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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(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, 1997
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)
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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
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $8 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
As of March 2,1998, there were issued and outstanding 16,554,190 shares of
Registrant's Common Stock. The aggregate market value of the voting stock held
by non-affiliates of the Registrant, computed by reference to The sales price of
the last trade of such stock as of March 2, 1998, was $893,926,000. (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, 1997 are incorporated by reference into Parts I, II and IV.
Portions of the proxy statement dated March 16, 1998 for the annual meeting
of shareholders to be held April 28, 1998 are incorporated by reference into
Part III.
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FORM 10-K CROSS REFERENCE INDEX
Page
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PART I Item 1 Business F-1
Item 2 Properties F-7
Item 3 Legal Proceedings F-7
Item 4 Submission of Matters to a Vote of Security Holders
(during the fourth quarter of 1997) F-7
Additional Item - Executive Officers F-7
PART II Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters F-9
Item 6 Selected Financial Data F-9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations F-9
Item 7a Quantitative and Qualitative Disclosures about
Market Risk F-13
Item 8 Financial Statements and Supplementary Data F-13
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure F-13
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PART III Item 10 Directors and Executive Officers of the Registrant F-14
Item 11 Executive Compensation F-14
Item 12 Security Ownership of Certain Beneficial Owners and
Management F-14
Item 13 Certain Relationships and Related Transactions F-14
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PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K F-15
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SIGNATURES F-17
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F-1
PART I
ITEM 1. BUSINESS.
First Financial Bancorp.
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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 (dba Community 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 39 of Bancorp's Annual Report to Shareholders, which is
incorporated by reference in response to this item.
Bancorp was formed in 1982 for the purpose of becoming the parent holding
company of First Southwestern. For additional information, please see
"Subsidiaries" on page F-2.
Bancorp is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. Bancorp is also a savings and loan holding company
under the savings and loan holding company provisions of the Home Owners' Loan
Act of 1933, as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). As such, Bancorp is subject to strict
regulation regarding the acquisition of additional financial institutions and
the conduct, through subsidiaries, of non-banking activities (see "Regulation"
on page F-4).
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. Fidelity Federal and Home
Federal are full service savings banks with their primary
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business being the promotion of thrift through the solicitation of savings
accounts from the general public and the promotion of home ownership through the
granting of mortgage loans, primarily to finance the purchase, construction, and
improvement of residential real estate. First Southwestern, Community First,
Citizens First, Clyde, and Bright National also offer lease financing. In
addition, the 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, 1997, and is
incorporated herein by reference.
At December 31, 1997, Bancorp and its subsidiaries employed 1,317 employees.
Bancorp's executive office is located at 300 High Street, Hamilton, Ohio 45011,
and its telephone number is (513) 867-4700.
Subsidiaries
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First Southwestern was formed as the result of a consolidation of the First
National Bank and Trust Company of Hamilton and the First National Bank of
Middletown in 1980. On April 26, 1983, Bancorp acquired all of the outstanding
capital stock of First Southwestern. At December 31, 1997, First Southwestern
had 30 offices located in Butler, Warren, Preble, and Hamilton Counties in Ohio
with total deposits of $772 million. First Southwestern has a total of 29
automated teller machines (ATM) of which four ATMs are at sites other than
branches.
Community First Bank & Trust joined Bancorp on November 1, 1997, as the merger
of two of Bancorp's subsidiaries, the Citizens Commercial Bank & Trust Company
and Van Wert National Bank, was completed. On December 8, 1997 Community First
purchased the assets and assumed the liabilities of eleven branches of KeyBank
National Association. As of December 31, 1997, Community First had deposits of
$506 million and operates 21 offices in Auglaize, Allen, Mercer, Paulding,
Williams and Van Wert Counties in Ohio. Community First operates nine ATMs, of
which one is at a remote site.
Union Trust merged with Bancorp on September 1, 1989, as a wholly owned
subsidiary. Union Trust has one ATM and operates three offices in Randolph
County, Indiana and had $38 million in deposits on December 31, 1997.
On September 1, 1989, ILB Financial Corp. was merged into and out of existence
with Bancorp. ILB Financial Corp. was the one bank holding company of Indiana
Lawrence. This merger resulted in Indiana Lawrence becoming a wholly owned
subsidiary of Bancorp. Upon merger in April 1996, Bancorp's new subsidiary,
Farmers & Merchants Bank of Rochester, Rochester, Indiana was merged with
Indiana Lawrence. As of December 31, 1997, Indiana Lawrence had deposits of $130
million, two ATMs, of which one is at a remote site, and operated five offices
in Wabash County, Indiana and three offices in Fulton County, Indiana.
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Fidelity Federal merged with Bancorp on September 21, 1990 as a wholly owned
subsidiary. Fidelity Federal operates three offices in Grant County, Indiana
and has one ATM. Total deposits at December 31, 1997 were $60 million.
Citizens First joined Bancorp on October 1, 1990 as two separate entities,
Trustcorp Bank, Hartford City, and Trustcorp Bank, Dunkirk. These two entities
were purchased from Society Corporation for cash. On that same date, Trustcorp
Bank, Hartford City was renamed Citizens First State Bank of Hartford City and
Trustcorp Bank, Dunkirk was renamed Citizens First State Bank of Dunkirk. On
July 1, 1991, those two banks merged to become one wholly owned subsidiary of
Bancorp. Citizens First operates four offices in Blackford County, Indiana, one
office in Jay County, Indiana, and one office in Delaware County, Indiana.
Citizens First has four ATMs of which one is at a site other than branches, and
had total deposits of $82 million at December 31, 1997.
Bancorp purchased Home Federal on October 1, 1991. In November, 1995, Home
Federal and Fayette Federal combined operations, with Fayette Federal operating
as a division of Home Federal. Home Federal operates four offices in Butler
County, Ohio, two offices in Hamilton County, Ohio, one office in Fayette
County, Indiana and one office in Franklin County, Indiana, with total deposits
of $231 million at December 31, 1997. Home Federal has six ATMs of which three
are at sites other than branches.
On January 4, 1993, Jennings Union Bankcorp, the parent holding company of Union
Bank, merged into and out of existence with Bancorp leaving Union Bank as a
wholly owned subsidiary of Bancorp. Union Bank operates two offices in Jennings
County, Indiana with total deposits at December 31, 1997 of $73 million. Union
Bank has three ATMs, two of which are at sites other than branches.
On June 1, 1994, First Clyde Banc Corp., the parent holding company of Clyde,
merged into and out of existence with Bancorp leaving Clyde as a wholly owned
subsidiary of Bancorp. Clyde operates two offices and one ATM in Sandusky
County, Ohio, with $58 million in total deposits as of December 31, 1997.
On July 16, 1995, Peoples Bank and Trust Company merged with Bancorp. Located in
Sunman, Indiana, Peoples Bank operates two ATMs and one office in Ripley County,
Indiana and one office in Dearborn County, Indiana with total deposits of $42
million at December 31, 1997.
On October 1, 1995, Bright Financial Services, Inc., Flora, Indiana merged with
and into Bancorp leaving its subsidiary, Bright National, as a wholly owned
Bancorp subsidiary. With deposits at December 31, 1997 of $108 million, Bright
National operates four offices in Carroll County, Indiana, two offices in
Tippecanoe County, Indiana and one office in Clinton County, Indiana.
Bright National has six ATMs.
First Finance began full operations on May 8, 1996. First Finance, incorporated
and wholly owned by Bancorp, is a retail finance company and operates from an
office in Fairfield, Ohio. In November 1997, First Finance opened a second
office in Middletown, Ohio.
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F-4
Bancorp purchased Farmers State Bancorp, Liberty, Indiana, on December 1, 1996.
Farmers State Bancorp was merged into Bancorp and out of existence, leaving its
only subsidiary, Farmers, as a wholly owned Bancorp subsidiary. Farmers operates
two offices in Union County, Indiana and three offices in Rush County, Indiana.
At December 31, 1997, Farmers had total deposits of $52 million and has 1 ATM
location.
On January 1, 1997, Hastings Financial Corporation, a one bank holding company
in Hastings, Michigan, was merged into Bancorp and out of existence. As a result
of the merger, its only subsidiary, Hastings, became a wholly owned subsidiary
of Bancorp. As of December 31, 1997, Hastings had $42 million in deposits and
operates one office in Barry County, Michigan and one office in Allegan County,
Michigan. Hastings operates three ATMs of which one is at a location other than
a branch.
Bancorp purchased Southeastern Indiana Bancorp (SIB) on June 1, 1997. As a
result of the purchase, SIB was merged into Bancorp and out of existence and its
only subsidiary, Vevay, became a wholly owned subsidiary of Bancorp. Vevay has
two ATMs and four offices in Switzerland County, Indiana and had deposits of $48
million as of December 31, 1997.
Regulation
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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
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institutions must be approved by the Federal Reserve Board and the Office of
Thrift Supervision. Once a bank holding company acquires a thrift institution,
it is then considered a savings and loan holding company, as well, which is
subject 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. 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
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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
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Many computer systems process transactions using two digits for the year of the
transaction, rather than a full four digits. These systems may not function
properly at the beginning of the year 2000. Bancorp has devoted significant time
and attention to the Year 2000 issue, and will repair or replace non-compliant
hardware and software prior to the new millennium.
Several regulatory agencies and authorities have issued regulations and
guidelines which regulated financial institutions must use in measuring their
progress. Five commonly recognized phases of Year 2000 remediation are
awareness, assessment, renovation, validation, and implementation.
During 1997, the awareness phase was completed by Bancorp and each of its
subsidiaries. Bancorp's Data Processing Steering Committee formalized their
project plans for both Information Technology (IT) systems, computers and
peripherals, and non-IT systems, elevators, security systems, etc. Bancorp
assembled an Operating Committee, which meets at least weekly, to direct and
implement all Year 2000 issues. In addition, Bancorp's work groups and
consultants made several presentations to Bancorp's management and Board of
Directors, who have pledged their support for this issue.
Bancorp has inventoried and assessed the magnitude of hardware and software
programs which must be remediated, contacted vendors, identified resource needs,
and appropriately hired or contracted for qualified personnel to guide Bancorp
through the Year 2000 issue. A Year 2000 Loan Committee, comprised of senior
lenders of Bancorp's affiliates, is assessing the impact of Year 2000 on lending
customers and the related risks inherent in those loans as they relate to the
year 2000.
Bancorp is currently in the renovation process, having completed the major
demand deposit, savings, and certificate of deposit systems. Several ancillary
systems have also been completed. Remaining mission critical systems are
currently in the process of renovation or are scheduled to begin renovation
during the second and third quarters of 1998. Management's goal is to have the
renovation phase completed by the end of 1998.
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Management has tested incremental changes made to renovated software
applications, but has not yet validated overall Year 2000 compliance. Overall
validation testing is anticipated to begin in the first quarter, 1999.
Implementation will follow satisfactory results of validation testing and is
anticipated to be completed during the third quarter, 1999.
During 1997, Bancorp incurred approximately $700,000 in noninterest expense for
costs related to Year 2000 issues. Based on management's current assessment and
anticipated reprogramming costs, Bancorp expects to spend an additional
$3,500,000 during 1998 and 1999, of which about $1,200,000 will be capitalized.
However, there can be no assurance as to the accuracy of these estimates.
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, one in Paulding County,
Ohio, one in Allen County, Ohio, three in Auglaize County, Ohio, and one in
Williams County, Ohio. Five offices are located in Wabash County, Indiana, of
which one office is built on leased land with a purchase option on the land.
Three offices are in Randolph County, Indiana, three in Grant County, Indiana,
one in Jay County, Indiana, four in Blackford County, Indiana, one in Fayette
County, Indiana, one in Franklin County, Indiana, two in Jennings County,
Indiana, four in Carroll County, Indiana, two in Tippecanoe County, Indiana,
three in Fulton, County, Indiana, two in Union County, Indiana, three in Rush
County, Indiana, one in Clinton County, Indiana, one in Ripley County, Indiana,
one in Dearborn County, Indiana, and four in Switzerland, County, Indiana. One
office is located in Delaware County, Indiana, of which both the land and
building are leased. One office is located in Barry County, Michigan and one in
Allegan County, Michigan. All leases are comparable to other leases in the
respective market areas and do not contain provisions detrimental to the
registrant or its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS.
Except for routine litigation incident to their business, the registrant and its
subsidiaries are not a party to any material pending legal proceedings and none
of their property is the subject of any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders during the fourth quarter of 1997.
ADDITIONAL ITEM - EXECUTIVE OFFICERS.
On the following page are the Executive Officers of Bancorp as of December 31,
1997. 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 28, 1998 or until their successors are elected and duly qualified.
All Executive Officers are chosen by the Board of Directors by a majority vote.
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Name Age Position
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Stanley N. Pontius 51 President and Chief Executive Officer, Director
Rick L. Blossom 50 Senior Vice President, Chief Lending Officer
Mark W. Immelt 52 Senior Vice President, Trust Services
Brian D. Moriarty 55 Senior Vice President, Human Resources
Michael R. O'Dell 46 Senior Vice President, Chief Financial Officer
and Secretary
Michael T. Riley 47 Senior Vice President, Consumer Banking and
Operations
Joseph M. Gallina 42 First Vice President, Comptroller
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; he
retains the position of Chief Executive Officer but no longer serves as
President.
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 July 1, 1997, Mr. Blossom was promoted to President and
Chief Operating Officer of First Southwestern. 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, Trust Services on July 1, 1997. Mr.
Immelt joined Bancorp's lead bank, 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 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 July
1997.
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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.
Joseph M. Gallina became Comptroller of Bancorp effective January 12, 1996. He
had served as Bancorp's Auditor since April 1, 1992. Prior to joining Bancorp in
1992, he worked for an international accounting firm and specialized in
financial reporting and auditing of financial institutions. Mr. Gallina also
served as First Vice President of Accounting and Financial Control of First
Southwestern from January 1996 to July 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS. Bancorp had 4,119 common stock shareholders of record as of March 2,
1998. 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 50 of Bancorp's Annual Report to Shareholders for
the year ended December 31, 1997 is incorporated herein by reference in response
to this item.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained in Table 1 on page 24 of Bancorp's Annual Report to
Shareholders for the year ended December 31, 1997 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 on pages 23 through 32 of Bancorp's Annual Report to
Shareholders for the year ended December 31, 1997 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 23 through 50
of Bancorp's Annual Report to Shareholders, provides a detailed review of
Bancorp's business activities.
Investment Portfolio
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At December 31, 1997, 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.
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Loan Portfolio
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The following table shows the composition of Bancorp's loan portfolio at the end
of each of the last five years:
December 31
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1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
Commercial $ 502,919 $ 398,034 $ 340,942 $ 286,635 $ 247,052
Real estate--construction 63,308 43,262 41,845 29,273 31,597
Real estate--mortgage 927,985 863,414 788,805 746,150 665,390
Installment 439,744 366,051 329,034 285,412 214,600
Credit card 17,369 16,107 15,406 15,599 16,703
Lease financing 27,260 14,821 16,557 16,102 14,872
---------- ---------- ---------- ---------- ----------
Total loans $1,978,585 $1,701,689 $1,532,589 $1,379,171 $1,190,214
========== ========== ========== ========== ==========
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 following table summarizes Bancorp's
nonaccrual loans, restructured loans, other real estate owned/in-substance
foreclosures, and past due loans as of the end of each of the last five years:
December 31
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
Nonaccrual loans $ 5,257 $ 4,850 $ 2,764 $ 2,412 $ 4,679
Restructured loans 1,581 890 517 1,429 605
OREO and ISF* 950 264 1,677 2,116 3,673
------- ------- ------- ------- -------
Total nonperforming assets $ 7,788 $ 6,004 $ 4,958 $ 5,957 $ 8,957
======= ======= ======= ======= =======
Nonperforming assets as a
percent of total loans plus
OREO and ISF 0.39% 0.35% 0.32% 0.43% 0.75%
Accruing loans past due
90 days or more $ 1,203 $ 906 $ 1,071 $ 683 $ 1,321
*Other Real Estate Owned and In-Substance Foreclosures
Potential Problem Loans
- -----------------------
At December 31, 1997, Bancorp had $1,612,000 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, nor are they included within
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, 1997.
13
F-11
Loan Loss Data
- --------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -----
(Dollars in thousands)
Transactions in the allowance for loan losses:
Balance at January 1 $22,672 $20,437 $18,609 $18,380 $17,014
Loans Charged off:
Commercial 1,072 1,210 790 648 1,634
Real estate--construction 28
Real estate--mortgage 247 226 26 124 320
Installment and other
consumer financing 2,506 2,340 1,721 1,248 1,580
Lease financing 57 187 107 132 155
------- ------- ------- ------- -------
Total loans charged off 3,910 3,963 2,644 2,152 3,689
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Commercial 273 346 546 384 538
Real estate--construction 8
Real estate--mortgage 92 54 39 41 65
Installment and other
consumer financing 619 711 592 653 676
Lease financing 15 62 17 35 29
------- ------- ------- ------- -------
Total recoveries 999 1,173 1,202 1,113 1,308
------- ------- ------- ------- -------
Net charge-offs 2,911 2,790 1,442 1,039 2,381
Allowance acquired through mergers
and acquisitions 3,013 1,592 1,162
Provision for loan losses 4,736 3,433 2,108 1,268 3,747
------- ------- ------- ------- -------
Balance at December 31 $27,510 $22,672 $20,437 $18,609 $18,380
======= ======= ======= ======= =======
Ratios:
Net charge-offs as a percent of:
Average loans outstanding 0.16% 0.17% 0.10% 0.08% 0.21%
Provision 61.47% 81.27% 68.41% 81.94% 63.54%
Allowance 10.58% 12.31% 7.06% 5.58% 12.95%
Allowance as a percent of:
5 year moving average of
net charge-offs 1,302.19% 759.79% 603.64% 402.18% 347.24%
Year-end loans, net of
unearned income 1.39% 1.33% 1.33% 1.35% 1.54%
14
F-12
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:
December 31
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------ -----------
$ % $ % $ % $ % $ %
------- ---- ------- ---- ------- ---- ------ ---- ------ ---
Balance at End (Dollars in thousands)
of Period Appli-
cable to:
Commercial $ 5,372 26% $ 4,826 23% $ 4,254 22% $ 4,395 21% $ 4,457 21%
Real estate-
construction 246 3% 172 3% 210 3% 340 2% 300 3%
Real estate-
mortgage 5,320 47% 3,510 51% 3,713 52% 2,552 54% 4,305 56%
Installment &
credit card 7,328 23% 5,419 22% 4,184 22% 3,298 22% 3,104 19%
Lease financing 483 1% 327 1% 196 1% 154 1% 512 1%
Unallocated 8,761 N/A 8,418 N/A 7,880 N/A 7,870 N/A 5,702 N/A
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
$27,510 100% $22,672 100% $20,437 100% $18,609 100% $18,380 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
$ - Dollar Amount
% - Percent of Loans in Each Category to Total Loans
Dividend Payout Ratio
- ---------------------
The dividend payout ratios for 1997, 1996 and 1995 were 47.0 %, 48.1%, and
42.5%, 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
15
F-13
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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained on pages 30 and 31 of Bancorp's Annual Report to
Shareholders for the year ended December 31, 1997 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 33 through 49 of the Annual Report to Shareholders for the
year ended December 31, 1997 are incorporated herein by reference.
The Quarterly Financial and Common Stock Data on page 50 of the Annual Report to
Shareholders for the year ended December 31, 1997 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.
16
F-14
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 1 through 4
of Bancorp's Proxy Statement, dated March 16, 1998 with respect to the Annual
Meeting of Shareholders to be held on April 28, 1998 which was filed pursuant to
Regulation 14(A) 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 6, "Executive Compensation" on pages 6 through
11, and under "Compensation Committee Report" on pages 12 and 13 of Bancorp's
Proxy Statement dated March 16, 1998 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 1 through 4 of Bancorp's Proxy Statement dated
March 16, 1998 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 46 of Bancorp's Annual Report to Shareholders is
incorporated herein by reference in response to this item.
17
F-15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of the Report: Page*
-----
(1) Report of Ernst & Young LLP, Independent Auditors ......................................... 49
Consolidated Balance Sheets as of December 31, 1997 and 1996................................ 33
Consolidated Statements of Earnings for year ended
December 31, 1997, 1996 and 1995 .......................................................... 34
Consolidated Statements of Cash Flows for year ended
December 31, 1997, 1996 and 1995 .......................................................... 35
Consolidated Statements of Changes in Shareholders' Equity
for year ended December 31, 1997, 1996 and 1995 ........................................... 36
Notes to Consolidated Financial Statements.................................................. 37
(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
- -------------------------------------------------------------------------------
*THE PAGE NUMBERS INDICATED REFER TO PAGES OF THE REGISTRANT'S ANNUAL REPORT TO
SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 WHICH ARE INCORPORATED
HEREIN BY REFERENCE.
18
F-16
(3) Exhibits:
Exhibit
Number
------
(3)a Articles of Incorporation, as amended as of April 22, 1997.
(3)b Amended and Restated Regulations, as of April 22, 1997.
(10)(iii)A(1) First Financial Bancorp. 1991 Stock Incentive Plan, dated September 24,
1991 and incorporated herein by reference to a Registration Statement on
Form S-8, Registration No. 33-46819.
(10)(iii)A(2) Agreement between Stanley N. Pontius and First
Financial Bancorp dated January 27, 1998.
(10)(iii)A(3) Agreement between Rick L. Blossom and First
Financial Bancorp dated January 27, 1998.
(10)(iii)A(4) Agreement between Michael R. O'Dell and First
Financial Bancorp dated January 27, 1998.
(10)(iii)A(5) Agreement between Mark W. Immelt and First
Financial Bancorp dated January 27, 1998.
(10)(iii)A(6) Agreement between Michael T. Riley and First
Financial Bancorp dated January 27, 1998.
(13) Registrant's annual report to security holders for the year ended December
31, 1997.
(21) First Financial Bancorp. Subsidiaries.
(23) Consent of Ernst & Young LLP, Independent Auditors.
(27) Financial Data Schedule
- --------------------------------------------------------------------------------
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, 1997, the
registrant did not file any reports on Form 8-K.
19
F-17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL BANCORP.
By:/s/ Stanley N. Pontius
------------------------------------
Stanley N. Pontius, Director
President and Chief Executive Officer
Date 3/16/98
- ---------------------------------------
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.
/s/ F. Elden Houts /s/ Michael R. O'Dell
- ----------------------------------- ----------------------------------------
F. Elden Houts, Director Michael R. O'Dell,
Senior Vice President, Chief Financial
Officer, and Secretary
Date 3/16/98 Date 3/16/98
------------------------------ ----------------------------------
/s/ Stanley N. Pontius /s/ Charles T. Koehler
- ----------------------------------- ----------------------------------------
Stanley N. Pontius, Director Charles T. Koehler, Director
President and Chief Executive Officer
Date 3/16/98 Date 3/16/98
------------------------------ ----------------------------------
/s/ Murph Knapke /s/ Barry S. Porter
- ----------------------------------- ----------------------------------------
Murph Knapke, Director Barry S. Porter, Director
Date 3/16/98 Date 3/16/98
------------------------------ ----------------------------------
/s/ Don M. Cisle /s/ Thomas C. Blake
- ----------------------------------- ----------------------------------------
Don M. Cisle, Director Thomas C. Blake, Director
Date 3/16/98 Date 3/16/98
------------------------------ ----------------------------------
20
F-18
SIGNATURES (CONT'D)
/s/ Steve Posey /s/ Joseph M. Gallina
- ----------------------------------- ----------------------------------------
Steve Posey, Director Joseph M. Gallina, First Vice President
and Comptroller
Date 3/16/98 Date 3/16/98
------------------------------ ------------------------------------