ITEM 1. BUSINESS.
FIRST FINANCIAL BANCORP.
First Financial Bancorp., an Ohio corporation (Bancorp), is a bank and savings and loan holding company that engages in the business of commercial banking, and other permissible activities closely related to banking, through fifteen wholly owned subsidiary financial institutions: First National Bank of Southwestern Ohio (First Southwestern), Bright National Bank (Bright National), and National Bank of Hastings (Hastings), all national banking associations, Community First Bank & Trust (Community First), The Clyde Savings Bank Company (Clyde), both Ohio banking corporations, Union Trust Bank (Union Trust), Indiana Lawrence Bank (Indiana Lawrence), Citizens First State Bank (Citizens First), Union Bank & Trust Company (Union Bank), Peoples Bank and Trust Company (Peoples Bank), Farmers State Bank (Farmers) and Vevay Deposit Bank (Vevay), all Indiana banking corporations, Fidelity Federal Savings Bank (Fidelity Federal), and Home Federal Bank, a Federal Savings Bank (Home Federal), both federal savings banks. First Finance Mortgage Company of Southwestern Ohio (First Finance) is Bancorp's only finance company. Bancorp provides
management and similar services for its subsidiary financial institutions. Since it does not itself conduct any operating businesses, Bancorp must depend largely upon its fifteen subsidiaries for funds with which to pay the expenses of its operation and, to the extent applicable, any dividends on its outstanding shares of stock. For further information see Note 6 of the Notes to Consolidated Financial Statements appearing on page 17 of Bancorp's Annual Report to Shareholders, which is incorporated by reference in response to this item.
Bancorp was formed in 1982 for the purpose of becoming the parent holding company of First Southwestern. For additional information, please see "Subsidiaries" on page.
Bancorp is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Bancorp is also a savings and loan holding company under the savings and loan holding company provisions of the Home Owners' Loan Act of 1933, as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). As such, Bancorp is subject to strict regulation regarding the acquisition of additional financial institutions and the conduct, through subsidiaries, of non-banking activities (see "Regulation" on page).
Bancorp faces strong competition from both financial institutions and other non-financial organizations. Its competitors include local and regional financial institutions, savings and loans, and bank holding companies, as well as some of the largest banking organizations in the United States. In addition, other types of financial institutions, such as credit unions, also offer a wide range of loan and deposit services that are directly competitive with those offered by Bancorp's subsidiaries. The consumer is also served by brokerage firms and mutual funds that provide checking services, credit cards, and other services similar to those offered by Bancorp's subsidiaries. Major stores compete for loans by offering credit cards and retail installment contracts. It is anticipated that competition from entities other than financial institutions will continue to grow.
The range of banking services provided by Bancorp's subsidiaries to their customers includes commercial lending, real estate lending, consumer credit, credit card, and other personal loan financing. First Southwestern, Community First, Citizens First, Clyde, and Bright National also offer lease financing. In addition, Bancorp's financial institutions offer deposit services that include interest-bearing and noninterest-bearing deposit accounts and time deposits. Most subsidiaries provide safe deposit facilities. A full range of trust and asset management services is provided by Bancorp's subsidiaries, excluding the savings banks and the finance company. Each subsidiary retains its local identity and operates under the direction of its own board of directors and officers.
Bancorp and its subsidiaries operate in one business segment--the financial institutions industry. Foreign transactions are nominal. Information regarding statistical disclosure required by Industry Guide 3 is included in Bancorp's Annual Report to Shareholders for the year ended December 31, 1998, and is incorporated herein by reference.
At December 31, 1998, Bancorp and its subsidiaries employed 1,338 employees.
Bancorp's executive office is located at 300 High Street, Hamilton, Ohio 45012, and its telephone number is (513) 867-4700.
SUBSIDIARIES
The following table lists each of Bancorp's subsidiaries, their acquisition dates, the number of offices that each subsidiary has, total deposits, and the number of ATMs owned by each subsidiary:
Community First was formed on November 1, 1997 as a result of the merger of two of Bancorp's affiliates, the Citizens Commercial Bank & Trust Company and Van Wert National Bank. On December 8, 1997, Community First purchased the assets and assumed the liabilities of eleven branches of KeyBank National Association. The purchase of The Union State Bank, completed on April 1, 1998, resulted in the addition of another branch and $53 million in deposits for Community First.
In April 1996, Bancorp acquired Farmers & Merchants Bank of Rochester, Rochester, Indiana (F&M). Upon completion of the merger F&M was merged with Indiana Lawrence.
In November 1995, Home Federal combined operations with Fayette Federal, resulting in Fayette Federal operating as a division of Home Federal.
REGULATION
First Southwestern, Bright National and Hastings, as national banking associations, are subject to supervision and regular examination by the Comptroller of the Currency. Community First and Clyde, as Ohio state chartered banks, are subject to supervision and regular examination by the Superintendent of Banks of the State of Ohio. First Southwestern, Community First, Clyde, Peoples Bank, Bright National, and Hastings are members of the Federal Reserve System and, as such, are subject to the applicable provisions of the Federal Reserve Act. Community First is also subject to regular examination by the Federal Reserve System. Union Trust, Indiana Lawrence, Citizens First, Union Bank, Peoples Bank, Farmers and Vevay, as Indiana state chartered banks, are subject to supervision and regular examination by the Indiana Department of Financial Institutions. Fidelity Federal and Home Federal, as federal savings banks, are subject to supervision and regular examination by the Office of Thrift Supervision. Since Fidelity Federal is located in Indiana, it is also subject to examination by the Indiana Department of Financial Institutions. First Finance is subject to supervision and regular examinations by the State of Ohio Division of Consumer Finance. All depository institutions are insured by the Federal Deposit Insurance Corporation and are subject to the provisions of the Federal Deposit Insurance Act.
To the extent that the information below consists of summaries of certain statutes or regulations, it is qualified in its entirety by reference to the statutory or regulatory provisions described.
Bancorp is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the Act), which requires a bank holding company to register under the Act and to be subject to supervision and examination by the Board of Governors of the Federal Reserve System. As a bank holding company, Bancorp is required to file with the Board of Governors an annual report and such additional information as the Board of Governors may require pursuant to the Act. The Act requires prior approval by the Board of Governors of the acquisition by a bank holding company, or any subsidiary thereof, of 5% or more of the voting stock or substantially all the assets of any bank within the United States. Prior to the passage of FIRREA, it was not possible for bank holding companies, such as Bancorp, to acquire "healthy" thrift institutions. Although such acquisitions are now authorized, mergers between bank holding companies and thrift institutions must be approved by the Federal Reserve Board and the Office of Thrift Supervision. When a bank holding company acquires a thrift institution, it is then considered a savings and loan holding company which subjects the bank holding company to regulation and examination by the Office of Thrift Supervision. As a bank holding company located in the State of Ohio, Bancorp is not permitted to acquire a bank or other financial institution located in another state unless such acquisition is specifically authorized by the statutes of such state, as
is the case in Indiana, Michigan, and Kentucky. The Act further provides that the Board of Governors shall not approve any such acquisition that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States, or the effect of which may be to substantially lessen competition or to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.
The Act also prohibits a bank holding company, with certain exceptions, from acquiring 5% or more of the voting stock of any company that is not a bank and from engaging in any business other than banking or performing services for its banking subsidiaries without the approval of the Board of Governors. In addition, the acquisition of a thrift institution must be approved by the Office of Thrift Supervision pursuant to the savings and loan holding company provisions of the Home Owners' Loan Act of 1933, as amended by FIRREA. The Board of Governors is also authorized to approve, among other things, the ownership of shares by a bank holding company in any company the activities of which the Board of Governors has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Board of Governors has, by regulation, determined that certain activities, including mortgage banking, operating small loan companies, factoring, furnishing certain data processing operations, holding or operating properties used by banking subsidiaries or acquired for such future use, providing certain investment and financial advice, leasing (subject to certain conditions) real or personal property, providing management consulting advice to certain depository institutions, providing securities brokerage services, arranging commercial real estate equity financing, underwriting and dealing in government obligations and money market instruments, providing consumer financial counseling, operating a collection agency, owning and operating a savings association, operating a credit bureau and conducting certain real estate investment activities and acting as insurance agent for certain types of insurance, are closely related to banking within the meaning of the Act. It also has determined that certain other activities, including real estate brokerage and syndication, land development, and property management, are not related to credit transactions and are not permissible.
The Act and the regulations of the Board of Governors prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services. The Act also imposes certain restrictions upon dealings by affiliated banks with the holding company and among themselves, including restrictions on interbank borrowing and upon dealings in respect to the securities or obligations of the holding company or other affiliates.
The earnings of banks, and therefore the earnings of Bancorp (and its subsidiaries), are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System. An important function of the Federal Reserve Board is to regulate the national supply of bank credit in an effort to prevent recession and to restrain inflation. Among the procedures used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits.
These procedures are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use also may affect interest rates charged on loans or paid for deposits.
Monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effect, if any, of such policies upon the future business and earnings of Bancorp cannot accurately be predicted.
Bancorp makes no attempt to predict the effect on its revenues and earnings of changes in general economic, industrial, and international conditions or in legislation and governmental regulations.
YEAR 2000
The information contained on page 5 of the Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion and Analysis) section
of Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 2.
ITEM 2. PROPERTIES.
The registrant and its subsidiaries operate from 61 offices in Ohio, including Bancorp's executive office in Hamilton, Ohio, 42 offices in Indiana and two in Michigan. Thirty of the offices are located in Butler County, Ohio, of which four branches are built on leased land and there are seven branches wherein the land and building are leased. Excess space in three facilities is leased to third parties. Nine offices are located in Mercer County, Ohio, six in Van Wert County, Ohio, two in Preble County, Ohio, three in Warren County, Ohio, three in Hamilton County, Ohio, two in Sandusky County, Ohio, two in Paulding County, Ohio, one in Allen County, Ohio, three in Auglaize County, Ohio, and one in Williams County, Ohio. Five offices are located in Wabash County, Indiana, of which one office is built on leased land with a purchase option on the land. Three offices are in Randolph County, Indiana, three in Grant County, Indiana, one in Jay County, Indiana, four in Blackford County, Indiana, one in Fayette County, Indiana, one in Franklin County, Indiana, two in Jennings County, Indiana, four in Carroll County, Indiana, two in Tippecanoe County, Indiana, three in Fulton, County, Indiana, two in Union County, Indiana, three in Rush County, Indiana, one in Clinton County, Indiana, one in Ripley County, Indiana, one in Dearborn County, Indiana, and four in Switzerland, County, Indiana. One office is located in Delaware County, Indiana, of which both the land and building are leased. One office is located in Barry County, Michigan and one in Allegan County, Michigan. All leases are comparable to other leases in the respective market areas and do not contain provisions detrimental to the registrant or its subsidiaries.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders during the fourth quarter of 1998.
ADDITIONAL ITEM - EXECUTIVE OFFICERS.
Shown in the table below are the Executive Officers of Bancorp as of December 31, 1998. The Executive Officers will serve until the first meeting of the Board of Directors following the next annual meeting of shareholders, scheduled to be held on April 27, 1999 or until their successors are elected and duly qualified. All Executive Officers are chosen by the Board of Directors by a majority vote.
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. Pontius was promoted to Chairman of the Board of First Southwestern and retained the position of Chief Executive Officer until November 24, 1998.
Rick L. Blossom became Chief Lending Officer of Bancorp effective January 12, 1996. He remains Senior Vice President of Bancorp, a position he has held since September 26, 1990. On November 24, 1998, Mr. Blossom was promoted to President and Chief Executive Officer of First Southwestern. Mr. Blossom had served as First Southwestern's President and Chief Operating Officer since July 1, 1997. On January 12, 1996, he became Executive Vice President of First Southwestern, retaining his Chief Lending Officer status. He previously held the title of Senior Vice President/Retail Lending of First Southwestern, a position he held since March 1991.
Mark W. Immelt became Senior Vice President of Bancorp Trust Services on July 1, 1997. Mr. Immelt joined First Southwestern in December 1996 as Senior Vice President and Senior Trust Officer, a position that he still retains. Before joining First Southwestern, he spent 28 years managing personal trust, corporate trust, employee benefit programs and private banking programs in the Northern Indiana and Northeast Ohio area.
Brian D. Moriarty became Senior Vice President of Bancorp, responsible for the human resources function, on January 12, 1996. Mr. Moriarty also became Senior Vice President of First Southwestern in January 1996, where he had been First Vice President since 1991.
Michael R. O'Dell became Senior Vice President, Chief Financial Officer and Secretary of Bancorp on January 12, 1996. He had served as Bancorp's Comptroller since December 1994. Mr. O'Dell had served as Senior Vice President and Chief Financial Officer of First Southwestern from January 1996 to July 1997, and as First Vice President and Comptroller of First Southwestern from 1991 to January 1996.
Michael T. Riley became Senior Vice President of Bancorp, responsible for Marketing, data processing, operations and public relations, on January 12, 1996. Mr. Riley also became Senior Vice President of First Southwestern in January 1996, where his duties include marketing, data processing and operations. He had served as First Vice President of Consumer Banking for First Southwestern since 1989.
C. Douglas Lefferson became First Vice President and Comptroller of Bancorp effective November 25, 1998. He had served as Vice President and Chief Financial Officer of First Southwestern since July 1997. Mr. Lefferson previously held the title of Vice President and Comptroller of First Southwestern since December 1995 and Assistant Vice President and Assistant Comptroller since 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Bancorp had 4,321 common stock shareholders of record as of February 22, 1999. Bancorp's common equity is listed with the National Association of Securities Dealers, Inc. (NASDAQ) and is traded on The NASDAQ Stock Market. The information contained on page 28 of the Notes to Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained in Table 1 on page 2 of the Management's Discussion and Analysis section of Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information contained in the Management's Discussion and Analysis section of Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference in response to this item.
The financial and statistical data presented on the following pages, when viewed along with the financial and statistical data presented in pages 1 through 28 of Management's Discussion and Analysis, Consolidated Financial Statements, and Notes to Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for the year ended December 31, 1998, provides a detailed review of Bancorp's business activities.
INVESTMENT PORTFOLIO
At December 31, 1998, Bancorp's investment portfolio included no investments which were not issued by the U.S. Government, its agencies, or corporations and which exceeded ten percent of Bancorp's shareholders' equity.
LOAN PORTFOLIO
The table below shows the composition of Bancorp's loan portfolio at the end of each of the last five years:
NONPERFORMING ASSETS
The accrual of interest on a loan is discontinued and interest collected on such loan is credited to loan principal if, in the opinion of management, full collection of principal is doubtful. The table on the following page summarizes Bancorp's nonaccrual loans, restructured loans, other real estate owned, and past due loans as of the end of each of the last five years:
POTENTIAL PROBLEM LOANS
At December 31, 1998, Bancorp had $191,000 in loans for which payments were presently current, but the borrowers were experiencing financial difficulties. These loans are a combination of commercial, real estate, and installment loans and are not included as part of nonaccrual loans, restructured loans or loans past due 90 days or more and still accruing. However, these loans are subject to constant monitoring by management, and their status is reviewed on a continual basis. These loans were considered by management in determining the adequacy of the recorded allowance for loan losses at December 31, 1998.
LOAN LOSS DATA
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table shows an allocation of the allowance for loan losses for each of the five years indicated:
$ - DOLLAR AMOUNT
% - PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS
DIVIDEND PAYOUT RATIO
The dividend payout ratios for 1998, 1997 and 1996 were 46.1%, 47.0%, and 48.1%, respectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"). In addition, certain statements in future filings by Bancorp with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Bancorp which are not statements of historical fact constitute forward- looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to, projections of revenues; income or loss; earnings or loss per share; the payment or non-payment of dividends; capital structure and other financial items, statements of plans and objectives of Bancorp or its management or Board of Directors; and statements of future economic performance and statements of assumptions underlying such statements. Words such as "believes," "anticipates," "intends," and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the strength of the local economies in which operations are conducted; the effects of and changes in policies and laws of regulatory agencies; inflation, interest rates, market and monetary fluctuations; technological changes; mergers and acquisitions; the ability to increase market share and control expenses; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the Securities and Exchange Commission; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; the ability to achieve satisfactory results regarding the Year 2000 issue; and the success of Bancorp at managing the risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which such statements are made, and Bancorp undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the
occurrence of unanticipated events.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information contained on pages 8 and 9 of the Management's Discussion and Analysis section of Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference in response to this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and report of independent auditors included on pages 11 through 27 of the Consolidated Financial Statements and the Notes to Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 are incorporated herein by reference.
The Quarterly Financial and Common Stock Data on page 28 of the Notes to Consolidated Financial Statements in Bancorp's Annual Report to Shareholders for the year ended December 31, 1998 is incorporated herein by reference.
ITEM 9.
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.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by Item 10 is contained under "Shareholdings of Directors, Executive Officers, and Nominees for Director" on pages 2 through 4 of Bancorp's Proxy Statement, dated March 23, 1999 with respect to the Annual Meeting of Shareholders to be held on April 27, 1999, which was filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 and which is incorporated herein by reference in response to this item.
Reference is also made to "Additional Item - Executive Officers" included in Part I of this Form 10-K in partial response to Item 10.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under "Meetings of the Board of Directors and Committees of the Board" on page 11, "Executive Compensation" on pages 12 through 16, and under "Compensation Committee Report" on pages 18 and 19 of Bancorp's Proxy Statement dated March 23, 1999 is incorporated herein by reference in response to this item.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under "Shareholdings of Directors, Executive Officers, and Nominees for Director" on pages 2 through 4 of Bancorp's Proxy Statement dated March 23, 1999 is incorporated herein by reference in response to this item.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in Note 17 of the Notes to Consolidated Financial Statements included on page 24 of Bancorp's Annual Report to Shareholders is incorporated herein by reference in response to this item.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
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*The page numbers indicated refer to pages of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1998 which are incorporated herein by reference.
- -------------------------------------------------------------------------------- The Company will furnish, without charge, to a security holder upon request a copy of the documents, portions of which are incorporated by reference (Annual Report to Shareholders and Proxy Statement), and will furnish any other Exhibit upon payment of reproductions costs.
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1998, the registrant did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius - -------------------------------------- Stanley N. Pontius, Director President and Chief Executive Officer
Date March 23, 1999 ----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.