millions) $253.5 $216.5
</TABLE>
INTEREST RATE SENSITIVITY
The following schedules details the maturities and yields of interest-bearing
financial instruments at December 31, 1998 and 1997, for the next five years and
thereafter. 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 internal core deposit studies and
current expectations of customer behavior. For loans and liabilities with
contractual maturities, the table presents principal cash flows and related
weighted-average interest rates by contractual maturities. For securities the
table presents principal cash flows and related weighted-average interest rates
by scheduled repayments, expected prepayments and expected calls. The data in
the tables was aggregated by type of financial instrument - fixed and variable
rate loans, fixed and variable rate securities available for sale, fixed and
variable rate deposits, and fixed rate borrowings. The Corporation has no
interest rate swaps, interest rate caps, or interest rate floors. Therefore,
data concerning these instruments is not included in the tables.
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 the
Corporation's net interest margin to swings in interest rates, to assuring
sufficient capital and liquidity to support future balance sheet growth. The
Corporation manages interest rate risk through the Asset/Liability Committee.
The Asset/Liability Committee is comprised of bank officers from various
disciplines. The Committee establishes policies and rates which lead to the
prudent investment of resources, the effective management of risks associated
with changing interest rates, the maintenance of adequate liquidity, and the
earning of an adequate return on shareholders' equity.
- --------------------------------------------------------------------------------
F-8
<PAGE> 90
MARKET RISK DISCLOSURE OF SCHEDULED MATURITIES AT DECEMBER 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS
Variable interest rate loans $ 34,890 $17,339 $11,286 $ 3,634 $ 7,247 $ 8,882 $ 83,278
Average interest rate 8.06% 7.47% 7.31% 7.47% 7.52% 7.04% 7.65%
Fixed interest rate loans $ 95,025 $42,452 $30,188 $19,085 $15,574 $32,672 $234,996
Average interest rate 8.46% 8.41% 8.25% 7.87% 7.80% 7.76% 8.24%
Variable interest rate securities
available for sale $ 43,944 $ -- $ -- $ -- $ -- $ -- $ 43,944
Average interest rate 6.37% --% --% --% --% --% 6.37%
Fixed interest rate securities
available for sale $ 22,790 $22,454 $ 9,993 $12,462 $11,830 $82,150 $161,679
Average interest rate 6.78% 6.62% 6.02% 5.81% 5.45% 5.02% 5.64%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing demand deposits $ 23,622 $11,812 $11,812 $11,812 $ -- $ -- $ 59,058
Average interest rate --% --% --% --% --% --% --%
Savings, NOW and money market deposits $ 81,725 $40,917 $40,917 $30,884 $ -- $ -- $194,443
Average interest rate 2.76% 2.76% 2.76% 2.43% --% --% 2.71%
Variable interest rate other time deposits $ 6,797 $ -- $ -- $ -- $ -- $ -- $6,797
Average interest rate 4.19% --% --% --% --% --% 4.19%
Fixed interest rate other time deposits $121,951 $54,788 $ 4,898 $ 3,088 $ 2,311 $ 1,769 $188,805
Average interest rate 5.20% 5.72% 5.26% 6.11% 5.46% 5.25% 5.37%
Fixed interest rate securities sold under
agreements to repurchase $ 5,657 $ -- $ -- $ -- $ -- $ -- $ 5,657
Average interest rate 5.45% --% --% --% --% --% 5.45%
Fixed interest rate borrowings $ 38,763 $ 530 $ 2,445 $ 736 $ 5,000 $ 5,000 $ 52,474
Average interest rate 4.96% 6.12% 5.87% 6.71% 4.79% 5.33% 5.06%
</TABLE>
MARKET RISK DISCLOSURE OF SCHEDULED MATURITIES AT DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS
Variable interest rate loans $ 52,169 $14,924 $18,389 $ 5,203 $5,972 $18,802 $115,459
Average interest rate 8.85% 8.28% 7.71% 7.80% 7.71% 7.52% 8.27%
Fixed interest rate loans $ 75,829 $31,531 $19,607 $ 8,909 $5,231 $15,982 $157,089
Average interest rate 9.40% 8.77% 8.81% 8.31% 7.91% 8.33% 8.98%
Variable interest rate securities
available for sale $ 51,347 $ -- $ -- $ -- $ -- $ -- $ 51,347
Average interest rate 6.84% --% --% --% --% --% 6.84%
Fixed interest rate securities
available for sale $ 3,945 $ 9,132 $ 9,954 $ 3,702 $3,882 $72,521 $103,136
Average interest rate 5.81% 6.31% 6.36% 6.00% 5.70% 5.94% 6.00%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing demand deposits $ 32,957 $ -- $14,125 $ -- $ -- $ -- $ 47,082
Average interest rate --% --% --% --% --% --% --%
Savings, NOW and money market deposits $ 69,943 $34,971 $34,971 $29,570 $ -- $ -- $169,455
Average interest rate 3.23% 3.23% 3.23% 3.16% --% --% 3.22%
Variable interest rate other time deposits $ 7,151 $ -- $ -- $ -- $ -- $ -- $ 7,151
Average interest rate 5.36% --% --% --% --% --% 5.36%
Fixed interest rate other time deposits $114,966 $23,863 $ 7,258 $ 3,076 $3,679 $ 2,146 $154,988
Average interest rate 5.65% 5.90% 5.83% 5.81% 5.82% 7.05% 5.72%
Fixed interest rate securities sold under
agreements to repurchase $ 8,000 $ -- $ -- $ -- $ -- $ -- $ 8,000
Average interest rate 5.63% --% --% --% --% --% 5.63%
Fixed interest rate borrowings $ 21,097 $ 678 $ 530 $ 2,445 $ 736 $ -- $ 25,486
Average interest rate 5.69% 6.11% 6.12% 5.87% 6.71% --% 5.76%
</TABLE>
- --------------------------------------------------------------------------------
F-9
<PAGE> 91
CAPITAL MANAGEMENT
Total shareholders' equity was $44,533,000 as of December 31, 1998. This
represents an increase over the prior year of December 31, 1997 of 12.23%. This
was accomplished while increasing the cash dividend from $17.00 per share during
1997 to $18.00 per share during 1998. The primary component of the change in
shareholders' equity is the net income for the year. Secondarily, the year of
1998 benefited from a $484,000 net unrealized gain on securities classified as
available for sale, net of tax.
Restrictions exist due to regulatory guidelines imposed upon all financial
institutions regarding the Bank's ability to transfer funds to the Corporation
in the form of cash dividends, loans or advances. These restrictions have had no
significant impact on the Corporation's dividend policy or operations.
The Corporation's subsidiary Bank remains above the minimum capital levels
required by regulatory agencies to meet the definition of a well capitalized
Bank. The banking regulators may alter minimum capital requirements as a result
of revising their internal policies and their rating of the Corporation's
subsidiary Bank. As of December 31, 1998, management is not aware of any current
recommendations by banking authorities which, if they were to be implemented,
would have, or are reasonably likely to have a material adverse effect on the
Corporation's liquidity, capital resources or operations.
Under risk-based capital guidelines issued by the Federal Reserve Board, the
Corporation and its subsidiary Bank are required to maintain a minimum
risk-based total capital ratio of 8% and a minimum Tier 1 capital ratio of 4% as
of December 31, 1998. While risk-based total capital and risk-based Tier 1
capital guidelines consider on-balance-sheet and off-balance-sheet risk, the
minimum Tier 1 capital ratio measures capital in relation to total
on-balance-sheet assets. The components of risk-based total capital are Tier 1
capital and Tier 2 capital. The definition of capital, used in the Tier 1
capital ratio, is identical to Tier 1 capital under risk-based capital
guidelines. Tier 1 capital is total shareholders' equity less intangible assets.
Tier 2 capital includes total allowance for loan losses up to a maximum of 1.25%
of risk-weighted assets. The net unrealized gain (loss) on securities available
for sale, net of tax, is not considered for meeting regulatory capital
requirements. The following table provides the minimum regulatory capital
requirements and the Corporation's and the Bank's actual capital ratios at
December 31, 1998.
<TABLE>
<CAPTION>
Minimum Regulatory Corporation's Bank's
Capital Requirements Actual Capital Ratio Actual Capital Ratio
Type of Capital Ratio at December 31, 1998 at December 31, 1998 at December 31, 1998
--------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Ratio of total capital to
risk-weighted assets 8% 14.4% 14.3%
Ratio of Tier 1 capital to
risk-weighted assets 4% 13.2% 13.1%
Tier 1 capital ratio 4% 7.8% 7.7%
</TABLE>
- --------------------------------------------------------------------------------
F-10
<PAGE> 92
IMPACT OF THE YEAR 2000
The Corporation is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The issue is whether
computer systems will properly recognize the date sensitive information as the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Corporation is
heavily dependent on computer processing in its business activities and the year
2000 issue creates risk for the Corporation from unforeseen problems in the
Corporation's computer systems and from third parties whom the Corporation uses
to process information. Such failures of the Corporation's computer systems
and/or third parties computer systems could have a material impact on the
Corporation's ability to conduct its business.
A major third party vendor provides the Corporation's primary data processing.
This provider has advised the Corporation that it has completed the renovation
and testing of its system to be Year 2000 ready. Users of the system have been
given the opportunity to participate in proxy testing of the system and the
Corporation has taken advantage of this opportunity.
The Corporation has performed an assessment of its computer hardware and
software, and has determined those systems that require upgrades to be Year 2000
ready. Such upgrades have been substantially completed. In addition, the
Corporation has reviewed other external third party vendors that provide
services to the Corporation (i.e. utility companies, electronic fund transfer
providers, and alarm companies), and has requested or already received
certification letters from these vendors that their systems will be Year 2000
ready on a timely basis. Testing will be performed with these service providers,
where possible, to determine their Year 2000 readiness.
The Corporation could incur losses if loan payments are delayed due to Year 2000
problems affecting significant borrowers. The Corporation is communicating with
such parties to assess their progress in evaluating and implementing any
corrective measures required by them to be Year 2000 ready. To date, the
Corporation has not been advised by such parties that they do not have plans in
place to address and correct the issues associated with the Year 2000 problem;
however, no assurance can be given as to the adequacy of such plans or to the
timeliness of their implementation.
Based on the Corporation's review of its computer systems, management believes
the cost of the remediation effort to make its systems Year 2000 ready will be
approximately $51,000. In addition, it is estimated that 3,082 man-hours will be
incurred by Corporation personnel related to Year 2000 issues at an approximate
cost of $93,000. Such costs will be charged to expense as incurred. Computer
equipment totaling about $200,000 is to be replaced in many areas of the
Corporation during 1998 and 1999. Much of this equipment was replaced sooner
than it otherwise would have been for Year 2000 compliance purposes; however, it
was not replaced purely for this reason.
The Corporation has developed a Year 2000 contingency plan that addresses, among
other issues, critical operations and potential failures thereof, and strategies
for business continuation.
- --------------------------------------------------------------------------------
F-11
<PAGE> 93
Although management believes the Corporation's computer systems and service
providers will be Year 2000 ready, there can be no assurance that these systems,
or those systems of other companies on which the Corporation's systems rely,
will be fully functional in the Year 2000. Such failures could have a
significant adverse impact on the financial condition and results of operations
of the Corporation.
THE IMPACT OF INFLATION AND CHANGING PRICES
For a financial institution, the effects of price changes and inflation can vary
substantially. Inflation affects the growth of total assets, but it is difficult
to assess its impact since neither the timing nor the magnitude of the changes
in the consumer price index (CPI) coincides with changes in interest rates. The
price of one or more of the important components of the CPI may fluctuate
considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by the Corporation. In years of high inflation and
high interest rates, intermediate and long-term fixed interest rates tend to
increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans. In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In years of low inflation and low interest rates, the reverse
situation may occur.
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings involving the Corporation with
the Securities and Exchange Commission, in the Corporation's press releases or
other public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases, "anticipate,"
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimated," "project," or similar
expressions are intended to identify, "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to risks and uncertainties, including but not limited to changes in
economic conditions in the Corporation's market area, and competition, all or
some of which could cause actual results to differ materiality from historical
earnings and those presently anticipated or projected.
The Corporation wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect the Corporation's financial performance and could cause
the Corporation's actual results for future periods to differ materiality from
those anticipated or projected.
The Corporation does not undertake, and specifically disclaims any obligation,
to update any forward looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
- --------------------------------------------------------------------------------
F-12
<PAGE> 94
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
F-13
<PAGE> 95
SAND RIDGE FINANCIAL CORPORATION
Highland, Indiana
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
CONTENTS
REPORT OF INDEPENDENT AUDITORS ................................. F-15
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ............................... F-16
CONSOLIDATED STATEMENTS OF INCOME ......................... F-17
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ........... F-18
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY .................................... F-19
CONSOLIDATED STATEMENTS OF CASH FLOWS ..................... F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................ F-22
- --------------------------------------------------------------------------------
F-14
<PAGE> 96
SAND RIDGE FINANCIAL CORPORATION
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Sand Ridge Financial Corporation
Highland, Indiana
We have audited the accompanying consolidated balance sheets of Sand Ridge
Financial Corporation as of December 31, 1998 and 1997 and the related
consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows for the years ended December 31, 1998, 1997
and 1996. These consolidated financial statements are the responsibility of the
Corporation'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sand Ridge Financial
Corporation as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years ended December 31, 1998, 1997 and 1996 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
South Bend, Indiana
January 15, 1999
- --------------------------------------------------------------------------------
F-15
<PAGE> 97
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 25,223,057 $ 23,009,706
Interest-bearing balances with financial
institutions 100,000 100,000
Securities available for sale 205,623,230 154,483,307
Loans receivable, net of allowance for loan
losses of $4,141,086 in 1998 and $3,252,361 in 1997 313,614,205 268,729,148
Premises and equipment - net 6,077,074 5,958,084
Interest receivable and other assets 6,535,332 3,813,879
------------ ------------
Total assets $557,172,898 $456,094,124
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing demand deposits $ 59,057,678 $ 47,081,633
Savings, NOW and money market 194,442,770 169,455,230
Other time deposits 195,601,731 162,139,170
------------ ------------
Total deposits 449,102,179 378,676,033
Federal funds purchased 7,500,000 13,800,000
Securities sold under agreements to repurchase 5,657,000 8,000,000
U.S. Treasury demand note 584,323 --
Advances from Federal Home Loan Bank (FHLB) 44,389,845 11,686,285
Interest payable and other liabilities 5,406,751 4,251,128
------------ ------------
Total liabilities 512,640,098 416,413,446
Shareholders' equity
Preferred stock, 100,000 shares authorized and
-0- shares outstanding -- --
Common stock, $10 stated value: 200,000 shares
authorized and 60,000 shares issued and outstanding 600,000 600,000
Additional paid-in capital 4,600,000 4,600,000
Retained earnings 36,411,035 32,042,978
Net unrealized gains on securities available for sale,
net of tax of $1,916,394 in 1998 and $1,598,894 in 1997 2,921,765 2,437,700
------------ ------------
Total shareholders' equity 44,532,800 39,680,678
------------ ------------
Total liabilities and shareholders' equity $557,172,898 $456,094,124
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 98
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans, including fees $ 24,294,722 $ 22,642,057 $ 21,148,663
Deposits with financial institutions 9,134 9,133 19,071
Federal funds sold 140,506 973,281 316,246
Securities:
Taxable 6,571,829 5,106,986 4,689,273
Non-taxable 4,325,736 3,390,166 2,758,563
------------ ------------ ------------
35,341,927 32,121,623 28,931,816
Interest expense
Deposits 16,555,671 15,718,890 14,052,419
Federal funds purchased 207,431 18,216 178,043
Securities sold under agreements to repurchase 344,351 50,548 92,767
Advances from FHLB 897,725 469,187 149,157
Other 45,539 -- --
------------ ------------ ------------
18,050,717 16,256,841 14,472,386
------------ ------------ ------------
NET INTEREST INCOME 17,291,210 15,864,782 14,459,430
Provision for loan losses 2,050,000 1,800,000 1,440,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,241,210 14,064,782 13,019,430
Noninterest income
Net securities gains (losses) 119,214 85,417 (27,729)
Service charges on deposit accounts 2,368,004 2,145,418 1,694,261
ATM fees 523,228 412,697 323,778
Investment commissions 506,643 353,112 366,235
Trust revenues 170,891 144,960 105,730
Other income 845,306 709,519 814,751
------------ ------------ ------------
4,533,286 3,851,123 3,277,026
Noninterest expenses
Salaries and employee benefits 6,532,357 5,601,839 4,832,160
Occupancy 781,317 700,494 614,385
Furniture and equipment 1,026,707 1,028,016 881,848
FDIC insurance 48,759 46,958 12,457
Data processing 609,977 582,320 552,378
Marketing 474,190 496,356 347,896
Supplies 450,903 441,032 383,009
Other expenses 2,757,633 2,331,952 1,874,650
------------ ------------ ------------
12,681,843 11,228,967 9,498,783
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 7,092,653 6,686,938 6,797,673
Income tax expense 1,644,596 1,694,222 1,914,131
------------ ------------ ------------
NET INCOME $ 5,448,057 $ 4,992,716 $ 4,883,542
============ ============ ============
Basic earnings per common share $ 90.80 $ 83.21 $ 81.39
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 99
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 5,448,057 $ 4,992,716 $ 4,883,542
Other comprehensive income (loss)
Net change in unrealized gains on securities
available for sale
Unrealized gains (losses) arising during
the year 920,779 1,937,894 (584,248)
Reclassification adjustments for
(gains) losses included in net income (119,214) (85,417) 27,729
----------- ----------- -----------
Net change in unrealized gains on
securities available for sale 801,565 1,852,477 (556,519)
Tax effects (317,500) (733,764) 220,436
----------- ----------- -----------
Total other comprehensive income (loss) 484,065 1,118,713 (336,083)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 5,932,122 $ 6,111,429 $ 4,547,459
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 100
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses)
on Securities
Additional Available Total
Common Paid-In Retained For Sale, Shareholders'
Stock Capital Earnings Net of Tax Equity
----- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance-January 1, 1996 $ 600,000 $ 4,600,000 $ 24,146,720 $ 1,655,070 $ 31,001,790
Net income -- -- 4,883,542 -- 4,883,542
Cash dividends ($16.00
per share) -- -- (960,000) -- (960,000)
Net change in unrealized
gains (losses) on
securities available for
sale, net of tax of
($220,436) -- -- -- (336,083) (336,083)
------------ ------------ ------------ ------------ ------------
Balance-December 31, 1996 600,000 4,600,000 28,070,262 1,318,987 34,589,249
Net income -- -- 4,992,716 -- 4,992,716
Cash dividends ($17.00
per share) -- -- (1,020,000) -- (1,020,000)
Net change in unrealized
gains (losses) on
securities available for
sale, net of tax of
$733,764 -- -- -- 1,118,713 1,118,713
------------ ------------ ------------ ------------ ------------
Balance-December 31, 1997 600,000 4,600,000 32,042,978 2,437,700 39,680,678
Net income -- -- 5,448,057 -- 5,448,057
Cash dividends ($18.00
per share) -- -- (1,080,000) -- (1,080,000)
Net change in unrealized
gains (losses) on
securities available for
sale, net of tax of
$317,500 -- -- -- 484,065 484,065
------------ ------------ ------------ ------------ ------------
Balance-December 31, 1998 $ 600,000 $ 4,600,000 $ 36,411,035 $ 2,921,765 $ 44,532,800
============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 101
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,448,057 $ 4,992,716 $ 4,883,542
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 958,032 901,591 855,747
Provision for loan losses 2,050,000 1,800,000 1,440,000
Net amortization and (accretion) of securities 250,426 (125,810) 122,891
Net securities (gains) losses (119,214) (85,417) 27,729
Net (gains) losses on sales of premises
and equipment -- (6,325) (142,191)
Net change in:
Other assets (3,038,953) (606,591) (604,671)
Other liabilities 1,095,623 116,413 (329,627)
------------- ------------- -------------
Total adjustments 1,195,914 1,993,861 1,369,878
------------- ------------- -------------
Net cash from operating activities 6,643,971 6,986,577 6,253,420
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing balances with
financial institutions -- -- 289,583
Net change in loans receivable (47,286,555) (15,010,345) (14,904,487)
Purchase of:
Securities available for sale (162,227,350) (96,824,613) (45,358,515)
Premises and equipment (1,077,022) (760,516) (544,255)
Proceeds from:
Sales of securities available for sale 12,058,550 17,228,831 28,998,352
Maturities and calls of securities
available for sale 78,873,129 41,740,880 5,030,031
Principal payments on securities
available for sale 20,826,101 9,639,853 11,006,152
Recoveries on loans charged-off 351,498 596,328 348,279
Sales of premises and equipment -- 14,884 819,049
------------- ------------- -------------
Net cash from investing activities (98,481,649) (43,374,698) (14,315,811)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE> 102
SAND RIDGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 70,426,146 $ 17,395,583 $ 25,258,420
Net change in federal funds purchased (6,300,000) 8,200,000 (2,400,000)
Proceeds from securities sold under
agreements to repurchase 6,852,450 8,000,000 1,818,860
Repayment of securities sold under agreements
to repurchase (9,195,450) -- (5,588,580)
Net change in U.S. Treasury demand note 584,323 -- --
Proceeds from advances from FHLB 40,000,000 8,250,000 11,000,000
Repayment of advances from FHLB (7,296,440) (7,563,715) (10,000,000)
Cash dividends paid (1,020,000) (960,000) (900,000)
------------ ------------ ------------
Net cash from financing activities 94,051,029 33,321,868 19,188,700
------------ ------------ ------------
Net change in cash and cash equivalents 2,213,351 (3,066,253) 11,126,309
Cash and cash equivalents at beginning of year 23,009,706 26,075,959 14,949,650
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,223,057 $ 23,009,706 $ 26,075,959
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 17,598,129 $ 15,992,313 $ 14,429,340
Income taxes 3,636,215 1,667,000 2,899,754
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 103
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of Sand Ridge Financial Corporation and its wholly-owned
subsidiary, Sand Ridge Bank ("the Bank") (together referred to as "the
Corporation"). Sand Ridge Financial Corporation is a bank holding company,
organized under Indiana law, that owns all of the outstanding stock of Sand
Ridge Bank. All significant inter-company balances and transactions have been
eliminated in consolidation.
Nature of Business and Concentration of Credit Risk: The Corporation accepts
deposits and grants commercial, real estate, installment and personal loans to
customers mainly in the northwestern Indiana region. Substantially all loans are
collateralized by specific items including business assets, consumer assets, and
residences. Commercial loans make up approximately 39% of the loan portfolio and
include loans secured by business assets. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate loans make up
approximately 42% of the loan portfolio and are collateralized by both
commercial and residential real estate.
Use of Estimates In Preparing Financial Statements: The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period, as well as the
disclosures provided. Areas involving the use of estimates and assumptions in
the accompanying consolidated financial statements include the allowance for
loan losses, fair values of financial instruments, determination and carrying
value of impaired loans, the realization of deferred tax assets, and the
determination of depreciation of premises and equipment. Actual results could
differ from those estimates. The allowance for loan losses and the fair values
of financial instruments are particularly susceptible to significant change in
the near term.
Comprehensive Income (Loss): Comprehensive income (loss) consists of net income
and other comprehensive income (loss). Other comprehensive income (loss)
includes the net change in unrealized gains and losses on securities available
for sale, net of tax, which is also recognized as a separate component of
shareholders' equity. The accounting standard that requires reporting
comprehensive income first applied for 1998, with prior information restated to
be comparable.
Cash Flow Reporting: For purposes of the statement of cash flows, cash and cash
equivalents is defined to include the Corporation's cash on hand, demand
deposits in other financial institutions and its federal funds sold with a
maturity of 90 days or less. The Corporation reports net cash flows for customer
loan and deposit transactions, interest-bearing balances with financial
institutions, and short-term borrowings with maturities of 90 days or less.
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE> 104
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: The Corporation has the ability to classify investment securities
and mortgage-backed and related securities into held to maturity and available
for sale categories at the time of purchase. Held to maturity securities are
those which the Corporation has the positive intent and ability to hold to
maturity, and are reported at amortized cost. Available for sale securities are
those the Corporation may decide to sell if needed for liquidity,
asset-liability management or other reasons. Available for sale securities are
reported at fair value, with net unrealized gains and losses included as a
separate component of other comprehensive income and shareholders' equity, net
of tax. Currently, the Corporation has classified all securities as available
for sale.
Realized gains and losses resulting from the sale of securities are computed by
the specific identification method. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings. Premiums
and discounts on securities are recognized using the level yield method over the
estimated life of the security.
Interest Income on Loans: Interest on loans is accrued over the term of the
loans based on the principal balance outstanding. When serious doubt exists as
to collectibility of a loan, the accrual of interest is discontinued. Under
Statement of Financial Accounting Standards ("SFAS") No. 114, as amended by SFAS
No. 118, the carrying values of impaired loans are periodically adjusted to
reflect cash payments, revised estimates of future cash flows, and increases in
the present value of expected cash flows due to passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as a component of the provision for loan losses.
Loan Fees and Costs: Loan fees, net of direct loan origination costs, are
deferred. The net amount deferred is reported in the consolidated balance sheets
as part of loans and is recognized into interest income over the term of the
loan using the level yield method.
Allowance For Loan Losses: The allowance for loan losses is established because
some loans may not be paid in full. Increases to the allowance are recorded by a
provision for loan losses charged to expense. Estimating the risk of loss and
the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are currently anticipated. This is based on past loss experience,
general economic conditions, information about specific borrowers' situations,
including their financial position and collateral values, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off by management as a loss when deemed uncollectible,
although collection efforts continue and future recoveries may occur.
- --------------------------------------------------------------------------------
(Continued)
F-23
<PAGE> 105
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans are considered impaired if full principal or interest payments are not
anticipated in accordance with the contractual loan terms. Impaired loans are
carried at the present value of expected future cash flows discounted at the
loan's effective interest rate or at the fair value of the collateral if the
loan is collateral dependent. A portion of the allowance for loan losses is
allocated to impaired loans if the value of such loans is deemed to be less than
the unpaid balance. If these allocations cause the allowance for loan losses to
require an increase, such increase is reported as a component of the provision
for loan losses.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, and automobile, manufactured homes,
home equity and second mortgage loans. Commercial loans and mortgage loans
secured by other properties are evaluated individually for impairment. When
analysis of borrower operating results and financial condition indicates that
underlying cash flows of the borrower's business are not adequate to meet its
debt service requirements, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 90 days or more. Nonaccrual
loans are often also considered impaired.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of
acquisition, establishing a new cost basis. Any reduction to fair value from the
carrying value of the related loan at the time of acquisition is accounted for
as a loan loss and charged against the allowance for loan losses. After
acquisition, a valuation allowance is recorded through a charge to income for
the amount of estimated selling costs. Valuations are periodically performed by
management, and valuation allowances are adjusted through a charge to income for
changes in fair value or estimated costs to sell. The dollar amount of
properties held as other real estate owned at December 31, 1998 and 1997 was
$-0- and $200,000.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. All depreciation is computed on a straight-line basis
with useful lives as follows:
Buildings and improvements 15 - 40 years
Furniture, equipment and land improvements 3 - 15 years
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE> 106
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Sold Under Agreements To Repurchase: Substantially all securities
sold under agreements to repurchase represent amounts advanced by various
customers that are not covered by federal deposit insurance and are secured by
securities owned.
Dividend Restriction: The Corporation and the Bank are subject to banking
regulations which require the maintenance of certain capital levels which limit
the amount of dividends which may be paid. For regulatory capital requirements,
see Note 14.
Profit Sharing Plan: The Corporation maintains a 401(k) profit sharing plan
covering substantially all employees. The plan provides for discretionary
contributions by the Corporation as determined by the Board of Directors and
voluntary employee contributions. The Corporation's contribution to the plan is
charged to expense annually. The Corporation's expense for 1998, 1997 and 1996
was approximately $385,000, $305,000 and $347,000.
Earnings Per Common Share: Basic earnings per common share is based on the
weighted average common shares outstanding. The weighted average number of
common shares outstanding was 60,000 for 1998, 1997 and 1996. Diluted earnings
per common share further assumes issue of any dilutive potential common shares.
The Corporation has no dilutive potential common shares, therefore no diluted
earnings per common share is reported for 1998, 1997 or 1996.
Financial Instruments With Off-Balance-Sheet Risk: The Corporation, in the
normal course of business, makes commitments to extend credit which are not
reflected in the consolidated financial statements. A summary of these
commitments is disclosed in Note 10.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately in Note 13. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on- and
off-balance-sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
- --------------------------------------------------------------------------------
(Continued)
F-25
<PAGE> 107
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segments: Sand Ridge Financial Corporation, through the branch network of its
subsidiary, Sand Ridge Bank, provides a broad range of financial services to
individuals and companies in northwestern Indiana. These services include
demand, time, and savings deposits; credit card servicing; ATM processing; cash
management; investment; and trust services. While the Corporation's chief
decision makers monitor the revenue streams of the various Corporation products
and services, operations are managed and financial performance is evaluated on a
Corporation-wide basis. Accordingly, all of the Corporation's banking operations
are considered by management to be aggregated in one reportable operating
segment.
Reclassifications: Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform with the 1998 presentation.
NOTE 2 - CASH AND DUE FROM FINANCIAL INSTITUTIONS
The Corporation is required by the Federal Reserve to maintain cash reserves
consisting of cash on hand and noninterest-bearing balances on deposit with the
Federal Reserve Bank. The required cash reserve and clearing balances at
December 31, 1998 and 1997 were approximately $6,131,000 and $6,815,000.
- --------------------------------------------------------------------------------
(Continued)
F-26
<PAGE> 108
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Year end securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
1998
U.S. Treasury $ 8,029,504 $ 89,244 $ -- $ 8,118,748
U.S. Government and
federal agencies 28,719,876 418,356 -- 29,138,232
States and political
subdivisions 106,039,421 4,154,137 (203,698) 109,989,860
Mortgage-backed pass-
through securities 11,473,740 424,024 -- 11,897,764
Collateralized
mortgage obligations 44,066,032 210,333 (256,111) 44,020,254
Corporate and other
debt securities 198,751 1,874 -- 200,625
Marketable equity
securities 2,257,747 -- -- 2,257,747
------------- ------------- ------------- -------------
$ 200,785,071 $ 5,297,968 $ (459,809) $ 205,623,230
============= ============= ============= =============
1997
U.S. Treasury $ 8,055,141 $ 34,709 $ (2,352) $ 8,087,498
U.S. Government and
federal agencies 11,222,621 54,297 (92) 11,276,826
States and political
subdivisions 66,532,154 2,990,588 (91,960) 69,430,782
Mortgage-backed pass-
through securities 18,583,374 704,089 (105) 19,287,358
Collateralized
mortgage obligations 42,000,894 496,917 (156,305) 42,341,506
Corporate and other
debt securities 2,671,229 8,880 (2,072) 2,678,037
Marketable equity
securities 1,381,300 -- -- 1,381,300
------------- ------------- ------------- -------------
$ 150,446,713 $ 4,289,480 $ (252,886) $ 154,483,307
============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-27
<PAGE> 109
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
The amortized cost and fair value of securities available for sale, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a single maturity date or with no maturity date are shown separately.
<TABLE>
<CAPTION>
Securities Available for Sale
December 31, 1998
-----------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 7,109,231 $ 7,167,382
Due after one year through five years 18,104,848 18,716,669
Due after five years through ten years 48,411,267 50,178,797
Due after ten years 69,362,206 71,384,617
Mortgage-backed pass-through securities
and collateralized mortgage obligations 55,539,772 55,918,018
Marketable equity securities 2,257,747 2,257,747
------------ ------------
$200,785,071 $205,623,230
============ ============
</TABLE>
Proceeds, gross gains and gross losses realized from sales of securities
available for sale for the years ended December 31, 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales of securities
available for sale $ 12,058,550 $ 17,228,831 $ 28,998,352
============ ============ ============
Gross gains from sales of securities
available for sale $ 55,963 $ 191,283 $ 108,910
Gross losses from sales of securities
available for sale -- (105,866) (136,639)
Net gains from calls of securities available
for sale 63,251 -- --
------------ ------------ ------------
Net securities gains (losses) $ 119,214 $ 85,417 $ (27,729)
============ ============ ============
</TABLE>
Securities with a carrying value of approximately $9,415,000, $1,102,000 and
$1,102,000 were pledged to secure public deposits for the years ended December
31, 1998, 1997 and 1996. See Note 7 for discussion of additional securities
pledged for securities sold under agreements to repurchase and Note 8 for a
discussion of additional securities pledged for FHLB advances.
The applicable income tax effects of net securities gains (losses) were as
follows: 1998 - tax expense of $47,000; 1997 - tax expense of $34,000; and 1996
- - tax benefit of $11,000.
- --------------------------------------------------------------------------------
(Continued)
F-28
<PAGE> 110
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE - NET
Loans receivable, net at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial $ 125,056,236 $ 105,181,077
Real estate - mortgage 131,518,846 94,362,314
Real estate - construction 1,687,312 2,160,338
Installment 57,226,114 68,158,869
Credit card 2,785,179 2,685,823
------------- -------------
318,273,687 272,548,421
Deferred loan fees (518,396) (566,912)
Allowance for loan losses (4,141,086) (3,252,361)
------------- -------------
$ 313,614,205 $ 268,729,148
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 3,252,361 $ 2,367,288 $ 3,372,317
Provision for loan losses 2,050,000 1,800,000 1,440,000
Charge-offs (1,512,773) (1,511,255) (2,793,308)
Recoveries 351,498 596,328 348,279
----------- ----------- -----------
Balance at end of year $ 4,141,086 $ 3,252,361 $ 2,367,288
=========== =========== ===========
</TABLE>
Information regarding impaired loans is as follows for the years ending December
31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Year end loans with no allowance for loan
losses allocated $ 269,158 $ 881,110 $5,029,291
Year end loans with allowance for loan
losses allocated 28,717 1,900,537 734,502
Amount of allowance allocated 1,000 439,000 282,000
Average of impaired loans during the year 1,437,680 4,817,197 6,034,919
Interest income recognized during
impairment 81,696 60,853 102,524
Cash-basis interest income recognized -- -- 102,524
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-29
<PAGE> 111
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT - NET
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 994,191 $ 954,191
Buildings and improvements 4,757,526 4,975,611
Furniture and equipment 6,237,301 5,797,089
Land improvements 643,240 746,039
------------ ------------
12,632,258 12,472,930
Accumulated depreciation (6,555,184) (6,514,846)
------------ ------------
$ 6,077,074 $ 5,958,084
============ ============
</TABLE>
NOTE 6 - TIME DEPOSITS
At December 31, 1998, the scheduled maturities of certificates of deposit are as
follows for the years ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 128,747,157
2000 54,788,367
2001 4,897,752
2002 3,087,987
2003 2,311,196
Thereafter 1,769,272
-------------
$ 195,601,731
=============
</TABLE>
The Corporation had approximately $38,759,000 and $25,780,000 in time
certificates of deposit in denominations of $100,000 or more as of December 31,
1998 and 1997, respectively. Interest expense on certificates of deposit in
denominations of $100,000 or more was approximately $2,632,000, $2,171,000 and
$1,719,000 in 1998, 1997 and 1996.
- --------------------------------------------------------------------------------
(Continued)
F-30
<PAGE> 112
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consist of obligations of the
Corporation to other parties. These arrangements are for terms of one year or
less and are secured by securities available for sale. Such collateral is held
by safekeeping agents of the Corporation. Information concerning securities sold
under agreements to repurchase as of December 31, 1998, 1997 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at end of year $5,657,000 $8,000,000 $ --
Average daily balance during the year $6,323,049 $ 898,600 $1,574,003
Average interest rate during the year 5.446% 5.625% 5.894%
Maximum month end balance during
the year $8,771,450 $8,000,000 $3,665,470
</TABLE>
Securities underlying these agreements at year end were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Carrying value of securities $5,804,000 $8,039,000 $ --
Fair value $5,804,000 $8,039,000 $ --
</TABLE>
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
Maturities of the advances from the Federal Home Loan Bank, which have interest
rates ranging from 4.79% to 6.71%, at year end were:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Due in 1998 $ -- $ 7,296,440
Due in 1999 30,678,335 678,335
Due in 2000 530,312 530,312
Due in 2001 2,445,428 2,445,428
Due in 2002 735,770 735,770
Due in 2003 5,000,000 --
Due After 2003 5,000,000 --
----------- -----------
$44,389,845 $11,686,285
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-31
<PAGE> 113
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
The Bank executed a blanket pledge agreement in 1998, whereby the Bank assigns,
transfers and pledges to the FHLB and grants to the FHLB a security interest in
all property now or hereafter owned. However, the Bank has the right to use,
commingle and dispose of the collateral they have assigned to the FHLB. Under
the agreement, the Bank must maintain "eligible collateral" that has a "lending
value" at least equal to the "required collateral amount," all as defined by the
agreement. At December 31, 1998, the Bank pledged securities with an amortized
cost of approximately $80,101,000 and a fair value of approximately $80,101,000.
In addition, qualifying mortgage loans of approximately $124,073,000 were
pledged as collateral at December 31, 1998.
At December 31, 1997, the Corporation had mortgage loans, with a book value of
approximately $15,522,000, pledged to the Federal Home Loan Bank to secure
advances outstanding in addition to $1,381,000 in FHLB stock.
NOTE 9 - INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current federal $ 1,758,094 $ 2,041,504 $ 836,424
Deferred federal (746,242) (950,564) 471,956
Current state 827,293 853,263 510,116
Deferred state (194,549) (249,981) 95,635
----------- ----------- -----------
$ 1,644,596 $ 1,694,222 $ 1,914,131
=========== =========== ===========
</TABLE>
The difference between the income tax expense shown in the statements of income
and amounts computed by applying the statutory federal income tax rate to income
before income taxes, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax calculated at statutory rate of 34% $ 2,411,502 $ 2,273,559 $ 2,311,209
Increase (decrease) due to tax effect of
Tax-exempt interest income (1,412,128) (1,135,799) (924,348)
Non-deductible interest expense 200,429 147,304 120,822
State income tax, net of federal income
tax benefit 417,611 398,166 399,796
Other items, net 27,182 10,992 6,652
----------- ----------- -----------
$ 1,644,596 $ 1,694,222 $ 1,914,131
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-32
<PAGE> 114
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets
Provision for loan losses $ 1,452,212 $ 1,040,310
Mark to market adjustment 2,254,623 1,651,502
Deferred loan fees 110,467 121,347
Depreciation 117,684 85,558
Other 123,246 107,644
----------- -----------
4,058,232 3,006,361
Deferred tax liabilities
State tax (283,395) (217,248)
Accretion (198,405) (153,472)
Net unrealized gain on securities
available for sale (1,916,394) (1,598,894)
----------- -----------
(2,398,194) (1,969,614)
Valuation allowance -- --
----------- -----------
$ 1,660,038 $ 1,036,747
=========== ===========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE-SHEET RISK
As of December 31, 1998, the Corporation leased branch offices as well as
various equipment. Rent expense was approximately $30,000, $29,000 and $23,000
in 1998, 1997 and 1996. In accordance with the terms of the leases, the
Corporation pays insurance and maintenance costs.
Rental commitments under noncancelable operating leases are as follows for the
year ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 24,200
2000 24,200
2001 14,125
2002 13,200
2003 5,500
--------
$ 81,225
========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-33
<PAGE> 115
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE-SHEET RISK (Continued)
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on the Corporation's consolidated financial condition or results of
operations.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit, unused credit
on credit card arrangements and standby letters of credit. These involve, to
varying degrees, credit and interest-rate risk in excess of the amount reported
in the financial statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit, and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk at year end follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commitments to extend credit (primarily variable rate) $28,912,000 $21,290,000
Unused credit on credit card arrangements
(primarily fixed rate) 10,137,000 9,314,000
Standby letters of credit (primarily variable rate) 780,000 1,167,000
----------- -----------
$39,829,000 $31,771,000
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-34
<PAGE> 116
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation, including
associates of such persons, are loan customers. A summary of the related party
loan activity, for loans aggregating $60,000 or more to any one related party,
follows for the years December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, January 1 $ 3,100,019 $ 2,725,056
New loans 2,908,565 678,331
Repayments (3,721,199) (303,368)
----------- -----------
Balance, December 31 $ 2,287,385 $ 3,100,019
=========== ===========
</TABLE>
NOTE 12 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Sand Ridge Financial Corporation at December
31:
CONDENSED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash due from financial institutions $ 117,541 $ 283,557
Securities available for sale 74,956 74,766
Investment in subsidiary bank 44,121,094 39,454,070
Dividends receivable 951,000 840,000
Interest receivable and other assets 441,121 83,974
----------- -----------
Total assets $45,705,712 $40,736,367
=========== ===========
LIABILITIES
Dividends payable $ 1,080,000 $ 1,020,000
Interest payable and other liabilities 92,912 35,689
----------- -----------
Total liabilities 1,172,912 1,055,689
SHAREHOLDERS' EQUITY 44,532,800 39,680,678
----------- -----------
Total liabilities and shareholders' equity $45,705,712 $40,736,367
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-35
<PAGE> 117
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 12 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends from bank - cash $ 1,371,000 $ 1,035,000 $ 960,000
Interest income on deposits
with financial institutions -- -- 1,250
Interest income on securities 190 183 169
Other income 1,203 -- --
Other expenses (139,072) -- (60)
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE AND EQUITY
IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY BANK 1,233,321 1,035,183 961,359
Income tax expense (benefit) (31,777) 174 677
----------- ----------- -----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY BANK 1,265,098 1,035,009 960,682
Equity in undistributed earnings of subsidiary
bank 4,182,959 3,957,707 3,922,860
----------- ----------- -----------
NET INCOME $ 5,448,057 $ 4,992,716 $ 4,883,542
=========== =========== ===========
</TABLE>
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 5,448,057 $ 4,992,716 $ 4,883,542
Total other comprehensive income, net
of reclassification adjustments and tax
effects 484,065 1,118,713 (336,083)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 5,932,122 $ 6,111,429 $ 4,547,459
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-36
<PAGE> 118
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 12 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,448,057 $ 4,992,716 $ 4,883,542
Adjustment to reconcile net income to
net cash from operating activities
Equity in undistributed earnings
of subsidiary bank (4,182,959) (3,957,707) (3,922,860)
Net accretion of securities (190) (183) (169)
Change in dividends receivable (111,000) 120,000 (60,000)
Change in interest receivable and
other assets (357,147) (39,433) (12,123)
Change in interest payable and
other liabilities 57,223 (14,051) 48,673
----------- ----------- -----------
Net cash from operating activities 853,984 1,101,342 937,063
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale -- (38,395) --
----------- ----------- -----------
Net cash from investing activities -- (38,395) --
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (1,020,000) (960,000) (900,000)
----------- ----------- -----------
Net cash from financing activities (1,020,000) (960,000) (900,000)
Net change in cash and cash equivalents (166,016) 102,947 37,063
Cash and cash equivalents at beginning of year 283,557 180,610 143,547
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 117,541 $ 283,557 $ 180,610
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-37
<PAGE> 119
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated year end fair values of financial instruments were:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------- -------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from financial
institutions $ 25,223,057 $ 25,223,000 $ 23,009,706 $ 23,010,000
Interest-bearing balances with
financial institutions 100,000 100,000 100,000 100,000
Securities available for sale 205,623,230 205,623,000 154,483,307 154,483,000
Loans receivable, net of allowance for
loan losses 313,614,205 318,075,000 268,729,148 271,021,000
Financial liabilities
Non-interest bearing demand deposits (59,057,678) (59,058,000) (47,081,633) (47,082,000)
Savings, NOW and money market (194,442,770) (194,443,000) (169,455,230) (169,455,000)
Other time deposits (195,601,731) (196,351,000) (162,139,170) (162,386,000)
Short-term borrowings (13,741,323) (13,741,000) (21,800,000) (21,800,000)
Advances from FHLB (44,389,845) (44,340,000) (11,686,285) (11,697,000)
</TABLE>
For purposes of the above disclosures of estimated fair values, the following
assumptions were used as of December 31, 1998 and 1997. The estimated fair value
for cash and due from financial institutions is considered to approximate cost.
The estimated fair value for interest-bearing balances with financial
institutions and securities available for sale is based on quoted market values
for the individual deposits or securities or for equivalent deposits or
securities. The estimated fair value for commercial loans is based on estimates
of the difference in interest rates the Corporation would charge the borrowers
for similar such loans with similar maturities made at December 31, 1998 and
1997, applied for an estimated time period until the loan is assumed to reprice
or be paid. The estimated fair value for other loans is based on estimates of
the rate the Corporation would charge for similar such loans at December 31,
1998 and 1997, applied for the time period until estimated repayment. The
estimated fair value for demand, savings, NOW and money market deposits is based
on their carrying value. The estimated fair values for other time deposits,
short-term borrowings and advances from FHLB are based on estimates of the rate
the Corporation would pay on such deposits or borrowings at December 31, 1998
and 1997, applied for the time period until maturity. The estimated fair values
for other financial instruments and off-balance-sheet loan commitments are
considered to approximate cost at December 31, 1998 and 1997, and are not
considered significant to this presentation.
- --------------------------------------------------------------------------------
(Continued)
F-38
<PAGE> 120
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY MATTERS
The Corporation and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the consolidated financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year end, consolidated and bank only actual capital levels and minimum
required levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
1998
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Consolidated $45,558 14.4% $25,243 8.0% $31,554 10.0%
Bank $45,139 14.3% $25,201 8.0% $31,501 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $41,611 13.2% $12,621 4.0% $18,932 6.0%
Bank $41,199 13.1% $12,601 4.0% $18,901 6.0%
Tier 1 capital (to average assets)
Consolidated $41,611 7.8% $21,464 4.0% $26,830 5.0%
Bank $41,199 7.7% $21,446 4.0% $26,807 5.0%
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-39
<PAGE> 121
SAND RIDGE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
1997
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Consolidated $ 40,495 14.8% $ 21,893 8.0% $27,367 10.0%
Bank $ 40,269 14.7% $ 21,870 8.0% $27,337 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $ 37,243 13.6% $ 10,947 4.0% $16,420 6.0%
Bank $ 37,016 13.5% $ 10,935 4.0% $16,402 6.0%
Tier 1 capital (to average assets)
Consolidated $ 37,243 8.0% $ 18,580 4.0% $23,225 5.0%
Bank $ 37,016 8.0% $ 18,563 4.0% $23,204 5.0%
</TABLE>
The Corporation and Bank at year end 1998 and 1997 were categorized as well
capitalized.
NOTE 15 - MERGER AGREEMENT
In December of 1998, the Corporation announced that it had signed a definitive
agreement to be acquired by First Financial Bancorp, parent company of First
National Bank of Southwestern Ohio. The transaction will be structured as a
tax-free exchange and will be accounted for under the pooling-of-interests
method. Transaction related expenses are anticipated to total approximately
$2,400,000, if the transaction is consummated. The expenses are primarily for
investment banker fees which are variable based upon the value of the
consideration to be paid by First Financial Bancorp. These expenses have not
been included in the December 31, 1998 Statement of Income.
- --------------------------------------------------------------------------------
F-40
<PAGE> 122
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
SAND RIDGE FINANCIAL CORPORATION
<PAGE> 123
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Recitals.....................................................................................................1
2. The Merger...................................................................................................1
3. Closing......................................................................................................2
4. Effective Time...............................................................................................2
5. Governing Law; Articles of Incorporation.....................................................................2
6. Regulations..................................................................................................2
7. Directors and Officers.......................................................................................2
8. Conversion of Shares in the Merger...........................................................................3
8.1. FFB's Common Shares.............................................................................3
8.2. SRFC's Common Shares............................................................................3
8.3. Consideration; Exchange Ratio...................................................................3
8.4. Surrender of SRFC Certificates..................................................................3
8.5. Fractional Interests............................................................................4
9. Effect of the Merger.........................................................................................4
10. Approval of Shareholders.....................................................................................5
11. SRFC's Representations and Warranties........................................................................5
11.1. Organization....................................................................................5
11.2. Corporate Authority.............................................................................5
11.3. Capitalization..................................................................................5
11.4. List of Information.............................................................................5
11.5. Subsidiaries....................................................................................5
11.6. Financial Statements............................................................................6
11.7. Intellectual Property...........................................................................6
11.8. Good and Marketable Title.......................................................................7
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
<S> <C> <C>
11.9. Taxes...........................................................................................7
11.10. Absence of Certain Changes or Events............................................................7
11.11. Contracts and Agreements........................................................................8
11.12. Insurance.......................................................................................8
11.13. Litigation and Proceedings......................................................................8
11.14. Material Contracts; No Conflict with Other Instruments..........................................8
11.15. Governmental Authorizations and Filings.........................................................9
11.16. Consents and Approvals..........................................................................9
11.17. Brokers.........................................................................................9
11.18. Environmental Matters...........................................................................9
11.19. Validity of Contemplated Transactions..........................................................10
11.20. Year 2000 Compliance...........................................................................10
12. FFB's Representations and Warranties........................................................................12
12.1. Organization...................................................................................12
12.2. Corporate Authority............................................................................12
12.3. Subsidiaries...................................................................................12
12.4. Capitalization.................................................................................12
12.5. Shares to be Issued............................................................................12
12.6. Financial Statements...........................................................................13
12.7. Environmental Matters..........................................................................13
12.8. Absence of Certain Changes or Events...........................................................14
12.9. Litigation and Proceedings.....................................................................14
12.10. Consents and Approvals.........................................................................14
12.11. Brokers........................................................................................15
12.12. Validity of Contemplated Transactions..........................................................15
12.13. Year 2000 Compliance...........................................................................15
12.14. Intellectual Property..........................................................................15
12.15. Good and Marketable Title......................................................................16
12.16. Taxes..........................................................................................16
12.17. Material Contracts; No Conflict with Other Instruments.........................................16
13. Conduct of Business Pending the Merger......................................................................17
13.1. Negative Covenants of SRFC.....................................................................17
13.2. Dividends......................................................................................17
13.3. SRFC Efforts...................................................................................17
13.4. Purchase of "Tail Coverage"....................................................................17
14. Additional Agreements.......................................................................................17
14.1. Access and Information.........................................................................17
14.2. Confidentiality................................................................................18
14.3. Registration Statement.........................................................................18
14.4. Employee Benefits..............................................................................18
14.5. Expenses.......................................................................................19
</TABLE>
ii
<PAGE> 125
<TABLE>
<CAPTION>
<S> <C> <C>
14.6. Further Assurances.............................................................................19
14.7. Pooling........................................................................................20
14.8. Audited Financial Statements...................................................................20
14.9. Press Releases.................................................................................20
14.10. Seller Affiliates..............................................................................20
14.11. Board Representation...........................................................................21
15. Conditions Precedent; Terminations..........................................................................21
15.1. Conditions Precedent to Obligations of the Parties.............................................21
15.2. Conditions Precedent to FFB's Obligations......................................................21
15.3. Conditions Precedent to SRFC's Obligation......................................................23
15.4. Termination and Abandonment....................................................................24
15.5. Effect of Termination..........................................................................27
15.6. Expenses.......................................................................................27
15.7. Survival of Representations....................................................................27
16. General Provisions..........................................................................................27
16.1. Definitions....................................................................................27
16.2. Amendments.....................................................................................27
16.3. Notices........................................................................................28
16.4. Binding Nature of Agreement....................................................................28
16.5. Assignment.....................................................................................29
16.6. Governing Law..................................................................................29
16.7. Counterparts...................................................................................29
</TABLE>
iii
<PAGE> 126
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
SAND RIDGE FINANCIAL CORPORATION
THIS PLAN AND AGREEMENT OF MERGER (the "Agreement") is made and entered
into this 16th day of December, 1998 by and between FIRST FINANCIAL BANCORP.
("FFB"), an Ohio corporation and registered as a bank holding company under the
Bank Holding Company Act of 1956 and a savings and loan holding company under
the Savings and Loan Holding Company Act, and SAND RIDGE FINANCIAL CORPORATION
("SRFC"), an Indiana corporation and registered as a bank holding company under
Bank Holding Company Act of 1956.
1. RECITALS.
1.1 FFB is a corporation duly organized and existing under the laws of the
State of Ohio, having been incorporated on August 8, 1982. SRFC is a corporation
duly organized and existing under the laws of the State of Indiana, having been
incorporated on May 24, 1984.
1.2 The Boards of Directors of FFB and SRFC deem it advisable for the
general welfare and advantage of FFB and SRFC and their respective shareholders
that SRFC merge with and into FFB pursuant to this Agreement and pursuant to the
applicable provisions of the laws of the States of Ohio and Indiana and the
United States of America, subject to the approval of various federal and state
regulatory authorities.
1.3 As of November 6, 1998 the authorized capital stock of FFB consisted of
60,000,000 common shares, without par value ("FFB Common Shares"), of which
32,921,329 shares were outstanding.
1.4 As of November 1, 1998, the authorized capital stock of SRFC consisted
of 200,000 shares of common stock, without par value ("SRFC Common Shares"), of
which 60,000 shares were issued and outstanding, and 100,000 shares of preferred
stock, $100 par value, of which no shares were issued and outstanding.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements herein contained, the parties hereby agree as follows:
2. THE MERGER. Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 4), in accordance with
the applicable statutory provisions of the States of Ohio and Indiana, the
United States of America, and any regulatory approvals, SRFC will be merged with
and into FFB and the separate corporate existence of
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SRFC shall thereupon cease (the "Merger"). FFB will be the surviving corporation
in the Merger (said corporation hereafter being sometimes called the "Surviving
Corporation"), and the separate corporate existence of FFB with all of its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. Sand Ridge Bank (the "Bank"), a wholly owned subsidiary of SRFC,
will continue as a wholly owned subsidiary of the Surviving Corporation.
3. CLOSING. The closing of the Merger (the "Closing") shall take place on the
earlier of the following date (the "Closing Date"): July 31, 1999; or (ii) if
all conditions precedent to the consummation of this Agreement as set forth in
Section 15 hereof have been satisfied on or before the fifteenth day of any
given month, the parties will consummate this Agreement as of the end of the
same month; provided, however, that if the conditions precedent to the
consummation of this Agreement are satisfied on or after the sixteenth day of
any month through the last day of such month, as of the end of the month
immediately following such month; or (iii) on such other date as the parties
mutually agree.
4. EFFECTIVE TIME. As soon as practicable following the Closing, FFB will cause
(i) the Articles of Merger in the form attached hereto as Exhibit A (the "Ohio
Articles of Merger") to be filed with the office of the Secretary of State of
the State of Ohio (the "Ohio Secretary of State") and (ii) Articles of Merger in
the form attached hereto as Exhibit B (the "Indiana Articles of Merger") to be
filed with the office of the Secretary of State of the State of Indiana (the
"Indiana Secretary of State"). The Merger will become effective (the "Effective
Time") on the date on which the latest of the following actions will have been
completed: (i) at the time when the Ohio Articles of Merger are accepted for
filing by the Ohio Secretary of State, (ii) at the time when the Indiana
Articles of Merger are accepted for filing by the Indiana Secretary of State or
(iii) such later time agreed to by FFB and SRFC and established under the Ohio
and Indiana Articles of Merger but not later than 30 days after the Closing
Date.
5. GOVERNING LAW; ARTICLES OF INCORPORATION. The laws which are to govern the
Surviving Corporation are the laws of the State of Ohio. The Articles of
Incorporation of FFB, at the Effective Time, will be the Articles of
Incorporation of the Surviving Corporation until the same will be further
amended or altered in accordance with the provisions thereof.
6. REGULATIONS. The Regulations of FFB at the Effective Time will be the
Regulations of the Surviving Corporation until the same will be altered or
amended in accordance with the provisions thereof.
7. DIRECTORS AND OFFICERS. The directors of FFB at the Effective Time will be
the directors of the Surviving Corporation until their respective successors are
duly elected and qualified. Subject to the authority of the Board of Directors
as provided by law and the Regulations of the Surviving Corporation, the
officers of FFB at the Effective Time will be the officers of the Surviving
Corporation. The directors of Bank at the Effective Time will be the directors
of Bank until their respective successors are duly elected and qualified.
Subject to the authority of the board of directors of Bank as provided by law
and the By-Laws of Bank, the officers of Bank at the Effective Time will
continue to serve as officers of Bank after the Effective Time.
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8. CONVERSION OF SHARES IN THE MERGER. The mode of carrying into effect the
Merger provided in this Agreement and the manner and basis of converting the
shares of the constituent corporation into shares of the Surviving Corporation
are as follows:
8.1 FFB'S COMMON SHARES. None of the FFB Common Shares issued at the
Effective Time will be converted as a result of the Merger, but all such shares
(including shares held in the treasury) will remain issued shares of FFB.
8.2 SRFC'S COMMON SHARES. At the Effective Time, each SRFC Common Share
outstanding immediately prior to the Effective Time (except as otherwise
provided in Section 8.5) will by virtue of the Merger be converted into FFB
Common Shares as determined pursuant to Section 8.3 below, and each SRFC Common
Share held in treasury immediately prior to the Effective Time will be
cancelled.
8.3 CONSIDERATION; EXCHANGE RATIO.
8.3.1 Each SRFC Common Share issued and outstanding immediately prior
to the Effective Time shall, subject to Section 15.4.7, be converted into, and
become exchangeable for, a number (the "Exchange Ratio") of FFB Common Shares
(the "Merger Consideration"), the numerator of which shall be 5,115,000 (which
number is adjusted for the 10% stock dividend declared by FFB on November 24,
1998) and the denominator of which shall be the number of SRFC Common Shares
outstanding, on a fully diluted basis, immediately prior to the Effective Time;
provided, however that dissenting shareholders of SRFC who perfect their rights
under the laws of the State of Indiana will instead receive cash in such amount
per SRFC Common Share which they own as determined in accordance with Indiana
Business Corporation Law I.C. Section 23-1-44. In the event that prior to the
Effective Time the outstanding FFB Common Shares shall have been increased,
decreased or changed into or exchanged for a different number or kind of shares
or securities by reorganization, recapitalization, reclassification, stock
dividend, stock split or other like changes in FFB's capitalization, all without
FFB receiving consideration therefor, then an appropriate and proportionate
adjustment shall be made in the Exchange Ratio. As of the date of this
Agreement, the Exchange Ratio is 85.25.
8.3.2 At the Effective Time, each of the then issued and outstanding
SRFC Common Shares will be cancelled and extinguished and, in consideration and
in exchange therefor, the holders thereof will be entitled, upon compliance with
Section 8.4, to receive from FFB the number of FFB Common Shares as determined
pursuant to Section 8.3.1.
8.3.3 After determining the Exchange Ratio, each holder of outstanding
SRFC Common Shares after the Effective Time, upon surrender to FFB, will be
entitled to receive one or more stock certificates of FFB into which the SRFC
Common Shares so surrendered will have been converted as aforesaid. No dividends
that may have been declared by FFB after the Effective Time and prior to the
surrender of SRFC Common Shares will be paid until such shares have been
presented for exchange to FFB.
8.4 SURRENDER OF SRFC CERTIFICATES. As soon as practicable after the
Effective Time, the stock certificates representing SRFC Common Shares issued
and outstanding at the Effective Time will be surrendered for exchange to FFB.
As promptly as practicable after the Effective
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Time, FFB will cause the Registrar and Transfer Company (the "Exchange Agent")
to prepare and mail to each holder of record of an outstanding certificate or
certificates prior thereto representing SRFC Common Shares a letter of
transmittal containing instructions for the surrender of the certificate or
certificates of SRFC held by such holder. Upon surrender of the certificate or
certificates that prior thereto represented SRFC Common Shares in accordance
with instructions set forth in the letter of transmittal, such holder will be
entitled to receive in exchange therefor, certificates representing the number
of whole shares of FFB into which the shares represented by the certificate or
certificates so surrendered will have been converted, without interest. The
Exchange Agent will not be obligated to deliver certificates for FFB Common
Shares to a former stockholder of SRFC until such former stockholder surrenders
his or her certificate or certificates representing shares of SRFC or, in
default thereof, an appropriate affidavit of loss and indemnity agreement or
bond as may be required by FFB. Until so surrendered for exchange, each such
stock certificate formerly representing SRFC Common Shares will be deemed for
all corporate purposes (except for the payment of dividends, which will be
subject to the exchange of stock certificates as above provided) to evidence the
ownership of the number of common shares of the Surviving Corporation that the
holder thereof would be entitled to receive upon its surrender to FFB.
8.5 FRACTIONAL INTERESTS. No fractional FFB Common Shares or certificate or
scrip representing the same will be issued. In lieu thereof, each holder of
SRFC's Common Shares having a fractional interest arising upon such conversion
will be paid in cash by FFB for the additional fractional interest. Such payment
will be equal to the fractional interest times the Average Closing Price as
defined in Section 15.4.7. This amount will not be paid to any holder of SRFC's
Common Shares who will not have surrendered his or her certificates for exchange
pursuant to Section 8.4 hereof, and FFB will retain such amount until such time
as such certificates have been surrendered.
9. EFFECT OF THE MERGER. At the Effective Time, the Surviving Corporation will
succeed to, without other transfer, and will possess and enjoy, all the rights,
privileges, immunities, powers and franchises both of a public and a private
nature, and be subject to all the restrictions, disabilities and duties of each
of FFB and SRFC, and all the rights, privileges, immunities, powers and
franchises of each of FFB and SRFC and all property, real, personal and mixed,
and all debts due to either of said constituent corporations on whatever
account, for stock subscriptions as well as for all other things in action or
belonging to each of said corporations, will be vested in the Surviving
Corporation; and all property, rights, privileges, immunities, powers and
franchises, and all and every other interest will be thereafter as effectually
the property of the Surviving Corporation as they were of FFB and SRFC,
respectively, and the title to any real estate vested by deed or otherwise in
either of FFB and SRFC will not revert or be in any way impaired by reason of
the Merger; provided, however, that all rights of creditors and all liens upon
any property of either of FFB or SRFC will be preserved unimpaired, limited in
lien to the property affected by such liens at the Effective Time, and all
debts, liabilities and duties of said constituent corporations, respectively,
will thenceforth attach to the Surviving Corporation and may be enforced against
it to the same extent as if said debts, liabilities and duties had been incurred
or contracted by the Surviving Corporation.
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10. APPROVAL OF SHAREHOLDERS. This Agreement will be submitted to the
shareholders of SRFC for adoption and approval on or before June 30, 1999 or
such later date as the Boards of Directors of FFB and SRFC mutually approve.
11. SRFC'S REPRESENTATIONS AND WARRANTIES. SRFC represents and warrants to FFB
as of the date hereof and as of the Closing Date as follows:
11.1 ORGANIZATION. SRFC is a corporation duly organized and validly
existing under the laws of the State of Indiana and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended. SRFC has
the corporate power to carry on its businesses as they are now being conducted
and is qualified to do business in each jurisdiction in which the character and
location of the assets owned by it, or the nature of the business transacted by
it, requires qualification.
11.2 CORPORATE AUTHORITY. SRFC has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate,
subject only to the approval of the Merger by the holders of at least two-thirds
of the outstanding SRFC Common Shares entitled to vote on the matter, the
Merger. This Agreement is a valid and binding agreement of SRFC enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles (the "Bankruptcy and Equity Exception").
The Board of Directors of SRFC (i) has unanimously adopted the plan of
merger set forth herein and approved this Agreement and the other transactions
contemplated hereby, (ii) has declared that the Merger and this Agreement and
the other transactions contemplated hereby are advisable and (iii) has received
the opinion of its financial advisor, Hovde Financial, Inc., to the effect that
as of the date hereof, the Exchange Ratio to be received by the holders of the
SRFC Common Shares in the Merger is fair to such holders from a financial point
of view.
11.3 CAPITALIZATION. SRFC's capitalization consists of 200,000 authorized
SRFC Common Shares, of which, as of the date hereof, 60,000 shares were issued
and outstanding, and 100,000 preferred shares, $100 par value, of which no
shares are issued and outstanding. Each SRFC Common Share was validly issued,
fully paid and non-assessable, and each outstanding SFRC Common Share is
entitled to one vote. There are no outstanding subscriptions, options, warrants,
calls or rights of any kind relating to or providing for the issuance, sale,
delivery or transfer of any class of securities of SRFC.
11.4 LIST OF INFORMATION. For the due diligence examination in November,
1998, SRFC delivered to FFB certain information. Such information and the copies
of documents furnished to FFB are accurate in all material respects as of the
date furnished.
11.5 SUBSIDIARIES. SRFC has one wholly owned Subsidiary, the Bank. SRFC has
no other Subsidiaries. Bank is a state bank duly organized and validly existing
under the laws of the State of Indiana. Bank has the corporate power to carry on
its businesses as they are now being conducted and is qualified to do business
in each jurisdiction in which the character and location
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of the assets owned by it, or the nature of the business transacted by it,
requires qualification. All of the outstanding shares of the stock of Bank are
validly issued, fully paid and non-assessable, except as provided under federal
banking law, and all such shares are owned by SRFC free and clear of all liens,
claims, charges or encumbrances. There are no outstanding subscriptions,
options, warrants, calls or rights of any kind relating to or providing for the
issuance, sale, delivery or transfer of any class of securities of Bank.
11.6 FINANCIAL STATEMENTS. SRFC has delivered to FFB copies of its
consolidated balance sheets as of December 31, 1997, 1996, and 1995 and the
related consolidated statements of earnings, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997 in
each case including the notes thereto, all certified by Crowe, Chizek and
Company LLP, independent public accountants, or one of said accountant's
predecessor firms.
All of such financial statements present fairly the financial positions as
of and at the dates shown and the results of operations for the periods covered
thereby. They have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods indicated,
except as otherwise indicated in the notes thereto. Each of the balance sheets
presents a true and complete statement in all material respects as of its date
of SRFC's financial condition. All material liabilities of SRFC (including any
contingent liabilities), as of the date of each balance sheet, were properly
accrued in such balance sheet or disclosed in the related footnotes, in
accordance with generally accepted accounting principles.
11.7 INTELLECTUAL PROPERTY. Except as disclosed in the Disclosure Schedule,
SRFC and Bank do not have knowledge of any valid grounds for any bona fide
claims (i) to the effect that their licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by SRFC or Bank infringes
on any copyright, patent, trademark, trade name, service mark or trade secret;
(ii) against the use by SFRC and Bank of any copyrights, patents, trademarks,
trade names, service marks, trade secrets, technology, know-how or computer
software programs and applications used in the business of SRFC and Bank as
currently conducted or as proposed to be conducted; (iii) challenging the
ownership, validity or effectiveness of any of SRFC's and Bank's Intellectual
Property Rights or other trade secret material of SRFC and Bank; or (iv)
challenging the license or legally enforceable right to use Third-Party
Intellectual Rights by SRFC and Bank.
As used in this Agreement, the term (x) "Intellectual Property" means all
patents, trademarks, trade names, service marks, copyrights and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials; (y) "Third-Party
Intellectual Property Rights" means any third-party patents, trademarks, trade
names, service marks and copyrights; and (z) "SRFC's and Bank's Intellectual
Property Rights" means the patents, registered and material unregistered
trademarks, trade names and service marks, registered copyrights and any
applications therefor owned by SRFC or Bank.
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11.8 GOOD AND MARKETABLE TITLE. SRFC and Bank have and on the Closing Date
will have good and marketable title in fee simple to all lands and buildings
shown as assets in their records and books of account, free and clear of all
liens, encumbrances and charges except as reflected in the aforesaid financial
statements and except for current taxes and assessments not delinquent or being
contested in good faith and liens, encumbrances and charges shown in their
records and books of account which are not substantial in character or amount
and do not materially detract from the value or interfere with the use of the
properties subject thereto or affected thereby. SRFC and Bank have and on the
Closing Date will have valid leases under which they are entitled to occupy and
use in their business all real property of which they are lessees, and SRFC and
Bank have no knowledge of any material default under any such lease. As of the
date hereof, neither SRFC nor Bank has title to any real property or buildings
as a result of foreclosure or by otherwise realizing on collateral held by
either of them. Neither SRFC nor Bank will take action to foreclose or otherwise
realize on any real property collateral held by either of them prior to the
Closing Date without the prior consent of FFB, which consent will not be
unreasonably withheld.
SRFC and Bank have and on the Closing Date will have good and marketable
title to the machinery, equipment, merchandise, materials, supplies and other
property of every kind, tangible or intangible, contained in their offices and
other facilities or shown as assets in their records and books of account,
except for properties held in trust or other fiduciary capacity or personal
property of SFRC employees or Bank employees contained in their offices, free
and clear of all liens, encumbrances and charges except as reflected in the
aforesaid financial statements and except for liens, encumbrances and charges,
if any, which do not materially detract from the value of or interfere with the
use of the properties subject thereto or affected thereby. SRFC and Bank have
and will have immediately prior to the Closing Date valid leases under which
they are entitled to use in their business all personal property of which they
are lessees, and neither SRFC nor Bank has any knowledge of any material default
under any such leases.
11.9 TAXES. SRFC and Bank have paid all taxes imposed by the United States
or by any state, municipality, subdivision or instrumentality of the United
States or by any other taxing authority, which are due or payable by either SRFC
or Bank, that the failure to pay would have a material and adverse effect on
SRFC and/or Bank, and all claims asserted against each of them have been paid in
full or are adequately accrued in the records and books of accounts of each of
SRFC and Bank and will be so paid or provided for on the Closing Date. All
income tax returns for each of SRFC and Bank have been filed with the taxing
authorities having jurisdiction thereof through December 31, 1997, and no
extension of time for the assessment of deficiencies for any such years is in
effect. Neither SRFC nor Bank has knowledge of any unassessed tax deficiency
proposed or threatened against it.
11.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
disclosure schedule attached hereto (the "Disclosure Schedule), from December
31, 1997 to the date hereof, there has not been:
11.10.1 any material change in the corporate status, business,
operations or financial condition of SRFC and Bank, other than changes in the
ordinary course of business;
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11.10.2 any declaration, setting aside or payment of any dividend or
other distribution, with respect to SRFC's Common Shares except for the payment
in January 1998 to the SRFC shareholders of a regular annual dividend in the
amount of $17.00 per share in respect of the fiscal year ended 1997; and
11.10.3 any other event or condition of any character which has
materially and adversely affected the corporate status, business, operations or
financial condition of SRFC and Bank taken as a whole.
11.11 CONTRACTS AND AGREEMENTS. Except for agreements described in the
Disclosure Schedule, neither SRFC nor Bank is a party to: (a) any sales agency
agreement not subject to termination without liability on notice of 60 days or
less; (b) any contract for the purchase or sale of any materials, products or
supplies which contains any escalator, renegotiation or redetermination clause
or which commits it for a fixed term greater than 36 months or which provides
for annual payments greater than $50,000; (c) any contract of employment with
any officer or employee not terminable at will without liability; (d) any
pension, retirement or profit sharing plan or agreement not cancelable within 60
days without liability; (e) any management or consultation agreement not
terminable at will without liability; (f) any lease, license, royalty, union
agreement or loan agreement except those entered into in the ordinary course of
business and which are terminable without liability on notice of 60 days or less
or which has an annual contract price less than $50,000; (g) any contract,
accepted order or commitment for the purchase or sale of materials, products or
supplies having a total annual contract price in excess of $50,000; or (h) any
other agreement which materially affects the business, properties, assets or
condition (financial or otherwise) of SRFC, or which was entered into other than
in the ordinary and usual course of business.
11.12 INSURANCE. SRFC is adequately insured with respect to risks normally
insured against by companies similarly situated. SRFC has previously delivered
copies, of all existing insurance policies of SRFC and Bank, including but not
limited to group insurance and pension plans. All such policies are in full
force and effect. The Disclosure Schedule also contains a list of all claims for
insured losses in excess of $10,000 filed by SRFC and Bank during the three-year
period immediately preceding the date of this Agreement, including but not
limited to worker's compensation, automobile and general liability.
11.13 LITIGATION AND PROCEEDINGS. Except as set forth in the Disclosure
Schedule, there is no suit, action or legal or administrative proceeding pending
or, to the knowledge of SRFC, threatened, against it or Bank, which, if
adversely determined, might materially and adversely affect the financial
condition, on a consolidated basis, of SRFC and Bank or the conduct of their
businesses, nor is there any decree, injunction or order of any court,
governmental department or agency outstanding against SRFC or Bank having any
such effect.
11.14 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS. Neither SRFC
nor Bank is in default under the terms of any outstanding contract, agreement,
lease or other commitment which default would have a material and adverse
effect, on a consolidated basis, on SRFC and Bank, and on the Closing Date, the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of or constitute a default under any
indenture, mortgage, deed of trust or other agreement or instrument to which
SRFC or
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Bank is a party, which default or breach would have a material and
adverse effect, on a consolidated basis, on SRFC and Bank.
11.15 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. Each of SRFC and Bank has
all valid and sufficient licenses, franchises, permits and other governmental
authorizations for all businesses presently carried on by SRFC and Bank,
respectively, and has filed with the Federal Reserve Board all reports necessary
to the conduct of its business as a bank holding company and is current in all
respect as to such filings. SRFC has previously delivered to FFB its Annual
Reports on Forms FRY-6 and FRY-9 for 1993, 1994, 1995, 1996 and 1997, proxy
materials for its Annual Meetings in such years and will provide proxy materials
for its Annual Meeting in 1999. Bank has previously delivered to FFB its
Year-End Call Reports for 1994, 1995, 1996 and 1997 and will deliver 1998, when
available, as filed with the Federal Deposit Insurance Corporation.
11.16 CONSENTS AND APPROVALS. The only consent and approval required to be
obtained by or on behalf of SRFC or Bank on or prior to the Closing Date is the
approval of the SRFC shareholders in the form required by the Financial
Institutions Law of the State of Indiana. Other consents and approvals required
to be obtained prior to the Effective Time are set forth in Section 12.12 below.
11.17 BROKERS. Neither SRFC, Bank nor any of their officers, directors or
employees have employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finders' fees in
connection with this Agreement or with the transactions contemplated hereby
except that SRFC has retained Hovde Financial, Inc. ("Hovde") to perform various
brokerage services in connection with this transaction. SFRC is liable for and
will pay all amounts due Hovde.
11.18 ENVIRONMENTAL MATTERS. For purposes hereof, "environmental laws"
means all applicable federal, state or local statutes, laws, ordinances, codes,
rules, regulations and guidelines (including consent decrees and administrative
orders) relating to public health and safety and protection of the environment
and natural resources.
11.18.1 Except as set forth in the Disclosure Schedule, to the best
knowledge of SRFC and Bank, to the extent required, SRFC and Bank have filed all
notices, permit applications and other required governmental submissions and
have obtained all permits, licenses and other authorizations which are required
and which are material in connection with the conduct of their respective
businesses under all applicable environmental laws, including approvals relating
to emissions, discharges, releases or threatened releases, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals,
new or used petroleum products, industrial, toxic or hazardous substances or
solid wastes into the environment (including, without limitation, ambient air,
surface water, groundwater, land or sewers).
11.18.2 Except as set forth in the Disclosure Schedule, to the extent
required, each of SRFC and Bank is in compliance, in all material respects, in
the conduct of its business with all terms and conditions of the necessary
permits, licenses and authorizations, and to the best of their knowledge is also
in compliance in all material respects with all other applicable
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limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved under such
environmental laws.
11.18.3 Except as set forth in the Disclosure Schedule, neither SRFC
nor Bank is aware of, nor has either of SRFC or Bank received notice of, any
past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans which may materially interfere with or prevent
compliance or continued compliance in the conduct of its business with such
environmental laws or any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
under such environmental laws, or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment (including, without limitation, ambient air,
surface water, groundwater, land or sewers), of any pollutant, contaminant,
chemical, or industrial, toxic or hazardous substance or waste or new or used
petroleum products.
11.18.4 Except as set forth in the Disclosure Schedule, neither SRFC
nor Bank is aware of, nor has either of SRFC or Bank received notice of, any
material civil, criminal or administrative action, suit, demand, claim, hearing,
notice or demand letter, notice of violation, investigation, or proceeding
pending or threatened against either SRFC or Bank relating in any way to the
environmental laws or any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
under such environmental laws.
11.18.5 Except as set forth in the Disclosure Schedule, to the best
knowledge of each of SRFC and Bank, there is no asbestos containing material on
the properties of SRFC or Bank that violates any environmental law or is in need
of removal or repair.
11.19 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except as set forth in the
Disclosure Schedule, the execution, delivery and performance of this Agreement
will not: (i) violate, or conflict with, or require any consent under, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the creation of any lien upon any of the assets of either of SRFC or
Bank, under any of the terms, conditions or provisions of the Articles of
Incorporation or By-Laws of SRFC and the Articles of Association or By-Laws of
Bank, or of any note, bond, mortgage, indenture, deed of trust, material
license, lease, agreement or other instrument or obligation to which either of
SRFC or Bank is a party or by which either of SRFC or Bank or any of their
assets may be bound or affected or (ii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to SRFC, Bank or any of their
assets.
11.20 YEAR 2000 COMPLIANCE. Except as set forth in the Disclosure Schedule
and a preliminary Millennium Management Report dated December 1998 on SRFC Year
2000 Preparedness, the software and hardware operated by SRFC and Bank are
capable of providing or are being adapted or replaced to provide uninterrupted
millennium functionality to record, store,
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process and present calendar dates falling on or after January 1, 2000 and
date-dependent data in substantially the same manner and with the same
functionality as such software records, stores, processes and presents such
calendar dates and date-dependent data as of the date hereof, except for the
failure to have such capability which would not, individually or in the
aggregate, be reasonably likely to cause a material adverse effect upon the
business, financial condition and operations of SRFC and Bank. SRFC and Bank
have complied in all material respects with any and all programs, guidelines and
statements relating to Year 2000 issued by the Federal Financial Institutions
Examination Council.
11.21 EMPLOYEE BENEFIT PLANS. For purposes hereof, "ERISA" means the
Employee Retirement Income Security Act as amended.
11.21.1 The Disclosure Schedule lists each employee benefit plan,
arrangement, practice, contract or agreement, whether formal or informal,
written or unwritten, and whether applicable to one or more persons, now or ever
maintained or contributed to by SRFC or Bank, including but not limited to
employee welfare benefit plans and employee pension benefit plans as defined in
Sections 3(1) and 3(2) of the Employee Retirement Income Security Act ("ERISA"),
nonqualified deferred compensation plans, medical plans, disability plans, life
insurance plans, severance pay plans, educational assistance plans, cafeteria
plans, flexible spending accounts, stock option plans or stock purchase plans
("Benefit Plans"). Except as disclosed in the Disclosure Schedule, neither SRFC
nor Bank ever maintained or contributed to any defined benefit plan (as defined
in Section 3(35) of ERISA), multiemployer plan (as defined in Section 3(37) of
ERISA), medical plan providing benefits after termination of employment (except
for continuation coverage required by the federal law known as COBRA), or
severance pay plan or arrangement. Except for SRFC and Bank, there is no trade
or business, whether or not incorporated, which, together with SRFC and/or Bank,
is treated as a single employer under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code.
11.21.2 For each Benefit Plan, SRFC and Bank have made available to FFB
a copy of the plan and any relevant trust agreements, the summary plan
description, the latest determination letters issued by the Internal Revenue
Service, the latest annual report, the latest report of any trustee or insurance
company providing benefits under the Benefit Plan, and the latest actuarial
valuation or statement of individual accounts.
11.21.3 Except as disclosed in the Disclosure Schedule, each Benefit
Plan at all times has been maintained and operated in substantial compliance
with all applicable laws and regulations, including but not limited to laws and
regulations concerning eligibility for favorable tax treatment and those
requiring the filing of reports. Except as disclosed on the Disclosure Schedule,
there are no claims, no audits or investigations by any federal or state agency
and no litigation pending or threatened with respect to any Benefit Plan. Except
for routine payments due on insurance contracts and routine deposits to any
401(k) plan of SRFC or Bank, neither SRFC nor Bank has any unsatisfied liability
to any person (including but not limited to governmental agencies) with respect
to any Benefit Plan, and except to the extent disclosed on the Disclosure
Schedule there are no facts known to SRFC or Bank which could give rise to such
liability. Each Benefit Plan may be terminated on notice of 60 days or less by
SRFC or Bank, as applicable, without liability to SRFC or Bank except for
liability for benefits accrued in the normal operation of the plan prior to the
date of termination.
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12. FFB'S REPRESENTATIONS AND WARRANTIES. FFB represents and warrants to SRFC as
of the date hereof and as of the Closing Date as follows:
12.1 ORGANIZATION. FFB is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio and is registered as a
bank holding company under Bank Holding Company Act of 1956, as amended, and a
savings and loan holding company under the Savings and Loan Holding Company Act.
FFB has the corporate power to carry on its businesses as they are now being
conducted and is qualified to do business in each jurisdiction in which the
character and location of the assets owned by it, or the nature of the business
transacted by it, requires qualification. FFB has authority to enter into this
Agreement and this Agreement is legally binding.
12.2 CORPORATE AUTHORITY. FFB has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Merger. This Agreement is a valid and binding agreement of FFB enforceable
against FFB in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
The FFB Board of Directors has (i) unanimously adopted the plan of merger
set forth herein and approved this Agreement and the other transactions
contemplated hereby, (ii) has declared that the Merger and this Agreement and
the other transactions contemplated hereby are advisable.
12.3 SUBSIDIARIES. Each indirect and direct subsidiary of FFB which, as of
the effective time of the Merger would be deemed to be a "significant
subsidiary," as such term is defined in Rule 405 of the rules and regulations
promulgated in the Securities Act of 1933, as amended (the "1933 Act"), is
either a national bank or federal savings association duly organized, validly
existing, and in good standing under a charter granted by the Office of the
Comptroller of the Currency or the Office of Thrift Supervision, or is a
corporation or state bank duly organized, validly existing and in good standing
under the laws of the state of its incorporation, and in either case, is duly
qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and where failure to so qualify would have a material and
adverse effect on the consolidated business, financial condition or results of
operations of FFB.
12.4 CAPITALIZATION. FFB's capitalization consists of 60,000,000 authorized
Common Shares, of which, as of November 6, 1998, 32,921,329 shares were issued
and outstanding. Adjusted for a 10% stock dividend declared on November 24, 1998
and payable on January 4, 1999, FFB's equivalent shares outstanding as of
November 6, 1998 would be 36,213,462. Each issued share is validly issued, fully
paid and non-assessable, and each outstanding share is entitled to one vote.
12.5 SHARES TO BE ISSUED. All FFB Common Shares into which the SRFC Common
Shares will be converted will be, immediately after the Effective Time and when
issued upon such conversion, duly and validly authorized and issued, fully paid
and non-assessable, and no shareholder of FFB will have any pre-emptive right of
subscription or purchase in respect
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thereof. FFB will take such steps as may be necessary for such shares to be
listed on NASDAQ immediately after the Effective Time.
12.6 FINANCIAL STATEMENTS. FFB has delivered to SRFC copies of its
consolidated balance sheets as of December 31, 1997, 1996 and 1995, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997, in each case including the notes thereto, all certified by Ernst & Young
LLP, independent public accountants, or one of said accountants' predecessor
firms.
All of such financial statements present fairly the financial positions as
of and at the dates shown and the results of operations for the periods covered
thereby. They have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods indicated,
except as otherwise indicated in the notes thereto. Each of such balance sheets
presents a true and complete statement in all material respects as of its date
of FFB's financial condition. All material liabilities of FFB (including any
contingent liabilities), as of the date of each balance sheet, were properly
accrued in such balance sheet or disclosed in the related footnotes, in
accordance with generally accepted accounting principles.
12.7 ENVIRONMENTAL MATTERS. For purposes hereof, "environmental laws" means
all applicable federal, state or local statutes, laws, ordinances, codes, rules,
regulations and guidelines (including consent decrees and administrative orders)
relating to public health and safety and protection of the environment and
natural resources.
12.7.1 Except as set forth in a writing delivered to SRFC, to the best
knowledge of FFB, to the extent required, FFB has filed all notices, permit
applications and other required governmental submissions and has obtained all
permits, licenses and other authorizations which are required and which are
material in connection with the conduct of their respective businesses under all
applicable environmental laws, including approvals relating to emissions,
discharges, releases or threatened releases, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals, new or used
petroleum products, industrial, toxic or hazardous substances or solid wastes
into the environment (including, without limitation, ambient air, surface water,
groundwater, land or sewers).
12.7.2 Except as set forth in a writing delivered to SRFC, to the
extent required, FFB is in compliance, in all material respects, in the conduct
of its business with all terms and conditions of the necessary permits, licenses
and authorizations, and to the best of its knowledge is also in compliance in
all material respects with all other applicable limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in such environmental laws or contained in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved under such environmental laws.
12.7.3 Except as set forth in a writing delivered to SRFC, FFB is not
aware of, nor has FFB received notice of, any past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may materially interfere with or prevent compliance or continued
compliance in the conduct of its business with such environmental laws or any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued,
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entered, promulgated or approved under such environmental laws, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, proceeding, hearing, study or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment (including,
without limitation, ambient air, surface water, groundwater, land or sewers), of
any pollutant, contaminant, chemical, or industrial, toxic or hazardous
substance or waste or new or used petroleum products.
12.7.4 Except as set forth in a writing delivered to SRFC, FFB is not
aware of, nor has FFB received notice of, any material civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
notice of violation, investigation, or proceeding pending or threatened against
FFB relating in any way to the environmental laws or any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved under such environmental laws.
12.7.5 Except as set forth in a writing delivered to SRFC, to the best
knowledge of FFB, there is no asbestos containing material on the properties of
FFB that violates any environmental law or is in need of removal or repair.
12.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From September 30, 1998 to the
date hereof, there has not been:
12.8.1 any change in the corporate status, business, operations or
financial condition of FFB and its consolidated Subsidiaries, other than changes
in the ordinary course of business, and those changes described in any FFB
filings with the Securities and Exchange Commission, none of which are, in the
aggregate, materially adverse to FFB; or
12.8.2 any other event or condition of any character which has
materially and adversely affected the corporate status, business, operations or
financial condition of FFB and its consolidated Subsidiaries taken as a whole.
12.9 LITIGATION AND PROCEEDINGS. There is no suit, action or legal or
administrative proceeding pending, or to the knowledge of FFB threatened,
against it or any of FFB's consolidated Subsidiaries, which, if adversely
determined, might materially and adversely affect the financial condition, on a
consolidated basis, of FFB and FFB's consolidated Subsidiaries or the conduct of
their businesses, nor is there any decree, injunction or order of any court,
governmental department or agency outstanding against FFB or any of FFB's
consolidated Subsidiaries having any such effect.
12.10 CONSENTS AND APPROVALS. The consents and approvals required to be
obtained by FFB on or prior to the Closing Date are set forth below:
12.10.1 approval and effectiveness of the Registration Statement
referred to in Section 14.3 or of any post effective amendment thereto;
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12.10.2 approval of FRB under Bank Holding Company Act;
12.10.3 approval of the Department of Financial Institutions of the
State of Indiana; and
12.10.4 any other required consents for the completion of the Merger.
12.11 BROKERS. Neither FFB nor any of its officers, directors or employees
have employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finders' fees in connection with
this Agreement or with the transactions contemplated thereby.
12.12 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution, delivery and
performance of this Agreement will not: (i) violate, or conflict with, or
require any consent under, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
upon any of the assets of FFB, under any of the terms, conditions or provisions
of the Articles of Incorporation or Regulations of FFB, or of any note, bond,
mortgage, indenture, deed of trust, material license, lease, agreement or other
instrument or obligation to which FFB is a party or by which FFB or any of its
assets may be bound or affected or (ii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to FFB or any of its assets.
12.13 YEAR 2000 COMPLIANCE. Except as set forth in the Disclosure Schedule,
the software and hardware operated by FFB and its Subsidiaries are capable of
providing or are being adapted or replaced to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 and date-dependent data in substantially the same manner
and with the same functionality as such software records, stores, processes and
presents such calendar dates and date-dependent data as of the date hereof,
except for the failure to have such capability which would not, individually or
in the aggregate, be reasonably likely to cause a material adverse effect upon
the business, financial condition and operations of FFB and its Subsidiaries.
FFB and its Subsidiaries have complied in all material respects with any and all
programs, guidelines and statements relating to Year 2000 issued by the Federal
Financial Institutions Examination Council.
12.14 INTELLECTUAL PROPERTY. Except as disclosed in a writing delivered to
SRFC, FFB does not have knowledge of any valid grounds for any bona fide claims
(i) to the effect that its licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by FFB infringes on any copyright,
patent, trademark, trade name, service mark or trade secret; (ii) against the
use by FFB of any copyrights, patents, trademarks, trade names, service marks,
trade secrets, technology, know-how or computer software programs and
applications used in the business of FFB as currently conducted or as proposed
to be conducted; (iii) challenging the ownership, validity or effectiveness of
any of FFB's Intellectual Property Rights or other trade secret material of FFB;
or (iv) challenging the license or legally enforceable right to use Third-Party
Intellectual Rights by FFB.
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As used in this Agreement, the term (x) "Intellectual Property" means all
patents, trademarks, trade names, service marks, copyrights and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials; (y) "Third-Party
Intellectual Property Rights" means any third-party patents, trademarks, trade
names, service marks and copyrights; and (z) "FFB's Intellectual Property
Rights" means the patents, registered and material unregistered trademarks,
trade names and service marks, registered copyrights and any applications
therefor owned by FFB.
12.15 GOOD AND MARKETABLE TITLE. FFB has and on the Closing Date will have
good and marketable title in fee simple to all lands and buildings shown as
assets in its records and books of account, except for properties held in trust
or other fiduciary capacity, free and clear of all liens, encumbrances and
charges except as reflected in the aforesaid financial statements and except for
current taxes and assessments not delinquent or being contested in good faith
and liens, encumbrances and charges shown in their records and books of account
which are not substantial in character or amount and do not materially detract
from the value or interfere with the use of the properties subject thereto or
affected thereby. FFB has and on the Closing Date will have valid leases under
which it is entitled to occupy and use in its business all real property of
which it is lessee, and FFB has no knowledge of any material default under any
such lease.
FFB has and on the Closing Date will have good and marketable title to the
machinery, equipment, merchandise, materials, supplies and other property of
every kind, tangible or intangible, contained in its offices and other
facilities or shown as assets in its records and books of account, except for
properties held in trust or other fiduciary capacity or personal property of FFB
employees contained in their offices, free and clear of all liens, encumbrances
and charges except as reflected in the aforesaid financial statements and except
for liens, encumbrances and charges, if any, which do not materially detract
from the value of or interfere with the use of the properties subject thereto or
affected thereby. FFB has and will have immediately prior to the Closing Date
valid leases under which it is entitled to use in its business all personal
property of which it is lessee, and FFB has no knowledge of any material default
under any such lease.
12.16 TAXES. All taxes imposed by the United States or by any state,
municipality, subdivision or instrumentality of the United States or by any
other taxing authority, which are due or payable by FFB, and all claims asserted
against it have been paid in full or are adequately accrued in the records and
books of accounts of FFB and will be so paid or provided for on the Closing
Date. All income tax returns for FFB have been filed with the taxing authorities
having jurisdiction thereof through 1994, and no extension of time for the
assessment of deficiencies for any such years is in effect. FFB has no knowledge
of any unassessed tax deficiency proposed or threatened against it.
12.17 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS. Neither FFB
nor any of its consolidated Subsidiaries is in default under the terms of any
material outstanding contract, agreement, lease or other commitment which
default would have a material and adverse effect, on a consolidated basis, on
FFB and FFB's consolidated Subsidiaries, and on the Closing Date, the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of or constitute a default under any
material indenture, mortgage, deed or trust or other material agreement or
instrument to which FFB or any of its consolidated
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Subsidiaries is a party, which default or breach would have a material and
adverse effect, on a consolidated basis, on FFB and FFB's consolidated
Subsidiaries.
13. CONDUCT OF BUSINESS PENDING THE MERGER.
13.1 NEGATIVE COVENANTS OF SRFC. From and after the date of this Agreement
and prior to the Effective Time, without the prior written consent of FFB,
neither SRFC nor Bank will:
13.1.1 amend its respective Articles of Incorporation, Articles of
Association, Regulations or By-Laws;
13.1.2 engage in any material activity or transaction or incur any
material obligation (by contract or otherwise) except in the ordinary course of
business;
13.1.3 issue rights or options to purchase or subscribe to any shares
of its capital stock or subdivide or otherwise change any such shares; or
13.1.4 issue or sell any shares of its capital stock.
13.2 DIVIDENDS. The parties agree that in January 1999 the shareholders of
SRFC shall receive a regular annual dividend, anticipated to be in the amount of
eighteen dollars ($18.00) per share. In addition, in the event that the
Effective Time is after FFB's first quarter 1999 record date, on April 1, 1999,
SRFC's shareholders shall receive a quarterly dividend in the amount of $4.75
per share.
13.3 SRFC EFFORTS. From and after the date of this Agreement and prior to
the Effective Time, SRFC and Bank will use their respective best efforts to
preserve their business organizations intact; to keep available the services of
their present officers and employees and to preserve the goodwill of their
suppliers, customers and others having business relations with it. During the
same period, SRFC and Bank will not put into effect any material increase in the
compensation or other benefits applicable to officers or other key personnel in
excess of compensation increases paid by SRFC or Bank to similarly situated
employees in accordance with past practices.
13.4 PURCHASE OF "TAIL COVERAGE". SFRC may purchase "tail coverage" on its
Directors' and Officers' insurance for a period of six years and for a sum not
exceeding $115,000 in the aggregate. From and after the Effective Time, every
director, officer, employee and agent of SRFC and Bank shall be entitled to
indemnification from FFB on the same basis and to the same extent as the other
directors, officers, employees and agents of FFB.
14. ADDITIONAL AGREEMENTS.
14.1 ACCESS AND INFORMATION. FFB and SRFC hereby agree that each will give
to the other and to the other's accountants, counsel and other representatives
full access during normal business hours throughout the period prior to the
Merger to all of its properties, books, contracts, commitments and records, and
that each will furnish the other during such period with all such
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information concerning its affairs as such other party may reasonably request.
In the event of the termination of this Agreement, each party will, upon the
request of the other, destroy or deliver to the other all documents, work papers
and other material obtained from the other relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
and will use its best efforts to have any information so obtained and not
heretofore made public kept confidential.
14.2 CONFIDENTIALITY. From and after the date of this Agreement, the
parties and their respective Subsidiaries will, and they will cause their
respective directors, officers, employees and advisors ("Affiliates") to, treat
all information received from or on behalf of another party hereto or its
Affiliates concerning the business, assets, operations and financial condition
of such other party or its Subsidiaries as confidential, unless and to the
extent that the party receiving such information can demonstrate that such
information was in the public domain, and the party receiving such information
and its Subsidiaries will, and will cause their respective Affiliates to, not
use any such confidential information for any purpose except in furtherance of
the transactions contemplated by this Agreement. In the event this Agreement is
terminated pursuant to Section 15.4 hereof, each party and its Subsidiaries,
upon the request of the other, will promptly return to the other party or
destroy all documents and work papers and all copies thereof, containing any
such confidential information received from or on behalf of another party hereto
in connection with the transactions contemplated by this Agreement. The
covenants contained in this Section are of the essence and will survive any
termination of this Agreement and the closing of the transactions contemplated
by this Agreement.
14.3 REGISTRATION STATEMENT. FFB will prepare and file a Registration
Statement on Form S-4 under the 1933 Act (the "Registration Statement") to
register a sufficient number of FFB Common Shares which the shareholders of SRFC
will receive pursuant to Section 8 at the Effective Time. FFB will use its best
efforts to cause such Registration Statement to become effective. SRFC and Bank
agree that none of the information supplied or to be supplied by each of them
for inclusion or incorporation by reference in (i) the Registration Statement,
including the joint proxy statement and prospectus (the "Joint Proxy
Statement-Prospectus") constituting a part thereof, will, at the time the
Registration Statement becomes effective under the Securities Act or (ii) the
Joint Proxy Statement-Prospectus and any amendment or supplement thereto will,
at the date of mailing to shareholders and at the times of the meeting of
shareholders of SRFC to be held in connection with the Merger, in either case
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Other than information supplied by SRFC and Bank for inclusion or
incorporation by reference in the Registration Statement and the Joint Proxy
Statement-Prospectus, FFB agrees that neither the Registration Statement at the
time the Registration Statement becomes effective under the Securities Act nor
the Joint Proxy Statement-Prospectus at the date of mailing to shareholders and
at the time of the meeting of shareholders of SRFC in either case, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
14.4 EMPLOYEE BENEFITS.
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14.4.1 As soon as practicable after the Effective Time, FFB shall make
available to eligible employees of Bank employee benefit plans comparable to the
employee benefit plans then made available to similarly situated employees of
other FFB subsidiaries. Employee benefit plans, fringe benefits and other
employee practices and policies in effect at Bank immediately prior to the
effective date of the Merger shall continue in effect until modified or
terminated by FFB.
The SRFC 401(k) Plan ("SRFC 401(k) Plan") shall continue in effect
until the first January 1 or July 1 coinciding with or next following the
Effective Time (the "Initial Entry Date"). No contributions shall be made to the
SRFC 401(k) Plan with respect to compensation paid after the Initial Entry Date.
On or after the Initial Entry Date, the SRFC 401(k) Plan may be maintained as a
frozen plan for an indefinite period or merged into the FFB Thrift Plan.
Participants in the SRFC 401(k) Plan shall become fully vested in their accounts
under that plan as of the Initial Entry Date to the extent required by law. As
of the Initial Entry Date, the FFB Thrift Plan shall be extended to eligible
employees of Bank. All years of service as of the Effective Time credited to
SRFC and Bank employees will be recognized for purposes of computing eligibility
and vesting for the FFB Thrift Plan.
14.4.2 If any person who is an SRFC employee as of the Effective Time
is terminated without cause within one year after the Effective Time, Bank, as a
subsidiary of FFB, shall pay such employee a termination payment equal to one
week's salary for each full year of completed service with Bank, upon receipt
from the employee of a release of all claims in form satisfactory to Bank and
FFB; provided, however, that any such terminated employee with less than four
full years of completed services with Bank shall receive a termination payment
equal to four weeks' salary in the aggregate.
14.4.3 Nothing contained in this Section shall be deemed to constitute
an agreement to employ or continue to employ any employee of Bank or restrict
the right of FFB to modify or terminate any employee benefit plan, policy or
practice applicable to employees of Bank.
14.5 EXPENSES. Upon a termination of this Agreement as provided in Section
15.4, each party will pay all costs and expenses of its performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including fees, expenses and disbursements of its
accountants and counsel.
14.6 FURTHER ASSURANCES. If at any time the Surviving Corporation will
consider or be advised that any further assignment or assurance in law or other
action is necessary or desirable to vest, perfect, or confirm, of record or
otherwise, in the Surviving Corporation, the title to any property or rights of
SRFC acquired or to be acquired by or as a result of the Merger, the proper
officers and directors of SRFC and the Surviving Corporation, respectively, will
be and they hereby are severally and fully authorized to execute and deliver
such proper deeds, assignments and assurances in law and take such other action
as may be necessary or proper in the name of SRFC or the Surviving Corporation
to vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise carry out the purposes of this Agreement.
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14.7 POOLING. Neither SRFC, Bank, FFB nor any of its consolidated
Subsidiaries has taken or agreed to take any action that would prevent SRFC and
FFB from accounting for the business combination to be effected by the Merger as
a "pooling of interests." SRFC has received from its independent accountants,
Crowe, Chizek and Company LLP, a letter stating that, based upon Crowe, Chizek
and Company LLP's review of such relevant documents and information which Crowe,
Chizek and Company LLP deemed relevant, such firm is currently unaware of any
reason why the business combination to be effected by the Merger cannot be
accounted for as a "pooling-of-interests" in regard to SRFC and Bank. FFB has
received from its independent accountants, Ernst & Young LLP, a letter stating
that, based upon Ernst & Young's review of such relevant documents and
information which Ernst & Young LLP deemed relevant, such firm is currently
unaware of any reason why the business combination to be effected by the Merger
cannot be accounted for as a "pooling-of-interests" in regard to FFB and its
consolidated Subsidiaries.
14.8 AUDITED FINANCIAL STATEMENTS. As soon as reasonably practicable, SRFC
will deliver to FFB the information required by Item 17 of the instructions to
Registration Statement Form S-4, including but not limited to a copy of its
consolidated balance sheet as of December 31, 1998 (if available), 1997 and 1996
and related consolidated statements of income, changes in shareholders' equity
and cash flows for the fiscal years ended December 31, 1998 (if available),
1997, 1996 and 1995, and such financial statements for the most recently ended
fiscal year will be in the format required by the Securities and Exchange
Commission and will include a Management's Discussion and Analysis of Financial
Condition and Results of Operations section. Upon request by FFB, SRFC will
deliver to FFB a copy of its balance sheet (unaudited) and related statements of
income and cash flows (unaudited) for the nine months period ending September
30, 1998, including the notes thereto. All of such financial statements will
present fairly the financial positions as of and at the dates shown and the
results of operations for the periods covered thereby. They will have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated, except as otherwise
indicated in the notes thereto. All liabilities of SRFC (including any
contingent liabilities), as of the date of each balance sheet, will be properly
accrued in such balance sheet or disclosed in the related footnotes in
accordance with generally accepted accounting principles. Each of such
consolidated statements of earnings of SRFC will be fairly presented in
accordance with generally accepted accounting principles for the periods
indicated.
14.9 PRESS RELEASES. The parties will consult with each other as to the
form and substance of any press release, written communication with their
shareholders, or other public disclosure of matters related to this Agreement,
and a party will not issue any such press release, written communication, or
public disclosure without the prior consent of the other party, which consent
will not be unreasonably withheld or delayed; provided, however, that nothing
contained herein will prohibit any party, following notification to the other
party, from making any disclosures which its counsel deems necessary to conform
with requirements of law or the rules of NASDAQ.
14.10 SRFC AFFILIATES. SRFC shall deliver to FFB a letter ("Affiliate
Letter") identifying all persons who are, at the date of the SRFC shareholders
meeting to approve the Merger contemplated by this Agreement, "affiliates" of
SRFC for purposes of Rule 145 under the
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Securities Act of 1933 ("Seller's Rule 145 Affiliates") and for purposes of
qualifying the Merger for pooling-of-interests accounting treatment. SRFC shall
use its best efforts to cause each person who is identified as a "Seller's Rule
145 Affiliate" in such letter to deliver to FFB on or prior to the Closing Date
a written agreement substantially in a form agreed to by the parties. FFB shall
be entitled to place legends on any certificates of FFB Common Shares issued to
such Seller's Rule 145 Affiliates to restrict transfer of such shares as set
forth above; provided, however, such legends shall be removed at the request of
a Seller's Rule 145 Affiliate not earlier than one year after the Closing Date.
14.11 BOARD REPRESENTATION. FFB agrees that, promptly after the Effective
Time, FFB will appoint a member of the Board of Directors of Bank as a director
of FFB (such selected candidate to be mutually agreeable to FFB and the Board of
Directors of Bank).
14.12 DISCLOSURE SCHEDULE. SRFC shall have delivered a Disclosure Schedule
in final form to FFB by December 21, 1998, and FFB shall have determined whether
such Disclosure Schedule is satisfactory by December 24, 1998.
15. CONDITIONS PRECEDENT; TERMINATIONS.
15.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES. The obligations of
each of the parties hereto to effect the Merger is subject to the fulfillment on
or prior to the Effective Time of the following conditions precedent:
15.1.1 The Merger will have been approved by the FRB or the delegate,
and by any other governmental authority having jurisdiction and any applicable
waiting period will have expired, with no such approval or authorization
containing any provision which would be materially adverse to the merged
businesses of SRFC and FFB as contemplated by this Agreement.
15.1.2 No suit, action, investigation by any governmental body, or
other legal or administrative proceedings will have been brought or threatened
which materially questions the validity or legality of the transactions
contemplated herein. For the purposes hereof, inquiries which could give rise to
any such suit, investigation or proceeding given by any governmental agency may,
at the option of either party, be deemed such a threat.
15.1.3 The parties hereto will have obtained any and all consents
required for the consummation of the Merger or for the preventing of any default
under any contract, agreement or permit of the parties hereto, which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect on the combined business affairs of SRFC
and FFB.
15.2 CONDITIONS PRECEDENT TO FFB'S OBLIGATIONS. The obligation of FFB to
effect the Merger will be subject to the fulfillment on or prior to the
Effective Date of the following conditions precedent (which may be waived in
writing by FFB):
15.2.1 The representations and warranties of SRFC herein contained will
be true as of and at the Closing Date with the same effect as though made at
such time; SRFC will have
21
<PAGE> 147
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by it prior to the Closing Date; and
SRFC will have delivered to FFB a certificate, dated the Closing Date and signed
by its president or one of its vice presidents and its secretary or one of its
assistant secretaries, to both such effects.
15.2.2 No material change in the corporate status, businesses,
operations or condition (financial or otherwise) of either of SRFC or Bank will
have occurred since December 31, 1997, (whether or not covered by insurance),
which has been materially adverse in relation to SRFC, taken as a whole, and no
other event or condition of any character will have occurred or arisen since
that date which will have materially and adversely affected the corporate
status, businesses, operations or financial condition of SRFC.
15.2.3 FFB will have received from Barnes & Thornburg, counsel for
SRFC, a favorable opinion, dated as of the Closing Date, in form and substance
satisfactory to FFB's counsel. In rendering this opinion, such counsel may rely
on certificates of public officials and of corporate officers, opinions of
recognized local counsel in jurisdictions where such counsel is not qualified to
practice, and such other evidence as he may deem appropriate. The provisions of
the preceding sentence are applicable to all other opinions of counsel to be
delivered hereunder.
15.2.4 The Registration Statement will have become effective relating
to the shares of FFB which the shareholders of SRFC will receive at the
Effective Time.
15.2.5 FFB will have received a favorable ruling from the Internal
Revenue Service, or opinion of counsel, in form and substance satisfactory to
FFB and its counsel, to the effect that, under the IRC, and particularly Section
368(a)(1)(A), no gain or loss will be recognized to FFB or its shareholders or
to SRFC or its shareholders as a result of the Merger except for gain (but not
loss) on cash received by the shareholders of SRFC.
15.2.6 FFB will have received such written consents and confirmations
(or opinions of counsel to the effect that such consents or confirmations are
not required), as they may reasonably request to the effect that the Surviving
Corporation will succeed upon consummation of the Merger to all of SRFC's right,
title and interest in and to its material contracts, agreements, leases and
other commitments and that the Surviving Corporation will possess and enjoy all
material licenses, permits and other governmental authorizations possessed by
SRFC at the date hereof. FFB will have received those approvals and consents
described in Section 12.10 hereof.
15.2.7 At the date of signing this Agreement and immediately prior to
the Closing Date, FFB will have received from FFB's independent accountants
letters to the effect that they are not aware of any reason that FFB is not in
compliance with the pooling-of-interests criteria as specified under APB No. 16,
and that, accordingly, the Merger can be accounted for as a pooling of interests
from FFB's perspective.
15.2.8 SRFC will have performed, at FFB's expense, a Phase I
Environmental Survey by December 31, 1998 and FFB will have reviewed the results
of such Phase I Environmental Survey on its owned banking facilities by January
15, 1999 and determined whether it is satisfied with the results thereof and
that no further testing is required and no
22
<PAGE> 148
remedial action is necessary, or if such Phase I is not satisfactory in form and
substance to it, FFB and SRFC will have reached agreement by January 31, 1999 as
to the remedial actions necessary to correct any unsatisfactory conditions and
the payment for such remedial actions.
15.2.9 FFB will have received the Affiliate Letter and the written
agreements signed by each Seller's Rule 145 Affiliate described in Section 14.10
hereof.
15.3 CONDITIONS PRECEDENT TO SRFC'S OBLIGATION. The obligation of SRFC to
effect the Merger will be subject to the fulfillment on or prior to the
Effective Time of the following conditions precedent (which may be waived in
writing by SRFC):
15.3.1 The representations and warranties of FFB herein contained will
be true as of and at the Closing Date with the same effect as though made at
such time; FFB will have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by it
prior to the Closing Date; and FFB will have delivered to SRFC a certificate,
dated the Closing Date and signed by its president or one of its vice presidents
and its secretary or one of its assistant secretaries, to both such effects.
15.3.2 No material change in the corporate status, businesses,
operations or condition (financial or otherwise) of FFB and its consolidated
Subsidiaries will have occurred since December 31, 1997 (whether or not covered
by insurance), which has been materially adverse in relation to FFB and its
consolidated Subsidiaries, taken as a whole, and no other event or condition of
any character will have occurred or arisen since that date which will have
materially and adversely affected the corporate status, businesses, operations
or financial condition of FFB and its consolidated Subsidiaries, taken as a
whole.
15.3.3 SRFC will have received from Frost & Jacobs LLP, counsel for
FFB, a favorable opinion, dated immediately prior to the Closing Date, in form
and substance satisfactory to SRFC's counsel. In rendering this opinion, such
counsel may rely on certificates of public officials and of corporate officers,
opinions of recognized local counsel in jurisdictions where such counsel is not
qualified to practice, and such other evidence as it may deem appropriate. The
provisions of the preceding sentence are applicable to all other opinions of
counsel to be delivered hereunder.
15.3.4 The Registration Statement will have become effective relating
to the shares of FFB common stock which the shareholders of SRFC will receive at
the Effective Time.
15.3.5 SRFC will have received a favorable ruling from the Internal
Revenue Service, or opinion of counsel, in form and substance satisfactory to
SRFC, to the effect that, under the Internal Revenue Code of 1986, as amended
(i) no gain or loss will be recognized to SRFC as a result of the Merger, and
(ii) no gain or loss (except in respect of fractional share interests sold or
dissenter's receiving cash) will be recognized to SRFC's shareholders as a
result of their exchange of common stock of SRFC for common shares of FFB, and
covering such other matters as are typically covered by such opinion.
15.3.6 At the date of signing this Agreement and immediately prior to
the Closing Date, SRFC will have received from SRFC's independent accountants
letters to the effect that
23
<PAGE> 149
they are not aware of any reason that SRFC is not in compliance with the pooling
of interests criteria as specified under APB No. 16, and that, accordingly, the
Merger can be accounted for as a pooling of interests from SRFC's perspective.
15.3.7 The SRFC Board of Directors shall have received an opinion from
Hovde, dated as of the date of the Joint Proxy Statement-Prospectus, to the
effect that the consideration to be received by SRFC shareholders in the merger
is fair from a financial point of view, and such opinion shall not have been
withdrawn at the time of Closing.
15.4 TERMINATION AND ABANDONMENT. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at any
time before the Effective Time, whether before or after adoption or approval of
this Agreement by the shareholders of SRFC, under any one or more of the
following circumstances:
15.4.1 By the mutual consent of the Boards of Directors of FFB and
SRFC;
15.4.2 By FFB if the holders of 7.5% or more of the outstanding shares
of common stock of SRFC will be entitled to receive cash in exchange for their
SRFC shares pursuant to perfected dissenters' rights under the Indiana Business
Corporation Act;
15.4.3 By FFB if, prior to the Effective Time, the conditions set forth
in Sections 15.2.1 through 15.2.9, inclusive, will not have been met;
15.4.4 By SRFC if, prior to the Effective Time, the conditions set
forth in Sections 15.3.1 through 15.3.7, inclusive, will not have been met;
15.4.5 By either FFB or SRFC if prior to the Effective Time, the
conditions set forth in Sections 15.1.1 through 15.1.3, inclusive, will not have
been met, or any action or proceeding before any court or other governmental
body or agency will have been instituted or threatened to restrain or prohibit
the Merger and such constituent corporation deems it unadvisable to proceed with
the Merger;
15.4.6 By either FFB or SRFC if the requisite approval of the
shareholders of SRFC will not have been obtained or if the Effective Time, will
not have occurred on or before July 31, 1999;
15.4.7 By SRFC, in accordance with the procedures set forth in this
Section 15.4.7, if the SRFC Board so determines by a vote of a majority of its
members, at any time during the ten-day period commencing on the second trading
day (the "Valuation Date") after the day that is the latest of (i) the day of
expiration of the last waiting period with respect to any of the required
regulatory approvals, (ii) the day on which the last of the required regulatory
approvals is obtained, and (iii) the day on which the required SRFC stockholder
approval is obtained, if both of the following conditions are satisfied (a
"Termination Event"):
(a) the Average Closing Price is less than $23.2671, and
(b) the SRFC Ratio is less than the Index Ratio.
24
<PAGE> 150
If SRFC elects to exercise this termination right, it will give prompt written
notice to FFB (which notice may be withdrawn at any time). During the five days
commencing with its receipt of such notice, FFB will have the option to avoid
the termination of this Agreement by electing to increase the Exchange Ratio to
equal the lesser of (i) the result of dividing $1,983.52 by the Average Closing
Price, and (ii) the quotient obtained by dividing the product of the Index Ratio
and the Exchange Ratio (as then in effect) by the SRFC Ratio. If FFB makes an
election contemplated by the preceding sentence (the "Election") within such
five-day period, it will give prompt written notice to SRFC of the Election and
the revised Exchange Ratio, whereupon (x) no termination will have occurred as a
result of the Termination Event and SRFC's exercise of its right of termination,
(y) this Agreement will remain in effect in accordance with its terms (except as
the Exchange Ratio will have been so modified), and (z) any references in the
Agreement to "Exchange Ratio" will thereafter be deemed to refer to the Exchange
Ratio as so adjusted). If FFB fails to make the Election, FFB will give prompt
written notice to SRFC of its decision not to make the Election and, within five
days of its receipt of such notice, SRFC must give written notice (the "Final
Notice") to FFB of either: (A) its election to withdraw the exercise of its
termination right, in which case (i) no termination will have occurred as a
result of the Termination Event and SRFC's exercise of its right of termination,
(ii) this Agreement will remain in effect in accordance with its terms, and
(iii) any references in the Agreement to "Exchange Ratio" will continue as
defined herein and without any modification or adjustment; or (B) its election
to have the termination of this Agreement become effective, in which case such
termination will occur at the close of business on the second business day after
FFB's receipt of the Final Notice.
For purposes of this Section 15.4.7, the following terms have the
definitions set forth below:
o Average Closing Price means the average of the daily closing sales price
of a FFB common share, as reported on the Nasdaq National Market for the 20
consecutive Nasdaq trading days (in which at least 1,000 shares were traded)
ending on the Valuation Date.
o Index Group" means the 31 financial institution holding companies (17
with headquarters in Ohio and 14 with headquarters in Indiana) listed below, the
common stock of all of which shall be publicly traded and as to which there
shall not have been an Acquisition Transaction (as defined in the Merger
Agreement) involving such company publicly announced at any time during the
period beginning on the date of the Merger Agreement and ending on the Valuation
Date. In the event that the common stock of any such company ceases to be
publicly traded or a proposal regarding a change in control involving, or a
material acquisition by, any such company is announced at any time during the
period beginning on the date of the Merger Agreement and ending on the Valuation
Date, such company will be removed from the Index Group. The 31 financial
institution holding companies are as follow:
<TABLE>
<CAPTION>
Ohio Banks
----------
<C> <S>
BFOH BancFirst Ohio Corp
BLMT Belmont Bancorp.
FITB Fifth Third Bancorp
FMER FirstMerit Corporation
</TABLE>
25
<PAGE> 151
<TABLE>
<CAPTION>
<C> <S>
HMAN Huntington Bancshares Incorporated
KEY KeyCorp
MGNB Mahoning National Bancorp, Incorporated
NCC National City Corporation
OAKF Oak Hill Financial, Inc.
OVBC Ohio Valley Banc Corp.
PRK Park National Corporation
PEBO Peoples Bancorp Inc.
PFGI Provident Financial Group Inc.
SECD Second Bancorp, Incorporated
SKYF Sky Financial Group Inc.
UBCP United Bancorp, Inc.
WNNB Wayne Bancorp, Inc.
Indiana Banks
-------------
SRCE 1st Source Corporation
ANBC ANB Corporation
BNK CNB Bancshares, Inc.
CBIN Community Bank Shares of Indiana, Inc.
THFF First Financial Corporation
FRME First Merchants Corporation
GABC German American Bancorp
IUBC Indiana United Bancorp
IRWN Irwin Financial Corporation
LKFN Lakeland Financial Corporation
METB MetroBanCorp
NCBE National City Bancshares, Inc.
OLDB Old National Bancorp
PPLS Peoples Bank Corporation of Indianapolis
</TABLE>
If FFB or any company belonging to the Index Group declares or effects
a stock dividend, reclassification, recapitalization, split-up, combination,
exchange or shares or similar transaction between the date of the Merger
Agreement and the Valuation Date, the prices for the common stock of such
company will be appropriately adjusted for purposes of determining whether a
Termination Event has occurred.
o Index Price means, with respect to the Index Group, the price resulting
from dividing (i) the sum of the closing sales price on the Starting Date of a
share of common stock of each member of the Index Group by (ii) the number of
financial institutions that comprise the Index Group.
o Average Index Price, with respect to the Index Group, means the price
resulting from dividing (i) the sum of the average of the daily closing sales
price of a share of common stock of each financial institution comprising the
Index Group, as reported on the consolidated transaction reporting system for
the market or exchange on which such common stock is principally traded,
26
<PAGE> 152
during the period of 20 consecutive trading days ending on the Valuation Date by
(ii) the number of financial institutions that comprise the Index Group.
o SFRC Ratio means the number obtained by dividing the Average Closing
Price by $26.5909.
o Index Ratio means the number obtained by dividing the Average Index Price
by the Index Price and subtracting 0.125 from the quotient.
o Starting Date means the day immediately prior to the parties' public
announcement of the signing of this Agreement.
An example of the determination regarding whether a Termination Event
has occurred and the resulting number of FFB common shares that could possibly
be issued is attached as Schedule 15.4.7; or
15.4.8 By FFB if it determines that the disclosure Schedule delivered
pursuant to Section 14.12 is not satisfactory.
15.5 EFFECT OF TERMINATION. Upon any such termination and abandonment,
neither party will have any liability or obligation hereunder to the other,
except for the return of all documents exchanged and the preservation of the
confidentiality by each party of the information exchanged, and except for a
termination pursuant to Section 15.4.3 (resulting from a failure to satisfy
Section 15.2.1) or pursuant to Section 15.4.4 (resulting from a failure to
satisfy Section 15.3.1), in which case, a termination shall not relieve the
breaching party from liability for a breach of a representation or covenant
giving rise to the termination.
15.6 EXPENSES. Upon a termination of this Agreement as provided in Section
15.4, each party will pay all costs and expenses of its performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including fees, expenses and disbursements of its
accountants and counsel.
15.7 SURVIVAL OF REPRESENTATIONS. The representations and warranties of the
parties contained in this Agreement survive until the Effective Time and do not
survive after such Effective Time.
16. GENERAL PROVISIONS.
16.1 DEFINITIONS. "Subsidiaries" as used herein means any corporation 50%
or more of whose outstanding voting securities are owned directly or indirectly
by FFB or SRFC, as the context may require, whether consolidated or
unconsolidated. The headings in this Agreement will not affect in any way its
meaning or interpretation.
16.2 AMENDMENTS. Any of the terms or conditions of this Agreement may be
modified or waived at any time before the Effective Time by the party which is,
or the shareholders of which are, entitled to the benefit thereof upon the
authority of the Board of Directors of such party, provided that any such
modification or waiver will in the judgment of the party making it
27
<PAGE> 153
not affect substantially or materially and adversely the benefits to such party
or its shareholders intended under this Agreement.
16.3 NOTICES. All notices, demands, requests, consents or approvals
required hereunder will be in writing and will be given (and will be deemed to
have been duly given upon receipt) by delivery in person or by certified or
registered mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or to such other address as any party may
give to the other by like notice:
IF TO FFB: First Financial Bancorp.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
ATTENTION: Stanley N. Pontius, President
and Chief Executive Officer
With copies to: Frost & Jacobs
2500 PNC Center
201 East Fifth Street
P.O. Box 5715
Cincinnati, Ohio 45201-5715
ATTENTION: Neil Ganulin
If to SRFC: Sand Ridge Financial Corporation
2611 Highway Avenue
P. O. Box 1929
Highland, Indiana 46322
ATTENTION: Bruce E. Leep, President
With copies to: Barnes & Thornburg
600 1st Source Bank Center
100 North Michigan
South Bend, Indiana 46601-1632
ATTENTION: John A. Burgess, Esq.
Hovde Financial, Inc.
1629 Colonial Parkway
Inverness, Illinois 60067
ATTENTION: Steve Nelson
16.4 BINDING NATURE OF AGREEMENT. This Agreement will be binding upon and
inure to the benefit of FFB and SRFC and their respective successors and
permitted assigns.
28
<PAGE> 154
16.5 ASSIGNMENT. Neither this Agreement nor any obligation or right
hereunder may be assigned by any party hereto, whether directly or indirectly,
without the prior written consent of the other party.
16.6 GOVERNING LAW. This Agreement will in all respects be governed and
construed in accordance with the laws of the State of Ohio, except to the extent
superseded by the federal banking laws of the United States.
16.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, pursuant to authority duly given by its Board of
Directors, each of FFB, and SRFC has caused this Agreement to be executed and
attested by its authorized officers as of the date and year first above written.
FIRST FINANCIAL BANCORP.
By:
-----------------------------------
Stanley N. Pontius
President and CEO
SAND RIDGE FINANCIAL CORPORATION
By:
-----------------------------------
Bruce E. Leep
Chairman and President
29
<PAGE> 155
SCHEDULE 15.4.7
The following example illustrates whether a Termination Event could
occur and the resulting number of FFB shares that could possibly be issued:
<TABLE>
<S> <C> <C>
Average Closing Price $22.75 $22.75
Average Index Price/Index Price .97 1.01
SRFC Ratio .8556 .8556
Index Ratio .8450 .8850
Does Termination Event Occur? No Yes
New Exchange Ratio (lower of I or ii):
(i) 87.1877
(ii) 88.1793
FFBC Shares Issued 5,115,000 5,231,262
</TABLE>
30
<PAGE> 156
APPENDIX B
TO BE UPDATED AS OF THE DATE OF THE PROXY MAILING
December 16, 1998
Board of Directors
Sand Ridge Financial Corporation
2611 Highway Avenue
Highland, IN 46322
Members of the Board:
Sand Ridge Financial Corporation ("Sand Ridge"), an Indiana
corporation, and First Financial Bancorp ("First Financial"), an Ohio
corporation, have entered into a Plan and Agreement of Merger ("Plan of Merger")
dated December 16, 1998, pursuant to which Sand Ridge will be merged with and
into First Financial (the "Merger"). As is set forth in Section 8.3 of the Plan
of Merger, at the effective time of the Merger each of the outstanding shares of
Sand Ridge common stock ("Sand Ridge Common Stock") will be converted into and
have the right to receive 85.25 shares (the "Exchange Ratio") of First Financial
common stock ("First Financial Common Stock"), subject to certain adjustments as
set forth in Section 15.4 of the Plan of Merger. In connection therewith, you
have requested our opinion as to the fairness, from a financial point of view,
of the Exchange Ratio to the shareholders of Sand Ridge.
Hovde Financial, Inc. ("Hovde") specializes in providing investment
banking and financial advisory services to commercial bank and thrift
institutions. Our principals are experienced in the independent valuation of
securities in connection with negotiated underwritings, subscription and
community offerings, private placements, merger and acquisition transactions and
recapitalizations. We are familiar with Sand Ridge, having acted as its
financial advisor in connection with, and having participated in the
negotiations leading to, the Plan of Merger.
We were retained by Sand Ridge to act as its exclusive financial
advisor with respect to a review of Sand Ridge's strategic alternatives and the
possible sale, merger, consolidation, or other business combination, in one or a
series of transactions, involving all or a substantial amount of the business,
securities or assets of Sand Ridge. We will receive compensation from Sand Ridge
in connection with our services, a significant portion of which is contingent
upon the consummation of the Merger. At your direction, we solicited the
interest of third parties regarding a possible business combination with Sand
Ridge. The Plan of Merger is the result of this solicitation.
B-1
<PAGE> 157
Board of Directors
Sand Ridge Financial Corporation
December 16, 1998
Page Two
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of Sand Ridge and First
Financial and material prepared in connection with the proposed transaction,
including the following: the Plan of Merger; certain historical publicly
available information concerning Sand Ridge and First Financial; the terms of
recent merger and acquisition transactions involving thrifts and thrift holding
companies that we considered relevant; historical market prices and trading
volumes for First Financial Common Stock; and financial and other information
provided to us by the managements of Sand Ridge and First Financial.
In addition, we have conducted meetings with members of the senior
management of Sand Ridge and First Financial for the purpose of reviewing the
future prospects of Sand Ridge and First Financial. We also evaluated the
pro-forma ownership of First Financial Common Stock by Sand Ridge's shareholders
relative to the pro-forma contribution of Sand Ridge's assets, liabilities,
equity and earnings to the pro-forma company, and conducted such other studies,
analyses and examinations as we deemed appropriate. We also took into account
our assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our knowledge of the banking
industry and our general experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
Sand Ridge and First Financial and in the discussions with Sand Ridge and First
Financial management. We did not independently verify and have relied on and
assumed that the aggregate allowances for loan losses set forth in the balance
sheets of each of Sand Ridge and First Financial at September 30, 1998 were
adequate to cover such losses and complied fully with applicable law, regulatory
policy and sound banking practices as of the date of such financial statements.
We were not retained to and did not conduct a physical inspection of any of the
properties or facilities of Sand Ridge or First Financial, nor did we make any
independent evaluation or appraisal of the assets, liabilities or prospects of
Sand Ridge or First Financial, nor were we furnished with any such evaluation or
appraisal, and we were not retained to and did not review any individual credit
files.
B-2
<PAGE> 158
Board of Directors
Sand Ridge Financial Corporation
December 16, 1998
Page Three
We have assumed that the Merger is, and will be, in compliance with all
laws and regulations that are applicable to Sand Ridge and First Financial. In
rendering this opinion, we have been advised by Sand Ridge and First Financial
and we have assumed that there are no factors that would impede any necessary
regulatory or governmental approval for the Merger and we have further assumed
that in the course of obtaining the necessary regulatory and governmental
approvals, no restriction will be imposed on First Financial or the surviving
corporation that would have a material adverse effect on First Financial or the
contemplated benefits of the Merger. We have also assumed that there would not
occur any change in the applicable law or regulation that would cause a material
adverse change in the prospects or operations of First Financial or the
surviving corporation after the Merger.
Our opinion is based solely upon the information available to us and
the economic, market and other circumstances as they exist as of the date
hereof. Events occurring and information that becomes available after the date
hereof could materially affect the assumptions and analyses used in preparing
this opinion. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring or information that becomes
available after the date hereof.
We are not expressing any opinion herein as to the prices at which
shares of First Financial Common Stock issued in the Merger may trade if and
when they are issued or at any future time, nor does our opinion constitute a
recommendation to any holder of Sand Ridge Common Stock as to how such holder
should vote with respect to the Plan of Merger at any meeting of holders of Sand
Ridge Common Stock.
This letter is solely for the information of the Board of Directors of
Sand Ridge and is not to be used, circulated, quoted or otherwise referred to
for any other purpose, nor is it to be filed with, included in or referred to in
whole or in part in any registration statement, proxy statement or any other
document, except in each case in accordance with our prior written consent which
shall not be unreasonably withheld; provided, however, that we hereby consent to
the inclusion and reference to this letter in any registration statement, proxy
statement, information statement or tender offer document to be delivered to the
holders of Sand Ridge Common Stock in connection with the Merger if and only if
this letter is quoted in full or attached as an exhibit to such document and
this letter has not been withdrawn prior to the date of such document.
B-3
<PAGE> 159
Board of Directors
Sand Ridge Financial Corporation
December 16, 1998
Page Four
Subject to the foregoing and based on our experience as investment
bankers, our activities and assumptions as described above, and other factors we
have deemed relevant, we are of the opinion as of the date hereof that the
Exchange Ratio is fair, from a financial point of view, to the shareholders of
Sand Ridge.
Sincerely,
HOVDE FINANCIAL, INC.
B-4
<PAGE> 160
APPENDIX C
INDIANA CODE
CHAPTER 44
DISSENTERS' RIGHTS
<TABLE>
<CAPTION>
Section.
<S> <C>
23-1-44-1. "Corporation" defined.
23-1-44-2. "Dissenter" defined.
23-1-44-3. "Fair value" defined.
23-1-44-4. "Interest" defined.
23-1-44-5. "Record shareholder" defined.
23-1-44-6. "Beneficial shareholder" defined.
23-1-44-7. "Shareholder" defined.
23-1-44-8. Shareholder dissent.
23-1-44-9. Beneficial shareholder dissent.
23-1-44-10. Notice of dissenters' rights preceding shareholder vote.
23-1-44-11. Notice of intent to dissent.
23-1-44-12. Notice of dissenter's rights following action creating rights.
23-1-44-13. Demand for payment by dissenter.
23-1-44-14. Transfer of shares restricted after demand for payment.
23-1-44-15. Payment to dissenter.
23-1-44-16. Return of shares and release of restrictions.
23-1-44-17. Offer of fair value for shares obtained after first announcement.
23-1-44-18. Dissenter demand for fair value under certain conditions.
23-1-44-19. Effect of failure to pay demand - Commencement of judicial
appraisal proceeding.
23-1-44-20. Judicial determination and assessment of costs.
</TABLE>
23-1-44-1. "CORPORATION" DEFINED. - As used in this chapter, "corporation" means
the issuer of the shares held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange of that
issuer.[P.L.149-1986, Section 28.]
23-1-44-2. "DISSENTER" DEFINED. - As used in this chapter, "dissenter" means a
shareholder who is entitled to dissent from corporate action under section 8 [IC
23-1-44-8] of this chapter and who exercises that right when and in the manner
required by sections 10 through 18 [IC 23-1-44-10 through IC 23-1-44-18] of this
chapter. [P.L.149-1986, Section 28.]
23-1-44-3. "FAIR VALUE" DEFINED.- As used in this chapter, "fair value," with
respect to a dissenter's shares, means the value of the shares immediately
before the effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. [P.L. 149-1986, Section 28.]
23-1-44-4. "INTEREST" DEFINED. - As used in this chapter, "interest" means
interest from the effective date of the corporate action until the date of
payment, at the average rate currently paid by the corporation on its principal
bank loans or, if none, at a rate that is fair and equitable under all the
circumstances. [P.L. 149-1986, Section 28.]
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23-1-44-5. "RECORD SHAREHOLDER" DEFINED. - As used in this chapter, "record
shareholder" means the person in whose name shares are registered in the records
of a corporation or the beneficial owner of shares to the extent that treatment
as a record shareholder is provided under a recognition procedure or a
disclosure procedure established under IC 23-1-30-4. [P.L.149-1986, Section 28.]
23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED. - As used in this chapter,
"beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder. [P.L. 149-1986, Section 28.]
23-1-44-7. "SHAREHOLDER" DEFINED. - As used in this chapter, "shareholder" means
the record shareholder or the beneficial shareholder. [P.L.149-1986, Section
28.]
23-1-44-8. SHAREHOLDER DISSENT. - (a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party if:
(A) Shareholder approval is required for the
merger by IC 23-1-40-3 or the articles of
incorporation; and
(B) The shareholder is entitled to vote on the
merger.
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose
shares will be acquired, if the shareholder is
entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation
other than in the usual and regular course of
business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders
within one (1) year after the date of sale.
(4) The approval of a control share acquisition under IC
23-1-42.
(5) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their
shares.
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(b) This section does not apply to the holders of shares of any class
or series if, on the date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting of shareholders at which the merger,
plan of share exchange, or sale or exchange of property is to be acted on, the
shares of that class or series were:
(1) Registered on a United States securities exchange
registered under the Exchange Act (as defined in IC
23-1-43-9); or
(2) Traded on the National Association of Securities
Dealers, Inc. Automated Quotations System
Over-the-Counter Markets - National Market Issues or
a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain
payment but for the provisions of subsection (b); may
not challenge the corporate action creating (or that,
but for the provisions of subsection (b), would have
created) the shareholder's entitlement.
[P.L.149-1986, Section 28; P.L.107-1987, Section 19.]
23-1-44-9. BENEFICIAL SHAREHOLDER DISSENT. - (a) A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation
the record shareholder's written consent to the
dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) The beneficial shareholder does so with respect to
all the beneficial shareholder's shares or those
shares over which the beneficial shareholder has
power to direct the vote. [P.L.149-1986, Section 28.]
23-1-44-10. NOTICE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE. - (a) If
proposed corporate action creating dissenters' rights under section 8 [IC
23-1-44-8] of this chapter is submitted to a vote at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter.
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(b) If corporate action creating dissenters' rights under section 8 of
this chapter is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the Notice to Dissenters described in section
12 [IC 23-1-44-12] of this chapter. [P.L.149-1986, Section 28; P.L.107-1987,
Section 20.]
23-1-44-11. NOTICE OF INTENT TO DISSENT. - (a) If proposed corporate action
creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
(1) Must deliver to the corporation before the vote is
taken written notice of the shareholder's intent to
demand payment for the shareholder's shares if the
proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for the shareholder's shares under this chapter.
[P.L.149-1986, Section 28.]
23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS. - (a)
If proposed corporate action creating dissenters' rights under section 8 [IC
23-1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written Notice to Dissenters to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The Notice to Dissenters must be sent no later than ten (10) days
after approval by the shareholders, or if corporate action is taken without
approval by the shareholders, then ten (10) days after the corporate action was
taken. The Notice to Dissenters must:
(1) State where the payment demand must be sent and where
and when certificates for certificated shares must be
deposited;
(2) Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted
after the payment demand is received;
(3) Supply a form for demanding payment that includes the
date of the first announcement to news media or to
shareholders of the terms of the proposed corporate
action and requires that the person asserting
dissenters' rights certify whether or not the person
acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than
thirty (30) nor more than sixty (60) days after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter.
[P.L.149-1986, Section 28.]
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23-1-44-13. DEMAND FOR PAYMENT BY DISSENTER. - (a) A shareholder sent a Notice
to Dissenters described in IC 23-1-42-11 or in section 12 [IC 23-1-44-12] of
this chapter must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set forth in
the dissenter's notice under section 12(b)(3) [IC 23-1-44-12(b)(3)] of this
chapter, and deposit the shareholder's certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
Notice to Dissenters, is not entitled to payment for the shareholder's shares
under this chapter and is considered, for purposes of this article, to have
voted the shareholder's shares in favor of the proposed corporate action.
[P.L.149-1986, Section 28.]
23-1-44-14. TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT. - (a) The
corporation may restrict the transfer of uncertificated shares from the date the
demand for their payment is received until the proposed corporate action is
taken or the restrictions released under section 16 [IC 23-1-44-16] of this
chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
[P.L.149-1986, Section 28.]
23-1-44-15. PAYMENT TO DISSENTER. - (a) Except as provided in section 17 [IC
23-1-44-17] of this chapter, as soon as the proposed corporate action is taken,
or, if the transaction did not need shareholder approval and has been completed,
upon receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 13 [IC 23-1-44-13] of this chapter the amount the
corporation estimates to be the fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen (16) months
before the date of payment, an income statement for
that year, a statement of changes in shareholders'
equity for that year, and the latest available
interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares; and
(3) A statement of the dissenter's right to demand
payment under section 18 [IC 23-1-44-18] of this
chapter. [P.L.149-1986, Section 28; P.L. 107-1987,
Section 21.]
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23-1-44-16. RETURN OF SHARES AND RELEASE OF RESTRICTIONS. - (a) If the
corporation does not take the proposed action within sixty (60) days after the
date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
Notice to Dissenters under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure. [P.L.149-1986, Section 28.]
23-1-44-17. OFFER OF FAIR VALUE FOR SHARES OBTAINED AFTER FIRST ANNOUNCEMENT.
(a) A corporation may elect to withhold payment required by section 15 [IC
23-1-44-15] of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the Notice to
Dissenters as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44-18] of this chapter. [P.L.149-1986, Section 28.]
23-1-44-18. DISSENTER DEMAND FOR FAIR VALUE UNDER CERTAIN CONDITIONS. - (a) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of this
chapter), or reject the corporation's offer under section 17 [IC 23-1-44-17] of
this chapter and demand payment of the fair value of the dissenter's shares, if:
(1) The dissenter believes that the amount paid under
section 15 of this chapter or offered under section
17 of this chapter is less than the fair value of the
dissenter's shares;
(2) The corporation fails to make payment under section
15 of this chapter within sixty (60) days after the
date set for demanding payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or
release the transfer restrictions imposed on
uncertificated shares within sixty (60) days after
the date set for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation made
or offered payment for the dissenter's shares. [P.L.149-1986, Section 28.]
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23-1-44-19. EFFECT OF FAILURE TO PAY DEMAND - COMMENCEMENT OF JUDICIAL APPRAISAL
PROCEEDING. - (a) If a demand for payment under IC 23-1-42-11 or under section
18 [IC 23-1-44-18] of this chapter remains unsettled, the corporation shall
commence a proceeding within sixty (60) days after receiving the payment demand
and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or
superior court of the county where a corporation's principal office (or, if none
in Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment.
(1) For the amount, if any, by which the court finds the
fair value of the dissenter's shares, plus interest,
exceeds the amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the
corporation elected to withhold payment under section
17 [IC 23-1-44-17] of this chapter. [P.L.149-1986,
Section 28.]
23-1-44-20. JUDICIAL DETERMINATION AND ASSESSMENT OF COSTS. - (a) The court in
an appraisal proceeding commenced under section 19 [IC 23-1-44-19] of this
chapter shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against such parties and in such amounts as the court finds
equitable.
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(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of
sections 10 through 18 [IC 23-1-44-10 through IC
23-1-44-18] of this chapter; or
(2) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. [P.L.149-1986, Section 28.]
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INFORMATION NOT REQUIRED IN THE PROXY-STATEMENT PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio General Corporation Law allows a corporation under certain
circumstances to indemnify its directors, officers, and employees. Generally,
whether by its articles of incorporation or its code of regulations or by
statute, the indemnification permits the Corporation to pay expenses actually
and necessarily incurred in the defense of any pending or threatened suit. The
determination of the right of indemnification is determined by a quorum of
disinterested directors not involved in such a pending matter and if they are
unable to make such determination, then such determination shall be made by
independent legal counsel, First Financial's shareholders or by the Butler
County, Ohio, Court of Common Pleas. The statute does not allow indemnification
of an officer or director wherein such person has been adjudicated negligent or
guilty of misconduct and, additionally, such officer or director must have acted
in good faith or had no reason to believe such officer's or director's conduct
was unlawful to be indemnified. First Financial has an indemnification provision
in its Regulations, set forth below, that requires First Financial to follow the
General Corporation Law of Ohio regarding indemnification.
Article IV of the Regulations of First Financial provides:
SECTION 4.1. INDEMNIFICATION. The Corporation shall, to the full extent
permitted by the General Corporation Law of Ohio, indemnify all persons
whom it may indemnify pursuant hereto.
Item 21. Exhibits and Financial Statement Schedules
(a) See Index to Exhibits.
(b) See "SAND RIDGE FINANCIAL CORPORATION CONSOLIDATED FINANCIAL
STATEMENTS."
(c) Fairness Opinion furnished as Appendix B to Proxy Statement-Prospectus.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
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<PAGE> 169
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or
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<PAGE> 170
(ii) that purports to meet the requirements of section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act") and is used
in connection with an offering of securities subject to Rule 415 will
be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(7) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
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<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Hamilton, State of Ohio,
on April 2, 1999.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius
- -------------------------------------
Stanley N. Pontius
President and Chief Executive Officer
Date: April 2, 1999
- -------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
/s/ Stanley N. Pontius
- ------------------------------------- -------------------------------------
Barry J. Levey, Chairman of the Board Stanley N. Pontius, Director,
President and Chief Executive Officer
Date: Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Michael R. O'Dell /s/ C. Douglas Lefferson
- ------------------------------------- -------------------------------------
Michael R. O'Dell, Senior Vice President, C. Douglas Lefferson, First Vice
Chief Financial Officer and Secretary President, Comptroller
Date: April 2, 1999 Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Richard L. Alderson /s/ Arthur W. Bidwell
- ------------------------------------- -------------------------------------
Richard L. Alderson, Director Arthur W. Bidwell, Director
Date: April 2, 1999 Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Carl R. Fiora
- ------------------------------------- -------------------------------------
Donald M. Cisle, Director Carl R. Fiora, Director
Date: Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Vaden Fitton
- ------------------------------------- -------------------------------------
Corinne R. Finnerty, Director Vaden Fitton, Director
Date: Date: April 2, 1999
--------------------------------- --------------------------------
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<PAGE> 172
- ------------------------------------- -------------------------------------
James C. Garland, Director F. Elden Houts, Director
Date: Date:
--------------------------------- --------------------------------
/s/ Stephen S. Marcum
- ------------------------------------- -------------------------------------
Murph Knapke, Director Stephen S. Marcum, Director
Date: Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Barry S. Porter /s/ Steven C. Posey
- ------------------------------------- -------------------------------------
Barry S. Porter, Director Steven C. Posey, Director
Date: April 2, 1999 Date: April 2, 1999
--------------------------------- --------------------------------
/s/ Perry D. Thatcher
- -------------------------------------
Perry D. Thatcher, Director
Date: April 2, 1999
---------------------------------
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1 Plan and Agreement of Merger between First
Financial Bancorp. and Sand Ridge Financial
Corporation (Included as Appendix A in the Proxy
Statement-Prospectus)
5. Opinion of Counsel - previously filed
8. Form of Tax Opinion of Barnes & Thornburg
to be Issued on Consummation of Merger - previously filed
23.1 Consent of Ernst & Young LLP, Independent Auditors
for First Financial Bancorp.
23.2 Consent of Crowe, Chizek and Company LLP,
Independent Auditors for Sand Ridge Financial
Corporation
23.4 Consent of Frost & Jacobs LLP, Counsel for
Registrant (Incorporated in Exhibit 5) - previously filed
23.5 Consent of Barnes & Thornburg - previously filed
23.6 Consent of Hovde Financial, Inc.
(Incorporated in Exhibit 99.1)
99.1 Fairness Opinion of Hovde Financial, Inc.
(Included as Appendix B in the Proxy
Statement-Prospectus.)
99.2 Sand Ridge Financial's Form of Proxy - previously filed
</TABLE>
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<PAGE> 1
EXHIBIT 23.1--CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of First Financial
Bancorp. for the registration of 5,115,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 15, 1999, with
respect to the consolidated financial statements of First Financial Bancorp.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
April 2, 1999
<PAGE> 1
EXHIBIT 23.2--CONSENT OF CROWE, CHIZEK AND COMPANY LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 and
Prospectus of First Financial Bancorp. of our report, dated January 15, 1999, on
the consolidated financial statements of Sand Ridge Financial Corporation as of
December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996. We also consent to the use of our name and the statements with respect to
us appearing under the heading of "Experts" in the Prospectus.
CROWE, CHIZEK AND COMPANY LLP
South Bend, Indiana
April 7, 1999
