<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
--------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
Commission File Number 0-12379
FIRST FINANCIAL BANCORP.
(Exact name of registrant as specified in its charter)
--------
Ohio 31-1042001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 High Street 45011
Hamilton, Ohio (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (513) 867-4700
--------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to be file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (subpart 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]
As of February 18, 2000, there were issued and outstanding 46,789,754 shares
of Registrant's Common Stock. The aggregate market value of the voting stock
held by non-affiliates of the Registrant computed by reference to the sales
price of the last trade of such stock as of February 18, 2000, was $865,610,000.
(The exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the Registrant that such person is an
affiliate of the Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference into Parts I, II and IV.
Portions of the proxy statement dated March 21, 2000 for the annual meeting
of shareholders to be held April 25, 2000 are incorporated by reference into
Part III.
<PAGE> 2
FORM 10-K CROSS REFERENCE INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I Item 1 Business F-1
Item 2 Properties F-5
Item 3 Legal Proceedings F-6
Item 4 Submission of Matters to a Vote of Security Holders
(during the fourth quarter of 1999) F-6
Additional Item - Executive Officers F-6
- ----------------------------------------------------------------------------------------------------------------------------
PART II Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters F-8
Item 6 Selected Financial Data F-8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations F-8
Item 7a Quantitative and Qualitative Disclosures about
Market Risk F-9
Item 8 Financial Statements and Supplementary Data F-9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure F-9
- ----------------------------------------------------------------------------------------------------------------------------
PART III Item 10 Directors and Executive Officers of the Registrant F-10
Item 11 Executive Compensation F-10
Item 12 Security Ownership of Certain Beneficial Owners and
Management F-10
Item 13 Certain Relationships and Related Transactions F-10
- ----------------------------------------------------------------------------------------------------------------------------
PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K F-11
- ----------------------------------------------------------------------------------------------------------------------------
SIGNATURES F-14
</TABLE>
<PAGE> 3
F-1
PART I
ITEM 1. BUSINESS.
FIRST FINANCIAL BANCORP.
First Financial Bancorp., an Ohio corporation (Bancorp), is a bank and savings
and loan holding company that engages in the business of commercial banking, and
other permissible activities closely related to banking, through seventeen
wholly owned subsidiary institutions: First National Bank of Southwestern Ohio
(First Southwestern), Bright National Bank (Bright National), and National Bank
of Hastings (Hastings), all national banking associations, Community First Bank
& Trust (Community First), The Clyde Savings Bank Company (Clyde), both Ohio
banking corporations, Indiana Lawrence Bank (Indiana Lawrence), Citizens First
State Bank (Citizens First), Union Bank & Trust Company (Union Bank), Peoples
Bank and Trust Company (Peoples Bank), Farmers State Bank (Farmers), Vevay
Deposit Bank (Vevay), and Sand Ridge Bank (Sand Ridge), all Indiana banking
corporations, Hebron Deposit Bank (Hebron), a Kentucky banking corporation,
Fidelity Federal Savings Bank (Fidelity Federal), and Home Federal Bank, a
Federal Savings Bank (Home Federal), both federal savings banks. First Finance
Mortgage Company of Southwestern Ohio (First Finance) is Bancorp's only finance
company and First Financial Bancorp Service Corporation (Service Corporation) is
Bancorp's operations subsidiary. Bancorp provides management and similar
services for its subsidiary financial institutions. Since it does not itself
conduct any operating businesses, Bancorp must depend largely upon its seventeen
subsidiaries for funds with which to pay the expenses of its operation and, to
the extent applicable, any dividends on its outstanding shares of stock. For
further information see Note 6 of the Notes to Consolidated Financial Statements
appearing on page 19 of Bancorp's Annual Report to Shareholders, which is
incorporated by reference in response to this item.
Bancorp was formed in 1982 for the purpose of becoming the parent holding
company of First Southwestern. For additional information, please see
"Subsidiaries" on pages F-2 and F-3.
Bancorp is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. Bancorp is also a savings and loan holding company
under the savings and loan holding company provisions of the Home Owners' Loan
Act of 1933, as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). As such, Bancorp is subject to strict
regulation regarding the acquisition of additional financial institutions and
the conduct, through subsidiaries, of non-banking activities. The recent passage
of the Gramm-Leach-Bliley Act of 1999, however, has created new opportunities
for Bancorp by lifting some of the long-standing prohibitions against certain
non-banking activities (see "Regulation" on page F-3).
Bancorp faces strong competition from both financial institutions and other
non-financial organizations. Its competitors include local and regional
financial institutions, savings and loans, and bank holding companies, as well
as some of the largest banking organizations in the United States. In addition,
other types of financial institutions, such as credit unions, also offer a wide
range of loan and deposit services that are directly competitive with those
offered by Bancorp's subsidiaries. The consumer is also served by brokerage
firms and mutual funds that provide checking services, credit cards, and other
services similar to those offered by Bancorp's subsidiaries. Major stores
compete for loans by offering credit cards and retail installment contracts. It
is anticipated that competition from entities other than financial institutions
will continue to grow.
<PAGE> 4
F-2
The range of banking services provided by Bancorp's subsidiaries to their
customers includes commercial lending, real estate lending, consumer credit,
credit card, and other personal loan financing. First Southwestern, Community
First, Indiana Lawrence, Union Bank, Clyde, and Bright National also offer lease
financing. In addition, Bancorp's financial institutions offer deposit services
that include interest-bearing and noninterest-bearing deposit accounts and time
deposits. Most subsidiaries provide safe deposit facilities. A full range of
trust and asset management services is provided by Bancorp's subsidiaries,
excluding the savings banks, the finance company and the service corporation.
Each subsidiary retains its local identity and operates under the direction of
its own board of directors and officers.
Bancorp and its subsidiaries operate in one business segment--the financial
institutions industry. Foreign transactions are nominal. Information regarding
statistical disclosure required by Industry Guide 3 is included in Bancorp's
Annual Report to Shareholders for the year ended December 31, 1999, and is
incorporated herein by reference.
At December 31, 1999, Bancorp and its subsidiaries employed 1,871 employees.
Bancorp's executive office is located at 300 High Street, Hamilton, Ohio 45011,
and its telephone number is (513) 867-4700.
SUBSIDIARIES
The following table lists each of Bancorp's subsidiaries, their acquisition
dates, the number of offices that each subsidiary has, total deposits, and the
number of ATMs owned by each subsidiary:
<TABLE>
<CAPTION>
Deposits
Acquisition 12/31/99 Number of Number of
Subsidiary/Location Date ($ in 000) Offices ATMs
------------------- ---------- ---------- -------- ----
<S> <C> <C> <C> <C>
First Southwestern/
Hamilton, Ohio 04/26/83 $853,955 30 33
Community First/
Celina/Van Wert, Ohio 04/29/83 589,944 24 14
Indiana Lawrence/
North Manchester, Indiana 09/01/89 126,923 8 3
Fidelity Federal/
Marion, Indiana 09/21/90 82,176 3 1
Citizens First/
Hartford City, Indiana 10/01/90 82,306 6 4
Home Federal/
Hamilton, Ohio 10/01/91 257,554 7 6
Union Bank/
North Vernon, Indiana 01/04/93 83,599 3 4
Clyde/
Clyde, Ohio 06/01/94 73,377 2 2
Peoples Bank/
Sunman, Indiana 07/16/95 46,588 2 3
Bright National/
Flora, Indiana 10/01/95 127,406 7 6
First Finance/
Fairfield, Ohio 05/08/96 N/A 3 N/A
Farmers/
Liberty, Indiana 12/01/96 50,207 5 1
</TABLE>
<PAGE> 5
F-3
<TABLE>
<CAPTION>
Deposits
Acquisition 12/31/99 Number of Number of
Subsidiary/Location Date ($ in 000) Offices ATMs
------------------- ----------- ---------- --------- -------
<S> <C> <C> <C> <C>
Hastings/
Hastings, Michigan 01/01/97 48,624 2 3
Vevay/
Vevay, Indiana 06/01/97 44,322 4 2
Sand Ridge/
Highland, Indiana 06/01/99 454,174 5 18
Hebron/
Hebron, Kentucky 06/01/99 90,165 3 4
Service Corporation/
Middletown, Ohio 06/01/99 N/A 1 0
</TABLE>
Community First was formed on November 1, 1997 as a result of the merger of two
of Bancorp's affiliates, the Citizens Commercial Bank & Trust Company and Van
Wert National Bank. On December 8, 1997, Community First purchased the assets
and assumed the liabilities of eleven branches of KeyBank National Association.
The purchase of The Union State Bank, completed on April 1, 1998, resulted in
the addition of another branch and $53 million in deposits for Community First.
On June 30, 1999, Union Trust Bank, a wholly owned subsidiary of Bancorp, merged
into Community First.
In April 1996, Bancorp acquired Farmers & Merchants Bank of Rochester,
Rochester, Indiana (F&M). Upon completion of the merger F&M was merged with
Indiana Lawrence.
In November 1995, Home Federal combined operations with Fayette Federal,
resulting in Fayette Federal operating as a division of Home Federal.
Regulation
- ----------
First Southwestern, Bright National and Hastings, as national banking
associations, are subject to supervision and regular examination by the
Comptroller of the Currency. Community First and Clyde, as Ohio state chartered
banks, are subject to supervision and regular examination by the Superintendent
of Banks of the State of Ohio. First Southwestern, Community First, Clyde,
Peoples Bank, Bright National, and Hastings are members of the Federal Reserve
System and, as such, are subject to the applicable provisions of the Federal
Reserve Act. Community First is also subject to regular examination by the
Federal Reserve System. Indiana Lawrence, Citizens First, Union Bank, Peoples
Bank, Farmers, Vevay, and Sand Ridge, as Indiana state chartered banks, are
subject to supervision and regular examination by the Indiana Department of
Financial Institutions. Hebron is subject to supervision and regular examination
by the Kentucky Department of Financial Institutions. Fidelity Federal and Home
Federal, as federal savings banks, are subject to supervision and regular
examination by the Office of Thrift Supervision. Since Fidelity Federal is
located in Indiana, it is also subject to examination by the Indiana Department
of Financial Institutions. First Finance is subject to supervision and regular
examinations by the State of Ohio Division of Consumer Finance. All depository
institutions are insured by the Federal Deposit Insurance Corporation and are
subject to the provisions of the Federal Deposit Insurance Act.
To the extent that the following information consists of summaries of certain
statutes or regulations, it is qualified in its entirety by reference to the
statutory or regulatory provisions described.
<PAGE> 6
F-4
Bancorp is subject to the provisions of the Bank Holding Company Act of 1956, as
amended (the Act), which requires a bank holding company to register under the
Act and to be subject to supervision and examination by the Board of Governors
of the Federal Reserve System. As a bank holding company, Bancorp is required to
file with the Board of Governors an annual report and such additional
information as the Board of Governors may require pursuant to the Act. The Act
requires prior approval by the Board of Governors of the acquisition by a bank
holding company, or any subsidiary thereof, of 5% or more of the voting stock or
substantially all the assets of any bank within the United States. Prior to the
passage of FIRREA, it was not possible for bank holding companies, such as
Bancorp, to acquire "healthy" thrift institutions. Although such acquisitions
are now authorized, mergers between bank holding companies and thrift
institutions must be approved by the Federal Reserve Board and the Office of
Thrift Supervision. When a bank holding company acquires a thrift institution,
it is then considered a savings and loan holding company which subjects the bank
holding company to regulation and examination by the Office of Thrift
Supervision. As a bank holding company located in the State of Ohio, Bancorp is
not permitted to acquire a bank or other financial institution located in
another state unless such acquisition is specifically authorized by the statutes
of such state, as is the case in Indiana, Michigan, and Kentucky. The Act
further provides that the Board of Governors shall not approve any such
acquisition that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the United States, or the effect of which may be to
substantially lessen competition or to create a monopoly in any section of the
country, or that in any other manner would be in restraint of trade, unless the
anti-competitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
The Act and the regulations of the Board of Governors prohibit a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or
furnishing of services. The Act also imposes certain restrictions upon dealings
by affiliated banks with the holding company and among themselves, including
restrictions on interbank borrowing and upon dealings in respect to the
securities or obligations of the holding company or other affiliates.
The Act was recently amended by the Gramm-Leach-Bliley Act of 1999 (the Gramm
Act), which was enacted on November 12, 1999. The Gramm Act also repealed
portions of the Glass-Steagall Act, a piece of depression-era legislation
intended to separate banking and commerce. Under the Gramm Act, bank holding
companies that satisfy certain requirements may elect to become financial
holding companies. The Gramm Act allows financial holding companies to engage in
certain financial activities that are not permitted for bank holding companies.
The Gramm Act provides a list of activities that are "financial in nature" and
therefore permitted for financial holding companies. The list includes: lending,
investing or safeguarding money or securities; underwriting insurance or
annuities, or acting as an insurance or annuity principal, agent or broker;
providing financial or investment advice; issuing or selling interests in pools
of assets that a bank could hold; underwriting, dealing or making markets in
securities; and, subject to certain conditions, merchant banking or insurance
portfolio investing. The Board of Governors has the authority to determine that
other activities are permitted for financial holding companies, if those
activities satisfy certain criteria.
On March 13, 2000, Bancorp filed an election with the Board of Governors to
become a financial holding company in order to take advantage of the expanded
activities available to financial holding companies. The election will become
effective on April 13, 2000, unless the Board of Governors notifies Bancorp
prior to that time that the election is ineffective. The Board of Governors may
notify
<PAGE> 7
F-5
Bancorp prior to April 13th that the election is effective. Bancorp anticipates
that its election will become effective.
The Gramm Act establishes the concept of functional regulation for bank holding
companies and financial holding companies, which means that the authority to
regulate will be determined by the nature of the activity involved. Bank holding
companies, financial holding companies and their subsidiaries will be supervised
by the regulatory agency that has traditionally regulated the particular
activity in question, while the Board of Governors will serve as an "umbrella
supervisor." Upon becoming a financial holding company, Bancorp and its
affiliates will continue to be supervised by the various regulatory agencies as
described above. However, if Bancorp expands its activities into new areas,
those activities may be subject to the supervision of regulatory agencies that
have not previously supervised Bancorp's activities.
The earnings of banks, and therefore the earnings of Bancorp (and its
subsidiaries), are affected by the policies of regulatory authorities, including
the Board of Governors of the Federal Reserve System. An important function of
the Federal Reserve Board is to regulate the national supply of bank credit in
an effort to prevent recession and to restrain inflation. Among the procedures
used to implement these objectives are open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits.
These procedures are used in varying combinations to influence overall growth
and distribution of bank loans, investments and deposits, and their use also may
affect interest rates charged on loans or paid for deposits.
Monetary policies of the Federal Reserve Board have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effect, if any, of such policies upon the
future business and earnings of Bancorp cannot accurately be predicted.
Bancorp makes no attempt to predict the effect on its revenues and earnings of
changes in general economic, industrial, and international conditions or in
legislation and governmental regulations.
YEAR 2000
The information contained on page 5 of the Management's Discussion and Analysis
of Financial Condition and Results of Operations (Management's Discussion and
Analysis) section of Bancorp's Annual Report to Shareholders for the year ended
December 31, 1999 is incorporated herein by reference in response to this item.
ITEM 2. PROPERTIES.
The registrant and its subsidiaries operate from 61 offices in Ohio, including
Bancorp's executive office in Hamilton, Ohio, 42 offices in Indiana, three in
Kentucky and two in Michigan. Thirty of the offices are located in Butler
County, Ohio, of which four branches are built on leased land and there are
seven branches wherein the land and building are leased. Excess space in three
facilities is leased to third parties. Three offices are located in Warren
County, Ohio of which one is leased. Nine offices are located in Mercer County,
Ohio, six in Van Wert County, Ohio, two in Preble County, Ohio, three in
Hamilton County, Ohio, two in Sandusky County, Ohio, two in Paulding County,
Ohio, one in Allen County, Ohio, three in Auglaize County, Ohio, and one in
Williams County, Ohio. Five offices are located in Wabash County, Indiana, of
which one office is built on leased land with a
<PAGE> 8
F-6
purchase option on the land. Five offices are in Lake County, Indiana of which
two are leased. Three offices are in Randolph County, Indiana, three in Grant
County, Indiana, one in Jay County, Indiana, four in Blackford County, Indiana,
one in Fayette County, Indiana, one in Franklin County, Indiana, two in Jennings
County, Indiana, four in Carroll County, Indiana, two in Tippecanoe County,
Indiana, three in Fulton, County, Indiana, two in Union County, Indiana, three
in Rush County, Indiana, one in Clinton County, Indiana, one in Ripley County,
Indiana, one in Dearborn County, Indiana, and four in Switzerland, County,
Indiana. One office is located in Delaware County, Indiana, of which both the
land and building are leased. One office is located in Barry County, Michigan
and one in Allegan County, Michigan. Three offices are located in Boone County,
Kentucky. All leases are comparable to other leases in the respective market
areas and do not contain provisions detrimental to the registrant or its
subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
Except for routine litigation incident to their business, the registrant and its
subsidiaries are not a party to any material pending legal proceedings and none
of their property is the subject of any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders during the fourth quarter of 1999.
ADDITIONAL ITEM - EXECUTIVE OFFICERS.
Shown in the table below are the Executive Officers of Bancorp as of December
31, 1999. The Executive Officers will serve until the first meeting of the Board
of Directors following the next annual meeting of shareholders, scheduled to be
held on April 25, 2000, or until their successors are elected and duly
qualified. All Executive Officers are chosen by the Board of Directors by a
majority vote.
<TABLE>
<CAPTION>
Name Age Position
- --------------------- ---- ------------------------------------------------
<S> <C> <C>
Stanley N. Pontius 53 President and Chief Executive Officer, Director
Mark W. Immelt 54 Senior Vice President, Trust Services
Brian D. Moriarty 57 Senior Vice President, Human Resources
Michael R. O'Dell 48 Senior Vice President, Chief Financial Officer
and Secretary
Michael T. Riley 49 Senior Vice President, Consumer Banking and
Operations
C. Douglas Lefferson 35 First Vice President, Comptroller
</TABLE>
The following is a brief description of the business experience over the past
five years of the individuals named above.
Stanley N. Pontius became Chief Executive Officer of Bancorp in July 1992. Upon
joining Bancorp in March 1991, he assumed the responsibilities of President and
Chief Operating Officer, as well as a director. He served as Chief Operating
Officer until July 1992. Also in March 1991, he became President, Chief
Executive Officer, and a director of First Southwestern. Effective July 1, 1997,
Mr.
<PAGE> 9
F-7
Pontius was promoted to Chairman of the Board of First Southwestern and retained
the position of Chief Executive Officer until November 24, 1998.
Mark W. Immelt became Senior Vice President of Bancorp Trust Services on July 1,
1997. Mr. Immelt joined First Southwestern in December 1996 as Senior Vice
President and Senior Trust Officer. In December 1999, he was promoted to
President and Chief Executive Officer of First Southwestern. Before joining
First Southwestern, he spent 28 years managing personal trust, corporate trust,
employee benefit programs and private banking programs in the Northern Indiana
and Northeast Ohio area.
Brian D. Moriarty became Senior Vice President of Bancorp, responsible for the
human resources function, on January 12, 1996. Mr. Moriarty also became Senior
Vice President of First Southwestern in January 1996, where he had been First
Vice President since 1991.
Michael R. O'Dell became Senior Vice President, Chief Financial Officer and
Secretary of Bancorp on January 12, 1996. He had served as Bancorp's Comptroller
since December 1994. Mr. O'Dell had served as Senior Vice President and Chief
Financial Officer of First Southwestern from January 1996 to July 1997, and as
First Vice President and Comptroller of First Southwestern from 1991 to January
1996.
Michael T. Riley became Senior Vice President of Bancorp, responsible for
marketing, data processing, operations and public relations, on January 12,
1996. Mr. Riley became President and Chief Executive Officer of First Financial
Bancorp Service Corporation on May 24, 1999. Mr. Riley had served as Senior Vice
President of First Southwestern from January 1996 to May 1999, and First Vice
President of Consumer Banking for First Southwestern since 1989.
C. Douglas Lefferson became First Vice President and Comptroller of Bancorp
effective November 25, 1998. He had served as Vice President and Chief Financial
Officer of First Southwestern since July 1997. Mr. Lefferson previously held the
title of Vice President and Comptroller of First Southwestern since December
1995 and Assistant Vice President and Assistant Comptroller since 1993.
<PAGE> 10
F-8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Bancorp had 4,747 common stock shareholders of record as of February 18, 2000.
Bancorp's common equity is listed with the National Association of Securities
Dealers, Inc. (NASDAQ) and is traded on The NASDAQ Stock Market. The information
contained on page 31 of the Notes to Consolidated Financial Statements in
Bancorp's Annual Report to Shareholders for the year ended December 31, 1999 is
incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained in Table 1 on page 2 of the Management's Discussion
and Analysis section of Bancorp's Annual Report to Shareholders for the year
ended December 31, 1999 is incorporated herein by reference in response to this
item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained in the Management's Discussion and Analysis section,
(pages 1 through 31) of Bancorp's Annual Report to Shareholders for the year
ended December 31, 1999 is incorporated herein by reference in response to this
item.
DIVIDEND PAYOUT RATIO
The dividend payout ratios for 1999, 1998 and 1997 were 50.8%, 42.1%, and 43.3%,
respectively.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). In
addition, certain statements in future filings by Bancorp with the Securities
and Exchange Commission, in press releases, and in oral and written statements
made by or with the approval of Bancorp which are not statements of historical
fact constitute forward-looking statements within the meaning of the Act.
Examples of forward-looking statements include, but are not limited to,
projections of revenues; income or loss; earnings or loss per share; the payment
or non-payment of dividends; capital structure and other financial items,
statements of plans and objectives of Bancorp or its management or Board of
Directors; and statements of future economic performance and statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"intends," and other similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to, the strength of the local economies
in which operations are conducted; the effects of and changes in policies and
laws of regulatory agencies; inflation, interest rates, market and monetary
fluctuations; technological changes; mergers and acquisitions; the ability to
increase market share and control expenses; the effect of changes in accounting
policies and practices that may be adopted by the regulatory agencies as well as
the Financial Accounting Standards Board and the Securities and Exchange
Commission; the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation; the ability to achieve satisfactory results
regarding the Year 2000 issue; and the success of Bancorp at managing the risks
involved in the foregoing.
<PAGE> 11
F-9
Such forward-looking statements are meaningful only on the date when such
statements are made and Bancorp undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such a statement is made to reflect the occurrence of unanticipated
events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information contained on pages 10 and 11 of the Management's Discussion and
Analysis section of Bancorp's Annual Report to Shareholders for the year ended
December 31, 1999 is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and report of independent auditors
included on pages 13 through 30 of the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements in Bancorp's Annual Report to
Shareholders for the year ended December 31, 1999 are incorporated herein by
reference.
The Quarterly Financial and Common Stock Data on page 31 of the Notes to
Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for
the year ended December 31, 1999 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements with accountants on any accounting or financial disclosure
occurred during the periods covered by this report.
<PAGE> 12
F-10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by Item 10 is contained under "Shareholdings of
Directors, Executive Officers, and Nominees for Director" on pages 2 through 4
of Bancorp's Proxy Statement, dated March 21, 2000 with respect to the Annual
Meeting of Shareholders to be held on April 25, 2000, which was filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934 and which is
incorporated herein by reference in response to this item.
Reference is also made to "Additional Item - Executive Officers" included in
Part I of this Form 10-K in partial response to Item 10.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under "Meetings of the Board of Directors and
Committees of the Board" on page 5, "Executive Compensation" on pages 6 through
11, and under "Compensation Committee Report" on pages 13 and 14 of Bancorp's
Proxy Statement dated March 21, 2000 is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under "Shareholdings of Directors, Executive Officers,
and Nominees for Director" on pages 2 through 4 of Bancorp's Proxy Statement
dated March 21, 2000 is incorporated herein by reference in response to this
item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in Note 17 of the Notes to Consolidated Financial
Statements included on page 26 of Bancorp's Annual Report to Shareholders is
incorporated herein by reference in response to this item.
<PAGE> 13
F-11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Documents filed as a part of the Report: Page*
-----
<S> <C>
(1) Report of Ernst & Young LLP, Independent Auditors ...................................... 30
Consolidated Balance Sheets as of December 31, 1999 and 1998............................. 13
Consolidated Statements of Earnings for year ended
December 31, 1999, 1998, and 1997 ...................................................... 14
Consolidated Statements of Cash Flows for year ended
December 31, 1999, 1998, and 1997 ...................................................... 15
Consolidated Statements of Changes in Shareholders' Equity
for year ended December 31, 1999, 1998, and 1997 ....................................... 16
Notes to Consolidated Financial Statements............................................... 17
(2) Financial Statement Schedules:
Schedules to the consolidated financial statements required by
Regulation S-X are not required under the related instructions, or
are inapplicable, and therefore
have been omitted ....................................................................... N/A
</TABLE>
- --------------------------------------------------------------------------------
*The page numbers indicated refer to pages of the registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1999 which are incorporated
herein by reference.
<PAGE> 14
F-12
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
3.1 Articles of Incorporation, as amended as of April 27, 1999 and incorporated herein by
reference to Form 10-Q for the quarter ended June 30, 1999.
3.2 Amended and Restated Regulations, as of April 22, 1997 and incorporated herein by reference to
Form10-K for year ended December 31, 1997. File No. 000-12379.
4.1 Rights Agreement between First Financial Bancorp and First National Bank of Southwestern Ohio
dated as of November 23, 1993 and incorporated herein by reference to Form 10-K for year ended
December 31, 1998. File No. 000-12379.
4.2 First Amendment to Rights Agreement dated as of May 1, 1998 and incorporated herein by reference
to Form 10-Q for the quarter ended March 31, 1998.
10.1 First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24, 1991 and incorporated
herein by reference to a Registration Statement on Form S-8, Registration No. 33-46819.
10.2 Agreement between Stanley N. Pontius and First Financial Bancorp dated January 27, 1998 and
incorporated herein by reference to Form10-K for year ended December 31, 1997. File No. 000-12379.
10.3 Agreement between Rick L. Blossom and First Financial Bancorp dated January 27, 1998 and incorporated
herein by reference to Form10-K for year ended December 31, 1997. File No. 000-12379.
10.4 Agreement between Michael R. O'Dell and First Financial Bancorp dated January 27, 1998 and incorporated
herein by reference to Form10-K for year ended December 31, 1997. File No. 000-12379.
10.5 Agreement between Mark W. Immelt and First Financial Bancorp dated January 27, 1998 and incorporated
herein by reference to Form10-K for year ended December 31, 1997. File No. 000-12379.
10.6 Agreement between Michael T. Riley and First Financial Bancorp dated January 27, 1998 and incorporated
herein by reference to Form10-K for year ended December 31, 1997. File No. 000-12379.
10.7 Agreement between Brian D. Moriarty and First Financial Bancorp dated January 27, 1998.
10.8 First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan, Dated April 24, 1997 and
incorporated herein by reference to a Registration Statement on Form S-3, Registration No.
333-25745.
</TABLE>
<PAGE> 15
F-13
<TABLE>
<CAPTION>
<S> <C>
10.9 First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees, dated April 27,
1999 and incorporated herein by reference to a Registration Statement on Form S-8, Registration
No. 333-86781.
10.10 First Financial Bancorp. 1999 Stock Incentive Plan for Non-Employee Directors, dated April 27,
1999 and incorporated herein by reference to a Registration Statement on Form S-8, Registration
No. 333-86781.
10.11 First Financial Bancorp. Director Fee Stock Plan dated May 25, 1999.
13 Registrant's annual report to security holders for the year ended December 31, 1999.
21 First Financial Bancorp. Subsidiaries.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
The Company will furnish, without charge, to a security holder upon request a
copy of the documents, portions of which are incorporated by reference (Annual
Report to Shareholders and Proxy Statement), and will furnish any other Exhibit
upon payment of reproductions costs.
(b) Reports on Form 8-K:
On November 4, 1999, Bancorp filed a Form 8-K regarding the
announcement of the retirement of Rick L. Blossom, Senior Vice
President and Chief Lending Officer of Bancorp and President and
Chief Executive Officer of First National Bank of Southwestern Ohio,
the lead bank, on December 3, 1999.
<PAGE> 16
F-14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius
----------------------------------
Stanley N. Pontius, Director
President and Chief Executive Officer
Date 2/22/00
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Stanley N. Pontius /s/ Michael R. O'Dell
- ----------------------------------------------------------------- --------------------------------------------------
Stanley N. Pontius, Director Michael R. O"Dell
President and Chief Executive Officer Senior Vice President, Chief Financial
Officer, and Secretary
Date 2/22/00 Date 2/22/00
---------------------------------------------------------------- -----------------------------------------------
/s/ James C. Garland /s/ Murph Knapke
- ----------------------------------------------------------------- --------------------------------------------------
James C. Garland, Director Murph Knapke, Director
Date 2/22/00 Date 2/22/00
---------------------------------------------------------------- -----------------------------------------------
/s/ Donald M. Cisle /s/ Steve Posey
- ----------------------------------------------------------------- --------------------------------------------------
Donald M. Cisle, Director Steven C. Posey, Director
Date 2/22/00 Date 2/22/00
---------------------------------------------------------------- -----------------------------------------------
/s/ Steven S. Marcum /s/ Barry S. Porter
- ----------------------------------------------------------------- --------------------------------------------------
Steven S. Marcum, Director Barry S. Porter, Director
Date 2/22/00 Date 2/22/00
---------------------------------------------------------------- -----------------------------------------------
</TABLE>
<PAGE> 17
F-15
SIGNATURES (CONT'D)
<TABLE>
<CAPTION>
<S> <C>
/s/ Bruce E. Leep /s/ Corinne R. Finnerty
- ---------------------------------------------------------------- ------------------------------------------------------
Bruce E. Leep, Director Corinne R. Finnerty, Director
Date 2/22/00 Date 2/22/00
------------------------------------------------------------ --------------------------------------------------
/s/ Perry D. Thatcher /s/ Carl R. Fiora
- ---------------------------------------------------------------- ------------------------------------------------------
Perry D. Thatcher, Director Carl R. Fiora, Director
Date 2/22/00 Date 2/22/00
------------------------------------------------------------ --------------------------------------------------
/s/ F. Elden Houts /s/ Dan. R. Dalton
- ---------------------------------------------------------------- ------------------------------------------------------
F. Elden Houts, Director Dan R. Dalton, Director
Date 2/22/00 Date 2/22/00
------------------------------------------------------------ --------------------------------------------------
/s/ Richard L. Alderson /s/ Martin J. Bidwell
- ---------------------------------------------------------------- ------------------------------------------------------
Richard L. Alderson, Director Martin J. Bidwell, Director
Date 2/22/00 Date 2/22/00
------------------------------------------------------------- --------------------------------------------------
/s/ C. Douglas Lefferson
- -----------------------------------------------------------------
C. Douglas Lefferson, First Vice President
and Comptroller
Date 2/22/00
-------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.7
CONFIDENTIAL
- ------------
January 27, 1998
Brian D. Moriarty
Senior Vice President
Human Resources
First Financial Bancorp
300 High Street
P.O. Box 476
Hamilton, OH 45012
Dear Brian:
You are employed by First Financial Bancorp and First National Bank of
Southwestern Ohio, a wholly owned subsidiary of FFBC, ("FFBC") in a key
executive position. Continuity of the management of FFBC and its affiliate banks
is a critical factor in the continued success of FFBC. The Board of Directors of
FFBC believes it is in the best interest of FFBC to encourage the continued
effort and dedication of key members of management to their assigned duties.
In consideration of the mutual promises contained in this letter, FFBC
shall provide to you, and you shall receive from FFBC, the benefits set forth in
this letter ("Agreement"), if your employment with FFBC, or its affiliate bank,
is terminated during the term of this Agreement.
1. PURPOSE.
This Agreement establishes certain basic terms and conditions relating
to your employment with FFBC, and special arrangements and dispute
resolution proceedings relating to the termination of your employment
for any reason other than: (i) your retirement; (ii) your becoming
totally and permanently disabled under the FFBC long-term disability
plan or policy; or (iii) your death. This Agreement supersedes all
prior agreements with FFBC and any of its affiliate banks or any
predecessor businesses,
<PAGE> 2
Brian D. Moriarty
January 27, 1998
Page 2
except the Confidentiality Agreement concurrently entered, or
previously entered, between you and FFBC, and the special severance
benefits provided under this Agreement are to be provided instead of
any other severance arrangements offered by FFBC or its affiliate
banks. Notwithstanding the foregoing, neither your termination of
employment nor anything contained in this Agreement shall have any
affect upon your rights under any tax-qualified "pension benefit plan,"
as such term is defined in the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); or under any "welfare benefit plan" as
defined in ERISA, including by way of illustration and not limitation,
any medical surgical or hospitalization benefit coverage or long-term
disability benefit coverage; or under any non-qualified deferred
compensation arrangement, including by way of illustration and not
limitation, any stock incentive plan or non-qualified pension plan; or
under the FFBC Performance Incentive Plan for any completed plan year.
2. EMPLOYMENT.
FFBC agrees that, during the term of this Agreement, you will be
employed with FFBC, and any other direct or indirect subsidiary or
affiliate of FFBC to which you may be transferred, in your present
position or in a position that is comparable to your present position
in compensation, responsibility and stature and for which you are
suited by education and background and that:
(a) you are, and will continue to be, eligible to participate in
any employee benefit plan of FFBC in accordance with its
terms; and
(b) you will be entitled to the same treatment under any generally
applicable employment policy or practice as any other member
of Executive Management Group whose position in the
organization is comparable to yours.
Those plans, policies and practices that generally apply to other
members of the Executive Management Group will be referred to in this
Agreement as your "Employment Benefits." Your Employment Benefits may
be modified from time to time after the date hereof without violation
of this Agreement if the changes apply generally to other members of
the Executive Management Group.
3. TERM OF AGREEMENT.
This Agreement shall become effective on the date of this Agreement
("Commencement Date") and shall continue in effect through the earlier
of (i) the fifth anniversary of the Commencement Date; (ii) the date of
your retirement, death or total and permanent disability; or (iii) the
completion of full payment of all benefits promised hereunder.
<PAGE> 3
Brian D. Moriarty
January 27, 1998
Page 3
Absent your death, total and permanent disability or retirement, this
Agreement shall be renewed annually from and after the fifth
anniversary of the Commencement Date unless written notice to the
contrary is given by you or by FFBC at least six (6) months prior to
the expiration of the term, including any extension thereof.
4. TERMINATION OF EMPLOYMENT.
Your employment may be terminated in accordance with any of the
following paragraphs, but only upon one (1) month's advance written
notice (which period shall be referred to in this Agreement as the
"Notice Period"):
(a) INVOLUNTARY TERMINATION. FFBC may terminate your employment
without cause. In such an event, you shall continue to receive
your full salary and Employment Benefits during the Notice
Period. The expiration of the Notice Period shall be your
"Date of Termination." Upon your Date of Termination, you
shall be entitled to those benefits provided under Section 5,
provided you give FFBC the release and covenant not to sue
described in Section 5.
(b) INVOLUNTARY TERMINATION FOR CAUSE. FFBC may terminate your
employment for "Cause" with written notice setting forth the
Cause for termination. "Cause" means a willful engaging in
gross misconduct materially and demonstrably injurious to
FFBC. "Willful" means an act or omission in bad faith and
without reasonable belief that such act or omission was in, or
not opposed to, the best interests of FFBC. The expiration of
the Notice Period is your "Date of Termination for Cause."
Upon your Date of Termination for Cause, you shall only be
entitled to those benefits provided under Section 6.
(c) VOLUNTARY TERMINATION. You may voluntarily terminate your
employment. In such an event, you shall continue to receive
your full salary and Employment Benefits during the Notice
period provided you satisfactorily perform your duties during
the Notice Period unless relieved of those duties by FFBC. The
expiration of the Notice Period is your "Voluntary Date of
Termination." Upon your Voluntary Date of Termination, you
shall only be entitled to those benefits provided under
Section 6.
(d) VOLUNTARY TERMINATION FOR GOOD REASON. You may terminate your
employment by notice setting forth a Good Reason for
termination if the notice is delivered to FFBC within thirty
(30) days following the occurrence of any "Good Reason." "Good
Reason" means a (i) change in the duties of your position, or
the transfer to a new position, in violation of Section 2;
(ii) substantial alteration in the nature or status of your
responsibilities in violation of Section 2; (iii)
<PAGE> 4
Brian D. Moriarty
January 27, 1998
Page 4
reduction in your base salary; (iv) refusal by FFBC, or its
successor, to renew the term of this Agreement for any reason,
prior to your reaching your normal retirement date under the
FFBC Pension Benefit Plan; or (v) changes in your Employment
Benefits in violation of Section 2. If you give notice of
termination for Good Reason, you shall continue to receive
your full base salary and Employment Benefits during the
Notice Period as in effect prior to the event that is the Good
Reason for termination, subject to the right of FFBC to make
any changes to your Employment Benefits permitted in
accordance with Section 2. The expiration of the Notice Period
is your "Date of Termination." Upon your Date of Termination,
you shall be entitled to those benefits provided under Section
5, provided you give FFBC the written release and covenant not
to sue described in Section 5.
5. SPECIAL SEVERANCE BENEFITS.
If your employment with FFBC is involuntarily terminated in accordance
with Section 4(a) or you voluntarily terminate your employment for Good
Reason in accordance with Section 4(d) and you provide FFBC with a
separate, written release and covenant not to sue (on a form provided
by and satisfactory to FFBC) which releases FFBC from all claims
arising from your employment and termination of your employment, and
you do not revoke this release and covenant not to sue, then you shall
receive the following benefits, less any applicable withholding
required for federal, state or local taxes:
(a) your base salary shall be continued in effect for a period of
twenty-four (24) months from your Date of Termination
(hereinafter called your "Severance Pay Period");
(b) if, prior to your Date of Termination, you have participated
in the FFBC Performance Incentive Plan for a complete calendar
year, you will receive an incentive compensation payment
within thirty (30) days of your Date of Termination in one
lump-sum in an amount equal to 2.0 times the percentage of the
incentive payment made or required to be made for the calendar
year pursuant to the Performance Incentive Plan immediately
preceding the calendar year in which your Date of Termination
occurs;
(c) if your Date of Termination is within twelve (12) months after
a Change in Control, you will receive a payment within thirty
(30) days of your Date of Termination in one lump-sum in an
amount equal to the total of the following:
<PAGE> 5
Brian D. Moriarty
January 27, 1998
Page 5
(i) With respect to any shares of Stock subject to an
Option granted to you as of the time of the Change in
Control under the First Financial Bancorp 1991 Stock
Incentive Plan (the "Incentive Plan") that you cannot
exercise as a result of your termination of
employment, the difference between the fair market
value of such Stock, determined as of your Date of
Termination, and the Option Price.
(ii) With respect to any Restricted Stock granted to you
under the Incentive Plan as of the time of the Change
in Control which you forfeit as a result of your
termination of employment, the fair market value of
such Restricted Stock, determined as of your Date of
Termination and as if all restrictions had been
removed.
(iii) For purposes of this Section 5, "Stock," "Options,"
"Option Price," "Restricted Stock" and "Committee"
will have the meaning given those terms in the
Incentive Plan, and your right to exercise Options or
to receive Restricted Stock without forfeiture will
be determined after any adjustments made by the
Committee under Sections 8.8 and 11.1 of the
Incentive Plan, and after any amendments made to the
Incentive Plan in connection with the Change in
Control.
(iv) For purposes of this Section 5, "Change in Control"
will have the following meaning: (a) a plan has been
approved by the shareholders of FFBC and consummated
for FFBC to be merged or consolidated with another
corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting
securities of the surviving or resulting corporation
will be owned in the aggregate by the former
shareholders of FFBC as the same shall have existed
immediately prior to such merger or consolidation;
(b) an agreement for the sale by FFBC of
substantially all of its assets to another
corporation which is not a wholly owned subsidiary
has been approved by the shareholders (or the Board
of Directors or appropriate officers if shareholder
approval is not required) and consummated; (c)
"beneficial ownership" as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934
(the "Exchange Act") of twenty percent (20%) or more
of the total voting capital stock of FFBC then issued
and outstanding has been acquired by any person or
"group" as defined in Section 13(d)(3) of the
Exchange Act; or (d) individuals who were members of
the Board of FFBC immediately prior to a meeting of
the shareholders of FFBC involving a contest for the
election of directors do not constitute a majority of
the Board immediately following such election, unless
the election of such
<PAGE> 6
Brian D. Moriarty
January 27, 1998
Page 6
new directors was recommended to the shareholders by
the management of FFBC. The Board of FFBC has final
authority to determine the exact date on which a
Change in Control has occurred under the foregoing
definitions.
(d) your Employment Benefits shall be continued during your
Severance Pay Period, subject to the right of FFBC to make any
changes to your Employment Benefits permitted in accordance
with Section 2; provided, however, that you shall not:
(i) accumulate vacation pay for periods after your Date
of Termination;
(ii) first qualify for long-term disability benefits or
sickness and accident plan benefits by reason of an
illness, accident or disability occurring, or a
sickness or illness first manifesting itself, after
your Date of Termination;
(iii) be eligible to continue to make contributions to any
Internal Revenue Code ss. 401(k) plan maintained by
FFBC or qualify for a share of any employer
contribution made to any tax-qualified defined
contribution plan; or
(iv) be eligible to accumulate service for pension plan
purposes;
(e) you shall qualify for full COBRA health benefit continuation
coverage upon the expiration of your Severance Pay Period;
(f) you shall be entitled to full executive outplacement
assistance with an agency selected by FFBC with the fee paid
by FFBC in an amount not to exceed five percent (5%) of your
annual base salary;
(g) with respect to the Endorsement Method Split Dollar Plan
Agreement (the "Split Dollar Agreement") to which you are a
party (and solely for purposes of the Split Dollar Agreement),
the duration of your Severance Pay Period shall be considered
as if it were active employment for purposes of determining
whether you were eligible to receive a retirement benefit
under the early retirement provisions of First Financial
Bancorp Employees' Pension Plan, as provided in Section VI(B)
of the Split Dollar Agreement; and
(h) if your Date of Termination is within twelve (12) months after
a Change in Control, you will receive a payment (the "Split
Dollar Payment") within ninety (90) days of your Date of
Termination in one lump-sum equal to the present
<PAGE> 7
Brian D. Moriarty
January 27, 1998
Page 7
value of the death benefit you would have received under the
Split Dollar Agreement, determined as if you had terminated on
your Date of Termination, were then eligible to receive a
retirement benefit under the early retirement provisions of
First Financial Bancorp Employees' Pension Plan (whether or
not this is actually the case), and died at age 75 when the
Split Dollar Agreement was still in effect. For purposes of
this Section 5, present value will be determined using an
annual discount rate of 7%. Notwithstanding the prior two
sentences, if you elect to receive an assignment of the policy
under Section X of the Split Dollar Agreement, the Split
Dollar Payment shall be applied to the cash payment to FFBC
required under Section X of the Split Dollar Agreement, and
any portion of the Split Dollar Payment in excess of the
amount required under Section X shall be paid to you.
(i) Notwithstanding any other provision of this Agreement, if the
receipt of any payment under Section 5 of this Agreement, in
combination with any other payments to you from FFBC or its
affiliates, shall, in the opinion of independent tax counsel
of recognized standing selected by FFBC, result in the payment
by you of any excise tax provided for in Section 280G and
Section 4999 of the Internal Revenue Code, then the amount of
payments under Section 5 of this Agreement shall be reduced to
the extent required, in the opinion of independent tax
counsel, to prevent the imposition of such excise tax. The
reduction of payments under this Agreement shall be made after
any reduction made under Section 11.2 of the First Financial
Bancorp 1991 Stock Incentive Plan and you will have the right
to select the order in which payments under this Section 5
will be reduced.
The release and covenant not to sue which you agree to provide prior to
the receipt of special severance benefits under this Section 5 of this
Agreement shall comply with the requirements of the Older Workers
Benefit Protection Act and applicable state and federal laws and
regulations. If you do not provide FFBC with a written release and
covenant not to sue, any claims concerning this Agreement or otherwise
arising from your employment with FFBC, or its affiliate banks, shall
be subject to final and binding arbitration as described in Section 7.
6. BENEFITS UPON VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE.
Upon your Date of Termination for Cause in accordance with Section 4(b)
or your Voluntary Date of Termination in accordance with Section 4(c),
all special severance benefits under this Agreement will be void. In
such an event, you shall be eligible for any benefits provided in
accordance with the plans and practices of FFBC that are applicable to
employees generally.
<PAGE> 8
Brian D. Moriarty
January 27, 1998
Page 8
7. ARBITRATION.
Any dispute under this Agreement, and any claims of wrongful or
discriminatory termination based on any state or federal statute, tort,
public policy, contract or promissory estoppel theory, including any
dispute as to the cause or reason for termination, shall be submitted
to final and binding arbitration, subject to the National Rules for the
Resolution of Employment Disputes of the American Arbitration
Association, effective June 1, 1997, except as hereinafter provided:
(a) FFBC shall pay the arbitrator's fee;
(b) Each party shall bear the cost of its own attorney's fees.
However, if you prevail in a challenge to FFBC's determination
as to cause for your termination or if you prevail on any
claim that you were discriminated against in violation of any
federal law or statute, you shall be reimbursed by FFBC for
the filing fee and any reasonable costs or expenses incurred
in such a challenge, including reasonable attorney's fees;
(c) The arbitration hearing shall be held in Hamilton, Ohio,
unless the parties mutually agree to another location;
(d) Each party shall exchange documents to be utilized as exhibits
in the arbitration hearing and each party shall be limited to
two (2) pre-hearing depositions of two (2) hours each, unless
the arbitrator orders additional discovery;
(e) The arbitrator shall be appointed in accordance with Rule 12
of the above-referenced Rules of the American Arbitration
Association, except that if, for any reason, an arbitrator
cannot be selected by the process described in Rule 12,
subparts (i) through (iii), the American Arbitration
Association shall submit the names of seven (7) additional
arbitrators from its Roster and the parties shall select the
arbitrator by alternately striking names with the party
requesting arbitration first striking; and
(f) Either party shall be entitled to an injunction or other
appropriate equitable relief to enforce the arbitration
provisions of this Agreement and FFBC shall be entitled to an
injunction to prevent any breach, pending arbitration, of the
Confidentiality Agreement described below in paragraph 8 or
the Covenant Not to Compete described below in paragraph 10.
It is the intention of the parties to avoid litigation in any
court of all claims concerning this Agreement, or otherwise arising
from your employment with FFBC, or its affiliate bank, and that all
such claims will be subject to this arbitration agreement.
<PAGE> 9
Brian D. Moriarty
January 27, 1998
Page 9
Neither party shall commence or pursue any litigation on any claim that
is or was the subject of arbitration under this Agreement. Each party
agrees that this agreement to arbitrate and the arbitration award are
enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
ss. I, et seq. ("FAA"). If the FAA is held not to apply for any reason
and the law of the state in which you are employed recognizes the
enforceability of this Agreement and the arbitration award, then this
Agreement and the arbitration award are enforceable under the laws of
the state in which you are employed. Both parties consent that judgment
upon the arbitration award may be entered in any federal or state court
that has jurisdiction. The acceptance of any benefit under this
Agreement shall be deemed ratification of this agreement to arbitrate
claims. In the event you breach this Agreement by filing a lawsuit, at
the time your lawsuit is filed, you will return any Special Severance
Benefits paid to you and be subject to injunctive relief enforcing this
Agreement.
8. CONFIDENTIALITY.
You will not disclose to any person or use for the benefit of yourself
or any other person any confidential or proprietary information of FFBC
without the prior written consent of the Chief Executive Officer of
FFBC. Upon your termination of employment, you will return to FFBC all
written or electronically stored memoranda, notes, plans, customer
lists, records, reports or other documents of any kind or description
(including all copies in any form whatsoever) relating to the business
of FFBC and fully comply with any separate confidentiality agreement to
which you and FFBC are parties.
9. CONFLICTS OF INTEREST.
You agree for so long as you are employed by FFBC to avoid dealings and
situations that would create the potential for a conflict of interest
with FFBC. In this regard, you agree to comply with the FFBC policy
regarding conflicts of interest and all applicable state or federal
regulations concerning conflicts of interest applicable to commercial
bank or savings bank officers.
10. COVENANT NOT TO COMPETE.
During the term of this Agreement, and for a period of six (6) months
following the termination of your employment for any reason other than
as set forth in Section 4(b), you agree not to be employed by, serve as
officer or director of, consultant to or advisor to any business that
engages either directly or indirectly in commercial banking, savings
banking or mortgage lending in the geographic area of Ohio, Indiana,
Michigan or Kentucky or which is reasonably likely to engage in such
businesses in the same
<PAGE> 10
Brian D. Moriarty
January 27, 1998
Page 10
geographic area during the six (6) month period following your
termination of employment.
11. NOTICE.
Notices required or permitted under this Agreement shall be in writing
and shall be deemed to have been given when delivered or mailed by
United States certified mail, return receipt requested, postage
prepaid, in a properly addressed envelope. Notices to FFBC shall be
addressed to the Chief Executive Officer.
12. MODIFICATION; WAIVER; SUCCESSORS.
No provision of this Agreement may be waived, modified or discharged
except pursuant to a written instrument signed by you and the Chief
Executive Officer of FFBC. This Agreement is binding upon any successor
to all or substantially all of the business or assets of FFBC.
13. VALIDITY; COUNTERPARTS.
This Agreement shall be governed by and construed under the law of the
State of Ohio. The validity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other provision
hereof. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
Sincerely yours,
FIRST FINANCIAL BANCORP
By: /s/Stanley N. Pontius, Pres.
----------------------------
and
FIRST NATIONAL BANK OF
SOUTHWESTERN OHIO
By:___________________________
<PAGE> 11
Brian D. Moriarty
January 27, 1998
Page 11
ACCEPTED AND AGREED TO
THIS 28th DAY OF JANUARY, 1998.
/s/ Brian D. Moriarty
- -----------------------------
Brian D. Moriarty
<PAGE> 1
EXHIBIT 10.11
FIRST FINANCIAL BANCORP.
DIRECTOR FEE STOCK PLAN
1. NAME AND PURPOSE.
(a) The plan set forth herein shall be known as the First Financial
Bancorp. Director Fee Stock Plan (the "Plan"). The Plan, as set forth herein, is
effective as of May 25, 1999 (the "Effective Date").
(b) The purpose of the Plan is to enable Directors of First Financial
Bancorp. (the "Corporation") to acquire a proprietary interest in the growth and
performance of the Corporation and thereby an increased incentive to work for
the future success of the Corporation, by delivering common shares, without par
value, of the Corporation (the "Common Shares") to the Directors in payment of
their annual retainer.
2. ADMINISTRATION.
(a) The plan shall be administered by the Compensation Committee of the
Board of Directors of the Corporation (the "Committee").
(b) The Committee shall, subject to the applicable provisions of the
Plan, have full authority and discretion to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, to prepare forms
to use with respect to the Plan, to prepare material explaining the Plan to
Directors, and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determination as to any matter
relating to the interpretation of the Plan shall be conclusive on all persons.
(c) The Committee may delegate to any other persons the ability to act
on behalf of the Committee with respect to any of the duties assigned to the
Committee under the Plan, including the duty to appoint and/or terminate an
independent manager in accordance with the provisions of paragraphs (d) and (f)
of this Section 2. Any action of such persons, when within the scope of their
authority as assigned by the Committee, shall be treated the same as if it had
been performed by the Committee. The Committee shall, if it delegates any of its
duties to other persons, oversee the activity of such persons to ensure that the
duties delegated to such persons are being performed competently.
(d) Further, the Committee shall appoint a bank, a brokerage house or
any other entity, which is not part of the controlled group of corporations
(within the meaning of section 1563 of the Internal Revenue Code) that includes
the Corporation, to act as an independent manager of certain stock accounts
required under the subsequent provisions of the Plan, to issue statements to
Directors concerning their accounts, and to do any other duties assigned to the
independent manager by the terms of the Plan or by the Committee (such bank,
brokerage house or other entity being herein called the "Independent Manager").
<PAGE> 2
(e) The compensation of the Independent Manager for providing services
for the Plan shall be determined by agreement between the Committee and the
Independent Manager.
(f) The Independent Manager shall serve at the pleasure of the
Committee and may be terminated at any time by the Committee upon at least 60
days prior written notice to the Independent Manager (or upon such lesser notice
as is agreed to by the Committee and the Independent Manager). Similarly, the
Independent Manager may resign its position at any time upon at least 60 days
prior written notice to the Committee (or upon such lesser notice as is agreed
to by the Committee and the Independent Manager). If any Independent Manager is
terminated or resigns, the Committee shall appoint another bank, brokerage house
or other entity, which is not part of the controlled group of corporations that
includes the Corporation, to serve as Independent Manager under the Plan as of
the effective date of the prior Independent Manager's termination or
resignation.
(g) Except as otherwise may be expressly provided in the Plan, all
expenses of administering the Plan, including the compensation of the
Independent Manager and commissions and brokerage fees incurred for the purchase
of Common Shares under the Plan, and any applicable city income tax deposits
attributable to the directors' annual retainer, shall be paid by the
Corporation.
3. ELIGIBLE EMPLOYEES.
For purposes of the Plan, a "Director" refers to, as of any date, a
person who is serving as a director of the Corporation.
4. DIRECTOR FEE CONTRIBUTIONS.
(a) On July [20,] October [20,] January [20] and April [20] of each
year (or if any such date is not a business day, on the next succeeding business
day) (the "Payment Date"), the Corporation will forward to the Independent
Manager the Quarterly Amount for each Director, which Quarterly Amount will be
allocated to a non-interest bearing account maintained by the Independent
Manager in the name of the Director (the "Director's Fee Account") until such
amounts are applied to purchase Common Shares. The "Quarterly Amount" is the
quotient of (i) amount of the annual retainer authorized (as of such Payment
Date) to be paid to each Director (ii) divided by four.
(b) In addition, amounts which are attributable to cash dividends paid
on Common Shares held in a Director's Stock Account will, to the extent provided
in Section 6(b) below, also be allocated to the Director's Fee Account until
such amounts are applied to purchase Common Shares or are distributed in
accordance with the provisions of Section 5 below.
(c) No interest shall be paid or allocated on any amounts allocated to
a Director's Fee Account.
5. PURCHASE OF COMMON SHARES.
-2-
<PAGE> 3
(a) The Independent Manager shall use the amounts allocated under
Section 4 above to a Director's Fee Account to purchase, as soon as the
Independent Manager determines that it is legally and commercially practical to
buy the Common Shares then required for the Plan, as many whole Common Shares as
can be purchased with such amounts. The Independent Manager will use its best
efforts to purchase such Common Shares by the last day of the calendar quarter
in which it receives the Quarterly Amounts. Any such purchase of Common Shares
will be made in the name of the Independent Manager's nominee for the account of
the Plan and effected in accordance with the following provisions. The Common
Shares will be purchased on the largest national securities exchange on which
Common Shares are then listed, at the then prevailing market prices of such
shares.
(b) In the event that, after the maximum whole number of Common Shares
has been purchased with respect to the amounts allocated to a Director's Fee
Account as of any date under the foregoing provisions of this Section 5, an
amount remains held under such Director's Fee Account, such amount will be used,
to the extent possible, to purchase Common Shares under and in accordance with
the foregoing provisions of this Section 5 as soon as the Independent Manager
determines that it is legally and commercially practical on or after any date on
which additional amounts are allocated to such account under the provisions of
Section 4 above (or, if earlier, on or after any date on which such amounts are
able on their own to purchase one or more whole Common Shares) to purchase the
Common Shares then required for the Plan.
(c) Common Shares purchased with respect to amounts allocated to a
Director's Fee Account shall be held in an account maintained by the Independent
Manager in the name of the Director (the "Stock Account").
(d) If any amount is still allocated to a Director's Fee Account as of
a Payment Date which begins after he has ceased to serve as a Director of the
Corporation and has requested his entire Stock Account under Section 6 below,
then such amount will, to the extent it cannot then purchase a whole number of
Common Shares, be paid in cash by the Independent Manager to the Director as
soon as administratively practical after such Payment Date.
6. DISTRIBUTION OF STOCK ACCOUNT.
(a) Until distributed or sold under the following provisions of this
Section 6, all Common Shares purchased under the Plan with respect to a Director
shall be held in the Director's Stock Account. Any Common Shares held in a
Director's Stock Account shall at all times constitute assets of the Director
and not of the Independent Manager or the Corporation, and the Director shall be
entitled to all the rights and privileges of a shareholder with respect to
shares held in his Stock Account, including full voting and dividend rights
applicable to Common Shares.
(b) Further, any dividends paid with respect to Common Shares held in a
Director's Stock Account shall be used, as soon as the Independent Manager
determines that it is legally and commercially practical following the payment
of such dividends to buy the Common Shares then required for the Plan, to
purchase for the Director's Stock Account the maximum whole number of Common
Shares which such amounts can purchase. Such purchase shall be
-3-
<PAGE> 4
made in accordance with the provisions of Section 5 above. Any remaining amount
of such dividends which is not then sufficient to purchase additional whole
Common Shares shall at such time be allocated to the Director's Fee Account.
(c) A Director (or, in the case of the Director's death, his estate)
may request at any time, pursuant to any reasonable administrative rules
established by the Committee and the Independent Manager for this purpose, that
the Independent Manager distribute to him (or, if applicable, his estate) the
Director's entire Stock Account or any portion of such Stock Account. As soon as
administratively practicable following such request, the Independent Manager
shall distribute to the Director (or, in the event of the Director's death, his
estate) the portion of the Director's Stock Account which has been requested in
accordance with the following provisions:
(i) Except as otherwise provided below, such distribution
shall be effected by the Independent Manager distributing, or causing to be
distributed, to the Director (or, if applicable, to his estate) a stock
certificate for the number of Common Shares then held in that portion of the
Director's Stock Account which has been requested. At the date of distribution,
if such Common Shares have not been held in the Director's Stock Account for at
least 12 months after their date of purchase, the stock certificates shall bear
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF AN
EXEMPTION UNDER THE SECURITIES ACT OF 1933. THE ISSUER WILL
NOT EFFECTUATE THE TRANSFER OF THESE SECURITIES UNLESS AND
UNTIL THE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE ISSUER HAS BEEN ADVISED BY COUNSEL
SATISFACTORY TO IT THAT AN EXEMPTION FROM THE REGISTRTION
REQUIREMENTS OF SUCH ACT IS AVAILABLE FOR SUCH TRANSFER.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND
ARE TRANSFERABLE ONLY ON COMPLIANCE WITH THE FIRST FINANCIAL
BANCORP. DIRECTOR FEE STOCK PLAN.
Prior to any sale or other distribution (except a gift) of the distributed
Common Shares by the Director, the Director must hold (including the time period
during which the Common Shares were held in the Director's Stock Account) such
distributed Common Shares for at least 12 months after their date of purchase.
(ii) Further, notwithstanding the foregoing but subject to the
following provisions of this paragraph (c), the foregoing provisions of this
paragraph (c) regarding the 12 month holding period for sales by a Director and
the Director's compliance with all legal requirements pertaining to his sale of
Common Shares, the Director (or, in the event of the
-4-
<PAGE> 5
Director's death, his estate) may request that the Independent Manager
cause to be sold, on behalf of the Director (or, if applicable, on behalf of his
estate) and on the largest national securities exchange on which Common Shares
are then listed, all of the Common Shares then held in that portion of the
Director's Stock Account which has been requested, for the then prevailing
market prices of such shares less any commission or other expenses of such sale,
in which case the net proceeds of such sale shall be distributed to the Director
(or, in the event of the Director's death, to his estate) instead of a stock
certificate being distributed to the Director (or his estate).
(iii) In the event a portion but not all of a Director's Stock
Account is to be distributed or sold under the foregoing provisions of this
paragraph (c), that portion of such Stock Account which is to be distributed or
sold shall be deemed to consist to the extent possible of Common Shares
purchased at the earliest points in time.
(iv) Notwithstanding any of the foregoing provisions of this
paragraph (c), a Director or a Director's estate who or which is an insider (as
defined below) may not request that the Independent Manager cause to be sold, on
his or its behalf, any Common Shares then held in the Director's Stock Account
under subparagraph (ii) of this paragraph (c) during any closed period (as
defined below). For purposes of this subparagraph (iv), an "insider" means any
person or entity covered by the Company's policies providing insider trading
prohibitions. Also, for purposes of this subparagraph (iv), a "closed period"
means each period which begins 30 days before the end of any calendar quarter
and ends three business days after the release to the public of the
Corporation's earnings statements for such calendar quarter or any other period
during which the Corporation reasonably determines that Common Shares should not
be traded by insiders by reason of applicable securities laws.
(d) In addition, notwithstanding any other provision of the Plan, all
persons who have ceased to serve as Directors (or, in the event of any such
persons' deaths, their estates) must file, within 180 days of ceasing to be a
Director, a request for the distribution of their then existing Stock Accounts
under the procedures described in paragraph (c) of this Section 6. In the event
that any such persons or estates fail to file such requests, their Stock
Accounts shall be distributed in the manner described in paragraph (c)(i) of
this Section 6.
(e) Within 15 days after the end of each calendar quarter (or at such
other intervals as the Committee may prescribe), each Director who then has a
Stock Account under the Plan shall be furnished by the Independent Manager a
statement showing the number of shares then credited to his Stock Account, the
amount of cash then credited to his Director's Fee Account, and such other
information as the Committee prescribes. In addition, the Independent Manager
shall furnish the Committee a duplicate copy of each statement furnished a
Director under this paragraph (e) at the same time as such statement is
furnished the Director.
7. MISCELLANEOUS PROVISIONS.
(a) The Corporation shall have, with respect to any Director, the right
(without notice to the applicable Director) to withhold from any amounts payable
to the Director by the Corporation (including amounts contributed by the
Corporation that are used to purchase Common Shares for the Director's Stock
Account under the Plan) an amount sufficient to satisfy
-5-
<PAGE> 6
all federal, state, and local withholding tax requirements that may apply with
respect to amounts contributed under the Plan for the Director.
(b) If at any time the Committee shall determine, in its
discretion, that the listing of Common Shares purchased under the Plan on any
securities exchange, the registration or qualification of such shares under any
state or federal law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
purchase, issue, or transfer of such Common Shares purchased under this Plan,
then such Common Shares shall not be purchased, issued, or transferred unless
and until one of the following conditions is satisfied: (i) such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee, or (ii) the
applicable Director shall have agreed that the Common Shares may be issued or
transferred subject to any restrictions that will make it unnecessary to effect
or obtain such listing, registration, qualification, consent or approval.
8. NO RIGHT OF EMPLOYMENT. Nothing contained in the Plan shall confer
on any Director any right to be continued in the position of "director" of the
Corporation.
9. AMENDMENT OR TERMINATION OF PLAN.
(a) The Board of Directors of the Corporation (the "Board") shall have
the right to amend, suspend, or terminate this Plan. It is provided, however,
that no action to amend, suspend, or terminate the Plan shall affect adversely
the rights of any Director under this Plan with respect to Common Shares
purchased prior to such action.
(b) Further, the Board may, by adopting an appropriate resolution at a
valid meeting of the Board or in a writing signed by all members of the Board,
delegate to any person or committee any or all of its rights and duties
hereunder to amend, suspend, or terminate the Plan. Any such delegation shall be
valid and binding on all persons, and the person or committee to whom or which
authority is delegated shall have full power to act in all matters as delegated
until the authority expires by its terms or is revoked by the Board, as the case
may be. Any action taken by such person or committee in accordance with such
delegation may be evidenced by a writing signed by such person or committee and,
if such action is within the scope of authority so delegated, shall be given the
same effect as if the Board had taken such action itself.
10. GOVERNING LAW. The laws of Ohio shall govern all matters relating
to this Plan except to the extent they are superseded by the laws of the United
States.
11. GENDER. Any words used herein in the masculine shall be read and
construed in the feminine where they would so apply.
12. EFFECTIVE DATE OF PLAN. The Plan is effective as of May 25, 1999.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has hereunto caused its name to be
subscribed to this Plan on the 25th day of May, 1999.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius
------------------------------------------
Stanley N. Pontius, President and
Chief Executive Officer
<PAGE> 1
Exhibit 13
MISSION STATEMENT
To provide a balanced offering of innovative, quality differentiated financial
products and extraordinary customer service to our clientele.
To safeguard the interests of our depositors.
To maximize the return on investment to our shareholders by consistently earning
the highest possible returns, while being ever mindful of the associated ethical
and moral considerations necessary to ensure the Bancorp's financial stability
and long-term independence.
To promote the economic growth and development of the communities we serve.
To provide a stimulating work environment and optimal career path potential for
all Bancorp associates in order to instill the highest level of commitment and
dedication to First Financial Bancorp and our varied constituencies.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the
Fitton Center for Creative Arts
101 South Monument Avenue
Hamilton, Ohio
Tuesday, April 25, 2000, 2:00 p.m.
FORM 10-K
For copies of First Financial Bancorp's
Form 10-K write to:
Michael R. O'Dell
Chief Financial Officer
First Financial Bancorp
300 High Street, P.O. Box 476
Hamilton, OH 45012-0476
513-867-4951
513-867-3112 (FAX)
[email protected] (e-mail)
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
908-497-2310 (FAX)
NASDAQ OTC
NATIONAL MARKET
Common Stock Symbol: FFBC
DIRECTORS
Barry J. Levey, Chairman of the Board,
First Financial; Retired Ohio State Senator,
4th District; Retired Partner,
Frost & Jacobs -- Middletown, Attorneys-at-Law.
Stanley N. Pontius, President and Chief Executive Officer,
First Financial, and Chairman of the Board, First Southwestern.
Richard L. Alderson, Partner, Real Estate Investment and Development.
Martin J. Bidwell, President, Magnode Corp.
Don M. Cisle, President, Don S. Cisle Contractor, Inc.
Dan R. Dalton, Dean, Kelley School of Business, Indiana University.
Corinne R. Finnerty, Partner, McConnell & Finnerty, Attorneys-at-Law.
Carl R. Fiora, Retired President and Chief Executive Officer,
Armco Steel Co., L.P.
James C. Garland, President, Miami University, Oxford, Ohio.
F. Elden Houts, Chairman of the Board, Community First Bank & Trust.
Murph Knapke, Owner, Knapke
Law Office, Attorney-at-Law.
Bruce E. Leep, Chairman and Chief Executive Officer, Sand Ridge Bank.
Stephen S. Marcum, Partner, Parrish, Fryman & Marcum Co., L.P.A.
Barry S. Porter, Chief Financial Officer,
The Ohio Casualty Corp.
Steven C. Posey, President, Posey Management Corp.
Perry D. Thatcher, President and CEO, Ample Industries, Inc.
DIRECTORS EMERITI
Arthur W. Bidwell, Thomas C. Blake,
Merle F. Brady, Don S. Cisle, Jr.,
Edward N. Dohn, Richard J. Fitton, Vaden Fitton,
Robert M. Jones, Charles T. Koehler, Robert W. Long,
Joseph L. Marcum, Robert Q. Millan, Frank C. Neal,
James L. Pease, Jr., C. Wesley Rowles,
Joel H. Schmidt, Hon. C. William Verity, Jr.
OFFICERS
President and Chief Executive Officer
Stanley N. Pontius
Senior Vice President
Mark W. Immelt
Senior Vice President, Human Resources
Brian D. Moriarty
Senior Vice President, Chief Financial Officer, and Secretary
Michael R. O'Dell
Senior Vice President, Consumer Banking
and Operations
Michael T. Riley
First Vice President, Investments
Gary A. Eppley
First Vice President, Comptroller
C. Douglas Lefferson
Vice President, Business Development
Cheryl R. Lipp
Acting Chief Lending Officer
Howard Stammen
Compliance Officer
Terence M. Fitz
Auditor
Daniel C. Mergy
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FIRST FINANCIAL BANCORP
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of operations of First
Financial Bancorp. (Bancorp). It identifies trends and material changes that
occurred during the reporting periods and should be read in conjunction with the
consolidated financial statements and accompanying notes.
Bancorp is a bank and savings and loan holding company headquartered in
Hamilton, Ohio. As of December 31, 1999, Bancorp owned seventeen subsidiaries
located in western Ohio, Indiana, northern Kentucky and southern Michigan. These
subsidiaries include thirteen commercial banks, two savings banks, one finance
company and a service corporation.
On November 23, 1999, the board of directors declared a 10% stock
dividend to be distributed on January 3, 2000, to shareholders of record as of
December 3, 1999. All per-share data has been restated to reflect the stock
dividend. In addition, the Board declared a quarterly cash dividend of 15 cents
per share for each post-stock-dividend share, also payable January 3, 2000, to
shareholders of record as of December 3, 1999.
The major components of Bancorp's operating results for the past five
years are summarized in Table 1 and discussed in greater detail on subsequent
pages. For a thorough understanding of Bancorp's financial results and
conditions, this discussion should be read in conjunction with the statistical
data and consolidated financial statements on Pages 12 through 31.
RECENT MERGERS AND ACQUISITIONS
On June 30, 1999, Union Trust Bank (Union Trust), a wholly owned
subsidiary of Bancorp, merged into Community First Bank & Trust (Community
First), also a wholly owned subsidiary of Bancorp. Upon completion of the
merger, Union Trust's three offices located in Randolph County, Indiana, became
offices of Community First.
On June 1, 1999, Bancorp issued 5,114,878 shares of its common stock for
all the outstanding common stock of Sand Ridge Financial Corporation (SRFC).
Upon consummation of the merger, SRFC was merged out of existence and its only
subsidiary, Sand Ridge Bank, became a wholly owned subsidiary of Bancorp. Sand
Ridge Bank operates five offices, an operations center, and a network of 17 ATMs
in Lake County, Indiana. Its main office is located in Highland, Indiana, which
is about 20 miles southeast of Chicago. The merger was accounted for using the
pooling-of-interests method of accounting; and, accordingly, the consolidated
financial statements, including earnings per share, have been restated for the
periods prior to the merger to include the accounts and operations of SRFC.
On June 1, 1999, Bancorp issued 1,222,599 shares of its common stock for
all the outstanding common stock of Hebron Bancorp, Inc. (HBI). Upon
consummation of the merger, HBI was merged out of existence and HBI's only
subsidiary, Hebron Deposit Bank, became a wholly owned subsidiary of Bancorp.
Hebron Deposit Bank has three offices located in Boone County in northern
Kentucky. This merger represents Bancorp's first association with a Kentucky
bank. The merger was accounted for using the pooling-of-interests method of
accounting; and, accordingly, the consolidated financial statements, including
earnings per share, have been restated for the periods prior to the merger to
include the accounts and operations of HBI.
OTHER STRATEGIC INITIATIVES
Bancorp formed First Financial Bancorp Service Corporation (Service
Corporation) on June 1, 1999. The Service Corporation was formed to provide
support services to Bancorp's other affiliates. Services include information
systems, bankcard and ATM services, items processing, deposit services, lock box
operations, mail and messenger services and the Y2K project office.
The success of community banking depends largely on the ability to
deliver quality customer service. Technological advances will play an
increasingly significant role in Bancorp's growth and ability to deliver
products and services to its customers. By forming the Service Corporation,
Bancorp intends to keep operations strong and reliable while maximizing its
return from future investments in technology and operations.
OVERVIEW OF OPERATIONS
Bancorp's net earnings before merger and restructuring charges increased
9.43% to $55,777,000, compared to net earnings of $50,972,000 during 1998.
Excluding the merger and restructuring charges, Bancorp's diluted earnings per
share increased 10.2%, from $1.08 during 1998 to $1.19 during 1999. The merger
and restructuring charges relate to the mergers with Hebron Bancorp, Inc. and
Sand Ridge Financial Corporation and the consolidation of some operational
functions. The charge related to the operational functions involved the sale of
several facilities, the more effective use of other existing properties, the
merger of Union Trust into Community First and the discontinuance of an accounts
receivable financing product. (See Note 21 of the Notes to Consolidated
Financial Statements for more information about the restructuring charges.)
Bancorp's adjusted diluted earnings per share on a "cash basis," which
excludes the effect of amortization of goodwill and core deposits (tax affected
when applicable), and merger and restructuring charges, were $1.24 for 1999,
which is an 8.77% increase over 1998.
Including merger and restructuring charges, Bancorp's net earnings for
1999 were $50,323,000, a 1.27% decrease from 1998's net earnings. Diluted net
earnings per share were $1.07, or a 0.93% decrease from 1998 earnings per share.
Bancorp's net earnings during 1998 were $50,972,000 or $1.08 per share on
a diluted basis, representing an 8.84% increase over 1997 net earnings and a
9.09% increase over 1997 earnings per share on a diluted basis.
Bancorp's diluted earnings per share on a "cash basis" for 1998 were
$1.14, which is a 10.5% increase over 1997 earnings per share on a "cash basis."
Bancorp's return on equity for 1999, excluding the merger and
restructuring charges, was 15.2%, which compares to 14.6% for both 1998 and
1997. Bancorp's return on assets for 1999, again excluding merger and
restructuring charges, was 1.51%. This compares with return on asset ratios of
1.53% and 1.61% for 1998 and 1997, respectively. Including the merger and
restructuring charges, Bancorp's return on equity for 1999 was 13.8% and its
return on assets was 1.37%.
NET INTEREST INCOME
Net interest income, Bancorp's principal source of earnings, is the
excess of interest received from earning assets over interest paid on
interest-bearing liabilities. Bancorp's net interest income for the years 1995
through 1999 is shown in Table 1. For analytical purposes, interest income on a
tax equivalent basis is also presented in Table 1. The tax equivalent adjustment
recognizes the income tax savings when comparing taxable and tax-exempt assets
and assumes a 35.0% tax rate for all years presented.
The amount of net interest income is determined by the volume and mix of
earning assets, the rates earned on such earning assets and the volume, mix and
rates paid for the deposits and borrowed money that support the earning assets.
Table 2 describes the extent to which changes in interest rates
FIRST FINANCIAL BANCORP 1 1999 ANNUAL REPORT
<PAGE> 3
TABLE 1 - FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $ 282,398 $ 262,670 $ 231,993 $ 207,539 $ 187,844
Tax equivalent adjustment 5,246 4,862 4,927 5,120 5,785
--------- --------- --------- --------- ---------
Interest income - tax equivalent 287,644 267,532 236,920 212,659 193,629
Interest expense 117,194 110,434 96,576 87,827 80,803
--------- --------- --------- --------- ---------
NET INTEREST INCOME - TAX EQUIVALENT $ 170,450 $ 157,098 $ 140,344 $ 124,832 $ 112,826
========= ========= ========= ========= =========
Interest income $ 282,398 $ 262,670 $ 231,993 $ 207,539 $ 187,844
Interest expense 117,194 110,434 96,576 87,827 80,803
--------- --------- --------- --------- ---------
Net interest income 165,204 152,236 135,417 119,712 107,041
Provision for loan losses 9,232 8,247 6,656 5,029 3,436
Noninterest income 41,312 39,512 31,295 25,747 24,011
Noninterest expenses 120,661 107,845 91,229 82,818 75,035
--------- --------- --------- --------- ---------
Income before income taxes 76,623 75,656 68,827 57,612 52,581
Income tax expense 26,300 24,684 21,995 17,525 15,619
--------- --------- --------- --------- ---------
Net earnings $ 50,323(2) $ 50,972 $ 46,832 $ 40,087(3) $ 36,962
========= ========= ========= ========= =========
Tax equivalent basis was
calculated using a 35.0%
tax rate in all years
presented
PER SHARE DATA (1)
NET EARNINGS - BASIC $ 1.07 $ 1.08 $ 1.00 $ 0.87 $ 0.85
========= ========= ========= ========= =========
NET EARNINGS - DILUTED $ 1.07 $ 1.08 $ 0.99 $ 0.87 $ 0.85
========= ========= ========= ========= =========
Cash dividends declared
First Financial Bancorp $ 0.57 $ 0.52 $ 0.47 $ 0.42 $ 0.36
Sand Ridge Financial Corporation(4) $ 4.75 $ 18.00 $ 17.00 $ 16.00 $ 15.00
Hebron Bancorp, Inc.(5) $ 1.50 $ 5.50 $ 5.00 $ 4.00 $ 2.50
Average common shares outstanding -
basic (in thousands) 46,849 46,984 47,014 45,868 43,540
SELECTED YEAR-END BALANCES
Total assets $3,940,693 $3,538,869 $3,189,663 $2,775,819 $2,588,120
Earning assets 3,572,755 3,253,574 2,911,760 2,562,674 2,396,749
Investment securities held-to-maturity 31,765 37,782 62,511 84,255 98,781
Investment securities available-for-sale 490,126 550,394 503,936 432,574 435,507
Loans, net of unearned income 3,036,376 2,654,146 2,322,953 2,025,867 1,838,278
Deposits 2,991,213 2,872,067 2,692,688 2,323,772 2,202,750
Noninterest-bearing demand deposits 408,712 392,999 370,960 289,260 267,915
Interest-bearing demand deposits 314,735 307,752 338,968 375,848 357,568
Savings deposits 778,405 758,808 655,719 518,888 494,420
Time deposits 1,489,361 1,412,508 1,327,041 1,139,776 1,082,847
Long-term borrowings 161,799 120,777 46,570 6,506 2,820
Shareholders' equity 372,539 358,265 336,256 301,975 272,818
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 98.28% 89.07% 89.04% 85.76% 86.20%
Net charge-offs to loans 0.20% 0.24% 0.18% 0.27% 0.10%
Shareholders' equity to
Total assets 9.93% 10.46% 11.04% 10.89% 10.33%
Deposits 12.61% 12.64% 13.29% 12.86% 12.19%
Return on Assets 1.37% 1.53% 1.61% 1.51% 1.54%
Return on Equity 13.75% 14.59% 14.63% 13.90% 14.93%
Net interest margin (tax equivalent basis) 4.98% 5.07% 5.17% 5.04% 5.02%
</TABLE>
(1) First Financial Bancorp's per share data has been restated for all stock
dividends, stock splits, and material pooling-of-interests mergers
through 1999.
(2) 1999 net earnings includes $6,930,000 ($5,454,000 after tax) in merger
and restructuring charges.
(3) 1996 net earnings includes the effect of a $2,144,000 ($1,389,000 after
tax) charge for a special assessment paid to the Savings Association
Insurance Fund which reduced earnings by 4.0%.
(4) Sand Ridge Financial Corporation was the parent company of Sand Ridge
Bank and was merged out of existence on June 1, 1999.
(5) Hebron Bancorp, Inc. was the parent company of Hebron Deposit Bank and
was merged out of existence on June 1, 1999.
FIRST FINANCIAL BANCORP 2 1999 ANNUAL REPORT
<PAGE> 4
and changes in volume of earning assets and interest-bearing liabilities have
affected Bancorp's net interest income during the years indicated. The combined
effect of changes in both volume and rate has been allocated proportionately to
the change due to volume and the change due to rate. Table 2 should be read in
conjunction with the Statistical Information shown on Page 12.
Tax equivalent interest income was $287,644,000 in 1999, an increase of
$20,112,000 or 7.52% over 1998. The increase was due to an increase of
$324,991,000 in the volume of earning assets, from an average of $3,096,940,000
during 1998 to $3,421,931,000 during 1999. Average outstanding loan balances
increased $391,260,000, while investment securities and other instruments
decreased $66,269,000. The increase due to volume was partially offset by a
23-basis-point (a basis point equals 0.01%) decrease in average yields earned on
total earning assets, from 8.64% during 1998 to 8.41% during 1999.
Total interest expense was $117,194,000 in 1999, an increase of
$6,760,000 over 1998. This was due to an increase of $299,230,000 in total
interest-bearing liabilities, from an average of $2,611,140,000 during 1998 to
an average of $2,910,370,000 during 1999. The increase due to volume was
partially offset by a 20-basis-point decrease in the average rate paid for
deposits and borrowings, from 4.23% during 1998 to 4.03% during 1999.
Tax equivalent net interest income, the difference between tax equivalent
total interest income and total interest expense, increased $13,352,000 during
1999. The increased interest income was greater than the increased interest
expense, thereby causing net interest income to increase.
The interest rate spread and the net interest margin are two ratios
frequently used to measure differences in net interest income. Although the
average rate paid for deposits and borrowed money decreased from 4.23% during
1998 to 4.03% for 1999, the average rate earned on loans and investments
decreased more. The average rate earned during 1998 was 8.64%, compared to an
average rate of 8.41% during 1999. The result was a decrease in the interest
rate spread and the net interest margin. The interest rate spread (the average
rate on earning assets minus the average rate on interest-bearing liabilities)
was 4.38% for 1999 and 4.41% for 1998, a difference of three basis points. The
net interest margin (net interest income on a tax equivalent basis divided by
average earning assets) decreased nine basis points, from 5.07% during 1998 to
4.98% during 1999.
Nonaccruing loans were included in the daily average loan balances used
in determining the yields in Table 2. Interest foregone on nonaccruing loans is
disclosed in Note 9 of the Notes to Consolidated Financial Statements and is not
considered to have a material effect on the reasonableness of these
presentations. In addition, the amount of loan fees included in the interest
income computation for 1999, 1998, and 1997 was $8,269,000, $6,799,000, and
$5,328,000, respectively.
NONINTEREST INCOME AND NONINTEREST EXPENSES
A listing of noninterest income and noninterest expenses for 1999, 1998,
and 1997 is shown in Table 3. Although the mergers that occurred during 1998 and
1997 did not materially affect net earnings, they influenced the individual line
items for noninterest income and expense. Affiliates that joined Bancorp during
1998 and 1997 are included in the Consolidated Statements of Earnings starting
with their date of acquisition. The mergers that occurred during 1999 were
accounted for using the pooling-of-interests method of accounting, and the
consolidated financial statements for prior years were restated to include
account balances and results of operations for the companies acquired.
<TABLE>
<CAPTION>
TABLE 2 - VOLUME/RATE ANALYSIS - TAX EQUIVALENT BASIS(1)
1999 CHANGE FROM 1998 DUE TO 1998 CHANGE FROM 1997 DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 34,513 $ (9,863) $ 24,650 $ 28,912 $ 232 $ 29,144
Investment securities (2)
Taxable (5,215) (15) (5,230) 4,386 (1,790) 2,596
Tax-exempt 1,979 (895) 1,084 1,120 (1,348) (228)
--------- --------- --------- -------- --------- ---------
Total investment securities interest(2) (3,236) (910) (4,146) 5,506 (3,138) 2,368
Interest-bearing deposits with other banks 113 (65) 48 19 1 20
Federal funds sold and securities
purchased under agreements to resell (343) (97) (440) (809) (111) (920)
--------- --------- --------- -------- --------- ---------
TOTAL 31,047 (10,935) 20,112 33,628 (3,016) 30,612
INTEREST EXPENSE
Interest-bearing demand deposits (136) (623) (759) (225) (355) (580)
Savings deposits 1,902 (1,529) 373 2,680 (694) 1,986
Time deposits 1,806 (4,458) (2,652) 10,894 (1,013) 9,881
Short-term borrowings 7,037 115 7,152 (578) (125) (703)
Long-term borrowings 2,735 (89) 2,646 3,471 (197) 3,274
--------- --------- --------- -------- --------- ---------
TOTAL 13,344 (6,584) 6,760 16,242 (2,384) 13,858
--------- --------- --------- -------- --------- ---------
NET INTEREST INCOME $ 17,703 $ (4,351) $ 13,352 $ 17,386 $ (632) $ 16,754
========= ========= ========= ======== ========= =========
</TABLE>
(1) Tax equivalent basis was calculated using a 35.0% tax rate.
(2) Includes both investment securities held-to-maturity and investment
securities available-for-sale.
FIRST FINANCIAL BANCORP 3 1999 ANNUAL REPORT
<PAGE> 5
The purchase of 11 branches from KeyBank National Association closed on
December 8, 1997. The assumption of $246 million in deposits and the purchase of
$60 million in loans were included in the branch purchase. Income and expense
for a full year are therefore reported in the Consolidated Statements of
Earnings for the first time in 1998, since the purchase had only a minor
influence on 1997 earnings.
NONINTEREST INCOME
1999 vs. 1998. Total noninterest income, exclusive of securities gains or
losses, increased by $2,810,000 or 7.31% during 1999.
Service charges on deposit accounts increased $2,079,000 or 14.3% over
1998 primarily due to an increase in the number of transaction accounts and to
pricing adjustments.
Trust revenues, which are primarily calculated using the market value of
trust assets held, increased $1,264,000 or 10.4% in 1999 due to an increase in
the number of trust relationships.
1998 vs. 1997. Noninterest income, excluding securities transactions,
increased $7,304,000 or 23.4% in 1998.
Service charges on deposit accounts increased $1,708,000 or 13.3% over
1997 primarily due to higher number of accounts created by recent mergers and
acquisitions and to pricing adjustments.
Trust revenues increased $2,096,000 or 20.9% over 1997 due primarily to
an increase in the market value of trust assets held and to pricing adjustments.
Other noninterest income increased $3,500,000 or 42.4%. Contributing to
the increase were increased gains from sales of real estate loans, income as a
result of recent mergers and acquisitions, and other miscellaneous items.
NONINTEREST EXPENSES
1999 vs. 1998. Not including the restructuring charge of $6,930,000,
noninterest expenses in 1999 increased $5,886,000 or 5.46% over 1998. The
largest component of noninterest expenses is salaries and employee benefits,
which increased $4,171,000 or 7.26% during 1999.
Noninterest expenses were $12,816,000 or 11.9% greater during 1999 when
compared to the previous year if the restructuring charge is included. (See Note
21 of the Notes to Consolidated Financial Statements for more information about
the restructuring charges.)
The efficiency ratio (noninterest expenses as a percentage of noninterest
income, excluding securities transactions, plus tax equivalent net interest
income) reflects how much, on average, an institution expends to generate each
dollar of revenue. Bancorp's 1999 efficiency ratio, exclusive of the
restructuring charge, was 53.7%, compared to ratios of 55.1% and 53.2% for 1998
and 1997, respectively. Including the restructuring charge, the 1999 ratio was
57.0%.
1998 vs. 1997. Noninterest expenses in 1998 increased $16,616,000 or
18.2% over 1997.
Salaries and employee benefits increased $8,289,000 or 16.9% in 1998 when
compared to 1997. Additional employees needed to support business growth and to
staff the 11 branches purchased from KeyBank, increased incentive compensation,
and general increases in wages and salaries contributed to the increase.
Net occupancy expense increased $670,000 or 11.5% primarily due to branch
acquisitions and new facilities.
Furniture and equipment expense increased $414,000 or 7.50% during 1998.
Increased costs for service contracts on Bancorp's equipment and costs related
to new facilities and to the 11 branches acquired from KeyBank affected
equipment expense.
TABLE 3 - NONINTEREST INCOME AND NONINTEREST EXPENSES
<TABLE>
<CAPTION>
1999 1998 1997
% CHANGE % CHANGE % CHANGE
INCREASE INCREASE INCREASE
TOTAL (DECREASE) TOTAL (DECREASE) TOTAL (DECREASE)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NONINTEREST INCOME
Service charges on deposit accounts $ 16,629 14.3% $ 14,550 13.3% $ 12,842 15.2%
Trust revenues 13,410 10.4% 12,146 20.9% 10,050 19.9%
Other 11,223 (4.5%) 11,756 42.4% 8,256 31.1%
-------- -------- --------
Subtotal 41,262 7.3% 38,452 23.4% 31,148 20.6%
Investment securities gains 50 N/M 1,060 N/M 147 N/M
-------- -------- --------
TOTAL $ 41,312 4.6% $ 39,512 26.3% $ 31,295 21.3%
======== ===== ======== ====== ======== ======
NONINTEREST EXPENSES
Salaries and employee benefits $ 61,614 7.3% $ 57,443 16.9% $ 49,154 13.1%
Net occupancy 7,019 7.8% 6,512 11.5% 5,842 8.6%
Furniture and equipment 6,256 5.5% 5,932 7.5% 5,518 10.4%
Data processing 6,471 0.4% 6,447 12.2% 5,747 4.5%
Deposit insurance 551 16.2% 474 9.7% 432 (85.2%)
State taxes 2,025 11.0% 1,824 0.9% 1,808 6.0%
Amortization of intangibles 3,674 (8.5%) 4,015 202.8% 1,326 101.8%
Restructuring charge 6,930 N/M 0 N/M 0 N/M
Other 26,121 3.7% 25,198 17.7% 21,402 17.8%
-------- -------- ------ --------
TOTAL $120,661 11.9% $107,845 18.2% $ 91,229 10.2%
======== ===== ======== ====== ======== ======
</TABLE>
FIRST FINANCIAL BANCORP 4 1999 ANNUAL REPORT
<PAGE> 6
One-time charges related to the conversions of three Bancorp affiliates
to a new data service provider and the transfer of the data processing system
for the offices acquired from KeyBank to Community First's system contributed to
the $700,000 or 12.2% increase in data processing expenses. Contractual fee
increases paid to Bancorp's data processing providers also contributed to the
increase.
Amortization of intangibles increased $2,689,000 or 202.8% due to
amortization of intangible core deposits and goodwill resulting from the
purchase of the branches from KeyBank and the merger consummated during 1998.
Other noninterest expenses increased $3,796,000 or 17.7% due to costs
related to new facilities from mergers and branch acquisitions and to general
increases in costs. Included in this category are costs related to the Year 2000
computer issue.
YEAR 2000 ISSUES
Many older computer systems processed transactions using two digits for
the year of the transaction rather than a full four digits. As a result, these
systems might not have functioned properly at the beginning of the Year 2000
without some proactive hardware and software changes. Bancorp devoted
significant time and attention to the Year 2000 issue regarding checking
accounts, savings accounts, certificates of deposit, Individual Retirement
Accounts, loan and lease accounts, automated teller machines, physical
facilities, etc. Bancorp tested and validated against undetected problems and
communicated with key business partners regarding Year 2000 preparedness.
Several regulatory agencies and authorities issued regulations and
guidelines that financial institutions used in measuring their progress toward
Year 2000 preparedness. Five commonly recognized phases of Year 2000 remediation
were awareness, assessment, renovation, validation and implementation. Bancorp's
computer systems fall into three broad categories: those processed through a
service bureau relationship, those processed in-house, and those processed on a
personal computer or client/server platform. All mission critical and
significant computer systems in these categories were renovated and validated
and implementation occurred prior to December 31, 1999.
As in 1997 and 1998, Bancorp's Year 2000 Operating Committee met
regularly during 1999 to direct and oversee all significant Year 2000 tasks. The
Operating Committee regularly updated senior management and the Board of
Directors, who had given their full support to the Year 2000 project.
The Year 2000 Loan Committee, comprised of affiliate senior lenders,
assessed the impact of Year 2000 on commercial and retail borrowers and took
steps to mitigate the risk inherent in those loans. The Asset/Liability
Committee and Operating Committee assessed and estimated the impact of liquidity
and currency demands that could have occurred during the latter part of 1999 and
impact the Year 2000. Management of each subsidiary took steps to insure that
they had appropriate funding resources and currency on hand to meet anticipated
customer demands.
As Bancorp grew and as Year 2000 approached, Bancorp, as well as many
other financial institutions, developed plans concerning alternative sources of
funding, if needed. Many of Bancorp's affiliates executed agreements with the
Federal Home Loan Bank for their "Year 2000 Liquidity Line of Credit" making
guaranteed lines of $201,000,000 available to them. Most affiliates completed
the necessary legal documentation and pre-pledged collateral consisting of
eligible investment securities or loan assets to the Federal Reserve Discount
Window.
Bancorp spent a great deal of time ensuring that it had an effective
program in place to address and resolve the Year 2000 issue. To mitigate both
controlled and uncontrolled risks, Bancorp developed contingency plans in the
event any particular system, including significant service providers such as
telecommunication and utility systems, did not function properly. The
contingency plans for information technology systems primarily called for manual
intervention where required. None of the contingency plans required activation.
During 1999, Bancorp incurred approximately $1,116,000 in noninterest
expense for costs related to Year 2000 issues, bringing the total amount charged
to operations since 1997 to $3,007,000. An additional $1,117,000 was capitalized
in 1999, bringing the total amount capitalized to $1,303,000. Based on
management's current assessment, Bancorp expects to spend approximately $100,000
during 2000 for the close down of its Year 2000 Project Office.
Bancorp's computer systems functioned very smoothly on January 1, 2000,
and up to the time of this report. There are several other critical dates during
the Year 2000. Bancorp will continue to monitor its systems to ensure that it
provides timely, accurate, uninterrupted services to its customers.
This Year 2000 information is designated as a "Year 2000 Readiness
Disclosure" falling under the provision of the "Year 2000 Information and
Readiness Disclosure Act."
INCOME TAXES
Bancorp's tax expense in 1999 totaled $26,300,000 compared to $24,684,000
in 1998 and $21,995,000 in 1997, resulting in effective tax rates of 34.3%,
32.6% and 32.0% in 1999, 1998, and 1997, respectively. The increase in 1999 and
1998's effective rate was primarily due to a decline in the amount of tax-exempt
investments held during those years.
Further analysis of income taxes is presented in Note 11 of the Notes to
Consolidated Financial Statements.
LOANS
Total loans, net of unearned income, increased $382,230,000 or 14.4%
during 1999. A favorable market with respect to loan demand, combined with
aggressive loan campaigns and the pursuit of new business, led to net increases
during 1999 of $79,930,000 or 11.6% in commercial loans, $37,253,000 or 50.2% in
construction loans, $161,526,000 or 12.4% in mortgage loans, $85,123,000 or
15.9% in installment loans, $1,102,000 or 5.17% in credit card loans, and
$17,296,000 or 59.2% in lease financing.
Bancorp's loans cover a broad range of borrowers characterizing the
western Ohio, southern Michigan, northern Kentucky and Indiana markets. There
were no loan concentrations of multiple borrowers in similar activities at
December 31, 1999, which exceeded 10.0% of total loans.
Bancorp's subsidiaries consist of community banks dedicated to meeting
the financial needs of individuals and businesses in the communities they serve.
Bancorp's loan portfolio is therefore primarily composed of residential and
commercial real estate-mortgage loans, commercial loans, and installment loans.
At December 31, 1999, real estate-mortgage loans composed 48.3% of Bancorp's
total loan portfolio and installment loans composed another 20.4% of the total
loan portfolio. Commercial loans equaled 25.3% of the total portfolio; and real
estate-construction, credit card lending and lease financing made up the
remaining 6.00% of the portfolio.
Real estate-mortgage loans are generally considered to be the safest loan
investments because of the real estate securing the loans. Installment loans
include unsecured loans, second mortgage loans, secured lines of credit, secured
and unsecured home improvement loans, automobile loans, student loans and loans
secured by savings, stocks or life insurance. Bancorp subsidiaries offer a wide
variety of commercial loans, including small business loans, agricultural loans,
equipment loans and lines of credit.
FIRST FINANCIAL BANCORP 5 1999 ANNUAL REPORT
<PAGE> 7
TABLE 4 - LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 769,454 $ 689,524 $ 554,728 $ 456,535 $ 397,368
Real estate-construction 111,458 74,205 65,468 46,862 44,714
Real estate-mortgage 1,467,591 1,306,065 1,140,628 1,063,569 971,907
Installment 623,091 537,156 516,368 433,194 394,264
Credit card 22,408 21,306 20,055 18,510 17,101
Lease financing 46,508 29,212 27,260 14,821 16,557
--------- --------- --------- --------- ---------
TOTAL $3,040,510 $2,657,468 $2,324,507 $2,033,491 $1,841,911
========= ========= ========= ========= =========
</TABLE>
In accordance with Bancorp's decentralized management structure and
subject to Bancorp guidelines, credit underwriting and approval occur within the
subsidiary originating the loan. Depending on the subsidiary, loan applications
are approved either by a loan committee or by one or more loan personnel with
designated approval authority. Loan committees are composed of senior management
and loan personnel and, at some subsidiaries, members of the subsidiary's board
of directors. Loan applications for principal amounts greater than a designated
amount, which varies by subsidiary, require Bancorp approval. Any plan to
purchase or sell a participation in a loan also requires Bancorp approval.
Bancorp subsidiaries receive requests to renew maturing loans as a normal
part of business. Such requests are especially common with real estate loans
that are scheduled to mature before being fully amortized and with commercial
loans. The requests are reviewed by the subsidiary's loan committee or by
designated loan personnel, as appropriate, and may be approved, approved with
modifications, or denied. Required modifications may include, among other items,
a reduction in the loan balance, a change in the interest rate, an increase in
collateral, or the initiation of monthly principal payments.
Table 5 indicates the contractual maturity of commercial loans and real
estate-construction loans outstanding at December 31, 1999. Loans due after one
year are classified according to their sensitivity to changes in interest rates.
ASSET QUALITY
Bancorp's subsidiaries record a provision for loan losses (provision) in
the Consolidated Statements of Earnings to provide for expected credit losses.
Actual losses on loans and leases are charged against the allowance for loan
losses (allowance), which is a reserve accumulated on the Consolidated Balance
Sheets through the provision. The recorded values of the loans and leases
actually removed from the Consolidated Balance Sheets are referred to as
charge-offs. Net charge-offs are charge-offs less recoveries on previously
charged off assets. Bancorp's policy is to charge off loans when, in
management's opinion, collection of principal is in doubt. All loans charged off
are subject to continuous review and concerted efforts are made to maximize
recovery.
Management records the provision, on an individual subsidiary basis, in
amounts sufficient to result in an allowance that will cover risks believed to
be inherent in the loan portfolio of each subsidiary. Management's evaluation in
establishing the provision includes such factors as historical loss and recovery
experience, known deterioration in loans, periodic external loan evaluations,
prevailing economic conditions that might have an impact on the portfolio and
ratios of delinquencies and nonaccrual loans. The evaluation is inherently
subjective as it requires material estimates, including the amounts and timing
of future cash flows expected to be received on impaired loans, that may be
susceptible to significant change. The evaluation of these factors is completed
at Bancorp's subsidiaries through a group of senior officers from the financial
and lending areas.
TABLE 5 - LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1999
MATURITY
AFTER ONE AFTER
WITHIN BUT WITHIN FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 482,521 $ 199,184 $ 87,749 $ 769,454
Real estate-construction 83,690 23,508 4,260 111,458
-------- -------- ------- --------
TOTAL $ 566,211 $ 222,692 $ 92,009 $ 880,912
======== ======== ======= ========
</TABLE>
SENSITIVITY ACTIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
<S> <C> <C>
Due after one year but
within five years $ 71,993 $ 150,699
Due after five years 31,964 60,045
---------- --------
TOTAL $ 103,957 $ 210,744
========== ========
</TABLE>
FIRST FINANCIAL BANCORP 6 1999 ANNUAL REPORT
<PAGE> 8
TABLE 6 - SUMMARY OF ALLOWANCE FOR LOAN LOSSES AND SELECTED STATISTICS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $34,800 $31,660 $25,803 $24,453 $21,679
Loans charged off
Commercial 4,120 4,022 2,053 3,520 1,010
Real estate-construction 0 0 28 0 0
Real estate-mortgage 325 352 257 249 64
Installment and other
consumer financing 4,484 3,720 3,044 2,849 2,158
Lease financing 432 293 57 187 107
------ ------ ------ ------- ------
Total loans charged off 9,361 8,387 5,439 6,805 3,339
Recoveries of loans previously charged off
Commercial 2,340 1,541 684 532 708
Real estate-construction 0 0 0 0 8
Real estate-mortgage 79 99 142 70 48
Installment and other consumer financing 1,114 800 786 870 734
Lease financing 36 34 15 62 17
------ ------ ------ ------- ------
Total recoveries 3,569 2,474 1,627 1,534 1,515
------ ------ ------ ------- ------
Net charge-offs 5,792 5,913 3,812 5,271 1,824
Allowance acquired through mergers 0 806 3,013 1,592 1,162
Provision for discontinued product line 1,100 0 0 0 0
Provision for loan losses 9,232 8,247 6,656 5,029 3,436
------ ------ ------ ------- ------
Balance at end of year $39,340 $34,800 $31,660 $25,803 $24,453
====== ====== ====== ====== ======
Ratios
Net charge-offs as a percent of
Average loans outstanding 0.20% 0.24% 0.18% 0.27% 0.10%
Provision 62.74% 71.70% 57.27% 104.81% 53.08%
Allowance 14.72% 16.99% 12.04% 20.43% 7.46%
Allowance as a percent of year-end
loans, net of unearned income 1.30% 1.31% 1.36% 1.27% 1.33%
</TABLE>
TABLE 7 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands)
1999 1998 1997 1996 1995
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ------- --------- ------- ---------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 8,221 25% $ 9,909 26% $ 8,202 24% $ 6,510 22% $ 6,775 22%
Real estate-construction 470 4% 910 3% 246 3% 172 2% 210 2%
Real estate-mortgage 8,798 48% 5,395 49% 5,645 49% 3,794 53% 4,142 53%
Installment and credit card 10,978 21% 9,750 21% 8,323 23% 6,582 22% 5,250 22%
Lease financing 477 2% 630 1% 483 1% 327 1% 196 1%
Unallocated 10,396 N/A 8,206 N/A 8,761 N/A 8,418 N/A 7,880 N/A
--------- ------- --------- ------- ---------- -------- --------- ------- --------- -------
Total $39,340 100% $34,800 100% $31,660 100% $25,803 100% $24,453 100%
========= ======= ========= ======= ========== ======== ========= ======= ========= =======
</TABLE>
FIRST FINANCIAL BANCORP 7 1999 ANNUAL REPORT
<PAGE> 9
The provision increased from $8,247,000 in 1998 to $9,232,000 in 1999. The
provision recorded during 1998 was $1,591,000 greater than 1997's provision of
$6,656,000. The increases during 1999 and 1998 were primarily due to the growth
in the loan portfolio mentioned previously. The allowance at December 31, 1999,
was $39,340,000 or 1.30% of loans, net of unearned income, which compares to
$34,800,000 or 1.31% of loans, net of unearned income, at December 31, 1998.
The level of nonaccrual and restructured loans and leases is an important
element in assessing asset quality. Loans are classified as nonaccrual when, in
the opinion of management, collection of interest is doubtful. Loans are
classified as restructured when management, to protect its investment, grants
concessions to the debtor that it would not otherwise consider. Another element
associated with asset quality is Other Real Estate Owned (OREO). OREO primarily
represents properties acquired by Bancorp's subsidiaries through loan defaults
by customers. (See Table 8 for a summary of Bancorp's nonaccrual and
restructured loans and OREO properties.)
Nonaccrual loans increased $3,802,000 during 1999, restructured loans
increased $1,553,000 and OREO increased $1,486,000. The $3,802,000 increase in
nonaccrual loans during 1999 is composed primarily of commercial, multi-family
and 1-4 family residential investment properties. Approximately $1,100,000 of
the $1,553,000 increase in restructured loans is from an unsecured commercial
loan. The remaining amount of the increase in restructured loans is from
commercial and 1-4 family residential mortgage loans. OREO increased $1,486,000,
primarily from foreclosures on commercial, multi-family and 1-4 family
residential mortgage loans.
Nonaccrual and restructured loans and leases and OREO are discussed or
summarized in Notes 1 and 9 of the Notes to Consolidated Financial Statements.
INVESTMENT SECURITIES
Bancorp's investment securities decreased $66,285,000 or 11.3% during
1999 to a balance of $521,891,000. The decrease in investment securities was
used to help fund loan portfolio growth. Bancorp follows a conservative
investment policy, investing primarily for interest rate risk management and
liquidity management purposes. U.S. Treasury Securities, generally considered to
have the least credit risk and the highest liquidity, composed 2.17% of
Bancorp's investment portfolio at December 31, 1999. All U.S. Treasury
Securities were classified as available-for-sale at that date and are available
for liquidity management purposes.
Another 22.8% of the investment portfolio is composed of securities
issued by U.S. government agencies and corporations, primarily the Federal Home
Loan Bank (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA), Student Loan Marketing Association (SLMA)
and Federal Farm Credit Bank. No structured notes were included in the U.S.
government agencies and corporations securities category at December 31, 1999.
All U.S. government agencies and corporations securities were classified as
available-for-sale at December 31, 1999, and are available for liquidity
management purposes. Due to the government guarantees, either expressed or
implied, U.S. government agency and corporation obligations are considered to
have low credit risk and high liquidity.
Investments in mortgage-backed securities (MBSs), including
collateralized mortgage obligations (CMOs) composed 37.4% of the investment
portfolio at December 31, 1999. MBSs represent participations in pools of
mortgage loans, the principal and interest payments of which are passed to the
security investors. MBSs are subject to prepayment risk, especially during
periods of decreasing interest rates. Prepayments of the underlying mortgage
loans may shorten the lives of the securities, thereby affecting yields to
maturity and market values. Bancorp invests primarily in MBSs issued by U.S.
government agencies and corporations, such as FHLMC, FNMA, and the Government
National Mortgage Association (GNMA). Such securities, because of government
agency guarantees, are considered to have low credit risk and high liquidity.
Accordingly, about 96.8% of Bancorp's MBSs are classified as available-for-sale.
TABLE 8 - NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $11,283 $ 7,481 $ 7,845 $13,502 $ 3,132
Restructured loans 2,244 691 2,447 890 517
OREO 1,707 221 1,150 264 1,677
------- ------- ------- ------- -------
TOTAL NONPERFORMING ASSETS $15,234 $ 8,393 $11,442 $14,656 $ 5,326
======= ======= ======= ======= =======
Nonperforming assets as a percent of
total loans plus OREO 0.50% 0.32% 0.49% 0.72% 0.29%
Accruing loans past due 90 days or more $ 2,777 $ 2,923 $ 2,392 $ 2,203 $ 2,021
</TABLE>
FIRST FINANCIAL BANCORP 8 1999 ANNUAL REPORT
<PAGE> 10
CMOs totaled $75,839,000 at December 31, 1999, all of which were
classified as available-for-sale. Pools of mortgage loans or MBSs collateralize
CMOs. All of the CMOs held by Bancorp are rated AAA by Standard & Poor's
Corporation or similar rating agencies. Bancorp does not own any interest-only
securities, principal-only securities, accrual bonds, inverse floaters or high
risk CMOs, as defined by regulatory guidelines.
Securities of state and other political subdivisions composed 31.4% of
Bancorp's investment portfolio at December 31, 1999. The securities are highly
diversified as to states and issuing authorities within states, thereby
decreasing portfolio risk. About 84.7% of such investments at December 31, 1999,
were classified as available-for-sale.
The remaining 6.23% of Bancorp's investment portfolio at December 31,
1999, termed "other securities," was primarily composed of stock ownership in
the Indianapolis and Cincinnati District Federal Home Loan Banks, the Federal
Reserve Bank, and in taxable obligations of state and other political
subdivisions.
Table 9 sets forth the maturities of investment securities
held-to-maturity and investment securities available-for-sale as of December 31,
1999; and the average yields of such securities calculated on the basis of the
cost and effective yields weighted for the scheduled maturity of each security.
Tax equivalent adjustments, using a 35.0% rate, have been made in calculating
yields on tax-exempt obligations of state and other political subdivisions.
At December 31, 1999, the market value of Bancorp's held-to-maturity
investment securities portfolio exceeded the carrying value by $733,000. The
available-for-sale investment securities are reported at their market value of
$490,126,000, as required by SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." (See Note 8 of the Notes to Consolidated
Financial Statements for additional information.)
Bancorp's federal funds sold and securities purchased under agreements to
resell decreased $3,033,000, from $8,654,000 at December 31, 1998, to $5,621,000
at December 31, 1999. The decrease was used to help fund loan growth. Bancorp
monitors this position as part of its asset/liability management.
Bancorp does not use derivative financial instruments such as futures,
forward contracts, option contracts, interest rate swaps or other financial
instruments with similar characteristics.
DEPOSITS AND BORROWINGS
Bancorp's subsidiaries solicit deposits by offering a wide variety of
savings and transaction accounts, including checking accounts, regular savings
accounts, money market deposit accounts, and time deposits of various maturities
and rates. In accordance with Bancorp's decentralized management structure and
in an effort to respond to local conditions, each Bancorp subsidiary designs and
prices the savings and transaction accounts offered in its local market area.
TABLE 10 - MATURITIES OF TIME DEPOSITS
GREATER THAN OR EQUAL TO $100,000*
<TABLE>
<CAPTION>
December 31, 1999
(Dollars in thousands)
<S> <C>
Maturing in
3 months or less $ 124,853
3 months to 6 months 73,411
6 months to 12 months 42,599
over 12 months 19,318
---------
TOTAL $ 260,181
=========
</TABLE>
*All time deposits greater than or equal to $100,000 were in certificates of
deposit.
Total deposits increased $119,146,000 or 4.15% in 1999. The growth in
deposits was used to finance loan growth. Comparing Bancorp totals at December
31, 1999 and 1998, time deposits increased $76,853,000, savings deposits
increased $19,597,000, interest-bearing demand deposits increased $6,983,000 and
noninterest-bearing demand deposits increased $15,713,000.
TABLE 9 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31, 1999
Maturing
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
Mortgage-backed securities(2) $ 2 11.34% $ 1,370 6.43% $ 2,598 8.47% $ 2,375 8.80%
Obligations of state and other
political subdivisions 5,137 7.12% 13,007 10.77% 5,447 8.05% 1,506 10.67%
Other securities 0 0.00% 248 5.99% 0 0.00% 75 7.25%
------- ------- ------- -------
TOTAL $ 5,139 7.12% $ 14,625 10.28% $ 8,045 8.19% $ 3,956 9.48%
======= ===== ======= ====== ======= ===== ======= ======
AVAILABLE-FOR-SALE
U.S. Treasury securities $ 7,854 5.45% $ 3,457 5.59%
Securities of other U.S.
government agencies
and corporations 4,490 6.27% 64,236 6.15% $ 49,341 6.50% $ 771 6.45%
Mortgage-backed securities(2) 544 5.92% 32,710 6.22% 22,699 6.34% 133,009 6.42%
Obligations of state and other
political subdivisions 4,647 8.60% 22,922 7.80% 35,847 8.10% 75,402 7.76%
Other securities 450 6.06% 1,244 6.08% 97 6.65% 30,406 7.12%
------- ------ ------- -------
TOTAL $ 17,985 6.49% $124,569 6.45% $107,984 6.98% $239,588 6.94%
======= ===== ======= ====== ======= ===== ======= ======
</TABLE>
(1) Tax equivalent basis was calculated using a marginal federal income tax
rate of 35.0%.
(2) 32.9% of the mortgage-backed securities maturing after five years are
variable rate.
FIRST FINANCIAL BANCORP 9 1999 ANNUAL REPORT
<PAGE> 11
Table 10 shows the contractual maturity of time deposits of $100,000 and
over that were outstanding at December 31, 1999. These deposits represented only
8.70% of total deposits.
Short-term borrowings increased from $155,064,000 at December 31, 1998,
to $382,118,000 at December 31, 1999. The increase was used to support loan
portfolio growth and to finance an increase in cash-on-hand at year-end. Like
most other banks and financial institutions, Bancorp increased year-end cash
balances to meet potential Year 2000 related cash withdrawal demands. Cash and
due from banks on the balance sheet was $61,337,000 greater at December 31,
1999, than at the end of 1998. Actual withdrawal activity at the end of 1999 was
not significantly greater than normal, and the excess cash balances were used to
partially pay down short-term borrowings during January, 2000.
Long-term borrowings increased from $120,777,000 at the end of 1998 to
$161,799,000 at the end of 1999. The increase was used to support loan portfolio
growth.
LIQUIDITY
Liquidity management is the process by which Bancorp ensures that
adequate liquid funds are available for the corporation and its subsidiaries.
These funds are necessary in order for Bancorp and its subsidiaries to meet
financial commitments on a timely basis. These commitments include withdrawals
by depositors, funding credit obligations to borrowers, paying dividends to
shareholders, paying operating expenses, funding capital expenditures and
maintaining deposit reserve requirements. Liquidity is monitored and closely
managed by the asset/liability committees at Bancorp's subsidiaries.
Liquidity may be used to fund capital expenditures. Capital expenditures
were $8,422,000 for 1999 and $8,690,000 for 1998. Remodeling is a planned and
ongoing process given the 115 offices of Bancorp's subsidiaries. Planned capital
expenditures for the Year 2000 currently total $2,250,000.
Bancorp subsidiaries' source of funding is predominantly deposits within
each of their respective market areas. The deposit base is diversified among
individuals, partnerships, corporations and public entities. This
diversification helps Bancorp avoid dependence on large concentrations of funds.
Liquidity is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturation of investment securities,
net cash provided by operating activities and access to other funding sources.
The most stable source of liability-funded liquidity for both the long-term and
short-term is deposit growth and retention in the core deposit base. In
addition, Bancorp utilizes advances from the Federal Home Loan Bank as a funding
source. The principal source of asset-funded liquidity is investment securities
classified as available-for-sale, the market values of which totaled
$490,126,000 at December 31, 1999. Securities classified as held-to-maturity
that are maturing within a short period of time can also be a source of
liquidity. Securities classified as held-to-maturity and that are maturing in
one year or less totaled $5,139,000 at December 31, 1999. In addition, other
types of assets--such as cash and due from banks, federal funds sold and
securities purchased under agreements to resell, and loans and interest-bearing
deposits with other banks maturing within one year--are sources of liquidity.
Certain restrictions exist regarding the ability of Bancorp's
subsidiaries to transfer funds to Bancorp (See Note 6 of the Notes to
Consolidated Financial Statements) Management is not aware of any other events
or regulatory requirements which, if implemented, are likely to have a material
effect on Bancorp's liquidity.
TABLE 11 - MARKET RISK DISCLOSURE
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
2000 2001 2002 2003 2004 THEREAFTER
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Fixed interest rate loans $ 534,520 $ 178,385 $ 124,260 $ 94,355 $ 74,811 $ 423,688
Average interest rate 7.45% 8.34% 8.18% 7.87% 7.51% 8.20%
Variable interest rate loans 497,053 87,098 72,033 58,205 62,134 829,834
Average interest rate 9.89% 9.66% 9.74% 9.91% 10.46% 9.92%
Fixed interest rate securities 23,122 25,097 28,475 28,970 30,583 321,397
Average interest rate 6.63% 5.90% 5.92% 6.05% 6.04% 7.36%
Variable interest rate securities 2 104 21 22 24 67,074
Average interest rate 11.34% 8.10% 7.09% 7.09% 7.09% 6.71%
Other earning assets 14,488 -- -- -- -- --
Average interest rate 5.65% -- -- -- -- --
RATE SENSITIVE LIABILITIES
Noninterest - bearing demand 408,712 -- -- -- -- --
Savings and interest- bearing checking 118,096 975,044 -- -- -- --
Average interest rate 2.04% 2.04% -- -- -- --
Time deposits 1,209,808 181,623 56,321 21,810 13,258 6,541
Average interest rate 5.10% 5.38% 5.32% 5.41% 5.00% 4.67%
Fixed interest rate borrowings 13,393 4,129 23,296 11,200 22,500 96,282
Average interest rate 6.09% 5.54% 5.80% 4.81% 5.68% 5.45%
Variable interest rate borrowings 373,117 -- -- -- -- --
Average interest rate 5.74% -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MATURING IN:
FAIR VAUE
DECEMBER 31,
TOTAL 1999
(Dollars in thousands)
<S> <C> <C>
RATE SENSITIVE ASSETS
Fixed interest rate loans $1,430,019 $1,407,589
Average interest rate 7.88%
Variable interest rate loans 1,606,357 1,625,892
Average interest rate 9.91%
Fixed interest rate securities 457,644 459,344
Average interest rate 6.98%
Variable interest rate securities 64,247 63,280
Average interest rate 6.71%
Other earning assets 14,488 14,488
Average interest rate 5.65%
RATE SENSITIVE LIABILITIES
Noninterest - bearing demand 408,712 408,712
Savings and interest- bearing checking 1,093,140 1,093,140
Average interest rate 2.04%
Time deposits 1,489,361 1,452,826
Average interest rate 5.14%
Fixed interest rate borrowings 170,800 166,170
Average interest rate 5.54%
Variable interest rate borrowings 373,117 373,117
Average interest rate 5.74%
</TABLE>
FIRST FINANCIAL BANCORP 10 1999 ANNUAL REPORT
<PAGE> 12
INTEREST RATE SENSITIVITY
Table 11 details the maturities and yields of interest-bearing financial
instruments at December 31, 1999, for the next five years and thereafter. Also
included with each category is the fair value of those instruments. The values
represent the contractual maturity of each instrument. For loan instruments
without contractual maturities, such as credit card loans, management has
allocated principal payments based upon historical trends of payment activity.
When 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, securities and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturities.
The data in Table 11 was aggregated by type of financial instrument --
fixed and variable rate loans, fixed and variable rate investments, other
earning assets, deposits, and other fixed and variable rate interest-bearing
liabilities. First Financial Bancorp has no interest rate swaps, interest rate
caps, or interest rate floors. Therefore, data concerning these instruments is
not included in the table.
The primary source of market risk for the financial instruments presented
is interest rate risk; that is, the risk that an adverse change in market rates
will adversely affect the market value of the instruments. Generally, the longer
the maturity, the higher the interest rate risk exposure. While maturity
information does not necessarily present all aspects of exposure, it may provide
an indication of where risks are prevalent.
All financial institutions assume interest rate risk as an integral part
of normal operations. Managing and measuring interest rate risk is a dynamic,
multi-faceted process that ranges from reducing the exposure of Bancorp's net
interest margin to swings in interest rates, to assuring that there is
sufficient capital and liquidity to support future balance sheet growth. Bancorp
manages interest rate risk through the asset/liability committees of Bancorp's
subsidiaries. The asset/liability committees are comprised of bank officers from
various disciplines. Each subsidiary committee establishes policies and rates
which lead to the prudent investment of resources, the effective management of
risks associated with changing interest rates, the existence of adequate
liquidity and the earning of an adequate return on shareholders' equity.
Bancorp has a holding company asset/liability committee, made up of
representatives of various subsidiaries and disciplines, whose function is to
develop policies and guidelines for effective asset/liability management
throughout Bancorp's subsidiaries.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the Act). In addition, certain
statements in future filings by Bancorp with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the approval of Bancorp which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to, projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure and other financial items, statements of plans
and objectives of Bancorp or its management or Board of Directors, and
statements of future economic performances and statements of assumptions
underlying such statements. Words such as "believes," "anticipates," "intends,"
and other similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to, the strength of the
local economies in which operations are conducted; the effects of and changes in
policies and laws of regulatory agencies; inflation, interest rates, market and
monetary fluctuations; technological changes; mergers and acquisitions; the
ability to increase market share and control expenses; the effect of changes in
accounting policies and practices that may be adopted by the regulatory agencies
as well as the Financial Accounting Standards Board and the Securities and
Exchange Commission; the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; and the success of Bancorp at managing the
risks involved in the foregoing.
Such forward-looking statements are meaningful only on the date when such
statements are made, and Bancorp undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such a statement is made to reflect the occurrence of unanticipated
events.
FIRST FINANCIAL BANCORP 11 1999 ANNUAL REPORT
<PAGE> 13
STATISTICAL INFORMATION
<TABLE>
<CAPTION>
1999 1998
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
Daily average balances and interest rates; (Tax equivalent basis; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans (1)
Commercial (2) $ 734,982 $ 69,774 9.49% $ 610,200 $ 60,431 9.90%
Real estate (2) 1,475,943 116,126 7.87% 1,288,838 106,846 8.29%
Installment
and other consumer 603,730 60,704 10.05% 534,949 55,282 10.33%
Lease financing (2) 39,144 2,796 7.14% 28,552 2,191 7.67%
---------- ---------- ---------- ----------
Total loans 2,853,799 249,400 8.74% 2,462,539 224,750 9.13%
Investment securities (3)
Taxable 380,520 23,451 6.16% 465,132 28,681 6.17%
Tax-exempt (2) 173,607 14,137 8.14% 149,788 13,053 8.71%
---------- ---------- ---------- ----------
Total investment
securities (3) 554,127 37,588 6.78% 614,920 41,734 6.79%
Interest-bearing deposits
with other banks 6,575 331 5.03% 4,487 283 6.31%
Federal funds sold and securities
purchased under agreements
to resell 7,430 325 4.37% 14,994 765 5.10%
---------- ---------- ---------- ----------
TOTAL EARNING ASSETS 3,421,931 287,644 8.41% 3,096,940 267,532 8.64%
NONEARNING ASSETS
Allowance for loan losses (37,303) (33,732)
Cash and due from banks 131,863 123,743
Accrued interest and other assets 169,675 151,788
---------- ----------
TOTAL ASSETS $ 3,686,166 $ 3,338,739
========== ==========
Interest-bearing liabilities
Deposits
Interest-bearing demand $ 288,865 5,820 2.01% $ 295,073 6,579 2.23%
Savings 797,396 18,845 2.36% 719,754 18,472 2.57%
Time 1,438,145 72,887 5.07% 1,403,990 75,539 5.38%
---------- ---------- ---------- ----------
Total interest-bearing deposits 2,524,406 97,552 3.86% 2,418,817 100,590 4.16%
Borrowed funds
Short-term borrowings 251,273 12,365 4.92% 108,217 5,213 4.82%
Long-term borrowings 134,691 7,277 5.40% 84,106 4,631 5.51%
---------- ---------- ---------- ----------
Total borrowed funds 385,964 19,642 5.09% 192,323 9,844 5.12%
---------- ---------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 2,910,370 117,194 4.03% 2,611,140 110,434 4.23%
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 379,276 345,997
Other liabilities 30,503 32,267
Shareholders' equity 366,017 349,335
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $ 3,686,166 $ 3,338,739
=========== ===========
Net interest income and
interest rate spread $ 170,450 4.38% $ 157,098 4.41%
=========== ====== ========= =====
Net interest margin 4.98% 5.07%
====== =====
</TABLE>
<TABLE>
<CAPTION>
1997
BALANCE INTEREST YEAR
Daily average balances and interest rates; (Tax equivalent basis; dollars in thousands)
<S> <C> <C> <C>
EARNING ASSETS
Loans (1)
Commercial (2) $ 487,251 $ 48,534 9.96%
Real estate (2) 1,154,751 96,627 8.37%
Installment
and other consumer 484,930 48,996 10.10%
Lease financing (2) 18,817 1,449 7.70%
--------- ----------
Total loans 2,145,749 195,606 9.12%
Investment securities (3)
Taxable 395,319 26,085 6.60%
Tax-exempt (2) 137,619 13,281 9.65%
--------- ----------
Total investment
securities (3) 532,938 39,366 7.39%
Interest-bearing deposits
with other banks 4,183 263 6.29%
Federal funds sold and securities
purchased under agreements
to resell 30,716 1,685 5.49%
--------- ----------
TOTAL EARNING ASSETS 2,713,586 236,920 8.73%
NONEARNING ASSETS
Allowance for loan losses (28,240)
Cash and due from banks 107,610
Accrued interest and other assets 107,925
---------
TOTAL ASSETS $ 2,900,881
=========
Interest-bearing liabilities
Deposits
Interest-bearing demand $ 304,852 7,159 2.35%
Savings 616,175 16,486 2.68%
Time 1,201,777 65,658 5.46%
--------- ----------
Total interest-bearing deposits 2,122,804 89,303 4.21%
Borrowed funds
Short-term borrowings 120,163 5,916 4.92%
Long-term borrowings 21,468 1,357 6.32%
--------- ----------
Total borrowed funds 141,631 7,273 5.14%
--------- ----------
TOTAL INTEREST-BEARING LIABILITIES 2,264,435 96,576 4.26%
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 286,968
Other liabilities 29,297
Shareholders' equity 320,181
---------- ----------
Total liabilities and
shareholders' equity $2,900,881
==========
Net interest income and
interest rate spread $ 140,344 4.47%
============ ======
Net interest margin 5.17%
======
</TABLE>
(1) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income.
(2) Interest income on tax-exempt investments and on certain tax-exempt loans
and leases has been adjusted to a taxable equivalent basis using a
marginal federal income tax rate of 35.0%.
(3) Includes both investment securities held-to-maturity and investment
securities available-for-sale.
FIRST FINANCIAL BANCORP 12 1999 ANNUAL REPORT
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 225,837 $ 164,500
Interest-bearing deposits with other banks 8,867 2,598
Federal funds sold and securities purchased
under agreements to resell 5,621 8,654
Investment securities held-to-maturity
(market value of $32,498 at December 31, 1999;
$40,159 at December 31, 1998) 31,765 37,782
Investment securities available-for-sale, at market value
(cost of $500,361 at December 31, 1999;
$542,355 at December 31, 1998) 490,126 550,394
LOANS
Commercial 769,454 689,524
Real estate-construction 111,458 74,205
Real estate-mortgage 1,467,591 1,306,065
Installment 623,091 537,156
Credit card 22,408 21,306
Lease financing 46,508 29,212
---------- ----------
Total loans 3,040,510 2,657,468
Less
Unearned income 4,134 3,322
Allowance for loan losses 39,340 34,800
---------- ----------
Net loans 2,997,036 2,619,346
Premises and equipment 59,004 57,980
Goodwill 30,077 31,416
Other intangibles 10,522 11,164
Deferred income taxes 8,008 3,072
Accrued interest and other assets 73,830 51,963
---------- ----------
Total assets $ 3,940,693 $ 3,538,869
=========== ===========
LIABILITIES
Deposits
Noninterest-bearing $ 408,712 $ 392,999
Interest-bearing 2,582,501 2,479,068
---------- ----------
Total deposits 2,991,213 2,872,067
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 83,353 59,159
Federal Home Loan Bank borrowings 294,235 94,678
Other 4,530 1,227
---------- ----------
Total short-term borrowings 382,118 155,064
Federal Home Loan Bank long-term borrowings 161,799 120,777
Accrued interest and other liabilities 33,024 32,696
---------- ----------
TOTAL LIABILITIES 3,568,154 3,180,604
SHAREHOLDERS' EQUITY
Common stock -- no par value
Authorized -- 160,000,000 shares
Issued -- 46,869,107 shares in 1999
and 36,320,338 shares in 1998 373,447 306,709
Retained earnings 5,904 50,160
Accumulated comprehensive income (6,398) 4,949
Restricted stock awards (414) (408)
Treasury stock, at cost, 0 and 118,638 shares 0 (3,145)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 372,539 358,265
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,940,693 $ 3,538,869
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
FIRST FINANCIAL BANCORP 13 1999 ANNUAL REPORT
<PAGE> 15
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 249,113 $ 224,467 $ 195,338
Investment securities
Taxable 23,451 28,681 26,085
Tax-exempt 9,178 8,474 8,622
---------- ---------- ----------
Total investment securities interest 32,629 37,155 34,707
Interest-bearing deposits with other banks 331 283 263
Federal funds sold and securities purchased under agreements to resell 325 765 1,685
---------- ---------- ----------
TOTAL INTEREST INCOME 282,398 262,670 231,993
INTEREST EXPENSE
Deposits 97,552 100,590 89,303
Short-term borrowings 12,365 5,213 5,916
Long-term borrowings 7,277 4,631 1,357
---------- ---------- ----------
Total interest expense 117,194 110,434 96,576
---------- ---------- ----------
Net interest income 165,204 152,236 135,417
Provision for loan losses 9,232 8,247 6,656
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 155,972 143,989 128,761
NONINTEREST INCOME
Service charges on deposit accounts 16,629 14,550 12,842
Trust revenues 13,410 12,146 10,050
Investment securities gains 50 1,060 147
Other 11,223 11,756 8,256
---------- ---------- ----------
TOTAL NONINTEREST INCOME 41,312 39,512 31,295
NONINTEREST EXPENSES
Salaries and employee benefits 61,614 57,443 49,154
Net occupancy 7,019 6,512 5,842
Furniture and equipment 6,256 5,932 5,518
Data processing 6,471 6,447 5,747
Deposit insurance 551 474 432
State taxes 2,025 1,824 1,808
Amortization of intangibles 3,674 4,015 1,326
Restructuring charge 6,930 0 0
Other 26,121 25,198 21,402
---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 120,661 107,845 91,229
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 76,623 75,656 68,827
Income tax expense 26,300 24,684 21,995
---------- ---------- ----------
NET EARNINGS $ 50,323 $ 50,972 $ 46,832
========== ========== ==========
NET EARNINGS PER SHARE - BASIC $ 1.07 $ 1.08 $ 1.00
========== ========== ==========
NET EARNINGS PER SHARE - DILUTED $ 1.07 $ 1.08 $ 0.99
========== ========== ==========
AVERAGE SHARES OUTSTANDING - BASIC 46,848,851 46,984,480 47,013,881
========== ========== ==========
AVERAGE SHARES OUTSTANDING - DILUTED 46,985,782 47,172,423 47,157,234
========== ========== ==========
</TABLE>
FIRST FINANCIAL BANCORP 14 1999 ANNUAL REPORT
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 50,323 $ 50,972 $ 46,832
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 9,232 8,247 6,656
Provision for depreciation and amortization 9,196 9,012 6,195
Net amortization of premiums and accretion of discounts
on investment securities 83 615 424
Deferred income taxes 2,059 2,706 (111)
Realized gains on investment securities (50) (1,060) (147)
Originations of mortgage loans held for sale (224,541) (171,902) (65,748)
Gains from sales of mortgage loans held for sale (2,993) (1,984) (839)
Proceeds from sales of mortgage loans held for sale 227,534 173,886 66,587
Increase in cash surrender value of life insurance (17,168) (3,236) (3,264)
Increase in interest receivable (4,082) (2,203) (781)
Decrease (increase) in prepaid expenses 1,276 567 (576)
Increase (decrease) in accrued expenses 351 (9) 932
Increase in interest payable 311 815 94
Other 712 (5,224) 777
--------- --------- --------
Net cash provided by operating activities 52,243 61,202 57,031
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale 13,520 49,953 24,477
Proceeds from calls, paydowns, and maturities of
investment securities available-for-sale 159,916 259,762 183,143
Purchases of investment securities available-for-sale (135,915) (335,389) (255,796)
Proceeds from calls, paydowns, and maturities of
investment securities held-to-maturity 12,215 28,513 22,361
Purchases of investment securities held-to-maturity (1,901) (2,805) (1,293)
Net (increase) decrease in interest-bearing deposits
with other banks (6,269) 989 1,592
Net decrease in federal funds sold and
securities purchased under agreements to resell 3,033 10,155 7,827
Net increase in loans and leases (393,706) (300,617) (186,880)
Proceeds from disposal of other real estate owned 622 2,176 999
Recoveries from loans and leases previously charged off 3,569 1,050 1,185
Net cash acquired in purchase of financial institutions 0 0 147,963
Cash (used) acquired in mergers with other financial institutions 0 (12,231) 8,288
Purchases of premises and equipment (8,422) (8,690) (4,247)
--------- --------- --------
Net cash used in investing activities (353,338) (307,134) (50,381)
FINANCING ACTIVITIES
Net increase in total deposits 119,146 126,581 34,066
Net increase (decrease) in short-term borrowings 227,054 70,703 (27,445)
Net increase in long-term borrowings 41,022 74,207 36,360
Cash dividends (25,570) (21,436) (20,271)
Purchase of common stock 0 (8,773) (282)
Proceeds from exercise of stock options 780 788 657
--------- --------- --------
Net cash provided by financing activities 362,432 242,070 23,085
--------- --------- --------
Increase (decrease) in cash and cash equivalents 61,337 (3,862) 29,735
Cash and cash equivalents at beginning of year 164,500 168,362 138,627
--------- --------- --------
Cash and cash equivalents at end of year $ 225,837 $ 164,500 $ 168,362
========= ========= ========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 116,884 $ 109,399 $ 96,333
========= ========= ========
Income taxes paid $ 23,080 $ 24,356 $ 22,697
Recognition of deferred tax assets (liabilities) ========= ========= ========
attributable to SFAS No. 115 $ 6,995 $ 187 $ (551)
========= ========= ========
Acquisition of other real estate owned through foreclosure $ 2,252 $ 1,324 $ 1,265
========= ========= ========
Issuance of restricted stock awards $ 174 $ 220 $ 220
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
FIRST FINANCIAL BANCORP 15 1999 ANNUAL REPORT
<PAGE> 17
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON ACCUMULATED RESTRICTED
STOCK STOCK RETAINED COMPREHENSIVE STOCK
SHARES SHARES SURPLUS EARNINGS INCOME AWARDS
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 14,727,772 $ 117,822 $ 47,125 $ 93,369 $ 1,162 $ (220)
ADJUSTED FOR POOLING-OF-INTERESTS OF
SAND RIDGE FINANCIAL CORP. (SRFC) 5,114,878 40,919 (35,719) 28,070 1,319
ADJUSTED FOR POOLING-OF-INTERESTS
OF HEBRON BANCORP, INC. (HBI) 1,222,599 9,781 (6,557) 5,753 (73)
----------- ---------- ----------- ---------- ----------- -----------
ADJUSTED BALANCES AT
DECEMBER 31, 1996 21,065,249 168,522 4,849 127,192 2,408 (220)
NET EARNINGS 46,832
UNREALIZED HOLDING GAINS ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD 2,224
TOTAL COMPREHENSIVE INCOME
CASH DIVIDENDS DECLARED
(BANCORP - $0.47 PER SHARE;
SRFC - $17 PER SHARE;
HBI - $5 PER SHARE) (20,271)
SHARES ISSUED IN HASTINGS
FINANCIAL CORPORATION MERGER 322,386 2,579 (1,733) 4,238 1
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 2,471 38 (168)
10% STOCK DIVIDEND 1,505,479 12,025 54,896 (66,984)
PURCHASE OF COMMON STOCK
RESTRICTED STOCK AWARDS 9 (220)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 102
----------- ---------- ----------- ---------- ----------- -----------
BALANCES AT DECEMBER 31, 1997 22,895,585 183,164 57,853 91,007 4,633 (338)
NET EARNINGS 50,972
UNREALIZED HOLDING GAINS ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD 316
TOTAL COMPREHENSIVE INCOME
CASH DIVIDENDS DECLARED
(BANCORP - $0.52 PER SHARE;
SRFC - $18 PER SHARE;
HBI - $5.50 PER SHARE) (21,436)
PURCHASE OF COMMON STOCK
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 6,135 (1,266) (314)
TRANSFER OF SURPLUS TO
COMMON STOCK (NO PAR VALUE) 57,536 (57,536)
2 FOR 1 STOCK SPLIT 16,560,780
10% STOCK DIVIDEND 3,195,315 67,275 (70,383)
RESTRICTED STOCK AWARDS (3) (220)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 150
----------- ---------- ----------- ---------- ----------- -----------
BALANCES AT DECEMBER 31, 1998 42,657,815 306,709 0 50,160 4,949 (408)
NET EARNINGS 50,323
UNREALIZED HOLDING LOSSES ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD (11,347)
TOTAL COMPREHENSIVE INCOME
CASH DIVIDENDS DECLARED
(BANCORP - $0.57 PER SHARE;
SRFC - $4.75 PER SHARE;
HBI - $1.50 PER SHARE) (25,570)
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 1,331 (951)
10% STOCK DIVIDEND 4,213,712 67,700 (69,009)
RESTRICTED STOCK AWARDS (3,751) (11) (174)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 168
----------- ---------- ----------- ---------- ----------- -----------
BALANCES AT DECEMBER 31, 1999 46,869,107 $ 373,447 $ 0 $ 5,904 $ (6,398) $ (414)
=========== ========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TREASURY TREASURY
STOCK STOCK
SHARES AMOUNT TOTAL
(Dollars in thousands)
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 (25,907) $ (776) $ 258,482
ADJUSTED FOR POOLING-OF-INTERESTS OF
SAND RIDGE FINANCIAL CORP. (SRFC) 34,589
ADJUSTED FOR POOLING-OF-INTERESTS
OF HEBRON BANCORP, INC. (HBI) 8,904
--------- ---------- ------------
ADJUSTED BALANCES AT
DECEMBER 31, 1996 (25,907) (776) 301,975
NET EARNINGS 46,832
UNREALIZED HOLDING GAINS ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD 2,224
--------
TOTAL COMPREHENSIVE INCOME 49,056
CASH DIVIDENDS DECLARED
(BANCORP - $0.47 PER SHARE;
SRFC - $17 PER SHARE;
HBI - $5 PER SHARE) (20,271)
SHARES ISSUED IN HASTINGS
FINANCIAL CORPORATION MERGER 5,085
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 23,817 787 657
10% STOCK DIVIDEND (212) (63)
PURCHASE OF COMMON STOCK (5,965) (282) (282)
RESTRICTED STOCK AWARDS 6,948 208 (3)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 102
--------- ---------- ------------
BALANCES AT DECEMBER 31, 1997 (1,319) (63) 336,256
NET EARNINGS 50,972
UNREALIZED HOLDING GAINS ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD 316
--------
TOTAL COMPREHENSIVE INCOME 51,288
CASH DIVIDENDS DECLARED
(BANCORP - $0.52 PER SHARE;
SRFC - $18 PER SHARE;
HBI - $5.50 PER SHARE) (21,436)
PURCHASE OF COMMON STOCK (284,894) (8,773) (8,773)
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 76,494 2,368 788
TRANSFER OF SURPLUS TO
COMMON STOCK (NO PAR VALUE)
2 FOR 1 STOCK SPLIT (8,563)
10% STOCK DIVIDEND 95,819 3,108
RESTRICTED STOCK AWARDS 3,825 215 (8)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 150
--------- ---------- ------------
BALANCES AT DECEMBER 31, 1998 (118,638) (3,145) 358,265
NET EARNINGS 50,323
UNREALIZED HOLDING LOSSES ON
SECURITIES AVAILABLE FOR SALE
ARISING DURING THE PERIOD (11,347)
--------
TOTAL COMPREHENSIVE INCOME 38,976
CASH DIVIDENDS DECLARED
(BANCORP - $0.57 PER SHARE;
SRFC - $4.75 PER SHARE;
HBI - $1.50 PER SHARE) (25,570)
EXERCISE OF STOCK OPTIONS,
NET OF SHARES PURCHASED 65,725 1,731 780
10% STOCK DIVIDEND 45,313 1,265 (44)
RESTRICTED STOCK AWARDS 7,600 149 (36)
AMORTIZATION OF RESTRICTED
STOCK AWARDS 168
--------- ---------- ------------
BALANCES AT DECEMBER 31, 1999 0 $ 0 $ 372,539
========= ========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
FIRST FINANCIAL BANCORP 16 1999 ANNUAL REPORT
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The consolidated financial statements of First
Financial Bancorp. (Bancorp), a bank and savings and loan holding company,
principally serving western Ohio, Indiana, northern Kentucky and southern
Michigan, include the accounts and operations of Bancorp and its wholly owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires the use of
management's estimates. Interest on loans, securities and other earning assets
is recognized primarily on the accrual basis. Intangible assets arising from the
acquisition of subsidiaries are being amortized over varying periods, none of
which exceeds 25 years. Core deposit intangibles are being amortized over
varying periods, none of which exceeds 10 years.
Investment securities - Statement of Financial Accounting Standards (SFAS)
No. 115 classifies debt and equity securities in three categories: trading,
held-to-maturity and available-for-sale.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when Bancorp has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at aggregate fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of shareholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be other
than temporary, are included in investment securities gains (losses). The cost
of securities sold is based on the specific identification method.
Loans - Loan origination and commitment fees and certain direct loan
origination costs are deferred, and the net amount amortized as an adjustment to
the related loan's yield. The accrual of interest income is discontinued when
the collection of a loan or interest, in whole or in part, is doubtful. This
applies generally to all loans, including impaired loans. When interest accruals
are suspended, interest income accrued in the current period is reversed and
interest accrued in the prior year is charged to the allowance for loan losses.
Mortgages held for sale are reported at the lower of cost or aggregate
market value primarily as determined by outstanding commitments from investors.
Capitalized mortgage servicing rights (MSRs) are evaluated for impairment based
on the fair value of those rights, using a disaggregated approach. MSRs are
amortized on an accelerated basis over the estimated period of net servicing
revenue.
Allowance for loan losses - The level of the allowance for loan losses
(allowance) is based upon management's evaluation of the loan and lease
portfolios, past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, economic conditions and other
pertinent factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change. The level maintained is believed by management to be adequate to cover
losses inherent in the portfolio. The allowance is increased by provisions
charged to expense and decreased by charge-offs, net of recoveries of amounts
previously charged off.
Lease financing - Bancorp principally uses the finance method of accounting
for direct lease contracts. Under this method of accounting, a receivable is
recorded for the total amount of lease payments due and estimated residual
values. Lease income, represented by the excess of the total contract receivable
plus estimated equipment residual value over the cost of the related equipment,
is recorded over the terms of the leases at a level rate of return on the
unrecovered net investment.
Premises and equipment - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed principally on the straight-line method over the estimated useful lives
of the assets. Maintenance and repairs are charged to operations as incurred.
Other real estate owned - Other real estate owned represents properties
acquired by Bancorp's subsidiaries through loan defaults by customers. The
property is recorded at the lower of cost or fair value minus estimated costs to
sell at the date acquired. Subsequently, the property is valued at the lower of
the amount recorded when the property was placed into other real estate owned or
fair value minus estimated costs to sell based on periodic valuations performed
by management. An allowance for losses on other real estate owned may be
maintained for subsequent valuation adjustments on a specific property basis.
Any gains or losses realized at the time of disposal are reflected in income.
Income taxes - Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Bancorp and its subsidiaries file a consolidated federal income tax return.
Each subsidiary provides for income taxes on a separate return basis, and remits
to Bancorp amounts determined to be currently payable.
Earnings per share - Basic net income per common share is computed by
dividing net income applicable to common stock by the weighted average number of
shares of common stock outstanding during the period. Diluted net income per
common share is computed by dividing net income applicable to common stock by
the weighted average number of shares, nonvested stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents consist of
common stock issuable under the assumed exercise of stock options granted under
the Bancorp's stock plans, using the treasury stock method.
Cash flow information - For purposes of the statement of cash flows,
Bancorp considers cash and due from banks as cash and cash equivalents.
Capital - During 1999, Bancorp issued a 10% stock dividend. All share
amounts presented in the financial statements have been adjusted to reflect
these transactions.
On April 27, 1999, the shareholders approved an amendment to the Articles
of Incorporation to increase the number of authorized common shares from
60,000,000 to 160,000,000.
Reporting comprehensive income - Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources.
Disclosure about segments and related information - Bancorp operates as one
community banking segment in contiguous geographic markets.
Derivative Instruments - SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was released in June, 1998, and is
effective for all fiscal quarters of fiscal years beginning after January 1,
2001. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities.
Reclassifications - Certain reclassifications of prior years' amounts have
been made to conform to current year presentation. Such reclassifications had no
effect on net earnings.
FIRST FINANCIAL BANCORP 17 1999 ANNUAL REPORT
<PAGE> 19
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
Bancorp's subsidiaries are required to maintain average reserve balances
either in the form of vault cash or reserves held on deposit with the Federal
Reserve Bank, Federal Home Loan Bank or in pass-through reserve accounts with
correspondent banks. The average amounts of these required reserve balances for
1999 and 1998 were approximately $23,748,000 and $19,472,000, respectively.
NOTE 3 - BUSINESS COMBINATIONS
Bancorp consummated the following business combinations in 1999, 1998, and 1997:
<TABLE>
<CAPTION>
ACQUISITION SHARES PURCHASE
DATE ASSETS DEPOSITS ISSUED PRICE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Pooling-of-interests
Sand Ridge Financial Corporation June 1, 1999 $ 591,325 $ 516,413 5,114,878
Hebron Bancorp, Inc. June 1, 1999 110,089 94,624 1,222,599
Hastings Financial Corporation January 1, 1997 49,989 44,156 322,386
Purchase transactions
The Union State Bank April 1, 1998 68,020 52,798 $ 13,600
KeyBank branches December 8, 1997 93,486 246,120 28,837
Southeastern Indiana Bancorp June 1, 1997 55,071 46,774 7,800
</TABLE>
On June 1, 1999, Bancorp issued 5,114,878 shares of its common stock for
all the outstanding shares of Sand Ridge Financial Corporation (SRFC). Upon
consummation of the merger, SRFC was merged out of existence and its only
subsidiary, Sand Ridge Bank, became a wholly owned subsidiary of Bancorp. This
merger was accounted for as a pooling-of-interests, and accordingly, the
consolidated financial statements, including earnings per share, have been
restated for the periods prior to the acquisition to include the accounts and
operations of SRFC.
Also on June 1, 1999, Bancorp issued 1,222,599 shares of its common stock
for all the outstanding shares of Hebron Bancorp, Inc. (HBI). Upon consummation
of the merger, HBI was merged out of existence and its only subsidiary, Hebron
Deposit Bank, became a wholly owned subsidiary of Bancorp. The merger was
accounted for as a pooling-of-interests, and accordingly, the consolidated
financial statements, including earnings per share, have been restated for the
periods prior to the acquisition to include the accounts and operations of HBI.
<TABLE>
<CAPTION>
Three months ending
March 31, December 31,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Net interest income
Bancorp $ 34,108 $ 131,064 $ 115,352
SRFC 4,663 17,196 15,782
HBI 945 3,976 4,283
---------- ----------- -----------
Combined $ 39,716 $ 152,236 $ 135,417
========== =========== ===========
Net earnings
Bancorp $ 11,130 $ 44,106 $ 40,308
SRFC 1,635 5,447 4,993
HBI 316 1,419 1,531
---------- ----------- -----------
Combined $ 13,081 $ 50,972 $ 46,832
========== =========== ===========
</TABLE>
FIRST FINANCIAL BANCORP 18 1999 ANNUAL REPORT
<PAGE> 20
NOTE 4 - LEASE FINANCING
Leases included in the loan portfolio at December 31 were composed as follows:
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Direct financing $ 32,148 $ 21,354
Leveraged 28 1,302
Non-recourse debt, principal and interest 0 (936)
-------- ----------
Net rentals receivable 32,176 21,720
Estimated residual value of leased assets 21,872 12,986
Less unearned income 7,540 5,494
-------- ----------
INVESTMENT IN LEASES, NET $ 46,508 $ 29,212
======== ==========
</TABLE>
Direct financing lease payments receivable as of December 31, 1999,
for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
2000 $10,980
2001 9,620
2002 6,850
2003 3,437
2004 1,078
Thereafter 183
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 were summarized as follows:
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Land and land improvements $ 12,221 $ 11,778
Buildings 52,683 55,002
Furniture and fixtures 46,256 43,748
Leasehold improvements 3,379 1,446
Construction in progress 2,070 2,914
--------- ---------
116,609 114,888
Less accumulated depreciation
and amortization 57,605 56,908
--------- ---------
TOTAL $ 59,004 $57,980
========= =========
</TABLE>
NOTE 6 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES
Dividends paid by Bancorp are mainly provided by dividends from its
subsidiaries. However, certain restrictions exist regarding the ability of these
subsidiaries to transfer funds to Bancorp in the form of cash dividends, loans,
or advances. The approval of the subsidiaries' respective primary federal
regulators is required for Bancorp's subsidiaries to pay dividends in excess of
regulatory limitations. As of December 31, 1999, Bancorp's subsidiaries had
retained earnings of $171,291,000 of which $39,200,000 was available for
distribution to Bancorp as dividends without prior regulatory approval.
NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, Bancorp offers a variety of financial
instruments with off-balance-sheet risk to its customers to aid them in meeting
their requirements for liquidity and credit enhancement. These financial
instruments include standby letters of credit and commitments outstanding to
extend credit. Generally accepted accounting principles do not require these
financial instruments to be recorded in the consolidated financial statements
and, accordingly, they are not. Bancorp does not use off-balance-sheet
derivative financial instruments (such as interest rate swaps) as defined in
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments".
Bancorp's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for standby letters of credit and
commitments outstanding to extend credit is represented by the contractual
amounts of those instruments. Bancorp uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. Following is a discussion of these transactions.
Standby letters of credit - These transactions are conditional commitments
issued by Bancorp to guarantee the performance of a customer to a third party.
Bancorp's portfolio of standby letters of credit consists primarily of
performance assurances made on behalf of customers who have a contractual
commitment to produce or deliver goods or services. The risk to Bancorp arises
from its obligation to make payment in the event of the customers' contractual
default. Bancorp has issued standby letters of credit aggregating $18,028,000
and $18,022,000 at December 31, 1999, and 1998, respectively.
Management conducts regular reviews of these instruments on an individual
customer basis, and the results are considered in assessing the adequacy of
Bancorp's allowance for loan losses. Management does not anticipate any material
losses as a result of these letters of credit.
Loan commitments - Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and
FIRST FINANCIAL BANCORP 19 1999 ANNUAL REPORT
<PAGE> 21
may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Bancorp evaluates each customer's
creditworthiness on an individual basis. The amount of collateral obtained, if
deemed necessary by Bancorp upon extension of credit, is based on management's
credit evaluation of the counter- party. The collateral held varies, but may
include securities, real estate, inventory, plant or equipment. Bancorp had
commitments outstanding to extend credit totaling $508,366,000 and $469,577,000
at December 31, 1999, and 1998, respectively. Management does not anticipate any
material losses as a result of these commitments.
NOTE 8 - INVESTMENT SECURITIES
The following is a summary of investment securities as of December 31, 1999:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 11,364 $ 2 $ (55) $ 11,311
Securities of U.S. government
agencies and corporations 122,103 11 (3,276) 118,838
Mortgage-backed securities $ 6,345 $ 116 $ (47) $ 6,414 191,894 638 (3,570) 188,962
Obligations of state and
other political subdivisions 25,097 752 (83) 25,766 142,743 955 (4,880) 138,818
Other securities 323 0 (5) 318 32,257 4 (64) 32,197
---------- ------- ------- -------- ---------- ------- --------- ----------
TOTAL $ 31,765 $ 868 $ (135) $ 32,498 $ 500,361 $ 1,610 $ (11,845) $ 490,126
========== ======= ======= ======== ========== ======= ========= ==========
</TABLE>
The following is a summary of investment securities as of December 31, 1998:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED UNREALIZED MARKET AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 30,498 $ 217 $ 30,715
Securities of U.S. government
agencies and corporations $ 2,031 $ 80 $ 2,111 112,643 1,154 $ (20) 113,777
Mortgage-backed securities 9,117 252 $ (19) 9,350 226,786 1,954 (379) 228,361
Obligations of state and
other political subdivisions 26,118 2,058 (2) 28,174 151,261 5,310 (225) 156,346
Other securities 516 8 0 524 21,167 28 0 21,195
---------- ------- ------- -------- ---------- ------- --------- ----------
TOTAL $ 37,782 $ 2,398 $ (21) $ 40,159 $ 542,355 $ 8,663 $ (624) $ 550,394
========== ======= ======= ======== ========== ======= ========= ==========
</TABLE>
The carrying value of investment securities as of December 31, 1997, by
category was as follows: U.S. Treasury $55,121,000, U.S. government agencies and
corporations $92,799,000, mortgage-backed $214,576,000, obligations of state and
other political subdivisions $160,706,000, and other $21,927,000.
During the year ended December 31, 1999, available-for-sale securities with
a fair value at the date of sale of $13,482,000 were sold. The gross realized
gains on such sales totaled $38,000.
During the year ended December 31, 1998, available-for-sale securities with
a fair value at the date of sale of $48,749,000 were sold. The gross realized
gains on such sales totaled $900,000.
During the year ended December 31, 1997, available-for-sale securities with
a fair value at the date of sale of $24,462,000 were sold. The gross realized
gains on such sales totaled $206,000 and the gross realized losses totaled
$106,000.
There were net investment gains after taxes of $106,000, $738,000 and
$105,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The
applicable income tax effects were a benefit of $56,000 for 1999 and expenses of
$322,000 and $42,000 1998, and 1997, respectively.
The carrying value of investment securities pledged to secure public
deposits and for other purposes as required by law amounted to $241,164,000 at
December 31, 1999.
The amortized cost and market value of investment securities, including
mortgage-backed securities at December 31, 1999, by contractual maturity, are
shown in the table below.
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 5,139 $ 5,147 $ 17,982 $ 17,985
Due after one year through five years 14,625 15,301 126,123 124,569
Due after five years through ten years 8,045 8,106 110,168 107,984
Due after ten years 3,956 3,944 246,088 239,588
-------- -------- --------- ---------
TOTAL $ 31,765 $ 32,498 $ 500,361 $ 490,126
======== ======== ========= =========
</TABLE>
FIRST FINANCIAL BANCORP 20 1999 ANNUAL REPORT
<PAGE> 22
NOTE 9 - LOANS
Information on nonaccrual and restructured loans at December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Principal balance
Nonaccrual loans $ 11,283 $ 7,481 $ 7,845
Restructured loans 2,244 691 2,447
--------- -------- ---------
TOTAL $ 13,527 $ 8,172 $ 10,292
========= ======== =========
Interest income effect
Gross amount of interest that would
have been recorded at original rate $ 885 $ 631 $ 862
Interest included in income 286 197 226
--------- -------- ---------
NET IMPACT ON INTEREST INCOME $ 599 $ 434 $ 636
========= ======== =========
</TABLE>
At December 31, 1999, there were no commitments outstanding to lend
additional funds to borrowers with nonaccrual or restructured loans.
The balances of other real estate acquired through loan foreclosures, in-
substance foreclosures, repossessions or other workout situations, net of the
related allowance, totaled $1,707,000, $221,000 and $1,150,000 at December 31,
1999, 1998 and 1997, respectively.
Changes in the allowance for loan losses for the three years ended December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 34,800 $ 31,660 $ 25,803
Allowance acquired through mergers 0 806 3,013
Provision for discontinued product line 1,100 0 0
Provision for loan losses 9,232 8,247 6,656
Loans charged off (9,361) (8,387) (5,439)
Recoveries 3,569 2,474 1,627
-------- ----------- -------
BALANCE AT END OF YEAR $ 39,340 $ 34,800 $31,660
======== =========== =======
</TABLE>
The allowances for loan losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 are based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans.
At December 31, 1999, 1998, and 1997, the recorded investment in loans
that are considered to be impaired under SFAS No. 114 was $2,688,000,
$3,218,000, and $4,169,000, respectively. The related allowance for loan losses
on these impaired loans was $1,433,000 at December 31, 1999, $1,449,000 at
December 31, 1998, and $1,115,000 at December 31, 1997. There were $20,000 of
impaired loans that as a result of write-downs did not have an allowance for
loan losses. The average recorded investment in impaired loans during the year
ended December 31, 1999, was approximately $2,407,000 versus $4,640,000 for the
year ended December 31, 1998, and $3,780,000 for the year ended December 31,
1997. For the years ended December 31, 1999, 1998, and 1997, Bancorp recognized
interest income on those impaired loans of $88,000, $129,000 and $37,000,
respectively. Bancorp recognizes income on impaired loans using the cash basis
method.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Balance Sheets. The unpaid principal balances of these loans
totaled $394,978,000, $301,695,000 and $227,977,000 at December 31, 1999, 1998
and 1997, respectively.
Custodial escrow balances maintained in connection with servicing these
mortgage loans were approximately $2,344,000, $1,908,000 and $1,670,000 at
December 31, 1999, 1998 and 1997, respectively.
NOTE 10 - FEDERAL HOME LOAN BANK LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1999 consisted exclusively of Federal
Home Loan Bank advances with rates ranging from 4.28% to 6.90%, with interest
payable monthly. The advances were secured by certain residential mortgage loans
with a book value of $1,045,355,000 at December 31, 1999. The advances mature as
follows: $4,392,000 in 2000, $4,129,000 in 2001, $23,296,000 in 2002,
$11,200,000 in 2003, $22,500,000 in 2004, $2,282,000 in 2006, $20,000,000 in
2007, $46,000,000 in 2008, and $28,000,000 in 2009.
FIRST FINANCIAL BANCORP 21 1999 ANNUAL REPORT
<PAGE> 23
NOTE 11 - INCOME TAXES
Income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ 21,613 $ 21,462 $ 21,704
State 2,633 2,024 2,103
------------ ------------ ------------
Total 24,246 23,486 23,807
Deferred (benefit) expense 2,054 1,198 (1,812)
------------ ------------ ------------
INCOME TAX EXPENSE $ 26,300 $ 24,684 $ 21,995
============ ============ =============
</TABLE>
The difference between the federal income tax rates, applied to income before
income taxes, and the effective rates were due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Income taxes computed at
federal statutory rate of 35% $ 26,818 $ 26,420 $ 24,014
State income taxes, net
of federal tax benefit 1,711 1,322 1,373
Effect of tax-exempt interest (2,885) (2,933) (3,085)
Other 656 (125) (307)
--------- --------- -----------
INCOME TAX EXPENSE $ 26,300 $ 24,684 $ 21,995
========= ========= ===========
</TABLE>
As of December 31, 1996, Bancorp's two savings bank subsidiaries had a bad
debt reserve for federal tax purposes of approximately $5,600,000, all of which
represents the base year amount. A deferred tax liability has not been
recognized for the base year amount. If the savings bank subsidiaries use the
base year reserve for any reason other than to absorb loan losses, a tax
liability could be incurred. It is not anticipated that the reserve will be used
for any other purpose.
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets and liabilities be carried at the enacted tax rate. The enacted tax rate
was 35% for years ended December 31 1999, 1998, and 1997. The major components
of the temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 12,237 $ 10,971
Mark to market adjustment (985) 2,321
Other real estate owned 2 2
Postretirement benefits other than pensions liability 936 990
Pension liability 832 326
Other 3,930 938
----------- ------------
Total deferred tax assets 16,952 15,548
Deferred tax liabilities
Tax greater than book depreciation 1,125 1,251
Leasing activities 4,308 3,489
Federal Home Loan Bank stock basis difference 5,546 1,009
Deferred loan fees 1,421 782
Purchase accounting adjustment (276) 1,023
Other 733 1,845
----------- ------------
Total deferred tax liabilities 12,857 9,399
----------- ------------
Net deferred tax asset recognized through the statement of earnings 4,095 6,149
Net deferred tax asset (liability) from valuation adjustments of
investment securities available-for-sale, recognized in equity
section of balance sheet 3,913 (3,077)
----------- ------------
TOTAL NET DEFERRED TAX ASSET $ 8,008 $ 3,072
=========== ============
</TABLE>
FIRST FINANCIAL BANCORP 22 1999 ANNUAL REPORT
<PAGE> 24
NOTE 12 - RISK-BASED CAPITAL
The Federal Reserve established risk-based capital requirements for U.S.
banking organizations which have been adopted by the Office of Thrift
Supervision for savings and loan associations. Risk weights are assigned to on-
and off-balance sheet items in arriving at risk-adjusted total assets.
Regulatory capital is divided by risk-adjusted total assets, with the resulting
ratios compared to minimum standards to determine whether a bank has adequate
capital.
Regulatory guidelines require a 4.00% Tier 1 capital ratio, an 8.00% total
risk-based capital ratio and a 4.00% leverage ratio. Tier 1 capital consists
primarily of common shareholders' equity, net of certain intangibles; and total
risk-based capital is Tier 1 capital plus Tier 2 supplementary capital, which is
primarily the allowance for loan losses subject to certain limits. The leverage
ratio is a result of dividing Tier 1 capital by average total assets less
certain intangibles.
While Bancorp's subsidiaries' ratios are well above regulatory
requirements, management will continue to monitor the asset mix which affects
these ratios due to the risk weights assigned various assets, and the allowance
for loan losses, which influences the total risk-based capital ratio.
The table below illustrates the risk-based capital calculations and ratios
for the last two years.
<TABLE>
<CAPTION>
December 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 372,539 $ 358,265
Less certain intangibles 37,610 40,605
Less accumulated comprehensive income (6,398) 4,949
------------ -----------
Total Tier 1 capital $ 341,327 $ 312,711
============ ===========
Total risk-based capital
Tier 1 capital $ 341,327 $ 312,711
Qualifying allowance for loan losses 35,636 31,742
------------ -----------
Total risk-based capital $ 376,963 $ 344,453
============ ===========
Risk weighted assets $ 2,847,221 $ 2,536,301
============ ===========
Risk-based ratios
Tier 1 capital 12.0% 12.3%
============ ===========
Total risk-based capital 13.2% 13.6%
============ ===========
Leverage 9.4% 9.1%
============ ===========
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
Bancorp sponsors a non-contributory defined benefit pension plan covering
substantially all employees. Plan assets were administered by the trust
departments of First National Bank of Southwestern Ohio (First Southwestern) and
Community First Bank & Trust (Community First), both subsidiaries of Bancorp,
during 1998. First Southwestern became the sole administrator during 1999. Plan
assets primarily consist of equity and debt mutual funds, stocks, corporate
bonds, and money market funds. Approximately 95.8% and 90.2% of plan assets at
December 31, 1999 and 1998, respectively, were invested in collective trust
funds with First Southwestern. Also included in plan assets was a $100,000
certificate of deposit invested with Community First at each date. The pension
plan does not own any shares of Bancorp common stock.
The following tables set forth information concerning amounts recognized in
Bancorp's Consolidated Balance Sheets and Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
December 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 27,408 $ 24,393
Service cost 1,972 1,769
Interest cost 1,941 1,811
Transfer from merged plan 0 320
Actuarial (gain) loss (1,043) 2,107
Benefits paid (3,742) (2,992)
------------ ------------
Benefit obligation at end of year 26,536 27,408
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 25,676 23,738
Actual return on plan assets 828 3,128
Employer contributions 136 1,495
Transfer from merged plan 0 307
Benefits paid (3,742) (2,992)
------------ ------------
Fair value of plan assets at end of year 22,898 25,676
------------ ------------
Funded status (3,638) (1,732)
Unrecognized transition amount (1,036) (1,342)
Unrecognized prior service cost 1,327 1,579
Unrecognized actuarial loss 493 141
------------ ------------
NET AMOUNT RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS (ACCRUED BENEFIT LIABILITY) $ (2,854) $ (1,354)
============ ============
</TABLE>
FIRST FINANCIAL BANCORP 23 1999 ANNUAL REPORT
<PAGE> 25
WEIGHTED-AVERAGE ASSUMPTIONS
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Discount rate 7.50% 7.00%
Expected return on plan assets 9.00% 8.00%
Rate of compensation increase 3.50% 3.50%
</TABLE>
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
December 31,
1999 1998 1999
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $ 1,972 $ 1,769 $ 1,502
Interest cost 1,941 1,811 1,734
Expected return on assets (2,223) (1,900) (1,765)
Amortization of transition asset (305) (305) (305)
Amortization of unrecognized prior
service cost 252 252 261
Amortization of actuarial loss 0 0 64
---------- -------- ---------
NET PERIODIC PENSION COST $ 1,637 $ 1,627 $ 1,491
========== ======== =========
</TABLE>
Bancorp also sponsors a defined contribution 401(k) thrift plan which
covers substantially all employees. Employees may contribute up to 12.0% of
their base salaries into the plan. Bancorp contributions are at the discretion
of the Board of Directors. During 1999 and 1998, Bancorp contributed $0.50 for
each $1.00 an employee contributed, up to a maximum Bancorp contribution of
3.00% of the employee's base salary. All Bancorp matching contributions vest
immediately. Total Bancorp contributions to the 401(k) plan were $775,000 during
1999, $701,000 during 1998, and $566,000 during 1997.
NOTE 14 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Some Bancorp subsidiaries maintain health care and, in limited instances,
life insurance plans for current retired employees. Under the current policy,
the health care plans are unfunded and pay medically necessary expenses incurred
by retirees, after subtracting payments by Medicare or other providers and after
stated deductibles have been met. Bancorp has reserved the right to change or
eliminate these benefit plans.
The following table sets forth the funded status and amounts recognized in
Bancorp's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $ 1,439 $ 1,669
Interest cost 96 106
Plan participants' contributions 25 29
Actuarial gain (192) (328)
Benefits paid (190) (37)
Benefit obligation at end of year 1,178 1,439
Fair value of plan assets at beginning and end of year 0 0
Funded status (1,178) (1,439)
Unrecognized actuarial gain (1,370) (1,282)
--------- ----------
Unrecognized prior service cost (29) (33)
--------- ----------
NET POSTRETIREMENT LIABILITY RECOGNIZED IN THE BALANCE SHEETS $ (2,577) $ (2,754)
========= ==========
Net periodic postretirement benefit cost includes the following
components:
Interest cost $ 96 $ 106
Amortization of unrecognized prior service cost (4) (3)
Amortization of actuarial gain (103) (90)
--------- ----------
NET PERIODIC BENEFIT COST $ (11) $ 13
========= ==========
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.50% at December 31, 1999, and 7.00% at December 31, 1998. The
assumed health care cost trend rates used in determining the accumulated
postretirement benefit obligation are shown in the table to the right.
If the health care cost trend rate assumptions were increased by 1.00%, the
accumulated postretirement benefit obligation as of December 31, 1999, would be
increased by approximately $95,000. If the health care cost trend rate
assumptions were decreased by 1.00%, the accumulated postretirement benefit
obligation as of December 31, 1999, would be decreased by approximately $86,000.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 8.10%
2000 7.30% 7.30%
2001 6.60% 6.50%
2002 6.00% 6.00%
2003 5.50% 5.50%
Thereafter 5.00% 5.00%
</TABLE>
FIRST FINANCIAL BANCORP 24 1999 ANNUAL REPORT
<PAGE> 26
NOTE 15 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands, except per share data)
The following table sets forth the computation of basic and diluted earnings per share:
<S> <C> <C> <C>
Net income--numerator for basic and diluted earnings per share
income available to common stockholders $ 50,323 $ 50,972 $ 46,832
=========== =========== ===========
Denominator for basic earnings per share - weighted average shares 46,848,851 46,984,480 47,013,881
Effect of dilutive securities - employee stock options 136,931 187,943 143,353
----------- ----------- -----------
Denominator for diluted earnings per share - adjusted weighted average shares 46,985,782 47,172,423 47,157,234
=========== =========== ===========
Basic earnings per share $ 1.07 $ 1.08 $ 1.00
=========== =========== ===========
Diluted earnings per share $ 1.07 $ 1.08 $ 0.99
=========== =========== ===========
</TABLE>
NOTE 16 - STOCK OPTIONS
The 1991 Stock Incentive Plan provides incentive stock options and stock
awards to certain key employees and non-qualified stock options to directors of
Bancorp who are not employees for up to 1,610,510 common shares of Bancorp. The
options are not exercisable for at least one year from the date of grant and are
thereafter exercisable for such periods (which may not exceed 10 years) as the
Board of Directors, or a committee thereof, specify, provided that the optionee
has remained in the employment of Bancorp or its subsidiaries. The Board or the
committee may accelerate the exercise period for an option upon the optionee's
disability, retirement, or death. All options expire at the end of the exercise
period. Cancelled and expired options become available for issuance and are
reflected in the available for future grant figure. On April 27, 1999, the
shareholders approved the 1999 Stock Incentive Plan which provides for 6,500,000
similar options and awards.
Bancorp has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation" requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, because the exercise
price of Bancorp's employee stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if Bancorp had accounted for
its stock options under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1999,
1998 and 1997, respectively: risk-free interest rates of 4.74%, 5.59% and 6.72%;
dividend yields of 2.35%, 2.45%, and 3.67%; volatility factors of the expected
market price of Bancorp's common stock of .202, .193 and .195; and a weighted
average expected life of the options of 2.83, 4.20, and 7.57 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Bancorp's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Bancorp's pro
forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net earnings $ 49,238 $ 50,187 $ 46,556
========= ======== ========
Pro forma earnings per share $ 1.05 $ 1.07 $ 0.99
========= ======== ========
</TABLE>
Activity in the above plan for 1999, 1998, and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
NUMBER OF OPTION NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 527,780 452,470 408,656
Granted 321,737 $20.23-23.69 209,727 $20.04-22.68 129,831 $11.69-13.81
Exercised (79,316) $ 7.72-20.04 (134,417) $ 7.50-11.86 (84,686) $ 7.73-11.86
Cancelled (27,797) $ 23.69 (1,331) $ 11.69
--------- ------- -------
OUTSTANDING AT END OF YEAR 742,404 $ 7.50-23.69 527,780 $ 7.50-22.68 452,470 $ 7.50-13.81
========= ======= =======
EXERCISABLE AT END OF YEAR 448,441 318,030 323,901 $ 7.50-11.86
========= ======= =======
AVAILABLE FOR FUTURE GRANT 7,019,241 680,250 901,230
========= ======= =======
WEIGHTED-AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR $ 3.56 $ 3.89 $ 2.56
========= ======= =======
</TABLE>
FIRST FINANCIAL BANCORP 25 1999 ANNUAL REPORT
<PAGE> 27
NOTE 17 - LOANS TO RELATED PARTIES
Loans to directors, executive officers, principal holders of Bancorp's
common stock and certain related persons totaled $35,568,000 and $29,961,000 at
December 31, 1999, and 1998, respectively.
Activity of these loans was as follows:
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Beginning balance $ 29,961 $ 33,792
Additions 17,092 12,453
Collected 11,485 16,284
Charged off 0 0
--------- ------------
Ending balance $ 35,568 $ 29,961
========= ============
Loans 90 days past due $ 0 $ 0
========= ============
</TABLE>
Related parties of Bancorp, as defined above, were customers of and had
transactions with subsidiaries of Bancorp in the ordinary course of business
during the periods noted above. Additional transactions may be expected in the
ordinary course of business in the future. All outstanding loans, commitments,
financing leases, transactions in money market instruments, and deposit
relationships included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and did not involve more than a normal
risk of collectibility or present other unfavorable features.
NOTE 18 - SHAREHOLDER RIGHTS PLAN
Bancorp has a "shareholder rights plan" under which the holders of
Bancorp's common stock are entitled to receive one "right" per share held.
Under the plan, each "right" would be distributed only on the 20th business
day after any one of the following events occur: 1) A public announcement that a
person or group has acquired 20 percent or more (an "acquiring person") of
Bancorp's outstanding common shares, 2) The beginning of a tender offer or
exchange offer that would result in a person or group owning 30 percent or more
of the corporation's outstanding common shares, or 3) A declaration by the Board
of Directors of a shareholder as an "adverse person." (An adverse person is a
person who owns at least 10 percent of the common shares and attempts
"greenmail," or is likely to cause a material adverse impact on the Bancorp -
such as impairing customer relationships, harming the company's competitive
position or hindering the Board's ability to effect a transaction it deems to be
in the shareholders' best interest.)
In the event of such a distribution, each "right" would entitle the holder
to purchase, at an exercise price of $40.91, one share of common stock of the
corporation. Subject to the "exchange option" described below, if a person or
group acquires 30 percent or more of Bancorp's outstanding common shares or is
declared an "adverse person" by the Board of Directors of the corporation, each
"right" would entitle the holder to purchase, at an exercise price of $40.91, a
number (to be determined under the plan) of shares of common stock of the
corporation at a price equal to 50 percent of its then current market price.
However, any "rights" held by an "acquiring person" or an "adverse person" could
not be exercised.
Additionally, each "right" holder would be entitled to receive common stock
of any acquiring company worth two times the exercise price of the "right,"
should either of the following happen after a person becomes an "acquiring
person": 1) Bancorp is acquired in a merger or other transaction - other than a
merger which the independent directors determine to be in the best interest of
Bancorp and its shareholders, or 2) 50 percent or more of Bancorp's assets or
earning power is sold or transferred.
At any time after any person becomes an "acquiring person" or an "adverse
person," the plan gives Bancorp's board of directors the option (the "exchange
option") to exchange all or part of the outstanding "rights" (except "rights"
held by an "acquiring person" or an "adverse person") for shares of Bancorp's
common stock at an exchange ratio of 0.9 shares of common stock per "right." In
the event that Bancorp's board of directors adopts the "exchange option," each
"right" would entitle the holder thereof to receive only 0.9 shares of common
stock per "right." Any partial exchange would be effected pro rata based on the
number of "rights" held by each holder of "rights" included in the exchange.
Bancorp may redeem "rights" for $0.01 per "right" at any time prior to the
20th business day following the date when a person acquires 20 percent of the
outstanding shares. Bancorp may not redeem the "rights" when a holder has become
an "adverse person."
The Board's adoption of this "rights" plan has no financial effect on
Bancorp, is not dilutive to Bancorp shareholders, is not taxable to the
corporation or its shareholders, and will not change the way in which Bancorp
common shares are traded. "Rights" are not exercisable until distributed; and
all "rights" will expire at the close of business on December 6, 2003, unless
earlier redeemed by Bancorp.
FIRST FINANCIAL BANCORP 26 1999 ANNUAL REPORT
<PAGE> 28
NOTE 19 - DISCLOSURES AB0UT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by Bancorp in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments - The carrying amounts reported in the
balance sheet for cash and short-term investments, such as interest-bearing
deposits with other banks and federal funds sold, approximated the fair value of
those instruments.
Investment securities (including mortgage-backed securities) - Fair
values for investment securities were based on quoted market prices, where
available. If quoted market prices were not available, fair values were based on
quoted market prices of comparable instruments. (Refer to Note 8 for further
disclosure.)
Loans - For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values were based on carrying values.
The fair values of other loans and leases, such as commercial real estate and
consumer loans were estimated by discounting the future cash flows using the
current rates at which similar loans and leases would be made to borrowers with
similar credit ratings and for the same remaining maturities. The carrying
amount of accrued interest approximated its fair value.
Deposit liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits was the amount payable on demand at
the reporting date. The carrying amounts for variable-rate certificates of
deposit approximated their fair values at the reporting date. The fair value of
fixed-rate certificates of deposit was estimated using a discounted cash flow
calculation which applies the interest rates currently offered for deposits of
similar remaining maturities. The carrying amount of accrued interest
approximated its fair value.
Borrowings - The carrying amounts of federal funds purchased and
securities sold under agreements to repurchase and other short-term borrowings
approximated their fair values. The fair value of long-term borrowings was
estimated using a discounted cash flow calculation which utilizes the interest
rates currently offered for borrowings of similar remaining maturities.
Commitments to extend credit and standby letters of credit - Pricing of
these financial instruments is based on the credit quality and relationship,
fees, interest rates, probability of funding and compensating balance and other
covenants or requirements. Loan commitments generally have fixed expiration
dates, are variable rate and contain termination and other clauses which provide
for relief from funding in the event that there is a significant deterioration
in the credit quality of the customer. Many loan commitments are expected to
expire without being drawn upon. The rates and terms of the commitments to
extend credit and the standby letters of credit are competitive with those in
Bancorp's market area. The carrying amounts are reasonable estimates of the fair
value of these financial instruments. Carrying amounts which are comprised of
the unamortized fee income and, where necessary, reserves for any expected
credit losses from these financial instruments, are immaterial. (Refer to Note 7
for additional information.)
Bancorp does not carry financial instruments which are held or issued for
trading purposes. The estimated fair values of Bancorp's financial instruments
at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $ 240,325 $ 240,325 $ 175,752 $ 175,752
Investment securities held-to-maturity 31,765 32,498 37,782 40,159
Investment securities available-for-sale 490,126 490,126 550,394 550,394
Loans
Commercial 769,454 766,457 689,524 687,650
Real estate-construction 111,458 105,154 74,205 73,958
Real estate-mortgage 1,467,591 1,413,537 1,306,065 1,318,404
Installment, net of unearned income 618,957 678,673 533,834 534,174
Credit card 22,408 22,481 21,306 21,312
Leasing 46,508 47,179 29,212 30,828
Less allowance for loan losses 39,340 34,800
--------- --------- --------- ---------
Net loans 2,997,036 3,033,481 2,619,346 2,666,326
Accrued interest receivable 30,550 30,550 26,467 26,467
Financial liabilities
Deposits
Noninterest-bearing 408,712 408,712 392,999 392,999
Interest-bearing demand 314,735 314,735 307,752 307,752
Savings 778,405 778,405 758,808 758,808
Time 1,489,361 1,452,826 1,412,508 1,416,015
--------- --------- --------- ---------
Total deposits 2,991,213 2,954,678 2,872,067 2,875,574
Short-term borrowings 382,118 382,118 155,064 155,064
Long-term borrowings 161,799 157,169 120,777 118,419
Accrued interest payable 10,825 10,825 10,514 10,514
</TABLE>
FIRST FINANCIAL BANCORP 27 1999 ANNUAL REPORT
<PAGE> 29
NOTE 20 - FIRST FINANCIAL BANCORP. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS December 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash $ 32,200 $ 40,587
Investment securities 46 75
Subordinated notes from subsidiaries 7,500 0
Investment in subsidiaries
Commercial banks 286,669 280,114
Savings banks 37,085 31,440
-------- --------
Total investment in subsidiaries 323,754 311,554
Bank premises and equipment 1,426 286
Other assets 17,842 13,375
-------- --------
TOTAL ASSETS $382,768 $365,877
======== ========
LIABILITIES
Dividends payable $ 6,980 $ 6,515
Other liabilities 3,249 1,097
-------- --------
TOTAL LIABILITIES 10,229 7,612
SHAREHOLDERS' EQUITY 372,539 358,265
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $382,768 $365,877
======== ========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS YEAR ENDED DECEMBER 31,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
INCOME
Interest income (other) $ 140 $ 57 $ 24
Dividends from subsidiaries 38,348 52,974 47,139
-------- -------- --------
TOTAL INCOME 38,488 53,031 47,163
EXPENSES
Salaries and employee benefits 3,211 2,589 1,198
Other 5,683 2,188 1,948
-------- -------- --------
TOTAL EXPENSES 8,894 4,777 3,146
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET EARNINGS OF SUBSIDIARIES 29,594 48,254 44,017
Income tax benefit (1,310) (984) (769)
-------- -------- --------
Income before equity in undistributed net earnings of subsidiaries 30,904 49,238 44,786
Equity in undistributed net earnings of subsidiaries 19,419 1,734 2,046
-------- -------- --------
NET EARNINGS $ 50,323 $ 50,972 $ 46,832
======== ======== ========
</TABLE>
FIRST FINANCIAL BANCORP 28 1999 ANNUAL REPORT
<PAGE> 30
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 50,323 $ 50,972 $ 46,832
Adjustments to reconcile net earnings to net cash provided by operating activities
Equity in undistributed net earnings of subsidiaries (19,419) (1,734) (2,046)
Provision for depreciation and amortization 60 32 13
Deferred income taxes 78 173 (71)
Increase in dividends payable 465 528 618
Increase (decrease) in accrued expenses 2,251 662 (781)
(Increase) decrease in receivables (4,550) (3,261) 3,004
-------- -------- --------
Net cash provided by operating activities 29,208 47,372 47,569
INVESTING ACTIVITIES
Subordinated notes from subsidiaries (7,500) 0 0
Capital contributions to subsidiaries (4,200) (1,200) (39,400)
Purchase of subsidiary 0 (13,600) (7,800)
Purchases of premises and equipment (1,189) (286) 0
Other 84 7 (43)
-------- -------- --------
Net cash used in investing activities (12,805) (15,079) (47,243)
FINANCING ACTIVITIES
Cash dividends (25,570) (21,436) (20,271)
Purchase of common stock 0 (8,773) (282)
Proceeds from exercise of stock options, net of shares purchased 780 788 657
-------- -------- --------
Net cash used in financing activities (24,790) (29,421) (19,896)
-------- -------- --------
(DECREASE) INCREASE IN CASH (8,387) 2,872 (19,570)
Cash at beginning of year 40,587 37,715 57,285
-------- -------- --------
CASH AT END OF YEAR $ 32,200 $ 40,587 $ 37,715
======== ======== ========
</TABLE>
NOTE 21 - MERGER AND RESTRUCTURING CHARGES
In December 1998, Bancorp announced plans for a merger and restructuring
charge to coincide with its mergers with Sand Ridge Financial Corporation and
Hebron Bancorp, Inc. As discussed in Note 3 of the Notes to Consolidated
Financial Statements, Bancorp completed the mergers on June 1, 1999. In the
second quarter of 1999, Bancorp recorded merger and restructuring charges of
approximately $6,900,000 before taxes or $5,500,000 million after taxes.
The merger and restructuring charge consisted of two general components.
The first component was for merger related charges of approximately $2,900,000
before taxes, or $2,800,000 after taxes, for investment banking and other
professional services specifically associated with the SRFC and HBI mergers.
Investment banking fees and other professional services such as legal,
accounting, and consulting represented $2,400,000 of the $2,900,000 pre-tax
merger charge. The remaining approximately $500,000 was incurred primarily for
system conversions and personnel charges. Of the merger related charges,
$2,700,000 have been paid.
The second component included in the overall merger and restructuring
charges of $5,500,000 after taxes related to restructuring charges for the
planned consolidation of some operational functions including the sale of four
facilities and more effective use of existing properties. Under its
restructuring plan, Bancorp also discontinued its accounts receivable financing
line of business and merged two of its affiliates, Union Trust Bank, Union City,
Indiana, into Community First Bank & Trust, Celina, Ohio. The restructuring
component totaled approximately $4,000,000 before taxes and $2,700,000 after
taxes.
Of the $4,000,000 pre-tax restructuring component, approximately $1,600,000
was related to the disposals of properties. The four facilities to be disposed
of were written down to fair value (estimated selling price). As of December 31,
1999, two properties had not yet been sold.
The $4,000,000 pre-tax restructuring component also consisted of a
$1,100,000 provision for loan losses associated with the discontinuance of the
accounts receivable financing line of business. Losses of approximately $900,000
associated with the discontinuance of the accounts receivable financing have
been recognized through December 31, 1999.
Of the $4,000,000 component, $1,300,000 was related to the consolidation of
operational functions and affiliate restructuring. Approximately $800,000 of the
$1,300,000 related to operational and affiliate restructuring, has been paid.
Revenues and operating income of activities discontinued are not
significant to Bancorp's operating results.
The table below summarizes the major components of the merger and
restructuring charge. Bancorp expects that the remaining balance will be
substantially utilized during 2000.
<TABLE>
<CAPTION>
MERGER DISPOSALS DISCONTINUED OPERATIONS/AFFILIATE
COSTS OF PROPERTY PRODUCT RESTRUCTURING TOTAL
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Merger and restructuring charge $2,899 $1,574 $1,100 $1,357 $6,930
Amount paid/written off 2,680 1,459 933 834 5,906
------ ------ ------ ------ ------
Balance as of December 31,1999 $ 219 $ 115 $ 167 $ 523 $1,024
====== ====== ====== ====== ======
</TABLE>
FIRST FINANCIAL BANCORP 29 1999 ANNUAL REPORT
<PAGE> 31
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors and Shareholders
First Financial Bancorp.
We have audited the accompanying consolidated balance sheets of First
Financial Bancorp. and subsidiaries as of December 31, 1999, and 1998, 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,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts, and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First Financial
Bancorp. and subsidiaries at December 31, 1999, and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 17, 2000
FIRST FINANCIAL BANCORP 30 1999 ANNUAL REPORT
<PAGE> 32
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL AND COMMON STOCK DATA (1)
(Unaudited)
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
1999
Interest income $ 66,938 $ 68,804 $ 72,274 $ 74,382
Interest expense 27,222 27,776 30,269 31,927
-------- -------- -------- --------
Net interest income 39,716 41,028 42,005 42,455
Provision for loan losses 2,532 1,378 2,117 3,205
Noninterest income
Investment securities gains (losses) 55 (8) 9 (6)
All other 10,041 9,999 10,484 10,738
Noninterest expenses 27,667 35,187 28,914 28,893
-------- -------- -------- --------
Income before income taxes 19,613 14,454 21,467 21,089
Income tax expense 6,532 5,739 6,932 7,097
-------- -------- -------- --------
Net earnings $ 13,081 $ 8,715 $ 14,535 $ 13,992
======== ======== ======== ========
Per share
Net earnings - basic $ 0.28 $ 0.19 $ 0.31 $ 0.30
======== ======== ======== ========
Net earnings - diluted $ 0.28 $ 0.19 $ 0.31 $ 0.30
======== ======== ======== ========
Cash dividends paid $ 0.14 $ 0.14 $ 0.14 $ 0.14
======== ======== ======== ========
Market price
High bid $ 27.55 $ 22.73 $ 21.36 $ 23.56
======== ======== ======== ========
Low bid $ 19.77 $ 19.09 $ 18.46 $ 18.75
======== ======== ======== ========
1998
Interest income $ 62,873 $ 65,504 $ 66,820 $ 67,473
Interest expense 26,111 27,405 28,689 28,229
-------- -------- -------- --------
Net interest income 36,762 38,099 38,131 39,244
Provision for loan losses 1,630 1,528 2,738 2,351
Noninterest income
Investment securities gains 173 302 247 338
All other 8,866 8,792 9,645 11,149
Noninterest expenses 26,245 26,173 26,859 28,568
-------- -------- -------- --------
Income before income taxes 17,926 19,492 18,426 19,812
Income tax expense 6,011 6,402 6,214 6,057
-------- -------- -------- --------
Net earnings $ 11,915 $ 13,090 $ 12,212 $ 13,755
======== ======== ======== ========
Per share
Net earnings - basic $ 0.25 $ 0.28 $ 0.26 $ 0.29
======== ======== ======== ========
Net earnings - diluted $ 0.25 $ 0.28 $ 0.25 $ 0.29
======== ======== ======== ========
Cash dividends paid $ 0.13 $ 0.13 $ 0.13 $ 0.13
======== ======== ======== ========
Market price
High bid $ 24.27 $ 26.35 $ 24.27 $ 28.18
======== ======== ======== ========
Low bid $ 19.84 $ 21.28 $ 20.66 $ 22.73
======== ======== ======== ========
</TABLE>
The stock of First Financial Bancorp. is listed with the National Association of
Securities Dealers, Inc. (NASDAQ), under the symbol FFBC.
(1) All financial information has been restated as if (a) the mergers of Sand
Ridge Financial Corporation and Hebron Bancorp, Inc. on June 1, 1999 and (b) the
10.0% stock dividends declared in 1998 and 1999 and the two-for-one stock split
declared in 1998, occurred January 1, 1998. Both mergers were accounted for as a
pooling-of-interests.
FIRST FINANCIAL BANCORP 31 1999 ANNUAL REPORT
<PAGE> 1
EXHIBIT 21
FIRST FINANCIAL BANCORP. SUBSIDIARIES
First National Bank of Southwestern Ohio, organized as a national banking
association under the laws of the United States
Community First Bank & Trust, incorporated in the state of Ohio
Indiana Lawrence Bank, incorporated in the state of Indiana
Fidelity Federal Savings Bank, organized as a federal stock savings bank under
the laws of the United States
Citizens First State Bank, incorporated in the state of Indiana
Home Federal Bank, a Federal Savings Bank, organized as a federal stock savings
bank under the laws of the United States
Union Bank & Trust Company, incorporated in the state of Indiana
The Clyde Savings Bank Company, incorporated in the state of Ohio
Peoples Bank and Trust Company, incorporated in the state of Indiana
Bright National Bank, organized as a national banking association under the laws
of the United States
First Finance Mortgage Company of Southwestern Ohio, Inc., incorporated in the
state of Ohio
Farmers State Bank, incorporated in the state of Indiana
National Bank of Hastings, organized as a national banking association under the
laws of the United States
Vevay Deposit Bank, incorporated in the state of Indiana
Sand Ridge Bank, incorporated in the state of Indiana
Hebron Deposit Bank, incorporated in the commonwealth of Kentucky
First Financial Bancorp Service Corporation, incorporated in the state of Ohio
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of First Financial Bancorp. of our report dated January 17, 2000 included in the
1999 Annual Report to Shareholders of First Financial Bancorp.
We also consent to the incorporation by reference of our report dated January
17, 2000 with respect to the consolidated financial statements of First
Financial Bancorp incorporated by reference in the Annual Report (Form 10-K) for
the year ended December 31, 1999 in the following documents:
- - Registration Statement (Form S-8 No. 33-46819) pertaining to the First
Financial Bancorp 1991 Stock Incentive Plan and in the related
Prospectus.
- - Registration Statement (Form S-8 No. 333-86781) pertaining to the First
Financial Bancorp 1999 Stock Incentive Plan for Officers and Employees
and in the related Prospectus.
- - Registration Statement (Form S-8 No. 333-86781) pertaining to the First
Financial Bancorp 1999 Stock Incentive Plan for Non-Employee Directors
and in the related Prospectus.
- - Registration Statement (Form S-3 No. 333-25745) pertaining to the First
Financial Bancorp. Dividend Reinvestment and Share Purchase Plan and in
the related Prospectus
/s/ Ernst & Young LLP
Ernst & Young LLP
March 21, 2000
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000708955
<NAME> FIRST FINANCIAL BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 225,837
<INT-BEARING-DEPOSITS> 8,867
<FED-FUNDS-SOLD> 5,621
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 490,126
<INVESTMENTS-CARRYING> 31,765
<INVESTMENTS-MARKET> 32,498
<LOANS> 3,036,376
<ALLOWANCE> 39,430
<TOTAL-ASSETS> 3,940,693
<DEPOSITS> 2,991,213
<SHORT-TERM> 382,118
<LIABILITIES-OTHER> 33,024
<LONG-TERM> 161,799
0
0
<COMMON> 373,447
<OTHER-SE> (908)
<TOTAL-LIABILITIES-AND-EQUITY> 3,940,693
<INTEREST-LOAN> 249,113
<INTEREST-INVEST> 32,629
<INTEREST-OTHER> 656
<INTEREST-TOTAL> 282,398
<INTEREST-DEPOSIT> 97,552
<INTEREST-EXPENSE> 117,194
<INTEREST-INCOME-NET> 165,204
<LOAN-LOSSES> 9,232
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 120,661
<INCOME-PRETAX> 76,623
<INCOME-PRE-EXTRAORDINARY> 50,323
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,323
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 8.41
<LOANS-NON> 11,283
<LOANS-PAST> 2,414
<LOANS-TROUBLED> 2,777
<LOANS-PROBLEM> 79
<ALLOWANCE-OPEN> 34,800
<CHARGE-OFFS> 9,361
<RECOVERIES> 3,569
<ALLOWANCE-CLOSE> 39,340
<ALLOWANCE-DOMESTIC> 28,944
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,396
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK>0000708955
<NAME>FIRST FINANCIAL BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 164,500
<INT-BEARING-DEPOSITS> 2,598
<FED-FUNDS-SOLD> 8,654
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 550,394
<INVESTMENTS-CARRYING> 37,782
<INVESTMENTS-MARKET> 40,159
<LOANS> 2,654,146
<ALLOWANCE> 34,800
<TOTAL-ASSETS> 3,538,869
<DEPOSITS> 2,872,067
<SHORT-TERM> 155,064
<LIABILITIES-OTHER> 32,696
<LONG-TERM> 120,777
0
0
<COMMON> 306,709
<OTHER-SE> 51,556
<TOTAL-LIABILITIES-AND-EQUITY> 3,538,869
<INTEREST-LOAN> 224,467
<INTEREST-INVEST> 37,155
<INTEREST-OTHER> 1,048
<INTEREST-TOTAL> 262,670
<INTEREST-DEPOSIT> 100,590
<INTEREST-EXPENSE> 110,434
<INTEREST-INCOME-NET> 152,236
<LOAN-LOSSES> 8,247
<SECURITIES-GAINS> 1,060
<EXPENSE-OTHER> 107,845
<INCOME-PRETAX> 75,656
<INCOME-PRE-EXTRAORDINARY> 50,972
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,972
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 8.64
<LOANS-NON> 7,481
<LOANS-PAST> 2,923
<LOANS-TROUBLED> 691
<LOANS-PROBLEM> 191
<ALLOWANCE-OPEN> 31,660
<CHARGE-OFFS> 8,387
<RECOVERIES> 2,474
<ALLOWANCE-CLOSE> 34,800
<ALLOWANCE-DOMESTIC> 26,594
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,206
</TABLE>
