FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission file number 0-12379
FIRST FINANCIAL BANCORP.
| Ohio | 31-1042001 | |
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(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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| 300 High Street, Hamilton, Ohio | 45011 | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (513) 867-5447
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date.
Class
Outstanding at July 29, 2004
43,774,651
FIRST FINANCIAL BANCORP.
INDEX
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PART I — FINANCIAL INFORMATION
See notes to consolidated financial statements
1
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
See notes to consolidated financial statements.
2
3
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
See notes to consolidated financial statements.
4
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
See notes to consolidated financial statements
5
FIRST FINANCIAL BANCORP.
AND SUBSIDIARIES
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of the management of First Financial Bancorp.
(Bancorp), all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation have been included.
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements of Bancorp, a bank and savings and loan
holding company, include the accounts of Bancorp and its wholly-owned
subsidiaries — First Financial Bank, Community First Bank & Trust, Indiana
Lawrence Bank, Fidelity Federal Savings Bank, Citizens First State Bank,
Heritage Community Bank, The Clyde Savings Bank Company, Sand Ridge Bank, First
Financial Bancorp Service Corp., and First Financial Capital Advisors LLC, a
registered investment advisory company. All significant intercompany
transactions and accounts have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include all information and
footnotes necessary to be in conformity with U.S. generally accepted accounting
principles.
The consolidated balance sheet at December 31, 2003 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
First Financial Bancorp. Annual Report on Form 10-K for the year ended December
31, 2003.
Certain reclassifications of prior year’s amounts have been made to conform to
current year presentation. Such reclassifications had no effect on earnings.
NOTE 2: 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 and to reduce its own
exposure to fluctuations in interest rates. These financial instruments
include standby letters of credit and commitments outstanding to extend credit.
U.S. generally accepted accounting principles do not require these financial
instruments to be recorded in the consolidated balance sheets, statements of
earnings, changes in shareholders’ equity or cash flows. However, a discussion
of these instruments follows.
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 are conditional commitments issued by Bancorp to
guarantee the performance
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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. As of June 30,
2004, Bancorp had issued standby letters of credit aggregating $41,540 compared
to $42,229 issued as of December 31, 2003. 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 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 may require
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
Bancorp evaluates each customer’s creditworthiness on an individual basis. The
amount of collateral obtained, if deemed necessary by Bancorp upon extension of
credit, is based on management’s credit evaluation of the counterparty. The
collateral held varies, but may include securities, real estate, inventory,
plant, or equipment. Bancorp had commitments outstanding to extend credit
totaling $495,474 at June 30, 2004 and $480,632 at December 31, 2003.
Management does not anticipate any material losses as a result of these
commitments.
NOTE 3: COMPREHENSIVE INCOME
Bancorp discloses comprehensive income in the “Consolidated Statements of
Changes in Shareholders’ Equity.” Disclosure of the reclassification
adjustments for the six and three months ended June 30, 2004 and 2003 are shown
in the table below.
NOTE 4: ACCOUNTING FOR DERIVATIVES
Bancorp follows the provisions of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, in accounting for its derivative
activities. Bancorp has interest rate swaps that are accounted for as fair
value hedges under SFAS No. 133. Bancorp utilizes interest rate swap
agreements to effectively modify its exposure to interest rate risk by
converting certain fixed rate assets to a floating rate. The use of these
interest rate swaps allows Bancorp’s subsidiary banks to offer a long-term
fixed-rate loan to commercial borrowers. The interest rate swaps allow Bancorp
to convert the fixed interest rate to a variable rate that better suits its
funding position. The swap agreements involve the receipt of floating rate
amounts in exchange for fixed interest payments
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over the life of the agreements
without an exchange of the underlying principal amount. The swaps are
accounted for under the short-cut method. These contracts are designated as
hedges of specific assets. The net interest receivable or payable on swaps is
accrued and recognized as an adjustment to the interest income or expense of
the hedged asset. At June 30, 2004 and 2003, Bancorp had interest rate swaps
with a notional value of $12,046 and $11,840, respectively. The fair value of
the swaps was an unrealized gain of $201 at June 30, 2004 and an unrealized
loss of $631 at June 30, 2003. These amounts are included with other assets
on the balance sheet. A corresponding fair value adjustment
was also included on the balance sheet as a hedged item.
Bancorp is exposed to losses if a counterparty fails to make its payment under
a contract in which Bancorp is in the receiving position. Although collateral
or other security may not be obtained, Bancorp minimizes its credit risk by
monitoring the credit standing of each counterparty and believes that each will
be able to fully satisfy its obligation under the agreement.
NOTE 5: CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUST
The corporation-obligated mandatorily redeemable capital securities (the
capital securities) of subsidiary trust, which appears on the balance sheet,
are commonly known as Trust Preferred Securities. The subsidiary trust holds
solely the junior subordinated debt securities of Bancorp (the debentures).
Capital securities were issued in third quarter of 2003 by a statutory business
trust — First Financial (OH) Statutory Trust II and in the third quarter of
2002 by another statutory business trust — First Financial (OH) Statutory Trust
I. Bancorp owns 100% of the common equity of both of the trusts. The trusts
were formed with the sole purpose of issuing the capital securities and
investing the proceeds from the sale of such capital securities in the
debentures. The debentures held by the trust are the sole assets of the trust.
Distributions on the capital securities are payable quarterly at a variable
rate of interest, which is equal to the interest rate being earned by the trust
on the debentures and are recorded as interest expense of Bancorp. The
interest rate is variable and is subject to change every three months. The
base index is three month LIBOR (London Inter-Bank Offered Rate). On June 30,
2004, the rates on Trust I and Trust II were 4.99% and 4.21%, respectively.
Bancorp has the option to defer interest for up to five years on the
debentures. However, the covenants prevent the payment of dividends on common
stock if the interest is deferred. The capital securities are subject to
mandatory redemption, in whole or in part, upon repayment of the debentures.
Bancorp has entered into agreements which, taken collectively, fully or
unconditionally guarantee the capital securities subject to the terms of the
guarantees. The debentures issued in 2003 are first redeemable, in whole or in
part, by Bancorp on September 30, 2008 and mature on September 30, 2033. The
amount outstanding, net of offering costs, as of June 30, 2004 was $20,000.
The debentures issued in 2002 are first redeemable, in whole or in part, by
Bancorp on September 25, 2007 and mature on September 25, 2032. The amount
outstanding, net of offering costs, as of June 30, 2004 was $10,000.
During the first quarter of 2004, Bancorp deconsolidated the accounts of these
trust preferred entities in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 46, “Consolidation of Variable Interest
Entities”. The deconsolidation of the net assets increased Bancorp’s
consolidated debt obligation by $930, the difference representing Bancorp’s
common ownership in the trusts. The deconsolidation has no impact on Bancorp’s
liquidity position because it continues to be obligated to repay the debentures
held by the trust preferred entities and guarantees repayment of the capital
securities issued by the trusts.
The debentures currently qualify as Tier I capital under Federal Reserve Board
guidelines. The
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Federal Reserve Board is currently evaluating whether the
capital securities will continue to qualify as Tier I capital due to the
deconsolidation of the related trust preferred entities. If the Federal
Reserve Board does not qualify the capital securities as Tier I capital, the
effect of the change would be minimal to Bancorp’s regulatory capital ratios.
Therefore, Bancorp would continue to have capital ratios that are well above
the minimum regulatory requirements.
NOTE 6: STOCK OPTIONS
As of June 30, 2004, Bancorp had two stock-based compensation plans. Bancorp
accounts for those plans under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net income
and earnings per share if Bancorp had applied the fair value recognition
provisions of FASB Statement No. 123, “Accounting for Stock-Based
Compensation,” to stock-based employee compensation.
NOTE 7: EMPLOYEE BENEFIT PLANS
FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions
and Other Postretirement Benefits,” requires additional disclosures about
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other postretirement benefit plans. The provisions
of this Statement are effective for interim periods beginning after December
15, 2003. The components for earlier interim periods presented for comparative
purposes have been restated for the components of net benefit cost.
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Bancorp sponsors a non-contributory defined benefit pension plan covering
substantially all employees. Bancorp expects to contribute $6,696 to its
pension plan in 2004. The following table sets forth information concerning
amounts recognized in Bancorp’s Consolidated Balance Sheets and Consolidated
Statements of Earnings.
Some of Bancorp’s subsidiaries maintain health care and, in limited instances,
life insurance plans for current retired employees. The following table sets
forth the components of net periodic postretirement benefit costs.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act (the Act) of 2003 was enacted. Bancorp elected the deferral
provided by Financial Staff Position No. FAS 106-1. Any measures of the net
periodic postretirement benefit cost in the financial statements or the
accompanying notes do not reflect the effects of the Act on the plan. Specific
authoritative guidance on the accounting for the federal subsidy is pending and
the guidance, when issued, could require Bancorp to change previously reported
information. However, Bancorp anticipates the effect of this Act to be
immaterial.
NOTE 8: OTHER MATTERS
Core deposit intangibles and mortgage servicing rights are to be amortized over
their useful lives. Core deposit balances are being amortized over varying
periods, none of which exceeds 10 years.
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ITEM 2-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
SELECTED QUARTERLY FINANCIAL DATA
NET INTEREST INCOME
Net interest income, Bancorp’s principal source of earnings, is the amount by
which interest and fees generated by earning assets exceed the interest costs
of liabilities obtained to fund them. For analytical purposes, net interest
income is also presented in the table that follows adjusted to a tax equivalent
basis assuming a 35% marginal tax rate for interest earned on tax-exempt assets
such as municipal loans, tax-free leases, and investments. This is to recognize
the income tax savings that facilitates a comparison between taxable and
tax-exempt assets.
Net interest income for the second quarter of 2004 was $1,179 less than in the
second quarter of 2003, a decline of 3.17%. The major contributing factor to
the decline in net interest income was net interest margin compression Bancorp
experienced during 2003 due to the asset-sensitive position of Bancorp’s
balance sheet. This margin compression was the result of the continued
downward repricing of assets without a like decrease in deposit liability
rates. The net interest margin began to stabilize in the fourth quarter of
2003 and this stabilization has continued in 2004. Net interest income on a
linked quarter basis (second quarter 2004 compared to first quarter 2004)
remained relatively stable decreasing by only $157 or 0.43 percent. Net
interest income for 2004 on a year-to-date basis
decreased $2,258 or 3.03% from the comparable period in 2003. Bancorp’s net
interest margin decreased to 3.98% in the second quarter of 2004 from 4.17% in
the second quarter of 2003. Year-to-date net interest margin was 3.99%
compared to 4.27% in 2003. Given the Federal Reserve’s 25-basis-point increase
in rates on June 30, 2004, Bancorp expects a continued stable net interest
margin with potential for improvement depending on economic and competitive
conditions.
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Average outstanding loan balances for the second quarter of 2004 increased
1.68% and year-to-date average loan balances increased 1.80% from the
comparable periods a year ago. This increase was achieved even though Bancorp
sold approximately $42.2 million of loans since the second quarter of 2003
related to: (1) the sale of a banking center in December of 2003, (2) the sale
of distressed loans in December of 2003, and (3) the sale of mobile home loans
which closed in the first quarter of 2004. The primary area of loan growth has
been in the commercial real estate category. On a linked-quarter basis,
average outstanding loan balances were 1.39 percent higher, reflecting growth
in commercial and residential real estate, installment, and real estate
construction loans as demand improved primarily in Bancorp’s southwestern Ohio
market.
Average deposit balances for the second quarter decreased $23,915 or 0.81% and
year-to-date average deposits were relatively flat from the comparable periods
a year ago. Deposit balances were impacted by the sale of two banking centers
since the second quarter of 2003, which reduced deposit balances by $53
million. Bancorp also opened three new banking centers in growing markets in
2003, two of which were in the fourth quarter. Additionally, a new banking
center was opened in the second quarter of 2004.
* Margins are calculated using net interest income annualized divided by average earning assets
RATE/VOLUME ANALYSIS
The impact of changes in volume and interest rates on net interest income is
illustrated in the following table. As shown, the decrease in market interest
rates had a significant effect on Bancorp’s rates impacting both interest
income and interest expense for both the six months and quarter ended June 30,
2004 in comparison to 2003. The decrease in rates affected interest income
more significantly
than interest expense due to the asset-sensitive position of Bancorp’s balance
sheet. Bancorp’s adjustable and variable rate loans repriced downward at a
greater magnitude than Bancorp was able to lower its deposit costs. The
increase in volume on earning assets affected interest income more than the
increase in volume on interest-bearing liabilities affected interest expense.
While the effect of the change in volume was to increase net interest income,
the change in the rates was greater causing overall net interest income to
decrease for both the quarter and the year of 2004 from 2003. The change in
interest due to the combined effect of both rate and volume has been allocated
to the volume and rate variance on a prorated basis.
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OPERATING RESULTS
Net earnings for the first six months of 2004 were $20,285 which was a decrease
of $956 or 4.50% from the same period in 2003. A major contributing factor to
the decrease in net operating income from a year ago was the $2,258 decrease in
net interest income as outlined in the “Rate/Volume Analysis” and “Net Interest
Income” sections. Noninterest expense which was $3,057 more than the same
period a year ago also contributed to the decline in net earnings. A decline
in the provision for loan loss expense of $2,313 from the first half of 2003
and an increase in noninterest income of $1,290 for the same period partially
offset the negative variances discussed previously.
Second quarter 2004 noninterest income was $14,905, an increase of 4.92% from
the second quarter of 2003. Service charge income decreased $129 or 2.62% from
the same quarter a year ago, largely due to the sale of $53 million in retail
deposit balances since the second quarter of 2003. Trust revenues for the
second quarter of 2004 increased 14.42% or $508 more than the comparable period
last year primarily as a result of year-over-year market value improvements.
The other category of noninterest income increased $285 or 4.92% from a year
ago. Included in other noninterest income for the second quarter of 2004 was
the recapture of impairment charges on the mortgage-servicing assets of
approximately $441 compared with impairment charges of $440 for the second
quarter of 2003. The positive swing in this category was offset by a decrease
in gains on sale of mortgage loans of $973 to $408 in the second quarter of
2004 from $1,381 in the comparable period a year ago.
Year-to-date noninterest income increased 4.60% to $29,346 in 2004. This
increase was primarily the result of an increase in trust fees, additional life
insurance income, and increased brokerage fees. Recapture of impairment on the
mortgage-servicing assets was approximately $687 in 2004 compared
with impairment charges of $628 in 2003. This positive swing was also offset
on a year-to-date basis by a decrease in gains on sale of mortgage loans of
$1,815 to $697 in 2004 from $2,512 in the comparable period a year ago.
Total noninterest expense increased $1,572 or 4.94% for the second quarter of
2004 from the second quarter of 2003. Salaries and employee benefits increased
$1,028 or 5.70%. Salary expense for the second quarter of 2004 increased $154
or 1.14% while employee benefits increased $874 or 19.44%. In the benefits
category, the primary areas of increase were incentive bonus and pension
expense. Net occupancy expenses for the second quarter of 2004 increased $152
or 8.37% as a result of increased building rent, depreciation, and related
expenses. Data processing expense for the quarter increased $242 or 15.96% due
primarily to a reclassification of certain credit-card and merchant processing
expenses from other noninterest expense. Other noninterest expense on a
quarterly and year-to-date basis was impacted by costs associated with
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the
mobile home loan sale completed in the first quarter of 2004, direct consulting
work in regard to Sarbanes-Oxley Section 404 internal control documentation and
testing, and the executive search. Year-to-date noninterest expense for 2004
was $3,057 or 4.81% more than 2003 as a result of higher salaries and employee
benefits, net occupancy expenses, data processing, and other expense as
discussed above.
INCOME TAXES
For the first six months of 2004, income tax expense was $9,742 compared to
$10,498 for the same period in 2003, or a decrease of $756. In 2004, $9,745 of
the tax expense was related to operating income with a tax benefit of $3
related to securities transactions. In the first six months of 2003, income
tax expense related to operating income was $10,546, with a tax benefit of $48
related to securities transactions.
Income tax expense for the second quarter of 2004 was $4,936, a decrease of $80
when compared to $5,016 reported for the same period in 2003. Tax expense
relating to operating income totaled $4,938 and $5,074 for the quarters ended
June 30, 2004 and 2003, respectively, with a tax benefit related to securities
transactions of $2 and $58 for the second quarters of 2004 and 2003,
respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management’s periodic
evaluation of the adequacy of the allowance is based on Bancorp’s 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, current economic conditions, and other relevant 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 evaluation of these
factors is completed by a group of senior officers from the risk management,
credit administration, financial, and lending areas.
The provision for loan loss expense for the second quarter of 2004 was $2,243
compared to $3,942 for the same period in 2003. Net charge-offs of $2,091
for the second quarter were $1,280 less than the $3,371 net charge-offs for the
second quarter of 2003. Year-to-date net charge-offs were $4,790 in 2004, down
$1,667 from the $6,457 recorded in 2003. Improvements in commercial loans
charged-off — partially offset by higher consumer charge-offs — and continued
strong recoveries on commercial and consumer loans positively impacted net
charge-offs for both the quarter and year-to-date. The percentage of net
charge-offs to average loans for the second quarter of 2004 was 0.29% compared
to
0.48% for the same period in 2003. The net charge-offs percentage for the
second quarter of 2004 was at the lowest level since June of 2000. The
percentage of net charge-offs to average loans was 0.34% for year-to-date 2004,
compared to 0.47% for the same period in 2003. Bancorp continued to maintain
appropriate reserves with an allowance to ending loans ratio of 1.65% at
quarter end versus 1.73% for the same quarter a year ago. It is management’s
belief that the allowance for loan losses is adequate to absorb inherent credit
losses.
At June 30, 2004 and 2003, the recorded investment in loans that are considered
to be impaired under FASB Statement No. 114 was $2,653 and $5,959,
respectively, all of which were on a nonaccrual basis. The related allowance
for loan losses on these impaired loans was $1,248 at
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June 30, 2004, and $784
at June 30, 2003. At June 30, 2004 and 2003, there were no impaired loans that
did not have an allowance for loan losses. The average recorded investment in
impaired loans for the quarter ended June 30, 2004, and 2003, was approximately
$2,971 and $5,969. For the six months and quarter ended June 30, 2004,
Bancorp recognized interest income on those impaired loans of $99 and $47
compared to $33 and $13 for the same period in 2003. Bancorp recognizes income
on impaired loans using the cash basis method. The table that follows
indicates the activity in the allowance for loan losses for the quarters
presented.
NONPERFORMING/UNDERPERFORMING ASSETS
Total underperforming assets, which includes nonaccrual loans, restructured
loans, other real estate owned, and loans 90 days or more past due and still
accruing, decreased $12,659 to $28,595 at the end of the second quarter 2004
from $41,254 at the end of the second quarter 2003. On a linked quarter basis,
total underperforming assets decreased $5,779. Nonaccrual loans are composed
primarily of commercial, multi-family, and 1-4 family residential properties.
Nonaccrual loans decreased $5,487 from the second quarter of 2003, and $3,863
from the linked quarter. Restructured loans decreased significantly from
$7,188 a year ago to $2,936 at June 30, 2004. Other real estate owned
decreased $151 from the second quarter of 2003 and $855 from the linked
quarter.
The nonperforming assets to ending loans ratio decreased to 0.96% as of June
30, 2004, from 1.33% as of the end of the second quarter of 2003. This is also
a significant improvement from the linked-quarter percentage of 1.16%.
Accruing loans past due 90 days or more decreased 79.34% to $721 at the end of
the second quarter of 2004 from $3,490 at the end of the second quarter of
2003. This represents Bancorp’s lowest level
of 90-days-past-due loans in over five years.
Accruing loans, including loans impaired under FASB Statement No. 114, which
are past due 90 days or more, where there is not a likelihood of becoming
current are transferred to nonaccrual loans. However, those loans which
management believes will become current and therefore accruing are classified
as “Accruing loans 90 days or more past due” until they become current.
Bancorp does not have a concentration of credit in any particular industry.
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The table that follows shows the categories that are included in nonperforming
and underperforming assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management is the process by which Bancorp provides for the
continuing flow of funds necessary to meet its financial commitments on a
timely basis. These commitments include withdrawals by depositors, funding
credit commitments to borrowers, shareholder dividends, paying expenses of
operations, and funding capital expenditures.
Liquidity is derived primarily from deposit growth, maturing loans, the
maturity of investment securities, access to other funding sources and markets,
and a strong capital position. Total year-to-date average deposits are down
$900 from the prior year. Average deposits on a linked quarter basis decreased
0.26%. Short-term borrowings decreased $2,398 from year-end, while long-term
borrowings increased $24,547, in conjunction with asset/liability management
and funding strategies.
The principal source of asset-funded liquidity is marketable investment
securities, particularly those of shorter maturities. At June 30, 2004,
securities maturing in one year or less amounted to $16,085, representing 2.17%
of the total of the investment securities portfolio. In addition, other types
of assets such as cash and due from banks, federal funds sold and securities
purchased under agreements to
resell, as well as loans and interest-bearing deposits with other banks
maturing within one year, are sources of liquidity. Total asset-funded sources
of liquidity at June 30, 2004, amounted to $672,305, representing 17.03% of
total assets. Sources of long-term asset funded liquidity are derived from the
maturity of investment securities and maturing loans in excess of one year.
At June 30, 2004, Bancorp had classified $728,016 in investment securities
available-for-sale. Management examines Bancorp’s liquidity needs in
establishing this classification in accordance with the FASB Statement No. 115
on accounting for certain investments in debt and equity securities.
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Liquidity is very important and as such is both monitored and managed closely
by the asset/liability committee at each affiliate. Liquidity may be used to
fund capital expenditures. Capital expenditures were $3,932 for the first six
months of 2004. In addition, remodeling is a planned and ongoing process given
the 103 offices of Bancorp and its subsidiaries. Material commitments for
capital expenditures as of June 30, 2004 were approximately $8,897 which
primarily reflects commitments for two new branches. Management believes that
Bancorp has sufficient liquidity to fund its current commitments.
CAPITAL ADEQUACY
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
risked-based capital is Tier 1 capital plus Tier 2 supplementary capital, which
is primarily the allowance for loan losses subject to certain limits. The
leverage ratio is a result of Tier 1 capital divided by average total assets
less certain intangibles.
Bancorp’s Tier I ratio at June 30, 2004, was 12.98%, its total risked-based
capital was 14.24% and its leverage ratio was 9.33%. While Bancorp
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 following table illustrates the risk-based capital calculations and ratios
for the last five quarters.
17
FORWARD-LOOKING INFORMATION
The Form 10-Q should be read in conjunction with the consolidated financial
statements, notes and table included elsewhere in the report and in the First
Financial Bancorp. Annual Report on Form 10-K for the year ended December 31,
2003.
Management’s analysis may contain forward-looking statements that are provided
to assist in the understanding of anticipated future financial performance.
However, such performance involves risks and uncertainties that may cause
actual results to differ materially. 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, and interest rates. For further discussion of certain
factors that may cause such forward-looking statements to differ materially
from actual results, refer to the 2003 Form 10-K.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of Bancorp comply with U.S. generally
accepted accounting principles and conform to general practices within the
banking industry. These policies require estimates and assumptions. Changes
in underlying factors, assumptions, or estimates in any of these areas could
have a material impact on Bancorp’s future financial condition and results of
operations. In management’s opinion, some of these areas have a more
significant impact than others on Bancorp’s financial reporting. For Bancorp,
these areas currently include accounting for the allowance for loan losses,
pension costs, and goodwill.
Allowance for Loan Losses—The level of the allowance for loan losses 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 of allowance
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.
Pension—Bancorp sponsors a non-contributory defined pension plan covering
substantially all
employees. In accordance with applicable accounting rules, Bancorp does not
consolidate the assets and liabilities associated with the pension plan. At
the end of 2003, Bancorp’s fair value of the plan assets was less than its
benefit obligation. Therefore, Bancorp recognized an accrued benefit
liability. The measurement of the accrued benefit liability and the annual
pension expense involves actuarial and economic assumptions. The assumptions
used in pension accounting relate to the discount rates, the expected return on
plan assets, and the rate of compensation increase.
Goodwill—Statement of Financial Accounting Standards No. 141 “Business
Combinations” and No. 142 “Goodwill and Other Intangible Assets” were issued in
June of 2001 and were effective for fiscal years beginning after December 15,
2001. Under these rules, goodwill and intangible assets deemed to have
indefinite lives, if any, will no longer be amortized, but will be subject to
annual impairment tests in accordance with the Statements. Bancorp has
selected October 1 as its date for annual impairment testing.
18
ACCOUNTING AND REGULATORY MATTERS
The $8,729 in lease financing presented on Bancorp’s balance sheet in the loan
portfolio was reviewed in the first quarter of 2003 and has been determined to
be largely operating leases rather than direct financing leases, as they are
currently reported. Due to the immateriality of the lease portfolio, amounts
currently presented as direct financing leases will continue to be reported as
such until their maturity. The related balance sheet and income statement
impact of the misclassification is immaterial. The difference in presentation
between direct financing leases and operating leases is in the asset
classification on the balance sheet and the timing and classification of the
income from the transactions. Operating leases are reported as fixed assets
with periodic depreciation expense and rental income, whereas direct financing
leases are reported as loan assets with periodic interest income.
Management is not aware of any other events or regulatory recommendations that,
if implemented, are likely to have a material effect on Bancorp’s liquidity,
capital resources, or operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As described in Bancorp’s Form 10-K for the year ended December 31, 2003,
Bancorp’s market risk is composed primarily of interest rate risk. There have
been no material changes in market risk or the manner in which Bancorp manages
market risk since December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
Bancorp has established controls and other procedures designed to ensure that
the information required to be disclosed in this report is recorded, processed,
summarized, and reported within the required time periods (the disclosure
controls and procedures). Bancorp’s Interim Chief Executive Officer and Chief
Financial Officer, together with members of senior management, have evaluated
the disclosure controls and procedures as of the end of the period covered by
this report. Based upon that evaluation, Bancorp’s Interim Chief Executive
Officer and Chief Financial Officer have concluded that the disclosure controls
and procedures are effective (i) to ensure that material information relating
to Bancorp, including its consolidated subsidiaries, is communicated to them on
a timely basis, and (ii) to accomplish the purposes for which they were
designed.
There were no changes in Bancorp’s internal control over financial reporting
that occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, Bancorp’s internal
control over financial reporting.
19
(Dollars in thousands)
June 30,
December 31,
2004
2003
(Unaudited)
$
142,307
$
183,612
3,534
5,014
419
607
13,090
18,399
728,016
794,762
677,355
666,315
79,386
73,260
1,535,508
1,466,153
579,010
560,061
20,694
21,680
8,729
12,241
2,900,682
2,799,710
27
86
47,824
47,771
2,852,831
2,751,853
60,314
59,050
28,444
27,379
8,065
7,530
12,075
6,227
99,657
101,629
$
3,948,752
$
3,956,062
$
407,107
$
414,785
2,512,545
2,530,880
2,919,652
2,945,665
73,590
106,692
180,000
150,000
2,921
2,217
256,511
258,909
347,526
322,979
30,930
0
0
30,000
32,930
32,026
3,587,549
3,589,579
395,584
395,752
57,443
50,325
(7,273
)
2,344
(3,865
)
(3,397
)
(80,686
)
(78,541
)
361,203
366,483
$
3,948,752
$
3,956,062
Table of Contents
(Unaudited)
(Dollars in thousands, except per share data)
Six months ended
Three months ended
June 30,
June 30,
2004
2003
2004
2003
$
84,983
$
93,122
$
42,461
$
46,418
13,054
10,478
6,241
5,220
2,830
3,296
1,381
1,632
15,884
13,774
7,622
6,852
62
79
34
28
20
111
9
37
100,949
107,086
50,126
53,335
18,699
23,480
9,037
11,396
1,025
910
526
530
8,389
8,043
4,226
4,112
679
238
337
118
28,792
32,671
14,126
16,156
72,157
74,415
36,000
37,179
4,843
7,156
2,243
3,942
67,314
67,259
33,757
33,237
9,407
9,521
4,794
4,923
7,922
7,229
4,030
3,522
2,465
2,349
1,280
1,211
697
2,512
408
1,381
(3
)
(8
)
(1
)
(36
)
8,858
6,453
4,394
3,205
29,346
28,056
14,905
14,206
37,575
36,219
19,056
18,028
4,173
3,894
1,968
1,816
3,604
3,648
1,800
1,847
3,621
3,003
1,758
1,516
1,458
1,489
718
723
1,400
1,560
694
617
2,389
1,927
1,139
927
436
412
220
211
11,977
11,424
6,036
6,132
66,633
63,576
33,389
31,817
30,027
31,739
15,273
15,626
9,742
10,498
4,936
5,016
$
20,285
$
21,241
$
10,337
$
10,610
$
0.46
$
0.48
$
0.24
$
0.24
$
0.46
$
0.47
$
0.24
$
0.24
$
0.30
$
0.30
$
0.15
$
0.15
43,908,838
44,689,019
43,868,314
44,486,775
43,971,919
44,783,104
43,951,016
44,519,484
Table of Contents
Six months ended
June 30,
2004
2003
$
20,285
$
21,241
4,843
7,156
4,343
5,786
1,475
3,307
3
8
(55,916
)
(92,513
)
(697
)
(2,512
)
56,127
94,133
(49
)
(1,219
)
874
(149
)
(770
)
(1,771
)
(421
)
(1,279
)
2,434
(24
)
(566
)
(391
)
(397
)
219
31,568
31,992
0
43,492
124,807
237,772
(74,992
)
(421,786
)
11,217
2,257
(5,874
)
(1,162
)
1,480
1,421
188
27,136
(110,827
)
(93,835
)
2,781
1,907
3,154
2,574
(3,932
)
(3,465
)
(51,998
)
(203,689
)
(26,013
)
55,945
(2,398
)
96,529
24,547
35,421
(13,167
)
(13,379
)
(3,849
)
(14,247
)
5
80
(20,875
)
160,349
(41,305
)
(11,348
)
183,612
181,839
$
142,307
$
170,491
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited, dollars in thousands)
Six months ended
June 30,
2004
2003
$
29,359
$
33,062
$
9,334
$
10,405
$
5,799
$
100
$
2,225
$
2,279
$
1,531
$
2,434
Table of Contents
(Unaudited, dollars in thousands)
Six months ended
June 30,
2004
2003
$
366,483
$
377,603
20,285
21,241
(9,617
)
(309
)
10,668
20,932
(13,167
)
(13,379
)
(3,849
)
(14,247
)
5
80
0
(13
)
1,063
1,107
$
361,203
$
372,083
Table of Contents
JUNE 30, 2004
(Unaudited, dollars in thousands)
Table of Contents
Six months ended
Three months ended
June 30,
June 30,
2004
2003
2004
2003
$
20,285
$
21,241
$
10,337
$
10,610
(9,617
)
(269
)
(11,920
)
1,495
0
40
1
22
(9,617
)
(309
)
(11,921
)
1,473
$
10,668
$
20,932
$
(1,584
)
$
12,083
Table of Contents
Table of Contents
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Table of Contents
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
(Unaudited, dollars in thousands)
2004
2003
Jun. 30
Mar. 31
Dec. 31
Sep. 30
Jun. 30
(Dollars in thousands, except per share data)
$
10,337
$
9,948
$
8,841
$
7,824
$
10,610
0.24
0.23
0.20
0.18
0.24
0.24
0.23
0.20
0.18
0.24
2,859,043
2,819,711
2,805,667
2,829,582
2,811,848
767,667
799,823
798,727
778,365
747,090
13,827
12,279
13,559
15,845
13,619
3,640,537
3,631,813
3,617,953
3,623,792
3,572,557
3,907,566
3,894,900
3,886,012
3,894,426
3,841,251
405,098
395,894
399,611
392,862
406,730
2,514,194
2,530,912
2,553,934
2,592,383
2,536,477
2,919,292
2,926,806
2,953,545
2,985,245
2,943,207
564,710
542,380
516,952
486,825
481,731
364,574
367,628
364,653
366,978
371,219
9.33
%
9.44
%
9.38
%
9.42
%
9.66
%
1.06
%
1.03
%
0.90
%
0.80
%
1.11
%
11.40
%
10.88
%
9.62
%
8.46
%
11.46
%
3.98
%
4.00
%
3.74
%
3.98
%
4.17
%
4.07
%
4.10
%
3.84
%
4.08
%
4.28
%
Table of Contents
Quarter Ended
2004
2003
Jun. 30
Mar. 31
Dec. 31
Sep. 30
Jun. 30
(Dollars in thousands)
$
50,126
$
50,823
$
49,055
$
52,148
$
53,335
14,126
14,666
14,962
15,775
16,156
36,000
36,157
34,093
36,373
37,179
819
860
885
900
918
$
36,819
$
37,017
$
34,978
$
37,273
$
38,097
3,640,537
3,631,813
3,617,953
3,623,792
3,572,557
3.98
%
4.00
%
3.74
%
3.98
%
4.17
%
4.07
%
4.10
%
3.84
%
4.08
%
4.28
%
Table of Contents
Table of Contents
Table of Contents
Quarter Ended
2004
2003
Jun. 30
Mar. 31
Dec. 31
Sep. 30
Jun. 30
(Dollar in thousands)
$
47,672
$
47,771
$
48,680
$
48,876
$
48,305
2,243
2,600
7,422
4,364
3,942
(3,289
)
(4,282
)
(9,482
)
(5,460
)
(4,199
)
1,198
1,583
1,151
900
828
(2,091
)
(2,699
)
(8,331
)
(4,560
)
(3,371
)
$
47,824
$
47,672
$
47,771
$
48,680
$
48,876
1.65
%
1.68
%
1.71
%
1.73
%
1.73
%
36.42
%
36.97
%
12.14
%
16.48
%
19.72
%
22.87
17.66
5.73
10.68
14.50
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
PART II-OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities.
Issuer Purchases of Equity Securities
20
21
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 2004, Bancorp held its annual meeting of shareholders, the
results of which follow:
1) Election of three directors:
Directors whose terms continue beyond the Annual Meeting in 2004:
Class I expiring in 2005:
Carl R. Fiora
Class II expiring in 2006:
James C. Garland
No other matters were brought before the meeting for a vote.
Item 5. Other information
As planned, the process of regionalization progressed on July 16, 2004,
with the merger of The Clyde Savings Bank Company, Clyde, Ohio, and
Indiana Lawrence Bank, North Manchester, Indiana, into the Community
First Bank & Trust affiliate headquartered in Celina, Ohio.
Concurrently, the $8 million Kewanna, Indiana, branch of Indiana
Lawrence Bank was sold to Community State Bank of Royal Center, Indiana.
22
Item 6. Exhibits and Reports on Form 8-K
23
(e)
The following table shows the total number of shares
repurchased in the second quarter of 2004.
(a)
(b)
(c)
(d)
Total Number
of Shares
Maximum Number
Total Number
Average
Purchased as
of Shares that may
of Shares
Price Paid
Part of Publicly
yet be purchased
Period
Purchased (1)
Per Share
Announced Plans (2)
Under the Plans
42,299
$
18.12
40,000
8,500,104
34,400
16.40
32,000
8,468,104
66,400
17.69
42,000
8,426,104
143,099
$
17.51
114,000
8,426,104
(1)
The number of shares purchased in column (a) and the average price paid
per share in column (b) include the purchase of shares other than through
publicly announced plans. The shares purchased other than through
publicly announced plans were purchased pursuant to Bancorp’s Thrift Plan,
Director Fee Stock Plan, 1999 Stock Option Plan for Non-Employee Directors
and 1999 Stock Incentive Plan for Officers and Employees. (The last two
plans are referred to hereafter as the Stock Option Plans.) The following
tables show the number of shares purchased pursuant to those plans and the
average price paid per share. The purchases for the Thrift Plan and the
Director Fee Stock Plan were made in open-market transactions. Under the
Stock Option Plans, shares were purchased from plan participants at the
then current market value in satisfaction of stock option exercise prices.
Table of Contents
(2)
Bancorp has two publicly announced stock repurchase plans under which it
is currently authorized to purchase shares of its common stock. Neither
of the plans expired during this quarter. The table that follows provides
additional information regarding those plans.
Total Shares
Announcement
Approved for
Expiration
Date
Repurchase
Date
2,243,715
None
7,507,500
None
Table of Contents
% of Total
Votes
Name
Term
Votes For
Shares Voted
Withheld
3 years
25,359,775
98.29
378,607
3 years
22,366,042
86.69
3,372,340
3 years
25,222,372
97.76
516,010
Stephen S. Marcum
Steven C. Posey
Murph Knapke
Barry S. Porter
Table of Contents
(a)
Exhibits:
3.1
Articles of Incorporation, as amended as of April 27,
1999 and incorporated herein by reference to Exhibit 3 to the Form
10-Q for the quarter ended June 30, 1999. File No. 000-12379.
3.2
Amended and Restated Regulations, as amended of April 22,
2003 and incorporated herein by reference to Exhibit 3.2 to the
Form 10-Q for the quarter ended June 30, 2003. 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 Exhibit 4 to the 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 Exhibit 4.1 to the
Form 10-Q for the quarter ended March 31, 1998. File No.
000-12379.
4.3
Second Amendment to Rights Agreement dated as of December
5, 2003 and incorporated herein by reference to Exhibit 4.1 to
Bancorp’s Form 8-K filed on December 5, 2003. File No. 000-12379.
4.4
No instruments defining the rights of holders of
long-term debt of Bancorp are filed herewith. Pursuant to
(b)(4)(iii) of Item 601 of Regulation S-K, Bancorp agrees to
furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
10.1
Agreement between Mark W. Immelt and First Financial
Bancorp. dated August 4, 2000 and incorporated herein by reference
to Exhibit 10.3 to the Form 10-Q for the quarter ended September
30, 2000. File No. 000-12379.
10.2
Amendment to Employment Agreement between Mark W. Immelt
and First Financial Bancorp. dated May 20, 2003 and incorporated
herein by reference to Exhibit 10.4 to the Form 10-Q for the
quarter ended June 30, 2003. File No. 000-12379.
10.3
Agreement between James C. Hall and First Financial
Bancorp. dated June 21, 2001 and incorporated herein by reference
to Exhibit 10.5 to the Form 10-K for the year ended December 31,
2001. File No. 000-12379.
10.4
Amendment to Employment Agreement between James C. Hall
and First Financial Bancorp. dated May 13, 2003 and incorporated
herein by reference to Exhibit 10.3 to the Form 10-Q for the
quarter ended June 30, 2003. File No. 000-12379.
10.5
Agreement between Charles D. Lefferson and First
Financial Bancorp. dated August 4, 2000 and incorporated herein by
reference to Exhibit 10.5 to the Form 10-K for the year ended
December 31, 2002. File No. 000-12379.
10.6
Amendment to Employment Agreement between Charles D.
Lefferson and First Financial Bancorp. dated May 23, 2003 and
incorporated herein by reference to Exhibit 10.5 to the Form 10-Q
for the quarter ended June 30, 2003. File No. 000-12379.
10.7
Agreement between C. Thomas Murrell, III and First
Financial Bancorp. dated April 30, 2003 and incorporated herein by
reference to Exhibit 10.6 to the Form 10-Q for the quarter ended
June 30, 2003. File No. 000-12379.
10.8
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.
10.9
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.
10.10
First Financial Bancorp. 1999 Stock Option 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.
10.11
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.
10.12
First Financial Bancorp. Director Fee Stock Plan,
amended and restated effective April 20, 2004.
10.13
Form of Executive Supplemental Retirement Agreement,
incorporated herein by reference to Exhibit 10.11 to the Form 10-K
for the year ended December 31, 2002. File No. 000-12379.
10.14
Form of Endorsement Method Split Dollar Agreement,
incorporated herein by reference to Exhibit 10.12 to the Form 10-K
for the year ended December 31, 2002. File No. 000-12379.
10.15
First Financial Bancorp. Deferred Compensation Plan,
effective June 1, 2003 and incorporated herein by reference to
Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2003.
File No. 000-12379.
10.16
Separation Agreement and Release between First Financial
Bancorp. and Stanley N. Pontius dated October 15, 2003 and
incorporated herein by reference to Exhibit 99.2 to Bancorp’s Form
8-K filed on October 16, 2003. File No. 000-12379.
23
Consent of Ernst & Young LLP, Independent Auditors,
incorporated herein by reference to Exhibit 23 to the Form 10-K
for the year ended December 31, 2003. File No. 000-12379.
31.1
Certification by Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Periodic Financial Report by Chief
Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2
Certification of Periodic Financial Report by Chief
Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b)
Reports on Form 8-K
On April 20, 2004, a Form 8-K was filed reporting the issuance of
the earnings press release for the first quarter of 2004, which
included the results of operations and financial condition for that
period.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
FIRST FINANCIAL BANCORP. | |
|
|
(Registrant) | |
|
|
||
|
/s/ C. Douglas Lefferson
|
/s/ J. Franklin Hall | |
|
|
|
|
|
C. Douglas Lefferson
|
J. Franklin Hall | |
|
Senior Vice President and
|
Vice President and Controller | |
|
Chief Financial Officer
|
(Principal Accounting Officer) | |
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Date 8/06/04
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Date 8/06/04 |
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EXHIBIT 10.12
FIRST FINANCIAL BANCORP.
DIRECTOR FEE STOCK PLAN
EFFECTIVE AS OF APRIL 20, 2004
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 amendment and restatement of the Plan set forth herein is effective as of April 20, 2004. The Plan originally was effective as of May 25, 1999, and amended as of February 27, 2001.
(b) The purpose of the Plan is to enable Directors of First Financial Bancorp. (the “Corporation”), at their election, 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, if and to the extent elected by them, in payment of all or a portion 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 purchase Common Shares on behalf of 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”).
(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 on behalf of the Corporation 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 or before April 26, 2004, each Director shall deliver to the Corporation an “election” on a form obtained from the Corporation (the “Election Form”) setting forth the percentage of the Director’s annual retainer that the Director elects to receive from the Corporation in Common Shares and the percentage of the Director’s annual retainer that the Director elects to receive in cash. An election remains in effect until the Director changes or terminates it by submitting a new Election Form to the Corporation at least 15 business days prior to the March 30 Payment Date.
(b) On March 30, June 30, September 30, and December 30 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) that each Director elects to receive in Common Shares (ii) divided by four.
(c) 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.
(d) No interest shall be paid or allocated on any amounts allocated to a Director’s Fee Account.
5. Purchase of Common Shares.
(a) The Independent Manager shall use the amounts allocated under Section 4 above to a Director’s Fee Account to purchase on behalf of the Corporation as many whole Common Shares as
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can be purchased with such amounts as soon as the Independent Manager determines that it is legally and commercially practical to buy the Common Shares then required for the Plan. 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 for the benefit of 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 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:
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(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 REGISTRATION 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, the Director’s compliance with the Corporation’s Insider Trading Policy and the Director’s compliance with all legal requirements pertaining to his sale of Common Shares, the Director (or, in the event of the 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 or a portion of the Common Shares then held in the Director’s Stock Account, 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.
(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
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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 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.
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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 Amendment and Restatement. The amendment and restatement of the Plan set forth herein is effective as of April 20, 2004. The Plan originally was effective as of May 25, 1999, and amended as of February 27, 2001.
IN WITNESS WHEREOF, the Corporation has hereunto caused its name to be subscribed to this Plan by its duly authorized representative on the 20th day of April, 2004.
| FIRST FINANCIAL BANCORP. | ||||
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By: | |||
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Bruce E. Leep, Interim President and | |||
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Chief Executive Officer | |||
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EXHIBIT 31.1
CERTIFICATIONS
I, Bruce E. Leep, Interim President and Chief Executive Officer of First
Financial Bancorp., certify that:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth quarter in case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over
financial reporting; and
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant’s internal
control over financial reporting.
1.
I have reviewed this quarterly report on Form 10-Q of First Financial
Bancorp.;
2.
Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
5.
The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent function):
/s/ Bruce E. Leep
Bruce E. Leep
Interim President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, C. Douglas Lefferson, Senior Vice President and Chief Financial Officer of
First Financial Bancorp., certify that:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth quarter in case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
1.
I have reviewed this quarterly report on Form 10-Q of First Financial
Bancorp.;
2.
Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
5.
The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent function):
/s/ C. Douglas Lefferson
C. Douglas Lefferson
Sr. Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORT BY CHIEF EXECUTIVE OFFICER
In connection with the Form 10-Q for the quarterly period ended June 30, 2004
of First Financial Bancorp. (the “Company”), as filed with the Securities and
Exchange Commission on August 6, 2004 (the “Report”), I, Bruce E. Leep, Interim
President and Chief Executive Officer of the Company, certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Bruce E. Leep
August 6, 2004
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(1)
The report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Interim President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF PERIODIC FINANCIAL REPORT BY CHIEF FINANCIAL OFFICER
In connection with the Form 10-Q for the quarterly period ended June 30, 2004
of First Financial Bancorp. (the “Company”), as filed with the Securities and
Exchange Commission on August 6, 2004 (the “Report”), I, C. Douglas Lefferson,
Senior Vice President and Chief Financial Officer of the Company, certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ C. Douglas Lefferson
August 6, 2004
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(3)
The report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(4)
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Senior Vice President and Chief Financial Officer