<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------------------------------------
FIRST FINANCIAL BANCORP.
(Exact name of registrant as specified in its charter)
------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio 6711 31-1042001
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------------------------------
Third and High Streets
Hamilton, Ohio 45011
(513) 867-4700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------------------------------------------------
Michael R. O'Dell
Senior Vice President, Chief Financial Officer and Secretary
First Financial Bancorp.
Third and High Streets
Hamilton, Ohio 45011
(513) 867-4700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------------------------------------------------------
Copy to:
NEIL GANULIN
FROST & JACOBS
2500 PNC CENTER
201 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 651-6800
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Approximate date of commencement of proposed sale
to the public: As soon as practicable after the
effective date of this Registration Statement.
--------------------------------------------------------------------------
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following box:[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (1) PRICE (1) FEE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Common Stock, par value
$8.00 per share 398,000 $33.875 $13,482,250 $4,650
<FN>
=========================================================================================
(1) ESTIMATED IN ACCORDANCE WITH RULE 457(f)(1) SOLELY FOR THE PURPOSE OF
CALCULATING THE REGISTRATION FEE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
=========================================================================================
</TABLE>
<PAGE> 2
FIRST FINANCIAL BANCORP. CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-4 ITEM PROXY STATEMENT CAPTION
------------- -----------------------
<S> <C> <C>
1. Forepart of Registration Statement Facing Page of Registration Statement; Cross Reference Sheet
and Outside Front Cover Page of Outside Front Cover Page of Proxy Statement-Prospectus;
Prospectus Introduction;
2. Inside Front and Outside Back Available Information; Documents Incorporated by Reference;
Cover Pages of Prospectus Table of Contents
3. Risk Factors, Ratio of Earnings to Introduction; Summary; Comparative Market and Dividend
Fixed Charges and Other Information; Principal Shareholders and Ownership By Management
Information
4. Terms of the Transaction Summary; Description of the Merger; Comparison of Common Stock
and Shareholders' Rights
5. Pro Forma Financial Information Pro Forma Consolidated Balance Sheet; Pro Forma Condensed
Consolidated Statements of Earnings; Pro Forma Consolidated
Selected Financial Data
6. Material Contacts with the Company Summary; Description of the Merger
Being Acquired
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to Be Underwriters
8. Interests of Named Experts and Not Applicable
Counsel
9. Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
10. Information with Respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect to S-2 or Documents Incorporated By Reference; Information About First
S-3 Registrants Financial; Comparative Market And Dividend Information
13. Incorporation of Certain Documents Incorporated By Reference
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-3 or S-2
Registrants
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or Not Applicable
S-3 Companies
17. Information with Respect to Information About the Business of Hastings Financial; Hastings Financial's
Companies Other than Consolidated Financial Statements; Management's Discussion and Analysis of
S-3 or S-2 Companies Financial Condition and Results of Operations of Hastings Financial; Comparative
Market and Dividend Information; Comparison of Common Stock and Shareholders'
Rights
18. Information if Proxies, Consents Notice of Special Meeting of Shareholders; Documents
or Authorizations are to be Incorporated By Reference; Introduction; Summary; Description of
Solicited the Merger; Principal Shareholders and Ownership By Management;
Information About the Business of Hastings Financial
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited or in an Exchange Offer
</TABLE>
<PAGE> 3
November __, 1996
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of Hastings Financial Corporation ("Hastings Financial")
to be held on December __, 1996 at ____ _.m. local time. At the Special Meeting,
you will be asked to consider and vote on certain matters, including a proposal
to approve the Plan and Agreement of Merger dated July 2, 1996 (the "Merger
Agreement") between First Financial Bancorp. ("First Financial") and Hastings
Financial, pursuant to which Hastings Financial will merge with and into First
Financial (the "Merger"). Upon consummation of the Merger, the aggregate number
of First Financial shares to which the holders of Hastings Financial shares
shall be entitled shall be determined by dividing $10,000,000 by the per share
value of First Financial shares, which figure will be determined and adjusted in
accordance with and as specified in the Merger Agreement, as summarized in the
accompanying Proxy Statement-Prospectus.
The Merger Agreement has been unanimously approved by your Board of
Directors and is recommended by the Board to you for approval. The enclosed
Notice of Special Meeting and Proxy Statement-Prospectus include a description
of the proposed Merger and provide specific information concerning the
transaction. Please read these materials and consider carefully the information
set forth in them.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, and promptly return the enclosed proxy form. If you attend the
Special Meeting, you may vote in person if you wish, even if you have previously
returned your proxy. The Merger is a significant step for Hastings Financial and
your vote on this matter is of great importance.
ON BEHALF OF THE BOARD OF DIRECTORS, I RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE MERGER BY MARKING THE ENCLOSED PROXY FORM "FOR" IN ITEM ONE.
Sincerely,
Larry J. Kornstadt
Chairman of the Board,
President and
Chief Executive Officer
<PAGE> 4
HASTINGS FINANCIAL CORPORATION
241 WEST STATE STREET
HASTINGS, MICHIGAN 49058
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER __, 1996
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Hastings Financial Corporation ("Hastings Financial") will
be held at the Main Office of National Bank of Hastings on December __, 1996 at
____ __.m., local time, to consider and act upon the following matters, each of
which is more completely set forth in the accompanying Proxy
Statement-Prospectus:
1. The approval of the Plan and Agreement of Merger dated July
2, 1996 by and between First Financial Bancorp. ("First Financial") and
Hastings Financial, a copy of which is attached hereto as Appendix A
(the "Merger Agreement"), and the transactions contemplated thereby,
including the merger of Hastings Financial with and into First
Financial (the "Merger"), pursuant to which the following will occur on
the effective date of the Merger (the "Effective Time"):
(a) Each of the outstanding shares of Hastings Financial
will be canceled and extinguished in consideration
and exchange for a number of shares of First
Financial specified by the Merger Agreement;
(b) Hastings Financial will merge with and into First
Financial at the Effective Time and First Financial
will be the continuing, surviving and resulting
corporation in the Merger; and
(c) National Bank of Hastings, Hastings Financial's only
subsidiary, will become a wholly owned subsidiary of
First Financial.
2. A proposal to permit the Special Meeting to be adjourned or
postponed, in the discretion of the proxies, which adjournment or
postponement could be used for the purpose, among others, of allowing
time for the solicitation of additional votes to approve the Merger
Agreement.
3. The transaction of such other business as may properly come
before the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on ___________,
1996, are entitled to receive notice of and to vote at the Special Meeting or
any adjournment thereof. Shareholders of Hastings Financial entitled to vote at
the Special Meeting may dissent from the Merger and obtain payment of the value
of their Hastings Financial Common Stock in the manner provided under Michigan
Business Corporations Act Sections 450.1761-450.1774, a copy of which is
attached hereto as Appendix C.
Whether or not you plan to attend the Special Meeting, please complete,
date, and sign the enclosed proxy form and return it at once in the stamped
return envelope. The submission of such Proxy does not affect your right to vote
in person in the event that you attend the Special Meeting.
By order of the Board of Directors
-----------------------------------
David C. Wren, Assistant Secretary
Hastings, Michigan
November __, 1996
<PAGE> 5
HASTINGS FINANCIAL CORPORATION
Proxy Statement For Special Meeting of Shareholders
To be Held December __, 1996
-------------------------
FIRST FINANCIAL BANCORP.
Prospectus
Up to 398,000 Shares of Common Stock, Par Value $8.00 Per Share
This Proxy Statement-Prospectus is being furnished to the shareholders
of Hastings Financial Corporation ("Hastings Financial") in connection with the
solicitation by the Board of Directors of Hastings Financial of proxies for use
at the Special Meeting of Shareholders ("Special Meeting") to be held December
__, 1996, at ____ _.m., local time, at the Main Office of National Bank of
Hastings, 241 West State Street, Hastings, Michigan 49058, and at any
adjournments thereof. This Proxy Statement-Prospectus and the accompanying form
of Proxy are being mailed to Hastings Financial's shareholders on or about
November __, 1996.
This Proxy Statement-Prospectus is also the prospectus of First
Financial Bancorp., an Ohio corporation ("First Financial"), in respect of up to
398,000 shares of First Financial's Common Stock, par value $8.00 per share (the
"First Financial Common Stock"), to be issued in connection with the merger of
Hastings Financial with and into First Financial (the "Merger"). First Financial
will be the surviving entity and National Bank of Hastings, the bank subsidiary
wholly owned by Hastings Financial, will become a wholly owned subsidiary of
First Financial.
As a result of the Merger, the aggregate consideration to be received
by all Hastings Financial shareholders is fixed in the Merger Agreement at
$10,000,000 (the "Merger Price"), payable in shares of First Financial Common
Stock. If the Effective Time is after January 1, 1997, the Merger Price will be
fixed at $10,000,000 plus a sum equal to National Bank of Hastings' earnings
after January 1, 1997, excluding transaction-related costs, payable in shares
of First Financial Common Stock. Each Hastings Financial shareholder who does
not dissent to the Merger will be entitled to receive from First Financial in
exchange for each share of Hastings Financial Common stock, par value $1.00 per
share (the "Hastings Financial Common Stock"), surrendered in the Merger a
number of shares of First Financial equal to the quotient (the "Exchange Ratio")
of the Merger Price divided by the average price of First Financial shares,
which figure will be determined and adjusted in accordance with and as specified
in the Merger Agreement, and further divided by the total number of shares of
Hastings Financial Common Stock outstanding immediately prior to the Effective
Time. See "INTRODUCTION--General."
The closing sales price of First Financial Common Stock on November __,
1996, the last trading date before the printing of the Proxy
Statement-Prospectus, was $_____. The Merger may be terminated by First
Financial if the average price, as defined in the Merger Agreement, of First
Financial Common Stock falls below $27.625 per share or by Hastings Financial if
the average price exceeds $37.375 per share.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement-Prospectus does not constitute an offer
to sell, or a solicitation of an offer to purchase, the securities offered by
this Proxy Statement-Prospectus, or the solicitation of a proxy, in any
jurisdiction in which, or from any person to whom, it is unlawful to make such
offer, or solicitation of an offer, or proxy solicitation. Neither the delivery
of this Proxy Statement-Prospectus nor any distribution of the securities
offered pursuant to this Proxy Statement-Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein or in the affairs of Hastings Financial or First
Financial since the date of the Proxy Statement-Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT ENTITY.
-------------------------
The date of this Proxy Statement-Prospectus is November __, 1996.
<PAGE> 6
AVAILABLE INFORMATION
---------------------
First Financial has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the "SEC") with
respect to the First Financial Common Stock to be issued in connection with the
Merger. As permitted by the rules and regulations of the SEC, this Proxy
Statement-Prospectus omits certain information contained in the Registration
Statement. Copies of that information may be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed fees.
In addition, First Financial is subject to the informational, reporting
and proxy statement requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the SEC. Copies of such reports, proxy
statements and other information can be obtained, at prescribed rates, from the
SEC by addressing written requests for such copies to the Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information can be inspected at the public reference
facilities referred to above and at the regional offices of the SEC as follows:
New York Regional Office Chicago Regional Office
7 World Trade Center Northwestern Atrium Center
Suite 1300 500 West Madison Street
New York, New York 10048 Suite 1400
Chicago, Illinois 60661
First Financial Common Stock is traded in the over-the-counter market
and quoted on the Nasdaq National Market System. Documents filed by First
Financial with the SEC can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
Hastings Financial is not subject to the requirements of the Exchange
Act.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM MICHAEL R. O'DELL, SENIOR VICE
PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY, FIRST FINANCIAL BANCORP.,
THIRD AND HIGH STREETS, HAMILTON, OHIO 45011. TELEPHONE REQUESTS MAY BE DIRECTED
TO FIRST FINANCIAL AT (513) 867-4700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER __, 1996 [5 DAYS BEFORE
MEETING DATE].
<PAGE> 7
The following documents previously filed with the SEC by First
Financial are hereby incorporated by reference herein:
1. First Financial's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 (the "First Financial Form 10-
K"); and
2. First Financial's Quarterly Report on Form 10-Q for the
quarters ended March 31 and June 30, 1996.
3. The following information set forth in the 1995 Annual Report
of First Financial to its shareholders:
(a) The information in the table set forth on page 48
under the caption "Quarterly Financial And Common
Stock Data."
(b) The information in the table set forth on page 22
under the caption "Table 1 - Financial Summary."
(c) The information set forth on pages 21 through 30
under the caption "Management's Discussion And
Analysis Of Financial Condition And Results Of
Operations."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement-Prospectus.
This Proxy Statement-Prospectus is accompanied by First Financial's
1995 Annual Report to Shareholders and First Financial's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.
Following the Merger, First Financial will continue to be subject to
the informational, reporting and proxy statement requirements of the Exchange
Act.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
INTRODUCTION
<S> <C>
General............................................................................................... 3
Record Date, Solicitation And Revocability Of Proxy................................................... 5
Vote Required......................................................................................... 5
Shares Outstanding.................................................................................... 6
Restrictions On Resale Of First Financial Common Stock................................................ 6
Other Matters......................................................................................... 7
SUMMARY
Terms Of The Merger Agreement......................................................................... 8
Reasons For The Merger................................................................................ 8
Approval Of Merger Agreement.......................................................................... 8
Other Possible Acquisition By First Financial......................................................... 12
Summary Of Selected Unaudited Financial Data And Per Share Data........................................ 13
Selected Unaudited Consolidated Financial Data And Per Share Data...................................... 14
Notes To Selected Unaudited Consolidated Financial Data And Per Share Data ............................ 16
DESCRIPTION OF THE MERGER
Background And Reasons For The Merger.................................................................. 18
Opinion Of Financial Advisor To Hastings Financial..................................................... 19
Structure Of The Merger ............................................................................... 22
Surrender Of Stock Certificates ....................................................................... 22
Fractional Interests .................................................................................. 23
Effective Time Of The Merger........................................................................... 23
Conditions To Consummation Of The Merger............................................................... 23
Termination Of The Merger ............................................................................. 25
Management Following The Merger........................................................................ 25
Interest Of Certain Persons In The Merger.............................................................. 26
Dissenters' Rights..................................................................................... 28
Federal Income Tax Consequences Of The Merger ......................................................... 31
Accounting Treatment................................................................................... 32
Regulatory Considerations ............................................................................. 33
Pro Forma Unaudited Financial Information.............................................................. 33
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET.................................................................. 35
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS......................................................... 36
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.............................................. 39
INFORMATION ABOUT FIRST FINANCIAL............................................................................... 41
INFORMATION ABOUT THE BUSINESS OF HASTINGS FINANCIAL
General................................................................................................ 42
Competition............................................................................................ 42
Regulation ............................................................................................ 43
Properties ............................................................................................ 43
Legal Proceedings...................................................................................... 43
Certain Transactions With Hastings Financial........................................................... 43
Selected Financial Data................................................................................ 44
Analysis Of Net Interest Income........................................................................ 45
Interest Income And Expense Rate/Volume Analysis....................................................... 46
Investment Securities.................................................................................. 46
Loan Portfolio......................................................................................... 47
Deposits............................................................................................... 50
Return On Equity And Assets............................................................................ 50
HASTINGS FINANCIAL CORPORATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993.................................................. 51
</TABLE>
1
<PAGE> 9
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
HASTINGS FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report Of Independent Auditors........................................................................ F-3
Consolidated Balance Sheets - December 31, 1995 And 1994...............................................F-4
Consolidated Statements Of Income -
Years Ended December 31, 1995, 1994 And 1993.........................................................F-5
Consolidated Statements Of Changes In Shareholders' Equity -
Years Ended December 31, 1995, 1994 And 1993.........................................................F-6
Consolidated Statements Of Cash Flows -
Years Ended December 31, 1995, 1994 And 1993.........................................................F-7
Notes To Consolidated Financial Statements.............................................................F-9
HASTINGS FINANCIAL CORPORATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995................................................... 57
HASTINGS FINANCIAL CORPORATION AND SUBSIDIARY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet - June 30, 1996............................................................. 60
Consolidated Statements Of Income -
Six Months Ended June 30, 1996 And 1995.............................................................. 61
Consolidated Statements Of Changes In Shareholders' Equity -
Six Months Ended June 30, 1996....................................................................... 62
Consolidated Statements Of Cash Flows -
Six Months Ended June 30, 1996 And 1995.............................................................. 63
Notes To Consolidated Financial Statements............................................................. 64
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT.............................................................. 66
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature of Trading Market............................................................................... 67
Dividends.............................................................................................. 68
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
Authorized But Unissued Shares......................................................................... 70
Dividend Rights........................................................................................ 70
Interested Shareholders................................................................................ 71
Continuing Directors................................................................................... 72
Directors.............................................................................................. 73
Quorum For Shareholders' Meetings...................................................................... 74
Meeting Participation By Use of Communication Equipment................................................ 74
Voting Rights.......................................................................................... 74
Special Meetings....................................................................................... 74
Preemptive Rights...................................................................................... 75
Liquidation Rights..................................................................................... 75
Redemption And Assessment.............................................................................. 75
Amendments To Articles And Code Of Regulations/By-Laws................................................. 76
First Financial Shareholder Rights Plan................................................................ 76
ADJOURNMENT OF THE SPECIAL MEETING.............................................................................. 77
EXPERTS......................................................................................................... 78
LEGAL MATTERS................................................................................................... 78
APPENDICES
Plan and Agreement of Merger....................................................................Appendix A
Fairness Opinion................................................................................Appendix B
Michigan Business Corporations Act Section 450.1762. Dissenters' Rights........................Appendix C
</TABLE>
2
<PAGE> 10
INTRODUCTION
General
- -------
This Proxy Statement-Prospectus and the accompanying form of proxy are
being furnished to the shareholders of Hastings Financial Corporation ("Hastings
Financial") in connection with the solicitation of proxies by the Board of
Directors of Hastings Financial for use at the Special Meeting of Shareholders
("Special Meeting") to be held on December __, 1996, at ____ _.m. local time.
At the Special Meeting, Hastings Financial shareholders will be asked
to approve the Plan and Agreement of Merger dated July 2, 1996 by and between
Hastings Financial and First Financial Bancorp. ("First Financial"), a copy of
which is attached hereto as Appendix A (the "Merger Agreement"), and the
transactions contemplated thereby. If the Merger Agreement is approved by the
shareholders at the Special Meeting by at least a majority vote of the
outstanding Hastings Financial shares and if certain other conditions to the
consummation of the transactions contemplated by the Merger Agreement, including
the receipt of all required regulatory approvals, are satisfied or are waived on
or before April 30, 1997, Hastings Financial will merge (the "Merger") with
First Financial in a transaction in which the following will occur on the date
upon which the Merger becomes effective (the "Effective Time"):
(a) The outstanding shares of Hastings Financial common stock, par
value $1.00 per share (the "Hastings Financial Common Stock"),
will be surrendered to First Financial in consideration and
exchange for a number of First Financial common shares, par
value $8.00 per share (the "First Financial Common Stock").
The aggregate consideration to be received by all Hastings
Financial shareholders is fixed in the Merger Agreement at
$10,000,000 (the "Merger Price"); if the Effective Time is
after January 1, 1997, the Merger Price will be fixed at
$10,000,000 plus a sum equal to National Bank of Hastings'
earnings after January 1, 1997, excluding transaction related
costs. At the Effective Time, each of the then issued and
outstanding shares of Hastings Financial Common Stock will be
surrendered to First Financial in consideration and exchange
for a number of First Financial common shares equal to the
quotient (the "Exchange Ratio") of:
(1) the Merger Price, divided by
(2) the mathematical average (the "Average") of the
average of the closing daily bid and asked prices for
First Financial Common Stock as reported by the
National Association of Securities Dealers Automated
Quotations ("Nasdaq") National Market System for the
period of 20 trading days ending at 4:00 p.m. (New
York time) three trading days prior to the Effective
Time, which resultant quotient is divided by
3
<PAGE> 11
(3) the aggregate number of shares of Hastings Financial
Common Stock issued and outstanding immediately prior
to the Effective Time.
The Exchange Ratio will be appropriately adjusted in the event
of the subdivision or split of the outstanding First Financial
Common Stock, a capital reorganization, or a reclassification
or recapitalization affecting First Financial Common Stock.
(b) Hastings Financial will merge with and into First Financial at
the Effective Time and First Financial will be the continuing,
surviving and resulting corporation in the Merger.
(c) National Bank of Hastings, Hastings Financial's only
subsidiary, will become a wholly owned subsidiary of First
Financial.
On November __, 1996, the last trading date before the printing of the
Proxy Statement-Prospectus, the closing sales price of a share of First
Financial Common Stock equalled $_____. If November __, 1996 were the Effective
Time, the Average would have been $________, the Exchange Ratio would have
equaled _________ and the aggregate number of shares of First Financial Common
Stock issued in exchange for all shares of Hastings Financial Common Stock would
have been _________. The market price and Average of First Financial Common
Stock on November __, 1996 are presented for illustrative purposes only and may
not be indicative of the market price and Average at the Effective Time.
A copy of the Merger Agreement, with Exhibits, setting forth the terms
of the Merger is attached to this Proxy Statement-Prospectus as Appendix A and
is incorporated herein by reference.
The Board of Directors of Hastings Financial has unanimously approved
the Merger and recommends that Hastings Financial shareholders vote FOR the
approval of the Merger.
The principal executive office of Hastings Financial is located at 241
West State Street, Hastings, Michigan 49058. The telephone number of Hastings
Financial's principal executive office is (616) 945-3437.
The principal executive office of First Financial is located at Third
and High Streets, Hamilton, Ohio 45011. The telephone number of First
Financial's principal executive office is (513) 867-4700.
4
<PAGE> 12
Record Date, Solicitation And Revocability Of Proxy
- ---------------------------------------------------
The Board of Directors of Hastings Financial has established the close
of business on _________ __, 1996 as the record date (the "Record Date") for the
determination of the Hastings Financial shareholders entitled to receive notice
of and to vote at the Special Meeting. Only Hastings Financial shareholders of
record on the Record Date will be entitled to notice of and to vote at the
Special Meeting. Shares represented by properly executed proxies, if such
proxies are received before or at the Special Meeting and not revoked, will be
voted at the Special Meeting in accordance with instructions indicated in such
proxies. If no such instructions are given, shares represented by such proxies
will be voted:
FOR approval of the Merger Agreement;
FOR the adjournment of the Special Meeting in the event that a
sufficient number of votes necessary to approve the foregoing proposal
is not received; and
In the discretion of the proxy holders on any other matter which may
properly come before the Special Meeting.
A shareholder who has given a proxy may revoke it at any time before
the Proxy is exercised by giving written notice of revocation to the Secretary
of Hastings Financial, by executing a later dated proxy or by attending and
voting in person. All written notices of revocation and other communication with
respect to revocation of proxies should be addressed to Hastings Financial as
follows: Hastings Financial Corporation, 241 West State Street, Hastings,
Michigan 49058, Attention: David C. Wren, Assistant Secretary.
The cost of the solicitation of proxies will be borne by Hastings
Financial. Hastings Financial has not specially engaged employees or paid
solicitors to aid in the solicitation of proxies, but will reimburse brokerage
firms and other custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial owners of Hastings
Financial Common Stock. In addition to solicitation by mail, directors, officers
and regular employees of Hastings Financial may solicit proxies personally or by
telegraph or telephone, without additional compensation.
Hastings Financial shareholders are requested to complete, date and
sign the accompanying proxy form and return it promptly to Hastings Financial in
the enclosed postage paid envelope.
Vote Required
- -------------
APPROVAL OF MERGER. The affirmative vote of the holders of at least a
majority of the outstanding shares of Hastings Financial Common Stock entitled
to vote at the Special Meeting is required for approval of the Merger Agreement.
Abstentions or non-votes are counted as present; however, the effect of an
abstention or a non-vote is the same as a "no" vote.
5
<PAGE> 13
No shareholder vote on the Merger is required by the shareholders of
First Financial.
APPROVAL OF ADJOURNMENT. The affirmative vote of the holders of a
majority of the shares of Hastings Financial Common Stock represented in person
or by proxy at the Special Meeting will be required for approval of the
adjournment in the event that a sufficient number of votes necessary to approve
the foregoing proposals is not received. The effect of an abstention or a
non-vote for purposes of the vote required to approve the adjournment is the
same as a "no" vote.
Shares Outstanding
- ------------------
At the close of business on the Record Date, there were 80,463 shares
of Hastings Financial Common Stock outstanding and entitled to vote, with each
share being entitled to one vote, and there were 78 holders of record of shares
of Hastings Financial Common Stock. On such date, the directors and executive
officers of Hastings Financial as a group beneficially owned 41,110 shares, an
amount equal to 51.09% of the shares of Hastings Financial Common Stock issued
and outstanding on such date. The directors and executive officers have
indicated their intention to vote for the Merger. See "DESCRIPTION OF THE
MERGER--Interests Of Certain Persons In The Merger" and "PRINCIPAL SHAREHOLDERS
AND OWNERSHIP BY MANAGEMENT."
Restrictions On Resale Of First Financial Common Stock
- ------------------------------------------------------
The issuance of the shares of First Financial Common Stock in
connection with the Merger has been registered under the Securities Act. Such
shares may be traded freely and without restriction under federal and state
securities laws by those shareholders not deemed to be "affiliates" of Hastings
Financial as that term is defined in Rules 144 and 145 under the Securities Act.
"Affiliates" are generally defined as persons who control, are controlled by, or
are under common control with Hastings Financial at the time of the Hastings
Financial Special Meeting. Accordingly, affiliates of Hastings Financial will
generally include the directors and executive officers of Hastings Financial as
well as Hastings Financial's largest shareholders. In general, shares of First
Financial Common Stock received by affiliates of Hastings Financial pursuant to
the Merger may not be publicly resold without registration under the Securities
Act except pursuant to the volume and manner of sale limitations and other
requirements provided in Rules 144 and 145. This Proxy Statement-Prospectus does
not cover any resales of First Financial Common Stock received by affiliates of
Hastings Financial. Any owner of Hastings Financial Common Stock who becomes an
affiliate of First Financial will be subject to similar restrictions under Rule
144.
6
<PAGE> 14
Pursuant to the terms of the Merger Agreement, in order for the Merger
to qualify for pooling-of-interests accounting treatment, none of the First
Financial Common Shares held by shareholders who are affiliates of First
Financial or Hastings Financial may be sold until such time as financial results
covering at least thirty days of post-Merger combined operations of First
Financial and Hastings Financial have been published (the "Publication Date").
As a result, no shareholder who is an affiliate of First Financial or Hastings
Financial will be permitted to sell any First Financial Common Shares for the
period from the Effective Time to the Publication Date.
In addition, in order to preserve the proposed tax-free status of the
Merger and in order to ensure that the continuity of shareholder interest
requirements related thereto, and set forth in Treasury Regulation Section
1.368-1(b), will be satisfied with respect to the Merger, certain shareholders
of Hastings Financial participating in the Merger will be required to execute a
letter (the "Tax Letter") indicating the number of First Financial Common
Shares, if any, received by such shareholder in connection with the Merger with
respect to which such shareholder has a present plan or intention to dispose of
or sell.
Except as provided above, there will be no restrictions on the transfer
of shares of First Financial Common Stock issued by First Financial pursuant to
the Merger.
Other Matters
- -------------
The Board of Directors of Hastings Financial is not aware of any other
business to come before the Special Meeting other than the matters described
above in the Proxy Statement-Prospectus. However, if any other matters should
properly come before the Special Meeting, the holders of the proxies will act in
accordance with their best judgment.
7
<PAGE> 15
SUMMARY
The following is a brief summary of certain information in respect of
matters to be considered at the Special Meeting of Hastings Financial
shareholders and is not intended to be a complete statement of all material
facts regarding the matters to be considered at the Special Meeting. The Summary
is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement-Prospectus, the accompanying
appendices and the documents incorporated herein by reference.
Terms Of The Merger Agreement
- -----------------------------
Upon consummation of the Merger, Hastings Financial shareholders will
be entitled to receive for each share of Hastings Financial Common Stock a
number of shares of First Financial Common Stock equal to the Exchange Ratio.
The Exchange Ratio will be appropriately adjusted in the event of the
subdivision or split of the outstanding First Financial Common Stock, a capital
reorganization, or a reclassification or recapitalization affecting First
Financial Common Stock.
Reasons For The Merger
- ----------------------
The Board of Directors of Hastings Financial believes that the Merger
is in the best interests of Hastings Financial and its shareholders. The Board
of Directors' recommendation is based on a number of factors discussed in this
Proxy Statement-Prospectus. See "DESCRIPTION OF THE MERGER--Background And
Reasons For The Merger." These factors include the costs of regulatory
compliance and technological advancements and increased competition in the
financial services industry.
Approval Of Merger Agreement
- ----------------------------
PARTIES TO THE MERGER AGREEMENT. First Financial is a corporation
organized under the laws of the State of Ohio and is registered as a bank
holding company as well as a savings and loan holding company. Its principal
executive offices are located in Hamilton, Ohio. First Financial owns the
following subsidiaries:
Bank subsidiaries:
First National Bank of Southwestern Ohio, Hamilton, Ohio
Citizens Commercial Bank & Trust Company, Celina, Ohio
Van Wert National Bank, Van Wert, Ohio
Union Trust Bank, Union City, Indiana
Indiana Lawrence Bank, North Manchester, Indiana
Citizens First State Bank, Hartford City, Indiana
Union Bank and Trust Company, North Vernon, Indiana
Clyde Savings Bank Company, Clyde, Ohio
Peoples Bank and Trust Company, Sunman, Indiana
Bright National Bank, Flora, Indiana
8
<PAGE> 16
Savings bank subsidiaries:
Fidelity Federal Savings Bank, Marion, Indiana
Home Federal Bank, a Federal Savings Bank, Hamilton, Ohio
Finance company subsidiary:
First Finance Mortgage Company of Southwestern Ohio, Inc., Hamilton,
Ohio
At June 30, 1996, First Financial had total assets of approximately
$2.2 billion, deposits of approximately $1.8 billion and shareholders' equity of
approximately $249 million. See Form 10-Q for the quarter ended June 30, 1996
and "Item 1. Business" in the First Financial Form 10-K, both of which have
previously been incorporated herein by reference.
Hastings Financial was organized in 1988 under the laws of the State of
Michigan and is registered as a bank holding company. Its only subsidiary,
National Bank of Hastings, was organized in 1933. National Bank of Hastings is
principally engaged in the business of making mortgage loans and secured and
unsecured consumer and commercial loans. Loanable funds are obtained primarily
from deposits and loan principal repayments. In addition to originating loans,
National Bank of Hastings invests in U.S. treasury and other government agency
securities, corporate notes and municipal securities. National Bank of Hastings
conducts its business through its main office located in Hastings, Michigan and
a branch office located in Wayland, Michigan. Its primary market area consists
of the city of Hastings, Michigan and the Gun Lake-Wayland area in Michigan and
the contiguous areas within Barry and Allegan Counties, Michigan.
THE MERGER. If the Merger Agreement is approved by Hastings Financial
shareholders holding at least a majority of the outstanding Hastings Financial
shares, and if certain other conditions to the consummation, including the
receipt of all required regulatory approvals, are satisfied or are waived,
Hastings Financial will merge with and into First Financial in a transaction in
which the following will occur as of the Effective Time:
(a) Each of the then outstanding shares of Hastings Financial
Common Stock will be surrendered to First Financial in
consideration and exchange for a number of shares of First
Financial Common Stock equal to the Exchange Ratio;
(b) Hastings Financial will merge with and into First Financial at
the Effective Time and First Financial will be the continuing,
surviving and resulting corporation in the Merger; and
(c) National Bank of Hastings will become a wholly owned
subsidiary of First Financial.
9
<PAGE> 17
On November __, 1996, the last trading date before the printing of the
Proxy Statement-Prospectus, the closing sales price of a share of First
Financial Common Stock equalled $_____. If November __, 1996 were the Effective
Time, the Average would have been $________, the Exchange Ratio would have
equaled _________ and the aggregate number of shares of First Financial Common
Stock issued in exchange for all shares of Hastings Financial Common Stock would
have been _________. The market price and Average of First Financial Common
Stock on November __, 1996 are presented for illustrative purposes only and may
not be indicative of the market price and Average at the Effective Time.
There were 80,463 shares of Hastings Financial Common Stock outstanding
on November __, 1996. See "DESCRIPTION OF THE MERGER--Structure Of The Merger"
and "--Effective Time Of The Merger," as well as the copy of the Merger
Agreement attached hereto as Appendix A.
RECOMMENDATION OF THE BOARD OF DIRECTORS. The Hastings Financial Board
of Directors has unanimously approved the Merger Agreement and recommends that
shareholders vote FOR approval of the Merger Agreement. See "DESCRIPTION OF THE
MERGER--Background And Reasons For The Merger."
OPINION OF FINANCIAL ADVISOR TO HASTINGS FINANCIAL. Austin Associates,
Inc. ("AAI"), Hastings Financial's financial advisor, has rendered its opinion
to Hastings Financial's Board of Directors to the effect that, as of the date
the Merger Agreement was signed and as of the date of this Proxy Statement-
Prospectus, the Exchange Ratio was fair, from a financial point of view, to
Hastings Financial's shareholders. A copy of AAI's fairness opinion is attached
hereto as Appendix B and should be read in its entirety with respect to
assumptions and justifications made and other matters considered. See
"DESCRIPTION OF THE MERGER--Opinion of Hastings Financial's Financial Advisor."
RIGHTS OF APPRAISAL. Any shareholder of Hastings Financial who (1)
delivers before the shareholders' vote a written notice of intent to demand
payment for such shareholder's shares in the manner provided by Michigan
Business Corporations Act Section 450.1765, (2) does not vote in favor of the
approval of the Merger Agreement and (3) strictly complies with certain
procedures set forth in Sections 450.1762-450.1774, a copy of which is attached
hereto as Appendix C, shall be entitled, if and when the Merger becomes
effective, to receive the value of the Hastings Financial Common Stock owned by
such shareholder at the time and in the manner set forth in Sections
450.1762-450.1774. See "DESCRIPTION OF THE MERGER--Shareholders' Rights of
Appraisal."
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS. It is anticipated that
the Merger will be a non-taxable reorganization for federal income tax purposes
and that no gain or loss for federal income tax purposes will be recognized by
the shareholders of Hastings Financial upon distribution to them of shares of
First Financial. A gain or loss may be recognized, however, on cash received in
place of fractional shares. Holders of Hastings Financial Common Stock, who
demand, in accordance with Section 450.1762 of the Michigan Business
Corporations Act, to receive cash in exchange for the shares of Hastings
Financial Common Stock they actually own or are deemed by the Internal Revenue
Service ("IRS") to own constructively, will recognize a capital gain or loss on
the exchange. See "DESCRIPTION OF THE MERGER--Federal Income Tax Consequences Of
The Merger."
10
<PAGE> 18
REPRESENTATIONS AND WARRANTIES. Both First Financial and Hastings
Financial have made certain representations and warranties in the Merger
Agreement. Such representations and warranties address, among others, certain
matters related to the organization, capital structure, financial statements and
the businesses of Hastings Financial and First Financial. They also specifically
discuss payment of dividends in the period prior to consummation as well as
default under material contracts. See the Merger Agreement attached as Appendix
A for a more detailed discussion.
REGULATORY APPROVALS AND OTHER CONDITIONS. The proposed Merger and
related transactions are subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). An application requesting
approval was submitted to the Federal Reserve Board on ________ __, 1996. There
can be no assurance that the approval of the Federal Reserve Board will be given
or whether conditions, if any, will be imposed on such approval. See
"DESCRIPTION OF THE MERGER--Regulatory Considerations."
The Merger is subject to numerous additional conditions, including, but
not limited to, approval of the Merger by Hastings Financial shareholders
holding at least a majority of Hastings Financial Common Stock and the absence
of any material adverse changes in the corporate status, business, operations or
financial condition of First Financial of Hastings Financial since December 31,
1995. See "DESCRIPTION OF THE MERGER--Conditions To Consummation Of The Merger."
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated at any time prior to the Effective Time by the mutual consent of the
Boards of Directors of Hastings Financial and First Financial. Either Hastings
Financial or First Financial may also terminate the Merger Agreement upon the
occurrence of certain events, such as not obtaining the requisite approval of
all required regulatory authorities or the shareholders of Hastings Financial or
not consummating the Merger on or before April 30, 1997. The Merger may also be
terminated by First Financial if the Average of First Financial Common Stock
falls below $27.625 per share or by Hastings Financial if the Average of First
Financial Common Stock exceeds $37.375 per share. See "DESCRIPTION OF THE
MERGER--Termination Of The Merger."
EFFECTIVE TIME. First Financial and Hastings Financial intend to
consummate the Merger on January 1, 1997 or as soon thereafter as practicable
after all required regulatory and shareholder approvals have been obtained and
the other conditions to consummation of the Merger have been satisfied. The
Merger Agreement provides that the Merger may be terminated by either party if
it has not been consummated by April 30, 1997. See "DESCRIPTION OF THE MERGER--
Effective Time Of The Merger."
11
<PAGE> 19
MARKET VALUE OF COMMON STOCK. The First Financial Common Stock is
traded in the over-the-counter market and is quoted by the Nasdaq National
Market System. On July 1, 1996, the last trading day prior to the first public
announcement of the proposed Merger, the closing sale price for a share of First
Financial Common Stock was $32.00 per share. Assuming the Merger was consummated
as of July 1, 1996, the Average would have been $32.568750, the Exchange Ratio
would have equaled 3.815950 shares and the aggregate number of shares of First
Financial Common Stock issued in exchange for all shares of Hastings Financial
Common Stock would have been 307,043 shares. Assuming the $32.00 per share
closing price for First Financial Common Stock on July 1, 1996, the equivalent
per share value (the closing price multiplied by the Exchange Ratio) of First
Financial Common Stock which would have been issued and exchanged for each
Hastings Financial share would have been $122.11.
On September 24, 1996, First Financial's Board of Directors declared a
10% stock dividend to be distributed on November 1, 1996. The illustration above
has NOT been adjusted for any effects of the stock dividend on First Financial's
Average or market price per share. Assuming a 10% market price decrease for the
effect of the stock split, the adjusted Average would have been $29.311875, the
adjusted Exchange Ratio would have equaled 4.239945, the aggregate number of
shares of First Financial Common Stock issued in exchange for all shares of
Hastings Financial Common Stock would have been 341,159 shares and the
equivalent per share value of First Financial Common Stock which would have been
issued and exchanged for each Hastings Financial share would have remained
$122.11.
The market price, Average, adjusted market price and adjusted Average
on July 1, 1996 are presented for illustrative purposes only and may not be
indicative of the market price and Average Price at the Effective Time.
Hastings Financial Common Stock is not actively traded in any
established market. See "COMPARATIVE MARKET AND DIVIDEND INFORMATION" for
additional market price information.
Other Possible Acquisition By First Financial
- ---------------------------------------------
As of the date of this Proxy Statement-Prospectus, First Financial had
entered into a definitive agreement of merger with Farmers State Bancorp,
Liberty, Indiana ("Farmers State"). The consideration to be paid to Farmers
State's shareholders pursuant to the merger agreement is fixed at $7,833.51 per
each share of Farmers State Bancorp common stock outstanding, payable in cash.
As of May 1, 1996, 967 shares of Farmers State Bancorp common stock were
outstanding, making the total consideration to be paid for all Farmers State
shares equal to approximately $7,575,000. After the merger, Farmers State Bank,
Farmers State's only subsidiary, will become a wholly owned subsidiary of First
Financial.
12
<PAGE> 20
As of December 31, 1995, Farmers State had total assets of
approximately $63.6 million, loans outstanding of $41.8 million, total deposits
of $58.5 million and total shareholders' equity of $4.2 million. Its
equity-to-assets ratio at December 31, 1995 was 6.54%. Farmers State had net
earnings for the year ended December 31, 1995 of approximately $424,000 or
$438.83 per share. Information regarding the financial condition and operating
results of Farmers State is not included in the Pro Forma Financial Statements
because the acquisition of Farmers State is not anticipated to result in the
acquisition by First Financial of a significant subsidiary under applicable
regulations of the Exchange Act and is not anticipated to have a material effect
on the financial condition and results of operations of First Financial. See
"DESCRIPTION OF THE MERGER--Pro Forma Unaudited Financial Information."
The merger with Farmers State is subject to numerous conditions
including, among others, regulatory and shareholder approvals. First Financial
is unable to predict when or whether such conditions will be satisfied.
Accordingly, there can be no assurance that the proposed merger with Farmers
State will be consummated. Provided all conditions are met and approvals
obtained, the proposed merger with Farmers State is anticipated to be completed
during the fourth quarter of 1996.
Summary Of Selected Unaudited Financial Data And Per Share Data
- ---------------------------------------------------------------
The historical data presented on the following pages for First
Financial has been derived from its consolidated financial statements; see
"AVAILABLE INFORMATION--Documents Incorporated by Reference."
13
<PAGE> 21
<TABLE>
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------- ------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ---------- --------- --------
(Dollars in thousands, except per share data)
HASTINGS FINANCIAL (HISTORICAL) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (A) $ 336 $ 328 $ 616 $ 403 $ 412 $ 515 $ 376
Total assets (period end) 46,847 44,489 46,140 45,797 44,690 46,556 39,576
Long-term borrowings (period end) 0 0 0 0 0 0 0
Net earnings per share (A) 4.41 4.26 8.10 5.08 5.23 6.57 4.77
Dividends declared per share 1.25 0.00 2.25 1.75 1.65 1.65 1.65
Book value per share (period end) 66.45 63.02 65.12 58.33 55.74 52.12 49.41
Average shares outstanding (B) 76,130 76,915 76,036 79,249 78,883 78,530 78,781
Shares outstanding (period end) (B) 79,463 75,463 75,463 78,367 78,367 78,367 78,367
FIRST FINANCIAL (HISTORICAL) (2)
Net earnings (A) $ 16,871 $ 15,358 $ 31,789 $ 28,173 $ 25,194 $ 21,770 $ 18,600
Total assets (period end) 2,175,381 1,911,687 2,103,375 1,922,643 1,810,673 1,816,414 1,860,955
Long-term borrowings (period end) 4,541 0 2,820 0 3,983 4,564 5,119
Net earnings per share (A) 1.28 1.26 2.55 2.31 2.06 1.77 1.51
Dividends declared per share 0.60 0.52 1.08 0.98 0.82 0.74 0.66
Book value per share (period end) 18.59 16.97 17.99 15.95 14.85 13.66 12.44
Average shares outstanding (B) 13,203,147 12,208,840 12,488,168 12,210,753 12,211,405 12,318,805 12,356,986
Shares outstanding (period end) (B) 13,388,884 12,212,156 13,013,422 12,204,575 12,207,004 12,272,065 12,391,865
PRO FORMA FIRST FINANCIAL AND HASTINGS
FINANCIAL COMBINED ASSUMING 3.751871
EXCHANGE RATIO (3)
Net earnings (A) $ 17,207 $ 15,686 $ 32,405 $ 28,576 $ 25,606 $ 22,285 $ 18,976
Net earnings per share (A) 1.27 1.25 2.53 2.28 2.05 1.77 1.50
Dividends declared per share:
First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66
Book value per share (period end) 18.57 16.94 17.95 15.93 14.84 13.66 12.45
Average shares outstanding (B) 13,505,034 12,510,727 12,790,055 12,512,640 12,513,292 12,620,692 12,658,873
Shares outstanding (period end) (B) 13,690,771 12,514,043 13,315,309 12,506,462 12,508,891 12,573,952 12,693,752
PRO FORMA HASTINGS FINANCIAL ONE SHARE
EQUIVALENT ASSUMING 3.751871 EXCHANGE
RATIO (4)
Net earnings per share (A) $ 4.76 $ 4.69 $ 9.49 $ 8.55 $ 7.69 $ 6.64 $ 5.63
Dividends declared per share 2.25 1.95 4.05 3.68 3.08 2.78 2.48
Book value per share 69.67 63.56 67.35 59.77 55.68 51.25 46.71
<FN>
- -----------
(A) Before cumulative effect of changes in accounting principles.
(B) Average and period end shares outstanding are not rounded to the nearest
thousand.
</TABLE>
14
<PAGE> 22
<TABLE>
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------- ------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- --------
(Dollars in thousands, except per share data)
PRO FORMA FIRST FINANCIAL AND HASTINGS
FINANCIAL COMBINED ASSUMING 3.325237
EXCHANGE RATIO (5)
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (A) $ 17,207 $ 15,686 $ 32,405 $ 28,576 $ 25,606 $ 22,285 $ 18,976
Net earnings per share (A) 1.28 1.26 2.54 2.29 2.05 1.77 1.50
Dividends declared per share:
First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66
Book value per share (period end) 18.61 16.99 18.00 15.97 14.88 13.69 12.48
Average shares outstanding (B) 13,470,706 12,476,399 12,755,727 12,478,312 12,478,964 12,586,364 12,624,545
Shares outstanding (period end) (B) 13,656,443 12,479,715 13,280,981 12,472,134 12,474,563 12,539,624 12,659,424
PRO FORMA HASTINGS FINANCIAL ONE SHARE
EQUIVALENT ASSUMING 3.325237 EXCHANGE
RATIO (5)
Net earnings per share (A) $ 4.26 $ 4.19 $ 8.45 $ 7.61 $ 6.82 $ 5.89 $ 4.99
Dividends declared per share 2.00 1.73 3.59 3.26 2.73 2.46 2.19
Book value per share 61.88 56.50 59.85 53.10 49.48 45.52 41.50
PRO FORMA FIRST FINANCIAL AND HASTINGS
FINANCIAL COMBINED ASSUMING 4.498850
EXCHANGE RATIO (6)
Net earnings (A) $ 17,207 $ 15,686 $ 32,405 $ 28,576 $ 25,606 $ 22,285 $ 18,976
Net earnings per share (A) 1.27 1.25 2.52 2.27 2.04 1.76 1.49
Dividends declared per share:
First Financial 0.60 0.52 1.08 0.98 0.82 0.74 0.66
Book value per share (period end) 18.48 16.86 17.87 15.85 14.77 13.59 12.39
Average shares outstanding (B) 13,565,138 12,570,831 12,850,159 12,572,744 12,573,396 12,680,796 12,718,977
Shares outstanding (period end) (B) 13,750,875 12,574,147 13,375,413 12,566,566 12,568,995 12,634,056 12,753,856
PRO FORMA HASTINGS FINANCIAL ONE SHARE
EQUIVALENT ASSUMING 4.498850 EXCHANGE
RATIO (6)
Net earnings per share (A) $ 5.71 $ 5.62 $ 11.34 $ 10.21 $ 9.18 $ 7.92 $ 6.70
Dividends declared per share 2.70 2.34 4.86 4.41 3.69 3.33 2.97
Book value per share 83.14 75.85 80.39 71.31 66.45 61.14 55.74
<FN>
- --------------
(A) Before cumulative effect of changes in accounting principles.
(B) Average and period end shares outstanding are not rounded to the nearest
thousand.
</TABLE>
15
<PAGE> 23
NOTES TO SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
--------------------------------------------------------------------------
(1) Earnings per share is calculated by dividing net earnings for the
period by the average number of common shares outstanding for the
period. Book value per share is calculated by dividing total
shareholders' equity at the end of the period by the number of shares
outstanding at the end of the period.
(2) Dividend information on First Financial's subsidiaries which have
merged with First Financial under the pooling-of-interests method after
January 1, 1991 has not been recalculated or added to First Financial's
historical dividend information. First Financial has adjusted
historical information to reflect the issuance of stock splits. The
shares outstanding data has been adjusted to reflect treasury stock
transactions.
(3) The PRO FORMA FIRST FINANCIAL AND HASTINGS FINANCIAL COMBINED reflects
the combined results of First Financial and Hastings Financial after
giving effect to the pooling-of-interests method of accounting. For
illustrative purposes, the combined results assume the merger was
consummated on January 1, 1991.
The per share data, average shares outstanding and shares outstanding
(period end) were calculated assuming the issuance of 301,887 shares of
First Financial Common Stock at an Average equal to $33.125, which is
the Average that would have been in effect if the Merger was effective
September 3, 1996 (3.751871 Exchange Ratio).
The number of First Financial shares to be issued at consummation is
dependent on the Average at that time and cannot be determined before
that date. The pro forma financial results included in this table are
for illustrative purposes only.
(4) Upon consummation of the Merger, each Hastings Financial shareholder
will be to entitled to receive First Financial shares equal to the
total number of shares of Hastings Financial Common Stock owned by such
shareholder multiplied by the Exchange Ratio. The Exchange Ratio will
be appropriately adjusted in the event of the subdivision or split of
the outstanding First Financial Common Stock, a capital reorganization,
or a reclassification or recapitalization affecting First Financial
Common Stock.
Since the Exchange Ratio is not determinable at the printing of this
Proxy Statement-Prospectus, Hastings Financial's one share equivalent
pro forma net earnings, dividends and book value per share, calculated
assuming an Exchange Ratio of 3.751871 shares, are shown for
illustrative purposes only.
16
<PAGE> 24
(5) The Merger may be terminated by Hastings Financial if the Average
exceeds $37.375. If the Average at the Effective Time is $37.375, the
Exchange Ratio will be 3.325237 shares and the aggregate number of
shares of First Financial Common Stock issued in exchange for all
shares of Hastings Financial Common Stock will be 267,559 shares. The
number of First Financial shares to be issued at consummation is
dependent on the Average at the Effective Time and cannot be determined
before that date. The pro forma financial results assuming an Average
of $37.375 are for illustrative purposes only.
(6) The Merger may be terminated by First Financial if the Average is less
than $27.625. If the Average at the Effective Time is $27.625, the
Exchange Ratio will be 4.498850 shares and the aggregate number of
shares of First Financial Common Stock issued in exchange for all
shares of Hastings Financial Common Stock will be 361,991 shares. The
number of First Financial shares to be issued at consummation is
dependent on the Average at the Effective Time and cannot be determined
before that date. The pro forma financial results assuming an Average
Price of $27.625 are for illustrative purposes only.
17
<PAGE> 25
DESCRIPTION OF THE MERGER
This section of the Proxy Statement-Prospectus describes certain of the
more important aspects of the Merger. The following description does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement which is set forth in Appendix A to this Proxy Statement-Prospectus.
All shareholders are urged to read the Merger Agreement in its entirety.
Background And Reasons For The Merger
- -------------------------------------
On January 15, 1996, Hastings Financial's Board of Directors engaged
Austin Associates, Inc. ("AAI"), a consulting and investment banking firm of
Toledo, Ohio, to explore the possibility of enhancing shareholder value through
affiliation with a regional bank holding company. After performing an initial
analysis and review, contact was made with 24 potentially interested
institutions. After providing confidential information on Hastings Financial,
eleven proposals were received, including First Financial's. Hastings
Financial's Board of Directors determined that First Financial's proposal
presented the best opportunity for enhancing shareholder value. After an
exchange of additional information and preliminary negotiations, First Financial
and Hastings Financial entered into the Merger Agreement with regard to the
Merger on July 2, 1996, following approval of the Merger Agreement by their
respective boards of directors. First Financial's management and Hastings
Financial's management and Board of Directors, and their respective
representatives, negotiated the Merger Price and other terms of the Merger
Agreement on an arm's-length basis.
Among other items considered in the decision to accept the First
Financial proposal were the prospects for Hastings Financial and First Financial
as separate institutions and combined; the anticipated tax-free nature of the
merger to the shareholders of Hastings Financial receiving solely First
Financial common stock in exchange for their shares of Hastings Financial common
stock; the increased liquidity since First Financial is traded in the
over-the-counter market and its share prices reported on the Nasdaq National
Market System; the timeliness of a merger given the state of the economy, the
competitive nature of the banking industry and the stock market, as well as
anticipated trends; increased regulatory requirements on banks in general and
Hastings Financial; relevant price information involving recent comparable bank
acquisitions which occurred in Michigan, the Midwest and the United States; and
an analysis of alternatives to Hastings Financial merging with First Financial,
including pursuing mergers with other interested acquirors. In addition, the
Board of Directors considered the opinion of AAI indicating that the
consideration to be received by Hastings Financial shareholders under the Merger
Agreement was fair from a financial point of view.
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<PAGE> 26
The Board of Directors of Hastings Financial also considered the impact
of the Merger on Hastings Financial's and National Bank of Hastings' customers
and employees and the communities served by National Bank of Hastings (the
"Bank"). First Financial's historical practice of retaining employees of
acquired institutions and its competitive salary and benefit programs were
considered, as was the opportunity for training, education, growth and
advancement of the Bank's employees within First Financial or one of its
subsidiaries. The Board of Directors of Hastings Financial examined First
Financial's continuing commitment to the communities served by institutions
previously acquired by First Financial. Further, from the standpoint of the
Bank's customers, it was anticipated that more products and services would
become available because of First Financial's greater resources.
Based upon the foregoing factors, the Board of Directors of Hastings
Financial concluded that it was advantageous to merge with First Financial. The
importance of the various factors relative to one another cannot be precisely
determined or stated.
Opinion of Financial Advisor to Hastings Financial
- --------------------------------------------------
AAI is a recognized investment banking firm regularly engaged in the
valuation of financial institutions and other businesses and their securities in
connection with mergers and acquisitions and for estate, corporate and other
purposes. Hastings Financial selected AAI to act as Hastings Financial's
financial advisor in connection with the Merger on the basis of its reputation
and qualifications in evaluating financial institutions.
AAI has rendered a separate written opinion to the Board of Directors
of Hastings Financial to the effect that the terms of the Merger are fair from a
financial point of view to the shareholders of Hastings Financial as of the date
of the opinion. AAI based its opinion upon, among other things: (1) a comparison
of the financial statements and other financial information concerning Hastings
Financial and First Financial set forth or incorporated by reference in this
Proxy Statement-Prospectus; (2) certain other financial information concerning
Hastings Financial, including, but not limited to, operating budgets, board of
directors reports and loan loss reserve adequacy reports; (3) financial and
share price data of Hastings Financial, First Financial, and comparable banking
organizations; (4) the financial terms, to the extent publicly available, of
certain comparable transactions; (5) the terms of certain other proposals
received by Hastings Financial from other banking institutions; and (6)
discussions with the management of Hastings Financial and First Financial.
No limitations were imposed on the scope of AAI's investigation. AAI
participated in the negotiation of the terms of the Merger Agreement and other
related agreements associated with the Merger. The terms of the Merger
Agreement, including the Merger Price, were negotiated by the boards of
directors of Hastings Financial and First Financial, and their representatives,
on an arm's-length basis. A copy of the fairness opinion is attached as Appendix
B to this Proxy Statement-Prospectus and should be read in its entirety.
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<PAGE> 27
In connection with rendering its opinion, AAI performed a variety of
financial analyses, which are summarized below. AAI believes its analyses must
be considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the process underlying AAI's
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or
summary description. In its analyses, AAI made numerous assumptions with respect
to industry performance, business and economic conditions, and other matters,
many of which are beyond Hastings Financial's or First Financial's control. Any
estimates contained in AAI's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than the
estimates.
PRELIMINARY APPRAISAL OF HASTINGS FINANCIAL. AAI completed a
preliminary appraisal of Hastings Financial which was presented to the Board of
Directors of Hastings Financial in February of 1996. AAI estimated that a
reasonable sale of control value for Hastings Financial would range between $8.8
and $9.1 million, or approximately $116-$120 per share.
THE PROCESS FOR SOLICITING INDICATIONS OF INTEREST FROM OTHER BANKING
COMPANIES. Through AAI, Hastings Financial contacted 24 commercial banking
organizations, that were selected by the Hastings Financial Board of Directors
after consultation with AAI, to assess their interest in acquiring Hastings
Financial. Of the 24 organizations contacted, 17 requested confidential
information packages which provided detailed information regarding the business
and operations of Hastings Financial. AAI pursued discussions with each
organization that had requested the confidential information. Eventually 11
organizations submitted proposals to acquire Hastings Financial. The Hastings
Financial Board of Directors selected the First Financial proposal after
extensive deliberation and negotiation.
COMPARATIVE PRICE ANALYSIS. In determining whether the price offered by
First Financial for Hastings Financial was fair, from a financial point of view,
to the shareholders of Hastings Financial, AAI reviewed a comparison of prices
paid in sale of control transactions in Michigan for banks having assets of up
to $150 million. AAI looked specifically at ten transactions announced between
1993 and 1996 involving Michigan-based sellers. The ten transactions had an
average price to book value ratio of 169% and a price to earnings multiple of
21.6. The median multiples were 154% of book value and 15.8 times earnings. The
market value of the consideration to be received by Hastings Financial
shareholders in the Merger is fixed at $10.0 million, subject to certain
adjustments, which approximates 189% of Hastings Financial's book value at June
30, 1996, and 16.0 times Hastings Financial's consolidated net income for the 12
months ended June 30, 1996.
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<PAGE> 28
CONTRIBUTION ANALYSIS. AAI compared the pro forma ownership interest in
First Financial that Hastings Financial shareholders would receive, in the
aggregate, to the contribution by Hastings Financial to the total assets, equity
and net income in the combined organization. Assuming a June 30, 1996 Closing
date for the Merger, Hastings Financial shareholders would own approximately
2.24% of First Financial on a pro forma basis. Hastings Financial's contribution
of total assets would equal 2.11%, the contribution of total equity would equal
2.08%, and the contribution of year-to-date 1996 net income would have equaled
1.95%.
DILUTION ANALYSIS. AAI also reviewed the pro forma effect of the Merger
to Hastings Financial's and First Financial's earnings per share and book value
per share. Hastings Financial recorded earnings per share of $4.41 and a book
value of $66.45 per share as of June 30, 1996. Giving effect to the Merger
through June 30, 1996, the equivalent Hastings Financial earnings per share
would have equaled $4.86, an increase of 10.20% over actual results. Book value
per share would have increased to $70.80 per share, an increase of 6.55% over
the actual book value of $66.45. Giving effect to the Merger, First Financial's
book value per share would have been diluted by $0.04 or 0.22% and earnings per
share would have been diluted by $0.01 or 0.78%.
DIVIDENDS. AAI reviewed the current cash dividends paid by Hastings
Financial and First Financial. Based on an exchange ratio of 3.815950 First
Financial shares for each of Hastings Financial, equivalent dividends to
Hastings Financial shareholders would have been $4.12 per share in 1995, an 83%
increase over actual dividends received by Hastings Financial shareholders. For
the first six months of 1996 equivalent dividends to Hastings Financial
shareholders would have been $2.29 per share, also representing an 83% increase
over actual dividends received.
The summary set forth above does not purport to be a complete
description of the analyses performed by AAI. Further, AAI did not conduct a
physical inspection of any of the properties or assets of Hastings Financial or
First Financial. AAI has assumed and relied upon the accuracy and completeness
of the financial and other information provided to it or publicly available, has
relied upon the representations and warranties of Hastings Financial and First
Financial made pursuant to the Merger Agreement, and has not independently
attempted to verify any of such information. AAI has also assumed that the
conditions to the Merger as set forth in the Merger Agreement would be satisfied
and that the Merger would be consummated on a timely basis in the manner
contemplated by the Merger Agreement. No limitations were imposed by Hastings
Financial or First Financial upon AAI on the scope of its investigation nor were
any specific instructions given to AAI in connection with its fairness opinion.
For AAI's services as financial advisor, Hastings Financial will pay
the firm a fee of $15,000, plus a contingent amount equal to 1.0% of the
transaction value when the Merger is consummated. Hastings Financial estimates
that total fees under this arrangement will be $115,000. In addition, Hastings
Financial has agreed to reimburse AAI for reasonable out-of-pocket expenses and
indemnify AAI against certain liabilities, including liabilities under the
securities laws. AAI has no other material relationship with any of the parties
to the merger or their affiliates.
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<PAGE> 29
Structure Of The Merger
- -----------------------
If the Merger is approved by Hastings Financial shareholders at the
Special Meeting by at least a majority vote of the outstanding shares of
Hastings Financial Common Stock and if necessary regulatory approvals are
received and certain other conditions to the consummation of the transactions
contemplated by the Merger Agreement are satisfied or waived, Hastings Financial
will merge with and into First Financial in a transaction in which the following
will occur at the Effective Time:
(a) Each of the then outstanding shares of Hastings Financial will
be canceled and extinguished in consideration and exchange for
a number of shares of First Financial Common Stock equal to
the Exchange Ratio;
(b) Hastings Financial will merge with and into First Financial at
the Effective Time and First Financial will be the continuing,
surviving and resulting corporation in the Merger; and
(c) National Bank of Hastings will become a wholly owned
subsidiary of First Financial.
Surrender Of Stock Certificates
- -------------------------------
The Merger Agreement provides for the surrender of Hastings Financial
Common Stock certificates by the holders thereof before such holders may receive
certificates evidencing First Financial Common Stock. First National Bank of
Southwestern Ohio, Butler County, Ohio, a wholly owned subsidiary of First
Financial, will act as the exchange agent (the "Exchange Agent"). Approval of
the Merger Agreement by Hastings Financial shareholders will constitute
ratification of the selection of First National Bank of Southwestern Ohio as the
exchange agent.
As soon as practicable after the Effective Time, the Exchange Agent
shall prepare and mail to each holder of record of an outstanding certificate or
certificates representing shares of Hastings Financial a letter of transmittal
containing instructions for the surrender of the certificate or certificates.
Upon surrender of the Hastings Financial certificate or certificates in
accordance with instructions set forth in the letter of transmittal, such holder
shall be entitled to receive in exchange therefor certificates representing the
number of whole shares of First Financial into which the shares represented by
the certificate or certificates so surrendered shall have been converted,
without interest.
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<PAGE> 30
The Exchange Agent shall not be obligated to deliver certificates for
First Financial Common Stock to a former shareholder of Hastings Financial until
such former shareholder surrenders his or her certificate or certificates
representing shares of Hastings Financial or, in lieu thereof, an appropriate
affidavit of loss and an indemnity agreement or bond as may be required by First
Financial. Until so surrendered for exchange, each such stock certificate
formerly representing shares of Hastings Financial Common Stock will be deemed
for all corporate purposes (except for the payment of dividends, which will be
subject to the exchange of stock certificates as above provided) to evidence the
ownership of the number of shares of common stock of the surviving corporation
that the holder thereof would be entitled to receive upon its surrender to First
Financial.
Fractional Interests
- --------------------
No fractional shares of First Financial Common Stock will be issued as
a result of the Merger. In lieu thereof, Hastings Financial shareholders having
a fractional interest will be paid in cash by First Financial for the fractional
interest. Such payment shall be equal to the fractional interest multiplied by
the Exchange Ratio.
Effective Time Of The Merger
- ----------------------------
The Effective Time is expected to be as soon as practicable after the
approval of the Merger Agreement by Hastings Financial shareholders, the
satisfaction of all conditions set forth in the Merger Agreement and the receipt
of approvals from regulatory authorities, or at such later date as may be agreed
upon by Hastings Financial and First Financial. See "DESCRIPTION OF THE MERGER--
Regulatory Considerations".
No assurance can be provided that the necessary shareholder and
regulatory approvals will be obtained or that other conditions precedent to the
Merger will be satisfied. It is anticipated that the Merger will be consummated
on January 1, 1997. In the event the Merger is not consummated on or before
April 30, 1997, either party may terminate the Merger Agreement or the parties
may agree to extend the time for completion of the Merger.
Conditions To Consummation Of The Merger
- ----------------------------------------
Consummation of the Merger is subject to a number of conditions, each
of which may be waived by the party entitled thereto to the extent permissible
by applicable law, including the following:
(a) The receipt of all required regulatory approvals for the
completion of the Merger and the expiration of any applicable
waiting periods, with no such approval or authorization
containing any provision which would be materially adverse to
the merged businesses of Hastings Financial and First
Financial;
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<PAGE> 31
(b) The validity or legality of the transactions contemplated by
the Merger Agreement shall not have been materially questioned
by any suit, action, investigation by any governmental body or
other legal or administrative proceedings;
(c) The receipt of all consents required for the consummation of
the Merger or for the prevention of any default under any
contract, agreement or permit of First Financial or Hastings
Financial which, if not obtained or made, is reasonably likely
to have, individually or in the aggregate, a material adverse
effect on the combined business affairs of First Financial and
Hastings Financial;
(d) Compliance by First Financial and Hastings Financial with
their respective covenants and the truth of all
representations and warranties as of the Effective Time;
(e) The absence of any material adverse change in the financial
condition, operations, corporate status or business of First
Financial or Hastings Financial since December 31, 1995;
(f) The receipt of opinions from First Financial's special counsel
and from Hastings Financial's special counsel with respect to
various corporate matters, due execution and delivery of the
Merger Agreement and various other Merger related matters;
(g) The receipt of an opinion of counsel, in form and substance
satisfactory to First Financial and Hastings Financial, to the
effect that, under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), no taxable gain or loss
will be recognized by Hastings Financial, First Financial or
their respective shareholders as a result of the Merger,
except in respect of fractional share interests;
(h) The receipt of letters from First Financial's independent
accountants stating that they are not aware of any reason that
First Financial is not in compliance with certain
pooling-of-interests criteria and that the Merger can be
accounted for as a pooling-of-interests from First Financial's
perspective and the receipt of similar letters from Hastings
Financial's independent accountants;
(i) The receipt by First Financial of a satisfactory Phase I
Environmental Site Assessment of the real estate owned or
leased by Hastings Financial or, if such assessment is not
satisfactory to First Financial, Hastings Financial and First
Financial shall have reached agreement as to the remedial
actions necessary to correct any unsatisfactory conditions;
and
(j) The approval of the Merger Agreement by Hastings Financial
shareholders at the Special Meeting by at least a majority
vote of the outstanding Hastings Financial shares.
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<PAGE> 32
No assurance can be given that all of the conditions to the Merger will
be satisfied or waived by any party permitted to do so.
Termination Of The Merger
- -------------------------
The Merger may be terminated at any time prior to the Effective Time
under any one or more of the following circumstances:
(a) By the mutual consent of the Boards of Directors of Hastings
Financial and First Financial;
(b) By First Financial if the holders of 2.00% or more of the
outstanding shares of Hastings Financial Common Stock
immediately prior to the Effective Time will be entitled to
receive cash in exchange for their Hastings Financial shares
pursuant to perfected dissenters' rights under the Michigan
Business Corporation Act;
(c) By Hastings Financial or First Financial if, prior to the
Effective Time, the conditions to such party's obligation to
consummate the Merger are not met;
(d) By either Hastings Financial or First Financial if the
requisite approval of the shareholders of Hastings Financial
is not obtained or if the Merger is not consummated on or
before April 30, 1997; or
(e) By First Financial if the Average is less than $27.625 or by
Hastings Financial if the Average is greater than $37.375, (in
either case, as may be adjusted by the declaration of a stock
dividend, stock split or other such recapitalization).
Management Following The Merger
- -------------------------------
If the Merger is consummated, Hastings Financial and First Financial
will merge into a single corporation and First Financial will be the surviving
corporation. The directors of First Financial at the Effective Time of the
Merger will be the directors of the surviving corporation until their respective
successors are duly elected and qualified. Subject to the authority of the Board
of Directors as provided by law and the Regulations of the surviving
corporation, the officers of First Financial at the Effective Time will be the
officers of the Surviving Corporation.
If the Merger is consummated, National Bank of Hastings, Hastings
Financial's only subsidiary, will become a wholly owned subsidiary of First
Financial. The directors of National Bank of Hastings at the Effective Time will
continue to be directors until their successors are duly elected and qualified
by First Financial as sole shareholder. Subject to the authority of the Board of
Directors of National Bank of Hastings as provided by its By-Laws and as
provided by law, the officers of National Bank of Hastings at the Effective Time
will continue to be the officers of National Bank of Hastings until their
successors are duly elected and qualified.
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<PAGE> 33
As part of the terms of the Merger Agreement, Larry J. Kornstadt has
agreed to remain in his current positions of President, CEO and Chairman of the
Board of National Bank of Hastings for a period of six months following the
Effective Time. Upon his retirement from the positions of President and CEO, Mr.
Kornstadt will remain as Chairman of the Board of National Bank of Hastings for
so long as mutually agreed to by Mr. Kornstadt and First Financial.
Interest Of Certain Persons In The Merger
- -----------------------------------------
The directors and officers of Hastings Financial and National Bank of
Hastings have certain interests in the Merger in addition to their interests as
shareholders of Hastings Financial generally. The Board of Directors of Hastings
Financial was aware of these interests and considered them, among others, in
approving the Merger Agreement.
The Merger Agreement contains certain provisions regarding employee
benefits. As soon as practicable after the Effective Date of the Merger, First
Financial will make available to eligible employees and officers of National
Bank of Hastings the same nonqualified employee benefit plans as then made
available to similarly situated employees of other First Financial subsidiaries.
Nonqualified employee benefit plans, fringe benefits and other employee
practices and policies in effect at National Bank of Hastings immediately prior
to the Effective Time will continue in effect until modified or terminated by
First Financial.
The First Financial Bancorp Thrift Plan (the "Thrift Plan"), which is a
401-K Plan, and the First Financial Bancorp Employees' Pension Plan (the "First
Financial Pension Plan") cover the majority of the employees of First Financial
and its subsidiaries. All employees who are 21 years of age and have completed
one year of service are covered. The Thrift Plan is voluntary and participants
may contribute up to 12.0% of base salary to the plan. Subject to the limitation
described below, First Financial subsidiaries contribute $0.50 for each $1.00 a
participant contributes. The matching contribution by First Financial
subsidiaries is limited to 3.00% of each participant's base salary and all
contributions become fully vested when made. Participants are 100% vested in the
Pension Plan after five years of credited service. For more information about
First Financial's Thrift Plan and Pension Plan, see First Financial's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, previously
incorporated by reference.
The Pension Plan of the National Bank of Hastings (the "Hastings
Pension Plan") will be merged into First Financial's Pension Plan as of the
Effective Time of the Merger. If a First Financial Pension Plan participant was
a Hastings Pension Plan participant immediately prior to the Effective Time,
such participant's accrued benefit under the First Financial Pension Plan will
consist of a past service benefit equal to the accrued benefit under the
Hastings Pension Plan immediately prior to the Effective Time plus a future
service benefit based upon the participant's service after the Effective Time
with the companies participating in the First Financial Pension Plan. Service
with National Bank of Hastings prior the Effective Time will be counted for
eligibility and vesting purposes only under the First Financial Pension Plan.
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<PAGE> 34
The National Bank of Hastings 401(k) Employee Savings Plan (the
"Hastings Savings Plan") will continue in effect until the first January 1 or
July 1 coinciding with or next following the Effective Time (the "Initial Entry
Date"). As of the Initial Entry Date, National Bank of Hastings employees and
officers may participate in First Financial's Thrift Plan. Service with National
Bank of Hastings prior to the Effective Time will be counted for eligibility
purposes under the Thrift Plan. After the Initial Entry Date, the Hastings
Savings Plan may be maintained as a frozen plan for an indefinite period or it
may be merged into the Thrift Plan. No contributions will be made to the
Hastings Savings Plan with respect to compensation paid after the Initial Entry
Date and the accounts of all participants in such plan will become fully vested
and nonforfeitable on the Initial Entry Date.
National Bank of Hastings has entered into a Deferred Compensation and
Non-Compete Agreement with Larry J. Kornstadt, Chairman of the Board, President
and CEO, and into Selective Retirement Plan agreements with six employees of the
bank. The Merger Agreement provides that First Financial will honor these
agreements.
National Bank of Hastings entered into the Deferred Compensation and
Non-Compete Agreement with Mr. Kornstadt on January 13, 1992. The Deferred
Compensation and Non-Compete Agreement provides that while he is employed by
National Bank of Hastings and for a period of five years after termination of
his employment, Mr. Kornstadt may not render the services or make the
investments listed below in a business entity engaged in a business determined
by National Bank of Hastings Board of Directors to be in competition with
National Bank of Hastings or any of its affiliates:
(a) become an owner, director, employee, agent or independent
contractor of such business;
(b) render advisory or other services for such business; or
(c) make a financial investment, except for purchases solely for
investment purposes of not more than 2.00% of stock or
securities outstanding, in such business.
The Deferred Compensation and Non-Compete Agreement also provides that,
upon the earlier of Mr. Kornstadt's retirement, 58th birthday, death or
disability or upon National Bank of Hastings' termination of his employment
without good cause, National Bank of Hastings will immediately pay Mr. Kornstadt
$24,000 and an additional $24,000 on the same day of each year thereafter for a
period of four years. In the event of Mr. Kornstadt's death, the payments will
be made to his spouse, if she survives him. National Bank of Hastings is not
required to continue payments after the death of Mr. Kornstadt and the death of
his spouse. If Mr. Kornstadt fails to observe the terms of the agreement, no
further payments will be due and National Bank of Hastings will have no further
liability under the terms of the agreement.
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<PAGE> 35
The Selective Retirement Plans provide that, upon retirement at
specified ages, National Bank of Hastings will make supplementary monthly
payments for a period of not more than 120 months to the specified employee or
to the employee's surviving spouse if the employee should die before collecting
all the payments. If the employee should die before retirement, the employee's
spouse will begin receiving monthly payments immediately. The Selective
Retirement Plans also include a noncompete agreement ending ten years after the
employee's retirement date. If employment is terminated prior to retirement, the
benefits under the Selective Retirement Plan will be forfeited. Mr. Kornstadt is
one of the six employees covered by a Selective Retirement Plan. Four of the six
employees have retired and are currently receiving monthly payments.
The directors and executive officers of Hastings Financial have
indicated their intention to vote the shares of Hastings Financial Common Stock
held by them in favor of the Merger Agreement. On the Record Date, such
directors and executive officers as a group beneficially owned an aggregate of
41,110 shares of Hastings Financial Common Stock, which represented 51.09% of
the shares issued and outstanding at that date.
Dissenters' Rights
- ------------------
Each holder of Hastings Financial Common Stock has the right to dissent
from the Merger and receive the fair value of such shares of Hastings Financial
Common Stock in cash if the shareholder follows the procedures required under
Sections 450.1761-450.1774 of the Michigan Business Corporation Act (the "MBCA")
set forth in Appendix C, the material provisions of which are summarized below.
Under the MBCA, a holder of Hastings Financial Common Stock may dissent and
First Financial will pay to such shareholder the fair value of such
shareholder's shares of Hastings Financial Common Stock if such shareholder (a)
files with Hastings Financial, before the vote is taken, written notice of
intent to demand payment for his or her shares and (b) does not vote in favor of
the Merger. BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL,
UNLESS REVOKED, BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT, A HOLDER OF
HASTINGS FINANCIAL SHARES WHO VOTES BY PROXY AND WHO WISHES TO EXERCISE HIS OR
HER DISSENTERS' RIGHTS MUST (I) VOTE AGAINST, OR (II) ABSTAIN FROM VOTING ON
SUCH APPROVAL AND ADOPTION. For purposes of Sections 450.1762-450.1774, the fair
value of a dissenting shareholder's shares is the value of the shares
immediately before the effectuation of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger unless the exclusion would be
inequitable.
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<PAGE> 36
If the Merger is approved at the Hastings Financial Special Meeting of
Shareholders, First Financial will deliver written dissenters' notice to those
Hastings Financial shareholders who complied with the notice requirements. This
dissenters' notice will be sent no later than ten days after the Effective Time
of the Merger. The dissenters' notice will (a) state where payment demand must
be sent and when certificates must be deposited, (b) supply a form for demanding
payment that includes the date of the first announcement to the news media or to
shareholders of the terms of the Merger and requires that the shareholder
certify whether he or she acquired beneficial ownership of the shares before
such date and (c) set a date by which the payment demand must be received, which
date may be not less that 30 nor more than 60 days after the date the
dissenters' notice was delivered to shareholders.
A shareholder who sent a dissenters' notice must demand payment,
certify whether he or she acquired beneficial ownership of the Hastings
Financial Common Stock before the date required to be set forth in the
dissenters' notice and deposit his or her certificates in accordance with the
terms of the notice. Hastings Financial shareholders who do not demand payment
or deposit certificates within the time set forth in the dissenters' notice lose
all rights to payment for their Hastings Financial Common Stock under the
provisions of Sections 450.1762-450.1774.
Except for "after-acquired" shares, which are discussed below, within
seven days after the Effective Time or receipt of a payment demand, whichever is
later, First Financial will pay each dissenter the amount First Financial
estimates to be the fair value of the shares plus accrued interest. The payment
will be accompanied by (a) Hastings Financial's balance sheet as of the most
recent fiscal year end, an income statement and a statement of changes in
shareholders' equity for that year plus the latest available interim financial
statements; (b) First Financial's estimate of the fair value of the Hastings
Financial Common Stock; (c) an explanation of how interest was calculated; and
(d) a statement of the dissenter's right to make a supplemental demand for
payment if the shareholder believes that the amount paid is less than the fair
value of his or her shares or that the interest due is incorrectly calculated.
Hastings Financial Common Stock acquired after the date of the first
announcement to the news media or Hastings Financial shareholders of the terms
of the Merger still qualify for dissenters' rights, but the holder of these
shares may receive different and somewhat less favorable treatment than those
shares acquired before such announcements. First Financial, at its election, may
withhold payment from a dissenter who holds "after acquired" shares, at a time
when payment to other shareholders is required. Should First Financial elect to
withhold payment, First Financial, after the Effective Time, will estimate the
fair value of the dissenter's shares plus interest and offer to pay this amount
to each dissenter who agrees to accept it in full satisfaction. Along with its
offer, First Financial will send a statement of its estimate of the fair value
of the shares, an explanation of how interest was calculated and a statement of
the dissenter's right to make a supplemental demand for payment if the
shareholder believes that the amount offered is less than the fair value of his
or her shares or that the interest due is incorrectly calculated.
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<PAGE> 37
In the event a shareholder believes the payment received, or the amount
offered in the case of after-acquired shares, is less than the fair value of his
or her shares or that the interest due is incorrectly calculated, he or she must
notify First Financial in writing of his or her own estimate of the fair value
of the shares and interest due and make a supplemental demand for payment of the
amount he or she believes to be owing. This right is waived unless the dissenter
makes his or her demand within 30 days after First Financial made or offered
payment for his or her shares.
If a supplemental demand remains unsettled, First Financial shall
commence a proceeding within 60 days after receiving the demand and petition the
circuit court of Barry County to determine the fair value and accrued interest.
Should First Financial fail to do so, it must pay each dissenter whose demand
remains unsettled the amount demanded. Each dissenter made a party to the
proceeding is entitled to judgment for the amount by which the court determined
fair value of the shares plus interest exceeds the amount paid by First
Financial or, in the case of after-acquired shares for which payment was not
made, the total amount of the fair value plus interest.
A PROXY OR VOTE AGAINST THE MERGER WILL NOT, BY ITSELF, BE REGARDED AS
A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS.
THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER
THE MBCA IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTIONS 450.1761-450.1774
OF THE MBCA. THE TEST OF SECTIONS 450.1761-450.1774 IS ATTACHED HERETO AS
APPENDIX C.
SHAREHOLDERS OF HASTINGS FINANCIAL INTENDING TO EXERCISE DISSENTERS'
RIGHTS ARE URGED TO SEEK THE ADVICE OF COUNSEL. FAILURE TO COMPLY WITH ALL
REQUIREMENTS OF SECTIONS 450.1761-450.1774 OF THE MBCA WILL RESULT IN THE LOSS
OF DISSENTERS' RIGHTS.
The Merger Agreement includes a provision that First Financial may
terminate the Merger Agreement before the Merger becomes effective if the number
of shares of Hastings Financial Common Stock for which Dissenters' Rights are
perfected is 2.00% or more of the outstanding shares of Hastings Financial
Common Stock.
The Board of Directors of Hastings Financial has determined that the
Merger is fair to and in the best interest of Hastings Financial's shareholders
and has recommended that the Hastings Financial shareholders vote in favor of
the Merger.
30
<PAGE> 38
Federal Income Tax Consequences Of The Merger
- ---------------------------------------------
Assuming that (i) the Merger constitutes a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code; (ii) after the
transaction, First Financial, as successor of Hastings Financial, will hold
substantially all of Hastings Financial's assets; and (iii) in the transaction,
the Hastings Financial shareholders will exchange an amount of stock
constituting control of Hastings Financial solely for First Financial Common
Stock; the following is a summary of the tax consequences which will result:
(1) No gain or loss will be recognized by Hastings Financial
shareholders who exchange all of their Hastings Financial
Common Stock for First Financial Common Stock pursuant to the
Merger, except to the extent of any cash received in lieu of
receipt of a fractional share of First Financial Common Stock.
(2) The basis of the First Financial Common Stock (including
fractional share interests) received by Hastings Financial
shareholders who exchange all of their Hastings Financial
Common Stock for First Financial Common Stock will be the same
as the basis of the Hastings Financial Common Stock
surrendered in exchange therefor.
(3) The holding period of the First Financial Common Stock
(including fractional share interests) received by Hastings
Financial shareholders who exchange all of their Hastings
Financial Common Stock for First Financial Common Stock will
include the period during which the Hastings Financial Common
Stock was held, provided the Hastings Financial Common Stock
was held as a capital asset on the date of the exchange.
(4) Where a cash payment is received by a Hastings Financial
shareholder in lieu of fractional shares of First Financial
Common Stock, the cash payment will be treated as a
distribution in redemption of the fractional share interest by
First Financial, subject to the provisions and limitations of
Section 302 of the Internal Revenue Code. Where such exchange
qualifies under Section 302(a) of the Internal Revenue Code,
such shareholder will recognize a capital gain or loss
provided that the Hastings Financial Common Stock was held as
a capital asset on the date of the Merger.
(5) Any Hastings Financial shareholder who perfects dissenters'
rights and receives solely cash in exchange for such
shareholder's Hastings Financial Common Stock shall be treated
as having received such cash as a distribution in redemption
of the Hastings Financial Common Stock subject to the
provisions and limitations of Section 302 of the Internal
Revenue Code. Where, as a result of such distribution, such
Hastings Financial shareholder owns no First Financial Common
Stock, either directly or through the application of the
constructive ownership rules of Section 318(a) of the Internal
Revenue Code, the redemption will be a complete termination of
interest within the meaning of Section 302(b)(3) of the
Internal Revenue Code and the cash will be treated as a
distribution in full
31
<PAGE> 39
payment and exchange for Hastings Financial Common Stock as
provided in Section 302(a) of the Internal Revenue Code. Gain
or loss will be realized and recognized to such Hastings
Financial shareholder in an amount equal to the difference
between the redemption price and the adjusted basis of the
Hastings Financial Common Stock surrendered in exchange
therefor.
(6) No gain or loss will be recognized by Hastings Financial or
First Financial in connection with the transaction.
Receipt of an opinion of tax counsel (the "Tax Opinion") with respect
to the above is a condition precedent to consummation of the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON THE
CODE, TREASURY REGULATIONS, CASE LAW AND INTERNAL REVENUE SERVICE RULINGS AS IN
EFFECT ON THE DATE HEREOF WITHOUT CONSIDERATION OF THE FACTS AND CIRCUMSTANCES
OF ANY PARTICULAR SITUATION OF ANY HASTINGS FINANCIAL SHAREHOLDER. THIS
DISCUSSION ASSUMES THAT HASTINGS FINANCIAL SHAREHOLDERS HOLD THEIR HASTINGS
FINANCIAL COMMON STOCK AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF
THE CODE. SPECIAL TAX CONSIDERATIONS NOT DISCUSSED HEREIN MAY BE APPLICABLE TO
PARTICULAR CLASSES OF TAXPAYERS, SUCH AS BROKER-DEALERS, OR TO ANY SHAREHOLDER
WHO ACQUIRED HASTINGS FINANCIAL COMMON STOCK THROUGH THE EXERCISE OF AN EMPLOYEE
STOCK OPTION OR OTHERWISE AS COMPENSATION. EACH SHAREHOLDER SHOULD CONSULT WITH
HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF EXISTING AND
PROPOSED FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Accounting Treatment
- --------------------
It is anticipated that the Merger will be accounted for as a
pooling-of-interests. The receipt by First Financial of letters from its
independent accountants stating that they are not aware of any reason that First
Financial is not in compliance with the pooling-of-interests criteria and that
the Merger can be accounted for as a pooling-of-interests from First Financial's
perspective and the receipt of similar letters from Hastings Financial's
independent accountants is a condition precedent to the respective party's
obligation to consummate the Merger.
32
<PAGE> 40
Regulatory Considerations
- -------------------------
The proposed transaction requires the approval of the Federal Reserve
Board under section 3(a)(5) of the Bank Holding Company Act of 1956, as amended.
The Bank Holding Company Act provides that the Federal Reserve Board may not
approve any transaction which would result in a monopoly or which would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or any
transaction the effect of which in any section of the United States may be
substantially to lessen competition or to tend to create a monopoly or which in
any other manner might restrain trade, unless the Federal Reserve Board
determines that the anti-competitive effects of the proposed merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served.
The Merger may generally not be consummated for fifteen days after the
receipt of Federal Reserve Board approval. Such fifteen day period will become
thirty days, however, if the United States Department of Justice issues an
adverse comment relating to competitive factors. During such fifteen or thirty
day period, the United States Department of Justice may commence legal action
challenging the Merger under the Federal Anti-trust Laws. If the Justice
Department does not commence a legal action during such period, the Merger may
be consummated and the Justice Department may not thereafter challenge the
transaction except in an action commenced under Section 2 of the Sherman
AntiTrust Act.
An application requesting approval was submitted to the Federal Reserve
Board on ____________ ___, 1996. First Financial and Hastings Financial
anticipate that the Merger will be approved by the Federal Reserve Board and
will not be challenged by the Justice Department under the anti-trust laws.
However, there can be no assurance that the Federal Reserve Board and the
Justice Department will concur in this assessment.
Pro Forma Unaudited Financial Information
- -----------------------------------------
The following pro forma unaudited consolidated balance sheet as of June
30, 1996 and the pro forma unaudited consolidated statements of earnings for the
six months ended June 30, 1996 and 1995 and the years ended December 31, 1995,
1994 and 1993 indicate the pro forma effects of the merger of Hastings Financial
into First Financial and the issuance of shares of First Financial Common Stock
in exchange for all of the outstanding Hastings Financial Common Stock using the
pooling-of-interests method of accounting. Each share of Hastings Financial
Common Stock will be canceled and extinguished in consideration and exchange for
a number of shares of First Financial Common Stock equal to the Exchange Ratio.
The pro forma information has been calculated assuming the issuance of 301,887
shares of First Financial Common Stock, which is the number of shares which
would have been issued if the Merger was effective on September 3, 1996.
33
<PAGE> 41
The pro forma information is based on the historical financial
statements of the organizations presented giving effect to the accounting method
proposed and the assumptions and adjustments in the accompanying notes to the
pro forma financial statements. These pro forma unaudited statements are
presented for illustrative purposes only and may not be indicative of the
results that actually would have occurred if the combination had been in effect
on the dates indicated or which may be obtained in the future. The pro forma
unaudited financial statements should be read in conjunction with the audited
and unaudited financial statements and related notes set forth or incorporated
by reference in this Proxy Statement-Prospectus.
34
<PAGE> 42
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1996
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
(Dollars in thousands)
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 100,805 $ 3,249 $ 104,054
Interest-bearing deposits with other banks 6,385 0 6,385
Federal funds sold and securities purchased
under agreements to resell 4,451 2,800 7,251
Investment securities 385,738 12,060 397,798
Loans, net of unearned income and
allowance for loan losses 1,591,624 26,826 1,618,450
Premises and equipment 41,498 1,017 42,515
Accrued interest and other assets 44,880 895 45,775
----------- -------- -----------
TOTAL ASSETS $ 2,175,381 $ 46,847 $ 2,222,228
=========== ======== ===========
LIABILITIES
Deposits $ 1,811,404 $ 40,736 $ 1,852,140
Short term borrowings 87,151 0 87,151
Long term borrowings 4,541 0 4,541
Accrued interest and other liabilities 23,446 831 24,277
----------- -------- -----------
TOTAL LIABILITIES 1,926,542 41,567 1,968,109
SHAREHOLDERS' EQUITY
Common stock 107,111 79 (A) 109,526
Surplus 12,611 731 (A) 11,006
Retained earnings 130,074 4,489 134,563
Treasury stock, at cost (464) 0 (464)
Unrealized net gain (losses) on securities
available-for-sale, net of deferred income taxes (244) (19) (263)
Restricted stock awards (249) 0 (249)
----------- -------- -----------
TOTAL SHAREHOLDERS' EQUITY 248,839 5,280 254,119
----------- -------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,175,381 $ 46,847 $ 2,222,228
=========== ======== ===========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
39.
35
<PAGE> 43
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
(Dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 70,112 $ 1,260 $71,372
Investment securities 12,516 320 12,836
Other 568 52 620
----------- ------- ----------
Total interest income 83,196 1,632 84,828
INTEREST EXPENSE:
Deposits 32,646 560 33,206
Short-term borrowings 1,095 0 1,095
Long-term borrowings 115 0 115
----------- ------- ----------
Total interest expense 33,856 560 34,416
----------- ------- ----------
Net interest income 49,340 1,072 50,412
Provision for loan losses 1,370 9 1,379
----------- ------- ----------
Net interest income after
provision for loan losses 47,970 1,063 49,033
NONINTEREST INCOME 10,662 194 10,856
NONINTEREST EXPENSES 33,917 775 34,692
----------- ------- ----------
INCOME BEFORE INCOME TAXES 24,715 482 25,197
Income tax expense 7,844 146 7,990
----------- ------- ----------
NET EARNINGS $ 16,871 $ 336 $17,207
=========== ======= ==========
NET EARNINGS PER SHARE $ 1.28 $ 4.41 $ 1.27
=========== ======= ==========
AVERAGE SHARES OUTSTANDING 13,203,147 76,130 13,505,034 (B)
=========== ======= ==========
</TABLE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
(Dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 61,385 $ 1,056 $ 62,441
Investment securities 11,752 421 12,173
Other 169 16 185
----------- ------- ----------
Total interest income 73,306 1,493 74,799
INTEREST EXPENSE:
Deposits 27,503 523 28,026
Short-term borrowings 2,468 0 2,468
Long-term borrowings 0 0 0
----------- ------- ----------
Total interest expense 29,971 523 30,494
----------- ------- ----------
Net interest income 43,335 970 44,305
Provision for loan losses 619 3 622
----------- ------- ----------
Net interest income after
provision for loan losses 42,716 967 43,683
NONINTEREST INCOME 10,137 255 10,392
NONINTEREST EXPENSES 31,236 794 32,030
----------- ------- ----------
INCOME BEFORE INCOME TAXES 21,617 428 22,045
Income tax expense 6,259 100 6,359
----------- ------- ----------
NET EARNINGS $ 15,358 $ 328 $ 15,686
=========== ======= ==========
NET EARNINGS PER SHARE $ 1.26 $ 4.26 $ 1.25
=========== ======= ==========
AVERAGE SHARES OUTSTANDING 12,208,840 76,915 12,510,727 (B)
=========== ======= ==========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
39.
36
<PAGE> 44
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
Dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 129,058 $ 2,137 $ 131,195
Investment securities 24,024 771 24,795
Other 769 97 866
----------- ------- -----------
Total interest income 153,851 3,005 156,856
INTEREST EXPENSE:
Deposits 59,413 1,074 60,487
Short-term borrowings 4,051 1 4,052
Long-term borrowings 52 0 52
----------- ------- -----------
Total interest expense 63,516 1,075 64,591
----------- ------- -----------
Net interest income 90,335 1,930 92,265
Provision for loan losses 2,108 34 2,142
----------- ------- -----------
Net interest income after
provision for loan losses 88,227 1,896 90,123
NONINTEREST INCOME 20,558 469 21,027
NONINTEREST EXPENSES 63,345 1,561 64,906
----------- ------- -----------
INCOME BEFORE INCOME TAXES 45,440 804 46,244
Income tax expense 13,651 188 13,839
----------- ------- -----------
NET EARNINGS $ 31,789 $ 616 $ 32,405
=========== ======= ===========
NET EARNINGS PER SHARE $ 2.55 $ 8.10 $ 2.53
=========== ======= ===========
AVERAGE SHARES OUTSTANDING 12,488,168 76,036 12,790,055 (B)
=========== ======= ===========
</TABLE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
(Dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 104,936 $ 1,833 $ 106,769
Investment securities 27,905 1,003 28,908
Other 663 70 733
----------- ------- -----------
Total interest income 133,504 2,906 136,410
INTEREST EXPENSE:
Deposits 47,042 1,009 48,051
Short-term borrowings 2,421 0 2,421
Long-term borrowings 124 0 124
----------- ------- -----------
Total interest expense 49,587 1,009 50,596
----------- ------- -----------
Net interest income 83,917 1,897 85,814
Provision for loan losses 1,268 3 1,271
----------- ------- -----------
Net interest income after
provision for loan losses 82,649 1,894 84,543
NONINTEREST INCOME 17,462 317 17,779
NONINTEREST EXPENSES 62,139 1,670 63,809
----------- ------- -----------
INCOME BEFORE INCOME TAXES 37,972 541 38,513
Income tax expense 9,799 138 9,937
----------- ------- -----------
NET EARNINGS $ 28,173 $ 403 $ 28,576
=========== ======= ===========
NET EARNINGS PER SHARE $ 2.31 $ 5.08 $ 2.28
=========== ======= ===========
AVERAGE SHARES OUTSTANDING 12,210,753 79,249 12,512,640 (B)
=========== ======= ===========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
39.
37
<PAGE> 45
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
First Hastings Consolidated
Financial Financial Pro Forma
--------- --------- ---------
(Dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C> <C>
Loans, including fees $ 99,333 $ 1,798 $ 101,131
Investment securities 30,022 1,043 31,065
Other 1,384 76 1,460
----------- ------- -----------
Total interest income 130,739 2,917 133,656
INTEREST EXPENSE:
Deposits 50,862 1,056 51,918
Short-term borrowings 790 0 790
Long-term borrowings 228 0 228
----------- ------- -----------
Total interest expense 51,880 1,056 52,936
----------- ------- -----------
Net interest income 78,859 1,861 80,720
Provision for loan losses 3,747 0 3,747
----------- ------- -----------
Net interest income after
provision for loan losses 75,112 1,861 76,973
NONINTEREST INCOME 19,589 280 19,869
NONINTEREST EXPENSES 62,038 1,510 63,548
----------- ------- -----------
INCOME BEFORE INCOME TAXES 32,663 631 33,294
Income tax expense 7,469 219 7,688
----------- ------- -----------
NET EARNINGS $ 25,194 $ 412 $ 25,606
=========== ======= ===========
NET EARNINGS PER SHARE $ 2.06 $ 5.23 $ 2.05
=========== ======= ===========
AVERAGE SHARES OUTSTANDING 12,211,405 78,883 12,513,292 (B)
=========== ======= ===========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
39.
38
<PAGE> 46
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------
General
- -------
Reclassification of information has been made at times to provide
consistency in the presentation of financial information for the corporations
involved. These reclassifications are not material in nature and had no effect
on net earnings.
Listed below are certain costs that are directly attributable to the
Merger and some of these can reasonably be expected to be included in the
expenses of First Financial during the next 12 months. At June 30, 1996,
approximately $16,000 of the costs listed below have already been paid and
expensed or accrued and expensed by Hastings Financial. Those costs not
previously paid or accrued were not considered in the preparation of the Pro
Forma Unaudited Consolidated Financial Statements.
<TABLE>
<CAPTION>
Classification Amount
-------------- ------
(Dollars in thousands)
<S> <C>
Legal $ 40
Accounting 75
Financial advisor 120
Regulatory filing fees 10
Other 10
-------
Total $ 255
=======
</TABLE>
(A) First Financial is offering to exchange shares of First Financial
Common Stock for outstanding shares of Hastings Financial Common Stock.
The exact number of First Financial shares to be issued for each share
of Hastings Financial Common Stock is not yet known. It will be
calculated by dividing the Merger Price by the Average, which quotient
will be further divided by the aggregate number of shares of Hastings
Financial Common Stock issued and outstanding immediately prior to the
Effective Time. The Exchange Ratio will be appropriately adjusted in
the event of the subdivision or split of the outstanding First
Financial Common Stock, a capital reorganization, or a reclassification
or recapitalization affecting First Financial Common Stock.
If the Merger was consummated on September 3, 1996, the Average would
be $33.125, the Exchange Ratio would be 3.751871 shares of First
Financial Common Stock for each share of Hastings Financial Common
Stock, and the number of shares of First Financial Common Stock to be
issued would be 301,887 shares.
39
<PAGE> 47
(B) The par value of First Financial Common Stock is $8.00 per share, while
the par value of Hastings Financial Common Stock is $1.00 per share.
Assuming an Exchange Ratio of 3.751871, the additional par value of the
shares of First Financial Common Stock issued, in the aggregate, over
the par value of Hastings Financial Common Stock, in the aggregate, is
transferred from surplus, as shown in the table below:
<TABLE>
<CAPTION>
Hastings Hastings
Financial Transfer from Financial
Actual Surplus Pro Forma
------ ------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Common stock $ 79 $2,336 $2,415
Surplus 731 (2,336) (1,605)
------ ------ ------
Total common stock and surplus $ 810 $ 0 $ 810
====== ====== ======
</TABLE>
The consolidated pro forma shareholders' equity per share was
calculated assuming the issuance of 301,887 shares of First Financial
Common Stock at an Average equal to $33.125, which is the Average that
would have been in effect if the Merger was effective September 3,
1996. The use of the number of shares is for illustrative purposes only
and does not attempt to predict the actual number of shares to be
issued in the Merger.
40
<PAGE> 48
INFORMATION ABOUT FIRST FINANCIAL
Information about First Financial is included in the First Financial
Form 10-K, previously incorporated herein by reference, and in First Financial's
Quarterly Report on Form 10-Q for the quarters ended March 31 and June 30, 1996,
previously incorporated herein by reference.
41
<PAGE> 49
INFORMATION ABOUT THE BUSINESS OF HASTINGS FINANCIAL
General
- -------
Hastings Financial, a bank holding company, was established in 1988 and
is headquartered in Hastings, Michigan, the county seat of Barry County. The
holding company's wholly owned subsidiary, National Bank of Hastings, was
chartered by the Office of the Comptroller of the Currency as a national bank in
1933. National Bank of Hastings conducts its business through a main office
located in Hastings, Michigan and a full service branch located in Wayland,
Michigan. Its primary market area includes the cities of Hastings and Wayland
and the contiguous areas within Barry and Allegan Counties, Michigan. The
economic base of National Bank of Hastings' primary market area is primarily
agriculture, but also includes light manufacturing, recreational areas and
service companies.
As of June 30, 1996, Hastings Financial had total assets of
approximately $47 million, total deposits of approximately $41 million and
shareholders' equity of approximately $5 million. It had 35 employees at June
30, 1996.
National Bank of Hastings has operated as a traditional community bank
since its founding. As with many community banks, its lending focus has been
strongly real estate and installment lending oriented. At December 31, 1995,
approximately 48.7% and 47.9% of its lending portfolio was comprised of real
estate and installment loans, respectively. The balance of its loan portfolio is
comprised primarily of commercial loans. Lendable funds are obtained primarily
from deposits and loan principal payments. National Bank of Hastings offers a
full line of checking and NOW accounts, passbook savings, certificates of
deposit and individual retirement accounts. In addition to originating loans,
National Bank of Hastings invests in U.S. treasury and government agency
securities, corporate notes and municipal securities.
Competition
- -----------
National Bank of Hastings competes for deposits with other commercial
banks, savings associations, savings banks, credit unions and with issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates, service
and convenience of office location.
In making loans, National Bank of Hastings competes with other
commercial banks, savings associations, savings banks, consumer finance
companies, credit unions, leasing companies, mortgage companies, and other
lenders. National Bank of Hastings competes for loan originations primarily
through the interest rates and loan fees it charges and through the efficiency
and quality of services it provides to borrowers. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels and other factors which
are not readily predictable.
42
<PAGE> 50
Regulation
- ----------
Hastings Financial, as a bank holding company, is subject to
supervision and/or regular examination by the Federal Reserve Board and the
Federal Deposit Insurance Corporation (the "FDIC"). National Bank of Hastings,
as a national bank, is subject to supervision and regular examination by the
Office of the Comptroller of the Currency, as primary regulator, and by the
FDIC, as backup regulator.
Properties
- ----------
National Bank of Hastings operates a main office in Hastings, Michigan
and a branch office in Wayland, Michigan. All offices are owned by National Bank
of Hastings. Hastings Financial does not directly own any real property.
Legal Proceedings
- -----------------
Neither Hastings Financial nor National Bank of Hastings is presently
involved in any legal proceedings of a material nature. From time to time,
National Bank of Hastings is a party to legal proceedings incidental to its
business to enforce its security interest in collateral pledged to secure loans
made by National Bank of Hastings.
Certain Transactions With Hastings Financial
- --------------------------------------------
At December 31, 1995, certain directors and executive officers of
Hastings Financial and members of the immediate families of such directors and
executive officers were indebted to National Bank of Hastings in the aggregate
amount of approximately $175,000. Such indebtedness was incurred in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons. All such loans were current at December 31, 1995 and June 30,
1996 and are not considered to involve more than the normal risk of
collectibility or to present other unfavorable features.
43
<PAGE> 51
Selected Financial Data
- -----------------------
The following table sets forth certain information concerning the
financial condition, earnings and other data regarding Hastings Financial at the
dates and for the periods indicated:
<TABLE>
<CAPTION>
Financial condition At June 30, At December 31,
and other data: ----------------- ----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------------- ----------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total amount of:
Assets $46,847 $44,489 $46,140 $45,797 $44,690 $46,556 $39,576
Investment securities:
Held-to-maturity 10,428 11,704 10,767 13,292 18,497 17,009 11,611
Available-for-sale 1,632 2,097 1,655 4,578 0 0 0
Loans receivable, net of
unearned income, deferred
loan fees and allowance
for loan losses 26,826 23,970 24,964 23,154 18,701 19,668 21,105
Deposits 40,736 38,994 40,442 39,958 39,644 41,780 35,225
Shareholders' equity 5,280 4,756 4,914 4,571 4,368 4,085 3,872
</TABLE>
<TABLE>
<CAPTION>
Six months ended
Earnings and other June 30, Year ended December 31,
data: ----------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------------- -------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $1,632 $1,493 $3,005 $2,906 $2,917 $3,256 $3,387
Interest expense 560 523 1,075 1,009 1,056 1,349 1,645
------ ------ ------ ------ ------ ------ ------
Net interest income 1,072 970 1,930 1,897 1,861 1,907 1,742
Provision for
loan losses 9 3 34 3 0 5 25
------ ------ ------ ------ ------ ------ ------
Net interest income
after provision for
loan losses 1,063 967 1,896 1,894 1,861 1,902 1,717
Other income 194 255 469 317 280 295 289
Other expenses 775 794 1,561 1,670 1,510 1,484 1,464
------ ------ ------ ------ ------ ------ ------
Earnings before
income taxes 482 428 804 541 631 713 542
Income taxes 146 100 188 138 219 198 166
------ ------ ------ ------ ------ ------ ------
Net earnings $ 336 $ 328 $ 616 $ 403 $ 412 $ 515 $ 376
====== ====== ====== ====== ====== ====== ======
Net earnings per share $ 4.41 $ 4.26 $ 8.10 $ 5.08 $ 5.23 $ 6.57 $ 4.77
====== ====== ====== ====== ====== ====== ======
Dividends per share $ 1.25 $ 0.00 $ 2.25 $ 1.75 $ 1.65 $ 1.65 $ 1.65
Return on equity (net
earnings divided by
average equity) 13.18%(1) 14.07%(1) 12.98% 8.49% 9.21% 12.57% 9.43%
Return on assets (net
earnings divided by
average total assets) 1.45%(1) 1.45%(1) 1.37% 0.89% 0.92% 1.20% 0.97%
Dividend payout ratio
(dividends declared
per share divided by
net earnings per
share) 28.34% N/A 27.78% 34.45% 31.55% 25.11% 34.59%
Book value per common
share $66.45 $63.02 $65.12 $58.33 $55.74 $52.12 $49.41
Average shareholders'
equity to average
total assets 10.96% 10.33% 10.58% 10.47% 10.00% 9.45% 10.23%
<FN>
- ------
(1) Annualized
</TABLE>
44
<PAGE> 52
Analysis Of Net Interest Income
- -------------------------------
The following table sets forth for the years ended December 31, 1995,
1994 and 1993 the average balances of major categories of interest earning
assets and interest bearing liabilities, interest income earned and interest
expense paid during such periods and the related weighted average rates for
Hastings Financial.
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
----------------------------- ------------------------------ ----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 23,691 $ 2,137 9.02% $19,958 $1,833 9.18% $18,696 $1,798 9.62%
Investment securities:
Taxable 11,161 617 5.53% 14,032 811 5.78% 14,041 894 6.37%
Tax-exempt (2) 3,059 234 7.65% 4,353 291 6.69% 4,165 226 5.43%
Federal funds sold 1,687 97 5.75% 1,693 70 4.13% 2,389 76 3.18%
------- ------ ---------- ------- ------ -------
Total interest-earning assets 39,598 3,085 7.79% 40,036 3,005 7.51% 39,291 2,994 7.62%
Noninterest-earning assets:
Allowance for loan losses (174) (174) (195)
Other 5,423 5,465 5,664
-------- -------- -------
Total assets $ 44,847 $ 45,327 $44,760
======== ======== =======
Interest-bearing liabilities:
Demand deposits $ 12,471 428 3.43% $13,716 408 2.97% $13,743 411 2.99%
Savings deposits 11,018 299 2.71% 11,340 308 2.72% 10,978 309 2.81%
Time deposits 6,974 347 4.98% 7,446 293 3.93% 8,160 336 4.12%
Federal Funds purchased 8 1 12.50% 3 0 0.00% 0 0 0.00%
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 30,471 1,075 3.53% 32,505 1,009 3.10% 32,881 1,056 3.21%
------- ------ ------
Noninterest-bearing liabilities
Noninterest-bearing demand deposits 8,763 7,370 6,759
Other liabilities 867 706 645
------- ------ -----
Total liabilities 40,101 40,581 40,285
Stockholders' equity 4,746 4,746 4,475
------- ------ -------
Total liabilities and
stockholders' equity $ 44,847 $ 45,327 $ 44,760
======= ====== ==========
Net interest income;
interest rate spread $ 2,010 4.26% $ 1,996 4.41% $1,938 4.41%
======= ====== ======== ======= ====== =====
Net interest margin (net interest
income as a percent of average
interest-earning assets) 5.08% 4.99% 4.93%
======= ====== ======
Average interest-earning assets to
average interest-bearing liabilities 130.0% 123.2% 119.5%
===== ===== =====
<FN>
------------------
(1) For purposes of these computations, nonaccrual loans are included in the average loan balances outstanding and loan fees are
included in interest on loans receivable. The inclusion of nonaccrual loans and fees does not have a material effect on
either the average balance or the average yield.
(2) Interest income on tax-exempt investments has been adjusted to a taxable equivalent basis using a marginal federal income tax
rate of 34.0%.
</TABLE>
45
<PAGE> 53
Interest Income And Expense Rate/Volume Analysis
- ------------------------------------------------
The table below describes the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest bearing
liabilities have affected Hastings Financial's interest income and expense
during the periods indicated. For each category of interest earning assets and
interest bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1995 vs. 1994 1994 vs. 1993
------------- -------------
Increase (decrease) Increase (decrease)
due to due to
------ ------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in thousands)
Interest income attributable to:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable $ 336 $ (32) $ 304 $ 105 $(70) $ 35
Investment securities:
Taxable (160) (34) (194) (1) (82) (83)
Tax-exempt (1) (111) 54 (57) 11 54 65
Federal funds sold 0 27 27 (25) 19 (6)
----- ----- ----- ----- ---- ----
Total interest income 65 15 80 90 (79) 11
Interest expense attributable to:
Interest-bearing demand deposits (29) 49 20 (1) (2) (3)
Savings deposits (9) 0 (9) 10 (11) (1)
Time deposits (17) 71 54 (29) (14) (43)
Federal funds purchased 0 1 1 0 0 0
----- ----- ----- ----- ---- ----
Total interest expense (55) 121 66 (20) (27) (47)
----- ----- ----- ----- ---- ----
Increase (decrease) in net
interest income $ 120 $(106) $ 14 $ 110 $(52) $ 58
===== ===== ===== ===== ==== ====
- ----------------
<FN>
(1) Interest income on tax-exempt investments has been adjusted to
a taxable equivalent basis using a marginal federal income tax
rate of 34.0%.
</TABLE>
Investment Securities
- ---------------------
The following table sets forth the carrying amount of investment
securities at December 31, 1995 and 1994. Investment securities classified as
held-to-maturity are recorded at amortized cost and those classified as
available-for-sale are recorded at fair value.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------- ------------------
December 31, December 31,
------------ ------------
1995 1994 1995 1994
-------- -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. treasury and
government agencies $ 7,510 $ 9,945 $1,436 $1,870
Obligations of states and
political subdivisions 2,907 2,981 0 2,500
Other corporate securities 251 254 219 208
Mortgage-backed securities 99 112 0 0
------- ------- ------ ------
Total $10,767 $13,292 $1,655 $4,578
======= ======= ====== ======
</TABLE>
46
<PAGE> 54
The following table presents the contractual maturities or terms to
repricing of investment debt securities and the weighted average yield at
December 31, 1995.
<TABLE>
<CAPTION>
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10
after after after years after
12-31-95 12-31-95 12-31-95 12-31-95 Totals
-------- -------- -------- -------- ------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. treasury and
government agencies $ 751 6.85% $ 6,759 4.99% $ 0 0.00% $ 0 0.00% $ 7,510 5.18%
Obligations of states and
political subdivisions(1) 369 5.85% 1,149 7.35% 1,389 7.53% 0 0.00% 2,907 7.25%
Other corporate securities 251 8.35% 0 0.00% 0 0.00% 0 0.00% 251 8.35%
Mortgage-backed securities 0 0.00% 0 0.00% 0 0.00% 99 5.75% 99 5.75%
------- ------- ------- ------- -------
Total Held-to-Maturity $ 1,371 6.86% $ 7,908 5.33% $ 1,389 7.53% $ 99 5.75% $10,767 5.82%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
AVAILABLE-FOR-SALE:
U.S. treasury and
government agencies $ 465 7.86% $ 971 4.70% $ 0 0.00% $ 0 0.00% $ 1,436 5.72%
Other corporate securities 0 0.00% 219 8.46% 0 0.00% 0 0.00% 219 8.46%
------- ------- ------ ------- -------
Total Available-for-Sale $ 465 7.86% $ 1,190 5.39% $ 0 0.00% $ 0 0.00% $ 1,655 6.08%
======= ===== ======= ===== ====== ===== ======= ===== ======= =====
<FN>
- --------------------
(1) Yields on tax-exempt investments have been computed on a tax equivalent
basis using a marginal federal income tax rate of 34.0%.
</TABLE>
At December 31, 1995 there were no holdings of securities of any one
issuer, other than the U.S. government and its agencies and corporations, in an
amount greater than 10% of shareholders' equity.
Loan Portfolio
- --------------
LOAN PORTFOLIO COMPOSITION. Hastings Financial's primary lending area
are the cities of Hastings and Wayland, Michigan and the contiguous area in
Barry and Allegan Counties, Michigan.
The following table presents certain information in respect of the
composition of Hastings Financial's loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------
1995 1994
---------- --------
(Dollars in thousands)
<S> <C> <C>
Commercial and agricultural $ 695 $ 517
Real estate-construction 0 0
Real estate-mortgage 12,249 12,558
Installment 12,057 10,052
Other 163 203
------- -------
Total loans 25,164 23,330
Allowance for loan losses (200) (176)
------- -------
Net loans $24,964 $23,154
======= =======
</TABLE>
At December 31, 1995, Hastings Financial did not have any
concentrations of loans exceeding 10.0% of total loans not otherwise disclosed
in the loan categories in the table above.
47
<PAGE> 55
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at December 31, 1995 regarding loans, excluding real
estate-mortgage, installment and other, maturing or repricing in Hastings
Financial's portfolio, based on the earlier of contractual terms to maturity or
the next scheduled repricing date for variable rate loans:
<TABLE>
<CAPTION>
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10
after after after years after
12-31-95 12-31-95 12-31-95 12-31-95 Total
-------- -------- -------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $ 695 $ 0 $ 0 $ 0 $ 695
======= ======= ======= ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans
due after one year after December 31, 1995 that have predetermined interest
rates and have floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates adjustable rates
----- ----------------
(Dollars in thousands)
<S> <C> <C>
Commercial and agricultural $ 0 $ 0
======= =======
</TABLE>
DELINQUENT LOANS AND NONPERFORMING ASSETS. All loans are reviewed on a
regular basis and are placed on non-accrual status when, in the opinion of
management, the collection of interest is doubtful. Loans are classified as
restructured when management, to protect its investment, grants concessions that
would not otherwise be considered to a debtor. Other real estate owned ("OREO")
represents real estate acquired by Hastings Financial as a result of loan
defaults by customers. The following table summarizes Hastings Financial's
nonaccrual loans, restructured loans, OREO and past due loans at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
At December 31,
---------------
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans $ 29 $ 0
Restructured loans 0 0
Other real estate owned 0 57
------ ------
Total nonperforming assets $ 29 $ 57
====== ======
Accruing loans past due
90 days or more $ 3 $ 62
====== ======
</TABLE>
Interest income which would have been recorded under the original terms
of nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Interest income which would
have been recorded $ 3 $ 0
Interest income recognized 2 0
------ ------
Interest income foregone $ 1 $ 0
====== ======
</TABLE>
At December 31, 1995 Hastings Financial did not have any loans not
currently classified as nonaccrual or 90 days past due and accruing where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in future disclosure of such
loans.
48
<PAGE> 56
ALLOWANCE FOR LOAN LOSSES. Hastings Financial maintains an allowance to
absorb anticipated losses on loans. Additions to the allowance for loan losses
are charged to the provision for loan losses on the statement of income.
Management reviews on a quarterly basis the allowance for loan losses as it
relates to a number of relevant factors, including, but not limited to, trends
in the level of nonperforming assets, current and anticipated economic
conditions in the primary lending area, past loss experience, loan
concentrations, composition of the loan portfolio and possible losses arising
from specific problem loans. While management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in evaluating the adequacy of the allowance for loan losses.
The following table sets forth an analysis of Hastings Financial's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $176 $ 167 $198
Charge-offs:
Commercial and agricultural 0 0 28
Real estate-construction 0 0 0
Real estate-mortgage 10 0 0
Installment 8 11 8
---- ----- ----
Total charge-offs 18 11 36
Recoveries:
Commercial and agricultural 0 12 4
Real estate-construction 0 0 0
Real estate-mortgage 2 0 0
Installment 6 5 1
---- ----- ----
Total recoveries 8 17 5
Net charge-offs (recoveries) 10 (6) 31
Provision for loan losses 34 3 0
---- ----- ----
Balance at end of period $200 $ 176 $167
==== ===== ====
Ratio of net charge-offs (recoveries)
during the period to average loans
outstanding during the period 0.04% (0.03)% 0.16%
==== ===== ====
</TABLE>
The following table provides an allocation of Hastings Financial's
allowance for loan losses by category for the periods indicated. The allowance
can be allocated by category only on an approximate basis. The allocation of
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
Percentage of Loans
Allowance for Loan Losses to Total Loans
At December 31, At December 31,
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 38 $ 9 2.76% 2.21%
Real estate-construction 0 0 0.00% 0.00%
Real estate-mortgage 73 39 48.68% 53.83%
Installment loans 9 8 47.91% 43.09%
Other 0 0 0.00% 0.00%
Unallocated 80 120 0.65% 0.87%
------ ------ ------- -------
Total $ 200 $ 176 100.00% 100.00%
====== ====== ======= =======
</TABLE>
49
<PAGE> 57
Deposits
- --------
Deposits have traditionally been the primary source of Hastings
Financial's funds for use in lending and other investment activities. Deposits
are attracted principally within the cities of Hastings and Wayland, Michigan
and the contiguous area in Barry and Allegan Counties, Michigan through the
offering of a broad selection of deposit instruments, including checking and NOW
accounts, money market deposit accounts, regular passbook savings accounts, term
certificate accounts and retirement savings plans. Hastings Financial has not
and does not presently use brokers to attract deposits.
The following table presents the average balance of and the average
rate paid on various deposit categories for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994
---- ----
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 8,763 $ 7,370
Interest bearing demand deposits 12,471 3.43% 13,716 2.97%
Savings deposits 11,018 2.71 11,340 2.72
Time deposits 6,974 4.98 7,446 3.93
------- ----- ------- -----
Total $39,226 2.74% $39,872 2.53%
======= ===== ======= =====
</TABLE>
The following table presents the amount of Hastings Financial's time
deposits of $100,000 or more by the time remaining until maturity as of December
31, 1995:
<TABLE>
<CAPTION>
Maturity December 31, 1995
-------- -----------------
(Dollars in thousands)
<S> <C>
Three months or less $ 264
Over three through six months 0
Over six through twelve months 360
Over twelve months 0
------
Total $ 624
======
</TABLE>
Return On Equity And Assets
- ---------------------------
The following table sets forth certain performance ratios of Hastings
Financial for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Return on assets (net income
divided by average total assets) 1.37% 0.89%
Return on equity (net income
divided by average equity) 12.98% 8.49%
Dividend payout ratio (dividends
declared per share divided by
net income per share) 27.78% 34.45%
Equity to assets ratio (average
equity divided by average assets) 10.58% 10.47%
</TABLE>
50
<PAGE> 58
HASTINGS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
This discussion provides information about the consolidated financial condition
and results of operations of Hastings Financial Corporation (the "Corporation")
and its subsidiary National Bank of Hastings (the "Bank"), and should be read in
conjunction with the Consolidated Financial Statements.
EARNINGS SUMMARY
- ----------------
Consolidated net income of the Corporation for the year ended December 31, 1995
was $616,000. This represented an increase of 53% over the prior year's net
income of $403,000. A comparison to 1993 net income of $412,000 further
illustrates the significance of 1995's net income growth. The earnings per share
of $8.10 for the year ended 1995 was an improvement of 59% over the 1994
earnings per share of $5.08. The year 1994 was a slight decrease from 1993's
earnings per share of $5.23.
Two often cited ratios for analysis of financial institutions are return on
average assets (ROA) and return on average equity (ROE). ROA was 1.37%, .89% and
.92% for the years ended December 31, 1995, 1994 and 1993 respectively. ROE for
1995 was 12.98%, 1994 was 8.49% and 1993 was 9.21%.
RESULTS OF OPERATIONS: 1995 COMPARED TO 1994
- ----------------------
TOTAL INTEREST INCOME of $3,005,000 for the calendar year 1995 was comparable to
the 1994 year of $2,906,000. However, the mix of interest income shifted as more
dollars came from loans (71% in) 1995 versus (63% in) 1994. This change was
primarily the result of increased principal balances of loans.
Interest income from securities decreased from $1,003,000 during 1994 to
$771,000 for 1995, a change of 30%. Many of the securities in the portfolio were
variable rate products that produced higher yields, resulting from interest rate
markets rise from 1994 to 1995. However, this rise of interest rates could not
offset the decline in average balances of securities from 1994 to 1995. This was
a conscious decision of management to move into higher yield earning assets
(loans).
INTEREST EXPENSE on deposits remained relatively flat from 1994 to 1995. Rates
to depositors and total average deposit balances fluctuated little between the
years. Growth of total deposits was a modest 1% from the 1994 year end to
December 31, 1995. There was a small shift of depositors moving from
shorter-term products to time certificates but this did not measurably impact
interest expense.
PROVISION FOR LOAN LOSSES increased during 1995 to correspond to the loan growth
of indirect installment lending.
51
<PAGE> 59
Management adopted Statement of Financial Accounting Standards (SFAS) No. 114
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
effective January 1, 1995. The adoption of this pronouncement did not require
any adjustment to the allowance for loan losses.
OTHER INCOME received a boost in 1995 though a $99,000 gain on a life insurance
policy. Security exchanges although small, improved to net gains of $1,000 in
1995 versus net losses of $9,000 in 1994. The volume of securities calls and
sales decreased from 1994 to 1995.
OTHER EXPENSES were reduced from 1994 to 1995 primarily by two factors: the
reduction of FDIC premiums that took place during 1995; and lower salaries,
wages and benefit expenses in 1995 attributable to a modest reduction in
workforce.
FEDERAL INCOME TAX EXPENSE increased with the rise of income before income
taxes. This increase was partially offset by the $34,000 tax benefit associated
with the nontaxable gain on the life insurance policy discussed above.
RESULTS OF OPERATIONS: 1994 COMPARED TO 1993
- ----------------------
TOTAL INTEREST INCOME decreased from 1993's total of $2,917,000 to $2,906,000 in
1994, a decline of less than 1%. Conversely, the ratio of interest earning
assets to total assets was 88% at December 31, 1993 and 90% at December 31,
1994. The mix of interest earning assets moved from securities of 47% (of total
interest earning assets) at December 31, 1993 to 44% at December 31, 1994.
Correspondingly the lending mix increased from 1993 to 1994. A common ratio used
to determine the interest earning structure of a Bank is the loan to deposit
ratio. At December 31, 1993 this ratio was 47%, at December 31, 1994 the ratio
was 58%.
THE AVERAGE RATES for loan and security portfolios were at lower yields (after
tax adjustment) for the year 1994 versus 1993. The loan yields went from 9.62%
in 1993 to 9.18% in 1994. Taxable securities yields decreased from 6.37% in 1993
to 5.78% in 1994. Tax-exempt securities yields increased from 5.43% in 1993 to
6.69% in 1994.
INTEREST EXPENSE changed rather insignificantly from 1993 to 1994 as the total
expense went from $1,056,000 to $1,009,000, a decrease of 4%. The average
balance of interest-bearing liabilities decreased minimally from 1993 to 1994
and the average rate decreased from 3.21% in 1993 to 3.10% in 1994. The change
in rates resulted from favorable competitive factors within the local and
national economies.
PROVISION FOR LOAN LOSSES was increased in 1994 from to 1993. During 1993
management made the decision to reduce the year end balance of the allowance for
loan loss reserve by not replenishing charged off loans. The purpose was to
bring the December 31, 1993 balance in line with the favorable delinquency and
non-accrual loan statistics at the 1993 year end. The slight increase of
provision expense during 1994 was due to loan growth during the same year.
52
<PAGE> 60
OTHER INCOME benefitted from an almost 11% increase of service charges in 1994
as compared to 1993. The primary reason for this is attributable to an increase
in balance and number of accounts with service charges. Fees associated with
these accounts remained relatively unchanged. Security losses were relatively
unchanged from 1993 to 1994 while the volume of calls and sales of securities
was also comparably flat from year to year.
OTHER EXPENSES increased by 11% from 1993 to 1994. The primary factor for this
was an 87% increase ($128,000) in pension and other employee benefits expense.
Most other categories of expenses showed little change from 1993 to 1994. The
increase in pension and employee benefits expense was primarily attributable to
increased expense related to a reduction in the retirement age from 65 in 1993
to 60 in 1994 for the Bank's Selective Retirement Plan.
FEDERAL INCOME TAXES was reduced from $219,000 in 1993 to $138,000 in 1994, a
decrease of 37%. Two factors contributed to this reduction of expense. The first
being the reduced amount of income before income taxes in 1994 versus 1993.
Second is the impact of increased tax-exempt interest in 1994.
LIQUIDITY:
- ----------
The Corporation manages its liquidity position through the Bank. The purpose of
liquidity management is to fund loan demand, meet the withdrawal needs of
customers and provide for operating expenses. Sources of liquidity are cash and
funds due from financial institutions, federal funds sold, sale and/or maturity
of securities classified as available for sale, maturities of securities held to
maturity and principal repayments on loans. Management believes its current
liquidity level is sufficient to meet anticipated growth.
The consolidated statements of cash flows indicates the concerted level of
emphasis management has placed upon maximizing interest income from earning
assets. While cash and cash equivalents have fluctuated from a high of
$8,240,000 at the beginning of 1993 to a low of $3,050,000 at year end 1994,
management has been structuring its balance sheet to increase the overall yield
of interest earning assets by investing in the origination of loans from the
sale and maturity of securities.
Liquid assets include cash and cash equivalents, securities available for sale
and loans held for sale (of which there were none). Core deposits are defined as
customer account balances that are loyal to a particular financial institution.
Core deposits exclude public funds and brokered deposits or "hot money."
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Liquid Assets (in thousands) $ 8,514 $ 7,630
Core Deposits (in thousands) $ 39,718 $ 39,169
% change from prior year +1.40% +1.81%
</TABLE>
53
<PAGE> 61
INTEREST RATE SENSITIVITY:
- --------------------------
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity gap. An asset or liability
is said to be interest rate sensitive within a specific time period, if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income while a positive gap would
tend to result in an increase in net interest income. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income while a positive gap would tend to adversely affect net interest
income.
The Bank uses several analyses to determine the optimal mix of maturities for
interest-earning assets relative to interest-bearing liabilities. The
predominate tool management utilizes is a Gap analysis. This Gap analysis is
prepared routinely to illustrate the interest rate sensitivity of assets
maturing and/or re-pricing within specified time frames versus liabilities due
within the same time period. The following table illustrates the asset and
liability funding gaps for selected time periods as of December 31, 1995 (in
thousands).
<TABLE>
<CAPTION>
1 1-3 3-6 6-12 1-3 3-5 5+ All
Month Months Months Months Years Years Years Others Total
----- ------ ------ ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 4,258 $ 4,258
Federal funds
sold $ 2,600 2,600
Investments $ 390 $ 1,446 $ 6,448 $ 2,650 $ 1,488 12,422
Loans:
Real estate 1,266 $ 1 23 130 504 1,425 8,900 12,249
Installment 1 18 100 2,565 3,665 5,871 12,220
Commercial 226 92 127 87 77 28 58 695
LESS: AFLL (200) (200)
Fixed and other
assets 1,896 1,896
--------- --------- -------- --------- --------- --------- --------- --------- ---------
Total assets 4,092 94 558 1,763 9,594 7,768 16,317 5,954 46,140
LIABILITIES
DDA -
noninterest 8,863 8,863
NOW and
MMDA 13,539 13,539
Savings 10,648 10,648
CDs 1,018 845 2,238 1,748 1,225 210 108 7,392
Other
liabilities 784 784
--------- --------- -------- --------- --------- --------- --------- --------- ---------
1,018 25,032 2,238 1,748 1,225 210 108 9,647 41,226
Capital 4,914 4,914
--------- --------- -------- --------- --------- --------- --------- --------- ---------
1,018 25,032 2,238 1,748 1,225 210 108 14,561 46,140
--------- --------- -------- --------- --------- --------- --------- --------- ---------
Period GAP $ 3,074 $(24,938) $ (1,680) $ 15 $ 8,369 $ 7,558 $ 16,209 $ (8,607) $ 0
========= ======== ======== ======== ======== ========= ========= ======== ========
Cumulative
GAP $ 3,074 $(21,864) $(23,544) $(23,529) $ (15,160) $ (7,602) $ 8,607 $ 0 $ 0
Period GAP (%) 6.66% (54.05)% (3.64)% .03% 18.14% 16.38% 35.13% (18.65)% 0%
Cumulative
GAP (%) 6.66% (47.39)% (51.03)% (51.00)% (32.86)% (16.48)% 18.65% 0% 0%
</TABLE>
54
<PAGE> 62
CAPITAL MANAGEMENT:
- -------------------
Total shareholders' equity was $4,914,000 as of December 31, 1995. This
represents an increase over the prior year of December 31, 1994 of 7%. This was
accomplished while increasing the cash dividend from $1.75 during 1994 to $2.25
during 1995. The primary component of the change in shareholders' equity is the
net income for the year. Secondarily, the year of 1995 benefitted from a
positive turnaround for the majority of securities classified as available for
sale.
Restrictions exist due to regulatory guidelines imposed upon all financial
institutions regarding the Bank's ability to transfer funds to the Corporation
in the form of cash dividends, loans or advances. These restrictions have no
significant impact on the Corporations dividend policy or operations and are not
anticipated to have any major the impact in the future.
The Corporation's subsidiary Bank remains above the minimum capital levels
required by regulatory agencies to meet the definition of a well capitalized
Bank. The banking regulators may alter minimum capital requirements as a result
of revising their internal policies and their rating of the Corporation's
subsidiary bank. As of December 31, 1995, management is not aware of any current
recommendations by banking authorities which, if they were to be implemented,
would have, or are reasonably likely to have a material adverse effect on the
Corporations liquidity, capital resources or operations.
Under risk-based capital guidelines issued by the Federal Reserve Board, the
Corporation and its subsidiary bank are required to maintain a minimum
risk-based capital ratio of 8% and a minimum leverage ratio of 4% as of December
31, 1995. While risk-based capital guidelines consider on-balance-sheet and
off-balance-sheet risk, the minimum leverage ratio measures capital in relation
to total on-balance- sheet assets. The components of total risk-based capital
are tier 1 capital and tier 2 capital. The definition of capital, used in the
leverage ratio, is identical to tier 1 capital under risk-based capital
guidelines. Tier I capital is total shareholders' equity less intangible assets.
Tier 2 capital includes total allowance for loan losses up to a maximum of 1.25%
of risk-weighted assets. The net unrealized gain (loss) on securities available
for sale, net of tax, is not considered for meeting regulatory capital
requirements. The following table provides the minimum regulatory capital
requirements and the Corporation's actual capital ratios at December 31, 1995.
<TABLE>
<CAPTION>
Minimum Regulatory Corporation's
Capital Requirements Actual Capital Ratio
Type of Capital Ratio at December 31, 1995 at December 31, 1995
--------------------- -------------------- --------------------
<S> <C> <C>
Ratio of tier 1 capital to
weighted-risk assets 4% 17.45%
Ratio of total capital to
weighted-risk assets 8% 18.16%
Leverage ratio 4% 10.66%
</TABLE>
55
<PAGE> 63
THE IMPACT OF INFLATION AND CHANGING PRICES:
- --------------------------------------------
For a financial institution, the effects of price changes and inflation can vary
substantially. Inflation affects the growth of total assets, but it is difficult
to assess its impact since neither the timing nor the magnitude of the changes
in the consumer price index (CPI) coincides with changes in interest rates. The
price of one or more of the important components of the CPI may fluctuate
considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by the Corporation. In years of high inflation and
high interest rates, intermediate and long-term fixed interest rates tend to
increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans. In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In other years, the reverse situation may occur.
56
<PAGE> 64
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
F-1
<PAGE> 65
HASTINGS FINANCIAL CORPORATION
Hastings, Michigan
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
CONTENTS
REPORT OF INDEPENDENT AUDITORS............................................F-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS..........................................F-4
CONSOLIDATED STATEMENTS OF INCOME....................................F-5
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY...............................................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................F-9
F-2
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Hastings Financial Corporation
Hastings, Michigan
We have audited the accompanying consolidated balance sheets of Hastings
Financial Corporation (the "Corporation") as of December 31, 1995 and 1994 and
the related consolidated statements of income, shareholders' equity and cash
flows for the two years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Corporation for the year ended December 31, 1993,
were audited by other auditors whose report dated January 14, 1994 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hastings Financial
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Corporation
changed its method of accounting for securities effective January 1, 1994 to
conform to new accounting guidance.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 5, 1996
F-3
<PAGE> 67
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2) $ 4,258,464 $ 3,051,689
Federal funds sold 2,600,000
------------ ------------
Total cash and cash equivalents 6,858,464 3,051,689
Securities available for sale (Note 3) 1,655,233 4,577,838
Securities held to maturity (fair
value of $10,659,280 in 1995 and
$12,587,671 in 1994) (Note 3) 10,766,614 13,292,173
Loans (Note 4) 25,163,754 23,329,596
Allowance for loan losses (Note 5) (200,031) (175,761)
------------ ------------
24,963,723 23,153,835
Premises and equipment, net (Note 6) 1,026,331 782,685
Accrued interest receivable 357,578 420,298
Other assets (Note 9) 511,814 518,466
------------ ------------
$ 46,139,757 $ 45,796,984
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 8,863,243 $ 8,566,800
NOW and money market 13,539,396 13,395,508
Savings 10,647,428 11,083,248
Certificates of deposit (Note 7) 7,391,487 6,912,035
------------ ------------
40,441,554 39,957,591
Federal funds purchased 600,000
Accrued interest payable 101,989 87,830
Other liabilities (Note 9) 682,341 580,371
------------ ------------
Total liabilities 41,225,884 41,225,792
Commitments and contingencies (Notes 10 and 14)
Shareholders' equity
Common stock, $1 par value - authorized
400,000 shares; issued and outstanding 75,463
shares in 1995 and 78,367 shares in 1994 75,463 78,367
Capital surplus 590,581 748,849
Retained earnings (Note 11) 4,252,116 3,806,197
Net unrealized loss on securities
available for sale, net of tax of $2,208 and
$32,054 for 1995 and 1994, respectively (4,287) (62,221)
------------ ------------
4,913,873 4,571,192
------------ ------------
$ 46,139,757 $ 45,796,984
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 68
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans, including fees $2,137,046 $1,833,047 $1,798,363
Securities
U.S. Treasury and federal agencies 588,870 751,496 764,527
State and political subdivisions 154,528 192,068 149,243
Other 27,803 59,977 129,302
Federal funds sold 97,000 69,652 75,742
---------- ---------- ----------
3,005,247 2,906,240 2,917,177
Interest expense (Note 7) 1,075,146 1,009,460 1,056,435
---------- ---------- ----------
NET INTEREST INCOME 1,930,101 1,896,780 1,860,742
Provision for loan losses (Note 5) 34,030 2,775
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,896,071 1,894,005 1,860,742
Other income (loss)
Service charges 332,084 308,329 278,992
Security sales or calls,
net gain (loss) (Note 3) 1,302 (9,199) (16,992)
Gain on life insurance policy 98,924
Other 37,064 17,810 17,867
---------- ---------- ----------
469,374 316,940 279,867
Other expenses
Salaries and wages 653,313 669,093 652,165
Pension and other employee
benefits (Note 9) 229,727 275,935 147,495
Occupancy expense of bank premises 123,556 118,495 97,159
FDIC assessment 45,181 86,794 91,652
Equipment expenses 133,539 155,778 191,973
Supplies and postage expense 85,791 77,378 77,063
Professional services 80,604 55,797 47,907
Other expenses 209,657 230,550 203,486
---------- ---------- ----------
1,561,368 1,669,820 1,508,900
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 804,077 541,125 631,709
Federal income tax expense (Note 8) 188,366 138,370 219,350
---------- ---------- ----------
NET INCOME $ 615,711 $ 402,755 $ 412,359
========== ========== ==========
Earnings per common share (Note 1) $8.10 $5.08 $5.23
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 69
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
on Securities Total
Common Capital Retained Available Shareholders'
Stock Surplus Earnings for Sale Equity
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1993 $ 78,367 $ 748,849 $3,257,531 $4,084,747
Net income 412,359 412,359
Cash dividends at
$1.65 per share (129,306) (129,306)
---------- ---------- ----------- -----------
BALANCE,
DECEMBER 31, 1993 78,367 748,849 3,540,584 4,367,800
Unrealized gain on
securities available
for sale at January 1,
1994, net of tax of
$27,442 $ 53,271 53,271
Net income 402,755 402,755
Cash dividends at
$1.75 per share (137,142) (137,142)
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax of $59,496 (115,492) (115,492)
---------- ---------- ---------- ----------- -----------
BALANCE,
DECEMBER 31, 1994 78,367 748,849 3,806,197 (62,221) 4,571,192
Net income 615,711 615,711
Repurchase and
retirement of
common stock (2,904) (158,268) (161,172)
Cash dividends at
$2.25 per share (169,792) (169,792)
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax of $29,846 57,934 57,934
---------- ---------- ---------- ---------- ----------
BALANCE,
DECEMBER 31, 1995 $ 75,463 $ 590,581 $4,252,116 $ (4,287) $4,913,873
========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 70
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 615,711 $ 402,755 $ 412,359
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 85,023 113,803 117,570
Net (gains) losses on security
sales and calls (1,302) 9,199 16,992
Provision for loan losses 34,030 2,775
Net amortization of premiums and
discounts on investment securities 9,405 4,651
Net change in assets and liabilities
Accrued interest receivable 62,720 (13,230) 57,175
Other assets (23,194) (915) (33,021)
Accrued interest payable 14,159 (6,153) (17,705)
Other liabilities 69,320 (141,180) 5,211
----------- ----------- -----------
Net cash from operating activities 865,872 371,705 558,581
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities
available for sale (500,000) (5,000,000)
Proceeds from sales of securities
available for sale 1,500,000 1,500,000
Proceeds from maturities of securities
available for sale 2,000,000 3,500,000
Purchases of securities
held to maturity (500,625) (3,650,967)
Proceeds from maturities and calls of
securities held to maturity 2,873,698 3,350,000
Proceeds from principal paydowns
on mortgage-backed securities 154,768 819,335 1,215,028
Proceeds from sales and maturities
of investment securities 7,375,774
Purchases of investment securities (10,263,269)
Net change in loans (1,843,918) (4,455,385) 966,346
Purchases of premises
and equipment, net (328,669) (10,863) (86,868)
Purchase of other assets (25,000)
----------- ----------- -----------
Net cash from investing activities 3,355,254 (3,947,880) (817,989)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 71
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 483,963 313,313 (2,136,132)
Net change in federal funds purchased (600,000) 600,000
Dividends paid (137,142) (129,306)
Repurchase and retirement
of common stock (161,172)
----------- ----------- -----------
Net cash from financing activities (414,351) 913,313 (2,265,438)
----------- ----------- -----------
Net change in cash and cash equivalents 3,806,775 (2,662,862) (2,524,846)
Cash and cash equivalents at
beginning of year 3,051,689 5,714,551 8,239,397
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,858,464 $ 3,051,689 $ 5,714,551
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $ 1,060,987 $ 1,015,613 $ 1,074,140
Income taxes 157,000 193,056 226,800
</TABLE>
Supplemental disclosure of noncash investing activities
Upon the adoption of SFAS No. 115 at January 1, 1994, the Corporation
transferred $4,666,441 from investment securities to securities available
for sale and transferred $13,830,063 from investment securities to
securities held to maturity.
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 72
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION: The Corporation is
organized as a bank holding company, and its wholly-owned subsidiary, National
Bank of Hastings (the Bank), is a national banking corporation. The accompanying
consolidated financial statements include the accounts of the Corporation and
the Bank. All significant intercompany transactions and balances have been
eliminated in consolidation. The Corporation grants credit and accepts deposits
from its customers in the normal course of business, substantially all of which
is in the area of South Central Michigan. The Corporation operates primarily in
the banking industry which accounts for more than 90% of its revenues, operating
income and assets.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS: The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
CERTAIN SIGNIFICANT ESTIMATES: The allowance for loan losses and fair values of
certain financial instruments involve certain significant estimates made by
management. These estimates are reviewed by management routinely and it is
reasonably possible that circumstances that exist at December 31, 1995 will
change in the near-term and that the effect would be material to the
consolidated financial statements.
SECURITIES AVAILABLE FOR SALE: Investment securities available for sale consist
of those securities not classified as trading or held to maturity. Such
securities might be sold prior to maturity due to changes in interest rates,
prepayment risks, yield and availability of alternative investments, liquidity
needs or other factors. Effective January 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115). As required by SFAS
No. 115, securities classified as available for sale are reported at their fair
values and the related unrealized holding gain or loss is reported, net of
related income tax effects, as a separate component of shareholders' equity,
until realized. Adoption of SFAS No. 115 increased shareholders' equity at
January 1, 1994 by $53,271.
Premiums and discounts on securities available for sale are recognized in
interest income using the level yield method over the estimated life of the
security. Gains and losses on the sale of securities available for sale are
determined using the specific identification method based upon amortized cost.
SECURITIES HELD TO MATURITY: Investment securities for which management has the
positive intent and the Corporation has the ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that are recognized in
interest income using the level yield method over the period to maturity.
(Continued)
F-9
<PAGE> 73
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
LOANS: Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees.
LOAN FEES AND COSTS: Loan fees, net of certain direct loan origination costs,
are deferred and amortized into interest income over the term of the loans using
the level-yield method.
ALLOWANCE FOR LOAN LOSSES: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for possible loan losses charged to expense. Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loan situations, the whole allowance is available for any loan
charge-offs that occur. A loan is charged-off against the allowance by
management as a loss when deemed uncollectible, although collection efforts may
continue and future recoveries may occur.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan (SFAS No. 114). SFAS No. 114,
effective for the Bank beginning January 1, 1995, requires that impaired loans,
as defined, be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of collateral if the
loan is collateral dependent. SFAS No. 114, as amended by SFAS No. 118, was
adopted by the Corporation effective January 1, 1995. Under this standard, loans
considered to be impaired are reduced to the present value of expected future
cash flows or the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as part
of the provision for loan losses. The effect of adopting this standard is
reported within the provision for loan losses, and was not material for 1995.
(Continued)
F-10
<PAGE> 74
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Smaller balance homogeneous loans are defined as residential first mortgage
loans secured by one-to-four family residences, residential construction loans,
student loans, home equity and second mortgage loans, and automobile loans and
are evaluated collectively for impairment. Commercial real estate loans and
other commercial loans are evaluated individually for impairment. In general,
loans classified as doubtful or loss are considered impaired while loans
classified as substandard are individually evaluated for impairment. Depending
on the relative size of the credit relationship, late or insufficient payments
of 30 to 90 days will cause management to reevaluate the credit under its normal
loan evaluation procedures. While the factors which identify a credit for
consideration for measurement of impairment, or nonaccrual, are similar, the
measurement considerations differ. A loan is impaired when the economic value
estimated to be received is less than the value implied in the original credit
agreement. A loan is placed in nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of
collection. Although impaired loan and nonaccrual loan balances are measured
differently, impaired loan disclosures under SFAS Nos. 114 and 118 are not
expected to differ significantly from nonaccrual and renegotiated loan
disclosures.
INTEREST INCOME: Interest on loans is accrued over the term of the loans based
upon the principal outstanding, except where collectibility is in question, in
which case the accrual of interest is discontinued. Management reviews loans
delinquent 90 days or more to determine if interest accrual should be
discontinued based on the estimated fair market value of the collateral.
Effective January 1, 1995, under SFAS No. 114 as amended by SFAS No. 118, the
carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as adjustments to the provision for loan losses.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets for financial
reporting purposes. For tax purposes, accelerated methods are primarily used.
OTHER REAL ESTATE OWNED: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of cost or
fair value minus estimated costs to sell. The balance of other real estate owned
included in other assets in the consolidated balance sheets at December 31, 1995
and 1994 was $0 and $57,162, respectively.
(Continued)
F-11
<PAGE> 75
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
FEDERAL INCOME TAXES: In accordance with SFAS No. 109, Accounting for Income
Taxes, the Corporation uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities. This results in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. Federal income tax expense is the
tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
EARNINGS PER COMMON SHARE: Earnings per common share amounts are computed based
on the weighted average number of shares outstanding adjusted for the effect of
dilutive stock options. (See Note 13.) The number of weighted average shares was
76,036 in 1995, 79,249 in 1994 and 78,883 in 1993.
STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows, the
Corporation considers cash on hand, cash due from other banks and federal funds
sold to be cash equivalents. The Corporation reports net cash flows for loans,
deposits and federal funds purchased with an initial maturity of 90 days or
less.
ACCOUNTING STATEMENTS ISSUED, NOT YET ADOPTED: The Financial Accounting
Standards Board has recently issued the following Statements which have not been
adopted by the Bank at December 31, 1995.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, requires the Bank to periodically consider
whether an impairment loss should be recognized on long-lived assets and other
certain identifiable intangible assets based on an estimate of future cash
flows.
SFAS No. 122, Accounting for Mortgage Servicing Rights, requires the Bank to
recognize mortgage servicing rights on loans it purchases or originates with the
intent to sell as an asset. It also requires that these capitalized mortgage
servicing rights be evaluated for impairment based on the fair value of those
rights.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages but does not
require, the Bank to use a "fair valued-based method" to account for stock-based
compensation plans. If the fair value accounting encouraged by SFAS No. 123 is
not adopted, entities must disclose the proforma effect on net income and
earnings per share had the accounting been adopted.
(Continued)
F-12
<PAGE> 76
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
The Statements discussed above are required to be implemented for years
beginning after December 31, 1995. Although management of the Bank has not fully
analyzed these Statements, they believe the impact of their adoption will not be
material to the Bank's consolidated financial condition or results of
operations.
RECLASSIFICATIONS: Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform with the 1995 presentation.
NOTE 2 - CASH AND DUE FROM BANKS
Minimum cash balances, which are based on the deposit levels of the Bank, are
required to be maintained by the Federal Reserve as legal reserve requirements.
Cash balances restricted from usage due to these requirements were approximately
$168,000 and $179,000 at December 31, 1995 and 1994, respectively.
NOTE 3 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets according to
management's intent. The amortized cost and fair values of securities at
December 31, 1995 and 1994 are as follows:
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1995
U.S. Treasury and federal
agencies $ 1,448,424 $ 15,963 $ (27,904) $ 1,436,483
Other corporate securities 213,304 5,446 218,750
----------- ----------- ----------- -----------
$ 1,661,728 $ 21,409 $ (27,904) $ 1,655,233
=========== =========== =========== ===========
1994
U.S. Treasury and federal
agencies $ 1,944,162 $ 8,056 $ (81,880) $ 1,870,338
State and political
subdivisions 2,500,000 2,500,000
Other corporate securities 227,951 (20,451) 207,500
----------- ----------- ----------- -----------
$ 4,672,113 $ 8,056 $ (102,331) $ 4,577,838
=========== =========== =========== ===========
</TABLE>
(Continued)
F-13
<PAGE> 77
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 3 - SECURITIES (Continued)
HELD TO MATURITY
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1995
- ----
U.S. Treasury and federal
agencies $ 7,509,669 $ 1,793 $ (140,333) $ 7,371,129
State and political
subdivisions 2,907,072 41,397 (16,106) 2,932,363
Other corporate securities 251,235 1,515 252,750
Mortgage-backed securities 98,638 4,400 103,038
----------- ----------- ----------- -----------
$10,766,614 $ 49,105 $ (156,439) $10,659,280
=========== =========== =========== ===========
1994
- ----
U.S. Treasury and federal
agencies $ 9,945,097 $ 6,522 $ (676,560) $ 9,275,059
State and political
subdivisions 2,981,372 92,208 (113,230) 2,960,350
Other corporate securities 254,084 (1,784) 252,300
Mortgage-backed securities 111,620 (11,658) 99,962
----------- ----------- ----------- -----------
$13,292,173 $ 98,730 $ (803,232) $12,587,671
=========== =========== =========== ===========
</TABLE>
The amortized cost and fair values of debt securities at December 31, 1995, by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. The mortgage-backed
securities mature in installments at various dates. Because of their variable
payments, mortgage-backed securities are not reported by a specific maturity
grouping.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 449,270 $ 465,233 $ 1,370,930 $ 1,368,915
Due after one year
through five years 1,212,458 1,190,000 7,908,384 7,777,017
Due after five years
through ten years 1,388,662 1,410,310
----------- ----------- ----------- -----------
1,661,728 1,655,233 10,667,976 10,556,242
Mortgage-backed securities 98,638 103,038
----------- ----------- ----------- -----------
$ 1,661,728 $ 1,655,233 $10,766,614 $10,659,280
=========== =========== =========== ===========
</TABLE>
(Continued)
F-14
<PAGE> 78
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 3 - SECURITIES (Continued)
Proceeds from calls of securities held to maturity were $1,948,698 in 1995 and
$950,000 in 1994. Gains of $1,302 and $80 were realized on these calls in 1995
and 1994, respectively, and losses of $9,279 were realized in 1994.
Proceeds from the sale of investment securities available for sale were
$1,500,000 in 1995 with no gain or loss realized on these sales.
No securities that were classified as held to maturity were sold during 1995 or
1994.
Proceeds from debt securities which were called during 1993 were $1,578,400.
Gains of $7,275 and losses of $24,267 were realized on called securities for the
year ended December 31, 1993.
At December 31, 1995 and 1994, securities with an approximate carrying value of
$500,000 and $445,000, respectively, were pledged as collateral to secure public
deposits and for other purposes required or permitted by law.
NOTE 4 - LOANS
Loans at December 31, 1995 and 1994 are classified as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial $ 694,890 $ 516,990
Installment 12,057,368 10,052,200
Real estate 12,248,523 12,557,559
Other 162,973 202,847
----------- -----------
$25,163,754 $23,329,596
=========== ===========
</TABLE>
Installment loans include student loans which are being serviced by Great Lakes
Higher Education Corporation. The amount of student loans in this portfolio was
$4,283,746 and $5,382,605 at December 31, 1995 and 1994, respectively. These
loans are guaranteed by the Federal government.
CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, installment,
home equity and real estate loans to customers primarily in the Barry County
area of Michigan. Certain loans are secured by real estate, automobiles and
various other items of collateral.
(Continued)
F-15
<PAGE> 79
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for 1995, 1994 and 1993 are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 175,761 $ 166,970 $ 198,244
Recoveries 8,337 16,891 4,410
Provision charged to operations 34,030 2,775
Loans charged off (18,097) (10,875) (35,684)
----------- ----------- -----------
Balance at end of year $ 200,031 $ 175,761 $ 166,970
=========== =========== ===========
</TABLE>
At December 31, 1995, 1994 and 1993, the amount of loans 90 days or more past
due was $32,000, $61,900 and $9,764, respectively. During 1995, the Bank had no
loans which were impaired as defined under the provisions of SFAS Nos. 114 and
118.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Building and improvements $ 908,757 $ 626,505
Equipment 978,052 967,378
----------- -----------
1,886,809 1,593,883
Accumulated depreciation (1,089,710) (1,009,068)
----------- -----------
797,099 584,815
Land 229,232 197,870
----------- -----------
$ 1,026,331 $ 782,685
=========== ===========
</TABLE>
(Continued)
F-16
<PAGE> 80
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 7 - DEPOSITS
The Corporation had an aggregate of $624,472 and $792,065 in certificates of
deposit issued in denominations of $100,000 or more as of December 31, 1995 and
1994, respectively. Interest expense on these deposits was $31,951 in 1995,
$45,849 in 1994 and $48,947 in 1993. Deposits accepted in the normal course of
business on behalf of related parties were approximately $216,000 as of December
31, 1995.
The schedule of maturity for certificates of deposits as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Maturing within one year $ 5,848,647
Maturing in one to three years 1,224,749
Maturing in three to five years 209,773
Maturing in five to ten years 108,318
-----------
$ 7,391,487
===========
</TABLE>
NOTE 8 - FEDERAL INCOME TAXES
Federal income tax expense for the years ended December 31, 1995, 1994 and 1993
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current expense $ 201,166 $ 152,370 $189,250
Deferred expense (benefit) (12,800) (14,000) 30,100
--------- --------- --------
$ 188,366 $ 138,370 $219,350
========= ========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995,
1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets
Allowance for loan loss $ 23,500 $ 13,000 $ 12,300
Deferred compensation 146,600 154,000 125,000
Unrealized loss on available
for sale securities 2,200 32,000
Other 2,000 7,500
----------- ----------- -----------
174,300 199,000 144,800
Deferred tax (liabilities)
Accrual to cash adjustment (118,000) (108,700) (98,700)
Fixed assets (16,700) (25,900) (35,500)
Other (7,800)
----------- ----------- -----------
(134,700) (142,400) (134,200)
----------- ----------- -----------
Net deferred tax asset $ 39,600 $ 56,600 $ 10,600
=========== =========== ===========
</TABLE>
(Continued)
F-17
<PAGE> 81
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 8 - FEDERAL INCOME TAXES (Continued)
No valuation allowance has been recorded against deferred tax assets.
Federal income tax expense differs from that computed at the federal statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34% 34% 34%
Tax expense at statutory rate $ 273,400 $ 184,000 $ 214,800
Tax exempt municipal interest income (57,400) (61,600) (52,100)
Nontaxable life insurance proceeds (33,600)
Disallowed interest expense 4,600 7,500 7,100
Other 1,366 8,470 49,550
--------- ---------- ---------
$ 188,366 $ 138,370 $ 219,350
========= ========== =========
</TABLE>
Federal income tax expense (benefit) on net securities gains (losses) were $443,
($3,128) and ($5,777) in 1995, 1994 and 1993, respectively.
NOTE 9 - BENEFIT PLANS
The Corporation sponsors a defined benefit pension plan that covers
substantially all employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the
Corporation and compensation rates. Contributions to the plan are determined in
accordance with the Employee Retirement Income Security Act of 1974 and with
appropriate Internal Revenue Service regulations.
Plan assets are invested in a guaranteed investment fund consisting primarily of
corporate debentures and real estate mortgages.
Pension expense includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the
current period $ 27,383 $ 28,251 $ 21,591
Interest cost on the projected benefit obligation 25,733 25,494 18,984
Actual loss (return) on assets held in the plan (69,052) 39,999 (6,205)
Net amortization of unrecognized transition
assets and prior service costs (99) (99) (1,609)
Unrecognized gain or (loss) 55,670 (58,145) (11,881)
----------- ----------- -----------
$ 39,635 $ 35,500 $ 20,880
=========== =========== ===========
</TABLE>
(Continued)
F-18
<PAGE> 82
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 9 - BENEFIT PLANS (Continued)
The following sets forth the funded status of the plan at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits $ (211,540) $ (239,012)
Nonvested benefits (16,971) (25,923)
----------- -----------
$ (228,511) $ (264,935)
=========== ===========
Fair value of plan assets $ 279,102 $ 251,217
Projected benefit obligation (372,937) (405,390)
----------- -----------
Projected benefit obligation
in excess of plan assets (93,835) (154,173)
Unrecognized net loss 45,498 104,494
Unrecognized transition asset (45,044) (48,262)
Unrecognized prior service cost 67,781 70,900
---------- -----------
Accrued pension liability $ (25,600) $ (27,041)
=========== ===========
</TABLE>
The weighted average discount rate used to measure the projected benefit
obligation was 7.25% in 1995, 1994 and 1993. The rate of increase in future
compensation levels was 5% in 1995, 1994 and 1993. The expected long-term rate
of return on assets was 7.75% for 1995 and 8% for 1994 and 1993. Amortization of
prior service cost and unrecognized gains and losses is performed under the
straight-line method of amortization over the average remaining service period
of employees expected to receive benefits.
The Corporation has a 401(k) employee savings plan covering substantially all
employees. Contributions are voluntary and at the discretion of the Board of
Directors. Employee contributions cannot exceed the lesser of 15% of their
annual salary or the maximum allowable amount under current Internal Revenue
Code guidelines. The Corporation contributed $2,627, $3,627 and $3,189 to the
plan in 1995, 1994 and 1993, respectively.
The Bank has a deferred compensation and noncompete agreement with an officer
which provides that upon termination of employment resulting from retirement,
death or disability, the officer shall be paid $24,000 annually for a period of
five years. Deferred compensation expense for the years ended December 31, 1995,
1994 and 1993 was $19,783, $20,002 and $20,002, respectively.
The Bank provides a Selective Retirement Plan for certain retired and active
employees. The Corporation has committed to pay selected employees, or their
beneficiary, upon retirement or death, a monthly benefit for 10 years. The
retirement age was changed from age 65 to 60 in 1994 which increased the
December 31, 1994 liability by $45,000, net of tax. The Corporation has
purchased life insurance policies on the plan participants which had a cash
value of $226,000 and $228,000 at December 31, 1995 and 1994, respectively, and
is included in other assets. The estimated obligation under the plan is $331,494
and $373,000 as of December 31, 1995 and 1994, respectively, and is included in
other liabilities.
(Continued)
F-19
<PAGE> 83
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments consist primarily of unused lines-of-credit. The
Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument is represented by the contractual
amounts of these instruments. The Corporation uses the same credit policies in
making such commitments as it does for loans recorded in the financial
statements. Since many commitments typically expire without being funded, the
total does not necessarily represent future cash requirements.
Financial instruments whose contract amounts represent credit risk at December
31 are as follows:
1995 1994
---- ----
Unused lines of credit $ 2,142,128 $ 2,021,911
Most of these commitments were made at variable rates tied to the prime rate of
interest.
NOTE 11 - RETAINED EARNINGS - DIVIDEND RESTRICTION
Banking regulations limit the amount of dividends that may be paid without prior
approval of the Bank's regulatory agency. Retained earnings of the Bank from
which dividends may be paid to the holding company were $715,085, $551,461 and
$653,699 at December 31, 1995, 1994 and 1993, respectively.
NOTE 12 - RELATED PARTY LOAN TRANSACTIONS
Certain directors and executive officers of the Corporation, including their
immediate families and companies in which they are principal owners, are loan
customers of the Bank. Total loans to these persons approximate $175,476 and
$146,974 at December 31, 1995 and 1994, respectively. During 1995 and 1994,
$80,000 and $0 related party loans were originated, respectively, and $51,498
and $24,034 of repayments were made on those loans, respectively.
NOTE 13 - STOCK OPTION
The Corporation has entered into a stock option agreement with an officer that
grants the officer options to purchase 5,000 shares of the Corporation's common
stock for a purchase price of $36 per share. The options are exercisable as
follows: 1,000 shares after expiration of the initial 12-month term of the
options and an additional 1,000 shares at the expiration of each 12-month period
thereafter. As of December 31, 1995, 4,000 shares are available for exercise.
The options will remain exercisable until the 10th anniversary of the date of
grant, except in the event of death or termination of employment. No stock
options have been exercised under the plan.
(Continued)
F-20
<PAGE> 84
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 14 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Corporation is
involved in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial statements of the Corporation.
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and cash equivalents
- -------------------------
For these short-term investments which include amounts due from other financial
institutions and federal funds sold, the carrying amount is a reasonable
estimate of fair value.
Securities
- ----------
For securities available for sale and held to maturity, estimated fair values
are based on quoted market prices or dealer quotes.
Loans, net of allowance for loan losses
- ---------------------------------------
The estimated fair value of loans, net of allowance for loan losses, is
principally estimated by discounting future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities, and using prepayment assumptions for
residential family loans. The carrying value of the allowance for loan losses is
a reasonable estimate of fair value.
Federal Home Loan Bank (FHLB) stock and Federal Reserve Bank stock
- ------------------------------------------------------------------
The carrying amount is a reasonable estimate of the fair value for FHLB and
Federal Reserve Bank stock.
Deposits
- --------
The estimated fair value of noninterest-bearing demand deposits, NOW and money
market deposits and savings deposits is the amount payable on demand at the
reporting date. The estimated fair value of fixed-maturity certificates of
deposit is estimated by discounting future cash flows using the rates currently
offered for deposits of similar remaining maturities.
(Continued)
F-21
<PAGE> 85
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Accrued interest receivable and payable
- ---------------------------------------
For accrued interest receivable and payable, the carrying amount is a reasonable
estimate of fair value.
Off-balance-sheet financial instruments
- ---------------------------------------
The Bank's commitments to extend credit and undisbursed loans are deemed to have
no fair value as such commitments are generally fulfilled at current market
rates.
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
(in thousands)
Estimated
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 6,858 $ 6,858
Securities 12,422 12,315
Loan, net of allowance for loan losses 24,964 24,803
FHLB and Federal Reserve Bank stock 171 171
Accrued interest receivable 358 358
Financial liabilities
Noninterest-bearing demand deposits (8,863) (8,863)
NOW and money market deposits (13,539) (13,539)
Savings deposits (10,647) (10,647)
Certificates of deposit (7,391) (7,389)
Accrued interest payable (102) (102)
</TABLE>
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Corporation to
have disposed of such items at December 31, 1995, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1995 should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Corporation that are not
defined as financial instruments are not included in the above disclosures, such
as premises and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. Excluded, among other items, are the
estimated earnings power of core deposit accounts, the trained work force,
customer goodwill and similar items.
(Continued)
F-22
<PAGE> 86
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Hastings Financial Corporation at
December 31:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31, 1995 and 1994
1995 1994
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,012 $ 3,768
Investment in subsidiary bank 4,910,861 4,567,424
Dividends receivable 169,792 137,142
----------- -----------
Total assets $ 5,083,665 $ 4,708,334
=========== ===========
LIABILITIES
Dividends payable $ 169,792 $ 137,142
TOTAL SHAREHOLDERS' EQUITY 4,913,873 4,571,192
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,083,665 $ 4,708,334
=========== ===========
</TABLE>
(continued)
F-23
<PAGE> 87
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Dividends from subsidiary bank $ 330,964 $ 137,142 $ 129,306
Other expenses 756 2,795 7,178
----------- ----------- -----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY BANK 330,208 134,347 122,128
Equity in undistributed earnings
of subsidiary bank 285,503 268,408 290,231
----------- ----------- -----------
NET INCOME $ 615,711 $ 402,755 $ 412,359
=========== =========== ===========
</TABLE>
(continued)
F-24
<PAGE> 88
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 615,711 $ 402,755 $ 412,359
Adjustments to reconcile net income
to net cash from operating activities
Equity in undistributed earnings
of subsidiary bank (285,503) (268,408) (290,231)
Amortization of organizational costs 2,223 6,616
Change in dividends receivable (32,650) (137,142)
----------- ----------- -----------
Net cash from operating
activities 297,558 (572) 128,744
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (137,142) (129,306)
Repurchase and retirement of
common stock (161,172)
----------- -----------
Net cash from financing activities (298,314) (129,306)
----------- ----------- -----------
Net change in cash and cash equivalents (756) (572) (562)
Cash and cash equivalents
at beginning of year 3,768 4,340 4,902
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,012 $ 3,768 $ 4,340
=========== =========== ===========
</TABLE>
F-25
<PAGE> 89
HASTINGS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
This discussion provides information about the consolidated financial condition
and results of operations of Hastings Financial Corporation (the "Corporation")
and its subsidiary National Bank of Hastings (the "Bank"), and should be read in
conjunction with the Consolidated Financial Statements
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
A comparison of the balance sheets from December 31, 1995, to June 30, 1996,
illustrates only one change of significance, total loans grew from $ 25.2
million to $ 27.0 million. This loan growth represents a change of $ 1.8 million
or an annualized rate of almost 15%. The loan growth occurred in the Bank's
indirect lending portfolio. The residential mortgage loan portfolio decreased
slightly from December 31, 1995, to June 30, 1996.
The funding of loan growth resulted from several sources: maturities of
securities; a reduction of cash and due from banks; net income from operations
and modest deposit growth.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Analyzing results of the six month period ended June 30, 1995, with the six
months ended June 30 ,1996, indicates three items of note. Interest income
shifted from securities to loans and resulted in a $139,000 increase in total
interest income. The change of interest income is primarily attributable to a
movement of principal balances (volume) from a lower yielding securities
portfolio to a higher yielding loan portfolio.
The second item of note was a realization of $99,000 gain on a life insurance
policy in 1995.
The third item was a $43,000 reduction of Federal Deposit Insurance Corporation
(FDIC) assessment premium from the 1995 period as compared to the 1996 period.
The Bank's assessment rate changed to the FDIC minimum amount for 1996 which is
approximately $2,000 per year.
ACCOUNTING STANDARDS IMPLEMENTED IN 1996
- ----------------------------------------
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. The Statement requires review of such assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Corporation
adopted SFAS No. 121 effective January 1, 1996. The adoption had no material
effect on the Corporation's financial position or results of operations for the
six months ended June 30, 1996.
57
<PAGE> 90
The FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, in May
1995. This Statement changes the accounting for mortgage servicing rights
retained by the loan originator. Under this Statement, an entity that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. Under current practice, all such costs are assigned to the loan.
The costs allocated to mortgage servicing rights are to be recorded as a
separate asset and amortized in proportion to, and over the life of, the net
servicing income. The carrying value of the mortgage servicing rights are to be
periodically evaluated for impairment. The Statement became effective for the
Corporation as of January 1, 1996. The adoption of SFAS No. 122 did not have a
material effect on the Corporation's financial position or results of operations
for the six months ended June 30, 1996.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages, but does not require, entities to use a
fair value based method to account for stock-based compensation plans. If the
fair value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and on earnings per common share had
the fair value accounting been adopted. The Corporation has elected to not adopt
SFAS No. 123. However, the Corporation will provide any required proforma
disclosures in any future complete financial statements. The proforma
disclosures are not required in noncomplete interim financial statements.
58
<PAGE> 91
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF HASTINGS FINANCIAL CORPORATION
AS OF JUNE 30, 1996
AND FOR THE SIX MONTHS THEN ENDED
59
<PAGE> 92
<TABLE>
<CAPTION>
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,248,912 $ 4,258,464
Federal funds sold 2,800,000 2,600,000
----------- -----------
Total cash and cash equivalents 6,048,912 6,858,464
Securities available for sale 1,631,728 1,655,233
Securities held to maturity (fair values:
1996 - $10,270,779; 1995 - $10,659,280) 10,427,836 10,766,614
Loans 27,036,630 25,163,754
Allowance for loan losses (210,984) (200,031)
----------- -----------
26,825,646 24,963,723
Premises and equipment, net 1,017,378 1,026,331
Accrued interest receivable 407,992 357,578
Other assets 487,242 511,814
----------- -----------
$46,846,734 $46,139,757
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 8,940,432 $ 8,863,243
NOW and money market 13,118,479 13,539,396
Savings 10,651,264 10,647,428
Certificates of deposit 8,025,296 7,391,487
----------- -----------
40,735,471 40,441,554
Accrued interest payable 104,726 101,989
Other liabilities 726,581 682,341
----------- -----------
41,566,778 41,225,884
Shareholders' equity
Common stock, $1 par value: 400,000 shares
authorized, 79,463 and 75,463 shares
outstanding in 1996 and 1995, respectively 79,463 75,463
Capital surplus 730,581 590,581
Retained earnings 4,488,728 4,252,116
Net unrealized loss on securities available
for sale, net of tax of $9,693 in 1996 and
$2,208 in 1995, respectively (18,816) (4,287)
----------- -----------
5,279,956 4,913,873
----------- -----------
$46,846,734 $46,139,757
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
60
<PAGE> 93
<TABLE>
<CAPTION>
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Interest income
Loans, including fees $ 1,259,642 $ 1,055,576
Securities
U.S. Treasuries and federal agencies 235,929 321,942
State and political subdivisions 68,004 79,988
Other 16,568 18,807
Federal funds sold 51,885 16,532
----------- -----------
1,632,028 1,492,845
Interest expense 559,624 522,589
----------- -----------
NET INTEREST INCOME 1,072,404 970,256
Provision for loan losses 9,252 3,082
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,063,152 967,174
Other income
Service charges 175,235 148,913
Net gains on security sales and calls 1,302
Gain on life insurance policy 98,924
Other 19,290 5,579
----------- -----------
194,525 254,718
Other expenses
Salaries and wages 326,799 337,941
Pension and other employee benefits 100,925 123,217
Occupancy expense of bank premises 72,679 60,118
FDIC assessment 1,197 44,671
Equipment expenses 62,162 68,242
Supplies and postage expense 41,895 40,262
Professional services 35,643 22,444
Other 134,185 97,075
----------- -----------
775,485 793,970
----------- -----------
INCOME BEFORE FEDERAL INCOME TAX 482,192 427,922
Federal income tax expense 146,250 99,896
----------- -----------
NET INCOME $ 335,942 $ 328,026
=========== ===========
Earnings per common share $ 4.41 $ 4.26
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
61
<PAGE> 94
<TABLE>
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended June 30, 1996
(Unaudited)
<CAPTION>
Net
Unrealized
Loss on
Securities Total
Common Capital Retained Available Shareholders'
Stock Surplus Earnings for Sale Equity
------ ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 $ 75,463 $ 590,581 $4,252,116 $ (4,287) $4,913,873
Net income 335,942 335,942
Exercise of stock options 4,000 140,000 144,000
Cash dividends at $1.25
per share (99,330) (99,330)
Change in net
unrealized loss
on securities available
for sale, net of tax
of $(7,485) (14,529) (14,529)
---------- ---------- ---------- ---------- ----------
BALANCE,
JUNE 30, 1996 $ 79,463 $ 730,581 $4,488,728 $ (18,816) $5,279,956
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
62
<PAGE> 95
<TABLE>
<CAPTION>
HASTINGS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 335,942 $ 328,026
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 37,535 39,697
Net gains on security sales and calls (1,302)
Provision for loan losses 9,252 3,082
Net amortization of premiums and discounts
on securities (207,266) 193
Net change in assets and liabilities
Accrued interest receivable (50,414) (771)
Other assets 32,057 29,074
Accrued interest payable 2,737 7,005
Other liabilities 114,702 (440,211)
----------- -----------
Net cash from operating activities 274,545 (35,207)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (50,000) (500,000)
Proceeds from sales of securities available for sale 1,500,000
Proceeds from maturities of securities
available for sale 585,110 1,500,000
Proceeds from maturities and calls of securities
held to maturity 1,525,000
Proceeds from principal paydowns on mortgage-backed
securities 12,425 65,664
Net change in loans (1,871,175) (819,558)
Purchases of premises and equipment, net (28,582) (4,505)
----------- -----------
Net cash from investing activities (1,352,222) 3,266,601
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 293,917 (963,174)
Dividends paid (169,792) (137,142)
Exercise of options on common stock 144,000
Repurchase and retirement of common stock (161,172)
----------- -----------
Net cash from financing activities 268,125 (1,261,488)
----------- -----------
Net change in cash and cash equivalents (809,552) 1,969,906
Cash and cash equivalents at beginning of period 6,858,464 3,051,689
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,048,912 $ 5,021,595
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 556,887 $ 515,584
Income taxes 126,711 53,000
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE> 96
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996 and 1995
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10-01 of Regulation S-X. Accordingly, footnote
disclosures, which would substantially duplicate the disclosures contained in
the most recent audited financial statements, have been omitted. In the opinion
of management of the Corporation, all adjustments necessary for a fair
presentation of such financial information have been included. All such
adjustments are of a normal recurring nature. The results of operations and cash
flows for the six months ended June 30, 1996 may not be indicative of the
results for the entire year. The accompanying unaudited consolidated financial
statements should be read in conjunction with the notes to consolidated
financial statements contained in the December 31, 1995 consolidated financial
statements.
NOTE 1 - EARNINGS PER COMMON SHARE
Earnings per common share are calculated on the basis of the weighted average
number of shares outstanding adjusted for the effect of dilutive stock options.
Earnings per common share are based on 76,130 and 76,915 shares for the six
months ended June 30, 1996 and 1995, respectively.
NOTE 2 - ACCOUNTING STANDARDS IMPLEMENTED IN 1996
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. The Statement requires review of such assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Corporation
adopted SFAS No. 121 effective January 1, 1996. The adoption had no material
effect on the Corporation's financial position or results of operations for the
six months ended June 30, 1996.
See accompanying notes to consolidated financial statements.
64
<PAGE> 97
HASTINGS FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996 and 1995
NOTE 2 - ACCOUNTING STANDARDS IMPLEMENTED IN 1996 (Continued)
The FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, in May
1995. This Statement changes the accounting for mortgage servicing rights
retained by the loan originator. Under this Statement, an entity that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. Under current practice, all such costs are assigned to the loan.
The costs allocated to mortgage servicing rights are to be recorded as a
separate asset and amortized in proportion to, and over the life of, the net
servicing income. The carrying value of the mortgage servicing rights are to be
periodically evaluated for impairment. The Statement became effective for the
Corporation as of January 1, 1996. The adoption of SFAS No. 122 did not have a
material effect on the Corporation's financial position or results of operations
for the six months ended June 30, 1996.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages, but does not require, entities to use a
fair value based method to account for stock-based compensation plans. If the
fair value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and on earnings per common share had
the fair value accounting been adopted. The Corporation has elected to not adopt
SFAS No. 123. However, the Corporation will provide any required proforma
disclosures in any future complete financial statements. The proforma
disclosures are not required in noncomplete interim financial statements.
NOTE 3 - SUBSEQUENT EVENT
In July of 1996, the Corporation announced that it had signed a definitive
agreement to be acquired by First Financial Bancorp, parent company of First
National Bank of Southwestern Ohio. The transaction will be structured as a
tax-free exchange and will be accounted for under the pooling-of-interests
method.
(continued)
65
<PAGE> 98
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT
For information regarding the principal shareholders of First Financial
and ownership of First Financial Common Stock by First Financial's directors and
executive officers, see "Item 12. Security Ownership of Certain Beneficial
Owners and Management" in the First Financial Form 10-K, which is incorporated
herein by reference.
The following table sets forth certain information with respect to the
only persons known to Hastings Financial to own beneficially more than 5% of the
outstanding common stock of Hastings Financial as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name and Address Shares Outstanding
---------------- --------- -----------------
<S> <C> <C>
Richard T. Groos 28,472 35.39%
Hastings Financial Corporation
241 West State Street
Hastings, MI 49058
Larry J. Kornstadt 5,773 7.17%
Hastings Financial Corporation
241 West State Street
Hastings, MI 49058
</TABLE>
The following table sets forth certain information regarding the number
of shares of common stock of Hastings Financial beneficially owned by each
director of Hastings Financial and by all directors and executive officers of
Hastings Financial as a group as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name Shares Outstanding
-------------------- --------- -------------------
<S> <C> <C>
Jack E. Echtinaw 875 (1) 1.09%
Richard T. Groos (2) 28,472 35.39%
Thomas T. Groos (2) 2,660 (3) 3.31%
Michael D. Humphreys 200 (4) 0.25%
Mark R.S. Johnson 200 0.25%
Larry J. Kornstadt 5,773 (5) 7.17%
Wade W. Nitz 150 0.19%
Robert W. Sherwood 2,250 (6) 2.80%
David C. Wren 475 (7) 0.59%
All executive officers and
directors as a group
(11 persons) 41,110 51.09%
--------------------
<FN>
(1) All of Mr. Echtinaw's shares are owned jointly with his wife.
(2) Thomas T. Groos is the son of Richard T. Groos. The number of shares shown for each individual
does not include shares owned by the other. Thomas T. Groos disclaims beneficial ownership
of shares owned by Richard T. Groos and Richard T. Groos disclaims beneficial ownership of
shares owned by Thomas T. Groos.
(3) Of these, 1,460 shares are owned by Mr. Groos' children, for which Mr. Groos disclaims
beneficial ownership.
(4) All of Mr. Humphreys' shares are owned jointly with his wife.
(5) Of these, 5,216 shares are owned jointly with Mr. Kornstadt's wife.
(6) Of these, 2,000 shares are owned by a trust, of which Mr. Sherwood is the trustee and
beneficiary. Mr. Sherwood disclaims beneficial ownership of the shares owned by the trust.
(7) Of these, 100 shares are owned by Mr. Wren's wife, for which Mr. Wren disclaims beneficial
ownership.
</TABLE>
66
<PAGE> 99
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature Of Trading Market
- ------------------------
The First Financial Common Stock is quoted on the Nasdaq National
Market System under the symbol "FFBC". On November __, 1996, the last reported
sale price of First Financial Common Stock as reported on the Nasdaq National
Market System was $_____ per share.
The Hastings Financial Common Stock is not traded on an established
public market. The last known trading price of Hastings Financial Common Stock
was $54.75 per share on December 14, 1995. As there is not an established public
trading market for the shares of Hastings Financial Common Stock, the stock is
not liquid and the price indicated above may not reflect the prices which would
be paid for such shares on an active market. The information should not
necessarily be relied upon when determining the value of a shareholder's
investment.
The following table sets forth, for the periods indicated, the high and
low sales prices per share of First Financial Common Stock as reported on the
Nasdaq National Market System. All prices have been adjusted to give retroactive
effect to stock dividends and stock splits.
<TABLE>
<CAPTION>
FIRST FINANCIAL FIRST FINANCIAL
HIGH LOW
--------------- ---------------
1993
----
<S> <C> <C>
First Quarter $25.05 $23.40
Second Quarter 26.40 24.15
Third Quarter 32.55 25.50
Fourth Quarter 33.45 30.90
1994
----
First Quarter 39.80 29.20
Second Quarter 31.60 30.00
Third Quarter 32.20 30.20
Fourth Quarter 33.75 29.50
1995
----
First Quarter 34.75 32.50
Second Quarter 34.50 33.00
Third Quarter 35.50 33.00
Fourth Quarter 35.25 33.00
1996
----
First Quarter 35.50 33.50
Second Quarter 35.00 31.50
Third Quarter _____ _____
Fourth Quarter
through November __, 1996 _____ _____
</TABLE>
67
<PAGE> 100
The following information reflects actual trade transactions in
Hastings Financial Common Stock made during 1993, 1994, 1995 and through
November __, 1996, for which management is aware of both the number of shares
traded and the selling price. Management is aware of other trades not listed
below, but is not aware of the selling price for such trades. The information
should not necessarily be relied upon when determining the value of a
shareholder's investment.
<TABLE>
<CAPTION>
Hastings Financial Trades In
-------------------------------------------------------------
1993 1994 1995(1) 1996(2)
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Number of trades 7 2 1 0
Number of shares traded 754 1,225 1,038 N/A
Selling price $43.00-$48.50 $50.75 $54.75 N/A
- -------------------
<FN>
(1) Does not include 2,904 shares repurchased at $55.50 per share and retired by Hastings Financial.
(2) Through November __, 1996
</TABLE>
As of November __, 1996, there were approximately _____ holders of
record of the First Financial Common Stock. As of November __, 1996, Hastings
Financial had 78 shareholders of record.
Dividends
- ---------
The following table sets forth the per share cash dividends declared on
First Financial and Hastings Financial Common Stock, respectively, for each
quarter since January 1, 1993. First Financial dividends have been adjusted to
give retroactive effect to all stock dividends and stock splits.
<TABLE>
<CAPTION>
FIRST FINANCIAL HASTINGS FINANCIAL
--------------- ------------------
1993
----
<S> <C> <C>
First Quarter $ .1980
Second Quarter .1980
Third Quarter .1980
Fourth Quarter .2160 $ 1.65
1994
----
First Quarter .2160
Second Quarter .2160
Third Quarter .2160
Fourth Quarter .3200 1.75
1995
----
First Quarter .2600
Second Quarter .2600
Third Quarter .2600
Fourth Quarter .3000 2.25
1996
----
First Quarter .3000
Second Quarter .3000 1.25
Third Quarter .3000 ______
Fourth Quarter
through November __, 1996 .____ ______
</TABLE>
68
<PAGE> 101
Hastings Financial anticipates paying a regular dividend of $1.25 per
share on or before December 31, 1996. In the Merger Agreement, First Financial
and Hastings Financial agreed to cooperate with each other to ensure that,
during the quarter in which the Effective Time occurs, the shareholders of
Hastings Financial receive a cash dividend from either Hastings Financial or
First Financial and that such shareholders do not receive dividends from both
Hastings Financial and First Financial.
The future dividend policy of First Financial is subject to the
discretion of First Financial's Board of Directors, cash needs, general business
conditions and dividends from subsidiaries.
For certain restrictions on the payment of dividends by First Financial
and Hastings Financial see "COMPARISON OF COMMON STOCK AND SHAREHOLDERS'
RIGHTS-- Dividend Rights."
69
<PAGE> 102
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
The following summary comparison of the terms of the common stock of
Hastings Financial and First Financial, and the rights of holders thereof, does
not purport to be complete and is qualified in its entirety by reference to
First Financial's Articles of Incorporation, Hastings Financial's Articles of
Incorporation, First Financial's Code of Regulations and Hastings Financial's
By-Laws. Various features of the Articles of Incorporation and Code of
Regulations of First Financial differ from Hastings Financial's Articles of
Incorporation and By-Laws. The following discussion summarizes the differences
that are deemed to be material by First Financial.
Authorized But Unissued Shares
- ------------------------------
First Financial's Articles of Incorporation authorize the issuance of
25,000,000 shares, par value $8.00 per share, of First Financial Common Stock,
of which 13,374,810 shares were issued and outstanding at June 30, 1996. The
remaining authorized but unissued shares of First Financial Common Stock may be
issued upon authorization of the Board of Directors without prior shareholder
approval.
Hastings Financial's Articles of Incorporation authorize the issuance
of 400,000 shares, par value $1.00 per share, of which 80,463 shares were issued
and outstanding at July 31, 1996.
Dividend Rights
- ---------------
The holders of Hastings Financial and First Financial Common Stock are
entitled to dividends and other distributions when, as and if declared by their
respective Boards of Directors out of funds legally available therefor. Subject
to certain regulatory restrictions, dividends may be paid in cash, property or
shares of common stock, unless the entity is insolvent or the dividend payment
would render it insolvent.
The amount of dividends, if any, that may be declared by First
Financial following the purchase will necessarily depend upon many factors,
including without limitation, future earnings, capital requirements, business
conditions of subsidiaries (since First Financial will be dependent upon
dividends paid to it by its subsidiaries) and the discretion of First
Financial's Board of Directors. Dividends paid to First Financial by its
subsidiary financial institutions are subject to the regulations of various
regulatory authorities. A Federal Reserve Board Policy Statement provides that
cash dividends paid by a bank holding company should meet the following two
guidelines: (1) the organization's net income available to common shareholders
over the past year should be sufficient to fully fund the dividends and (2) the
prospective rate of earnings retention by the organization appears consistent
with capital needs, asset quality, and overall financial condition. First
Financial has complied with the first guideline since its organization in 1983
and believes it has also complied with the second guideline.
70
<PAGE> 103
Interested Shareholders
- -----------------------
Hastings Financial's Articles of Incorporation provides that an
"Interested Shareholder" shall mean any person (other than Hastings Financial,
National Bank of Hastings, the incorporator of Hastings Financial, any person
who was the beneficial owner of 10.0% or more of National Bank of Hastings
common stock prior to its acquisition by Hastings Financial, or any person who
is or was the beneficial owner of 10.0% or more Hastings Financial Common Stock
prior to the acquisition of National Bank of Hastings) who meets any one of the
following three requirements:
(a) is the beneficial owner, directly or indirectly, of 10.0% or
more of the voting power of the outstanding voting stock;
(b) is an affiliate of Hastings Financial and at any time within
the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of 10.0% or
more of the voting power of the then outstanding voting stock;
or
(c) is an assignee of or has otherwise succeeded to any shares of
voting stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or
succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
Hastings Financial's Articles of Incorporation require the affirmative
vote of the holders of at least 80% of the voting power of the then outstanding
shares of Hastings Financial Common Stock, and the affirmative vote of 2/3 or
more of the outstanding voting shares not owned directly or indirectly by any
Interested Shareholder or an affiliate or associate of the Interested
Shareholder, for the authorization and adoption of:
(a) any merger or consolidation with any Interested Shareholder
or any other corporation which is, or after such merger or
consolidation would be, an affiliate of an Interested
Shareholder;
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, either in one transaction or a series of
transactions, to or with any Interested Shareholder, or
affiliate of such shareholder, of any assets of Hastings
Financial having, measured at the time the transaction or
transactions are approved by the Board of Directors, an
aggregate fair market value of 10.0% or more, as measured as
of the end of the most recently ended fiscal quarter, of
Hastings Financial's net worth;
(c) the issuance or transfer of any securities of Hastings
Financial to any Interested Shareholder, or affiliate of such
shareholder, in exchange for cash, securities or other
property (or a combination thereof) having an aggregate fair
market value of 5.00% or more of the total market value of the
outstanding shares of Hastings Financial Common Stock;
71
<PAGE> 104
(d) the adoption of any plan or proposal for the liquidation or
dissolution of Hastings Financial proposed by or on behalf of
any Interested Shareholder or affiliate of such shareholder;
or
(e) any reclassification of securities or recapitalization of
Hastings Financial, any merger or consolidation with any of
its subsidiaries or any other transaction, whether or not
with or into or otherwise involving an Interested
Shareholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares
of any class of equity or convertible securities which are
directly or indirectly owned by any Interested Shareholder or
affiliate of such shareholder.
The higher shareholder vote for the above transactions will not be
required for transactions where Hastings Financial shareholders will not receive
any cash or other consideration if the transaction is approved by a majority of
Hastings Financial's Continuing Directors. If Hastings Financial shareholders
will receive cash or other consideration under the terms of the proposed
transaction, the higher shareholder vote will not be required if the transaction
is approved by a majority of Hastings Financial's Continuing Directors or if the
consideration to be received meets certain requirements described in Hastings
Financial's Articles of Incorporation. In such situations, only the affirmative
vote required by Michigan law or other provisions of the Articles of
Incorporation is required.
FIRST FINANCIAL DID NOT OWN SHARES OF HASTINGS FINANCIAL COMMON STOCK
PRIOR TO SIGNING THE MERGER AGREEMENT AND DOES NOT INTEND TO OWN SHARES PRIOR TO
CONSUMMATION OF THE MERGER. FIRST FINANCIAL DOES NOT THEREFORE QUALIFY AS AN
INTERESTED SHAREHOLDER AND THE ABOVE PROVISIONS ARE NOT APPLICABLE TO THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
First Financial's Articles of Incorporation or Code of Regulations do
not contain a similar separation of shareholders owning a specified percentage
of its outstanding shares. First Financial is not aware of any shareholders who
beneficially own 5.00% or more of its outstanding common shares.
Continuing Directors
- --------------------
Hastings Financial's Articles of Incorporation provides that a
"Continuing Director" means each member of the first Board of Directors, any
member of the Board who is unaffiliated with the Interested Shareholder and was
a member of the Board prior to the time that the Interested Shareholder became
an Interested Shareholder and any successor of a Continuing Director who is
unaffiliated with the Interested Shareholder and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the Board. Of
the nine directors presently serving on Hastings Financial's Board, all are
classified as Continuing Directors. First Financial's Articles of Incorporation
and Code of Regulations do not contain a similar separation of directors.
72
<PAGE> 105
Directors
- ---------
After the Merger, Hastings Financial's Board of Directors will be
dissolved and First Financial's Board of Directors will be the Board of
Directors for the Surviving Corporation.
The number of directors of First Financial can be no less than nine and
no more than 25. First Financial currently has 15 directors, divided into three
classes of five directors. The size of the Board can be increased or decreased
at any time by the affirmative vote of 2/3 of the whole authorized number of
directors or by a majority vote of the shareholders entitled to vote on the
proposal at a meeting of the shareholders called for the purpose of electing
directors and at which a quorum is present, either in person or by proxy. First
Financial's Board of Directors may not, under provisions of First Financial's
Code of Regulations, increase the authorized number of directors by more than
three positions during any period between annual meetings. Directors are elected
to three-year terms, with the term of office of one class expiring each year.
Shareholders of First Financial annually elect one-third of its Board of
Directors. This method of election could be considered an impediment for a
takeover of control of First Financial by third parties.
Hastings Financial's Articles of Incorporation provide that the number
of directors shall be determined by resolution adopted by the affirmative vote
of at least 80% of the Board of Directors and a majority of the Continuing
Directors. Hastings Financial currently has nine directors, divided into three
classes of three directors. Directors are elected to three-year terms, with the
term of one class expiring each year, which method of election could be
considered an impediment for a takeover or change of control of Hastings
Financial by third parties.
A majority of First Financial's directors in office at any time, though
less than a majority of the whole authorized number of directors, may, by a vote
of a majority of their number, fill any director's office that is created by an
increase in the number of directors or by a vacancy. Any directors so chosen
will hold office for the remaining length of the term; a vote by First Financial
shareholders is not required. An 80% majority of Hastings Financial's directors
then in office and at least a majority of Continuing Directors is required to
fill any vacancies in Hastings Financial's Board or fill any newly created
director positions. Any directors so chosen may hold office only until the next
annual meeting, at which time a vote by shareholders is required.
One or more directors of Hastings Financial may be removed at any time,
with or without cause, by either: (a) the affirmative vote of at least 80% of
the Board of Directors and the affirmative vote of a majority of Continuing
Directors; or (b) the affirmative vote of at least 80% of the outstanding shares
of Hastings Financial Common Stock at a meeting of shareholders called for that
purpose. A First Financial director may be removed only if a court of law finds
such director guilty of a felony or if the director has breached his fiduciary
duty under the laws of Ohio.
73
<PAGE> 106
First Financial's Code of Regulations has an age limitation preventing
election or re-election of directors who have reached the age of 70 years or
older. Hastings Financial's Articles of Incorporation and By-Laws do not contain
any such age limitation.
Quorum For Shareholders' Meetings
- ---------------------------------
Except as provided by law, the holders of record of a majority of
outstanding shares, in person or by proxy, are required for a quorum at all
First Financial shareholders' meetings. Except as provided in its Articles of
Incorporation, a majority of the outstanding voting shares, represented in
person or by proxy, shall constitute a quorum at any Hastings Financial
shareholders' meeting.
Meeting Participation By Use Of Communication Equipment
- -------------------------------------------------------
Hastings Financial's By-Laws allow shareholders to participate in a
shareholders' meeting and directors to participate in a directors' meeting by
using a conference telephone or similar communication equipment by means of
which all persons participating in the meeting can hear each other. First
Financial's Articles of Incorporation and Code of Regulations make no provision
for meeting participation using communication equipment, but Ohio statutes allow
directors to participate in a directors' meeting using such equipment.
Voting Rights
- -------------
The holders of Hastings Financial Common Stock and First Financial
Common Stock are entitled to one vote per share on all matters presented for
shareholder vote. Shareholders of First Financial or Hastings Financial do not
have cumulative voting rights in the election of directors.
Special Meetings
- ----------------
Special Meetings of the shareholders of First Financial may be called
for any purpose by the Board of Directors or by any three or more shareholders
owning, in the aggregate, not less than 50% percent of the stock of First
Financial. Notice of the meeting, including the purpose or purposes of the
meeting, must be mailed, postage prepaid, to every shareholder of record at the
address appearing on First Financial's books at least 10 days prior to the date
of the meeting.
74
<PAGE> 107
Special Meetings of the shareholders of Hastings Financial may be
called by the Chairman of the Board of Directors, the President or the Secretary
pursuant to a resolution by the Board of Directors or upon receipt of a request
in writing, stating the purpose or purposes of the special meeting requested,
signed by shareholders of record owning a majority of Hastings Financial's
issued and outstanding shares. Notice of the meeting, including the purpose or
purposes of the meeting, must be delivered or mailed, postage prepaid, not less
than 10 days or more than 60 days prior to the date of the meeting to every
shareholder of record at the address appearing on Hastings Financial's books.
Not less than 20 days notice is required if the purpose of the meeting is to
vote on a plan of merger or consolidation or on a sale, lease, exchange or other
disposition of all, or substantially all, the property and assets of Hastings
Financial.
Preemptive Rights
- -----------------
As permitted by law, neither First Financial's nor Hastings Financial's
Articles of Incorporation provide for preemptive rights.
Liquidation Rights
- ------------------
In the event of liquidation, the holders of shares of First Financial
Common Stock are entitled, subject to the payment in full of First Financial's
debts and other liabilities, to receive pro rata any assets distributable to
shareholders with respect to the number of shares held by them. The same applies
to Hastings Financial.
Redemption And Assessment
- -------------------------
Shares of First Financial and Hastings Financial Common Stock are not
subject to further call or assessment. A bank holding company may redeem or
purchase shares of its Common Stock with funds legally available therefor,
provided it gives prior notice to the Federal Reserve Board if the consideration
to be paid for the purchase or redemption, when aggregated with the
consideration paid for all purchases or redemptions for the preceding last 12
months, equals or exceeds 10% of its consolidated net worth. This prior
notification is not required if the bank holding company (a) exceeds the
thresholds established for a "well-capitalized" institution both before and
after the redemption, (b) received a composite "1" or "2" rating at its most
recent regulatory inspection, and (c) is not the subject of any unresolved
supervisory issues. First Financial currently meets these three requirements and
is not required to notify the Federal Reserve Board before purchasing shares of
its common stock. Redemptions may not be made when First Financial is insolvent
or, as a result of the redemption, would be rendered insolvent. Redemptions or
repurchases of Hastings Financial Common Stock are also subject to regulatory
limitations.
75
<PAGE> 108
Amendments To Articles And Code Of Regulations/By-Laws
- ------------------------------------------------------
The Articles of Incorporation for First Financial may be amended,
altered, changed or repealed by following the procedures prescribed by the laws
of the State of Ohio at the time of amendment.
Except as otherwise required in Hastings Financial's Articles of
Incorporation, its Articles may be amended, altered, changed or repealed by
following the procedures prescribed by the laws of the State of Michigan at the
time of amendment. Certain provisions of Hastings Financial's Articles of
Incorporation pertaining primarily to the Board of Directors require the
affirmative vote of at least 80% of the outstanding common shares to amend or
repeal such provisions. Amendment or repeal of certain provisions of Hastings
Financial's Articles of Incorporation pertaining primarily to shareholder
approval of business combinations involving Interested Shareholders require the
affirmative vote of at least 80% of the outstanding common shares entitled to
vote, including the affirmative vote of not less than 2/3 of Hastings
Financial's shares not owned directly or indirectly by any Interested
Shareholder. If amendments pertaining to the Board of Directors or shareholder
approval of business combinations involving Interested Shareholders are approved
by a majority of Hastings Financial's Continuing Directors, the number of
affirmative votes prescribed by Michigan law will be required instead of the
higher affirmative votes described above.
Hastings Financial's By-Laws may be amended by a majority vote of the
Board of Directors at any regular or special meeting, without prior notice of
the proposed amendment required, or by a majority vote of total shares
outstanding at any regular or special meeting if notice of the proposed
amendment was included in the meeting notice. First Financial's Code of
Regulations may be amended by a majority vote of shares outstanding at any
regular or special meeting of shareholders.
First Financial Shareholder Rights Plan
- ---------------------------------------
On November 26, 1993, First Financial adopted a shareholder rights plan
(the "Plan") and declared a dividend of one right on each outstanding share of
First Financial Common Stock ("Right") to shareholders of record as of December
6, 1993. Each share of First Financial Common Stock issued after December 6,
1993 will include one Right. Under the Plan, the Rights will actually be
distributed only if one or more of certain designated actions involving First
Financial Common Stock occur. See Note 15 of First Financial's 1995 Financial
Statements for more information on the Plan.
76
<PAGE> 109
ADJOURNMENT OF THE SPECIAL MEETING
The shareholders of Hastings Financial are asked to approve a proposal
to permit the adjournment of the Special Meeting, if necessary, to solicit
additional proxies with respect to the approval of the Merger Agreement. The
Merger Agreement must be approved by the affirmative vote of at least a majority
of the outstanding shares of Hastings Financial Common Stock. If such matter
does not receive the requisite vote of shareholders at the Special Meeting and
does not receive a sufficient number of negative votes to assure the failure of
the matter, the Board of Directors may decide to adjourn the Special Meeting to
solicit additional proxies. If the Board of Directors decides to adjourn the
Special Meeting with respect to the Merger Agreement, the Chairman of the
Special Meeting will request a motion that the Special Meeting be adjourned for
up to 30 days. An adjournment of up to 30 days would not require either the
setting of a new meeting date or the giving of notice of the adjourned meeting.
Each proxy given in connection with the Special Meeting will be voted
on a motion for adjournment in accordance with the instructions contained
therein. If no contrary instructions are given, each proxy will be voted in
favor of any motion to adjourn the Special Meeting. The holders of the majority
of the shares of Hastings Financial represented in person or by proxy at the
Special Meeting will be required to approve a motion to adjourn the Special
Meeting.
If a motion to adjourn the Special Meeting is approved, no vote will be
taken on the Merger Agreement at the Special Meeting on December __, 1996, but
the Merger Agreement will be voted upon at the adjourned meeting. Unless revoked
prior to its use, any proxy solicited for the Special Meeting will continue to
be valid and will be voted in accordance with the instructions contained therein
at the adjourned meeting.
Because the Board of Directors recommends that the shareholders vote
for the Merger Agreement, the Board of Directors similarly recommends that the
shareholders vote FOR the proposal to adjourn the Special Meeting, which will
facilitate the approval of the Merger Agreement. Such an adjournment would be
disadvantageous to shareholders who oppose the Merger Agreement because the
adjournment will give Hastings Financial additional time to solicit votes in
favor of the Merger Agreement, thereby increasing the chances of passing the
Merger Agreement proposal. Hastings Financial has no reason to believe that an
adjournment of the Special Meeting will be required.
If a quorum is not present at the Special Meeting, none of the
proposals will be acted upon, and the Board of Directors will adjourn the
Special Meeting to a later date in order to solicit additional proxies to assure
the presence of a quorum. The proposal to approve a motion to adjourn the
Special Meeting does not apply to an adjournment relating to the absence of a
quorum.
77
<PAGE> 110
EXPERTS
The consolidated financial statements of First Financial incorporated
by reference in First Financial's Annual Report on Form 10-K for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Hastings Financial at December 31, 1995 and
1994 and for the years then ended appearing in this Proxy Statement-Prospectus
have been audited by Crowe, Chizek and Company LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Hastings Financial for the year ended
December 31, 1993 appearing in this Proxy Statement-Prospectus have been audited
by Beene, Garter & Co., independent auditors, whose report dated January 14,
1994 expressed an unqualified opinion on those statements. The financial
statements for that year are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of First Financial Common Stock to be issued
in the Merger described herein and certain additional legal matters will be
passed upon by Frost & Jacobs, 2500 PNC Center, 201 East Fifth Street,
Cincinnati, Ohio 45202.
Certain legal matters in connection with the Merger will be passed upon
for Hastings Financial by Werner & Blank Co., L.P.A., 7205 West Central Avenue,
Toledo, Ohio 43617.
78
<PAGE> 111
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
HASTINGS FINANCIAL CORPORATION
<PAGE> 112
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
HASTINGS FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Governing Law; Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Conversion of Shares in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1 FFB's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.2 HFC's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.3 Consideration; Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.4 Surrender of HFC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.5 Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Approval of Shareholders; Filing of Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. HFC's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.3 List of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.9 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.11 Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 113
<TABLE>
<S> <C>
9.12 Material Contracts; No Conflict with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.13 Governmental Authorizations and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.17 Validity of Contemplated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. FFB's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.9 Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.10 Material Contracts; No Conflict with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.11 Governmental Authorizations and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.12 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.13 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.14 Validity of Contemplated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.1 Negative Covenants of HFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3 HFC Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.4 Purchase of "Tail Coverage". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.1 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.3 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.4 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.7 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.8 Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.9 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.10 Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.11 Larry J. Kornstadt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
ii
<PAGE> 114
<TABLE>
<S> <C>
13. Conditions Precedent; Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.1 Conditions Precedent to Obligations of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.2 Conditions Precedent to FFB's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.3 Conditions Precedent to HFC's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.4 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.4 Binding Nature of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
iii
<PAGE> 115
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
HASTINGS FINANCIAL CORPORATION
PLAN AND AGREEMENT OF MERGER (the "Agreement") dated as of July 2,
1996 by and between FIRST FINANCIAL BANCORP., an Ohio corporation and
registered as a bank holding company under the Bank Holding Company Act of 1956
and a savings and loan holding company under the Savings and Loan Holding
Company Act ("FFB"), and HASTINGS FINANCIAL CORPORATION, a Michigan corporation
and registered as a bank holding company under Bank Holding Company Act of 1956
("HFC"), pursuant to which FFB and HFC hereby agree as set forth more fully
herein.
1. RECITALS.
1.1 FFB is a corporation duly organized and existing under the
laws of the State of Ohio, having been incorporated on August 8, 1982. HFC is
a corporation duly organized and existing under the laws of the State of
Michigan, having been incorporated on October 4, 1988.
1.2 The Boards of Directors of FFB and HFC deem it advisable for
the general welfare and advantage of FFB and HFC and their respective
shareholders that FFB and HFC merge into a single corporation pursuant to this
Agreement and pursuant to the applicable provisions of the laws of the States
of Ohio and Michigan and the United States of America, subject to the approval
of various federal and state regulatory authorities.
1.3 As of May 1, 1996, the authorized capital stock of FFB
consisted of 25,000,000 shares of common stock, par value $8.00 per share, of
which 13,388,384 shares were outstanding.
1.4 As of the date hereof, the authorized capital stock of HFC
consisted of 400,000 shares of common stock, $1.00 par value, of which 79,463
shares were outstanding and 1,000 shares were reserved for issuance pursuant to
outstanding options.
1.5 In consideration of the foregoing premises and of the mutual
agreements herein contained, the parties hereby agree, in accordance with the
applicable statutory provisions of the States of Ohio and Michigan, the United
States of America, and any regulatory approvals, that FFB and HFC will be
merged pursuant to the terms and conditions of the merger hereby agreed upon
(the "Merger") into a single corporation, which will be FFB, one of the
constituent corporations and which will continue its corporate existence and be
the corporation surviving the merger (said corporation hereafter being
sometimes called the "Surviving Corporation"), and the parties covenant to
observe, keep, perform and carry into effect the Merger and this Agreement as
hereafter set forth.
<PAGE> 116
2. EFFECTIVE TIME OF THE MERGER. At the effective time of the Merger,
the separate existence of HFC will be merged into the Surviving Corporation and
National Bank of Hastings (the "Bank"), a wholly owned subsidiary of HFC, will
continue as a wholly owned subsidiary of the Surviving Corporation.
Consummation of this Agreement will be effected on the later date on which
Articles of Merger in substantially the form annexed hereto as Exhibit A are
filed in the offices of the Secretary of State of the States of Ohio and
Michigan, respectively, after satisfaction of the respective requirements of
the federal regulatory agencies and of the applicable laws of the States of
Ohio and Michigan prerequisite to such filings.
The parties to this Agreement agree that they will work diligently to
consummate this Agreement on January 1, 1997. In the event that the parties
are unable to consummate this Agreement on January 1, 1997, the parties agree
that if all conditions precedent to the consummation of this Agreement as set
forth in Section 13 hereof have been satisfied on or before the fifteenth day
of any given month, the parties will consummate this Agreement as of the end of
the same month; provided, however, that if the conditions precedent to the
consummation of this Agreement are satisfied on the sixteenth day of any month
through the last day of such month, the parties agree that they will consummate
this Agreement as of the end of the month immediately following such month, or
on such other date as the parties mutually agree.
3. GOVERNING LAW; ARTICLES OF INCORPORATION. The laws which are to
govern the Surviving Corporation are the laws of the State of Ohio. The
Articles of Incorporation of FFB, at the effective time of the Merger, will be
the Articles of Incorporation of the Surviving Corporation until the same will
be further amended or altered in accordance with the provisions thereof.
4. BYLAWS. The Regulations of FFB at the effective time of the Merger
will be the Regulations of the Surviving Corporation until the same will be
altered or amended in accordance with the provisions thereof.
5. DIRECTORS AND OFFICERS. The directors of FFB at the effective time of
the Merger will be the directors of the Surviving Corporation until their
respective successors are duly elected and qualified. Subject to the authority
of the Board of Directors as provided by law and the Regulations of the
Surviving Corporation, the officers of FFB at the effective time of the Merger
will be the officers of the Surviving Corporation. The directors of Bank at
the effective time of the Merger will be the directors of Bank until their
respective successors are duly elected and qualified. Subject to the authority
of the board of directors of Bank as provided by law and the Bylaws of Bank,
the officers of Bank at the effective time of the Merger will continue to serve
as officers of Bank after the effective time of the Merger.
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6. CONVERSION OF SHARES IN THE MERGER. The mode of carrying into effect
the Merger provided in this Agreement and the manner and basis of converting
the shares of the constituent corporation into shares of the Surviving
Corporation are as follows:
6.1 FFB'S COMMON STOCK. None of the shares of common stock, par
value $8.00 per share, of FFB issued at the effective time of the Merger will
be converted as a result of the Merger, but all such shares (including shares
held in the treasury) will remain issued shares of common stock of FFB.
6.2 HFC'S COMMON STOCK. At the effective time of the Merger, each
share of HFC common stock outstanding immediately prior to the effective time
of the Merger (except as otherwise provided in Section 6.5) will by virtue of
the Merger be converted into shares of FFB common stock as determined pursuant
to Section 6.3 below, and each share of HFC common stock held in treasury
immediately prior to the effective time of the Merger will be cancelled. Prior
to the effective time of the Merger, the outstanding stock options for HFC
common stock will be exercised for 5,000 shares of HFC common stock, and such
common stock will be entitled to the same conversion rights as set forth in
this Section 6.
6.3 CONSIDERATION; EXCHANGE RATIO.
6.3.1 The consideration to be paid to HFC's stockholders
pursuant to this Agreement (the "Merger Price") is fixed at $10,000,000 payable
in FFB common stock if the effective time of the Merger is on or before January
1, 1997; provided, however, that if the effective time of the Merger is after
January 1, 1997, the Merger Price will be fixed at $10,000,000 plus a sum equal
to the Bank's earnings after January 1, 1997 excluding transaction-related
costs, which sum will be payable in FFB common stock. Notwithstanding any of
the foregoing to the contrary, dissenting shareholders of HFC who perfect their
rights under the laws of the State of Michigan will receive cash in such amount
per share of HFC which they own as determined in accordance with Michigan
Business Corporations Act Section 450.1762. At the effective time of the
Merger, each of the then issued and outstanding shares of HFC will be cancelled
and extinguished and, in consideration and in exchange therefor, the holders
thereof will be entitled, upon compliance with Section 6.4, to receive from FFB
a number of common shares of FFB equal to the Merger Price divided by the
mathematical average of the average of the closing daily bid and asked prices
for FFB stock on the National Association of Security Dealers Automated
Quotation ("NASDAQ") national market system for the twenty trading days ending
at 4:00 p.m. (New York time) three trading days prior to the effective time of
the Merger (the "Exchange Ratio"), which resultant sum is multiplied by a
fraction, the numerator of which is the number of HFC shares owned by such
holder and the denominator of which is the aggregate number of shares of HFC
stock issued and outstanding on such date; provided, however, that in the event
of the subdivision or split of the outstanding shares of FFB, the payment of a
dividend in FFB stock or a capital reorganization, reclassification or
recapitalization affecting FFB stock, the Exchange Ratio will be adjusted
proportionately so that the shareholders of HFC
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will receive such number of shares of FFB common stock that represents the same
percentage of outstanding shares of FFB common stock at the effective time of
the merger as would have been represented by the number of shares such
shareholders would have received if the recapitalization had not occurred.
6.3.2 After determining the Exchange Ratio, each holder of
outstanding common stock of HFC after the effective time of the Merger, upon
surrender to FFB, will be entitled to receive one or more stock certificates of
FFB into which the common stock of HFC so surrendered will have been converted
as aforesaid. No dividends that may have been declared by FFB after the
effective time of the Merger and prior to the surrender of HFC shares will be
paid until such shares have been presented for exchange to FFB. FFB will make
delivery of certificates to HFC shareholders within ten business days of
receipt by the Exchange Agent (as defined in Section 6.4 below) of HFC
certificates.
6.4 SURRENDER OF HFC CERTIFICATES. As soon as practicable after
the Merger becomes effective, the stock certificates representing common stock
of HFC issued and outstanding at the time the Merger becomes effective will be
surrendered for exchange to FFB. As promptly as practicable after the
effective time of the Merger, First National Bank of Southwestern Ohio (the
"Exchange Agent") will prepare and mail to each holder of record of an
outstanding certificate or certificates prior thereto representing shares of
HFC a letter of transmittal containing instructions for the surrender of the
certificate or certificates of HFC held by such holder. Upon surrender of the
certificate or certificates that prior thereto represented shares of HFC in
accordance with instructions set forth in the letter of transmittal, such
holder will be entitled to receive in exchange therefor, certificates
representing the number of whole shares of FFB into which the shares
represented by the certificate or certificates so surrendered will have been
converted, without interest. Adoption of this agreement by the stockholders of
HFC will constitute ratification of the appointment of First National Bank of
Southwestern Ohio as the Exchange Agent for this purpose. The Exchange Agent
will not be obligated to deliver certificates for FFB stock to a former
stockholder of HFC until such former stockholder surrenders his or her
certificate or certificates representing shares of HFC or, in default thereof,
an appropriate affidavit of loss and indemnity agreement or bond as may be
required by FFB. Until so surrendered for exchange, each such stock
certificate formerly representing common stock of HFC will be deemed for all
corporate purposes (except for the payment of dividends, which will be subject
to the exchange of stock certificates as above provided) to evidence the
ownership of the number of shares of common stock of the Surviving Corporation
that the holder thereof would be entitled to receive upon its surrender to FFB.
6.5 FRACTIONAL INTERESTS. No fractional shares of common stock of
FFB or certificate or scrip representing the same will be issued. In lieu
thereof, each holder of HFC's common stock having a fractional interest arising
upon such conversion will be paid in cash by FFB for the additional fractional
interest. Such payment will be equal to the fractional interest times the
Exchange Ratio. This amount will not be paid to any holder of HFC's common
stock who will not have surrendered his certificates for exchange pursuant to
Section 6.4 hereof, and FFB will retain such amount until such time as such
certificates have been surrendered.
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7. EFFECT OF THE MERGER. At the effective time of the Merger, the
Surviving Corporation will succeed to, without other transfer, and will possess
and enjoy, all the rights, privileges, immunities, powers and franchises both
of a public and a private nature, and be subject to all the restrictions,
disabilities and duties of each of FFB and HFC, and all the rights, privileges,
immunities, powers and franchises of each of FFB and HFC and all property,
real, personal and mixed, and all debts due to either of said constituent
corporations on whatever account, for stock subscriptions as well as for all
other things in action or belonging to each of said corporations, will be
vested in the Surviving Corporation; and all property, rights, privileges,
immunities, powers and franchises, and all and every other interest will be
thereafter as effectually the property of the Surviving Corporation as they
were of FFB and HFC, respectively, and the title to any real estate vested by
deed or otherwise in either of FFB and HFC will not revert or be in any way
impaired by reason of the Merger; provided; however, that all rights of
creditors and all liens upon any property of either of FFB or HFC will be
preserved unimpaired, limited in lien to the property affected by such liens at
the effective time of the Merger, and all debts, liabilities and duties of said
constituent corporations, respectively, will thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
8. APPROVAL OF SHAREHOLDERS; FILING OF ARTICLES OF MERGER. This
Agreement will be submitted to the shareholders of HFC for adoption and
approval on or before November 30, 1996 [?], or such later date as the Boards
of Directors of FFB and HFC mutually approve. After such adoption and
approval, and subject to the conditions contained in this Agreement, Articles
of Merger in substantially the form annexed hereto as Exhibit A will be signed,
verified and delivered to the Secretary of State of the States of Ohio and
Michigan for filing as provided by the respective statutes of such states.
9. HFC'S REPRESENTATIONS AND WARRANTIES. HFC represents and warrants to
FFB as of the date hereof and as of the effective time of the Merger as
follows:
9.1 ORGANIZATION. HFC is a corporation duly organized and validly
existing under the laws of the State of Michigan and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended. HFC
has the corporate power to carry on its businesses as they are now being
conducted and is qualified to do business in each jurisdiction in which the
character and location of the assets owned by it, or the nature of the business
transacted by it, requires qualification. HFC, by order of its Board of
Directors, has authority to enter into this Agreement and this Agreement, when
executed and delivered, will be legally binding.
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9.2 CAPITALIZATION. HFC's capitalization consists of 400,000
authorized shares of common stock ($1.00 par value), of which, as of the date
hereof, 79,463 shares were issued and outstanding and 1,000 shares were
reserved for issuance pursuant to outstanding options. Each issued share was
validly issued, fully paid and non-assessable, and each outstanding share is
entitled to one vote. Except for outstanding options exercisable for 1,000
shares of HFC common stock, there are no outstanding subscriptions, options,
warrants, calls or rights of any kind relating to or providing for the
issuance, sale, delivery or transfer of any class of securities of HFC.
9.3 LIST OF INFORMATION. For the due diligence examination in
May, 1996, HFC delivered to FFB certain information concerning HFC dated as of
the date furnished. Such information and the copies of documents furnished to
FFB are accurate in all material respects as of the date furnished.
9.4 SUBSIDIARIES. HFC has one wholly owned subsidiary, Bank. HFC
has no other subsidiaries. Bank is a national bank duly organized and validly
existing under the laws of the United States. Bank has the corporate power to
carry on its businesses as they are now being conducted and is qualified to do
business in each jurisdiction in which the character and location of the assets
owned by it, or the nature of the business transacted by it, requires
qualification. All of the outstanding shares of the stock of Bank are validly
issued, fully paid and non-assessable, except as provided under federal banking
law, and, except as set forth in the Disclosure Schedule, all such shares are
owned by HFC free and clear of all liens, claims, charges or encumbrances.
There are no outstanding subscriptions, options, warrants, calls or rights of
any kind relating to or providing for the issuance, sale, delivery or transfer
of any class of securities of Bank.
9.5 FINANCIAL STATEMENTS. HFC has delivered to FFB copies of its
consolidated balance sheets as of December 31, 1995, 1994, and 1993 and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995, in each case including the notes thereto, all certified by Crowe, Chizek
and Company LLP, independent public accounts, or one of said accountants'
predecessor firms. The financial statements of HFC as of December 31, 1993 and
for the year then ended were audited by other auditors whose report expressed
an unqualified opinion on those statements.
All of such financial statements present fairly the financial
positions as of and at the dates shown and the results of operations for the
periods covered thereby. They have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
indicated, except as otherwise indicated in the notes thereto. Each of the
balance sheets presents a true and complete statement in all material respects
as of its date of HFC's financial condition. All liabilities of HFC (including
any contingent liabilities), as of the date of each balance sheet, were
properly accrued in such balance sheet or disclosed in the related footnotes,
in accordance with generally accepted accounting principles.
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9.6 GOOD AND MARKETABLE TITLE. HFC and Bank have and at the
effective time of the Merger will have good and marketable title in fee simple
to all lands and buildings shown as assets in their records and books of
account, free and clear of all liens, encumbrances and charges except as
reflected in the aforesaid financial statements and except for current taxes
and assessments not delinquent or being contested in good faith and liens,
encumbrances and charges shown in their records and books of account which are
not substantial in character or amount and do not materially detract from the
value or interfere with the use of the properties subject thereto or affected
thereby. HFC and Bank have and at the effective time of the Merger will have
valid leases under which they are entitled to occupy and use in their business
all real property of which they are lessees, and HFC and Bank have no knowledge
of any material default under any such lease. As of the date hereof, neither
HFC nor Bank has title to any real property or buildings as a result of
foreclosure or by otherwise realizing on collateral held by either of them.
Neither HFC nor Bank will take action to foreclose or otherwise realize on any
real property collateral held by either of them prior to the effective time of
the Merger without the prior consent of FFB, which consent will not be
unreasonably withheld.
HFC and Bank have and at the effective time of the Merger will
have good and marketable title to the machinery, equipment, merchandise,
materials, supplies and other property of every kind, tangible or intangible,
contained in their offices and other facilities or shown as assets in their
records and books of account, except for properties held in trust or other
fiduciary capacity, free and clear of all liens, encumbrances and charges
except as reflected in the aforesaid financial statements and except for liens,
encumbrances and charges, if any, which do not materially detract from the
value of or interfere with the use of the properties subject thereto or
affected thereby. HFC and Bank have and will have immediately prior to the
effective time of the Merger valid leases under which they are entitled to use
in their business all personal property of which they are lessees, and neither
HFC nor Bank has any knowledge of any material default under any such leases.
9.7 TAXES. HFC and Bank have paid all taxes imposed by the United
States or by any state, municipality, subdivision or instrumentality of the
United States or by any other taxing authority, which are due or payable by
either HFC or Bank, that the failure to pay would have a material and adverse
effect on HFC and/or Bank, and all claims asserted against each of them have
been paid in full or are adequately accrued in the records and books of
accounts of each of HFC and Bank and will be so paid or provided for at the
effective time of the Merger. All income tax returns for each of HFC and Bank
have been filed with the taxing authorities having jurisdiction thereof through
the years specified in the Disclosure Schedule, and no extension of time for
the assessment of deficiencies for any such years is in effect. Neither HFC
nor Bank has knowledge of any unassessed tax deficiency proposed or threatened
against it.
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9.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the disclosure schedule attached hereto (the "Disclosure Schedule), from
December 31, 1995 to the date hereof, there has not been:
9.8.1 any material change in the corporate status, business,
operations or financial condition of HFC and Bank, other than changes in the
ordinary course of business;
9.8.2 any declaration, setting aside or payment of any
dividend or other distribution, with respect to HFC's common stock, except:
(a) a cash dividend of $1.25 per share to be paid on July 15, 1996; and (b) a
cash dividend of $1.25 per share to be paid on December 31, 1996; and
9.8.3 any other event or condition of any character which has
materially and adversely affected the corporate status, business, operations or
financial condition of HFC and Bank taken as a whole.
9.9 CONTRACTS AND AGREEMENTS. Except for agreements described in
and appended to the Disclosure Schedule, neither HFC nor Bank is a party to:
(a) any sales agency agreement not subject to termination without liability on
notice of 60 days or less; (b) any contract for the purchase or sale of any
materials, products or supplies which contains any escalator, renegotiation or
redetermination clause or which commits it for a fixed term; (c) any contract
of employment with any officer or employee not terminable at will without
liability; (d) any pension, retirement or profit sharing plan or agreement not
cancelable within 60 days without lability; (e) any management or consultation
agreement not terminable at will without liability; (f) any lease, license,
royalty, union agreement or loan agreement except those entered into in the
ordinary course of business and which are terminable without liability on
notice of 60 days or less; (g) any contract, accepted order or commitment for
the purchase or sale of materials, products or supplies having a total contract
price in excess of $20,000; or (h) any other agreement which materially affects
the business, properties, assets or condition (financial or otherwise) of HFC,
or which was entered into other than in the ordinary and usual course of
business. The Disclosure Schedule will contain the following with respect to
each pension or profit sharing plan of HFC and Bank: a copy of the plan and
any relevant trust agreements, copies of the forms filed with the Internal
Revenue Service, the latest report of the trustee or insurance company of the
value of the assets or the cash surrender values as of the latest anniversary
of the insurance polices held under the plan, and the latest actuarial
evaluation or statement of individual accounts.
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9.10 INSURANCE. HFC is adequately insured with respect to risks
normally insured against by companies similarly situated. The Disclosure
Schedule will contain a list, and be accompanied by copies, of all existing
insurance policies of HFC and Bank, including but not limited to group
insurance and pension plans. All such policies are in full force and effect.
The Disclosure Schedule will also contain a list of all claims for insured
losses filed by HFC and Bank during the three-year period immediately preceding
the date of this Agreement, including but not limited to worker's compensation,
automobile and general liability.
9.11 LITIGATION AND PROCEEDINGS. Except as set forth in the
Disclosure Schedule, there is no suit, action or legal or administrative
proceeding pending or, to the knowledge of HFC, threatened, against it or Bank,
which, if adversely determined, might materially and adversely affect the
financial condition, on a consolidated basis, of HFC and Bank or the conduct of
their businesses, nor is there any decree, injunction or order of any court,
governmental department or agency outstanding against HFC or Bank having any
such effect.
9.12 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS.
Neither HFC nor Bank is in default under the terms of any outstanding contract,
agreement, lease or other commitment which default would have a material and
adverse effect, on a consolidated basis, on HFC and Bank, and at the effective
time of the Merger, the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of or
constitute a default under any indenture, mortgage, deed of trust or other
agreement or instrument to which HFC or Bank is a party, which default or
breach would have a material and adverse effect, on a consolidated basis, on
HFC and Bank.
9.13 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. Each of HFC and
Bank has all valid and sufficient licenses, franchises, permits and other
governmental authorizations for all businesses presently carried on by HFC and
Bank, respectively, and has filed with the Federal Reserve Board all reports
necessary to the conduct of its business as a bank holding company and is
current in all respect as to such filings. HFC will provide in the Disclosure
Schedule its Annual Reports on Forms FRY-6 and FRY-9 for 1991, 1992, 1993, 1994
and 1995, proxy materials for its Annual Meetings in such years and will
provide proxy materials for its Annual Meeting in 1996. Bank will provide in
the Disclosure Schedule its Year-End Call Reports for 1991, 1992, 1993, 1994
and 1995, when available, as filed with the Office of the Comptroller of the
Currency.
9.14 CONSENTS AND APPROVALS. The only consent and approval
required to be obtained by or on behalf of HFC or Bank on or prior to the
effective date of the Merger is the approval of the HFC shareholders in the
form required by the Michigan Business Corporations Act of the State of
Michigan. Other consents and approvals required to be obtained prior to the
effective date of the Merger are set forth in Section 10.12 below.
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9.15 BROKERS. Neither HFC, Bank nor any of their officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finders' fees in connection with this Agreement or with the transactions
contemplated hereby, except that HFC has retained Austin Associates, Inc.
("Austin") to perform various brokerage services in connection with this
transaction. HFC is liable for and will pay all amounts due Austin.
9.16 ENVIRONMENTAL MATTERS. For purposes hereof, "environmental
laws" means all applicable federal, state or local statutes, laws, ordinances,
codes, rules, regulations and guidelines (including consent decrees and
administrative orders) relating to public health and safety and protection of
the environment and natural resources.
(a) Except as set forth in the Disclosure Schedule, to the
extent required, HFC and Bank have filed all notices, permit applications and
other required governmental submissions and have obtained all permits, licenses
and other authorizations which are required and which are material in
connection with the conduct of their respective businesses under all applicable
environmental laws, including approvals relating to emissions, discharges,
releases or threatened releases, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, chemicals, new or used petroleum
products, industrial, toxic or hazardous substances or solid wastes into the
environment (including, without limitation, ambient air, surface water,
groundwater, land or sewers).
(b) Except as set forth in the Disclosure Schedule, to the
extent required, each of HFC and Bank is in compliance, in all material
respects, in the conduct of its business with all terms and conditions of the
necessary permits, licenses and authorizations, and to the best of their
knowledge is also in compliance in all material respects with all other
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in such
environmental laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved under such environmental laws.
(c) Except as set forth in the Disclosure Schedule, neither
HFC nor Bank is aware of, nor has either of HFC or Bank received notice of, any
past or present events, condition, circumstances, activities, practices,
incidents, actions or plans which may materially interfere with or prevent
compliance or continued compliance in the conduct of its business with such
environmental laws or any regulations, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
under such environmental laws, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment (including, without limitation, ambient air,
surface water, groundwater, land or sewers), of any pollutant, contaminant,
chemical, or industrial, toxic or hazardous substance or waste or new or used
petroleum products.
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(d) Except as set forth in the Disclosure Schedule, neither
HFC nor Bank is aware of, nor has either of HFC or Bank received notice of, any
material civil, criminal or administrative action, suit, demand, claim,
hearing, notice or demand letter, notice of violation, investigation, or
proceeding pending or threatened against either HFC or Bank relating in any way
to the environmental laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved under such environmental laws.
(e) Except as set forth in the Disclosure Schedule, to the
best knowledge of each of HFC and Bank, there is no asbestos containing
material that violates any environmental law or is in need of removal or
repair.
9.17 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except as set forth in
the Disclosure Schedule, the execution, delivery and performance of this
Agreement will not: (i) violate, or conflict with, or require any consent
under, or result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any lien upon any of the assets of
either of HFC or Bank, under any of the terms, conditions or provisions of the
Articles of Incorporation or Bylaws of HFC and the Articles of Association or
Bylaws of Bank, or of any note, bond, mortgage, indenture, deed of trust,
material license, lease, agreement or other instrument or obligation to which
either of HFC or Bank is a party or by which either of HFC or Bank or any of
their assets may be bound or affected or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to HFC, Bank or any
of their assets.
10. FFB'S REPRESENTATIONS AND WARRANTIES. FFB represents and warrants to
HFC as of the date hereof and as of the effective time of the Merger as
follows:
10.1 ORGANIZATION. FFB is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is
registered as a bank holding company under Bank Holding Company Act of 1956,
as amended, and a savings and loan holding company under the Savings and Loan
Holding Company Act. FFB has the corporate power to carry on its businesses
as they are now being conducted and is qualified to do business in each
jurisdiction in which the character and location of the assets owned by it, or
the nature of the business transacted by it, requires qualification. FFB has
authority to enter into this Agreement and this Agreement is legally binding.
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10.2 SUBSIDIARIES. Each indirect and direct subsidiary of FFB
which, as of the effective time of the Merger would be deemed to be a
"significant subsidiary," as such term is defined in Rule 405 of the rules and
regulations promulgated in the Securities Act of 1933, as amended (the "1933
Act"), is either a national bank or federal savings association duly organized,
validly existing, and in good standing under a charter granted by the Office of
the Comptroller of the Currency or the Office of Thrift Supervision, or is a
corporation or state bank duly organized, validly existing and in good standing
under the laws of the state of its incorporation, and in either case, is duly
qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and where failure to so qualify would have a material and
adverse effect on the consolidated business, financial condition or results of
operations of FFB.
10.3 CAPITALIZATION. FFB's capitalization consists of 25,000,000
authorized shares of common stock (par value $8.00 per share), of which, as of
May 1, 1996, 13,388,384 shares were issued and outstanding. Each issued share
is validly issued, fully paid and non-assessable, and each outstanding share is
entitled to one vote.
10.4 SHARES TO BE ISSUED. All shares of common stock of FFB into
which the common stock of HFC will be converted will be, immediately after the
effective time of the Merger and when issued upon such conversion, duly and
validly authorized and issued, fully paid and non-assessable, and no
stockholder of FFB will have any pre-emptive right of subscription or purchase
in respect thereof. FFB will take such steps as may be necessary for such
shares to be listed on NASDAQ immediately after the effective time of the
Merger.
10.5 FINANCIAL STATEMENTS. FFB will have delivered to HFC copies
of its consolidated balance sheets as of December 31, 1995, 1994 and 1993, and
the related consolidated statements of earnings, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995, in each case including the notes thereto, all certified by Ernst &
Young LLP, independent public accountants, or one of said accountants'
predecessor firms.
All of such financial statements have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated, except as otherwise indicated in the notes thereto. Each of
such balance sheets presents a true and complete statement in all material
respects as of its date of FFB's financial condition. All liabilities of FFB
(including any contingent liabilities), as of the date of each balance sheet,
were properly accrued in such balance sheet or disclosed in the related
footnotes, in accordance with generally accepted accounting principles.
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10.6 GOOD AND MARKETABLE TITLE. FFB has and at the effective time
of the Merger will have good and marketable title in fee simple to all lands
and buildings shown as assets in its records and books of account, except for
properties held in trust or other fiduciary capacity, free and clear of all
liens, encumbrances and charges except as reflected in the aforesaid financial
statements and except for current taxes and assessments not delinquent or being
contested in good faith and liens, encumbrances and charges shown in their
records and books of account which are not substantial in character or amount
and do not materially detract from the value or interfere with the use of the
properties subject thereto or affected thereby. FFB has and at the effective
time of the Merger will have valid leases under which it is entitled to occupy
and use in its business all real property of which it is lessee, and FFB has no
knowledge of any material default under any such lease.
FFB has and at the effective time of the Merger will have good
and marketable title to the machinery, equipment, merchandise, materials,
supplies and other property of every kind, tangible or intangible, contained in
its offices and other facilities or shown as assets in its records and books of
account, except for properties held in trust or other fiduciary capacity, free
and clear of all liens, encumbrances and charges except as reflected in the
aforesaid financial statements and except for liens, encumbrances and charges,
if any, which do not materially detract from the value of or interfere with the
use of the properties subject thereto or affected thereby. FFB has and will
have immediately prior to the effective time of the Merger valid leases under
which it is entitled to use in its business all personal property of which it
is lessee, and FFB has no knowledge of any material default under any such
lease.
10.7 TAXES. All taxes imposed by the United States or by any
state, municipality, subdivision or instrumentality of the United States or by
any other taxing authority, which are due or payable by FFB, and all claims
asserted against it have been paid in full or are adequately accrued in the
records and books of accounts of FFB and will be so paid or provided for at the
effective time of the Merger. All income tax returns for FFB have been filed
with the taxing authorities having jurisdiction thereof through the years
specified in the Disclosure Schedule, and no extension of time for the
assessment of deficiencies for any such years is in effect. FFB has no
knowledge of any unassessed tax deficiency proposed or threatened against it.
10.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From December 31, 1995
to the date hereof, there has not been:
10.8.1 any change in the corporate status, business,
operations or financial condition of FFB and its consolidated Subsidiaries,
other than changes in the ordinary course of business; and those changes
described in any FFB filings with the Securities and Exchange Commission, none
of which are, in the aggregate, materially adverse to FFB;
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10.8.2 any other event or condition of any character which
has materially and adversely affected the corporate status, business,
operations or financial condition of FFB and its consolidated Subsidiaries
taken as a whole.
10.9 LITIGATION AND PROCEEDINGS. There is no suit, action or legal
or administrative proceeding pending, or to the knowledge of FFB threatened,
against it or any of FFB's consolidated Subsidiaries, which, if adversely
determined, might materially and adversely affect the financial condition, on a
consolidated basis, of FFB and FFB's consolidated Subsidiaries or the conduct
of their businesses, nor is there any decree, injunction or order of any court,
governmental department or agency outstanding against FFB or any of FFB's
consolidated Subsidiaries having any such effect.
10.10 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS.
Neither FFB nor any of its consolidated Subsidiaries is in default under the
terms of any material outstanding contract, agreement, lease or other
commitment which default would have a material and adverse effect, on a
consolidated basis, on FFB and FFB's consolidated Subsidiaries, and at the
effective time of the Merger, the consummation of the transactions contemplated
by this Agreement will not result in the breach of any term or provision of or
constitute a default under any material indenture, mortgage, deed of trust or
other material agreement or instrument to which FFB or any of its consolidated
Subsidiaries is a party, which default or breach would have a material and
adverse effect, on a consolidated basis, on FFB and FFB's consolidated
Subsidiaries.
10.11 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. FFB and each of
FFB's consolidated Subsidiaries has all valid and sufficient licenses,
franchises, permits and other governmental authorizations necessary to the
conduct of its business as a bank holding company and has filed with the Board
of Governors of the Federal Reserve System ("FRB"), the Office of Thrift
Supervision and the Securities and Exchange Commission all reports necessary to
the conduct of its business as a bank holding company and savings and loan
holding company and is current in all respects as to such filings.
10.12 CONSENTS AND APPROVALS. The consents and approvals required
to be obtained by FFB on or prior to the effective date of the Merger are set
forth below:
10.12.1 approval and effectiveness of the Registration
Statement referred to in Section 12.3 or of any post effective amendment
thereto;
10.12.2 approval of FRB under Bank Holding Company Act;
10.12.3 approval of the Office of the Comptroller of the
Currency; and
10.12.4 any other required consents for the completion of the
Merger.
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10.13 BROKERS. Neither FFB nor any of its officers, directors or
employees have employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finders' fees in
connection with this Agreement or with the transactions contemplated thereby.
10.14 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution,
delivery and performance of this Agreement will not: (i) violate, or conflict
with, or require any consent under, or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
upon any of the assets of FFB, under any of the terms, conditions or provisions
of the Articles of Incorporation or bylaws of FFB, or of any note, bond,
mortgage, indenture, deed of trust, material license, lease, agreement or other
instrument or obligation to which FFB is a party or by which FFB or any of its
assets may be bound or affected or (ii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to FFB or any of its assets.
11. CONDUCT OF BUSINESS PENDING THE MERGER.
11.1 NEGATIVE COVENANTS OF HFC. From and after the date of this
Agreement and prior to the effective time of the Merger, without the prior
written consent of FFB, neither HFC nor Bank will:
11.1.1 amend its respective Articles of Incorporation,
Articles of Association, Regulations or Bylaws;
11.1.2 engage in any material activity or transaction or
incur any material obligation (by contract or otherwise) except in the ordinary
course of business.
11.1.3 issue rights or options to purchase or subscribe
to any shares of its capital stock or subdivide or otherwise change any such
shares.
11.1.4 issue or sell any shares of its capital stock,
except to fulfill the outstanding options issued to Larry J. Kornstadt.
11.2 DIVIDENDS. The parties agree to cooperate with each other to
insure that the shareholders of HFC receive a regular quarterly dividend from
either HFC or FFB during the quarter in which the effective time of the Merger
occurs, and that such shareholders of HFC do not receive dividends from both
HFC and FFB during such quarter.
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11.3 HFC EFFORTS. From and after the date of this Agreement and
prior to the effective time of the Merger, HFC and Bank will use their
respective best efforts to preserve their business organizations intact; to
keep available the services of their present officers and employees and to
preserve the goodwill of their suppliers, customers and others having business
relations with it. During the same period, HFC and Bank will not put into
effect any material increase in the compensation or other benefits applicable
to officers or other key personnel in excess of compensation increases paid by
HFC or Bank to similarly situated employees in accordance with past practices.
11.4 PURCHASE OF "TAIL COVERAGE". HFC may purchase "tail coverage"
on its Directors' and Officers' insurance for a period of at least two years
and for a sum not exceeding $10,000 in the aggregate.
12. ADDITIONAL AGREEMENTS.
12.1 ACCESS AND INFORMATION. FFB and HFC hereby agree that each
will give to the other and to the other's accountants, counsel and other
representatives full access during normal business hours throughout the period
prior to the Merger to all of its properties, books, contracts, commitments and
records, and that each will furnish the other during such period with all such
information concerning its affairs as such other party may reasonably request.
In the event of the termination of this Agreement, each party will, upon the
request of the other, destroy or deliver to the other all documents, work
papers and other material obtained from the other relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
and will use its best efforts to have any information so obtained and not
heretofore made public kept confidential.
12.2 CONFIDENTIALITY. From and after the date of this Agreement,
the parties and their respective Subsidiaries will, and they will cause their
respective directors, officers, employees and advisors ("Affiliates") to, treat
all information received from or on behalf of another party hereto or its
Affiliates concerning the business, assets, operations and financial condition
of such other party or its Subsidiaries as confidential, unless and to the
extent that the party receiving such information can demonstrate that such
information was in the public domain, and the party receiving such information
and its Subsidiaries will, and will cause their respective Affiliates to, not
use any such confidential information for any purpose except in furtherance of
the transactions contemplated by this Agreement. In the event this Agreement
is terminated pursuant to Section 13.4 hereof, each party and its Subsidiaries,
upon the request of the other, will promptly return to the other party or
destroy all documents and work papers and all copies thereof, containing any
such confidential information received from or on behalf of another party
hereto in connection with the transactions contemplated by this Agreement. The
covenants contained in this Section are of the essence and will survive any
termination of this Agreement and the closing of the transactions contemplated
by this Agreement.
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12.3 REGISTRATION STATEMENT. FFB will prepare and file a
Registration Statement on Form S-4 under the 1933 Act to register a sufficient
number of shares of common stock which the shareholders of HFC will receive
pursuant to Section 6 at the effective time of the Merger. FFB will use its
best efforts to cause such Registration Statement to become effective.
12.4 EMPLOYEE BENEFIT PLANS.
12.4.1 As soon as practicable after the effective
date of the Merger, FFB shall make available to eligible employees of Bank
nonqualified employee benefit plans comparable to the nonqualified employee
benefit plans then made available to similarly situated employees of other FFB
subsidiaries. Nonqualified employee benefit plans, fringe benefits and other
employee practices and policies in effect at Bank immediately prior to the
effective date of the Merger shall continue in effect until modified or
terminated by FFB.
12.4.2 Pension Plan of the National Bank of Hastings
("Bank Pension Plan") shall be merged into FFB Pension Plan as of the effective
date of the Merger. In the case of a FFB Pension Plan participant who was a
Bank Pension Plan participant immediately prior to the effective date of the
merger, his or her FFB Pension Plan accrued benefit shall consist of a past
service benefit equal to his or her accrued benefit under the Bank Pension Plan
immediately prior to the effective date of the Merger plus a future service
benefit based upon his or her service after the effective date of the Merger
with the companies participating in FFB Pension Plan. Service with Bank prior
to the effective date of the Merger shall be counted for eligibility and
vesting purposes only under the FFB Pension Plan.
12.4.3 The National Bank of Hastings 401(k) Employee
Savings Plan ("Bank Savings Plan") shall continue in effect until the first
January 1 or July 1 coinciding with or next following the effective date of the
Merger (the "Initial Entry Date"). No contributions shall be made to the Bank
Savings Plan with respect to compensation paid after the Initial Entry Date and
the accounts of all participants in the Bank Savings Plan shall become fully
vested and nonforfeitable on the Initial Entry Date. After the Initial Entry
Date, the Bank Savings Plan may be maintained as a frozen plan for an
indefinite period or merged into the FFB Thrift Plan. As of the Initial Entry
Date, FFB Thrift Plan shall be extended to eligible employees of Bank. Service
with Bank prior to the effective date of the Merger shall be counted for
eligibility purposes under FFB Thrift Plan.
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12.4.4 Nothing contained in this Section shall be
deemed to constitute an agreement to employ or continue to employ any employee
of Bank or restrict the right of FFB to modify or terminate any employee
benefit plan, policy or practice applicable to employees of Bank.
Notwithstanding the foregoing to the contrary, FFB will honor the terms of the
Deferred Compensation and Non-Compete agreement with Larry J. Kornstadt and the
six Selective Retirement Plans for Certain Employees, which employees are named
in the Disclosure Schedule, and which agreements and plans were furnished to
FFB prior to the execution of this Agreement.
12.5 EXPENSES. Upon a termination of this Agreement as provided in
Section 13.4, each party will pay all costs and expenses of its performance of
and compliance with all agreements and conditions contained herein on its part
to be performed or complied with, including fees, expenses and disbursements of
its accountants and counsel.
12.6 FURTHER ASSURANCES. If at any time the Surviving Corporation
will consider or be advised that any further assignment or assurance in law or
other action is necessary or desirable to vest, perfect, or confirm, of record
or otherwise, in the Surviving Corporation, the title to any property or rights
of HFC acquired or to be acquired by or as a result of the Merger, the proper
officers and directors of HFC and the Surviving Corporation, respectively, will
be and they hereby are severally and fully authorized to execute and deliver
such proper deeds, assignments and assurances in law and take such other action
as may be necessary or proper in the name of HFC or the Surviving Corporation
to vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise carry out the purposes of this Agreement.
12.7 POOLING. Neither HFC, Bank, FFB nor any of its consolidated
Subsidiaries has taken or agreed to take any action that would prevent HFC and
FFB from accounting for the business combination to be effected by the Merger
as a "pooling of interests." HFC has received from its independent
accountants, Crowe, Chizek and Company LLP, a letter stating that, based upon
Crowe, Chizek and Company LLP's review of such relevant documents and
information which Crowe, Chizek and Company LLP deemed relevant, such firm is
currently unaware of any reason why the business combination to be effected by
the Merger cannot be accounted for as a "pooling of interests" in regard to HFC
and Bank. FFB has received from its independent accountants, Ernst & Young
LLP, a letter stating that, based upon Ernst & Young's review of such relevant
documents and information which Ernst & Young LLP deemed relevant, such firm is
currently unaware of any reason why the business combination to be effected by
the Merger cannot be accounted for as a "pooling of interests" in regard to FFB
and its consolidated Subsidiaries.
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12.8 AUDITED FINANCIAL STATEMENTS. As soon as reasonably
practicable, HFC will deliver to FFB the information required by Item 17 of the
instructions to Registration Statement Form S-4, including but not limited to
a copy of its consolidated balance sheet as of December 31, 1995 and 1994 and
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years ended December 31, 1995, 1994 and 1993, and
such financial statements for the most recently ended fiscal year will be in
the format required by the Securities and Exchange Commission and will include
a Management's Discussion and Analysis of Financial Condition and Results of
Operations section. Upon request by FFB, HFC will deliver to FFB a copy of its
balance sheet (unaudited) and related statements of income and cash flows
(unaudited) for the six and/or nine months period ending, June 30, 1996 and
1995, and September 30, 1996 and 1995, as applicable, in each case including
the notes thereto. All of such financial statements will present fairly the
financial positions as of and at the dates shown and the results of operations
for the periods covered thereby. They will have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods indicated, except as otherwise indicated in the notes thereto. All
liabilities of HFC (including any contingent liabilities), as of the date of
each balance sheet, will be properly accrued in such balance sheet or disclosed
in the related footnotes in accordance with generally accepted accounting
principles. Each of such consolidated statements of earnings of HFC will be
fairly presented in accordance with generally accepted accounting principles
for the periods indicated.
12.9 PRESS RELEASES. The parties will consult with each other as
to the form and substance of any press release, written communication with
their shareholders, or other public disclosure of matters related to this
Agreement, and a party will not issue any such press release, written
communication, or public disclosure without the prior consent of the other
party, which consent will not be unreasonably withheld or delayed; provided,
however, that nothing contained herein will prohibit any party, following
notification to the other party, from making any disclosures which its counsel
deems necessary to conform with requirements of law or the rules of NASDAQ.
12.10 FIDUCIARY RESPONSIBILITY. HFC will not, directly or
indirectly, and will instruct and otherwise use its diligent efforts to cause
its officers, directors, employees, agents and advisors not to, directly or
indirectly, solicit or initiate any proposals or offers from any person or
entity, or discuss or negotiate with any such person or entity, relating to any
acquisition or purchase of all or a material amount of the assets of, or any
equity securities of, or any merger or business combination with, HFC (such
transactions are referred to herein as "Acquisition Transactions"); provided,
however, that nothing contained in this section will prohibit (i) HFC from
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited proposal of an Acquisition
Transaction if and to the extent that (a) the Board of Directors of HFC, after
consultation with and based upon the written advice of legal counsel,
determines in good faith that such action is required for the directors of HFC
to fulfill their fiduciary duties and obligations to the HFC shareholders and
other constituencies under Michigan law, taking
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into consideration the bidding procedures engaged in connection with the
transactions contemplated hereby and (b) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
HFC provides immediate written notice to FFB to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity, or (ii) the Board of Directors of HFC from failing to
make, withdrawing or modifying its recommendation to shareholders regarding the
merger with FFB following receipt of a proposal for an Acquisition Transaction
if the Board of Directors of HFC, after consultation with legal counsel,
determines in good faith that such action is required for the directors of HFC
to fulfill their fiduciary duties and obligations to the HFC shareholders and
other constituencies under Michigan law, taking into consideration the bidding
procedures engaged in connection with the transactions contemplated hereby.
12.11 LARRY J. KORNSTADT. Larry J. Kornstadt agrees that he
will remain the President, Chairman and Chief Executive Office of Bank for a
period of six months following the effective time of the Merger. Upon Mr.
Kornstadt's retirement from the position of President and Chief Executive
Officer of Bank, Mr. Kornstadt agrees that he will remain as Chairman of Bank
for so long as mutually agreed by Mr. Kornstadt and FFB.
13. CONDITIONS PRECIDENT; TERMINATIONS.
13.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES. The
obligations of each of the parties hereto to effect the Merger is subject to
the fulfillment on or prior to the effective time of the Merger of the
following conditions precedent:
13.1.1 The Merger will have been approved by the FRB or the
delegate, and by any other governmental authority having jurisdiction and any
applicable waiting period will have expired, with no such approval or
authorization containing any provision which would be materially adverse to the
merged businesses of HFC and FFB as contemplated by this Agreement.
13.1.2 No suit, action, investigation by any governmental
body, or other legal or administrative proceedings will have been brought or
threatened which materially questions the validity or legality of the
transactions contemplated herein. For the purposes hereof, inquiries which
could give rise to any such suit, investigation or proceeding given by any
governmental agency may, at the option of either party, be deemed such a
threat.
13.1.3 The parties hereto will have obtained any and all
consents required for the consummation of the Merger or for the preventing of
any default under any contract, agreement or permit of the parties hereto,
which, if not obtained or made, is reasonably likely to have, individually or
in the aggregate, a material adverse effect on the combined business affairs of
HFC and FFB.
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13.2 CONDITIONS PRECEDENT TO FFB'S OBLIGATIONS. The obligation of
FFB to effect the Merger will be subject to the following conditions (which may
be waived in writing by FFB):
13.2.1 The representations and warranties of HFC herein
contained will be true as of and at the effective time of the Merger with the
same effect as though made at such time; HFC will have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the effective time of the Merger; and
HFC will have delivered to FFB a certificate, dated the effective date of the
Merger and signed by its president or one of its vice presidents and its
secretary or one of its assistant secretaries, to both such effects.
13.2.2 No material change in the corporate status,
businesses, operations or condition (financial or otherwise) of either of HFC
or Bank will have occurred since December 31, 1995, (whether or not covered by
insurance), none of which has been materially adverse in relation to HFC, taken
as a whole, and no other event or condition of any character will have occurred
or arisen since that date which will have materially and adversely affected the
corporate status, businesses, operations or financial condition of HFC.
13.2.3 FFB will have received from Werner & Blank Co.,
L.P.A., counsel for HFC, a favorable opinion, dated immediately prior to the
effective time of the Merger, in form and substance satisfactory to FFB's
counsel and substantially in the form of the attached Exhibit B. In rendering
this opinion, such counsel may rely on certificates of public officials and of
corporate officers, opinions of recognized local counsel in jurisdictions where
such counsel is not qualified to practice, and such other evidence as he may
deem appropriate. The provisions of the preceding sentence are applicable to
all other opinions of counsel to be delivered hereunder.
13.2.4 A Registration Statement on Form S-4 under the 1933
Act will have become effective relating to the shares of FFB which the
shareholders of HFC will receive at the effective time of the Merger.
13.2.5 FFB will have received a favorable ruling from the
Internal Revenue Service, or opinion of counsel, in form and substance
satisfactory to FFB and its counsel, to the effect that, under the IRC, and
particularly Section 368(a)(1)(A), no gain or loss will be recognized to FFB or
its shareholders or to HFC or its shareholders as a result of the Merger except
for gain (but not loss) on cash received by the shareholders of HFC.
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13.2.6 FFB will have received such written consents and
confirmations (or opinions of counsel to the effect that such consents or
confirmations are not required), as they may reasonably request to the effect
that the Surviving Corporation will succeed upon consummation of the Merger to
all of HFC's right, title and interest in and to its material contracts,
agreements, leases and other commitments and that the Surviving Corporation
will possess and enjoy all material licenses, permits and other governmental
authorizations possessed by HFC at the date hereof. FFB will have received
those approvals and consents described in Section 10.12 hereof.
13.2.7 At the date of signing this Agreement and immediately
prior to the effective time of the Merger, FFB will receive from FFB's
independent accountants letters to the effect that they are not aware of any
reason that FFB is not in compliance with the pooling of interests criteria as
specified under APB No. 16, and that, accordingly, the Merger can be accounted
for as a pooling of interests from FFB's perspective.
13.2.8 FFB will have performed and reviewed the results of
such Phase I Environmental Survey and is satisfied with the results thereof and
has determined that no further testing is required and no remedial action is
necessary, or if such Phase I is not satisfactory in form and substance to it,
FFB and HFC will have reached agreement as to the remedial actions necessary to
correct any unsatisfactory conditions and the payment for such remedial
actions.
13.3 CONDITIONS PRECEDENT TO HFC'S OBLIGATION. The obligation of
HFC to effect the Merger will be subject to the following conditions (which may
be waived in writing by HFC):
13.3.1 The representations and warranties of FFB herein
contained will be true as of and at the effective time of the Merger with the
same effect as though made at such time; FFB will have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the effective time of the Merger; and
FFB will have delivered to HFC a certificate, dated the effective date of the
Merger and signed by its president or one of its vice presidents and its
secretary or one of its assistant secretaries, to both such effects.
13.3.2 No material change in the corporate status,
businesses, operations or condition (financial or otherwise) of FFB and its
consolidated Subsidiaries will have occurred since December 31, 1995 (whether
or not covered by insurance), none of which has been materially adverse in
relation to FFB and its consolidated Subsidiaries, taken as a whole, and no
other event or condition of any character will have occurred or arisen since
that date which will have materially and adversely affected the corporate
status, businesses, operations or financial condition of FFB and its
consolidated Subsidiaries, taken as a whole.
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13.3.3 HFC will have received from Frost & Jacobs, counsel
for FFB, a favorable opinion, dated immediately prior to the effective time of
Merger, in form and substance satisfactory to HFC's counsel and substantially
in the form of the attached Exhibit C. In rendering this opinion, such counsel
may rely on certificates of public officials and of corporate officers,
opinions of recognized local counsel in jurisdictions where such counsel is not
qualified to practice, and such other evidence as he may deem appropriate. The
provisions of the preceding sentence are applicable to all other opinions of
counsel to be delivered hereunder.
13.3.4 A Registration Statement on Form S-4 under the 1933
Act will have become effective relating to the shares of FFB common stock which
the shareholders of HFC will receive at the effective time of the Merger.
13.3.5 HFC will have received a favorable ruling from the
Internal Revenue Service, or opinion of counsel, in form and substance
satisfactory to HFC, to the effect that, under the Internal Revenue Code of
1986, as amended (i) no gain or loss will be recognized to HFC as a result of
the Merger, and (ii) no gain or loss (except in respect of fractional share
interests sold or dissenter's receiving cash) will be recognized to HFC's
shareholders as a result of their exchange of common stock of HFC for common
stock of FFB, and covering such other matters as are typically covered by such
opinion.
13.3.6 At the date of signing this Agreement and immediately
prior to the effective time of the Merger, HFC will receive from HFC's
independent accountants letters to the effect that they are not aware of any
reason that HFC is not in compliance with the pooling of interests criteria as
specified under APB No. 16, and that, accordingly, the Merger can be accounted
for as a pooling of interests from HFC's perspective.
13.4 TERMINATION AND ABANDONMENT. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated and abandoned at
any time before the effective time of the Merger, whether before or after
adoption or approval of this Agreement by the shareholders of HFC, under any
one or more of the following circumstances:
13.4.1 By the mutual consent of the Boards of Directors of
FFB and HFC;
13.4.2 By FFB if the holders of 2.0% or more of the
outstanding shares of common stock of HFC will be entitled to receive cash in
exchange for their HFC shares pursuant to perfected dissenters' rights under
the Michigan Business Corporation Act;
13.4.3 By FFB if, prior to the effective time of the Merger,
the conditions set forth in Sections 13.2.1 through 13.2.8, inclusive, will not
have been met;
13.4.4 By HFC if, prior to the effective time of the Merger,
the conditions set forth in Sections 13.3.1 through 13.3.6, inclusive, will not
have been met;
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13.4.5 By either FFB or HFC if prior to the effective time of
the Merger, the conditions set forth in Sections 13.1.1 through 13.1.3,
inclusive, will not have been met, or any action or proceeding before any court
or other governmental body or agency will have been instituted or threatened to
restrain or prohibit the Merger and such constituent corporation deems it
unadvisable to proceed with the Merger;
13.4.6 By either FFB or HFC if the requisite approval of the
shareholders of HFC will not have been obtained or if the effective time of the
Merger will not have occurred on or before April 30, 1997; or
13.4.7 By FFB if the average of the bid and ask price of FFB
shares for the twenty day period associated with the Exchange Ratio as set
forth in Section 6.3.1 falls below $27.625 per share or by HFC if the average
of the bid and ask price of FFB shares for the twenty day period associated
with the Exchange Ratio as set forth in Section 6.3.1 exceeds $37.375 per share
(in either case, as may be adjusted by the declaration of a stock dividend,
stock split or other such recapitalization).
13.5 EFFECT OF TERMINATION. Upon any such termination and
abandonment, neither party will have any liability or obligation hereunder to
the other, except for the return of all documents exchanged and the
preservation of the confidentiality by each party of the information exchanged.
13.6 EXPENSES. Upon a termination of this Agreement as provided in
Section 13.4, each party will pay all costs and expenses of its performance of
and compliance with all agreements and conditions contained herein on its part
to be performed or complied with, including fees, expenses and disbursements of
its accountants and counsel.
14. GENERAL PROVISIONS.
14.1 DEFINITIONS. "Subsidiaries" as used herein means any
corporation 50% or more of whose outstanding voting securities are owned
directly or indirectly by FFB or HFC, as the context may require, whether
consolidated or unconsolidated. The headings in this Agreement will not affect
in any way its meaning or interpretation.
14.2 AMENDMENTS. Any of the terms or conditions of this Agreement
may be modified or waived at any time before the effective time of the Merger
by the party which is, or the shareholders of which are, entitled to the
benefit thereof upon the authority of the Board of Directors of such party,
provided that any such modification or waiver will in the judgment of the party
making it not affect substantially or materially and adversely the benefits to
such party or its shareholders intended under this Agreement.
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14.3 NOTICES. All notices, demands, requests, consents or
approvals required hereunder will be in writing and will be given (and will be
deemed to have been duly given upon receipt) by delivery in person or by
certified or registered mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or to such other address
as any party may give to the other by like notice:
IF TO FFB: First Financial Bancorp.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
ATTENTION: Stanley N. Pontius, President
and Chief Executive Officer
With copies to: Frost & Jacobs
2500 PNC Center
201 East Fifth Street
P.O. Box 5715
Cincinnati, Ohio 45201-5715
ATTENTION: Neil Ganulin
IF TO HFC: Hastings Financial Corporation
241 W. State Street
Hastings, Michigan 49058
ATTENTION: Larry J. Kornstadt
With copies to: Werner & Blank Co., L.P.A.
7205 West Central Avenue
Toledo, Ohio 43617
ATTENTION: Thomas C. Blank
14.4 BINDING NATURE OF AGREEMENT. This Agreement will be binding
upon and inure to the benefit of FFB and HFC and their respective successors
and permitted assigns.
14.5 ASSIGNMENT. Neither this Agreement nor any obligation or
right hereunder may be assigned by any party hereto, whether directly or
indirectly, without the prior written consent of the other party.
14.6 GOVERNING LAW. This Agreement will in all respects be
governed and construed in accordance with the laws of the State of Ohio, except
to the extent superseded by the federal banking laws of the United States.
25
<PAGE> 140
14.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, pursuant to authority duly given by its Board of
Directors, each of FFB, and HFC has caused this Agreement to be executed and
attested by its authorized officers as of the date and year first above
written.
FIRST FINANCIAL BANCORP.
ATTEST:
By:/s/ Stanley N. Pontius
/s/ Michael R. O'Dell -----------------------------------
- --------------------------------- Print Name: Stanley N. Pontius
Secretary --------------------------
Title: President/CEO
------------------------------
HASTINGS FINANCIAL CORPORATION
ATTEST:
By:/s/ Larry J. Kornstadt
/s/ David C. Wren ----------------------------------
- --------------------------------- Larry J. Kornstadt
Secretary President
/s/ Larry J. Kornstadt
-------------------------------------
Larry J. Kornstadt,
as to Section 12.11
26
<PAGE> 141
EXHIBIT A
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
- --------------------------------------------------------------------------------
(FOR BUREAU USE ONLY Date Received
________________________
________________________
________________________
- --------------------------------------------------------------------------------
CERTIFICATE OF MERGER/CONSOLIDATION
For use by Domestic or Foreign Corporations
(Please read information and instructions on last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), and/or Act 162, Public Acts of 1982 (nonprofit corporations),
the undersigned corporations execute the following Certificate:
1. The Plan of Merger (Consolidation) is as follows:
a. The name of each constituent corporation and its corporation
identification number (CID) is:
________________________________________________________________________________
________________________________________________________________________________
b. The name of the surviving (new) corporation and its corporation
identification number (CID) is:
________________________________________________________________________________
c. For each constituent stock corporation, state:
<TABLE>
<CAPTION>
Designation and
number of outstanding Indicate class or Indicate class or
shares in each class series of shares series entitled
Name of corporation or series entitled to vote to vote as a class
<S> <C> <C> <C>
___________________ ____________________ _________________ __________________
___________________ ____________________ _________________ __________________
___________________ ____________________ _________________ __________________
___________________ ____________________ _________________ __________________
___________________ ____________________ _________________ __________________
</TABLE>
If the number of shares is subject to change prior to the effective date of the
merger or consolidation, the manner in which the change may occur is as follows:
<PAGE> 142
d. For each constituent nonstock corporation
(i) If it is organized on a membership basis, state (a) the name
of the corporation, (b) a description of its members, and (c)
the number, classification and voting rights of its members.
(ii) If it is organized on a directorship basis, state (a) the name
of the corporation, (b) a description of the organization of
its board, and (c) the number, classification and voting
rights of its directors.
e. The terms and conditions of the proposed merger (consolidation),
including the manner and basis of converting the shares of , or
membership or other interests in, each constituent corporation into
shares, bonds, or other securities of, or membership or other interest
in, the surviving (consolidated) corporation, or into cash or other
consideration, are as follows:
f. If a consolidation, the Articles of Incorporation of the consolidated
corporation are attached to this Certificate and are incorporated
herein. If a merger, the amendments to the Articles, or a restatement
of the Articles, of the surviving corporation to be effected by the
merger are as follows:
g. Other provisions with respect to the merger (consolidation) are as
follows:
THE PLAN OF MERGER WILL BE FURNISHED BY THE SURVIVING CORPORATION, ON
REQUEST AND WITHOUT COST, TO ANY SHAREHOLDER OF ANY CONSTITUENT
CORPORATION.
2. (Complete for any foreign corporation only)
This merger (consolidation) is permitted by the laws of the state of
____________________________, the jurisdiction under which _______
___________________________(name of foreign corporation) is organized
and the plan of merger (consolidation) was adopted and approved by
such corporation pursuant to and in accordance with the laws of
that jurisdiction.
<PAGE> 143
3. (Complete only if an effective date is desired other than the date of
filing. This date must be no more than 90 days after receipt of this
document in this office).
The merger (consolidation) shall be effective on the _______ day of
____________________, 19_____.
4. (Complete applicable section for each constituent corporation)
a. (For domestic profit corporations only)
The plan of merger was approved by the unanimous consent of the
incorporators of_____________________________________________________
________________________________which has not commenced business, has
not issued any shares, and has not elected a Board of Directors.
(Incorporators must sign on this page of the Certificate.)
b. (For profit corporations involved in a merger only)
The plan of merger was approved by the Board of Directors of
______________________________________________________________________
_________________________________, the surviving corporation, without
the approval of the shareholders of that corporation in accordance
with Section 701 of the Act.
c. (For profit corporations only)
The plan of merger was adopted by the Board of Directors of the
following constituent corporations:
and was approved by the shareholders of those corporations in
accordance with Section 703a.
d. (For nonprofit corporations only)
The plan of merger or consolidation was adopted by the Board of
Directors (i) Complete if organized upon a stock or membership basis)
of ___________________________________________________________________
and was approved by the shareholders or members of that corporation
in accordance with Sections 701 and 703(1) and (2), or pursuant to
Section 407 by written consent and written notice, if required.
(ii) (Complete if organized upon a directorship basis)
of ___________________________________________________________________
in accordance with Section 703(3).
SIGN THIS AREA FOR ITEM 4(a).
Signed this ________ day of ________________________________, 19_____.
____________________________________ ____________________________________
____________________________________ ____________________________________
<PAGE> 144
Sign this area for items 4(b), 4(c), or 4(d).
Signed this ________ day of ________________________________________, 19_____.
_______________________________________________________________________________
(Name of Corporation)
By ____________________________________________________________________________
(Signature)
_______________________________________________________________________________
(Type or Print Name and Title)
Signed this ________ day of ________________________________________, 19_____.
_______________________________________________________________________________
(Name of Corporation)
By _____________________________________________________________________________
(Signature)
________________________________________________________________________________
(Type or Print Name and Title)
<PAGE> 145
DOCUMENT WILL BE RETURNED TO NAME AND Name of person or organization
MAILING ADDRESS INDICATED IN THE BOX BELOW. remitting fees:
Include name, street and number (or P.O. box),
city, state and ZIP code. ______________________________
______________________________
Preparer's name and business
telephone number:
______________________________
(513) _________________________
INFORMATION AND INSTRUCTIONS
1. The merger/consolidation cannot be filed until this form, or a
comparable document, is submitted.
2. Submit one original copy of this document. Upon filing, a microfilm
copy will be prepared for the records of the Corporation and
Securities Bureau. The original copy will be returned to the address
appearing in the box above as evidence of filing.
Since this document must be microfilmed, it is important that the
filing be legible. Documents with poor black and white contrast, or
otherwise illegible, will be rejected.
3. This certificate is to be used pursuant to sections 701 through 707 of
the Act for the purpose of merging or consolidating two or more
domestic and/or foreign corporations and pursuant to Section 731 or
735 if the merger or consolidation involves one or more foreign
corporations.
4. If more than two corporations are merging or consolidating, the
certificate may be adjusted as necessary, or the format may be used as
a guide in drafting your own certificate. If additional space is
required for any section, continue the section on an attachment.
5. Item 3 - This document is effective on the date approved and filed by
the Bureau. A later effective date, no more than 90 days after the
date of delivery, may be stated.
6. A domestic nonprofit charitable purpose corporation must obtain the
consent of the Michigan Attorney General if it is merging or
consolidating into a for profit corporation or a foreign nonprofit
corporation that does not have a certificate of authority with
Michigan. Contact the Charitable Trust Division, Michigan Attorney
General, Room 670, Law Building, 525 West Ottawa, Lansing, Michigan
48913 at least 45 days before the desired effective date of the merger
or consolidation.
7. This certificate must be signed in ink by the president,
vice-president, chairperson, or vice-chairperson of each corporation
that is merging or consolidating, unless the incorporators of a
domestic profit corporation approve the merger or consolidation
pursuant to sections 706 and 707 of the Act. In that event, the
certificate must be signed in ink by the majority of the incorporators
if more than one of that corporation in item 4.
<PAGE> 146
8. FEES: For each domestic corporation (Make remittance payable to the
State of Michigan. Include corporation name and CID Number on check
or money order)...............................................$50.00
Merger - If the survivor is a domestic profit corporation whose
authorized shares are increased: each additional 20,000 authorized
shares........................................................$30.00
Consolidation - Franchise fees are required for the articles of
incorporation of the new consolidated corporation, if it is a domestic
corporation.
Credit - If a foreign corporation authorized to transact business in
this State merges or consolidates into a domestic profit corporation,
the amount of franchise fees required to be paid by that domestic
corporation shall be reduced by the initial or additional franchise
fees paid to this State by the foreign corporation.
9. Mail form and fee to:
Michigan Department of Commerce, Corporation and Securities
Bureau, Corporation Division, P.O. Box 30054, 6546 Mercantile
Way, Lansing, MI 48909, Telephone: (517) 334-6302
<PAGE> 147
EXHIBIT B (Opinion of HFC Counsel)
---------
___________________________, 1996
First Financial Bancorp.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
Ladies and Gentlemen:
This opinion is provided to you on behalf of HASTINGS FINANCIAL
CORPORATION ("HFC") in connection with the consummation of a Plan and Agreement
of Merger (the "Agreement") between HFC and First Financial Bancorp. ("First
Financial"), dated ____________, 1996 pursuant to which HFC will be merged into
First Financial (the "Merger") effective as of ____________, 19__ at 12:01 a.m.
("Effective Time of the Merger"). This opinion is given to you pursuant to
Section 13.2.3 of the Agreement. Capitalized terms defined in the Agreement
and not otherwise defined herein shall have the meanings given those terms in
the Agreement.
As to various questions of fact material to our opinion, we have
relied upon the representations made in the Agreement and upon a certificate of
an officer of HFC (the "Officer's Certificate"). We have examined such
certificates of public officials, corporate documents and records and other
certificates, opinions and instruments and have made such other investigations
as we have deemed necessary in connection with the opinions hereinafter set
forth. In rendering the opinions set forth herein, we have assumed the
authenticity of all documents submitted to us as originals, the due execution
of and genuineness of the signatures on such documents, the legal capacity of
all signing parties to such documents and the conformity to original documents
of all photostatic copies of such documents submitted to us. In addition, with
regard to any opinions given with regard to the laws of the State of Michigan,
we have relied solely upon the opinion of _________.
The opinions hereinafter expressed are limited to the laws of the
States of Michigan and Ohio and are subject to the following additional
qualifications:
B-1
<PAGE> 148
First Financial Bancorp.
__________________, 1996
Page 2
(i) The enforceability of any provisions in the Agreement, or any
rights granted to you pursuant to the Agreement, is subject to and may be
affected by applicable state and/or federal bankruptcy, insolvency,
reorganization, moratorium laws, or similar laws affecting the rights of
creditors or debtors generally, and the application of general principles of
equity and matters of public policy (whether considered in a proceeding at law
or in equity) including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing.
(ii) Any provisions requiring payment of attorney's fees and
litigation expenses may not be enforceable.
(iii) No opinion is expressed as to the enforceability of (a)
self-help provisions, (b) waiver of constitutional rights, (c) provisions
related to waiver of remedies (or the delay or omission of enforcement
thereof), disclaimers, liability limitations with respect to third parties,
liquidated damages or the creation of remedies not available under Michigan or
Ohio law or (d) provisions pursuant to which HFC attempts to exempt itself from
liability for its own negligence, fault or actions or providing for
indemnification against criminal liability, civil penalties or punitive damages
or against actions to the extent that the indemnitee has been grossly negligent
or engaged in wilful misconduct.
As used herein, the phrase "to the best of our knowledge" means we
have relied, without any independent investigation or inquiry, solely upon (i)
the Officer's Certificate and (ii) the actual knowledge, if any, of a limited
number of attorneys in this firm who regularly perform legal services for HFC
obtained in the scope of such representation.
Based upon and subject to the foregoing, we are of the opinion that:
1. HFC is a corporation duly organized and validly existing under
the laws of the State of Michigan and is registered as a bank holding company
under the Banking Holding Company Act of 1956, as amended. HFC has the
corporate power to carry on its businesses as they are now being conducted.
2. HFC's capitalization consists of 400,000 authorized shares of
common stock (par value $1.00 per share), of which, as of the Effective Time of
the Merger, 80,463 shares were issued and outstanding. Each issued share was
validly issued, fully paid and non-assessable. To the best of our knowledge,
there are no outstanding subscriptions, options, warrants, calls or rights of
any kind relating to or providing for the issuance, sale, delivery or transfer
of any class of securities of HFC.
B-2
<PAGE> 149
First Financial Bancorp.
__________________, 1996
Page 3
3. National Bank of Hastings ("Bank") is a wholly owned
subsidiary of HFC. HFC has no other subsidiaries. Bank is a national bank
duly organized and validly existing under the laws of the United States. Bank
has the corporate power to carry on its businesses as they are now being
conducted and is qualified to do business in each jurisdiction in which the
character and location of the assets owned by it, or the nature of the business
transacted by it, requires qualification. All of the outstanding shares of
stock of Bank are validly issued, fully paid and non-assessable, except as
provided by federal law, and all such shares are owned by HFC free and clear of
all liens, claims, charges or encumbrances. To the best of our knowledge,
there are no outstanding subscriptions, options, warrants, calls or rights of
any kind relating to or providing for the issuance, sale, delivery or transfer
of any class of securities of Bank.
4. The execution and performance of the Agreement and the
consummation of the transactions contemplated thereby will not: (i) violate,
or conflict with, or require any consent under, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien upon any of the assets of either of HFC or Bank, under any of the terms,
conditions or provisions of the Articles of Incorporation or By-Laws of HFC,
the Articles of Association or By-Laws of Bank, or of any note, bond, mortgage,
indenture, deed of trust, material license, lease, agreement or other
instrument or obligation of which we have knowledge and to which either of HFC
or Bank is a party or by which either of HFC or Bank or any of their assets may
be bound or affected or (ii) to the best of our knowledge, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to HFC, Bank
or any of their assets.
5. All corporate action by HFC required in order to authorize the
Merger, and the execution and delivery of all documents related thereto, and
the performance of all actions contemplated thereby has been taken. This
Agreement has been duly executed and delivered by HFC and is a valid and
binding obligation of HFC in accordance with its terms.
6. Except as set forth in the Disclosure Schedule, to the best of
our knowledge, there are no material suits, actions or legal or administrative
proceedings pending or threatened against HFC or Bank, which, if adversely
determined, might materially and adversely affect the financial condition, on a
consolidated basis, of HFC and Bank or the conduct of their businesses, nor is
there any decree, injunction, or order of any court, governmental department or
agency outstanding against HFC or Bank having any such effect.
B-3
<PAGE> 150
First Financial Bancorp.
__________________, 1996
Page 4
This opinion is given for the sole use and benefit of First Financial
and no party or entity other than First Financial is entitled to rely on this
opinion. This opinion is based upon facts and law in existence on the date
hereof, and we disclaim any undertaking to advise you of changes occurring
therein after the date hereof.
Very truly yours,
B-4
<PAGE> 151
EXHIBIT C (Opinion of First Financial's Counsel)
---------
(513) 651-6800
____________________________, 1996
Hastings Financial Corporation
241 W. State Street
Hastings, Michigan 49058
ATTENTION: Larry J. Kornstadt
Ladies and Gentlemen:
This opinion is provided to you on behalf of First Financial Bancorp.
("First Financial") in connection with the consummation of a Plan and
Agreement of Merger (the "Agreement") among First Financial and Hastings
Financial Corporation ("HFC"), dated _____________, 1996 pursuant to which HFC
will be merged into First Financial (the "Merger") effective as of
______________, 19__ at 12:01 a.m. ("Effective Time of the Merger"). This
opinion is given to you pursuant to Section 13.3.3 of the Agreement.
Capitalized terms defined in the Agreement and not otherwise defined herein
shall have the meanings given those terms in the Agreement.
As to various questions of fact material to our opinion, we have
relied upon the representations made in the Agreement and upon a certificate of
an officer of First Financial (the "Officer's Certificate"). We have also
examined such certificates of public officials, corporate documents and records
and other certificates, opinions and instruments and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In rendering the opinions set forth herein, we have
assumed the authenticity of all documents submitted to us as originals, the due
execution of and genuineness of the signatures on such documents, the legal
capacity of all signing parties to such documents and the conformity to
original documents of all photostatic copies of such documents submitted to us.
The opinions hereinafter expressed are limited to the laws of the
State of Ohio and are subject to the following additional qualifications:
(i) The enforceability of any provisions in the Agreement, or any
rights granted to you pursuant to the Agreement, is subject to and may be
affected by applicable state and/or federal bankruptcy, insolvency,
reorganization, moratorium laws, or similar laws affecting the rights of
creditors or debtors generally, and the application of general principles of
equity and matters of public policy (whether considered in a proceeding at law
or in equity) including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing.
C-1
<PAGE> 152
Hastings Financial Corporation
_____________________, 1996
Page 2
(ii) Any provisions requiring payment of attorney's fees and
litigation expenses may not be enforceable.
(iii) No opinion is expressed as to the enforceability of (a)
self-help provisions, (b) waiver of constitutional rights, (c) provisions
related to waiver of remedies (or the delay or omission of enforcement
thereof), disclaimers, liability limitations with respect to third parties,
liquidated damages or the creation of remedies not available under Ohio and
Michigan law or (d) provisions pursuant to which HFC attempts to exempt itself
from liability for its own negligence, fault or actions or providing for
indemnification against criminal liability, civil penalties or punitive damages
or against actions to the extent that the indemnitee has been grossly negligent
or engaged in wilful misconduct.
As used herein, the phrase "to the best of our knowledge" means we
have relied, without any independent investigation or inquiry, solely upon (i)
the Officer's Certificate and (ii) the actual knowledge, if any, of a limited
number of attorneys in this firm who regularly perform legal services for First
Financial obtained in the scope of such representation.
Based upon and subject to the foregoing, we are of the opinion that:
1. First Financial is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended and a savings and loan holding company under the Savings and
Loan Holding Company Act. First Financial has the corporate power to carry on
its businesses as they are now being conducted.
2. First Financial's capitalization consists of 25,000,000
authorized shares of common stock (par value $8.00 per share), of which, as of
the Effective Time of the Merger, __________ shares were issued and
outstanding.
3. The issuance of the shares of common stock of First Financial
to HFC shareholders in exchange for their HFC common stock in connection with
the Merger has been duly and validly authorized and, immediately after the
Effective Time of the Merger, and, upon First Financial's receipt of the
consideration provided in the Agreement and due issuance of the shares by
First Financial's registrar, such shares will be duly issued, fully paid and
non-assessable. No shareholder of First Financial has any pre-emptive right of
subscription or purchase pursuant to First Financial's Articles of
Incorporation with respect to the shares of common stock of First Financial to
be issued to HFC shareholders in connection with the Merger.
C-2
<PAGE> 153
Hastings Financial Corporation
_____________________, 1996
Page 3
4. The execution, delivery and performance of the Agreement and
the consummation of the transactions contemplated thereby will not: (i)
violate, or conflict with, or require any consent under, or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien upon any of the assets of First Financial, under the
Articles of Incorporation or Regulations of First Financial, or of any note,
bond, mortgage, indenture, deed of trust, material license, lease, agreement or
other instrument or obligation of which we have knowledge and to which First
Financial is a party or by which First Financial or any of its assets may be
bound or affected or (ii) to the best of our knowledge, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to First
Financial or any of its assets.
5. All corporate action by First Financial required in order to
authorize the Merger, and the execution and delivery of all documents related
thereto, and the performance of all actions contemplated thereby has been
taken. The Agreement has been duly executed and delivered by First Financial
and is the valid and binding obligation of First Financial in accordance with
its terms.
6. To the best of our knowledge, there is no material litigation,
proceeding, arbitration, governmental investigation or labor dispute pending or
overtly threatened against First Financial or any of its consolidated
Subsidiaries or its or their properties or businesses, other than litigation
disclosed by First Financial in its annual and quarterly reports filed with the
Securities and Exchange Commission ("SEC").
This opinion is given for the use and benefit of HFC and no party or
entity other than HFC is entitled to rely on this opinion. This opinion is
based upon facts and law in existence on the date hereof, and we disclaim any
undertaking to advise you of changes occurring therein after the date hereof.
Very truly yours,
C-3
<PAGE> 154
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
HASTINGS FINANCIAL CORPORATION
<PAGE> 155
APPENDIX B
FORM OF OPINION OF AUSTIN ASSOCIATES, INC.
TO BE ISSUED ON CONSUMMATION OF MERGER
(TO BE RETYPED ON AAI LETTERHEAD AND
DATED AS OF THE DATE OF PROXY MATERIALS)
DRAFT
-----
___________________, 1996
Board of Directors
Hastings Financial Corporation
241 West State Street
Hastings, Michigan 49058
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Hastings Financial Corporation ("HFC") and its shareholders of the
terms of the Plan and Agreement of Merger dated July 2, 1996 ("Agreement")
between HFC and First Financial Bancorp. ("First"). The Agreement provides for
the merger of HFC with and into First.
The terms of the Agreement provide for aggregate consideration to be received by
all HFC shareholders equal to $10,000,000 ("Merger Price"), subject to an
increase or decrease for the net retained earnings of HFC after January 1, 1997,
through closing. Each outstanding share of HFC common stock will receive an
amount equal to the Merger Price divided by the average price of First shares,
determined in accordance with the Agreement, and divided by the total number of
shares of HFC common stock outstanding (the "Exchange Rate"), subject to
adjustment, as fully described in the Agreement. HFC and First each has the
right to abandon the Merger under certain limited conditions.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of HFC and First, including but not
limited to the following: (i) the Prospectus and Proxy Statement; (ii) the
financial statements of HFC and First for the period 1991 through June 30, 1996;
(iii) certain other publicly available information on HFC and First; (iv)
publicly available information regarding the performance of certain other
companies whose business activities were believed by us to be generally
comparable to those of HFC and First; (v) the financial terms, to the extent
publicly available, of certain comparable transactions; and (vi) such other
analysis and information as we deemed relevant.
<PAGE> 156
Page 2
Members of the Board
______________, 1996
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the assets or properties of HFC or First, and
have instead relied upon representations and information of HFC and First, in
the aggregate. In rendering our opinion, we have assumed that the transaction
will be a tax-free reorganization with no material adverse tax consequences to
HFC or First, or to HFC shareholders receiving First stock. In addition, we have
assumed in the course of obtaining the necessary regulatory approvals for the
transaction, no condition will be imposed that will have a material adverse
effect on the contemplated benefits of the transaction to HFC and its
shareholders.
Based upon our analysis and subject to the qualifications described herein, we
believe that, as of the date of this letter, the terms of the Agreement are
fair, from a financial point of view, to HFC and its shareholders.
For our services in rendering this opinion, HFC will pay us a fee and indemnify
us against certain liabilities, including liabilities under the securities laws.
We consent to the use of this opinion in the Prospectus and Proxy Statement
which is a part of First's Registration Statement on Form S-4 and to the
references to us under the heading "Experts" and elsewhere in the Prospectus and
Proxy Statement.
Austin Associates, Inc.
<PAGE> 157
APPENDIX C
MICHIGAN BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
450.1761 DEFINITIONS.
As used in sections 762 to 774:
(a) "Beneficial shareholder" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving corporation by merger 2 of that
issuer.
(c) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 762 and who exercises that right when and in the
manner required by sections 764 through 772.
(d) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(e) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(f) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(g) "Shareholder" means the record or beneficial shareholder.
45O.1762 RIGHT OF SHAREHOLDER TO DISSENT AND OBTAIN PAYMENT FOR
SHARES.
(1) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his or her shares in the event of, any of the following
corporate actions:
C-1
<PAGE> 158
(a) Consummation of a plan of merger to which the corporation
is a party if shareholder approval is required for the merger by section 703a or
the articles of incorporation and the shareholder is entitled to vote on the
merger, or the corporation is a subsidiary that is merged with its parent under
section 711.
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution but not including a sale
pursuant to court order.
(d) An amendment of the articles giving rise to a right to
dissent pursuant to section 621.
(e) A transaction giving rise to a right to dissent
pursuant to section 754.
(f) Any corporate action taken pursuant to a shareholder vote
to the extent the articles, bylaws, or a resolution of the board provides that
voting or nonvoting shareholders are entitled to dissent and obtain payment for
their shares.
(g) The approval of a control share acquisition giving rise to
a right to dissent pursuant to section 799.
(2) Unless otherwise provided in the articles, bylaws, or a resolution
of the board, a shareholder may not dissent from any of the following:
(a) Any corporate action set forth in subsection (1)(a) to (e)
as to shares which are listed on a national securities exchange or held of
record by not less than 2,000 persons on the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the corporate action is to be acted upon.
(b) A transaction described in subsection (l)(a) in which
shareholders receive cash or shares that satisfy the requirements of subdivision
(a) or any combination thereof.
(c) A transaction described in subsection (I)(b) in which
shareholders receive cash or shares that satisfy the requirements of subdivision
(a) or any combination thereof.
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(d) A transaction described in subsection (I)(c) which is
conducted pursuant to a plan of dissolution providing for distribution of
substantially all of the corporation's net assets to shareholders in accordance
with their respective interests within 1 year after the date of the transaction,
where the transaction is for cash or shares that satisfy the requirements of
subdivision (a) or any combination thereof.
(3) A shareholder entitled to dissent and obtain payment for his or her
shares pursuant to subsection (l)(a) to (e) may not challenge the corporate
action creating his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(4) A shareholder who exercises his or her right to dissent and seek
payment for his or her shares pursuant to subsection (l)(f) may not challenge
the corporate action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
450.1763 RIGHTS OF PARTIAL DISSENTER; ASSERTION OF DISSENTERS' RIGHTS BY
BENEFICIAL SHAREHOLDER.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his or her name only if he or she dissents with
respect to all shares beneficially owned by any 1 person and notifies the
corporation in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he or she dissents and
his or her other shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if all of the following apply:
(a) He or she submits to the corporation the record
shareholder s written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
(b) He or she does so with respect to all shares of which he
or she is the beneficial shareholder or over which he or she has power to direct
the vote.
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450.1764 CORPORATE ACTION CREATING DISSENTERS RIGHTS; VOTE OF
SHAREHOLDERS; NOTICE.
(1) If proposed corporate action creating dissenters' rights under
section 762 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this act and shall be accompanied by a copy of sections 761 to 774.
(2) If corporate action creating dissenters' rights under section 762
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 766. A shareholder who
consents to the corporate action is not entitled to assert dissenters/rights.
450.1765 NOTICE OF INTENT TO DEMAND PAYMENT FOR SHARES.
(1) If proposed corporate action creating dissenters' rights under
section 762 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must deliver to the corporation before the
vote is taken written notice of his or her intent to demand payment for his or
her shares if the proposed action is effectuated and must not vote his or her
shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) is not entitled to payment for his or her shares under this act.
450.1766 DISSENTER'S NOTICE; DELIVERY TO SHAREHOLDERS; CONTENTS.
(1) If proposed corporate action creating dissenters' rights under
section 762 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 765.
(2) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must provide all of the following:
(a) State where the payment demand must be sent and where and
when certificates for shares represented by certificates must be deposited.
(b) Inform holders of shares without certificates to what
extent transfer of the shares will be restricted after the payment demand is
received.
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(c) Supply a form for the payment demand that includes the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting dissenters'
rights certify whether he or she acquired beneficial ownership of the shares
before the date.
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60 days after
the date the subsection (1) notice is delivered.
450.1767 DUTIES OF SHAREHOLDER SENT DISSENTER'S NOTICE; RETENTION OF RIGHTS;
FAILURE TO DEMAND PAYMENT OR DEPOSIT SHARE CERTIFICATES.
(1) A shareholder sent a dissenter's notice described in section 766
must demand payment, certify whether he or she acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to section 766(2)(c), and deposit his or her certificates in accordance
with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her share
certificates under subsection (1) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this act.
450.1768 RESTRICTION ON TRANSFER OF SHARES WITHOUT CERTIFICATES;
RETENTION OF RIGHTS
(1) The corporation may restrict the transfer of shares without
certificates from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under section
770.
(2) The person for whom dissenters' rights are asserted as to shares
without certificates retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
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450.1769 PAYMENT BY CORPORATION TO DISSENTER; ACCOMPANYING
DOCUMENTS.
(1) Except as provided in section 771, within 7 days after the proposed
corporate action is taken or a payment demand is received, whichever occurs
later, the corporation shall pay each dissenter who complied with section 767
the amount the corporation estimates to be the fair value of his or her shares,
plus accounted interest.
(2) The payment must be accompanied by all of the following:
(a) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and if available the latest interim financial statements.
(b) A statement of the corporation's estimate of the
fair value of the shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand
payment under section 772.
450.1770 RETURN OF DEPOSITED CERTIFICATES AND RELEASE OF TRANSFER
RESTRICTIONS; EFFECT OF CORPORATION TAKING PROPOSED ACTION.
(1) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on shares without certificates
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters notice under section 766 and repeat the payment demand procedure.
450.1771 ELECTION TO WITHHOLD PAYMENT FROM DISSENTER; OFFER TO
PAY ESTIMATED FAIR VALUE OF SHARES, PLUS ACCRUED INTEREST;
STATEMENTS; EXPLANATION.
(1) A corporation may elect to withhold payment required by section 769
from a dissenter unless he or she was the beneficial owner of the shares before
the date set forth in the dissenters' notice pursuant to section 766(2)(c).
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(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who shall agree to accept it in full satisfaction of
his or her demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenters right to demand payment under
section 772.
450.1772 DEMAND FOR PAYMENT OF DISSENTER'S ESTIMATE OR REJECTION
OF CORPORATION'S OFFER AND DEMAND FOR PAYMENT OF FAIR VALUE AND
INTEREST DUE; WAIVER.
(1) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, less any payment under section 769, or
reject the corporation's offer under section 771 and demand payment of the fair
value of his or her shares and interest due, if any 1 of the following applies:
(a) The dissenter believes that the amount paid under section 769 or
offered under section 771 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under section 769 within 60
days after the date set for demanding payment.
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on shares without certificates within 60 days after the date set for
demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (1) within 30 days after the corporation made or
offered payment for his or her shares.
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450.1773 PETITIONING COURT TO DETERMINE FAIR VALUE OF SHARES
AND ACCRUED INTEREST; FAILURE OF CORPORATION TO COMMENCE
PROCEEDING; VENUE; PARTIES; SERVICE; JURISDICTION; APPRAISERS;
DISCOVERY RIGHTS; JUDGMENT.
(1) If a demand for payment under section 772 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county in which the corporation's principal place of business or
registered office is located. If the corporation is a foreign corporation
without a registered office or principal place of business in this state, it
shall commence the proceeding in the county in this state where the principal
place of business or registered office of the domestic corporation whose shares
are to be valued was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) is plenary and exclusive. The court may appoint 1 or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of his
or her shares, plus interest, exceeds the amount paid by the corporation or for
the fair value, plus accrued interest, of his or her after-acquired shares for
which the corporation elected to withhold payment under section 771.
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450.1773a REFEREE; APPOINTMENT; POWERS; COMPENSATION; DUTIES;
OBJECTIONS TO REPORT; APPLICATION TO COURT FOR ACTION; ADOPTION,
MODIFICATION, OR RECOMMITMENT OF REPORT; FURTHER EVIDENCE;
JUDGMENT; REVIEW.
(1) In a proceeding brought pursuant to section 773, the court may,
pursuant to the agreement of the parties, appoint a referee selected by the
parties and subject to the approval of the court. The referee may conduct
proceedings within the state, or outside the state by stipulation of the parties
with the referee's consent, and pursuant to the Michigan court rules. The
referee shall have powers that include, but are not limited to, the following:
(a) To hear all pretrial motions and submit proposed orders to
the court. In ruling on the pretrial motion and proposed orders, the court shall
consider only those documents, pleadings, and arguments that were presented to
the referee.
(b) To require the production of evidence, including the
production of all books, papers, documents, and writings applicable to the
proceeding, and to permit entry upon designated land or other property in the
possession or control of the corporation.
(c) To rule upon the admissibility of evidence pursuant
to the Michigan rules of evidence.
(d) To place witnesses under oath and to examine
witnesses.
(e) To provide for the taking of testimony by
deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any
of the parties, requiring the attendance and testimony of any witness and the
production of evidence including books, records, correspondence, and documents
in the possession of the witness or under his or her control, at a hearing
before the referee or at a deposition convened pursuant to subdivision (e). In
case of a refusal to comply with a subpoena, the party on whose behalf the
subpoena was issued may file a petition in the court for an order requiring
compliance.
(2) The amount and manner of payment of the referee's compensation
shall be determined by agreement between the referee and the parties, subject to
the court's allocation of compensation between the parties at the end of the
proceeding pursuant to equitable principles, notwithstanding section 774.
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(3) The referee shall do all of the following:
(a) Make a record and reporter's transcript of the
proceeding.
(b) Prepare a report, including proposed findings of fact and
conclusions of law, and a recommended judgment.
(c) File the report with the court, together with all original
exhibits and the reporter's transcript of the proceeding.
(4) Unless the court provides for a longer period, not more than 45
days after being served with notice of the filing of the report described in
subsection (3), any party may serve written objections to the report upon the
other party. Application to the court for action upon the report and objections
to the report shall be made by motion upon notice. The court, after hearing, may
adopt the report, may receive further evidence, may modify the report, or may
recommit the report to the referee with instructions. Upon adoption of the
report, judgment shall be entered in the same manner as if the action had been
tried by the court and shall be subject to review in the same manner as any
other judgment of the court.
450.1774 COSTS OF APPRAISAL PROCEEDING.
(1) The court in an appraisal proceeding commenced under section 773
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 772.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable in the
following manner:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of sections 764 through 772.
(b) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this act.
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(3) If the court finds that the services of counsel for any dissenter
were or substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to those counsel reasonable fees paid out of the amounts awarded
the dissenters who were benefitted.
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INFORMATION NOT REQUIRED IN THE PROXY-STATEMENT PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- -------- -----------------------------------------
The Ohio General Corporation Law allows a corporation under certain
circumstances to indemnify its directors, officers, and employees. Generally,
whether by its articles of incorporation or its code of regulations or by
statute, the indemnification permits the Corporation to pay expenses actually
and necessarily incurred in the defense of any pending or threatened suit. The
determination of the right of indemnification is determined by a quorum of
disinterested directors not involved in such a pending matter and if they are
unable to make such determination, then such determination shall be made by
independent legal counsel, First Financial's shareholders or by the Butler
County, Ohio, Court of Common Pleas. First Financial has such an indemnification
provision in its Code of Regulations, and that provision is set forth below. The
Code of Regulations of First Financial and the statute do not allow
indemnification of an officer or director wherein such person has been
adjudicated negligent or guilty of misconduct and, additionally, such officer or
director must have acted in good faith or had no reason to believe such
officer's or director's conduct was unlawful to be indemnified.
Article III-A of the Code of Regulations of First Financial provides:
SECTION 3-A.1. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify any officer or director, or any other employee of the
Corporation who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including,
without limitation, any action threatened or instituted by or in the
right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee,
officer, employee or agent of another corporation (domestic or foreign,
nonprofit or for profit), partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys'
fees, filing fees, court reporters' fees and transcript costs),
judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, he had no reasonable
cause to believe his conduct was unlawful. A person claiming
indemnification under this Section 3-A.1 shall be presumed to have met
the applicable standard of conduct set forth herein, and the
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
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SECTION 3-A.2. COURT-APPROVED INDEMNIFICATION. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding:
(A) the Corporation shall not indemnify any officer or director
or employee of the Corporation who was a party to any
completed action or suit instituted by or in the right of
the Corporation to procure a judgment in its favor by reason
of the fact he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer,
employee or agent of another corporation (domestic or
foreign, nonprofit or for profit), partnership, joint
venture, trust or other enterprise, in respect of any claim,
issue or matter asserted in such action or suit as to which
he shall have been adjudged to be liable for misconduct
(other than negligence of any degree) in the performance of
his duty to the Corporation unless and only to the extent
that the Court of Common Pleas of Butler County, Ohio or the
court in which such action or suit was brought shall
determine upon application that, despite such adjudication
of liability, and in view of all the circumstances of the
case, he is fairly and reasonably entitled to such indemnity
as such Court of Common Pleas or such other court shall deem
proper; and
(B) the Corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as
contemplated by this Section 3-A.2.
SECTION 3-A.3. INDEMNIFICATION FOR EXPENSES. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer, director or employee of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 3-A.1, or in defense of any claim,
issue or matter therein, he shall be promptly indemnified by the
Corporation against expenses (including, without limitation, attorneys'
fees, filing fees, court reporters' fees and transcript costs) actually
and reasonably incurred by him in connection therewith.
SECTION 3-A.4. DETERMINATION REQUIRED. Any indemnification required
under Section 3-A.1 and not precluded under Section 3-A.2 shall be made
by the Corporation only upon a determination that such indemnification
of the officer or director or employee is proper in the circumstances
because he has met the applicable standard of conduct set forth in
Section 3-A.1. Such determination may be made only (A) by a majority
vote of a quorum consisting of directors of the Corporation who were
not and are not parties to, or threatened with, any such action, suit
or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a
written opinion by independent legal counsel other than an attorney, or
a firm having associated with it an attorney, who has
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been retained by or who has performed services for the Corporation, or
any person to be indemnified, within the past five years, or (C) by the
shareholders, or (D) by the Court of Common Pleas of Butler County,
Ohio or (if the Corporation is a party thereto) the court in which such
action, suit or proceeding was brought, if any. Any determination made
by the disinterested directors under subparagraph (A) of this Section
or by independent legal counsel under subparagraph (B) of this Section
to make indemnification in respect of any claim, issue or matter
asserted in an action or suit threatened or brought by or in the right
of the Corporation shall be promptly communicated to the person who
threatened or brought such action or suit, and within ten (10) days
after receipt of such notification such person shall have the right to
petition the Court of Common Pleas of Butler County, Ohio or the Court
in which such action or suit was brought, if any, to review the
reasonableness of such determination.
SECTION 3-A.5. ADVANCES FOR EXPENSES. Unless the only liability
asserted against a director in an action, suit or proceeding referred
to in Section 3-A.1 of this article arises pursuant to Section 1701.95
of the Ohio Revised Code, expenses, including attorney's fees, incurred
by a director in defending the action, suit or proceeding shall be paid
by the Corporation as they are incurred, in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director in which he agrees: (i) to
repay amounts so advanced if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act was undertaken with deliberate intent to cause injury to
the Corporation or with reckless disregard for the best interests of
the Corporation; and (ii) to reasonably cooperate with the Corporation
with respect to the action, suit or proceeding.
Expenses, including attorneys' fees, incurred by a director,
trustee, officer, employee or agent in defending any action, suit or
proceeding referred to in Section 3-A.3 of this Article, may be paid by
the Corporation as they are incurred, in advance of the final
disposition of the action, suit or proceeding as authorized by the
directors in the specific case, upon receipt of any undertaking by or
on behalf of the director, trustee, officer, employee, or agent to
repay such undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the
Corporation.
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SECTION 3-A.6. ARTICLE III-A NOT EXCLUSIVE. The indemnification
provided by this Article III-A shall not be deemed exclusive of any
other rights to which any person seeking indemnification may be
entitled under the Articles or the Regulations or any agreement, vote
of shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be an officer or director or employee of the Corporation and
shall inure to the benefit of the heirs, executors, and administrators
of such a person.
SECTION 3-A.7. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee or
agent of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other enterprise, against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the obligation or the power to indemnify him
against such liability under the provisions of this Article III-A.
SECTION 3-A.8. VENUE. Any action by a person claiming indemnification
under this Article III-A, or by the Corporation, to determine such
claim for indemnification may be filed as to the Corporation and each
such person in Butler County, State of Ohio. The Corporation and (by
claiming such indemnification) each such person consent to the exercise
of jurisdiction over its or his person by the Court of Common Pleas of
Butler County, Ohio.
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
(a) See Index to Exhibits.
(b) See "HASTINGS FINANCIAL CORPORATION FINANCIAL STATEMENTS."
(c) Fairness Opinion furnished as Appendix B to Proxy Statement-
Prospectus.
Item 22. Undertakings
- ----------------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
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(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
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(6) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act") and is used in connection with an offering of
securities subject to Rule 415 will be filed as a part of an amendment
to the registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(7) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
II-6
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Hamilton, State of Ohio,
on September , 1996.
FIRST FINANCIAL BANCORP.
By:
-----------------------------------
Stanley N. Pontius
President and Chief Executive Officer
Date: September 30, 1996
- --------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
- -------------------------------------- -------------------------
Stanley N. Pontius, Director, President Michael R. O'Dell, Senior Vice
and Chief Executive Officer President, Chief Financial Officer
and Secretary
Date: September 30, 1996 Date: September 30, 1996
---------------------------------- ---------------------
- -------------------------------------- -------------------------
Lauren N. Patch, Director Joel H. Schmidt, Director
Date: September 30, 1996 Date: September 30, 1996
---------------------------------- ---------------------
- -------------------------------------- -------------------------
Donald M. Cisle, Director Thomas C. Blake, Director
Date: September 30, 1996 Date: September 30, 1996
---------------------------------- ---------------------
- -------------------------------------- -------------------------
Vaden Fitton, Director Stephen S. Marcum, Director
Date: September 30, 1996 Date: September 30, 1996
---------------------------------- ---------------------
- -------------------------------------- -------------------------
Elden Houts, Director Barry S. Porter, Director
Date: September 30, 1996 Date: September 30, 1996
---------------------------------- ---------------------
- --------------------------------------
Joseph M. Gallina, Comptroller
Date: September 30, 1996
---------------------
II-7
<PAGE> 175
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Plan and Agreement of Merger between First
Financial Bancorp. and Hastings Financial Corporation
(Included as Appendix A in
the Proxy Statement-Prospectus)
5. Opinion of Counsel
8. Form of Tax Opinion of Werner & Blank Co., L.P.A.
to be Issued on Consummation of Merger
23.1 Consent of Ernst & Young LLP, Independent Auditors
for First Financial Bancorp.
23.2 Consent of Crowe, Chizek and Company LLP, Independent
Auditors for Hastings Financial Corporation.
23.3 Consent of Beene, Garter & Co., Independent Auditors
for Hastings Financial Corporation's Consolidated
Statement of Income and Consolidated Statement of
Cash Flows for the Year Ended December 31, 1993.
23.4 Consent of Frost & Jacobs, Counsel for Registrant
(Incorporated in Exhibit 5)
23.5 Consent of Werner & Blank Co., L.P.A.
(Incorporated in Exhibit 8)
23.6 Consent of Austin Associates, Inc.
(Incorporated in Exhibit 99.1)
99.1 Fairness Opinion of Austin Associates, Inc. (Included
as Appendix B in the Proxy Statement-Prospectus.)
99.2 Hastings Financial's Form of Proxy
II-8
<PAGE> 1
EXHIBIT 5.--OPINION OF COUNSEL
FROST & JACOBS
2500 PNC Center
201 East Fifth Street
Post Office Box 5715
Cincinnati, Ohio 45201-5715
(513) 651-6800
September 30, 1996
First Financial Bancorp.
300 High Street
Hamilton, Ohio 45012-0476
Re: First Financial Bancorp.
Form S-4 Registration Statement
-------------------------------
Gentlemen:
We are counsel for First Financial Bancorp., an Ohio corporation (the
"Company"), which is named as the registrant in the Registration Statement on
Form S-4 which is being filed on or about September 30, 1996 with the Securities
and Exchange Commission for the purpose of registering under the Securities Act
of 1933, as amended (the "Act"), certain common shares, par value $8.00 per
share (the "Common Shares"), of the Company.
With respect to the Common Shares being registered pursuant to such
Registration Statement as filed and as it may be amended, it is our opinion that
the Common Shares, when issued and paid for pursuant to the Plan and Agreement
of Merger dated as of July 2, 1996 between First Financial Bancorp. and Hastings
Financial Corporation, will be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement.
Very Truly Yours,
Frost & Jacobs
NG/gam
<PAGE> 1
EXHIBIT 8.--FORM OF TAX OPINION OF WERNER & BLANK CO., L.P.A. TO BE ISSUED ON
CONSUMMATION OF MERGER
WERNER & BLANK CO., L.P.A. 7205 WEST CENTRAL AVENUE
A LEGAL PROFESSIONAL CORPORATION TOLEDO, OH 43617
(419) 841-8051
FAX: 419-841-8380
September 30, 1996
Board of Directors
Hastings Financial Corporation
241 W. State Street
Hastings, Michigan 49058
and
Board of Directors
First Financial Bancorp.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012
Ladies and Gentlemen:
You have requested our opinion as to the federal income tax consequences of the
transactions contemplated by a certain Plan and Agreement of Merger dated as of
July 2, 1996, by and between Hastings Financial Corporation ("Hastings") and
First Financial Bancorp. ("First"), hereinafter referred to as the "Agreement."
Our opinion is made in reliance upon and is limited to the following facts and
circumstances:
FACTS
-----
Hastings is a corporation organized under the laws of the State of Michigan and
is located in Hastings, Michigan. Hastings is a one bank holding company that
owns The National Bank of Hastings, Hastings, Michigan (the "Bank").
First is an Ohio corporation and a registered bank and thrift holding company
located in Hamilton, Ohio. First is a multibank holding company and thrift
holding company.
First and Hastings have only common shares outstanding. Hastings is to be merged
into First, under the Agreement and in compliance with applicable Michigan and
Ohio law.
Each share of Hastings outstanding on the effective date of the transaction will
be converted into shares of common stock of First as provided by the Agreement.
The effect of the consummation of the transaction and the exchange of shares
will be that shareholders of Hastings will become shareholders of First, and
First will own, in addition to its current banking and thrift affiliates, all of
the outstanding common stock of the Bank.
<PAGE> 2
WERNER & BLANK CO., L.P.A.
Page 2
Board of Directors
September 30, 1996
The business of Hastings and First (and affiliates) will continue substantially
unchanged after the effective date of the transaction.
No fractional shares will be issued in the transaction. In lieu thereof, holders
otherwise entitled to receive such fractional shares will be issued cash.
We are not aware of, and have been advised by the management of Hastings that
they have no knowledge of, any plan or intention on the part of shareholders of
Hastings to sell or otherwise dispose of an amount of the First shares to be
received in the transaction, which could reduce Hastings' shareholders ownership
of First shares received in the merger of Hastings and First to shares having an
aggregate value as of the date of the transaction, of less than fifty percent
(50%) of the value of all the formerly outstanding shares of Hastings as of the
same date. For purposes of this statement, shares of Hastings' stock surrendered
by dissenters or exchanged for cash in lieu of fractional shares will be treated
as outstanding on the date of the transaction. Likewise, shares of Hastings'
stock held by Hastings' shareholders and otherwise sold, redeemed or disposed of
prior to the consummation of the transaction have been considered in making this
statement. In addition, the management of Hastings is not aware of any transfers
of Hastings' stock by any holders thereof prior to the effective time of the
merger that were made in contemplation of the merger.
The transaction will be carried out pursuant to and in accordance with all
applicable corporate and banking laws relating to the transaction. On the
effective date, First will succeed to all assets of Hastings and will be liable
for the liabilities of Hastings then existing or arising as a result of the
transactions.
Following the consummation of the transaction resulting in the merger of
Hastings with and into First, First will continue to operate the business that
Hastings conducted through the Bank and its existing affiliates in substantially
the same manner as such business was conducted before the merger.
Arms-length negotiations were carried on between the management of First and
management of Hastings which led to the Agreement and fixed the terms of the
transactions. Consideration was given to both financial and nonfinancial factors
involved in the transaction and the business benefits from the transaction were
discussed and considered by the parties.
In the opinion of the management of First and Hastings, their respective
employees and customers will benefit from the affiliation. It is also expected
that the transaction will better enable the resulting corporation to compete
with other financial institutions.
<PAGE> 3
WERNER & BLANK CO., L.P.A.
Page 3
Board of Directors
September 30, 1996
OPINION
-------
Based upon the above, it is our opinion that the Agreement will have the
following federal income tax consequences:
1. The merger of Hastings with and into First will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Hastings
and First will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code.
2. No gain or loss will be recognized by Hastings or First as a result of
the transfer of Hastings' assets to and the assumption of its
liabilities by First. Section 361(a) and 357(a) of the Code.
3. No gain or loss will be recognized by Hastings' shareholders who
exchange their respective shares solely for First shares. Section
354(a) of the Code.
4. The basis of the First shares received by Hastings' shareholders in
exchange for their shares will be the same as the basis in the shares
exchanged therefor. Section 358(a) of the Code.
5. The holding period of the First shares received by Hastings'
shareholders will include the period during which shares exchanged
therefor were held, provided such shares were held as a capital asset.
Section 1223(1) of the Code.
6. The payment of cash in lieu of fractional shares for the purpose of
mechanically rounding off the fractions resulting from the exchange,
will, in each instance, constitute a distribution not essentially
equivalent to a dividend within the meaning of Section 302(b)(1) of the
Internal Revenue Code of 1986, as amended. The amount received will be
treated as a distribution in full payment in exchange for the
shareholders' fractional share of interest under Section 302(a) of the
Code.
7. Any Hastings' shareholder who perfects dissenter's rights and receives
solely cash in exchange for such shareholder's Hastings' stock shall be
treated as having received such cash as a distribution in redemption of
the Hastings' stock subject to the provisions and limitations of
Section 302 of the Code. If, as a result of such distribution, such
Hastings' shareholder owns no First stock, either directly or through
the application of the constructive ownership rules of Section 318 of
the Code, the distribution will be treated as a complete termination
of interest within the meaning of Section 302(b)(3) of the Code and
the payment will be treated as a distribution in exchange for the
Hastings' stock as provided in Section 302(a) of the Code. Under
Section 1001 of the Code, gain or loss (subject to any applicable
limitations of the Code) will be realized and recognized by such
shareholder in an amount equal to the difference between the amount of
cash received and the adjusted basis of the Hastings' stock
surrendered in exchange therefor.
<PAGE> 4
WERNER & BLANK CO., L.P.A.
Page 4
Board of Directors
September 30, 1996
This letter is solely for your information and use and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, or relied
upon by any other person, for whatever reason without our prior written consent.
Notwithstanding the foregoing, this opinion may be referred to in the
Registration Statement for the registration of shares of First to be issued in
connection with the transaction which will be filed with the Securities and
Exchange Commission and this opinion may be filed as an exhibit to such
Registration Statement.
Very Truly yours,
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT 23.1--CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of First Financial
Bancorp. for the registration of 398,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 16, 1996, with
respect to the consolidated financial statements of First Financial Bancorp.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1995, as filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
September 30, 1996
<PAGE> 1
EXHIBIT 23.2--CONSENT OF CROWE, CHIZEK AND COMPANY LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 and
Prospectus of First Financial Bancorp. of our report, dated January 5, 1996, on
the consolidated financial statements of Hastings Financial Corporation for the
years ended December 31, 1995 and 1994. We also consent to the use of our name
and the statements with respect to us appearing under the heading of "Experts"
in the Prospectus.
CROWE, CHIZEK AND COMPANY LLP
Grand Rapids, Michigan
September 30, 1996
<PAGE> 1
EXHIBIT 23.3--CONSENT OF BEENE, GARTER & CO., INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-4 and related Prospectus of First Financial
Bancorp. We also consent to the reference of our report, dated January 14, 1994,
contained in the Report of Independent Auditors, dated January 5, 1996 and
prepared by Crowe, Chizek and Company LLP, on the consolidated financial
statements of Hastings Financial Corporation for the years ended December 31,
1995 and 1994 and included in this Registration Statement.
BEENE, GARTER & CO.
Grand Rapids, Michigan
September 30, 1996
<PAGE> 1
EXHIBIT 99.2--HASTINGS FINANCIAL'S FORM OF PROXY
REVOCABLE PROXY
HASTINGS FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF HASTINGS FINANCIAL CORPORATION
The undersigned shareholder of Hastings Financial Corporation, a
Michigan corporation ("Hastings Financial"), hereby nominates, constitutes and
appoints Jack E. Echtinaw and David C. Wren, or any one of them, as proxy or
proxies for the undersigned, each with full power of substitution and
resubstitution, to vote all of the shares of Hastings Financial which the
undersigned is entitled to cast at the Special Meeting of the Shareholders of
Hastings Financial to be held at ____ _.m., local time, on December __, 1996, at
the Main Office of National Bank of Hastings, 241 West State Street, Hastings,
Michigan 49058, and at any adjournments thereof (the "Special Meeting"), on the
following proposals, all of which are described in the accompanying Proxy
Statement-Prospectus:
1. Approval of the Plan and Agreement of Merger.
------ ------ ------
| | FOR | | AGAINST | | ABSTAIN
------ ------ ------
2. Adjournment of the Special Meeting in the event that a
sufficient number of votes necessary to approve the Plan and
Agreement of Merger at the Special Meeting is not received.
------ ------ ------
| | FOR | | AGAINST | | ABSTAIN
------ ------ ------
3. In their discretion, upon such other matters as may properly
come before the Special Meeting.
This Revocable Proxy will be voted as directed by the undersigned
shareholder. If no direction is given, this Revocable Proxy will be voted FOR
proposals 1 and 2.
All proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of Hastings Financial Corporation
and of the accompanying Proxy Statement is hereby acknowledged.
This Revocable Proxy may be revoked by the undersigned at any time
before it is exercised by (i) executing and delivering to Hastings Financial a
later dated proxy, (ii) attending the Special Meeting and voting in person, or
(iii) giving written notice of revocation to the Secretary of Hastings
Financial.
NOTE: Please sign your name exactly as it appears on your stock certificate(s).
Joint accounts require only one signature. If you are signing this Proxy as an
attorney, administrator, agent, corporation, officer, executor, trustee, or
guardian, etc., please add your full title to your signature.
---------------------------------------------
Signature
---------------------------------------------
Print Name
---------------------------------------------
Address
---------------------------------------------
Dated:___________________, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE DATE, SIGN
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE U.S.A.
