<PAGE>
Registration Form S-4
File No. 333-0319
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JUNE __, 1996
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
FIRST FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
INDIANA 6021 35-1546989
- -------------------------------- ---------------------------- ------------------------------------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
ONE FIRST FINANCIAL PLAZA, P.O. BOX 540, TERRE HAUTE, INDIANA 47808, (812)
238-6000
-----------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN W. PERRY TIMOTHY M. HARDEN, ESQ.
SECRETARY JOHN W. TANSELLE, ESQ.
FIRST FINANCIAL CORPORATION KRIEG DEVAULT ALEXANDER & CAPEHART
ONE FIRST FINANCIAL PLAZA, P.O. BOX 540 ONE INDIANA SQUARE, SUITE 2800
TERRE HAUTE, INDIANA 47808 INDIANAPOLIS, INDIANA 46204-2017
(812) 238-6000 (317) 636-4341
(AGENT FOR SERVICE) (COPY TO)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
- --------------------------------------------------------------------------------
<PAGE>
[CRAWFORD BANCORP, INC. LETTERHEAD]
June 18, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Crawford Bancorp, Inc. ("Crawford Bancorp") to be held at the main office of
Crawford Bancorp, located at 108 West Main Street, Robinson, Illinois 62454 on
July 29, 1996, at 3:00 p.m., local time.
The purpose of the Special Meeting is to consider and vote upon the
Restated and Amended Agreement of Affiliation and Merger, dated March 8, 1996
("Agreement") by and among First Financial Corporation ("First Financial"),
Crawford Bancorp and Crawford County State Bank ("Bank"), under the terms of
which Crawford Bancorp will merge with and into First Financial, and each
outstanding share of Crawford Bancorp common stock will be converted into the
right to receive three and 75/100 (3.75) shares of First Financial common stock,
subject to adjustment, if any, all as described in the Agreement, a copy of
which is attached as Appendix A to the accompanying Proxy Statement-Prospectus.
The Board of Directors of Crawford Bancorp believes that the proposed
merger between First Financial and Crawford Bancorp is in the best interests of
the shareholders of Crawford Bancorp and the customers and employees of Crawford
Bancorp and the Bank and the communities which the Bank serves. Your Board of
Directors has unanimously approved the Agreement and recommends that the
shareholders approve it.
Enclosed with this letter are (i) a Notice of Special Meeting of
Shareholders, (ii) a Proxy Statement-Prospectus containing information about the
Special Meeting and the proposed merger, (iii) a proxy card for you to complete,
sign, date and return, and (iv) a postage pre-paid envelope for your use to
return your proxy card to Crawford Bancorp. We encourage you to read the
enclosed materials carefully and in their entirety.
Whether or not you attend the Special Meeting, your Board of Directors
requests that you complete, sign and date the enclosed proxy card and return it
in the enclosed postage pre-paid envelope at your earliest convenience prior to
the Special Meeting. If you desire, you may cancel your proxy at any time before
it is voted at the special meeting.
Please give this matter your careful consideration.
Sincerely,
Jerry L. Bailey
President
<PAGE>
CRAWFORD BANCORP, INC.
108 WEST MAIN STREET
ROBINSON, ILLINOIS 62454
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on July 29, 1996
To Our Shareholders:
Notice is hereby given that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of Crawford Bancorp, Inc.
("Crawford Bancorp") will be held on July 29, 1996 at 3:00 p.m., local
time, at the main office of Crawford Bancorp, located at 108 West Main Street,
Robinson, Illinois 62454.
The purposes of the Special Meeting are:
1. Merger with First Financial Corporation. To consider and vote upon the
Restated and Amended Agreement of Affiliation and Merger, dated and
effective as of March 8, 1996 ("Agreement"), by and among First Financial
Corporation, Terre Haute, Indiana ("First Financial"), Crawford Bancorp and
Crawford County State Bank ("Bank"), pursuant to which Crawford Bancorp
will merge with and into First Financial. Under the terms of the Agreement,
each outstanding share of Crawford Bancorp common stock will be converted
into the right to receive 3.75 shares of First Financial common stock
subject to adjustment, if any, all as described in the Agreement, a copy of
which is attached as Appendix A to the accompanying Proxy Statement-
Prospectus; and
2. Other Business. To transact such other business which may properly be
presented at the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 31, 1996 will
be entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof.
Notice is also given that Crawford Bancorp shareholders are entitled to
assert dissenters' rights under the Illinois Business Corporation Act of 1983,
as amended, with respect to the proposed merger with First Financial, provided
that they comply with the provisions of 805 ILCS 5/11 et seq., as amended, a
copy of which is attached as Appendix B to the accompanying Proxy Statement-
Prospectus.
BY ORDER OF THE BOARD OF DIRECTORS
June 18, 1996
JERRY L. BAILEY
PRESIDENT
YOUR VOTE IS IMPORTANT-PLEASE MAIL YOUR PROXY PROMPTLY.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS
OF THE OUTSTANDING SHARES OF CRAWFORD BANCORP
COMMON STOCK IS REQUIRED FOR APPROVAL OF THE AGREEMENT.
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE MEETING,
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROSPECTUS
OF
FIRST FINANCIAL CORPORATION
FOR UP TO
652,720 SHARES OF COMMON STOCK
(NO PAR VALUE)
_________________________________
THIS PROSPECTUS ALSO CONSTITUTES
THE PROXY STATEMENT
OF
CRAWFORD BANCORP, INC.
FOR A
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 29, 1996
_________________________________
This Proxy Statement-Prospectus ("Proxy Statement") constitutes the
Prospectus of First Financial Corporation ("First Financial") with respect to a
maximum of 652,720 shares of First Financial common stock, no par value per
share ("First Financial Common Stock"), being offered to the shareholders of
Crawford Bancorp, Inc. ("Crawford Bancorp") in connection with the proposed
merger of First Financial and Crawford Bancorp. It also serves as the Proxy
Statement of Crawford Bancorp in connection with the solicitation of proxies by
the Board of Directors of Crawford Bancorp for use at the Special Meeting of
Shareholders to be held on July 29, 1996, and at any adjournment thereof
("Special Meeting"), for the purpose of considering and voting upon (1) a
proposal to approve the Restated and Amended Agreement of Affiliation and
Merger, dated and effective as of March 8, 1996 ("Agreement"), by and among
First Financial, Crawford Bancorp and Crawford County State Bank ("Bank"), and
(2) any other business which may properly be presented at the Special Meeting or
any adjournment thereof.
As more fully discussed hereinafter, at the effective date of the proposed
merger, Crawford Bancorp will merge with First Financial ("Merger") and each
outstanding share of Crawford Bancorp common stock, $5.00 par value per share
("Crawford Bancorp Common Stock"), will be converted into the right to receive
3.75 shares of First Financial Common Stock, subject to further adjustment, if
any, in accordance with the terms of the Agreement attached hereto as Appendix
A. First Financial will pay cash for any fractional share interests resulting
from the exchange ratio in accordance with the Agreement. The Merger is subject
to approval by the holders of two-thirds of the outstanding shares of Crawford
Bancorp Common Stock, receipt of required regulatory approvals and the
satisfaction of certain other conditions as set forth in the Agreement.
_________________________________
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 PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
THE DATE OF THIS PROXY STATEMENT IS JUNE 18, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION............................................................ iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................. iv
SUMMARY.......................................................................... vi
SUMMARY OF SELECTED FINANCIAL DATA............................................... xiii
GENERAL INFORMATION.............................................................. 1
PROPOSED MERGER.................................................................. 2
Description of the Merger................................................... 2
Background of and Reasons for the Merger.................................... 2
Opinion of Financial Advisor to Crawford Bancorp............................ 4
Recommendation of the Board of Directors.................................... 7
Exchange of Crawford Bancorp Common Stock................................... 7
Rights of Dissenting Shareholders of Crawford Bancorp....................... 8
Resale of First Financial Common Stock by Crawford Bancorp Affiliates....... 9
Conditions to Consummation.................................................. 10
Termination................................................................. 10
Restrictions Affecting Crawford Bancorp..................................... 11
Regulatory Approvals........................................................ 11
Accounting Treatment for the Merger......................................... 12
Effective Date.............................................................. 12
Management, Personnel and Operations After the Merger....................... 12
FEDERAL INCOME TAX CONSEQUENCES.................................................. 13
Tax Opinion................................................................. 13
Tax Consequences to First Financial and Crawford Bancorp.................... 14
Tax Consequences to Crawford Bancorp Shareholders........................... 14
COMPARATIVE PER SHARE DATA....................................................... 15
Nature of Trading Market.................................................... 15
Dividends................................................................... 16
Existing and Pro Forma Per Share Information................................ 17
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................... 20
DESCRIPTION OF FIRST FINANCIAL................................................... 27
Business.................................................................... 27
Acquisition Policy.......................................................... 27
Incorporation of Certain Information by Reference........................... 28
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF CRAWFORD BANCORP.............................................. 28
Business................................................................ 28
Properties.............................................................. 28
Litigation.............................................................. 29
Employees............................................................... 29
Management.............................................................. 29
Security Ownership of Management........................................ 31
Principal Shareholders.................................................. 32
Certain Relationships and Related Transactions.......................... 33
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CRAWFORD BANCORP
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996.......................... 34
REGULATORY CONSIDERATIONS.................................................... 53
Bank Holding Company Regulation......................................... 53
Capital Adequacy Guidelines for Bank Holding Companies.................. 53
Bank Regulation......................................................... 54
Bank Capital Requirements............................................... 54
Branches and Affiliates................................................. 55
FDICIA.................................................................. 55
Deposit Insurance....................................................... 56
Interstate Banking...................................................... 57
Additional Matters...................................................... 58
COMPARISON OF COMMON STOCK................................................... 58
Authorized But Unissued Shares.......................................... 58
Preemptive Rights....................................................... 59
Dividend Rights......................................................... 59
Voting Rights........................................................... 60
Dissenters' Rights...................................................... 60
Liquidation Rights...................................................... 61
Assessment and Redemption............................................... 61
Anti-Takeover Provisions................................................ 61
Director Liability...................................................... 63
LEGAL OPINIONS............................................................... 63
EXPERTS...................................................................... 63
OTHER MATTERS................................................................ 63
INDEX TO FINANCIAL STATEMENTS................................................ F-1
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
APPENDICES
A. Restated and Amended Agreement of Affiliation and Merger............ A-1
B. The Illinois Business Corporation Act of 1983, as amended
(805 ILCS 5/11 et seq.) (Dissenters' Rights)........................ B-1
C. Fairness Opinion of Austin Associates, Inc.......................... C-1
</TABLE>
-iii-
<PAGE>
AVAILABLE INFORMATION
First Financial is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission ("SEC"). Such reports, proxy statements and other
information may be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and also may be inspected and copied at
prescribed rates at the SEC's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of
such material also may be obtained at prescribed rates from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. First Financial common stock is quoted on the NASDAQ National Market
System and reports, proxy statements and other information concerning First
Financial are available for inspection and copying at prescribed rates at the
office of the National Association of Securities Dealers, Inc., 1735 K Street,
Washington, D.C. 20006.
First Financial has filed with the SEC a Registration Statement on Form S-4
under the Securities Act of 1933, as amended ("Securities Act"), with respect to
the shares of First Financial Common Stock to be issued in connection with its
merger with Crawford Bancorp. This Proxy Statement does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Reference is
made to the Registration Statement, including the exhibits filed as a part
thereof or incorporated therein by reference, which can be inspected and copied
at prescribed rates at the public reference facilities maintained by the SEC at
the addresses set forth above.
All information contained in this Proxy Statement with respect to Crawford
Bancorp has been supplied by Crawford Bancorp, and all information contained in
this Proxy Statement with respect to First Financial has been supplied by First
Financial.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING
UNINCORPORATED EXHIBITS) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON (INCLUDING
ANY BENEFICIAL OWNER) TO WHOM THIS PROXY STATEMENT IS DELIVERED UPON WRITTEN OR
ORAL REQUEST TO JOHN W. PERRY, SECRETARY, FIRST FINANCIAL CORPORATION, ONE FIRST
FINANCIAL PLAZA, P. O. BOX 540, TERRE HAUTE, INDIANA 47808, (812) 238-6000. IN
ORDER TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUESTS SHOULD BE MADE
BY July 1, 1996.
The following documents previously filed by First Financial (SEC File No.
0-16759) with the SEC pursuant to the Exchange Act are incorporated herein by
reference:
1. First Financial's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996
2. First Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
-iv-
<PAGE>
3. First Financial's Annual Report to Shareholders for the fiscal year
ended December 31, 1995.
4. The description of First Financial's common stock contained in First
Financial's Report on Form 8-A, dated April 25, 1988.
All documents subsequently filed by First Financial pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date on which the
Special Meeting is held shall be deemed to be incorporated by reference into
this Proxy Statement and to be a part hereof from the date of filing such
documents.
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 to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT, NOR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES COVERED HEREBY AT ANY TIME
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF FIRST FINANCIAL OR CRAWFORD BANCORP SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT.
-v-
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
herein and was prepared to assist the shareholders of Crawford Bancorp in their
review of the Proxy Statement. This summary does not purport to be complete and
is qualified in all respects by reference to the full text of this Proxy
Statement and the appendices hereto.
SPECIAL MEETING:
Date, Time and Place of July 29, 1996, at 3:00 p.m., local time, at
Special Meeting the main office of Crawford Bancorp, located at
108 West Main Street, Robinson, Illinois 62454.
Purpose of Special Meeting To consider and vote upon the Agreement, under
the terms of which Crawford Bancorp will merge
with and into First Financial ("Merger") and each
outstanding share of Crawford Bancorp will be
converted into the right to receive whole shares
of First Financial Common Stock and cash for
fractional interests. A copy of the Agreement,
which is incorporated herein by reference, is
attached to this Proxy Statement as Appendix A.
See "NOTICE OF SPECIAL MEETING OF SHAREHOLDERS"
and the discussions under the captions "GENERAL
INFORMATION" and "PROPOSED MERGER".
Required Shareholder Vote The approval of the Agreement requires the
affirmative vote, in person or by proxy, of the
holders of at least two-thirds of the issued and
outstanding shares of Crawford Bancorp Common
Stock. Members of the Board of Directors of
Crawford Bancorp beneficially own in the
aggregate, directly and indirectly, approximately
53.5% of the outstanding shares of Crawford
Bancorp Common Stock. Each Director of Crawford
Bancorp has agreed in writing with First
Financial that he or she will, among other
things, vote the shares of Crawford Bancorp
Common Stock beneficially owned by him or her in
favor of the Agreement at the Special Meeting of
the Shareholders. See "GENERAL INFORMATION",
"PROPOSED MERGER -- Conditions to Consummation"
and "DESCRIPTION OF CRAWFORD BANCORP --Security
Ownership of Management". The approval of the
Agreement by the shareholders of First Financial
is not required.
-vi-
<PAGE>
Shares Outstanding and As of March 31, 1996, there were 159,200
Entitled to Vote shares of Crawford Bancorp Common Stock
outstanding. Shareholders of Crawford Bancorp of
record at the close of business on March 31, 1996
are entitled to notice of, and to vote at, the
Special Meeting. See "GENERAL INFORMATION".
Proxies Proxies are revocable at any time before they are
exercised by a later dated proxy delivered to
Crawford Bancorp or by written notice delivered
to the Cashier of Crawford Bancorp. See "GENERAL
INFORMATION".
THE PARTIES TO THE
TRANSACTION:
First Financial Corporation First Financial is the 5th largest independent
One First Financial Plaza bank holding company headquartered in the State
Terre Haute, Indiana 47807 of Indiana. First Financial owns and operates
(812) 238-6000 7 bank subsidiaries with offices located
throughout the Wabash Valley area of west central
Indiana and east central Illinois. As of March
31, 1996, First Financial had total assets of
approximately $1.42 billion and its ratio of
total capital to risk-adjusted assets was 16.19%.
This capital ratio is well in excess of
applicable regulatory requirements. See
"DESCRIPTION OF FIRST FINANCIAL".
Crawford Bancorp, Inc. Crawford Bancorp is a bank holding company
108 West Main Street located in Robinson, Illinois and holds all of
Robinson, Illinois 62454 the issued and outstanding shares of Crawford
(618) 544-8666 County State Bank ("Bank"). As of March 31,
1996, Crawford Bancorp had total assets of $103
million and its ratio of total capital to risk-
adjusted assets was 16.9%. See "DESCRIPTION OF
CRAWFORD BANCORP".
THE MERGER:
Description of the The Merger involves the combination of Crawford
Merger Bancorp with and into First Financial in a
statutory merger. First Financial will be the
surviving corporation in the Merger and, upon
consummation of the Merger, the separate
corporate existence of Crawford Bancorp will
cease. Following the Merger, the Bank will be a
wholly-owned subsidiary of First Financial.
-vii-
<PAGE>
Exchange of Crawford On the effective date of the Merger, each
Bancorp Common Stock outstanding share of Crawford Bancorp Common
Stock will be converted into the right to receive
3.75 shares of First Financial Common Stock
subject to adjustment, if any, in accordance with
the terms of the Agreement. No fractional shares
of First Financial Common Stock will be issued,
and First Financial will pay cash for any
fractional share interests resulting from the
exchange ratio in accordance with the terms of
the Agreement. The price at which First Financial
Common Stock traded on May 30, 1996, as
reported by the NASDAQ National Market System,
was $30.50 per share. See "PROPOSED MERGER --
Exchange of Crawford Bancorp Common Stock" and
Appendix A to this Proxy Statement.
Reasons for the In considering the merger with First Financial,
Merger the Board of Directors of Crawford Bancorp
collected and evaluated a variety of economic,
financial and market information regarding First
Financial and its subsidiaries, their respective
businesses and First Financial's reputation and
future prospects. In the opinion of the Board of
Directors of Crawford Bancorp, favorable factors
included First Financial's strong earnings and
stock performance, its management, the
compatibility of its markets to those of Crawford
Bancorp and the attractiveness of First
Financial's offer from a financial perspective.
Consideration was further given to the potential
benefits of ownership of First Financial Common
Stock, which is traded in the over-the-counter
market and reported on the NASDAQ National Market
System, as compared to Crawford Bancorp Common
Stock, which has no established public trading
market. In addition, the Board considered the
opinion of Austin Associates, Inc. ("Austin"),
the financial advisor to Crawford Bancorp,
indicating that the consideration to be received
by Crawford Bancorp's shareholders under the
Agreement is fair from a financial perspective.
The Board of Directors believes that the Merger
will have a positive, long-term impact on the
Bank's customers and employees and the
communities served by the Bank. See "PROPOSED
MERGER -- Background of and Reasons for the
Merger".
-viii-
<PAGE>
Recommendation of the In the opinion of the Board of Directors of
Board of Directors of Crawford Bancorp, the Merger is in the best
Crawford Bancorp interests of the shareholders of Crawford Bancorp
and the employees and customers of Crawford
Bancorp and the Bank and the communities which
the Bank serves. Accordingly, the Board of
Directors of Crawford Bancorp unanimously
recommends that its shareholders approve the
Agreement and the merger provided for therein.
See "PROPOSED MERGER -- Recommendation of the
Board of Directors".
Conditions to the Consummation of the Merger is subject to certain
Merger conditions which include, among others, (1)
approval of the Agreement by the affirmative vote
of the holders of at least two-thirds of the
outstanding shares of Crawford Bancorp Common
Stock, (2) receipt of certain regulatory
approvals, and (3) receipt of an opinion of
counsel with respect to certain income tax
matters. See "PROPOSED MERGER -- Conditions to
Consummation".
Termination of the Merger The Agreement may be terminated by First
Financial before the Merger becomes effective
upon the occurrence of certain events which
include, among others, (1) a material
misrepresentation or breach of any warranty set
forth in the Agreement by Crawford Bancorp or the
Bank, (2) a breach of or failure to comply with
any covenant set forth in the Agreement by
Crawford Bancorp or the Bank (3) the commencement
or threat of certain claims, proceedings or
litigation, (4) a material adverse change in
Crawford Bancorp since December 31, 1995 or (5)
the market value of First Financial Common Stock
is less than $27.00 per share. Crawford Bancorp
may terminate the Agreement before the Merger
becomes effective upon the occurrence of (1) a
misrepresentation or breach of any warranty set
forth in the Agreement by First Financial or (2)
a breach of or failure to comply with any
covenant set forth in the Agreement by First
Financial. Either First Financial or Crawford
Bancorp may terminate the Agreement if the Merger
has not been consummated by September 30, 1996.
See "PROPOSED MERGER --Termination".
Effective Date of the First Financial and Crawford Bancorp anticipate
Merger that the Merger will be completed during the
third quarter of 1996. See "PROPOSED MERGER --
Effective Date".
-ix-
<PAGE>
Management, Personnel First Financial will be the surviving
and Operations After the corporation in the Merger and, upon consummation
Merger of the Merger, Crawford Bancorp's separate
corporate existence will cease. The Bank will
become a wholly-owned subsidiary of First
Financial. The Board of Directors of the Bank
after the effective date of the Merger will
consist of the Board of Directors serving at the
effective date of the Merger. In addition, First
Financial may appoint one designee to the Board
of Directors of the Bank. The officers of the
Bank will continue to serve in their respective
capacities following the effective date of the
Merger, until the Board of Directors of the Bank
determine otherwise. Following the Merger,
employees of the Bank will continue as employees
of the Bank and will receive benefits in
accordance with the current policies and employee
benefit plans of First Financial. Further, First
Financial has agreed to honor all contracts of
Crawford Bancorp or Bank in effect at March 8,
1996 relating to compensation of officers or
employees. See "PROPOSED MERGER -- Description of
the Merger", "--Management, Personnel and
Operations After the Merger" and "DESCRIPTION OF
CRAWFORD BANCORP --Management".
Federal Income Tax First Financial and Crawford Bancorp will
Consequences to receive an opinion of counsel to the effect that
Shareholders of Crawford the Merger should constitute a tax-free
Bancorp reorganization. In general,shareholders of
Crawford Bancorp who receive solely First
Financial Common Stock in exchange for their
shares of Crawford Bancorp Common Stock will not
recognize capital gain or loss as a result of the
exchange for federal income tax purposes.
Shareholders receiving cash in exchange for their
shares of Crawford Bancorp Common Stock may
recognize capital gain or loss on such exchange.
Shareholders are urged to consult with their tax
advisors with respect to the tax consequences of
the Merger to them. See "FEDERAL INCOME TAX
CONSEQUENCES".
-x-
<PAGE>
Dissenters' Rights Shareholders of Crawford Bancorp have dissenters'
rights established by the Illinois Business
Corporation Act of 1983, as amended, which
entitle them to receive cash for their shares of
Crawford Bancorp Common Stock. In general, to
exercise these rights a shareholder must: (i)
deliver to Crawford Bancorp, before the vote on
the Agreement is taken, a written demand for
payment for the shares of Crawford Bancorp Common
Stock owned by the shareholder; (ii) not vote in
favor of the proposed action; and (iii) follow
all other requirements of Illinois law. In the
event that holders of greater than 10% of the
outstanding shares of Crawford Bancorp Common
Stock become entitled, by exercise of dissenters'
rights or otherwise, to receive cash instead of
First Financial Common Stock, the Merger will not
qualify as a pooling-of-interests transaction for
accounting purposes and First Financial will have
the right to terminate the Agreement.
Shareholders of Crawford Bancorp wishing to
exercise such rights must follow certain
statutory procedures. See "PROPOSED MERGER --
Rights of Dissenting Shareholders of Crawford
Bancorp" and Appendix B to this Proxy Statement.
Resale of First Financial Certain resale restrictions apply to the sale
Common Stock or transfer of shares of First Financial Common
Stock issued to directors, executive officers and
10% shareholders of Crawford Bancorp in exchange
for their shares of Crawford Bancorp Common
Stock. See "PROPOSED MERGER -- Resale of First
Financial Common Stock by Crawford Bancorp
Affiliates".
Comparative Shareholder The rights of shareholders of First Financial
Rights and Crawford Bancorp differ in some respects.
Upon consummation of the Merger, shareholders of
Crawford Bancorp who receive First Financial
Common Stock will take such stock subject to its
terms and conditions. See "COMPARISON OF COMMON
STOCK".
-xi-
<PAGE>
Trading Market for There presently is no established public
Common Stock trading market for shares of Crawford Bancorp
Common Stock. Shares of First Financial Common
Stock are traded in the over-the-counter market
and stock prices are reported on the NASDAQ
National Market System. The closing price of
First Financial Common Stock, as reported by the
NASDAQ National Market System, was $32.00 per
share on December 14, 1995, the business day
before the Merger was publicly announced, and was
$30.50 per share on May 30, 1996. Assuming the
Merger had been consummated on May 30, 1996,
Crawford Bancorp shareholders entitled to receive
First Financial Common Stock would have received,
in exchange for all of the shares of Crawford
Bancorp Common Stock, shares of First Financial
Common Stock having a total cash value of
$18,208,500, which represents $114.38 per share
of Crawford Bancorp Common Stock (including cash
received in lieu of any fractional share
interest). See "COMPARATIVE PER SHARE DATA".
-xii-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- FIRST FINANCIAL
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to First Financial. This information should be read in
conjunction with the financial statements and notes incorporated herein by
reference.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
Net interest income $ 103,315 $ 88,622 $ 88,215 $ 92,550 $ 92,239
(fully taxable equivalent basis) 48,630 47,425 46,986 48,558 41,038
Net interest income 2,263 2,584 2,494 3,918 4,056
Provision for loan losses
Net interest income after 46,367 44,841 44,492 44,640 36,982
provision for loan losses 7,289 6,814 7,080 6,035 5,970
Total other income 35,592 34,829 34,259 32,819 29,148
Total other expenses 18,064 16,826 17,313 17,856 13,804
Income before income tax expense 13,274 12,305 12,922 12,472 9,696
Net income
Year-End Balances
- -----------------
Total assets 1,443,625 1,260,084 1,241,868 1,225,114 1,111,728
Total loans 823,667 797,051 738,824 684,222 606,527
Total deposits 1,073,548 993,366 996,808 978,839 946,273
Shareholders' equity 130,058 112,553 110,777 95,818 85,599
Per Share Data (1)
- ------------------
Net income - primary 2.30 2.12 2.22 2.16 1.67
Net income - fully diluted 2.30 2.12 2.22 2.16 1.67
Cash dividends paid .56 .52 .49 .44 .36
December 31 book value 22.61 19.42 19.04 16.53 14.79
Average Balances
- ----------------
Total assets 1,329,830 1,230,216 1,195,989 1,141,196 1,006,003
Total loans 822,401 704,750 699,161 635,837 581,498
Total deposits 1,063,262 1,078,961 965,056 957,905 876,044
Total shareholders' equity 120,799 111,228 100,353 89,968 81,246
</TABLE>
-xiii-
<PAGE>
<TABLE>
Financial Ratios (1)
- ----------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.00% 1.00% 1.08% 1.10% .96%
Return on average shareholders'
equity 10.99 11.06 12.88 13.86 11.93
Average earning assets to average
total assets 9.39 9.38 9.39 9.35 9.28
Allowance for loan losses as % of
total loans 1.22 1.21 1.22 1.43 1.38
Dividend payout ratio 24.38 24.73 22.24 20.43 21.54
Average shareholders' equity to 9.08 9.04 8.39 7.89 8.08
average assets
Total equity to total assets 9.01 8.93 8.92 7.82 7.70
</TABLE>
(1) Adjusted for 5% stock dividend in 1995
-xiv-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF SELECTED FINANCIAL DATA -- FIRST FINANCIAL
(Unaudited -- Dollars in thousands except per share data)
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Results of Operations
---------------------
Net interest income
(fully taxable equivalent basis) $ 14,441 $ 12,599
Net interest income 13,525 11,595
Provision for loan losses 630 540
Net interest income after provision for loan losses 12,895 11,055
Total other income 1,843 1,491
Total other expenses 8,938 8,800
Income before income tax expense 5,800 3,746
Net income 4,002 2,720
Period-End Balances
-------------------
Total asset 1,416,066 1,292,414
Total loans 804,794 807,042
Total deposits 1,090,880 1,024,699
Shareholders' equity 131,656 116,869
Per Share Data (1)
------------------
Net income - primary 0.70 0.47
Net income - fully diluted 0.70 0.47
Cash dividends paid 0 0
Period-end book value 22.83 20.25
Average Balances
----------------
Total assets 1,407,540 1,285,202
Total loans 816,711 801,144
Total deposits 1,082,660 1,112,872
Total shareholders' equity 128,730 114,659
Financial Ratios (1)
--------------------
Return on average assets (annualized) 1.14% .85%
Return on average shareholders' equity (annualized) 12.44 9.50
Average earning assets to average total assets 93.80 94.04
Allowance for loan losses as % of total loans 1.24 1.20
Dividend payout ratio 0 0
Average shareholders' equity to average assets 9.15 8.92
Total equity to total assets 9.30 9.04
(1) Adjusted for 5% stock dividend in 1995
-xv-
</TABLE>
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- CRAWFORD BANCORP
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to Crawford Bancorp. This information should be read in
conjunction with the financial statements and notes included herein.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
Net interest income $ 3,682 $ 3,817 $ 3,960 $ 3,963 $ 3,330
(fully taxable equivalent basis) 3,556 3,693 3,861 3,878 3,263
Net interest income 300 90 120 150 150
Provision for loan losses
Net interest income after 3,256 3,603 3,741 3,728 3,113
provision for loan losses 633 569 504 483 481
Total other income 3,099 2,787 2,747 2,729 2,389
Total other expenses
Income before income tax
expense and change in accounting 790 1,384 1,498 1,483 1,206
method/extraordinary items 623 1,020 1,072 1,051 953
Net income
Year-End Balances
- -----------------
Total assets $102,682 $96,291 $98,189 $95,557 $92,067
Total loans 55,849 59,988 57,381 52,148 52,710
Total deposits 89,933 84,354 86,331 85,294 83,019
Shareholders' equity 10,017 9,456 8,845 8,011 7,177
Per Share Data (1)
- -----------------
Net income - primary $ 3.91 $ 6.41 $ 6.74 $ 6.56 $ 5.89
Net income - fully diluted 3.91 6.41 6.74 6.56 5.89
Cash dividends paid 2.00 2.00 1.50 1.00 .90
December 31 book value 62.92 59.40 55.56 50.32 45.08
Average Balances
- ----------------
Total assets $ 97,373 $97,624 $95,471 $92,697 $86,146
Total loans 59,158 59,233 53,521 50,989 45,806
Total deposits 84,776 86,309 84,237 83,293 77,155
Total shareholders' equity 9,745 9,164 8,402 7,460 6,672
-xvi-
</TABLE>
<PAGE>
<TABLE>
Financial Ratios (1)
- ----------------
<S> <C> <C> <C> <C> <C>
Return on average assets .64% 1.04% 1.12% 1.13% 1.11%
Return on average shareholders'
equity 6.38 11.13 12.76 14.09 14.28
Average earning assets to average
total assets 95.19 95.53 95.43 94.80 95.20
Allowance for loan losses as % of
total loans .95 1.48 1.68 1.65 1.60
Dividend payout ratio 51.14 31.22 22.27 15.15 15.29
Average shareholders' equity to
average assets 10.01 9.39 8.80 8.05 7.74
Total equity to total assets 9.76 9.82 9.01 8.38 7.80
(1) Adjusted for 2 for 1 stock split in 1993
[THIS SPACE INTENTIONALLY LEFT BLANK]
-xvii-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF SELECTED FINANCIAL DATA -- CRAWFORD BANCORP
(Unaudited -- Dollars in thousands except per share data)
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Results of Operations
---------------------
Net interest income
(fully taxable equivalent basis) $ 884 $ 915
Net interest income 853 885
Provision for loan losses 105 30
Net interest income after provision for loan losses 748 855
Total other income 146 148
Total other expenses 834 694
Income before income tax expense and change in
accounting method/extradinary items 60 309
Net income 57 221
Period-End Balances
-------------------
Total asset 101,903 97,542
Total loans 54,121 60,699
Total deposits 89,628 85,449
Shareholders' equity 9,964 9,740
Per Share Data (1)
------------------
Net income - primary 0.36 1.39
Net income - fully diluted 0.36 1.39
Cash dividends paid 0 0
Period-end book value 62.59 61.18
Average Balances
----------------
Total assets 102,346 96,512
Total loans 54,685 59,070
Total deposits 82,227 77,234
Total shareholders' equity 10,091 9,542
Financial Ratios (1)
--------------------
Return on average assets (annualized) 0.22% 0.92%
Return on average shareholders' equity (annualized) 2.25 9.27
Average earning assets to average total assets 93.93 95.03
Allowance for loan losses as % of total loans 1.00 1.47
Dividend payout ratio 0 0
Average shareholders' equity to average assets 9.86 9.89
Total equity to total assets 9.78 9.99
(1) Adjusted for 2-for-1 stock split in 1993
-xviii-
</TABLE>
<PAGE>
PROSPECTUS PROXY STATEMENT
OF OF
FIRST FINANCIAL CORPORATION CRAWFORD BANCORP, INC.
_______________________________
SPECIAL MEETING OF SHAREHOLDERS
OF
CRAWFORD BANCORP, INC.
TO BE HELD ON JULY 29, 1996
_______________________________
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of Crawford Bancorp
in connection with the solicitation by the Board of Directors of proxies for use
at the Special Meeting of Shareholders to be held on July 29, 1996, at the main
office of Crawford Bancorp, located at 108 West Main Street, Robinson, Illinois
62454. This Proxy Statement is first being mailed to shareholders of Crawford
Bancorp on June 18, 1996.
The purposes of the Special Meeting of Shareholders are to (1) consider and
vote upon the Agreement, under the terms of which Crawford Bancorp will merge
with and into First Financial and each outstanding share of the Crawford Bancorp
Common Stock will be converted into the right to receive 3.75 shares of First
Financial Common Stock subject to adjustment, if any, in accordance with the
terms of the Agreement, and (2) transact such other business which may properly
be presented at the Special Meeting or any adjournment thereof. See "PROPOSED
MERGER - Exchange of Crawford Bancorp Common Stock".
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Crawford Bancorp Common Stock is required for approval of
the Agreement. Only holders of Crawford Bancorp Common Stock of record at the
close of business on March 31, 1996 ("Record Date") are entitled to notice of,
and to vote at, the Special Meeting. There were 159,200 shares of Crawford
Bancorp Common Stock outstanding on the Record Date, which were held of record
by approximately 125 shareholders. For each matter to be voted on at the Special
Meeting, each share of Crawford Bancorp Common Stock is entitled to one vote.
The cost of soliciting proxies will be borne by Crawford Bancorp. In
addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and certain employees of Crawford
Bancorp, who will not be specially compensated for such soliciting.
The shares represented by proxies properly signed and returned will be
voted at the Special Meeting as instructed by the shareholders of Crawford
Bancorp giving the proxies. In the absence of specific instructions to the
contrary, proxies will be voted FOR approval of the Agreement described in this
---
Proxy Statement and in accordance with the recommendation of the Board of
Directors of Crawford Bancorp with respect to any other matter which may
properly be presented at the Special Meeting. Any shareholder giving a proxy has
the right to revoke it at any time before
-1-
<PAGE>
it is exercised. Therefore, execution of a proxy will not affect a shareholder's
right to vote in person if he or she attends the Special Meeting. Revocation may
be made by a later dated proxy delivered to Crawford Bancorp, by written notice
received by the Cashier of Crawford Bancorp prior to the Special Meeting, or by
written notice delivered to the Cashier of Crawford Bancorp at the Special
Meeting. To be effective, any revocation must be received before the proxy is
exercised.
PROPOSED MERGER
At the Special Meeting, the shareholders of Crawford Bancorp will consider
and vote upon the Agreement, certain features of which are summarized below. The
following summary of certain aspects of the Agreement does not purport to be a
complete description of the terms and conditions of the Agreement and is
qualified in its entirety by reference to the Agreement, which is attached to
this Proxy Statement as Appendix A and is incorporated herein by reference.
DESCRIPTION OF THE MERGER
Under the terms of the Agreement, Crawford Bancorp will combine with First
Financial through a statutory merger. First Financial will be the surviving
corporation in the Merger and, on the effective date of the Merger, the separate
corporate existence of Crawford Bancorp will cease. At that time, the Bank, the
wholly-owned subsidiary of Crawford Bancorp, will become a wholly-owned
subsidiary of First Financial.
As of March 31, 1996, Crawford Bancorp had consolidated assets of $102
million, consolidated deposits of $90 million, consolidated shareholders' equity
of $10 million and consolidated net income for the three months then ended of
$57 thousand. Based upon the pro forma financial information included elsewhere
in this Proxy Statement and assuming that the Merger had been consummated on
March 31, 1996, Crawford Bancorp represented as of such date 6.72% of the
consolidated assets of First Financial, 7.59% of its consolidated deposits,
7.04% of its consolidated shareholders' equity and, for the three months ended
March 31, 1996, 1.40% of its consolidated net income. See "PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION".
BACKGROUND OF AND REASONS FOR THE MERGER
Until recently, Indiana and Illinois banking laws prohibited banks located
in Indiana and Illinois from expanding outside of their home counties. The
changes since the prohibition was eliminated have been swift, first permitting
in-state acquisitions by bank holding companies, then permitting regional
interstate acquisitions, and currently permitting virtual nationwide expansion
opportunities. These developments stimulated aggressive acquisition activity
among financial institutions located in Indiana and neighboring states,
resulting in the entry of large bank holding companies into virtually every
attractive market in the midwestern United States. Moreover, developments and
deregulation in the financial services industry generally have led to further
increases in competition for bank services.
In response to these competitive and regulatory factors and after
evaluation of financial, economic, legal and market considerations, the Board of
Directors of Crawford Bancorp approved the Merger as being in the best interests
of Crawford Bancorp and its shareholders. Discussions concerning whether to
remain independent or whether to pursue a merger with another financial
-2-
<PAGE>
institution were a frequent topic among the directors of Crawford Bancorp.
Discussions regarding a possible merger between First Financial and Crawford
Bancorp began in March, 1995 when Mr. Donald E. Smith, President of First
Financial submitted a letter to Crawford Bancorp formally expressing its
interest in merging with Crawford Bancorp through a tax-free reorganization. In
April, 1995 the Board of Directors of Crawford Bancorp engaged Austin
Associates, Inc. ("Austin") to assist the Board of Directors in evaluating the
potential sale of Crawford Bancorp. Austin met with the Board of Directors in
June, 1995 at which time the Board of Directors determined not to pursue the
sale of Crawford Bancorp. During July, 1995, the Board of Directors of Crawford
Bancorp was made aware of inquiries and possible transactions in Crawford
Bancorp's stock, and decided to reevaluate the decision not to sell Crawford
Bancorp. The Board of Directors decided to contact Austin in order for it to
initiate the process of contacting prospective purchasers, including First
Financial. The discussions continued through the following months.
The Board of Directors of Crawford Bancorp met with Austin on November 3,
1995, to consider five (5) merger proposals, including one from First Financial.
At such meeting, the Board of Directors authorized Crawford Bancorp's management
to pursue further negotiations on three of the five proposals, which included
the proposal from First Financial. The negotiations included the exchange of
additional information and presentations to the Board of Directors of Crawford
Bancorp. On December 12, 1995, the Board of Directors of Crawford Bancorp
authorized Crawford Bancorp's management to accept First Financial's offer of
acquisition. On December 15, 1995, the parties executed a non-binding written
letter of intent. After a business investigation by First Financial and Crawford
Bancorp of each other, the parties executed a definitive merger agreement on
March 8, 1996. In determining to pursue the Merger, the Board of Directors of
Crawford Bancorp specifically considered financial, managerial and other
information regarding First Financial and its subsidiaries. In particular, the
Board of Directors of Crawford Bancorp evaluated First Financial's and Crawford
Bancorp's respective businesses, financial condition, reputation and future
prospects. The earnings history and stock performance of First Financial were
carefully reviewed and discussed with Austin with a view towards the investment
potential for shareholders of Crawford Bancorp.
Among other items considered in this evaluation were the prospects of
Crawford Bancorp and First Financial, as separate institutions and as combined;
the compatibility of First Financial's subsidiary banks' markets to that of
Crawford Bancorp's market; the anticipated tax-free nature of the Merger to the
shareholders of Crawford Bancorp receiving solely First Financial Common Stock
in exchange for their shares of Crawford Bancorp Common Stock; the possibility
of increased liquidity through ownership of First Financial Common Stock as
compared to Crawford Bancorp Common Stock because First Financial Common Stock
is traded in the over-the-counter market and share prices are reported on the
NASDAQ National Market System; the timeliness of a merger given the state of the
economy and the stock markets as well as anticipated trends in both; regulatory
requirements; relevant price information involving recent comparable bank
acquisitions which occurred in the midwest United States; and an analysis of
alternatives to Crawford Bancorp merging with First Financial, including other
potential acquirors. In addition, the Board of Directors considered the opinion
of Austin indicating that the consideration to be received by Crawford Bancorp's
shareholders under the Agreement is fair from a financial perspective.
The Board of Directors of Crawford Bancorp also considered the impact of
the Merger on Crawford Bancorp's and the Bank's customers and employees and the
communities served by the Bank. First Financial's historical practice of
retaining employees of acquired institutions with competitive salary and benefit
programs was considered, as was the opportunity for training,
-3-
<PAGE>
education, growth and advancement of the Bank's employees within First Financial
or one of its subsidiaries. The Board of Directors of Crawford Bancorp 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 Crawford
Bancorp 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 CRAWFORD BANCORP
Austin has delivered its written opinion to the Board of Directors of
Crawford Bancorp that as of June 4, 1996, the consideration provided for in
the Agreement is fair, from a financial point of view, to the holders of
Crawford Bancorp Common Stock.
Austin was engaged by Crawford Bancorp's Board of Directors to advise it as
to the fairness of the consideration, from a financial perspective, to be paid
by First Financial to Crawford Bancorp shareholders under the Agreement. Austin
is a consulting and investment banking firm based in Toledo, Ohio. Austin is
regularly engaged in reviewing the fairness of bank acquisitions from a
financial perspective and in the valuation of banks and other business and their
securities in connection with mergers, acquisitions, estate settlements and
other transactions. Austin was selected by the Board of Directors of Crawford
Bancorp based upon Austin's familiarity with the market for stock of Illinois
financial institutions and their knowledge of the banking industry generally.
The full text of Austin's fairness opinion ("Opinion"), dated June 4, 1996,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Appendix C to this Proxy Statement. Crawford
Bancorp shareholders are urged to read the Opinion in its entirety. Austin has
not made or sought to obtain appraisals of Crawford Bancorp's assets in
rendering the Opinion. Neither Crawford Bancorp nor First Financial placed any
limitations upon Austin with respect to the investigations made or procedures
followed by Austin in rendering the Opinion. The Opinion is directed solely to
the Board of Directors of Crawford Bancorp and concerns only the consideration
provided for in the Agreement and does not constitute a recommendation to any of
Crawford Bancorp's shareholders as to how such shareholder should vote at the
Special Meeting. The summary of the Opinion set forth in this Proxy Statement is
qualified in its entirely by reference to the full text of the Opinion included
in Appendix C hereto.
Austin has provided the following disclosures to Crawford Bancorp for
inclusion in this Proxy Statement:
Austin 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 in valuation for estate, corporate
and other purposes. Crawford Bancorp selected Austin to act as Crawford
Bancorp's financial adviser in connection with the Merger on the basis of its
reputation and qualifications in evaluating financial institutions.
-4-
<PAGE>
Austin has rendered a written opinion to the Board of Directors of Crawford
Bancorp to the effect that the terms of the Merger are fair from a financial
point of view to the shareholders of Crawford Bancorp as of the date of the
opinion. A copy of Austin's fairness opinion is attached as Appendix C to this
Proxy Statement-Prospectus and should be read in its entirety. Austin based its
opinion upon, among other things: (1) a comparison of the financial statements
and other financial information concerning Crawford Bancorp and First Financial
set forth or incorporated by reference in this Proxy Statement-Prospectus; (2)
certain other financial information concerning Crawford Bancorp, including, but
not limited to, operating budgets and loan loss reserve adequacy reports; (3)
financial and share price data of Crawford Bancorp, 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 Crawford Bancorp from other banking institutions;
and (6) discussions with the management of Crawford Bancorp and First Financial.
The terms of the Agreement were determined by First Financial and Crawford
Bancorp and their representatives, after arm's-length negotiations between the
parties. Austin participated in the negotiations on behalf of Crawford Bancorp.
In connection with rendering its opinion, Austin performed a variety of
financial analyses, which are summarized below. Austin 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 the
Austin 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, Austin made numerous
assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond Crawford Bancorp's and
First Financial's control. Any estimates contained in Austin'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 CRAWFORD BANCORP. Austin completed a preliminary
appraisal of Crawford Bancorp as of March 31, 1995, which was presented to the
Board of Directors of Crawford Bancorp in June of 1995. Austin estimated that a
reasonable sale of control value for Crawford Bancorp would range from $14.5
million to $15.5 million, or approximately $91 to $97 per share.
THE PROCESS FOR SOLICITING INDICATIONS OF INTEREST FROM OTHER BANK HOLDING
COMPANIES. After analysis and discussions between Austin and Crawford Bancorp,
fifteen banking organizations were contacted to determine their potential
interest in acquiring Crawford Bancorp. Of the organizations contacted, eight
requested confidential information packages which provided detailed information
regarding the business and operations of Crawford Bancorp. Each organization
provided information was requested to submit a specific proposal to acquire
Crawford Bancorp. Austin pursued discussions with each organization that had
requested the confidential information. As a result of this process, five
organizations submitted proposals to acquire Crawford Bancorp. The Crawford
Bancorp Board selected the First Financial proposal after extensive deliberation
and negotiation.
COMPARATIVE PRICE ANALYSIS. In determining whether the price offered by
First Financial for Crawford Bancorp was fair, from a financial point of view,
to the shareholders of Crawford
-5-
<PAGE>
Bancorp, Austin reviewed a comparison of prices paid in selected sale of control
transactions announced in Illinois for banks having assets of between $66
million and $118 million. The seven transactions had an average price to book
value ratio of 167 percent and a price to earnings multiple of 14.1 times. The
median multiples were 163 percent of book value and 14.3 times earnings. The
market value of consideration to be received by Crawford Bancorp shareholders in
the Merger is estimated at 186 percent of Crawford Bancorp's book value at
March 31, 1996, based on an exchange ratio of 3.75 shares of First Financial
Common Stock, subject to payment in cash for fractional shares and adjustment
under certain circumstances, and based on a recent First Financial market price
of $31.00 per share. The market value of the consideration is further estimated
to equal 29.7 times Crawford Bancorp's consolidated earnings per share for the
year ended December 31, 1995.
CONTRIBUTION ANALYSIS. Austin compared the pro forma ownership interest in
First Financial that Crawford Bancorp shareholders would receive, in the
aggregate, to the contribution by Crawford Bancorp to the total assets, equity
and net income in the combined organization. Assuming a March 31, 1996
Closing Date for the Merger, Crawford Bancorp shareholders would own
approximately 9.4 percent of First Financial on a pro forma basis. Crawford
Bancorp's contribution of total assets would equal 6.7 percent, the contribution
of equity would equal 7.0 percent, the contribution of 1995 net income would
have equaled 4.5 percent, and the contribution of first quarter, 1996 net income
would have equaled 1.4 percent.
DILUTION ANALYSIS. Austin also reviewed the pro forma effect of the Merger
to Crawford Bancorp's and First Financial's December 31, 1995 and March 31, 1996
earnings per share and book value per share figures. Crawford Bancorp recorded
earnings per share of $3.91 and a book value of $62.92 per share as of December
31, 1995. Giving effect to the Merger as of year end 1995, the equivalent
Crawford Bancorp earnings per share would have equaled $8.14, an increase of 108
percent over actual results. Book value per share would have increased to $82.73
per share, an increase of 31 percent over actual book value. Giving effect to
the Merger, First Financial's book value per share would have been diluted by
$0.55 or 2.4 percent, and earnings per share would have been diluted by $0.13 or
5.6 percent. Crawford Bancorp recorded earnings per share of $0.36 and a book
value of $62.59 per share as of March 31, 1996. Giving effect to the Merger as
of March 31, 1996, the equivalent Crawford Bancorp earnings per share would have
equaled $2.40, and book value per share would have equaled $83.48. Further
giving effect to the Merger as of March 31, 1996, First Financial's book value
per share would have been diluted by $0.57, and earnings per share would have
been diluted by $0.06.
DIVIDENDS. Austin reviewed the current cash dividends paid by Crawford
Bancorp and First Financial. Based on the exchange ratio of 3.75 First Financial
shares for each share of Crawford Bancorp, equivalent dividends to Crawford
Bancorp shareholders would have been $2.10 in 1995, a 5 percent increase over
actual dividends received by Crawford Bancorp shareholders of $2.00 per share.
The summary set forth above does not purport to be a complete description
of the analyses performed by Austin. Further, Austin did not conduct a physical
inspection of any of the properties or assets of Crawford Bancorp or First
Financial. Austin 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 Crawford Bancorp and First
Financial made pursuant to the Agreement, and has not independently attempted to
verify any of such information. Austin has also assumed that the conditions to
the Merger as set forth in the Agreement would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the
Agreement. No limitations were imposed by Crawford Bancorp or First Financial on
the scope of Austin's investigation nor were any specific instructions given to
Austin in connection with its fairness opinion.
-6-
<PAGE>
For Austin's services as financial advisor, Crawford Bancorp will pay the
firm a fee of $20,000, plus a contingent amount equal to 1.00 percent of the
transaction value when the Merger is consummated. In addition, Crawford Bancorp
has agreed to reimburse Austin for reasonable out-of-pocket expenses and
indemnify Austin against certain liabilities, including liabilities under the
securities laws.
THE FULL TEXT OF AUSTIN'S WRITTEN OPINION DATED JUNE 4, 1996, WHICH SETS
FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON ITS REVIEW, IS
ATTACHED HERETO AS APPENDIX C. HOLDERS OF SHARES OF CRAWFORD BANCORP COMMON
STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CRAWFORD BANCORP HAS CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF CRAWFORD BANCORP APPROVE THE AGREEMENT.
EXCHANGE OF CRAWFORD BANCORP COMMON STOCK
Under the terms of the Agreement, shareholders of record of Crawford
Bancorp upon consummation of the Merger will be entitled to receive 3.75 shares
of First Financial Common Stock ("Exchange Ratio") subject to adjustment, if
any, for stock splits, stock dividends or any similar recapitalization of First
Financial and for changes in the price of First Financial Common Stock as
reported by the NASDAQ National Market System. If the market value of First
Financial's Common Stock is less than $29.50 per share, each share of Crawford
Bancorp Common Stock will be exchanged for First Financial Common Stock with a
market value of no less than $110.62 ($29.50 x 3.75) per share; provided,
however, that if the market value of First Financial's Common Stock is less than
$27.00 per share, First Financial may terminate the Agreement in accordance with
Section 9 of the Agreement. See "PROPOSED MERGER -- Termination". Adjustments to
the Exchange Ratio are described in detail in the Agreement attached hereto as
Appendix A. As of May 30, 1996, the closing price of First Financial Common
Stock was $30.50 per share, as reported by the NASDAQ National Market System. If
the Merger had been consummated on that date, the number of shares of First
Financial Common Stock exchanged in the Merger would have been 597,000, with an
aggregate value of approximately $18,208,500.
No fractional shares of First Financial Common Stock will be issued to
shareholders of Crawford Bancorp in connection with the Merger. Each shareholder
of Crawford Bancorp who otherwise would be entitled to a fractional interest in
a share of First Financial Common Stock as a result of the Exchange Ratio will
be paid a cash amount equal to such fractional interest multiplied by the
average of the per share closing prices of First Financial Common Stock as
reported on the NASDAQ National Market System for the ten (10) trading days
immediately preceding the five (5) calendar days immediately prior to the
effective date of the Merger.
After the effective date of the Merger, stock certificates previously
representing Crawford Bancorp Common Stock will represent only the right to
receive shares of First Financial Common Stock and cash for any fractional
shares. Following the effective date of the Merger and prior to
-7-
<PAGE>
the surrender by holders of Crawford Bancorp of their stock certificates to
First Financial in exchange for First Financial Common Stock, such holders will
not be entitled to receive payment of dividends or other distributions declared
on shares of First Financial Common Stock. Upon the subsequent exchange of such
certificates, however, any accumulated dividends or other distributions
previously declared and withheld on the shares of First Financial Common Stock
will be paid, without interest. At the effective date of the Merger, the stock
transfer books of Crawford Bancorp will be closed and no transfers of shares of
Crawford Bancorp Common Stock will thereafter be made. If, after the effective
date of the Merger, certificates representing shares of Crawford Bancorp Common
Stock are presented for registration or transfer, they will be canceled and
exchanged for shares of First Financial Common Stock or cash, as the case may
be.
Distribution of stock certificates representing shares of First Financial
Common Stock and any cash payment for fractional shares (without interest) will
be made, after the effective date of the Merger, to each former shareholder of
Crawford Bancorp within twenty (20) business days following the shareholder's
delivery to First Financial of his or her certificate(s) representing shares of
Crawford Bancorp Common Stock. Instructions as to delivery of stock certificates
of Crawford Bancorp to First Financial will be mailed to each shareholder of
Crawford Bancorp within twenty (20) days following the effective date of the
Merger.
RIGHTS OF DISSENTING SHAREHOLDERS OF CRAWFORD BANCORP
The Illinois Business Corporation Act of 1983, as amended ("IBCA") provides
shareholders of merging corporations with certain dissenters' rights. The
dissenters' rights of shareholders of Crawford Bancorp are set forth in Section
11.65 of the IBCA, a copy of which is attached to this Proxy Statement as
Appendix B. Shareholders will not be entitled to dissenters' rights absent a
strict compliance with the procedures of Illinois law.
Section 11.70 of the IBCA provides that shareholders of Crawford Bancorp
have the right to demand payment for the fair market value of their shares of
Crawford Bancorp Common Stock immediately before the Merger becomes effective.
To claim its right, the shareholder must:
(a) deliver to Crawford Bancorp before the vote is taken a written demand
for payment for the shareholder's shares if the Merger is effectuated, and
(b) not vote in favor of the Merger in person or by proxy.
Dissenting shareholders must send their written notice to Jerry L. Bailey,
President, Crawford Bancorp, Inc., 108 W. Main Street, Robinson, Illinois 62454.
If the Merger is approved by the shareholders of Crawford Bancorp, First
Financial will send a statement to those shareholders satisfying the above
conditions with ten (10) days of the effective date of the Merger or thirty (30)
days after the shareholder delivers his or her written demand for payment,
whichever is later. The statement shall set forth the opinion of First Financial
as to the estimated fair value of shares, Crawford's latest balance sheet as of
the end of the fiscal year ending not earlier than 16 months before delivery of
the statement, together with the statement of income for that year and the
latest available interim financial statements, and a commitment to pay for the
shares of the dissenting shareholder at the estimated fair value thereof upon
transmittal to First Financial of the share certificates or other evidence of
ownership with respect to such
-8-
<PAGE>
shares. The notice will state the procedures the dissenting shareholder
thereafter must follow to exercise dissenters' rights in accordance with
Illinois law.
A Crawford Bancorp shareholder who is sent such a statement and does not
agree with the opinion of First Financial as to the estimated fair value of the
Crawford Bancorp shares must notify First Financial in writing within thirty
(30) days from the delivery of First Financial's statement of value of the
shareholder's estimate of the fair value of the Crawford Bancorp shares and
demand payment for the difference between the shareholder's estimated value of
the Crawford Bancorp shares and the amount of the payment offered by First
Financial.
If, within sixty (60) days from the delivery to Crawford Bancorp of the
shareholder notification of estimate of fair value of the Crawford Bancorp
shares, First Financial and the dissenting shareholder have not agreed in
writing upon the fair value of the Crawford Bancorp shares, First Financial
shall either pay the difference in value demanded by the shareholder, with
interest, or file a petition in the circuit court of the county in which either
the registered office or principal office of First Financial is located,
requesting the court to determine the fair value of the shares and interest due.
Crawford Bancorp shareholders who do not notify First Financial of their
fair value estimate and demand payment as required and within applicable time
periods are considered to have voted the shareholders' shares of Crawford
Bancorp stock in favor of the Merger and are not entitled to receive payment for
shares under 11.70 of the IBCA.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS ADDRESSES
ALL MATERIAL FEATURES OF THE APPLICABLE DISSENTERS' RIGHTS STATUTES, UNDER THE
LAWS OF THE STATE OF ILLINOIS BUT DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS ATTACHED HERETO AS
APPENDIX B.
SHAREHOLDERS' FAILURE TO COMPLY WITH THE STATUTORY REQUIREMENTS FOR
EXERCISING DISSENTERS' RIGHTS WILL RESULT IN A LOSS OF SUCH RIGHTS, AND
SHAREHOLDERS WHO MAY WISH TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSIDER SEEKING
LEGAL COUNSEL.
RESALE OF FIRST FINANCIAL COMMON STOCK BY CRAWFORD BANCORP AFFILIATES
No restrictions on the sale or transfer of the shares of First Financial
Common Stock issued pursuant to the Merger will be imposed solely as a result of
the Merger, other than restrictions on the transfer of such shares issued to any
shareholder of Crawford Bancorp who may be deemed to be an "affiliate" of
Crawford Bancorp for purposes of Rule 145 under the Securities Act. Directors,
executive officers and 10% shareholders generally are deemed to be affiliates
for purposes of Rule 145.
The Agreement provides that Crawford Bancorp will provide First Financial
with a list identifying each affiliate of Crawford Bancorp. The Agreement also
requires that each affiliate of Crawford Bancorp deliver to First Financial, on
or prior to the effective date of the Merger, a written agreement to the effect
that such affiliate (i) has not sold, pledged, transferred, disposed of or
otherwise reduced the affiliate's market risk with respect to the shares of
Crawford Bancorp
-9-
<PAGE>
Common Stock directly or indirectly owned or held by such person during the
thirty (30) day period prior to the effective date, and (ii) will not sell,
pledge, transfer or otherwise dispose of or reduce the affiliate's market risk
with respect to the shares of First Financial Common Stock to be received by
such person pursuant to the Agreement (A) until such time as financial results
covering at least thirty (30) days of combined operations of Crawford Bancorp
and First Financial have been published within the meaning of Section 201.01 of
the Commission's Codification of Financial Reporting Policies, and (B) unless
done pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 145 or another exemption from the registration requirements
under the Securities Act. The certificates representing First Financial Common
Stock issued to affiliates of Crawford Bancorp in the Merger may contain a
legend indicating these resale restrictions.
This is only a general statement of certain restrictions regarding the sale
or transfer of the shares of First Financial Common Stock to be issued in the
Merger. Therefore, those shareholders of Crawford Bancorp who may be deemed to
be affiliates of Crawford Bancorp should consult with their legal counsel
regarding the resale restrictions that may apply to them.
CONDITIONS TO CONSUMMATION
Consummation of the Merger is conditioned upon, among other items, (1)
approval of the Agreement by the affirmative vote of the holders of at least two
thirds of the outstanding shares of Crawford Bancorp Common Stock, (2) receipt
by First Financial and Crawford Bancorp of all applicable regulatory approvals
required for the Merger, (3) receipt of an opinion of counsel with respect to
certain federal income tax matters, (4) receipt by First Financial of certain
undertakings from affiliates of Crawford Bancorp, (5) receipt by First Financial
of an agreement signed by each director of Crawford Bancorp, pursuant to which
each director agrees to vote, or cause to be voted, all shares of Crawford
Bancorp Common Stock held by the director, or over which the director holds a
proxy, in favor of the Merger, (6) receipt by First Financial and Crawford
Bancorp of certain officers' certificates and other legal opinions, (7) the
accuracy at the effective date of the Merger of representations and warranties
contained in the Agreement, and (8) the fulfillment of certain covenants set
forth in the Agreement. The conditions to consummation of the Merger, which are
more fully enumerated in the Agreement, are requirements subject to unilateral
waiver by the party entitled to the benefit of such conditions, as set forth in
the Agreement. See "PROPOSED MERGER -- Resale of First Financial Common Stock by
Crawford Bancorp Affiliates", "-- Regulatory Approvals", "FEDERAL INCOME TAX
CONSEQUENCES" and Appendix A.
TERMINATION
The Agreement may be terminated before consummation of the Merger by First
Financial if, among other reasons, (1) it cannot utilize the pooling-of-
interests method of accounting for the Merger, (2) there has been a material
misrepresentation or a breach of any warranty set forth in the Agreement which
Crawford Bancorp has failed to cure to the satisfaction of First Financial, (3)
Crawford Bancorp or the Bank has breached or failed to comply with a covenant
set forth in the Agreement, (4) consummation of the Merger has become
inadvisable or impracticable due to the commencement or threat of any claim,
litigation or proceeding against First Financial, Crawford Bancorp, the Bank or
any officer or director of such entities relating to the Agreement or the Merger
or which is likely to have a material adverse effect on the business, prospects,
assets,
-10-
<PAGE>
capitalization, financial condition or results of operations of Crawford
Bancorp, the Bank or First Financial, (5) there has been a material adverse
change in the business, prospects, assets, capitalization, financial condition
or results of operations of Crawford Bancorp or the Bank as of the effective
date of the Merger as compared to that in existence as of December 31, 1995 or
(6) the market value of First Financial Common Stock is less than $27.00 per
share. Crawford Bancorp may terminate the Agreement prior to the consummation
of the Merger if, (1) there has been a misrepresentation or a breach of any
warranty by or on the part of First Financial in its representations and
warranties set forth in the Agreement which has had or would be expected to have
a material adverse effect on the business, assets, capitalization, financial
condition or results of operation of First Financial on a consolidated basis or
(2) there has been a breach of or failure to comply with any covenant set forth
in the Agreement by First Financial. Either First Financial or Crawford Bancorp
may terminate the Agreement prior to the Merger if, (1) consummation of the
Merger has not occurred by September 30, 1996 or (2) a majority of the
respective Boards of Directors of First Financial and Crawford Bancorp mutually
agree in writing to terminate the Agreement. Upon termination for any of these
reasons, the Agreement will be of no further force or effect. See Appendix A to
this Proxy Statement.
RESTRICTIONS AFFECTING CRAWFORD BANCORP
The Agreement contains a number of restrictions regarding the conduct of
business of Crawford Bancorp pending consummation of the Merger. Among other
items, Crawford Bancorp may not, without the prior written consent of First
Financial, (1) change its capital stock accounts, (2) distribute or pay any
dividends, except that Crawford Bancorp may pay a semi-annual cash dividend of
no greater than One Dollar ($1.00) per share of common stock for each such
dividend until the effective date of the Merger; provided, however, that no
dividend may be paid during the semi-annual period in which the Merger is
consummated if, during such semi-annual period, Crawford Bancorp's shareholders
will become entitled to receive dividends on their shares of First Financial
common stock received pursuant to the Agreement, (3) amend its Articles of
Incorporation or By-Laws, (4) carry on its business other than substantially in
the manner as conducted as of the date of the Agreement and in the ordinary
course of business, or (5) merge, combine or sell Crawford Bancorp, except under
certain limited circumstances. See Appendix A to this Proxy Statement.
REGULATORY APPROVALS
The Merger requires the prior approval of the Board of Governors of the
Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of
1956, as amended ("BHC Act") and the Illinois Commissioner of Banks and Trust
Companies ("ICBT") under the Illinois Bank Holding Company Act of 1957. First
Financial has filed applications with the Federal Reserve and the ICBT for their
prior approval of the Merger.
Approval of the Merger by the Federal Reserve and the ICBT is not to be
interpreted as the opinion of these regulatory authorities that the Merger is
favorable to the shareholders of Crawford Bancorp from a financial point of view
or that those regulatory authorities have considered the adequacy of the terms
of the Merger. An approval by the Federal Reserve or the ICBT in no way
constitutes an endorsement or a recommendation of the Merger by such regulatory
authorities.
-11-
<PAGE>
ACCOUNTING TREATMENT FOR THE MERGER
It is anticipated that the Merger will be accounted for as a "pooling-of-
interests" transaction. Under this method of accounting, shareholders of First
Financial and Crawford Bancorp will be deemed to have combined their existing
voting common stock interests. See "SUMMARY OF SELECTED FINANCIAL DATA" and "PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION".
In order for the Merger to qualify for pooling-of-interests accounting
treatment, among other items, 90% or more of the outstanding shares of Crawford
Bancorp Common Stock must be exchanged for First Financial Common Stock. In the
event the holders representing more than 10% of the outstanding shares of
Crawford Bancorp Common Stock become entitled by the exercise of dissenters'
rights or otherwise to receive cash instead of First Financial Common Stock, the
Merger would not qualify for pooling-of-interests method of accounting and First
Financial would have the right to terminate the Agreement. See "PROPOSED MERGER
- -- Rights of Dissenting Shareholders" and "PROPOSED MERGER -- Termination".
EFFECTIVE DATE
The Merger will become effective at the close of business on the day
specified in the Articles of Merger of Crawford Bancorp with and into First
Financial as filed with the Indiana Secretary of State. The effective date of
the Merger will occur on the last business day of the month following (1) the
fulfillment of all conditions precedent to the Merger set forth in the Agreement
and (2) the expiration of all waiting periods in connection with the bank
regulatory applications filed for approval of the Merger, unless otherwise
mutually agreed to by First Financial and Crawford Bancorp.
First Financial and Crawford Bancorp currently anticipate that Merger will
be consummated during the third quarter of 1996.
MANAGEMENT, PERSONNEL AND OPERATIONS AFTER THE MERGER
First Financial will be the surviving corporation in the Merger and, upon
consummation of the Merger, the separate corporate existence of Crawford Bancorp
will cease. Upon consummation of the Merger, the Bank will continue as a wholly-
owned subsidiary of First Financial. The Board of Directors of the Bank serving
at the effective date of the Merger will serve as the Board of Directors of the
Bank after the effective date of the Merger. In addition, First Financial may
appoint one designee to the Board of Directors of the Bank. Following the
effective date of the Merger, First Financial, as the sole shareholder of the
Bank, will have the ability to elect the Board of Directors of the Bank. The
officers of the Bank following consummation of the Merger will be the officers
of the Bank serving at the effective date of the Merger until the Board of
Directors of the Bank determines otherwise.
Those persons who are officers or employees of the Bank as of the effective
date of the Merger, provided that these persons continue as officers or
employees of First Financial or any subsidiary of First Financial after the
effective date of the Merger, will receive substantially the same employee
benefits on substantially the same terms and conditions that First Financial may
offer to similarly situated officers and employees of its banking subsidiaries
from time to time. In
-12-
<PAGE>
addition, years of service of an officer or employee of the Bank prior to the
effective date of the Merger will be credited to each such employee for purposes
of eligibility under First Financial's employee welfare and pension benefit
plans and for purposes of eligibility and vesting, but not for accrual or
contributions, under the First Financial Corporation 401(k) Savings Plan
("Savings Plan"), the First Financial Corporation Employees' Pension Plan
("Pension Plan"), and the First Financial Employee Stock Ownership Plan
("ESOP").
Those officers and employees of the Bank who otherwise meet the eligibility
requirements of the Savings Plan, Pension Plan and ESOP, based upon their age
and years of service to the Bank, will become participants thereunder on the
first "plan entry date" (as defined in the Savings Plan, Pension Plan and ESOP)
which coincides with or next follows the effective date of the Merger. Those
officers and employees who do not meet the eligibility requirements of the
Savings Plan, Pension Plan or ESOP on such date will become participants
thereunder on the first plan entry date(s) under the Savings Plan, Pension Plan
and ESOP, as the case may be, which coincides with or next follows the date on
which such eligibility requirements are satisfied.
Further, First Financial will honor all contracts relating to compensation
of any officers and employees of Crawford Bancorp or the Bank that were in
effect as of the date of the Agreement and that remain in effect as of the
effective date of the Merger.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax aspects of
the Merger. This discussion does not purport to cover all federal income tax
consequences relating to the Merger and does not contain any information with
respect to state, local or other tax laws.
TAX OPINION
First Financial and Crawford Bancorp have requested the law firm of Krieg
DeVault Alexander & Capehart to render an opinion that the Merger constitutes a
tax-free reorganization and, with respect to certain federal income tax
consequences of the Merger, substantially to the effect that the merger to be
effected constitutes a tax-free reorganization under the Internal Revenue Code
of 1986, as amended ("Code") to each party thereto and to the shareholders of
Crawford Bancorp, except with respect to cash received by Crawford Bancorp's
shareholders (i) for fractional share interests of First Financial Common Stock
or (ii) pursuant to the exercise of dissenters' rights.
The opinion rendered by Krieg DeVault Alexander & Capehart will be based
upon the assumption of certain facts to be stated in the opinion. Under the
Agreement, the obligations of each of First Financial and Crawford Bancorp to
consummate the Merger is conditioned upon the receipt of an opinion of counsel
substantially to the effect as set forth above.
-13-
<PAGE>
TAX CONSEQUENCES TO FIRST FINANCIAL AND CRAWFORD BANCORP
The merger of Crawford Bancorp with and into First Financial constitutes a
statutory merger under Illinois and Indiana law. Consequently, based upon the
assumption of certain facts to be stated in the opinion, the merger of Crawford
Bancorp with and into First Financial should constitute a tax-free
reorganization. As a result, First Financial and Crawford Bancorp will recognize
neither gain nor loss as a result of the Merger for federal income tax purposes.
TAX CONSEQUENCES TO CRAWFORD BANCORP SHAREHOLDERS
A. Crawford Bancorp Shareholders Receiving Solely First Financial Common
---------------------------------------------------------------------
Stock
-----
A Crawford Bancorp shareholder who receives solely First Financial Common
Stock in exchange for all of the shares of Crawford Bancorp Common Stock
actually owned by the shareholder will not recognize any gain or loss upon such
exchange for federal income tax purposes. See paragraph C following for a
discussion of the tax consequences of the receipt of cash in lieu of fractional
share interests of First Financial Common Stock.
B. Dissenting Crawford Bancorp Shareholders Receiving Solely Cash
--------------------------------------------------------------
The transaction will result in income being recognized for federal income
tax purposes for Crawford Bancorp shareholders who dissent to the Merger and
receive solely cash in exchange for their shares of Crawford Bancorp Common
Stock. A shareholder who receives solely cash for the shareholder's shares of
Crawford Bancorp Common Stock pursuant to the Merger through the exercise of
dissenters' rights and, as a result of the surrender of all of the shareholder's
shares of Crawford Bancorp Common Stock, owns no Crawford Bancorp Common Stock
either directly or through the constructive ownership rules of Section 318 of
the Code, would recognize capital gain or loss (assuming that the Crawford
Bancorp Common Stock is held by such shareholder as a capital asset) equal to
the difference between the amount of the cash received and the shareholder's tax
basis of its shares of Crawford Bancorp Common Stock.
C. Cash Received in Lieu of Fractional Shares
------------------------------------------
A Crawford Bancorp shareholder who receives cash in lieu of a fractional
share interest of First Financial Common Stock will be treated as having
received such fraction of a share of First Financial Common Stock and then as
having received cash in redemption of the fractional share interest, subject to
the provisions of Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE, IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN EFFECT ON THE DATE OF THIS
PROXY STATEMENT WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS
OR CIRCUMSTANCES OF ANY SHAREHOLDER OF CRAWFORD BANCORP. THE ABOVE DISCUSSION
MAY NOT BE APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT TO THE EXERCISE
OF STOCK OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION. SHAREHOLDERS ARE URGED
TO CONSULT WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX CONSEQUENCES OF THE
MERGER TO
-14-
<PAGE>
THEM, INCLUDING THE EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS AND ANY OTHER
TAX CONSEQUENCES.
COMPARATIVE PER SHARE DATA
NATURE OF TRADING MARKET
Shares of First Financial Common Stock are traded in the over-the-counter
market and share prices are reported by the NASDAQ National Market System under
the symbol THFF. On December 14, 1995, the business day immediately preceding
the public announcement of the Merger, the closing price of First Financial
Common Stock reported by the NASDAQ National Market System was $32.00 per share.
On May 30, 1996, the closing price of First Financial Common Stock reported by
the NASDAQ National Market System was $30.50 per share. The following table sets
forth, for the periods indicated, the high and low per share closing prices of
First Financial Common Stock as reported by the NASDAQ National Market System.
The prices shown below have been adjusted for all stock splits and stock
dividends paid by First Financial.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1993
----
<S> <C> <C>
First Quarter $ 24.50 $ 22.50
Second Quarter 26.50 24.125
Third Quarter 29.125 26.25
Fourth Quarter 32.50 28.50
1994
----
First Quarter $ 33.33 $ 29.53
Second Quarter 33.37 31.91
Third Quarter 32.86 31.19
Fourth Quarter 31.19 28.58
1995
----
First Quarter $ 30.00 $ 28.56
Second Quarter 29.00 26.68
Third Quarter 30.00 29.00
Fourth Quarter 32.00 29.50
1996
----
First Quarter $ 35.00 $ 31.50
Second Quarter
(through May 30, 1996) 32.00 30.25
</TABLE>
There is no established public trading market for shares of Crawford
Bancorp Common Stock. Shares of Crawford Bancorp Common Stock are traded in
limited quantities in private transactions. Because there are no market makers
for Crawford Bancorp Common Stock and no
-15-
<PAGE>
recognized exchanges on which shares of Crawford Bancorp Common Stock are
traded, there is no published source of prices relating to transactions in
Crawford Bancorp Common Stock. Most trades occur as a result of private
negotiations in isolated transactions, with the result that management of
Crawford Bancorp Common Stock is not directly informed of the number of trades
or prices at which shares of Crawford Bancorp Common Stock are traded. Because
of the limited market for shares of Crawford Bancorp Common Stock, the actual
per share trade prices shown below may not necessarily be indicative of the
value of a share of Crawford Bancorp Common Stock.
The table below sets forth, for the periods indicated, the high and low
trade prices for shares of Crawford Bancorp Common Stock, the number of shares
traded and the number of trades of Crawford Bancorp Common Stock, based upon
information received by management of Crawford Bancorp. The last trade of
Crawford Bancorp Common Stock, the terms of which management of Crawford Bancorp
is aware, occurred on or about July 11, 1995 and involved the sale of forty (40)
shares at a price of approximately $70.00 per share. As of the Record Date,
there were approximately 125 holders of Crawford Bancorp Common Stock.
<TABLE>
<CAPTION>
NUMBER TOTAL
OF SHARES NUMBER
HIGH LOW TRADED OF TRADES
---- --- ------ ---------
<S> <C> <C> <C> <C>
1993 N/A N/A 150 3
----
1994 N/A N/A 780 3
----
1995 N/A N/A 5,664 11
----
1996 N/A N/A 0 0
----
(through
May 30, 1996)
</TABLE>
"N/A" means the information is not available to management of Crawford
Bancorp.
DIVIDENDS
The following table sets forth the per share cash dividends paid on shares
of First Financial Common Stock and Crawford Bancorp Common Stock since January
1, 1993. All dividends have been adjusted to give effect to their respective
stock dividends and stock splits (if any).
<TABLE>
<CAPTION>
FIRST FINANCIAL CRAWFORD BANCORP
COMMON STOCK (1) COMMON STOCK (2)
---------------- ----------------
1993
----
<S> <C> <C>
First Quarter $0.00 $0.00
Second Quarter $ .238 $0.50
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C>
Third Quarter $0.00 $0.00
Fourth Quarter $ .257 $1.00
1994
----
First Quarter $0.00 $0.00
Second Quarter $ .257 $1.00
Third Quarter $0.00 $0.00
Fourth Quarter $ .267 $1.00
1995
----
First Quarter $0.00 $0.00
Second Quarter $ .28 $1.00
Third Quarter $0.00 $0.00
Fourth Quarter $ .28 $1.00
1996
----
First Quarter $0.00 $0.00
Second Quarter
(through May 30, 1996) $0.00 $0.00
</TABLE>
(1) There can be no assurance as to the amount of future dividends that may be
declared or paid on shares of First Financial Common Stock since dividend
policies are subject to the discretion of the Board of Directors of First
Financial, general business conditions and dividends paid to First
Financial by its subsidiary banks. For certain restrictions on the payment
of dividends on shares of First Financial Common Stock, see "COMPARISON OF
COMMON STOCK -- Dividend Rights".
(2) The Agreement provides Crawford Bancorp may make semi-annual cash dividends
to its shareholders of no greater than One Dollar ($1.00) per share of
common stock for each such dividend until the effective date of the Merger;
provided, however, that no dividend may be paid during the semi-annual
period in which the Merger is consummated if, during such semi-annual
period, Crawford Bancorp's shareholders will become entitled to receive
dividends on their shares of First Financial common stock received pursuant
to the Agreement.
EXISTING AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and equivalent
information. The data is based on historical financial statements and the pro
forma financial information included on pages 18 through 26 and has been
restated to give effect to all stock dividends. Equivalent per share data is
calculated by multiplying the pro forma First Financial information by the
Exchange Ratio under the Agreement.
-17-
<PAGE>
<TABLE>
<CAPTION>
As Reported
---------------------------------------------------
Cash Book Value at
First Financial Net Income Dividends Period End
- --------------- ----------- --------- -------------
<S> <C> <C> <C>
Three Months Ended
March 31, 1996 $ 0.70 $ 0.00 $ 22.83
Year Ended December 31,
1995 $ 2.30 $ 0.56 $ 22.61
1994 $ 2.12 $ 0.52 $ 19.42
1993 $ 2.22 $ 0.49 $ 19.04
<CAPTION>
Crawford Bancorp
- ----------------
<S> <C> <C> <C>
Three Months Ended
March 31, 1996 $ 0.36 $ 0.00 $ 62.59
Year Ended December 31,
1995 $ 3.91 $ 2.00 $ 62.92
1994 $ 6.41 $ 2.00 $ 59.40
1993 $ 6.74 $ 1.50 $ 55.56
</TABLE>
<TABLE>
<CAPTION>
Net Income
-----------------------------------------------------
First Financial Crawford Bancorp
Pro Forma Equivalent
--------------- ----------------
<S> <C> <C>
Three Months Ended
March 31, 1996 $ 0.64 $ 2.40
Year Ended December 31,
1995 $ 2.17 $ 8.14
1994 $ 2.08 $ 7.80
1993 $ 2.18 $ 8.18
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends
-----------------------------------------------------
First Financial Crawford Bancorp
Pro Forma Equivalent
--------------- ----------------
<S> <C> <C>
Three Months Ended
March 31, 1996 $ 0.00 $ 0.00
Year Ended December 31,
1995 $ 0.56 $ 2.10
1994 $ 0.52 $ 1.95
1993 $ 0.49 $ 1.84
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity
-----------------------------------------------------
First Financial Crawford Bancorp
Pro Forma Equivalent
--------------- ----------------
<S> <C> <C>
As of March 31, 1996 $22.26 $83.48
As of December 31, 1995 $22.06 $82.73
</TABLE>
<TABLE>
<CAPTION>
Market Value of Common Stock
---------------------------------------------------------
Crawford Bancorp
----------------
First Financial Historical Equivalent
--------------- ---------- ----------
<S> <C> <C> <C>
As of December 14, 1995 (1) $32.00 $70.00(2) $120.00
</TABLE>
(1) Represents the last business day prior to the public announcement of the
proposed merger with Crawford Bancorp.
(2) Represents the value of Crawford Bancorp's Common Stock as of the last
trade, the terms of which management of Crawford Bancorp is aware.
-18-
<PAGE>
FIRST FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of First Financial as of March 31, 1996 and Pro Forma
Condensed Combined Statements of Income for the three months ended March 31,
1996 and the years ended December 31, 1995, 1994 and 1993.
The pro forma information is based upon historical financial statements.
The assumptions give effect to the proposed merger under the pooling-of-
interests method of accounting. The information has been prepared in accordance
with the rules and regulations of the SEC and is provided for comparative
purposes only.
-19-
<PAGE>
FIRST FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FFC CRAWFORD ADJUSTMENT(a) PRO FORMA
--- -------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 44,111 $ 2,817 $ 46,928
INTEREST-BEARING DEPOSITS 0 1,083 1,083
FEDERAL FUNDS SOLD 6,893 8,345 $ (1,000) 14,238
INVESTMENT SECURITIES 516,395 31,845 548,240
LOANS:
LOANS, NET OF UNEARNED INTEREST 804,794 54,121 858,915
LESS: ALLOWANCE FOR LOAN LOSSES 9,958 541 10,499
--------- -------- ----------
NET LOANS $ 794,836 $ 53,580 $ 848,416
INTEREST RECEIVABLE 12,926 1,061 13,987
GOODWILL 0 674 674
PREMISES AND EQUIPMENT (NET) 24,881 1,688 26,569
OTHER ASSETS 16,024 810 16,834
---------- -------- ----------
TOTAL ASSETS $1,416,066 $101,903 ($1,000) $1,516,969
========== ======== ======== ==========
LIABILITIES
DEPOSITS:
NON-INTEREST BEARING $ 115,228 $ 7,435 $ 122,663
INTEREST-BEARING 975,652 82,193 1,057,845
---------- -------- ----------
TOTAL DEPOSITS 1,090,880 89,628 1,180,508
FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER
AGREEMENT TO REPURCHASE $ 22,717 $ 1,786 $ (1,000) $ 23,503
TREASURY TAX AND LOAN NOTE 4,164 0 4,164
ADVANCES FROM FEDERAL HOME
LOAN BANK 95,152 0 95,152
OTHER LIABILITIES 13,826 497 14,323
LONG-TERM DEBT 57,671 28 57,699
---------- -------- -------- ----------
TOTAL LIABILITIES 1,284,410 91,939 (1,000) 1,375,349
---------- -------- -------- ----------
SHAREHOLDERS' EQUITY
COMMON STOCK 727 796 (727) (b) 796
ADDITIONAL CAPITAL 33,150 2,180 (742) (c) 34,588
RETAINED EARNINGS 95,753 6,931 102,684
UNREALIZED GAINS ON SECURITIES,
NET 3,495 57 3,552
TREASURY STOCK (1,469) 0 l,469 (d) 0
---------- -------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY 131,656 9,964 0 141,620
---------- -------- -------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,416,066 $101,903 ($1,000) $1,516,969
========== ======== ======== ==========
OUTSTANDING COMMON SHARES 5,767,175 159,200 6,364,175
SHAREHOLDERS' EQUITY PER SHARE $ 22.83 $ 62.59 $ 22.26
</TABLE>
See Notes to Pro Forma Financial Information
<TABLE>
<CAPTION>
AS REPORTED
-----------
FFC CRAWFORD ADJUSTMENT PRO FORMA
--- -------- ---------- ---------
<S> <C> <C> <C> <C>
TOTAL INTEREST INCOME $ 26,471 $ 1,790 $(13) $ 28,248
TOTAL INTEREST EXPENSE 12,946 937 (13) 13,870
-------- -------- ---- ----------
NET INTEREST INCOME 13,525 853 14,378
PROVISION FOR POSSIBLE
LOAN LOSSES 630 105 735
-------- -------- ---- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 12,895 748 13,643
NON-INTEREST INCOME 1,843 146 1,989
NON-INTEREST EXPENSE 8,938 834 9,772
-------- -------- ---- ----------
INCOME BEFORE
INCOME TAXES 5,800 60 5,800
INCOME TAX EXPENSE 1,798 3 $ 1,801
-------- -------- ---- ----------
NET INCOME $ 4,002 $ 57 $ 0 $ 4,059
======== ======== ==== ==========
NET INCOME PER SHARE $ 0.70 $ 0.36 $ 0 $ 0.64
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,758,000 159,200 6,355,000
</TABLE>
See Notes to Pro Forma Financial Information
-20-
<PAGE>
FIRST FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED
-----------
FFC CRAWFORD ADJUSTMENT PRO FORMA
--- -------- ---------- ---------
<S> <C> <C> <C> <C>
TOTAL INTEREST $99,277 $7,077 $(24) $106,330
TOTAL INTEREST EXPENSE 50,647 3,521 (24) 54,144
------- ----- ---- ------
NET INTEREST INCOME 48,630 3,556 52,186
PROVISION FOR POSSIBLE
LOAN LOSSES 2,263 300 2,563
------- ----- ---- ------
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 46,367 3,256 49,623
NON-INTEREST INCOME 7,289 633 7,922
NON-INTEREST EXPENSE 35,592 3,098 38,690
------ ----- ---- ------
INCOME BEFORE
INCOME TAXES 18,064 791 18,855
INCOME TAX EXPENSE 4,790 168 $ 4,958
------ ---- ---- --------
NET INCOME $13,274 $ 623 $ 0 $13,897
======= ====== ==== ========
NET INCOME PER SHARE $2.30 $3.91 $2.17
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,816,000 159,200 6,413,000
</TABLE>
See Notes to Pro Forma Financial Information
-21-
<PAGE>
FIRST FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED
-----------
FFC CRAWFORD ADJUSTMENT PRO FORMA
--- -------- ---------- ---------
<S> <C> <C> <C> <C>
TOTAL INTEREST INCOME $84,892 $6,744 $(29) $91,607
TOTAL INTEREST EXPENSE 37,467 3,051 (29) 40,489
------ ----- ---- ------
NET INTEREST INCOME 47,425 3,693 51,118
PROVISION FOR POSSIBLE
LOAN LOSSES 2,584 90 2,674
------ ------ ----- -----
NET INTEREST INCOME
AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 44,841 3,603 48,444
NON-INTEREST INCOME 6,814 568 7,382
NON-INTEREST EXPENSE 34,829 2,787 37,616
------ ----- ---- ------
INCOME BEFORE
INCOME TAXES 16,826 1,384 18,210
INCOME TAX EXPENSE 4,521 364 4,885
----- --- ---- -----
NET INCOME $12,305 $1,020 $ 0 $13,325
======= ====== ==== =======
NET INCOME PER SHARE $2.12 $6.41 $2.08
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,816,000 159,200 6,413,000
</TABLE>
See Notes to Pro Forma Financial Information
-22-
<PAGE>
FIRST FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED
-----------
FFC CRAWFORD ADJUSTMENT PRO FORMA
--- -------- ---------- ---------
<S> <C> <C> <C> <C>
TOTAL INTEREST INCOME $85,409 $6,947 $(28) $92,328
TOTAL INTEREST EXPENSE 38,423 3,086 (28) 36,515
------- ------ ---- -------
NET INTEREST INCOME 46,986 3,861 50,847
PROVISION FOR POSSIBLE LOSSES 2,494 120 2,614
------- ------ ---- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN
LOSSES 44,492 3,741 48,233
NON-INTEREST INCOME 7,080 504 7,584
NON-INTEREST EXPENSE 34,259 2,747 37,006
------- ------ ---- -------
INCOME BEFORE INCOME TAXES 17,313 1,498 37,006
INCOME TAX EXPENSE 4,391 425 4,816
------- ------ ---- -------
NET INCOME $12,922 $1,073 $ 0 $13,995
======= ====== ==== =======
NET INCOME PER SHARE $2.22 $6.74 $2.18
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,816,000 159,200 6,413,000
</TABLE>
See Notes to Pro Forma Financial Information
-23-
<PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of Crawford Bancorp for 597,000 shares of First Financial
Common Stock.
(b) Includes re-issuance of shares currently reflected as treasury stock with a
stated value of $6,000, the issuance of new shares by First Financial with
a stated value of $69,000, and the elimination of Crawford Bancorp Common
Stock with a par value of $796,000.
(c) Reflects the elimination of additional paid-in-capital for the re-issuance
of shares currently reflected as First Financial treasury stock in the
amount of $1,463,000, and the addition of $721,000 in additional paid-
in-capital resulting from the exchange of common stock.
(d) Reflects the re-issuance of shares currently reflected as First Financial
treasury stock.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-24-
<PAGE>
DESCRIPTION OF FIRST FINANCIAL
BUSINESS
First Financial is a multi-bank holding company headquartered in Terre
Haute, Indiana, which is engaged in the business of commercial banking. With
total consolidated assets of $1.42 billion as of March 31, 1996, First Financial
is the fifth largest independent bank holding company headquartered in the State
of Indiana. It is the largest locally-owned financial institution in its primary
market area, which is the Wabash Valley area of west-central Indiana and east-
central Illinois. First Financial operates 30 banking offices in this market
area, employing approximately 640 full-time equivalent employees to whom it
provides a variety of benefits.
The business of First Financial is conducted through its seven (7) existing
subsidiary banks: Terre Haute First National Bank, Terre Haute, Indiana; First
State Bank, Brazil, Indiana; First Citizens State Bank, Newport, Indiana; First
Farmers State Bank, Sullivan, Indiana; First Ridge Farm State Bank, Ridge Farm,
Illinois; First Parke State Bank, Rockville, Indiana; and First National Bank of
Marshall, Marshall, Illinois.
First Financial was organized as the holding company for Terre Haute First
National Bank in 1982, acquiring its six (6) remaining subsidiaries from 1984 to
the present. The principal executive offices of First Financial are located at
One First Financial Plaza, Box 540, Terre Haute, Indiana 47808, Telephone (812)
238-6000.
The subsidiary banks are engaged in a wide range of commercial and consumer
banking activities, including accepting demand, savings and time deposits;
making commercial, consumer and real estate loans; performing fiduciary and
trust services; and providing other services relating to the general banking
business. First Financial or certain of its subsidiary banks also offers
electronic data processing and discount brokerage services; issues credit cards;
markets and services mortgage loans; and rents safe deposit facilities.
First Financial's subsidiary banks develop loans primarily within their
respective market areas, resulting in a geographic concentration of loans in the
Wabash Valley area. The economy of the Wabash Valley continued to be strong
during 1995, with higher employment growth and a lower unemployment rate than
the national averages. In the first quarter of 1996, there was continued retail
and industrial construction in the Wabash Valley. The strong economy coupled
with the continued construction should provide a base for steady, modest growth
in the market area. The subsidiary banks do not engage in foreign lending
activities or highly leveraged transactions.
The principal source of revenue to First Financial is dividends paid to it
by the subsidiary banks. Various legal restrictions apply to the ability of
subsidiary banks to finance, pay dividends to or otherwise supply funds to First
Financial. See "COMPARISON OF COMMON STOCK --Dividend Rights".
ACQUISITION POLICY
First Financial anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of financial institutions
located in Indiana and Illinois. Management of First Financial currently is
reviewing and analyzing potential acquisitions, as well as engaging
-25-
<PAGE>
in discussions or negotiations preliminary to letters of intent or agreements in
principle concerning potential acquisitions. There can be no assurance that any
of these discussions or negotiations will result in definitive agreements or
consummated transactions.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning First Financial does not purport to be
complete. For additional information, see the documents filed by First Financial
and listed under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy
Statement which are specifically incorporated herein by reference.
DESCRIPTION OF CRAWFORD BANCORP
BUSINESS
Crawford Bancorp is an Illinois corporation registered as a bank holding
company with its principal office located in Robinson, Illinois. Crawford
Bancorp owns all of the issued and outstanding common stock of the Bank, and
Crawford Bancorp's business primarily consists of the ownership, supervision and
control of the Bank. The common stock of the Bank is Crawford Bancorp's
principal asset and dividends paid by the Bank are Crawford Bancorp's principal
source of income.
The Bank is an Illinois-chartered bank with its main office located in
Robinson, Illinois. The Bank was organized on August 28, 1902 and has been in
continuous existence since that date. The Bank provides commercial and retail
banking services to Crawford County, Illinois and the surrounding areas. These
services include accepting demand, savings and time deposits; making
agricultural, commercial, industrial, consumer and real estate loans; and
providing other services relating to the general commercial banking business .
The Bank is subject to vigorous competition from major banking
institutions, as well as other financial institutions in its principal service
area, such as savings and loan associations, insurance companies, and finance
companies.
PROPERTIES
The Bank's main banking office is located at 108 West Main Street,
Robinson, Illinois. The Bank operates a drive-in branch facility at 602 West
Walnut, Robinson, Illinois. The Bank also operates a drive-up automated teller
facility at 1304 West Main, Robinson, Illinois. The bank is purchasing the
building at 102 West Main Street, Robinson, Illinois on a contract which expires
on April 19, 2001. Crawford Bancorp uses such building for storage. Further, the
Bank owns a lot located at the corner of West Locust Street and North Franklin
Street, which it currently leases to third parties. In Oblong, Illinois, the
Bank operates a branch at 301 East Main, and owns a vacant branch building
located at 101 West Main Street and a lot on North Range Street. Additionally,
the Bank operates a branch at 211 South Christy, Sumner, Illinois. Except for
the building located at 102 West Main Street, Robinson, Illinois, Crawford
Bancorp owns the land and buildings of all of it's offices free and clear of any
major encumbrances.
-26-
<PAGE>
LITIGATION
There is no pending litigation of a material nature in which Crawford
Bancorp or the Bank is a party or to which any of its property is subject.
Further, there is no material legal proceeding in which any director, executive
officer, principal shareholder or affiliate of Crawford Bancorp or the Bank, or
any associate of any such director, executive officer, principal shareholder or
affiliate is a party or has a material interest adverse to Crawford Bancorp.
None of the ordinary routine litigation in which Crawford Bancorp or the Bank is
involved is expected to have a material adverse effect on the financial
condition, results of operations, business, assets or capitalization of Crawford
Bancorp.
EMPLOYEES
As of March 31, 1996, Crawford Bancorp had sixty (60) full-time equivalent
employees to whom Crawford Bancorp provides a variety of benefits. Management of
Crawford Bancorp considers relations with its employees to be good. Crawford
Bancorp has six (6) regular and no seasonal part-time employees.
MANAGEMENT
The following table contains certain information about each director and
executive officer of Crawford Bancorp as of the date of this Proxy Statement:
<TABLE>
<CAPTION>
DIRECTORS:
- ---------
SERVED AS
DIRECTOR OF
CRAWFORD BANCORP
PRINCIPAL OCCUPATION CONTINUOUSLY
NAME AGE DURING PAST 5 YEARS SINCE
- ---- --- -------------------- ----------------
<S> <C> <C> <C>
Jerry L. Bailey 47 President and Chief Executive 1982
Officer of Crawford County
State Bank and Crawford
Bancorp, Inc.
Donald Bertram 62 Self-employed; Owner 1982
Bertram Oil Company
W. J. Chamblin 64 Chairman, President, Treasurer, 1982
Bradford Supply Company
(distribution of equipment for
oil, refinery and manufacturing
industries)
John P. Graves 51 Owner, Graves Industries 1989
(retail building materials)
Rick Kirk 53 Farmer 1993
</TABLE>
-27-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Gregory Meador 45 President, Health Investment 1991
Capital, Inc. (money management
and venture capital)
Eugene H. Price (1) 77 Attorney 1982
Elizabeth Schmidt (2) 68 Vice-President, Secretary and 1994
Administrator of Schmidt Clinic
Ltd. (medical out-patient clinic)
William Terry Schmidt (3) 46 Dentist 1984
Marcy Price Watson (4) 35 Self-employed, operates rental 1992
properties; Department Head,
Supervisor of Leisure Activities,
Robinson Correctional Center
</TABLE>
(1) Eugene H. Price is the father of Marcy Price Watson. Eugene H. Price is the
father of Van E. Price, who owns more than 5% of Crawford Bancorp Common
Stock.
(2) Elizabeth Schmidt is married to Dr. William B. Schmidt, who beneficially
owns more than 5% of the outstanding shares of Crawford Bancorp Common
Stock. Eula Lee Schmidt, the sister-in-law of Elizabeth Schmidt,
beneficially owns more than 5% of Crawford Bancorp Common Stock. Dr.
William Terry Schmidt is the step-son of Elizabeth Schmidt.
(3) Dr. William B. Schmidt, the father of William Terry Schmidt, and Mrs. G. F.
Schmidt, Jr., the aunt of William Terry Schmidt, each beneficially own more
than 5% of the outstanding shares of Crawford Bancorp Common Stock.
Elizabeth Schmidt is the stepmother of William Terry Schmidt.
(4) Marcy Price Watson is the daughter of Eugene H. Price. Van E. Price, who
owns more than 5% of Crawford Bancorp Common Stock, is the brother of Marcy
Price Watson.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS:
- -------------------
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- --------------------------------- ------------------------------
<S> <C> <C>
Jerry L. Bailey 47 President and Treasurer of Crawford Bancorp since
December 1982
Rebecca J. Goodwin 53 Secretary of Crawford Bancorp since February 25, 1985.
</TABLE>
All of the directors of Crawford Bancorp hold office for a term of one (1)
year and the executive officers hold office for a term of one (1) year. There
are no arrangements or understandings between any of the directors, executive
officers or any other persons pursuant to which any of Crawford Bancorp's
directors or executive officers have been selected for their respective
positions. See "PROPOSED MERGER -- Interests of Certain Persons in the Merger".
-28-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth as of the Record Date the total number of shares
of Crawford Bancorp Common Stock beneficially owned by each director and
executive officer of Crawford Bancorp and by all of its directors and executive
officers as a group.
<TABLE>
<CAPTION>
CRAWFORD
BANCORP
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED (1) CLASS (2)
- ------------------------ --------- ----------
<S> <C> <C>
Jerry L. Bailey 1,872 1.2 %
Donald Bertram (3) 2,600 1.6 %
W. J. Chamblin (4) 10,002 6.3 %
Rebecca J. Goodwin 20 .01%
John P. Graves (5) 16,228 10.2 %
Rick Kirk 200 .12%
Gregory P. Meador 200 .12%
Eugene H. Price (6) 16,762 10.5 %
Elizabeth Schmidt (7) 5,676 3.6 %
William Terry Schmidt (8) 4,928 3.1 %
Marcy Price Watson (9) 26,678 16.8 %
All directors and executive officers
as a group of 11 individuals. 85,166 53.5%
</TABLE>
(1) The number of shares shown as being beneficially owned are those over which
the director or executive officer has either sole or shared voting or
investment power. The information contained in this column is based upon
shareholder records of Crawford Bancorp and information furnished to
Crawford Bancorp by the individuals listed.
(2) Calculated based upon 159,200 shares of Crawford Bancorp Common Stock
outstanding as of the Record Date.
(3) Donald Bertram beneficially owns 1,300 shares directly and 1,300 shares are
beneficially owned by Sue Bertram, the wife of Mr. Bertram.
(4) W. J. Chamblin beneficially owns 200 shares directly, and 7,640 shares are
beneficially owned by Lion Land & Mineral, Inc., a wholly-owned subsidiary
of Bradford Supply Company, over which Mr. Chamblin has sole voting and
investment power. Mr. Chamblin has an option to purchase an additional
2,162 shares from Lion Land & Mineral, Inc.
(5) John P. Graves beneficially owns 200 shares directly and 16,028 shares are
beneficially owned by Graves Industries over which Mr. Graves has sole
voting and investment power.
(6) Eugene H. Price beneficially owns 15,762 shares directly and 1,000 shares
are beneficially owned by Norma Price, the wife of Eugene H. Price. Mr.
Price is the father of Marcy Price Watson and Van E. Price, each of whom
own more than 5% of Crawford Bancorp Common Stock.
-29-
<PAGE>
(7) Elizabeth Schmidt beneficially owns 200 shares directly and 5,476 share are
beneficially owned by Dr. William B. Schmidt, who is the spouse of
Elizabeth Schmidt and beneficially owns more than 5% of the outstanding
shares of Crawford Bancorp Common Stock. Dr. William Terry Schmidt is the
step-son of Mrs. Schmidt.
(8) William Terry Schmidt beneficially owns 728 shares directly and 1,000
shares are owned jointly with a right of survivorship by William Terry
Schmidt and Dr. William B. Schmidt, the father of William Terry Schmidt. An
additional 3,200 shares are owned jointly with right of survivorship with
Susan Schmidt. Elizabeth Schmidt is the stepmother of William Terry
Schmidt. Dr. William B. Schmidt, the father of William Terry Schmidt, and
Mrs. G. F. Schmidt, the aunt of William Terry Smith, each own more than 5%.
(9) Marcy Price Watson beneficially owns 14,886 shares directly and 340 shares
are beneficially owned by Morgan Price, the daughter of Ms. Watson. An
additional 400 shares are beneficially owned by each of Nicholas Shaner,
Cole Shaner and Brad Shaner, the sons of Ms. Watson. An additional 10,252
shares are beneficially owned by Van E. Price, the brother of Marcy Price
Watson over which Ms. Watson has shared voting power. Ms. Watson is the
daughter of Eugene H. Price who owns more than 5% of Crawford Bancorp
Common Stock.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, certain information
about each person known to the management of Crawford Bancorp to be beneficial
owners of more than 5% of the outstanding shares of Crawford Bancorp Common
Stock. Crawford Bancorp has no class of stock authorized, issued or outstanding
other than the Crawford Bancorp Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
W. J. Chamblin (3) 10,002 6.3%
R. R. 3, Hilltop Ranch
Robinson, Illinois 62454
John P. Graves (4) 16,228 10.2%
501 South Howard Street
Robinson, Illinois 62454
Eugene H. Price (5) 16,762 10.5%
505 West Walnut
Robinson, Illinois 62454
Van E. Price (6) 10,252 6.4%
R. R. 1, Box 386
Alto Pass, Illinois 62905
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C> <C>
Eula Lee Schmidt 9,520 6.0%
406 South Cross
Robinson, Illinois 62454
Marcy Price Watson (7) 26,678 16.8%
R. R. 4, Deer Creek Estates
Robinson, Illinois 62454
</TABLE>
(1) The number of shares shown as being beneficially owned are those shares
over which the shareholder has either sole or shared voting or investment
power. The information contained in this column is based upon information
obtained from shareholder records of Crawford Bancorp and information
furnished to Crawford Bancorp by the person listed.
(2) Calculated based upon 159,200 shares of Crawford Bancorp Common Stock
outstanding as of the Record Date.
(3) Mr. Chamblin beneficially owns 200 shares directly and 7,640 share are
beneficially owned by Lion Land & Mineral, Inc., a wholly-owned subsidiary
of Bradford Supply Company, over which Mr. Chamblin has sole voting and
investment power. Mr. Chamblin has an option to purchase an additional
2,162 shares from Lion Land & Mineral, Inc.
(4) Mr. Graves beneficially owns 200 shares directly and 16,028 shares are
beneficially owned by Graves Industries over which Mr. Graves has sole
voting and investment power.
(5) Mr. Price beneficially owns 15,762 shares directly and 1,000 shares are
beneficially owned by Norma Price, the wife of Mr. Price. Mr. Price is the
father of Van E. Price and Marcy Price Watson.
(6) Van E. Price is the son of Eugene H. Price.
(7) Ms. Watson beneficially owns 14,886 directly and 340 shares are
beneficially owned by Morgan Price, the daughter of Ms. Watson. An
additional 400 shares are beneficially owned by each of Nicholas Shaner,
Cole Shaner and Brad Shaner, the sons of Ms. Watson. An additional 10,252
shares are beneficially owned by Van E. Price, the brother of Ms. Watson,
over which Ms. Watson has shared voting power. Ms. Watson is the daughter
of Eugene H. Price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of Crawford Bancorp and their associates
are customers of and have had transactions with Crawford Bancorp from time to
time in the ordinary course of business. Such transactions have been made on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the time for comparable transactions with other persons
and did not involve more than the normal risk of collectibility or present other
unfavorable features. Similar transactions may be expected to take place in the
ordinary course of business in the future .
-31-
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CRAWFORD BANCORP
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
The following discussion and analysis reviews the consolidated operating results
and financial condition of Crawford Bancorp, Inc. ("Crawford Bancorp") and its
subsidiary, Crawford County State Bank ("Bank"). This discussion should be read
in conjunction with the consolidated financial statements, notes thereto and
other financial information presented herein.
INCOME STATEMENT ANALYSIS
SUMMARY
Crawford Bancorp's net income for 1995 was $623,000, a decrease of 39% compared
to the $1,020,000 recorded in 1994. Net income for 1994 decreased 5% compared to
1993. Earnings per share were $3.91 in 1995 compared to $6.41 in 1994 and $6.74
in 1993. The primary reasons for the decrease in 1995 were the increase in the
provision for loan losses and the amortization of deposit premium paid in the
acquisition of the Sumner branch in late 1995.
Crawford Bancorp's return on average assets for 1995 was .64% compared to 1.04%
for 1994 and 1.12% for 1993. Return on average equity was 6.38%, 11.13% and
12.76% for the three year period through 1995.
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Return on assets (net income divided by average total assets) .64% 1.04% 1.12%
Return on equity (net income divided by average equity) 6.38 11.13 12.76
Dividend payout ratio (dividends declared per share divided
by net income per share) 51.14 31.22 22.27
</TABLE>
-32-
<PAGE>
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
(TAX EQUIVALENT BASIS)*
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Int. Rate Balance Int. Rate Balance Int. Rate
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 957 $ 42 4.39% $ 755 $ 29 3.84% $ 643 $ 33 5.13%
Federal funds sold 4,493 244 5.43 2,861 120 4.19 5,520 168 3.04
Taxable investment securities 23,711 1,445 6.09 26,070 1,457 5.59 27,425 1,703 6.21
Tax-exempt investment
securities* 4,375 366 8.37 4,344 360 8.29 3,995 333 8.34
------- ------ ------- ------ ------- ------
Total securities 28,086 1,811 6.45 30,414 1,817 5.97 31,420 2,036 6.48
Commercial* 14,954 1,377 9.21 15,412 1,372 8.90 14,844 1,438 9.69
Bankers' acceptances purchased 586 20 3.41 884 30 3.39
Real estate mortgages 28,941 2,311 7.99 28,250 2,179 7.71 25,683 2,178 8.48
Installment 15,104 1,412 9.35 14,985 1,331 8.88 12,110 1,183 9.77
Direct lease financing 159 6 3.77
------- ------ ------ ----- ------- ------
Total loans*** 59,158 5,106 8.63 59,233 4,902 8.28 53,521 4,829 9.02
------- ------ ------- ------ ------- ------
Total earning assets 92,694 7,203 7.77 93,263 6,868 7.36 91,104 7,066 7.76
------ ------
Allowance for loan losses (794) (851) (948)
Cash & due from Banks 2,428 2,440 2,314
Premises & equipment 1,254 1,028 997
Other 1,791 1,744 2,004
------- ------- -------
Total assets $97,373 $97,624 $95,471
======= ======= =======
Interest-bearing demand deposits $21,103 $ 654 3.10% $24,306 $ 759 3.12% $23,860 $ 776 3.25%
Savings 10,076 312 3.10 10,807 325 3.01 10,675 353 3.31
Certificates of deposit & other
time deposits 46,198 2,442 5.29 43,717 1,895 4.33 42,450 1,869 4.40
------- ------ ------- ------ ------- ------
Total interest-bearing deposits 77,377 3,408 4.40 78,830 2,979 3.78 76,985 2,998 3.89
Short-term borrowings 2,428 110 4.53 1,748 70 4.00 2,335 85 3.64
Long-term debt 31 3 9.68 36 2 5.56 40 3 7.50
------ ------ ------- ------ ------- ------
Total interest-bearing
liabilities 79,836 3,521 4.41 80,614 3,051 3.78 79,360 3,086 3.89
Noninterest-bearing demand
deposits 7,399 7,479 7,252
Other 393 367 457
------- ------- -------
Total liabilities 87,628 88,460 87,069
Shareholders' equity 9,745 9,164 8,402
------- ------- -------
Total liabilities and
shareholders' equity $97,373 3,521 3.80(1) $97,624 3,051 3.27(1) $95,471 3,086 3.39(1)
======= ------ ======= ------ ======= ------
Net interest income $3,682 3.97% $3,817 4.09% $3,980 4.37%
====== ====== ======
</TABLE>
* Adjusted to reflect income related to securities and loans exempt from
federal income taxes reduced by nondeductible portion of interest expenses.
** Yield on securities computed based on amortized cost.
*** Nonaccruing loans have been included in the average balances.
(1) Total interest expense divided by total earning assets.
-33-
<PAGE>
VOLUME/RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME*
(TAX EQUIVALENT BASIS) **
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 vs 1994 1994 vs 1993
--------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest expense $ 8 $ 5 $ 13 $ 5 $ (9) $ (4)
Federal funds sold 82 42 124 (98) 50 (48)
Investments securities (135) 129 (6) (52) (167) (219)
Loans 10 194 204 513 (440) 73
-------------------------------------------------
Total interest income (35) 370 335 368 (566) (198)
-------------------------------------------------
Interest Expense
Interest-bearing demand deposits (99) (6) (105) 14 (31) (17)
Savings deposits (39) 45 6 4 (32) (28)
Certificates of deposit & other time deposits 99 429 528 55 (29) 26
-------------------------------------------------
Total interest bearing deposits (39) 468 429 73 (92) (19)
Short-term borrowings 30 10 40 (23) 8 (15)
Long-term debt 0 1 1 0 (1) (1)
-------------------------------------------------
Total interest expense (9) 479 470 50 (85) (35)
-------------------------------------------------
Change in tax equivalent net interest income $ (26) $(109) (135) $318 $(481) (163)
================ =================
Change in tax equivalent adjustment (2) (5)
--------- ---------
Change in net interest income $(137) $(168)
========= =========
</TABLE>
*Variances have been allocated on the basis of the absolute relationship
between volume and ratio.
**Adjustments to reflect income related to securities and loans exempt from
federal income taxes reduced by nondeductible portion of interest expenses.
NET INTEREST INCOME
Net interest income is influenced by the volume and yield of earning assets and
the cost of interest-bearing liabilities. Net interest margin reflects the mix
of interest-bearing and noninterest-bearing liabilities that fund earning
assets, as well as interest spreads between the rates earned on these assets and
the rates paid on interest-bearing liabilities. The primary change in net
interest income in 1995 compared to 1994 was the result of rate changes whereas
the change in 1994 compared to 1993 was the combined effect of changes in both
rates and volume. In 1995, compared to 1994, higher yield on interest earning
assets was more than offset by the higher cost of funds, principally from
certificate of deposit and other time deposits.
Crawford Bancorp's net interest income in 1995 was $3,556,000, a decrease of
3.7% from the $3,693,000 in 1994 and 4.4% from the amount reported in 1993. Net
interest margin in 1995 was 3.97% compared to 4.09% and 4.37% in 1994 and 1993.
The interest rate environment within which Crawford Bancorp
-34-
<PAGE>
operated during the last three years has caused compression of Crawford
Bancorp's interest margins as well as the industry as a whole.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to earnings during 1995 was $300,000
compared to $90,000 in 1994 and $120,000 for 1993. Net chargeoffs were $658,000
in 1995 compared to $167,000 and $16,000 in 1994 and 1993. A substantial
portion of the increase in net chargeoffs in 1995 resulted from loans made at
one branch. Management believes that these problem loans were identified and
all material chargeoffs recognized or provided for during 1995. As a percentage
of average loans, net chargeoffs equaled 1.11%, .28% and .03% in 1995, 1994 and
1993, respectively. Management anticipates that net chargeoffs will decrease in
1996 compared to 1995 but will remain at a higher level than 1994 and 1993.
SUMMARY OF ALLOWANCE FOR LOANS LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Period $887 $964 $860
--------------------------------------------------
Chargeoffs:
Commercial 278 96 38
Real estate mortgage 128 26 4
Consumer 314 143 105
-------------------------------------------------
Total chargeoffs 720 265 147
-------------------------------------------------
Recoveries:
Commercial 15 78 107
Real estate mortgage 1 4 5
Consumer 46 16 19
-------------------------------------------------
Total recoveries 62 98 131
-------------------------------------------------
Net chargeoffs 658 167 16
Provision for loan losses 300 90 120
-------------------------------------------------
Balance at End of Period $529 $887 $964
=================================================
Ratio of net chargeoffs to average loans
outstanding during the period 1.11% .28% .03%
Ratio of allowance to total loans at end of period .95 1.48 1.68
</TABLE>
NONINTEREST INCOME
Noninterest income increased $64,000 in 1995 or 11.2% to $633,000 from $569,000
in 1994. Income from fiduciary activities increased almost 23% in 1995 compared
to 1994, after increasing over 10% in 1994 compared to 1993. The level of
estate assets administered will cause income from fiduciary activities to
fluctuate significantly from year to year. Service charges on deposit accounts
increased slightly in 1995 to $366,000 or approximately 4% compared to 1994.
Service charges in 1994 increased $47,000 or 15.4% in 1994 compared to 1993 as a
result of increases in substantially all fees related to transaction accounts.
Other income increased $30,000 or 23.7% in 1995 compared to 1994. Fees on
credit cards represented over $23,000 of the increase in 1995. Other income
increased $9,000 or 7.8% in 1994 compared to 1993.
-35-
<PAGE>
NONINTEREST EXPENSE
Total noninterest expense increased $312,000 or 11.2% in 1995 compared to 1994.
The largest component of noninterest expense is personnel expense. Personnel
expense increased $148,000 or 10.4% in 1995 compared to 1994 primarily due to
costs associated with the opening of a new branch in late 1995. Normal staff
salary adjustments were the primary cause for the increase in 1994 compared to
1993. The number of full-time equivalent employees was 63 at December 31, 1995
compared to 60 at both December 31, 1994 and 1993. Effective January 1, 1995,
Crawford Bancorp, as required, adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, which focuses principally on postretirement health
benefits. SFAS No. 106 requires the accrual of these benefits over the period
the employee performs the service to earn the benefits rather than the prior
practice of accounting for these benefits on the cash basis. The adoption of
SFAS No. 106 did not have a material effect on operations or financial condition
in 1995.
Premises and equipment expenses increased almost $18,000 in 1995, also related
to the new branch opening. Deposit insurance decreased $85,000 or 44.1% in 1995
compared to the prior year due primarily to a lower assessment rate. In mid-
1995, the FDIC reduced deposit insurance premiums paid by soundly managed banks
since the Bank Insurance Fund ("BIF") reached a mandated funding level. The
assessment level in 1996 has been further reduced to the $2,000 minimum level
permissible. If the assessment remains at such level, 1996 expenses will
decrease over $100,000, before taxes, compared to 1995.
Currently, legislation has been proposed that is likely to result in a one-time
assessment on all deposits insured by the Savings Association Insurance Fund
("SAIF"). Although substantially all of Crawford Bancorp's deposits are insured
by the BIF, certain deposits which were assumed in the acquisition of a troubled
thrift institution several years ago are insured by SAIF. If the proposed
assessment were levied on SAIF-insured deposits at December 31, 1995, the
special assessment would total approximately $70,000, before taxes.
Accordingly, this special assessment would increase noninterest expense and
adversely affect Crawford Bancorp's results of operations.
Other noninterest expense increased $225,000 or 38% in 1995 compared to 1994
after increasing 2.4% in 1994 compared to 1993. Amortization of premiums
related to the purchase of deposits from another financial institution and
expenses related to opening a new branch accounted for approximately $105,000 of
such increase. Since a substantial portion of the deposits acquired were
short-term certificates of deposit, the amortization of the premium related to
these deposits will be charged to expense over a relative short time frame.
Management anticipates that such premium expense will amount to approximately
$147,000 in 1996 compared to $100,000 in 1995, before taxes. In addition,
repossession and problem loan related expenses in 1995 represented $36,000 and
costs associated with selling Crawford Bancorp represented $27,000 of the
increase. The remaining $57,000 of increases related to a variety of expenses.
INCOME TAXES
Income tax expense for 1995 was $168,000 compared to $364,000 for 1994 and
$425,000 for 1993. The effective rate was 21.2%, 26.3% and 28.4% for the three
years ended at December 31, 1995. Crawford Bancorp and its subsidiary will file
a consolidated federal income tax return for 1995.
BALANCE SHEET ANALYSIS
Total assets increased to $102,682,000 at year end 1995 compared to $96,291,000
at year end 1994. Total loans decreased from $59,988,000 at year end 1994 to
$55,849,000 at year end 1995 primarily as a result
-36-
<PAGE>
of payoffs of real estate and consumer loans and Crawford Bancorp's inability to
make additional loans at rates in effect during 1995. Although total investment
securities reflected little change in totals at year end 1995 compared to 1994,
a substantial change occurred in the respective amounts of securities available
for sale ("AFS") and held to maturity ("HTM"). Effective January 1, 1994,
Crawford Bancorp adopted new accounting rules for securities. The rules require
that each security must be designated as AFS or HTM. Late in 1995, the Financial
Accounting Standards Board ("FASB") allowed an unprecedented "one time"
transition reclassification. A substantial portion of Crawford Bancorp's
securities were classified as HTM at such time. Management elected to classify
all securities as AFS at such time to provide management greater flexibility in
responding to changes in financial markets and provide greater flexibility to a
potential purchaser. Total deposits increased to $89,933,000 at December 31,
1995 compared to $84,354,000 at December 31, 1994. The increases in both total
assets and total deposits were attributable to the acquisition of approximately
$9,000,000 in deposits from another financial institution in late 1995 and the
investment of cash received in federal funds sold. Since the acquisition of
deposits and investment of the cash proceeds occurred near the end of October,
1995, these transactions had no material effect on average balances for 1995.
INVESTMENT SECURITIES AMORTIZED COST AT DECEMBER 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Within 1-5 5-10 Beyond Total
1 Year Years Years 10 Years 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U. S. Treasury $3,004 $ 2,253 $ 5,257
Federal agencies 3,700 9,048 $ 750 13,498
State and municipal 711 3,214 792 $ 109 4,826
Mortgage and other
asset-backed securities 251 1,472 350 383 2,456
Corporate securities 905 1,685 2,590
-------------------------------------------------------------------------------
Totals $8,571 $17,672 $1,892 $ 492 $28,627
===============================================================================
Weighted average yields * 5.78% 6.55% 7.97% 7.59% 6.43%
</TABLE>
*Adjusted to reflect income related to securities exempt from Federal income
taxes reduced by nondeductible portion of interest expense.
-37-
<PAGE>
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities at December 31, 1995:
U.S. Treasury $ 5,257 $ 13 $1 $ 5,270
Federal agencies 13,498 21 1 13,518
State and municipal 4,826 149 4,974
Mortgage and other
asset-backed securities 2,456 51 2,507
Corporate securities 2,590 21 2,611
--------------------------------------------------------------------
Totals $28,627 $255 $2 $28,880
====================================================================
</TABLE>
As of December 31, 1995 there were no corporate or other securities representing
more than 10% of shareholders' equity.
The adequacy of the allowance for loan losses is reviewed monthly. The
determination of the provision amount in any period is based on management's
continuing review and evaluation of loan loss experience, changes in the
composition of the loan portfolio, current economic conditions, the amount of
loans presently outstanding and the amount and composition of growth
expectations.
Loans are placed in a nonaccruing status when in management's judgment the
collateral value and/or the borrower's financial condition does not justify
accruing interest. As a general rule, commercial and real estate mortgage loans
are reclassified to nonaccruing status when becoming 90 days past due. Interest
previously recorded but not deemed collectible is reversed and charged against
current income. Subsequent interest income on nonaccrual loans is thereafter
recognized only when collected. At December 31, 1995, nonaccruing loans totaled
$348,000 compared to $107,000 and $73,000 at year end 1994 and 1993. Management
is not aware of any other interest-bearing asset that would require disclosure
similar to the above if such asset were a loan.
Management maintains a listing of loans warranting either the assignment of a
specific reserve amount or other special administrative attention. This
listing, together with a listing of all classified loans, nonaccrual loans and
loans delinquent 30 days or more, is reviewed at least monthly by the board of
directors.
Crawford Bancorp adopted SFAS No. 114 and 118, Accounting by Creditors for
Impairment of a Loan and Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, on January 1, 1995. Impaired loans are
loans for which principal and interest are not expected to be collected
according to the terms of the loan contract. Impaired loans are measured by the
present value of the expected future cash flows, or the fair value of the
collateral of the loan, if collateral dependent. At December 31, 1995, impaired
loans totaled $151,000 for which an allowance for loan losses of $49,000 was
allocated.
-38-
<PAGE>
AVERAGE DEPOSITS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
1995 1994 1993
---------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 7,399 $ 7,479 $ 7,252
Interest bearing demand 21,103 3.10% 24,306 3.12% 23,860 3.25%
Savings 10,076 5.59 10,807 5.15 10,675 5.70
Certificates of deposit 46,198 4.74 43,717 3.80 42,450 3.80
------------- --------- ---------
Totals $84,776 4.02% $86,309 3.45% $84,237 3.56%
============= ========= =========
As of December 31, 1995 certificates of deposits of $100,000 or more mature as follows:
3 Months 3 to 6 6 to 12 Over 12
or less Months Months Months Total
-------------------------------------------------------------------------
Certificate of deposits $ 969 $ 2,856 $ 3,005 $ 3,253 $10,083
=========================================================================
Percent 9.61% 28.33% 29.80% 32.26% 100.00%
=========================================================================
</TABLE>
Short-term borrowings consist of securities sold under repurchase agreements
("repos"). Repos are high denomination investments utilized by public entities
and commercial customers as an element of their cash management programs. Repos
are not subject to FDIC assessment so they are less costly than large
certificates of deposit. With the reduction in the FDIC assessment, repos will
not have the cost advantage previously held. Repos averaged $2,428,000 in 1995
and $1,748,000 during 1994. Management expects large denomination certificates
of deposit to become more widely used in 1996 to replace a portion of the funds
previously invested in repos.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Securities Sold Under Repurchase Agreements
(Dollar Amounts in Thousands)
Book value $1,883 $1,886
Average balance of agreements during year 2,428 1,748
Weighted average rate for year 4.53% 4.00%
Highest month-end balance during year 2,489 2,358
Interest payable at end of year 5 4
Weighted average interest rate at end of year 4.43% 4.25%
</TABLE>
-39-
<PAGE>
CAPITAL ADEQUACY
Crawford Bancorp believes that a strong capital position is vital to continued
profitability and to promote depositor and investor confidence. Crawford
Bancorp's total equity-to-total asset ratio at December 31, 1995 was 9.76%, a
decrease from 9.82% at December 31, 1994. Book value per share was $62.92 at
December 31, 1995 compared to $59.40 per share at December 31, 1994. The effect
of the unrealized gain (loss) on securities AFS was to increase book value by
$1.05 at year end 1995 and to decrease book value per share by $.57 at year end
1994.
RISK MANAGEMENT
Management's objective in structuring the balance sheet is to maximize the
return on average assets while minimizing the associated risks. The major risks
with which Crawford Bancorp is concerned are market, credit, liquidity and
interest rate risks. At the present time, management is not aware of any known
trends, events or uncertainties that will have or are reasonably likely to have
a material effect on Crawford Bancorp's liquidity or capital resources.
Management is also unaware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have any material
adverse effect.
MARKET RISK MANAGEMENT
Crawford Bancorp does not have any particular concentration in any one economic
sector except for the agriculture industry. Agricultural related loans
represented approximately 14% and 15% of total loans at year end 1995 and 1994.
Management believes that such loans are secured by specific collateral or the
borrowers have sufficient net worth to protect Crawford Bancorp from material
loss in all except rare circumstances. There is no significant concentration of
loans in commercial real estate. Consumer loans are generally made for auto
financing and collateralized by new and used vehicles or secured by other types
of collateral.
LOAN PORTFOLIO
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
Types of Loans
Commercial and industrial loans $ 5,560 $ 6,254 $ 6,709
Bankers' acceptances purchased 1,485
Real estate loans (nonfarm related) 26,390 26,884 25,133
Real estate loans secured by farm land 2,997 4,362 4,972
Agricultural production financing and other loans to farmers 5,070 4,800 3,413
Construction loans 748 982 1,295
Individuals' loans for household and other personal
expenditures 15,035 16,657 14,321
Tax-exempt loans 49 49 53
------------------------------------------------
Total loans $55,849 $59,988 $57,381
================================================
</TABLE>
-40-
<PAGE>
Crawford Bancorp's Asset\Liability Committee monitors market valuation risk on
the investment securities portfolio. This process involves measurements of the
general maturity, interest rate and liquidity risk in the investment portfolio.
Crawford Bancorp has 100% of its investment portfolio designated as AFS. This
provides Crawford Bancorp with the flexibility to sell securities should the
need arise. The unrealized gains, net of tax, were $167,000 at December 31, 1995
compared to unrealized losses, net of tax, of $90,000 at December 31, 1994.
CREDIT RISK MANAGEMENT
Management of the risks Crawford Bancorp assumes in providing credit products to
customers is extremely important. Credit risk management includes defining an
acceptable level of risk and return and establishing appropriate policies and
procedures to govern the credit process.
Loans remain Crawford Bancorp's largest concentration of assets and continue to
represent the greatest risk. Crawford Bancorp believes credit risks are elevated
by undue concentrations of loans in specific industry segments and loans to out
of area borrowers. Accordingly, Crawford Bancorp's board of directors regularly
monitors such concentrations to determine compliance with its loan allocation
policy.
-41-
<PAGE>
Nonperforming loans include loans on nonaccrual and loans contractually past due
ninety days or more as to principal or interest. Loans are considered impaired
when it becomes probable that Crawford Bancorp will be unable to collect all
amounts due according to the contractual terms of the loan agreement. The
allowance for loan losses was $529,000 at December 31, 1995, representing .95%
of outstanding loans, compared to $887,000 or 1.48% of outstanding loans at
December 31, 1994.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $125 9.96% $188 10.43% $268 11.69%
Bankers' acceptance
purchased (*) 2.59
Real estate loans 73 52.62 109 52.09 135 52.47
Construction loans (*) 1.34 (*) 1.64 (*) 2.26
Agriculture production
financing and other loans to
farmers 114 9.08 144 8.00 137 5.95
Individuals' loans for
household and other
personal expenditures 217 26.92 446 27.77 424 24.96
Tax-exempt loans (*) .08 (*) .07 (*) .08
------------------------------------------------------------------------------
Total $529 100.00% $887 100.00% $964 100.00%
==============================================================================
</TABLE>
*None of the allowance for loan losses has been allocated to these categories of
loans.
The allocation is based primarily on previous credit loss experience, adjusted
for changes in the risk characteristics of each loan category. Additional
amounts are allocated based on an evaluation of the loss potential of individual
troubled loans and the anticipated effect of economic conditions on both
individual loans and loan categories. Because the allocation is based on
estimates and subjective judgment, it is not necessarily indicative of the
specific amounts or loan categories in which losses may ultimately occur.
-42-
<PAGE>
UNDERPERFORMING LOANS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Nonaccruing loans $348 $107 $73
Accruing loans contractually past due
90 days or more as to principal or
interest payments 295
---------------------------------------------
Total $348 $402 $73
=============================================
Percent of total loans .62% .67% .13%
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Throughout 1993 and the first half of 1994, assets were repricing at lower
levels while deposit costs had reached a pricing floor. During the last six
months of 1994 and in 1995, increased competition for both loans and deposits
combined with a flat or inverted yield curve further pressured interest margins
throughout the financial institutions industry. Management of rate-sensitive
earning assets and interest-bearing liabilities regardless of the interest-rate
environment is a key component of profitability. Management's objective is to
produce an optimal yield while protecting earnings from significant fluctuations
to the extent practicable. An effective asset\liability management process is
necessary to minimize the effects of fluctuating interest rates on net interest
income while maintaining the flexibility to take advantage of changing market
conditions.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Within 1-5 Over
1 Year Years 5 Years Total
----------------------------------------
<S> <C> <C> <C> <C>
All loans $32,984 $18,766 $4,099 $55,849
========================================
Percent 59.06% 33.60% 7.34% 100.00%
========================================
Rate sensitivity:
Fixed rate $ 9,000 $10,071 $ 691 $19,914
Variable rate 23,984 8,695 3,408 35,935
----------------------------------------
Totals $32,984 $18,766 $4,099 $55,849
========================================
</TABLE>
-43-
<PAGE>
LIQUIDITY RISK MANAGEMENT
Liquidity management involves maintaining sufficient cash levels to fund
operations and to meet the requirements of borrowers, depositors, and creditors.
Higher levels of liquidity bear higher corresponding costs, measured in terms of
lower yields on short-term, more liquid earning assets, and higher interest
expense in extending liability maturities. Liquid assets, including cash and
cash equivalents, money market instruments, and securities maturing within one
year, totaled over $23,000,000 at December 31, 1995.
Liquidity is reinforced by maintaining a relatively stable funding base, which
is achieved by diversifying funding sources, extending the contractual maturity
of liabilities, and limiting reliance on volatile short-term purchased funds.
Crawford Bancorp's strategy is to fund assets to the maximum extent possible
with core deposits, which provide a sizable source of relatively stable and low-
cost funds.
Management believes Crawford Bancorp has sufficient liquidity to meet all
reasonable borrower, depositor, and creditor needs in the present economic
environment.
INTEREST RATE RISK MANAGEMENT
Effective asset\liability management requires the maintenance of a proper ratio
between maturing or repriceable interest-earning assets and interest-bearing
liabilities. It is the policy of Crawford Bancorp that rate-sensitive assets
divided by rate-sensitive liabilities be kept within a range of 1.00% to 1.25%.
Crawford Bancorp exceeded the range at December 31, 1995 due to the high level
of federal funds sold. These short-term investments represented funds received
from purchasing deposits from another financial institution not yet allocated to
loans or investment securities. Crawford Bancorp's strategy is to remain near
neutral when rates are likely to remain stable and shifting slightly toward a
negative gap when rates are expected to decline and a positive gap when rates
are expected to rise. In any event, Crawford Bancorp does not anticipate that
its earnings will be materially impacted in 1996 regardless of the direction
rates may trend.
At December 31, 1995 and 1994, the gap analyses indicated substantial asset
sensitivity over a one-year time horizon. Generally, such a position indicates
that an overall rise in interest rates would result in a favorable impact on
Crawford Bancorp's net interest margin, as assets would reprice more quickly
than liabilities. Conversely, the net interest margin would be expected to be
adversely affected with an overall decline in interest rates. Core deposits are
distributed or spread among the repricing categories based upon a market
sensitivity analysis performed by an unaffiliated correspondent bank using
historical patterns of repricing. The assumptions regarding these repricing
characteristics greatly influence conclusions regarding interest sensitivity.
Management believes its assumption regarding these liabilities are reasonable.
-44-
<PAGE>
RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Over 5
Up to Over 1 to Over 2 to Years or
1 Year 2 Years 5 Years Insensitive Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing deposits
Demand $ 284 $ 284
Time 794 794
Loans 32,984 $ 8,298 $10,468 $ 4,099 55,849
Securities 8,571 7,444 10,228 2,384 28,627
Federal funds sold 11,000 11,000
-------------------------------------------------------------------------------
Total interest-earning assets 53,633 15,742 20,696 6,483 96,554
Other assets (including unrealized gain
on AFS securities) 6,657 6,657
Allowance for loan losses (529) (529)
-------------------------------------------------------------------------------
Total assets $53,633 $ 15,742 $20,696 $ 12,611 $102,682
===============================================================================
Interest-bearing liabilities
Interest-bearing demand $ 6,840 $ 15,790 $ 22,630
Savings 1,784 7,704 9,488
Certificates of deposit 31,890 $ 13,375 $ 4,833 33 50,131
Borrowed funds 1,912 1,912
-------------------------------------------------------------------------------
Total interest-bearing liabilities 42,426 13,375 4,833 23,527 84,161
-------------------------------------------------------------------------------
Demand deposits 7,684 7,684
Other liabilities 820 820
Shareholders' equity 10,017 10,017
-------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $42,426 $ 13,375 $ 4,833 $ 42,048 $102,682
===============================================================================
Rate sensitivity gap (assets less liabilities) $11,207 $ 2,367 $15,863 $(29,437)
===============================================================================
Rate sensitivity gap (cumulative) $11,207 $(13,574) $29,437
===============================================================================
Percent of total assets (cumulative) 10.91% 13.22% 28.67%
Rate-sensitive assets/liabilities 126.42% 124.32% 148.55%
(cumulative)
</TABLE>
-45-
<PAGE>
EFFECTS OF INFLATION
Crawford Bancorp's asset and liability structure is substantially different from
that of an industrial company in that most of its assets and liabilities are
monetary in nature. Management believes the impact of inflation on financial
results depends upon Crawford Bancorp's ability to react to changes in interest
rates and, by such reaction, reduce the inflationary impact on performance.
Interest rates do not necessarily move in the same direction at the same time,
or at the same magnitude, as the prices of other goods and services. As
discussed previously, management relies on its ability to manage the
relationship between interest-sensitive assets and liabilities to protect
against wide interest rate fluctuations, including those resulting from
inflation.
FUTURE ACCOUNTING CHANGES
The FASB has issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed Of. This Statement establishes guidance for recognizing
and measuring impairment losses and requires that the carrying amount of
impaired assets be reduced to fair value. Long-lived assets and certain
identifiable intangibles must be reviewed for impairment whenever events
indicate that the carrying amount of the assets may not be recoverable.
SFAS No. 121 is effective in 1996 for Crawford Bancorp. Management does not
believe the adoption of SFAS No. 121 will have any material effect on results of
operation or financial condition in 1996.
SFAS No. 122, Accounting for Mortgage Servicing Rights, pertains to mortgage
banking and financial institutions that conduct operations that are similar to
the primary operations of a mortgage banking enterprise. This Statement
eliminates the accounting distinction between mortgage servicing rights that are
acquired through loan origination activities and those acquired through purchase
transactions. Under this Statement, if Crawford Bancorp enters into mortgage
banking activities and sells or securitizes loans and retains the mortgage
servicing rights, Crawford Bancorp must allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the rights) based
on their relative fair values.
SFAS No. 122 is effective for Crawford Bancorp in 1996. Since Crawford Bancorp
does not currently engage in mortgage banking activities, it does not expect
adoption of this Statement to have any material effect on 1996 operations or
financial position
SFAS No. 123, Stock Based Compensation, is effective for Crawford Bancorp on
1996. This Statement requires expanded disclosures rather than recognition of
compensation cost as was originally required by the exposure draft of this
Statement for fixed, at the money, options. However, employers are encouraged to
recognize the cost of stock-based compensation plans in their financial
statements. Currently, Crawford Bancorp has no stock-based compensation plans
and adoption of SFAS No. 123 is not expected to have any effect on 1996
financial statements.
-46-
<PAGE>
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
INCOME STATEMENT ANALYSIS
SUMMARY
The Company's net income for the first quarter ended March 31, 1996, declined to
$57,000 compared to $221,000 for the comparable quarter in 1995. The primary
reasons for the 74% decrease in 1996 earnings were higher loan losses and
operating costs. The higher operating costs are related to two new banking
facilities opened in late 1995. Earnings per share for the three months ended
March 31, 1996, were $0.36 per share compared to $1.39 for the comparable
quarter in 1995.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
<S> <C> <C>
1996 1995
------------------
Return on assets (net income divided by average total assets)(1) .22% .92%
Return on equity (net income divided by average equity)(1) 2.25% 9.27%
</TABLE>
(1) Annualized.
NET INTEREST INCOME
Crawford Bancorp's net interest income for the 1996 period was $853,000, a
decrease of 3.6% from the $885,000 for the 1995 period. Net interest margin was
3.68% for the 1996 period compared to 3.99% for the 1995 period. The primary
reason for the decline in net interest income in the 1996 period compared to
that 1995 period was reduced net interest margins. In the 1996 period, higher
yield on interest-earning assets was more than offset by the higher cost of
funds, principally from certificates of deposit and other time deposits.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the first quarter of 1996 was $105,000
compared to a provision of $30,000 for the same quarter in 1995. The higher
provision in 1996 was necessary because the Bank recognized loan chargeoffs
totaling $125,000 at its Oblong, Illinois facility. Although resolution of
problem loans at the Oblong facility continues, Crawford Bancorp's management
believes that loan losses for the remainder of 1996 should decrease
substantially from first quarter levels. However there can be no assurance that
such improvements will occur. At March 31, 1996, the allowance for loan losses
was $541,000 or 1.00% of total loans compared to $893,000 or 1.47% at March 31,
1995. The allowance was $529,000 or .95% at December 31, 1995.
-47-
<PAGE>
SUMMARY OF ALLOWANCE FOR LOANS LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
<C> <C>
<S>
1996 1995
-----------------------------
Balance at Beginning of Period $529 $887
-----------------------------
Chargeoffs:
Commercial 20 19
Real estate mortgage 75
Consumer 30 24
-----------------------------
Total chargeoffs 125 43
-----------------------------
Recoveries:
Commercial 22 13
Real estate mortgage
Consumer 10 6
-----------------------------
Total recoveries: 32 19
-----------------------------
Net Chargeoffs 93 24
Provision for loan losses 105 30
-----------------------------
Balance at End of Period $541 $893
=============================
Ratio of net chargeoffs to average
loans outstanding during the period .17% .04%
Ratio of allowance to total loans
at end of period 1.00 1.47
</TABLE>
-48-
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------
<S> <C> <C>
Percent of Loans in
Each Category to
Amount Total Loans
------ -----------
Commercial and industrial $171 12.20%
Bankers' acceptance
purchased 0 0
Real estate loans 79 54.07
Construction loans (*) 1.53
Agriculture production
financing and other loans to
farmers 92 7.58
Individuals' loans for
household and other
personal expenditures 199 24.52
Tax-exempt loans (*) .10
Total $541 100.00%
=======================================
</TABLE>
*Note of the allowance for loan losses has been allocated to these categories of
loans.
The allocation is based primarily on previous credit loss experience, adjusted
for changes in the risk characteristics of each loan category. Additional
amounts are allocated based on an evaluation of the loss potential of individual
troubled loans and the anticipated effect of economic conditions on both
individual loans and loan categories. Because the allocation is based on
estimates and subjective judgment, it is not necessarily indicative of the
specific amounts or loan categories in which losses may ultimately occur.
-49-
<PAGE>
UNDERPERFORMING LOANS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996
--------------
<S> <C>
Nonaccruing loans $517
Accruing loans contractually past due
90 days or more as to principal or interest
payments 26
----
Total $543
====
Percent of total loans 1.00%
</TABLE>
NONINTEREST INCOME AND EXPENSE
Noninterest income essentially was unchanged for the first quarter of 1996
compared to the same period in 1995.
Total noninterest expense increased $140,000 or 20% for the first quarter of
1996 compared to the first quarter of 1995. The majority of the 1996 increase
relates to higher personnel, premises and amortization expenses resulting from
the new Sumner and Oblong banking facilities.
Salaries and benefits increased $27,000. Premises and equipment expense
increased $19,000 in the 1996 period compared to the 1995 period as a result of
increased general operating and depreciation costs of the new Oblong and Sumner
facilities which were opened in late 1995.
Although more than offset by the increases described above, deposit insurance
expense decreased to $5,000 from $48,000 for the comparable periods due to the
lower assessment rate on deposits insured by the Bank Insurance Fund ("BIF").
Goodwill and deposit premium amortization increased $68,000. Additionally, legal
and professional fees increased $33,000 in 1996 as a result of fees incurred in
connection with the acquisition of Crawford Bancorp by First Financial.
BALANCE SHEET ANALYSIS
Total assets decreased to $101,903,000 at March 31, 1996 compared to
$102,682,000 at December 31, 1995. Total loans decreased from $55,849,000 at
year end 1995 to $54,121,000 primarily as a result of paydowns and payoffs of
consumer loans. Investment securities increased to $31,845,000 at the end of the
first quarter of 1996 compared to $28,880,000 at December 31, 1995 as management
invested a portion of the excess federal funds sold into higher yielding
investment securities. Total deposits decreased slightly to $89,628,000 at March
31, 1996 compared to $89,933,000.
-50-
<PAGE>
REGULATORY CONSIDERATIONS
BANK HOLDING COMPANY REGULATION
First Financial and Crawford Bancorp are registered as bank holding
companies and are subject to the regulations of the Federal Reserve under the
Bank Holding Company Act of 1956, as amended ("BHC Act"). Bank holding companies
are required to file periodic reports with and are subject to periodic
examination by the Federal Reserve. The Federal Reserve has issued regulations
under the BHC Act requiring a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. It is the policy of
the Federal Reserve that, pursuant to this requirement, a bank holding company
should stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity. Additionally,
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined in the statute) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency up to the lesser
of (i) an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under the BHC Act, the Federal Reserve has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
First Financial is prohibited by the BHC Act from acquiring direct or
indirect control of more than 5% of the outstanding shares of any class of
voting stock or substantially all of the assets of any bank or savings
association or merging or consolidating with another bank holding company
without prior approval of the Federal Reserve. Additionally, First Financial is
prohibited by the BHC Act from engaging in or from acquiring ownership or
control of more than 5% of the outstanding shares of any class of voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be a
proper incident thereto. The BHC Act does not place territorial restrictions on
the activities of such nonbanking-related activities.
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier 1 capital," consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier 1
capital to average total consolidated assets of 3% in the case of bank holding
companies which have the highest regulatory examination ratings and are not
contemplating significant growth or
-51-
<PAGE>
expansion. All other bank holding companies are expected to maintain a ratio of
at least 1% to 2% above the stated minimum.
The following are First Financial's and Crawford Bancorp's regulatory
capital ratios as of December 31, 1995:
<TABLE>
<CAPTION>
FIRST FINANCIAL CRAWFORD BANCORP
--------------- ----------------
<S> <C> <C>
Tier 1 Capital: 15.13 % 15.97 %
Total Capital: 16.19 % 16.90 %
Leverage Ratio: 9.10 % 9.03 %
</TABLE>
BANK REGULATION
The subsidiary banks of First Financial which are national banks are
supervised, regulated and examined by the Office of the Comptroller of the
Currency ("OCC"). The subsidiary banks of First Financial which are state banks
chartered in Indiana are supervised, regulated and examined by the Indiana
Department of Financial Institutions. First Financial's subsidiary banks
chartered in Illinois are supervised, regulated and examined by the Illinois
Commissioner of Banks and Trust Companies ("ICBTC"). In addition, those First
Financial subsidiary banks which are state banks and members of the Federal
Reserve are supervised and regulated by the Federal Reserve, and those which are
not members of the Federal Reserve are supervised and regulated by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank, as a bank chartered in
Illinois, is supervised, regulated and examined by the ICBTC and will continue
to be supervised, regulated and examined by the ICBTC following consummation of
the Merger. Each regulator has the authority to issue cease-and-desist orders if
it determines that activities of the bank regularly represent an unsafe and
unsound banking practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things, to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging as
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the state bank is, and continues to
be, in compliance with all applicable capital standards.
BANK CAPITAL REQUIREMENTS
The FDIC and the OCC have adopted risk-based capital ratio guidelines to
which state-chartered banks and national banks under their respective
supervision are subject. The guidelines establish a systematic, analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
-52-
<PAGE>
Like the capital guidelines established by the Federal Reserve, these
guidelines divide a bank's capital into two tiers. Banks are required to
maintain a total risk-based capital ratio of 8%. The FDIC or OCC may, however,
set higher capital requirements when a bank's particular circumstances warrant.
Banks experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
In addition, the FDIC and OCC established guidelines prescribing a minimum
Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as specified in
the guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of
3% for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier 1 leverage ratio of 3%
plus an additional 100 to 200 basis points.
All of First Financial's subsidiary banks, as well as the Bank, exceed the
risk-based capital guidelines of the FDIC and OCC as of March 31, 1996.
The capital requirements described above are minimum requirements. Higher
capital levels will be required by the federal banking regulators if warranted
by the particular circumstances or risk profiles of individual institutions. For
example, the regulations of both the FDIC and the OCC provide that additional
capital may be required to take adequate account of the risks posed by
concentrations of credit and nontraditional activities, interest rate risk
exposure and the bank's ability to manage such risks. As of March 31, 1996, none
of First Financial's subsidiary banks or the Bank had been directed by its
primary federal regulator to maintain capital at a level in excess of the
minimum regulatory requirements. Neither First Financial nor Crawford Bancorp is
able to predict whether and when higher capital requirements would be imposed
and, if so, to what levels and on what schedule.
BRANCHES AND AFFILIATES
Branching by First Financial subsidiary banks in Indiana and Illinois is
subject to the jurisdiction, and requires the prior approval of, the bank's
primary federal regulatory authority and, if the branching bank is a state bank,
the Indiana Department of Financial Institutions or the Illinois Commissioner of
Banks and Trust Companies (depending upon the location of the principal office
of the bank).
First Financial's subsidiary banks are subject to the Federal Reserve Act,
which restricts financial transactions between banks and affiliated companies.
The statute limits credit transactions between a bank and its executive officers
and its affiliates, prescribes terms and conditions for bank affiliate
transactions deemed to be consistent with safe and sound banking practices, and
restricts the types of collateral security permitted in connection with a bank's
extension of credit to an affiliate.
FDICIA
FDICIA requires, among other things, federal bank regulatory authorities to
take "prompt corrective action" with respect to banks which do not meet minimum
capital requirements. For these purposes, FDICIA establishes five capital tiers:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
-53-
<PAGE>
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total risk-based capital ratio of 10% or greater,
a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5%
or greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total risk-
based capital ratio of 8% or a Tier 1 risk-based capital ratio of 4% or greater,
and generally a leverage ratio 4% or greater. An institution is deemed to be
"undercapitalized" if it has a total risk-based capital ratio of less than 8%,
or a Tier 1 risk-based capital ratio of 4% or greater, and generally a leverage
ratio of less than 4%, and "significantly undercapitalized" if it has a total
risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is deemed to
be "critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number of
requirements and restrictions, including an order by the FDIC to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and prohibit acceptance of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized", make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
On July 15, 1995, the federal banking regulators, including the FDIC, the
Federal Reserve and the OCC, published final guidelines establishing operational
and managerial standards to promote the safety and soundness of federally
insured depository institutions. The guidelines, which took effect on August 9,
1995, establish standards for internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, and compensation, fees and benefits. In general, the guidelines
prescribe the goals to be achieved in each area, and each institution will be
responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
standards is of such severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.
The federal banking agencies also have published for comment proposed asset
quality and earnings standards which, if adopted, would be added to the safety
and soundness guidelines. This proposal, like the final guidelines discussed
above, would establish the goals to be achieved with respect to asset quality
and earnings, and each institution would be responsible for establishing its own
procedures to meet such goals. Neither First Financial nor Crawford Bancorp can
predict on what form such rules will eventually be adopted or what effect such
rules will have on First Financial's subsidiary banks or the Bank.
-54-
<PAGE>
DEPOSIT INSURANCE
The deposits of First Financial's subsidiary banks, as well as the Bank are
insured up to $100,000 per insured account, by the Bank Insurance Fund ("BIF"),
except for deposits acquired in connection with mergers with savings
associations, which deposits are insured by the Savings Association Insurance
Fund ("SAIF"). Accordingly, deposit insurance premiums are paid to both BIF and
SAIF. If the FDIC believes that an increase in the insurance rates is necessary,
it may increase the insurance premiums applicable to the BIF.
The amount each institution pays for FDIC deposit insurance coverage is
determined in accordance with a risk-based assessment under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. For the semi-annual assessment
period ended December 31, 1995, BIF assessments ranged from 0.04% to 0.31% of
deposits while SAIF assessments ranged from 0.23% to 0.31% of deposits. For the
semi-annual assessment period beginning January 1, 1996, BIF assessments will
range from nearly 0% (statutory minimum assessment of $1,000 paid to the BIF) to
0.27% of deposits while SAIF assessments will range from 0.23% to 0.31% of
deposits. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
The supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. Deposit insurance assessments may
increase or decrease depending upon the category and subcategory, if any, to
which the bank is assigned by the FDIC and upon regulatory changes. Any increase
in insurance assessments could have an adverse effect on the earnings of First
Financial's subsidiary banks and the Bank, and any decrease could have a
positive effect on the earnings of First Financial's subsidiary banks and the
Bank.
INTERSTATE BANKING
In 1994, Congress enacted sweeping changes to the interstate branching and
expansion powers of depository institutions and their holding companies in The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-
Neal") which allows for interstate banking and interstate branching without
regard to whether such activity is permissible under state law. Beginning on
September 29, 1995, bank holding companies were allowed to acquire banks
anywhere in the United States subject to certain state restrictions. Beginning
on June 1, 1997, an insured bank may merge with an insured bank across state
lines without regard to whether such merger is prohibited by state law, thereby
creating interstate branches. Further, bank holding companies may merge existing
bank subsidiaries located in different states into one bank. Beginning on
September 29, 1995, an insured bank subsidiary was allowed to act as an agent
for an affiliated bank or thrift in offering limited banking services (receive
deposits, renew time deposits, close loans, service loans and receive payments
on loans obligations) both within the same state and across state lines.
Under such legislation, each state has the opportunity to "opt out" of
interstate branching, thereby prohibiting interstate bank mergers into and out
of that state, or to "opt in" early, thereby allowing interstate branching prior
to June 1, 1997. Furthermore, pursuant to Riegle-Neal, a bank may open new
branches in a state in which it currently does not have banking operations, if
the
-55-
<PAGE>
laws of the state where the branch would be located permit such de novo
branching. Under Riegle-Neal, an out-of-state bank also may acquire a branch of
a bank, without acquiring the entire bank; provided, however, that the laws of
the state where the branch is located permit such an acquisition.
Indiana recently enacted legislation "opting in" early to interstate
branching, thereby permitting interstate branching on a reciprocal basis prior
to June 1, 1997. The Indiana legislation also permits de novo branching and
acquisitions of branches only on a reciprocal basis. Beginning on June 1, 1997,
all methods of branching will be permitted regardless of reciprocity. Illinois
enacted interstate branching legislation which will allow interstate branching
beginning on June 1, 1997. The Illinois legislation does not permit de novo
branching into Illinois or the acquisition of a branch in Illinois without the
acquisition of the entire bank.
ADDITIONAL MATTERS
In addition to the matters discussed above, First Financial's subsidiary
banks and the Bank are subject to additional regulation of their activities,
including a variety of consumer protection regulations affecting their lending,
deposit and collection activities and regulations affecting secondary mortgage
market activities.
The extensive regulation, supervision and examination of financial
institutions by the bank regulatory agencies is intended primarily for the
protection of the insurance fund and depositors. Moreover, such regulation
imposes substantial restrictions on the operations and activities of such
institutions, and grants to regulators broad discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to classification of assets and establishment of adequate
loan loss reserves. Any changes in such regulations, whether by legislation or
regulatory action, could have a material impact on First Financial's subsidiary
banks and their operations. First Financial cannot predict what, if any, future
actions may be taken by legislative or regulatory authorities or what impact any
such actions may have on the operations of its affiliates.
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign and
by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, state legislatures and
various regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation or administrative action will
be enacted or the extent to which the banking industry in general or the Bank or
First Financial and its subsidiary banks in particular would be affected
thereby.
COMPARISON OF COMMON STOCK
The rights of holders of Crawford Bancorp Common Stock who receive First
Financial Common Stock in the Merger will be governed by the laws of the State
of Indiana, which is the state in which First Financial is incorporated, by
First Financial's Amended and Restated Articles of Incorporation ("First
Financial's Articles of Incorporation") and First Financial's By-Laws, as
amended ("First Financial's By-Laws"). The rights of the shareholders of
Crawford Bancorp are presently governed by the laws of the State of Illinois,
which is the state in which Crawford Bancorp is incorporated, and by Crawford
Bancorp's Articles of Incorporation ("Crawford Bancorp Articles of
Incorporation") and By-Laws. The rights of the shareholders of Crawford Bancorp
are
-56-
<PAGE>
substantially similar to those of shareholders of First Financial. The following
summary comparison of First Financial Common Stock and Crawford Bancorp Common
Stock includes all material features of such shares but does not purport to be
complete and is qualified in its entirety by reference to First Financial's and
Crawford Bancorp's Articles and By-Laws.
AUTHORIZED BUT UNISSUED SHARES
First Financial's Articles of Incorporation authorize the issuance of
10,000,000 shares of First Financial Common Stock, of which 5,767,175 whole
shares were outstanding as of March 31, 1996. The remaining authorized but
unissued shares of common stock may be issued upon authorization of the Board of
Directors of First Financial without prior shareholder approval.
The issuance of additional shares of First Financial Common Stock to
persons who were not holders of First Financial Common Stock prior to such
issuance or the issuance of First Financial preferred stock may adversely affect
the interests of First Financial shareholders.
Crawford Bancorp's Articles of Incorporation authorize the issuance of
250,000 shares of Crawford Bancorp Common Stock, $5.00 par value per share, of
which 159,200 shares were outstanding as of March 31, 1996. Following the
Merger, all of the outstanding shares of common stock will be held by First
Financial.
PREEMPTIVE RIGHTS
As permitted by Indiana law, First Financial's Articles of Incorporation do
not provide for preemptive rights to subscribe for any new or additional First
Financial Common Stock or other securities. Preemptive rights may be granted to
First Financial's shareholders if First Financial's or Crawford Bancorp's
Articles of Incorporation are amended accordingly. Under Crawford Bancorp's
Articles, shareholders of Crawford Bancorp have do not have preemptive rights to
subscribe for any new or additional shares of Crawford Bancorp Common Stock or
other securities or indebtedness.
DIVIDEND RIGHTS
The holders of common stock of First Financial and Crawford Bancorp are
entitled to dividends and other distributions when, as and if declared by their
respective Boards of Directors out of funds legally available therefor. With
respect to First Financial, a dividend may not be paid if, after giving it
effect, (1) First Financial would not be able to pay its debts as they become
due in the usual course of business, or (2) First Financial's total assets would
be less than the sum of its total liabilities plus, unless First Financial's
Articles of Incorporation permitted otherwise, the amount that would be needed
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend if First
Financial were to be dissolved at the time of the dividend. With respect to
Crawford Bancorp, a dividend may not be paid if, after giving it effect, (i)
Crawford Bancorp would be insolvent, or (ii) the net assets of Crawford Bancorp
would be less than zero or less than the maximum amount payable at the time of
distribution to shareholders having preferred rights in liquidation if Crawford
Bancorp was then to be liquidated.
The amount of dividends, if any, that may be declared by First Financial in
the future will necessarily depend upon many factors, including, without
limitation, future earnings, capital requirements, business conditions and
capital levels of subsidiaries (since First Financial is
-57-
<PAGE>
primarily dependent upon dividends paid by its subsidiaries for its revenues),
the discretion of First Financial's Board of Directors and other factors that
may be appropriate in determining dividend policies.
Cash dividends paid to First Financial by its Illinois-chartered subsidiary
banks are limited by Illinois law to the bank's net profits then on hand, less
losses and statutorily-defined bad debts. Cash dividends paid to First Financial
by its Indiana-chartered subsidiary banks are limited by Indiana law to the
balance of the bank's undivided profits account adjusted for statutorily-defined
bad debts. First Financial's national subsidiary banks may pay cash dividends on
their common stock only out of adjusted retained net profits for the year in
which the dividend is paid and the two preceding years.
Dividends paid by First Financial's subsidiary banks, as well as the Bank,
ordinarily will be restricted to a lesser amount than is legally permissible
because of the need for the banks to maintain adequate capital consistent with
the capital adequacy guidelines promulgated by the banks' principal federal
regulatory authorities. See "REGULATORY CONSIDERATIONS". If a bank's capital
levels are deemed inadequate by the regulatory authorities, payment of dividends
to its parent holding company may be prohibited without prior regulatory
approval. None of First Financial's subsidiary banks or the Bank is currently
subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of First Financial Common Stock and
Crawford Bancorp Common Stock are entitled to one vote per share on all matters
presented for shareholder vote. Shareholders of First Financial do not have
cumulative voting rights in the election of directors. Crawford Bancorp
Shareholders currently have cumulative voting rights by virtue of a provision in
Crawford Bancorp's By-Laws.
Illinois law generally requires that a merger, consolidation, or exchange
of shares be approved by a shareholder vote of two-thirds of the votes entitled
to be cast at the shareholders meeting, subject to provisions in the
corporation's articles of incorporation requiring a lower or higher percentage
vote requirement not less than a majority of the outstanding shares entitled to
vote. Indiana law generally requires that mergers, consolidations, sales,
leases, exchanges or other dispositions of all or substantially all of the
assets of a corporation be approved by the affirmative vote of a majority of the
issued and outstanding shares entitled to vote at the shareholders meeting,
subject in each case to provisions in the corporation's articles of
incorporation requiring a higher percentage vote for certain transactions.
Both Indiana and Illinois law require shareholder approval for most
amendments to a corporation's articles of incorporation -- under Indiana law, by
a majority of a quorum present at a shareholders' meeting (and, in certain
cases, a majority of all shares held by any voting group entitled to vote) and
under Illinois law, by two-thirds of all shares entitled to vote. Both Indiana
and Illinois law permit a corporation in its articles of incorporation to
prescribe a higher shareholder vote for certain amendments to the articles of
incorporation and Illinois law permits a corporation in its articles of
incorporation to prescribe a lower shareholder vote for certain amendments to
the articles of incorporation, but not lower than a majority of the outstanding
shares entitled to vote.
-58-
<PAGE>
INDEX TO CRAWFORD BANCORP
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report ........................................... F-2
Consolidated Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995 and 1994 ............................................. F-3
Consolidated Statement of Income for the Three Months Ended
March 31, 1996 and 1995 (unaudited) and for the Years Ended
December 31, 1995, 1994, and 1993 ...................................... F-4
Consolidated Statement of Shareholders' Equity for the
Three Months Ended March 31, 1996 (unaudited) and for the
Years Ended December 31, 1995, 1994, and 1993 .......................... F-5
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 (unaudited) and for the
Years Ended December 31, 1995, 1994 and 1993 ........................... F-6
Notes to Consolidated Financial Statements
as of March 31, 1996 (unaudited) and as of
December 31, 1995, 1994, and 1993 ...................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors
Crawford Bancorp, Inc.
Robinson, Illinois
We have audited the consolidated balance sheet of Crawford Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
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 described above present
fairly, in all material respects, the consolidated financial position of
Crawford Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investments in securities in 1994.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 5, 1996, except for Note 2 for
which the date is March 8, 1996
and Note 16 for which the date is
March 31, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31
March 31, --------------------------------
DECEMBER 31 1966 1995 1994
- ----------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $2,816,815 $ 2,529,031 $ 2,550,527
Interest-bearing demand deposits 288,574 284,050 268,789
Federal funds sold 8,345,000 11,000,000 1,600,000
--------------------------------------------------
Cash and cash equivalents 11,450,389 13,813,081 4,419,316
Interest-bearing deposits 794,000 794,000 496,000
Investment securities
Available for sale 31,845,031 28,879,648 8,491,124
Held to maturity 20,692,667
--------------------------------------------------
Total investment securities 31,845,031 28,879,648 29,183,791
Loans held for sale 113,000
Loans 54,120,611 55,848,783 59,988,486
Allowance for loan losses (541,309) (528,693) (886,738)
--------------------------------------------------
Net loans 53,579,302 55,320,090 59,101,748
Premises and equipment 1,688,471 1,711,804 1,056,893
Foreclosed real estate 395,720 167,807 15,000
Interest receivable 1,061,040 1,003,054 1,004,109
Goodwill 673,619 540,207 563,949
Other assets 415,580 452,203 337,048
--------------------------------------------------
Total assets $101,903,152 $102,681,894 $96,290,854
==================================================
LIABILITIES
Deposits
Noninterest bearing $ 7,435,351 $ 7,684,322 $ 7,617,155
Interest bearing 82,192,387 82,248,969 76,736,472
--------------------------------------------------
Total deposits 89,627,738 89,933,291 84,353,627
Securities sold under repurchase agreements 1,785,586 1,883,320 1,885,941
Long-term debt 28,218 29,307 33,567
Interest payable 307,911 282,755 251,645
Other liabilities 189,433 535,936 310,269
--------------------------------------------------
Total liabilities 91,938,886 92,664,609 86,835,049
--------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $5 par value
Authorized--250,000 shares
Issued and outstanding--159,200 shares 796,000 796,000 796,000
Paid-in capital 2,180,560 2,180,560 2,180,560
Retained earnings 6,930,579 6,873,695 6,569,454
Net unrealized gain (loss) on securities available
for sale 57,127 167,030 (90,209)
--------------------------------------------------
Total shareholders' equity 9,964,266 10,017,285 9,455,805
--------------------------------------------------
Total liabilities and shareholders' equity $101,903,152 $102,681,894 $96,290,854
==================================================
See Notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31 Year ended December 31
--------------------------------------------------------------------
1996 1995 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable
Taxable $1,182,776 $1,240,556 $5,101,803 $4,897,302 $4,811,170
Tax exempt 865 657 3,536 3,306 11,700
Investment securities
Taxable 376,485 356,096 1,444,510 1,456,716 1,703,243
Tax exempt 59,159 59,566 241,687 237,511 219,693
Federal funds sold 153,284 42,899 243,879 119,732 167,699
Deposits with financial institutions 16,972 12,450 41,834 29,310 33,217
--------------------------------------------------------------------
Total interest income 1,789,541 1,712,224 7,077,249 6,743,877 6,946,722
--------------------------------------------------------------------
INTEREST EXPENSE
Deposits 916,014 804,678 3,408,031 2,979,319 2,996,965
Short-term borrowings 20,253 22,400 110,400 69,723 85,743
Long-term debt 652 493 2,524 2,162 2,827
--------------------------------------------------------------------
Total interest expense 936,919 827,571 3,520,955 3,051,204 3,085,535
--------------------------------------------------------------------
NET INTEREST INCOME 852,622 884,653 3,556,294 3,692,673 3,861,187
Provision for loan losses 105,000 30,000 300,000 90,000 120,000
--------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 747,622 854,653 3,256,294 3,602,673 3,741,187
--------------------------------------------------------------------
OTHER INCOME
Fiduciary activities 25,572 19,380 112,006 91,256 82,639
Service charges on deposit accounts 84,853 94,199 366,352 352,397 305,348
Other income 35,953 34,616 154,737 125,056 116,001
--------------------------------------------------------------------
Total other income 146,378 148,195 633,095 568,709 503,988
--------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 386,731 359,596 1,564,497 1,416,529 1,405,886
Net occupancy expenses 58,375 47,581 189,210 197,819 179,366
Equipment expenses 49,819 41,277 226,622 200,100 212,562
Deposit insurance expense 4,671 48,198 108,042 193,352 188,959
Printing and office supplies 18,329 19,778 92,958 86,951 80,121
Director and committee fees 22,730 22,650 103,140 103,340 104,975
Goodwill and deposit premium amortization 80,385 11,559 150,785 46,236 46,236
Other expenses 212,689 143,654 663,606 542,944 529,178
--------------------------------------------------------------------
Total other expenses 833,729 694,293 3,098,860 2,787,271 2,747,283
--------------------------------------------------------------------
INCOME BEFORE INCOME TAX 60,271 308,555 790,529 1,384,111 1,497,892
Income tax expense 3,387 87,512 167,888 364,284 425,472
--------------------------------------------------------------------
NET INCOME $ 56,884 $ 221,043 $ 622,641 $1,019,827 $1,072,420
====================================================================
PER SHARE
Net income $.36 $1.39 $3.91 $6.41 $6.74
WEIGHTED AVERAGE SHARES OUTSTANDING 159,200 159,200 159,200 159,200 159,200
</TABLE>
See Notes to consolidated financial statements.
F-4
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAIN
------------------------- (LOSS) ON
SHARES SECURITIES
OUTSTAND- PAID-IN RETAINED AVAILABLE TREASURY
ING AMOUNT CAPITAL EARNINGS FOR SALE STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 86,680 $866,800 $2,374,509 $5,050,442 $(280,784) $ 8,010,967
Net income for 1993 1,072,420 1,072,420
Cash dividends ($1.50 per share) (238,800) (238,800)
Two-for-one stock split 79,600
Cancellation of treasury stock (7,080) (70,800) (193,949) (16,035) 280,784
--------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 159,200 796,000 2,180,560 5,868,027 8,844,587
Net income for 1994 1,019,827 1,019,827
Cash dividends ($2.00 per share) (318,400) (318,400)
Cumulative effect of change in
method of accounting for
securities, net of taxes of $39,000 $ 75,225 75,225
Net change in unrealized gain
(loss) on securities available for
sale, net of taxes of $85,000 (165,434) (165,434)
--------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 159,200 796,000 2,180,560 6,569,454 (90,209) 9,455,805
Net income for 1995 622,641 622,641
Cash dividends ($2.00 per share) (318,400) (318,400)
Net change in unrealized loss on
securities available for sale, net
of taxes of $132,500 257,239 257,239
--------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 159,200 796,000 2,180,560 6,873,695 167,030 10,017,285
Net income for the three months
ended March 31, 1996 (unaudited) 56,884 56,884
Net change in unrealized gain on
securities available for sale,
net of taxes of $56,600 (unaudited) (109,903) (109,903)
-------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996 (unaudited) 159,200 796,000 2,180,560 6,930,579 57,127 0 9,964,266
==========================================================================================
</TABLE>
See Notes to consolidated financial statements.
F-5
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Three Months Ended March 31 Year Ended December 31
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 56,884 $ 221,043 $ 622,641 $1,019,827 $1,072,420
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 105,000 30,000 300,000 90,000 120,000
Depreciation and amortization 42,557 36,232 146,861 145,539 165,448
Amortization of goodwill 80,385 11,559 48,304 46,236 46,236
Deferred income tax (2,524) (3,068) 80,449 (7,276) 29,557
Investment securities amortization, net 9,454 2,021 27,964 64,864 67,381
Net change in
Loans held for sale 113,000 113,000 357,614 (355,306)
Interest receivable (57,986) 3,026 1,055 (43,104) 114,362
Interest payable 25,156 36,753 31,110 21,155 (29,953)
Other adjustments (408,340) (112,827) 29,462 25,989 (55,439)
-------------------------------------------------------------------------
Net cash provided by operating activities (149,414) 337,739 1,400,846 1,720,844 1,174,706
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (7,017,680) (253,594) (3,782,180) (3,540,966)
Proceeds from maturities and payments on securities
available for sale 3,876,324 1,271,206 3,960,097 4,409,352
Purchases of securities held to maturity (1,784,051) (6,191,400) (3,993,875) (14,111,486)
Proceeds from maturities and payments on securities
held to maturity 896,476 6,509,408 4,508,111 14,479,380
Net change in loans 1,510,878 (604,744) 3,312,427 (2,912,844) (5,640,406)
Purchases of premises and equipment (19,224) (41,826) (801,772) (214,374) (117,361)
Proceeds from sale of foreclosed real estate 29,956 117,077 210,300
Net change in interest-bearing deposits (198,000) (298,000) 131,542
-------------------------------------------------------------------------
Net cash provided (used) by investing activities (1,649,702) (714,533) 2,738,536 (1,627,519) (5,048,031)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing and interest-bearing deposits (277,855) 1,754,331 67,167 (2,365,009) 2,524,605
Certificates of deposit (27,698) (658,775) 5,512,497 387,320 (1,493,237)
Securities sold under repurchase agreements (97,734) 89,915 (2,621) (576,109) 796,795
Payment of long-term debt (1,089) (1,113) (4,260) (4,271) (3,662)
Cash dividends (159,200) (159,200) (318,400) (318,400) (159,200)
-------------------------------------------------------------------------
Net cash provided (used) by financing activities (563,576) 1,025,158 5,254,383 (2,876,469) 1,665,301
-------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,362,692) 648,364 9,393,765 (2,783,144) (2,208,024)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,813,081 4,419,316 4,419,316 7,202,460 9,410,484
-------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,450,389 $ 5,067,680 $13,813,081 $ 4,419,316 $ 7,202,460
=========================================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 911,800 $ 790,800 $ 3,489,800 $ 3,030,000 $ 3,115,500
Income tax paid 5,400 121,400 429,000 521,800
</TABLE>
See Notes to consolidated financial statements.
F-6
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Crawford Bancorp, Inc. ("Company"), and
its wholly owned subsidiary, Crawford County State Bank ("Bank"), conform to
generally accepted accounting principles and reporting practices followed by the
banking industry. The more significant of the policies are described below.
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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the ownership
and management of the Bank. The Bank operates under a state charter and provides
full banking services, including trust services. As a state bank, the Bank is
subject to the regulation of the Commissioner of Bank and Trust Companies, State
of Illinois, and the Federal Deposit Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Crawford County, Illinois and surrounding
counties. The Bank's loans are generally secured by specific items of collateral
including real property, consumer assets and business assets. Although the Bank
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon economic conditions in the
agriculture industry.
CONSOLIDATION--The consolidated financial statements include the accounts of the
Company and the Bank after elimination of all material intercompany transactions
and accounts.
INVESTMENT SECURITIES--The Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting For Certain Investments in Debt and
Equity Securities, on January 1, 1994.
Debt securities are classified as held to maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately in shareholders' equity, net of
tax.
F-7
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value of
$9,521,000 were reclassified as available for sale. This reclassification
resulted in an increase in total shareholders' equity, net of taxes, of $75,225.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts. Realized gains and
losses on sales were included in other income. Unrealized losses on securities
held for sale were included in other income. Gains and losses on the sale of
securities were determined on the specific-identification method.
LOANS HELD FOR SALE are carried at the lower of aggregate cost or market. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans, except for installment loans with
add-on interest, for which a method that approximates the level yield method is
used. Loans are placed in a nonaccrual status when the collection of interest
becomes doubtful. Interest income previously accrued but not deemed collectible
is reversed and charged against current income. Interest on nonaccrual loans is
then recognized as income when collected. A loan is considered impaired when it
becomes probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Interest income on
such a loan is recognized as described above, depending upon the accrual status
of the loan. Certain loan fees and direct costs are being deferred and amortized
as an adjustment of yield on the loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb potential loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of
December 31, 1995, the allowance for loan losses and carrying value of
foreclosed real estate are adequate based on information currently available. A
worsening or protracted economic decline in the area within which the Bank
operates would increase the likelihood of additional losses due to credit and
market risks and could create the need for additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method for premises and the
declining-balance method for equipment based principally on the estimated useful
lives of the assets. Maintenance and repairs are expensed as incurred while
major additions
F-8
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
and improvements are capitalized. Gains and losses on dispositions are included
in current operations.
FORECLOSED REAL ESTATE is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent activity
is included in current operations.
GOODWILL is being amortized on the straight-line basis over 15 years, and the
deposit premium is being amortized to the maturity dates of the deposits
acquired, which are approximately 3 years. Such assets are periodically
evaluated as to the recoverability of their carrying value.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.
EARNINGS PER SHARE have been computed based upon the weighted average common
shares outstanding during each year.
RECLASSIFICATIONS of certain amounts in the December 31, 1995, 1994 and 1993
consolidated financial statements have been made to conform to the March 31,
1996 presentation.
NOTE 2--ACQUISITION OF COMPANY
In March, 1996, the Company signed a definitive agreement to be acquired by
First Financial Corporation ("First"), Terre Haute, Indiana. The agreement
provides that each shareholder of the Company would receive shares of First
common stock for each common share of Company common stock held. The proposed
transaction is subject to the approval of the Company's shareholders and
appropriate regulatory authorities.
To consummate the sale of the Company, a financial institution's consulting firm
was hired to assist the Company. In addition to fees for other services, the
consulting firm will receive 1% of the transaction value upon completion of the
sale of the Company.
NOTE 3--RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at March 31, 1996 (unaudited),
and at December 31, 1995, was $394,000 and $462,000.
F-9
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996
-------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 7,259 $ 8 $ 34 $ 7,233
Federal agencies 14,473 43 84 14,432
State and municipal 4,822 126 6 4,942
Mortgage-backed securities 2,223 48 15 2,256
Other asset-backed securities 136 1 135
Corporate obligations 2,845 16 14 2,847
--------------------------------------------
Total investment securities $31,758 $241 $154 $31,845
============================================
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 5,257 $ 13 $ 5,270
Federal agencies 13,498 21 $ 1 13,518
State and municipal 4,826 149 1 4,974
Mortgage-backed securities 2,307 50 2,357
Other asset-backed securities 149 1 150
Corporate obligations 2,590 21 2,611
-------------------------------------------
Total investment securities $28,627 $255 $ 2 $28,880
===========================================
<CAPTION>
1994
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 5,997 $ 9 $ 90 $ 5,916
Federal agencies 1,499 41 1,458
Mortgage-backed securities 1,132 3 18 1,117
--------------------------------------------
Total available for sale 8,628 12 149 8,491
--------------------------------------------
Held to maturity
Federal agencies 11,844 2 451 11,395
State and municipal 4,856 30 76 4,810
Mortgage-backed securities 2,082 19 39 2,062
Corporate obligations 1,911 2 21 1,892
--------------------------------------------
Total held to maturity 20,693 53 587 20,159
--------------------------------------------
Total investment securities $29,321 $ 65 $736 $28,650
============================================
</TABLE>
The amortized cost and fair value of securities available for sale, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
F-10
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
MATURITY DISTRIBUTION AT COST VALUE COST VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 8,465 $ 8,470 $ 8,320 $ 8,319
One to five years 19,283 19,273 16,200 16,325
Five to ten years 1,543 1,598 1,542 1,615
After ten years 108 113 109 114
-------------------------------------------
29,399 29,454 26,171 26,373
Mortgage-backed securities 2,223 2,256 2,307 2,357
Other asset-backed securities 136 135 149 150
------------------------------------------
Totals $31,758 $31,845 $28,627 $28,880
==========================================
</TABLE>
Securities with a carrying value of $12,148,000, $16,081,000, and, $16,506,000
were pledged at March 31, 1996 (unaudited), and December 31, 1995 and 1994 to
secure certain deposits and for other purposes as permitted or required by law.
There were no sales of securities available for sale or held to maturity during
1996, 1995, 1994 or 1993.
Effective December 1, 1995, the Company transferred certain securities from held
to maturity to available for sale in accordance with a transition
reclassification allowed by the Financial Accounting Standards Board. Such
securities had a carrying value of $20,638,000 and a fair value of $20,871,000.
NOTE 5--LOANS AND ALLOWANCE
<TABLE>
<CAPTION> March 31, December 31
---------- -------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Commercial and industrial loans $ 6,603 $5,560 $ 6,254
Real estate loans (includes $3,019, $2,997
and $4,362 secured by farmland) 29,264 29,387 31,246
Construction loans 828 748 982
Agricultural production financing and other loans
to farmers 4,100 5,070 4,800
Individuals' loans for household and other personal 14,058 15,970 18,156
expenditures
Tax-exempt loans 57 49 49
-----------------------------------
54,910 56,784 61,487
Unearned interest on loans (789) (935) (1,499)
-----------------------------------
Total loans $54,121 $55,849 $59,988
===================================
</TABLE>
F-11
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months
Ended March 31 Year Ended December 31
------------------------------------------------
1996 1995 1995 1994 1993
- ------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balance, January 1 $529 $887 $ 887 $ 964 $ 860
Provision for losses 105 30 300 90 120
Recoveries on loans 32 19 62 98 131
Loans charged off (125) (43) (720) (265) (147)
-------------------------------------------------
Balance, December 31 $541 $893 $ 529 $ 887 $ 964
=================================================
</TABLE>
The Company adopted SFAS No. 114 and 118, Accounting by Creditors for Impairment
of a Loan and Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures, on January 1, 1995. Impaired loans totaled
$153,789 and $151,169 at March 31, 1996 (unaudited), and December 31, 1995. An
allowance for losses at March 31, 1996 (unaudited), and December 31, 1995, was
not deemed necessary for impaired loans totaling $32,043 and $36,330. An
allowance of $52,997 and $49,148 was recorded for the remaining balance of
impaired loans of $121,746 at March 31, 1996 (unaudited), and $114,939 at
December 31, 1995. The average balance of impaired loans was $137,014 for 1996
(unaudited) and $89,742 for 1995. Interest income and cash receipts of interest
were not material during the period in 1996 (unaudited) or 1995 that the loans
were impaired.
In addition, at March 31, 1996 (unaudited), and December 31, 1995, the Bank had
other nonaccrual loans of approximately $363,001 and $348,000, for which
impairment had not been recognized. If interest on these loans had been
recognized at the original interest rates, the change in 1996 (unaudited)
interest income would not have been material and interest income for 1995 would
have increased approximately $17,173.
The Bank has no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans at March 31, 1996 (unaudited), or December 31,
1995.
Nonaccruing loans totaled $107,000 and $73,000 at December 31, 1994 and 1993.
Additional interest income of approximately $2,400 for 1994 and $29,200 for 1993
would have been recorded had income on those loans been considered collectible
and accounted for on the accrual basis under the original terms of the loans.
The Bank has entered into transactions with certain directors, executive
officers, significant shareholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1995 $ 1,226
New loans, including renewals 1,032
Payments, etc., including renewals (1,647)
-----------
Balance, December 31, 1995 611
New loans, including renewals (unaudited) 44
Payments, etc., including renewals (unaudited) (18)
------------
Balance, March 31, 1996 (unaudited) $ 637
============
</TABLE>
F-12
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6--PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
December 31
March 31, --------------------
1996 1995 1994
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 378 $ 378 $ 378
Buildings 1,362 1,362 1,379
Leasehold improvements 726 726 99
Equipment 1,544 1,525 1,353
--------------------------------
Total cost 4,010 3,991 3,209
Accumulated depreciation (2,322) (2,279) (2,152)
--------------------------------
Net $ 1,688 $ 1,712 $ 1,057
================================
</TABLE>
NOTE 7--DEPOSITS
<TABLE>
<CAPTION>
December 31
March 31, --------------------
1996 1995 1994
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Noninterest bearing $ 7,435 $ 7,684 $ 7,617
Interest-bearing demand 21,247 22,630 23,078
Savings deposits 10,331 9,488 9,986
Certificates and other time deposits of
$100,000 or more 10,831 10,083 12,395
Other certificates and time deposits 39,784 40,048 31,278
--------------------------------
Total deposits $89,628 $89,933 $84,354
================================
</TABLE>
Certificates maturing in years ending
<TABLE>
<CAPTION>
March 31 December 31
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
1996 $30,050
1997 $36,518 13,382
1998 7,310 5,057
1999 5,502 1,106
2000 489 503
2001 752
Thereafter 44 33
-------------------------------
$50,615 $50,131
===============================
</TABLE>
F-13
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase consist of obligations of the
Bank to other parties. The obligations are secured by various investment
securities and such collateral is held by a correspondent bank. The following
table summarizes certain information on these repurchase agreements.
<TABLE>
<CAPTION>
December 31
March31, -------------------------
AS OF AND FOR THE PERIOD ENDED 1996 1995 1994
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Book value $ 1,786 $ 1,883 $ 1,886
Collateral amortized cost 2,826 3,038 2,453
Collateral market value 2,831 3,055 2,381
Average balance of agreements during year 1,847 2,428 1,748
Highest month-end balance during year 1,884 2,489 2,358
Interest payable at end of year 5 5 4
Weighted average interest rate 4.38% 4.43% 4.25%
at end of year
</TABLE>
NOTE 9--INCOME TAX
<TABLE>
<CAPTION>
Three Months
Ended
March 31 Year Ended December 31
-------------------------------------------------
1996 1995 1995 1994 1993
- ------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax expense
Currently payable $ 6 $ 91 $ 88 $ 371 $ 395
Deferred (3) (3) 80 (7) 30
--------------------------------------------------
Total income tax expense $ 3 $ 88 $ 168 $ 364 $ 425
==================================================
Reconciliation of federal statutory
to actual tax expense
Federal statutory income tax at 34% $ 20 $105 $ 269 $ 471 $ 509
Tax exempt interest (20) (20) (72) (72) (69)
Nondeductible expenses 3 2 2
Effect of tax law change and other 3 3 (32) (37) (17)
---------------------------------------------------
Actual tax expense $ 3 $ 88 $ 168 $ 364 $ 425
===================================================
</TABLE>
F-14
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
A cumulative net deferred tax liability is included in other liabilities at
March 31, 1996 (unaudited), and December 31, 1995, and a cumulative net deferred
tax asset is included in other assets at December 31, 1994. The components of
the asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31
March 31, -----------------
1996 1995 1994
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Differences in depreciation methods $ (8) $ (9) $(32)
Differences in accounting for loan fees (17) (21) (53)
Differences in accounting for loan losses (42) (46) 76
Deferred compensation 5 7
Other (12) (11)
Differences in accounting for securities
available for sale (29) (86) 46
------------------------------------
$(108) $(168) $ 44
------------------------------------
Assets $ 5 $129
Liabilities (108) (173) (85)
------------------------------------
$(108) $(168) $ 44
====================================
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
<TABLE>
<CAPTION>
December 31
March 31, ----------------
1996 1995 1994
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Commitments to extend credit $6,041 $9,603 $7,517
Standby letters of credit 28 30 20
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.
F-15
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property and
equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Bank has entered into an employment agreement with an officer which provides
for the continuation of salary and certain benefits for a specified period of
time under certain conditions. Under the terms of the agreement, payments could
occur in the event of a change in control of the Bank and other conditions. The
contingent liability under this agreement in the event of a change in control
and satisfaction of the other conditions is approximately $180,000.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Company.
The deposits of the Bank are presently insured by the Bank Insurance Fund
("BIF"), which along with the Savings Association Insurance Fund ("SAIF"), is
one of the two insurance funds administered by the FDIC. Financial institutions
which are members of the BIF are experiencing substantially lower deposit
insurance premiums because BIF has achieved its required level of reserves while
SAIF has not yet achieved its required reserves. A recapitalization plan for the
SAIF under consideration by Congress reportedly provides for a special
assessment of approximately .85% of deposits on all SAIF-insured institutions to
enable the SAIF to achieve its required level of reserves. Although
substantially all of the Bank's deposits are insured by the BIF, certain
deposits which were assumed in the acquisition of a troubled thrift several
years ago are insured by the SAIF. If the proposed assessment of .85% was
affected based on SAIF-insured deposits as of December 31, 1995, the Bank's
special assessment would amount to approximately $70,000, before taxes.
Accordingly, this special assessment would significantly increase noninterest
expense and adversely affect the Bank's results of operations. Conversely,
assuming the insurance premium levels for BIF and SAIF members again equalized,
future SAIF deposit insurance premiums are expected to decrease significantly,
to as low as .04% from the .23% of the acquired deposits currently paid by the
Bank which would reduce noninterest expense for future periods.
F-16
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 11--RESTRICTION ON DIVIDENDS
Without prior approval, the Bank is restricted by Illinois law and regulations
of the Commissioner of Bank and Trust Companies, State of Illinois, and the
Federal Deposit Insurance Corporation as to the maximum amount of dividends it
can pay to the balance of the undivided profits account, adjusted for defined
bad debts. As a practical matter, the Bank restricts dividends to a lesser
amount because of the need to maintain an adequate capital structure.
At March 31, 1996 (unaudited), and December 31, 1995, total shareholders' equity
of the Bank was $9,959,000 and $9,919,000 of which $4,383,000 and $5,002,000 was
restricted from distribution to the Company.
NOTE 12--COMMON STOCK
In 1993, the Company cancelled its treasury stock.
During 1993, the Board of Directors approved a 2 for 1 stock split and issued
79,600 shares, thereby increasing outstanding shares from 79,600 to 159,200
shares, and changed the stock from $10 to $5 par value per share.
NOTE 13--PENSION PLAN
The Company has a profit-sharing plan covering substantially all of its
employees for which contributions are determined by the Board of Directors.
Contributions of $13,000 and $20,000 for the three months ended March 31, 1996
and 1995 (unaudited) and $65,000, $78,000 and $72,000 for 1995, 1994 and 1993
were charged to expense.
NOTE 14--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans is estimated using discounted cash flow
analyses using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
F-17
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
DEPOSITS--The fair values of noninterest-bearing and interest-bearing demand
accounts are equal to the amount payable on demand at the balance sheet date.
The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS--Securities sold under repurchase
agreements are short-term borrowing arrangements. The rates at December 31,
1995, approximate market rates, thus the fair value approximates carrying value.
LONG-TERM DEBT--Long-term debt consists of an adjustable instrument tied to a
variable market interest rate. Fair value approximates carrying value.
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
1995
---------------------------
CARRYING FAIR
DECEMBER 31 AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $13,813 $13,813
Interest-bearing deposits 794 794
Securities available for sale 28,880 28,880
Loans 55,320 55,358
Interest receivable 1,003 1,003
LIABILITIES
Deposits 89,933 85,130
Securities sold under repurchase agreements 1,883 1,883
Long-term debt 29 29
Interest payable 283 283
</TABLE>
F-18
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 15--CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
March 31, -----------------------------
1996 1995 1994 1993
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash $ 1 $ 162 $ 197 $ 201
Investment in subsidiary--
Crawford County State Bank 9,859 9,919 9,325 8,706
Goodwill 81 83 89 95
Other assets 25 14 5 3
-------------------------------------------
Total assets $9,966 $10,178 $9,616 $9,005
===========================================
LIABILITIES
Dividends payable $ 159 $ 159 $ 159
Other liabilities $ 2 2 1 1
-------------------------------------------
Total liabilities 2 161 160 160
SHAREHOLDERS' EQUITY 9,964 10,017 9,456 8,845
-------------------------------------------
Total liabilities and
shareholders' equity $9,966 $10,178 $9,616 $9,005
===========================================
</TABLE>
F-19
<PAGE>
CRAWFORD BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
CONDENSED STATEMENT OF INCOME
<TABLE>
THREE MONTHS
<CAPTION> ENDED MARCH 31 YEAR ENDED DECEMBER 31
---------------------------------------------
1996 1995 1995 1994 1993
- ------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income
Dividends from subsidiary $ 30 $ 318 $ 318 $ 240
Other income 1 1 1
--------------------------------------------
Total income 30 0 319 319 241
--------------------------------------------
Expenses
Amortization of goodwill 2 $ 2 6 6 6
Other expenses 31 3 41 4 7
--------------------------------------------
Total expenses 33 5 47 10 13
--------------------------------------------
Income before income tax and equity in
undistributed income of subsidiary (3) (5) 272 309 228
Income tax benefit 11 1 14 1 1
--------------------------------------------
Income before equity in undistributed income of
subsidiary 8 (4) 286 310 229
Equity in undistributed income of subsidiary 49 225 337 710 843
--------------------------------------------
NET INCOME 57 $ 221 $ 623 $1,020 $1,072
============================================
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> THREE MONTHS
ENDED MARCH 31 YEAR ENDED DECEMBER 31
--------------------------------------------
1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 57 $ 221 $ 623 $1,020 $1,072
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiary (49) (225) (337) (710) (843)
Amortization of goodwill 2 2 6 6 6
Other (12) (1) (9) (2) (1)
--------------------------------------------
Net cash provided by operating activities (2) (3) 283 314 234
FINANCING ACTIVITY--cash dividends (159) (159) (318) (318) (159)
--------------------------------------------
NET INCREASE (DECREASE) IN CASH (161) (162) (35) (4) 75
CASH AT BEGINNING OF PERIOD 162 197 197 201 126
--------------------------------------------
CASH AT END OF PERIOD $ 1 $ 35 $ 162 $ 197 $ 201
============================================
</TABLE>
F-20
<PAGE>
APPENDIX A
----------
AMENDED AND RESTATED
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement") dated as of March 8,
1996, is made and entered into by and among FIRST FINANCIAL CORPORATION ("First
Financial"), CRAWFORD BANCORP, INC. ("Crawford Bancorp") and Crawford County
State Bank ("Bank").
W I T N E S S E T H:
WHEREAS, First Financial is an Indiana corporation registered as a bank
holding company under the federal Bank Holding Company Act of 1956, as amended,
with its principal office located in Terre Haute, Vigo County, Indiana; and
WHEREAS, Crawford Bancorp is an Illinois corporation registered as a bank
holding company under the federal Bank Holding Company Act of 1956, as amended,
with its principal office located in Robinson, Crawford County, Illinois; and
WHEREAS, Bank is an Illinois-chartered bank with its principal office
located in Robinson, Crawford County, Illinois; and
WHEREAS, it is the desire of First Financial and Crawford Bancorp to
affiliate through a merger of Crawford Bancorp with and into First Financial
upon the terms and conditions hereinafter set forth with the result that Bank,
the wholly-owned subsidiary of Crawford Bancorp, will become a wholly-owned
subsidiary of First Financial; and
WHEREAS, a majority of the entire Board of Directors of each of First
Financial, Crawford Bancorp and Bank has approved this Agreement, designated it
a plan of reorganization and a plan of merger and authorized its execution and
delivery.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, First Financial, Crawford Bancorp and Bank hereby make this
Agreement and prescribe the terms and conditions of the affiliation of First
Financial and Crawford Bancorp and the mode of carrying the affiliation into
effect as follows:
SECTION 1
THE MERGER
----------
1.01. General Description. Upon the terms and subject to conditions of
-------------------
this Agreement, on the Effective Date (as defined in Section 10 hereof),
----------
Crawford Bancorp shall be merged with and into and under the Articles of
Incorporation of First Financial (such transactions being referred to herein as
the "Merger"). First Financial ("Surviving Corporation") shall survive the
Merger and shall continue its corporate existence under the laws of the State of
Indiana pursuant to the provisions of and with the effect provided in the
Indiana Business Corporation Law, as amended. Upon consummation of the Merger,
Bank shall be a wholly-owned subsidiary of the Surviving Corporation.
A-1
<PAGE>
1.02. Name, Offices and Management. The name of the Surviving Corporation
----------------------------
shall be "First Financial Corporation." Its principal office shall be located at
One First Financial Plaza, Terre Haute, Indiana 47807. The Board of Directors of
the Surviving Corporation, until such time as their successors have been duly
elected and have qualified, shall consist of the Board of Directors of First
Financial serving on the Effective Date. The officers of the Surviving
Corporation shall consist of the officers of First Financial serving on the
Effective Date, until the Board of Directors of the Surviving Corporation shall
determine otherwise.
1.03. Capital Structure. The capital of the Surviving Corporation shall
-----------------
be not less than the capital of First Financial immediately prior to the
Effective Date.
1.04. Articles of Incorporation and By-Laws. The Articles of
-------------------------------------
Incorporation and By-Laws of First Financial in existence on the Effective Date
shall remain the Articles of Incorporation and By-Laws of the Surviving
Corporation until such Articles of Incorporation and By-Laws shall be further
amended as provided by applicable law.
1.05. Assets and Liabilities. The title to all assets, real estate and
----------------------
other property owned by Crawford Bancorp shall vest in the Surviving Corporation
without reversion or impairment. At the Effective Date, all liabilities of
Crawford Bancorp shall be assumed by the Surviving Corporation.
1.06. Tax-Free Reorganization. First Financial and Crawford Bancorp
-----------------------
intend for the Merger to qualify as a tax-free reorganization within the meaning
of Section 368(a)(1)(A) and related sections of the Internal Revenue Code of
1986, as amended ("Code"), and agree to cooperate and to take such action as may
be reasonably necessary to assure such results.
SECTION 2
MANNER AND BASIS OF
EXCHANGE OF STOCK
-----------------
2.01. Consideration To Be Distributed To Shareholders. (a) Upon and by
-----------------------------------------------
virtue of the Merger becoming effective at the Effective Date, each issued and
outstanding share of Crawford Bancorp shall be converted into the right to
receive three and seventy-five hundredths (3.75) shares of First Financial
common stock ("Exchange Ratio"), subject to certain adjustments, as provided in
Section 2.07(b) herein, and for the recapitalization of First Financial, as
- ---------------
provided in Section 2.03 herein.
------------
(b) The Exchange Ratio shall be subject to certain adjustments for
fluctuations in the price of First Financial's common stock. If the Market Value
(as defined in Section 2.01(c) herein) of First Financial's common stock is less
---------------
than $29.50 per share, then the Exchange Ratio shall be adjusted such that each
share of Crawford Bancorp common stock shall be exchanged for First Financial
common stock with a Market Value of no less than $110.62 per share. If the
Market Value of First Financial's common stock is less than $27.00 per share,
First Financial shall have the right to terminate this Agreement in accordance
with Section 9 hereof.
---------
(c) The "Market Value" of the First Financial common stock shall be the
average of the average of the bid price and ask price of such common stock at
the close of business for the ten (10) trading days immediately preceding a date
five (5) days prior to the Effective Date, as reported by the National
Association of Securities Dealers Automated Quotation System National
A-2
<PAGE>
Market System ("NASDAQ"). "Trading days" shall mean a day when at least 500
shares of First Financial common stock are traded, as reported by NASDAQ (other
than purchases of First Financial common stock by: (i) First Financial, (ii) its
subsidiaries in which First Financial owns 50% or more of the issued and
outstanding stock, or (iii) any director or executive officer of First
Financial, or (iv) a holder of 50% or more of the common stock of First
Financial). First Financial shall provide to Crawford Bancorp all information
used to compute the Market Value two (2) days prior to the Effective Date.
(d) If, between the date of this Agreement and the Effective Date, First
Financial enters into an agreement with another corporation, association,
partnership, person or other entity or group pursuant to which current
shareholders of First Financial common stock will exchange their First Financial
common stock for stock of another entity, shareholders of Crawford Bancorp shall
receive the same consideration on an equivalent per share basis as current
shareholders of First Financial.
2.02. No Fractional Shares. Certificates for fractional shares of First
--------------------
Financial common stock shall not be issued for fractional interests arising from
the application of the Exchange Ratio. Each shareholder of Crawford Bancorp
common stock who would otherwise have been entitled to a fraction of a share of
First Financial common stock, upon surrender of all of his or her certificates
representing shares of Crawford Bancorp common stock, shall be paid in cash an
amount equal to the Market Value of the fractional interest; provided, however,
-------- -------
that the total cash consideration paid for fractional shares shall not exceed
one percent (1%) of the total consideration paid to shareholders of Crawford
Bancorp hereunder.
2.03. Recapitalization. If, between the date of this Agreement and the
----------------
Effective Date, First Financial distributes or issues a stock dividend with
respect to its shares of common stock, combines, subdivides, reclassifies or
splits up its issued and outstanding shares of common stock or takes any similar
recapitalization action, such that the number of issued and outstanding shares
of First Financial common stock is increased or decreased, then the Exchange
Ratio shall be adjusted such that each shareholder of Crawford Bancorp shall
receive, in the aggregate, such number of shares of First Financial common stock
that represents the same percentage of outstanding shares of First Financial
common stock on the Effective Date as would have been represented by the number
of shares such shareholder would have received if the recapitalization had not
occurred.
2.04. Distribution of Common Stock and Cash. (a) Within twenty (20)
-------------------------------------
business days following the Effective Date, Crawford Bancorp shall mail to each
of its shareholders as of the Effective Date, a letter of transmittal providing
instructions as to the transmittal to First Financial of the certificates
formerly representing shares of Crawford Bancorp common stock and the issuance
of shares of First Financial common stock in exchange therefore pursuant to the
terms of this Agreement.
(b) Distribution of stock certificates representing shares of First
Financial common stock and cash payment for fractional shares, if any, without
interest thereon, shall be made by First Financial to each former shareholder of
Crawford Bancorp within twenty (20) business days following delivery to First
Financial of the shareholders' certificates formerly representing shares of
Crawford Bancorp common stock, accompanied by a duly completed and executed
letter of transmittal in the form to be sent to all former shareholders of
Crawford Bancorp and such other evidences of authority and documentation as
First Financial may require, and subject to any required withholding of taxes.
A-3
<PAGE>
(c) Stock certificates formerly representing shares of Crawford Bancorp
common stock (except for shares held by shareholders of Crawford Bancorp who
have asserted their rights as dissenting shareholders pursuant to Section 3
---------
hereof) shall be deemed to evidence ownership of shares of First Financial
common stock for all corporate purposes other than the payment of dividends or
other distributions. No dividends or other distributions otherwise payable
subsequent to the Effective Date on shares of First Financial common stock shall
be paid to any shareholder of Crawford Bancorp entitled to receive the same
until such shareholder has surrendered his or her certificate formerly
representing shares of Crawford Bancorp common stock to First Financial or its
designee in exchange for certificates representing shares of First Financial
common stock. Upon surrender, there shall be paid to the record holder of the
new certificates evidencing shares of First Financial common stock the amount of
all dividends and other distributions, without interest thereon, withheld with
respect to such shares of common stock. Following the Effective Date, stock
certificates representing shares of Crawford Bancorp common stock held by
shareholders entitled to receive cash shall be deemed to evidence only the right
to receive such cash.
(d) First Financial shall be entitled to rely upon the stock transfer
books of Crawford Bancorp to establish the persons entitled to receive shares of
First Financial common stock or cash as provided herein, which books, in the
absence of actual knowledge by First Financial of any adverse claim thereto,
shall be conclusive with respect to the ownership of shares of Crawford Bancorp
common stock.
(e) With respect to any certificates representing shares of Crawford
Bancorp common stock that have been lost, stolen or destroyed, First Financial
shall be authorized to issue common stock and to pay cash (in accordance with
the terms of this Agreement) to the registered owner of such certificate upon
receipt by First Financial of an indemnity bond to indemnify First Financial
against loss from such lost, stolen or destroyed certificates or, at First
Financial's election, an affidavit of lost, stolen or destroyed stock
certificates, in form and substance satisfactory to First Financial, and upon
compliance by the former Crawford Bancorp shareholder with all reasonable
requirements of First Financial.
SECTION 3
DISSENTING SHAREHOLDERS
-----------------------
Shareholders of Crawford Bancorp who properly exercise and perfect their
statutory dissenters' rights shall have the rights accorded to dissenting
shareholders under Article 11 of the Illinois Business Corporation Act of 1983,
as amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF CRAWFORD BANCORP AND BANK
-----------------------------------------------------------
Crawford Bancorp and Bank, where applicable, represent and warrant to First
Financial as follows:
4.01. Organization and Authority. (a) Crawford Bancorp is a corporation
--------------------------
in good standing, duly organized and validly existing under the laws of the
State of Illinois and is a registered bank holding company under the federal
Bank Holding Company Act of 1956, as
A-4
<PAGE>
amended ("BHC Act"). Crawford Bancorp has full power and authority (corporate
and otherwise) to own and lease its properties as presently owned and leased and
to conduct its business in the manner and by the means utilized as of the date
hereof. Crawford Bancorp has no subsidiaries and owns no voting stock or equity
securities of any corporation, partnership, association or other entity, other
than all of the issued and outstanding common stock of Bank. Crawford Bancorp
does not have a class of stock registered pursuant to Section 12, and is not
subject to the reporting requirements of, the Securities Exchange Act of 1934,
as amended ("1934 Act").
(b) Bank is an Illinois-chartered bank duly organized and validly
existing and in good standing under the laws of the State of Illinois. Bank has
full power and authority (corporate and otherwise) to own and lease its
properties as presently owned and leased and to conduct its business in the
manner and by the means utilized as of the date hereof. Bank has no subsidiaries
and owns no voting stock or equity securities of any corporation, partnership,
association or other entity. Bank is subject to primary federal regulatory
supervision and examination by the Federal Deposit Insurance Corporation
("FDIC") and state regulatory supervision by the Illinois Commissioner of Banks
and Trust Companies ("CBTC").
4.02. Authorization. (a) Each of Crawford Bancorp and Bank has the
-------------
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, subject to the fulfillment of the
conditions precedent set forth in Section 8 hereof. This Agreement, when
---------
executed and delivered, shall have been duly authorized by the Board of
Directors of Crawford Bancorp and Bank and shall constitute a valid and binding
obligation of Crawford Bancorp and Bank, subject to the conditions precedent set
forth in Section 8 hereof, and is enforceable in accordance with its terms,
---------
except to the extent limited by general principles of equity and by bankruptcy,
insolvency, reorganization, liquidation, moratorium, readjustment of debt or
other laws of general application relating to or affecting the enforcement of
creditors' rights.
(b) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby does or will: (i) conflict with, result in a
breach of, or constitute a default under Crawford Bancorp's Articles of
Incorporation or By-Laws, Bank's Articles of Incorporation or By-Laws, any
local, state, federal or foreign law, statute, ordinance, rule or regulation
(provided that the approvals of government regulatory agencies or bodies
required for consummation of the Merger are obtained), any court or
administrative order, judgment, writ or decree or any note, bond, indenture,
mortgage, security agreement, contract, arrangement or commitment to which
Crawford Bancorp or Bank is a party or by which Crawford Bancorp or Bank is or
may be subject or bound; (ii) result in the creation of or give any person,
corporation or entity the right to create any lien, charge, claim, encumbrance
or security interest, or result in the creation of any other rights of any other
party or any other adverse interest, upon any right, property or asset of
Crawford Bancorp or Bank; (iii) terminate or give any person, corporation or
entity the right to terminate, amend, modify, abandon or refuse to perform any
note, bond, indenture, security agreement, contract, arrangement or commitment
to which Crawford Bancorp or Bank is a party or by which Crawford Bancorp or
Bank is subject or bound; or (iv) accelerate or modify, or give any person,
corporation or entity the right to accelerate or modify, the time within which,
or the terms according to which, Crawford Bancorp or Bank is to perform any
duties or obligations or receive any rights or benefits under any notes, bonds,
indentures, security agreements, contracts, arrangements or commitments.
A-5
<PAGE>
(c) Other than in connection or in compliance with the provisions of the
BHC Act, federal and state securities laws, applicable Indiana and Illinois
banking laws and corporation statutes, all as amended, and the rules and
regulations promulgated thereunder, no notice to, filing with, exemption by or
consent, authorization or approval of any governmental agency or body is
necessary for the consummation by Crawford Bancorp or Bank of the transactions
contemplated hereby.
4.03. Capitalization. (a) The authorized capital stock of Crawford
--------------
Bancorp as of the date of this Agreement consists, and at the Effective Date
will consist, solely of 250,000 shares of common stock, $5.00 par value per
share, of which 159,200 shares are, and at the Effective Date will be, issued
and outstanding. Such issued and outstanding shares of Crawford Bancorp common
stock have been duly and validly authorized by all necessary corporate action of
Crawford Bancorp, are validly issued, fully paid and nonassessable, have not
been issued in violation of any pre-emptive rights of any present or former
shareholders of Crawford Bancorp and are entitled to vote to approve this
Agreement. Crawford Bancorp has not authorized the issuance of any other class
of stock and has no intention or obligation to authorize or issue additional
shares of its common stock. Crawford Bancorp has no fractional shares of common
stock outstanding. On an unaudited, consolidated basis as of December 31, 1995,
Crawford Bancorp had total shareholders' equity of $9,919,089.68, which
consisted of common stock of $900,000.00, paid-in capital of $2,940,000.00,
unrealized gain on securities available for sale of $167,029.50, and retained
earnings of $5,912,060.18. Each share of Crawford Bancorp common stock is
entitled to one vote per share. A description of the terms, rights and
limitations of Crawford Bancorp common stock is contained in the Articles of
Incorporation of Crawford Bancorp, copies of which are set forth in the
Disclosure Letter pursuant to Section 4.04 hereof. "Disclosure Letter" shall
-------------
mean a letter referencing the applicable provision of Section 4 hereof which
---------
shall be prepared and executed by an authorized executive officer of Crawford
Bancorp and delivered within five (5) days prior to the date hereof to an
authorized executive officer of First Financial, who shall acknowledge receipt
thereof on behalf of First Financial.
(b) The authorized capital stock of Bank consists, and at the Effective
Date will consist, of 159,200 shares of common stock, $5.00 par value per share,
all of which shares are validly issued and outstanding and held of-record and
beneficially by Crawford Bancorp. Such issued and outstanding shares of Bank
common stock have been duly and validly authorized by all necessary corporate
action of Bank, are validly issued, fully paid and nonassessable, and have not
been issued in violation of pre-emptive rights of any present or former
shareholders of Bank. Bank has not authorized the issuance of any other class of
stock and has no intention or obligation to authorize or issue additional shares
of its common stock. All the issued and outstanding shares of Bank common stock
are owned by Crawford Bancorp free and clear of all liens, pledges, charges,
claims, encumbrances, restrictions, security interests, options and pre-emptive
rights and of all other rights of any other person, corporation or entity with
respect thereto. As of December 31, 1995, on an unaudited basis, Bank had total
capital of $9,919,089.68 which consisted of common stock of $900,000.00, capital
surplus of $2,940,000.00, unrealized gain on securities available for sale of
$167,029.50, and undivided profits of $5,912,060.18.
(c) There are no options, warrants, commitments, calls, agreements,
understandings, arrangements or subscription rights regarding the issuance,
purchase or acquisition of capital stock, or any securities convertible into or
representing the right to purchase or otherwise receive the capital stock or any
debt securities, of Crawford Bancorp or Bank by which
A-6
<PAGE>
Crawford Bancorp or Bank is or may become bound. Neither Crawford Bancorp nor
Bank has any outstanding contractual or other obligation to repurchase, redeem
or otherwise acquire any of its respective outstanding shares of common stock.
(d) Except as set forth in the Disclosure Letter, Crawford Bancorp has
no knowledge of any person who beneficially owns 5% or more of its outstanding
shares of common stock.
4.04. Organizational Documents. The respective Articles of Incorporation
------------------------
and By-Laws of Crawford Bancorp and Bank in force as of the Effective Date have
been delivered to First Financial and are included in the Disclosure Letter and
represent true, accurate and complete copies of such corporate documents of
Crawford Bancorp and Bank in effect as of the date of this Agreement.
4.05. Compliance with Law. (a) Neither Crawford Bancorp nor Bank has
-------------------
engaged in any activity or has taken or omitted to take any action which has
resulted in the violation of any local, state, federal or foreign law, statute,
regulation, rule, ordinance, order, restriction or requirement or is in
violation of any order, injunction, judgment, writ or decree of any court or
government agency or body, the violation of which could have an adverse effect
on the financial condition, results of operations, business, assets or
capitalization of Crawford Bancorp on a consolidated basis. Each of Crawford
Bancorp and Bank possess and hold all licenses, franchises, permits,certificates
and other authorizations necessary for the continued conduct of their business
without interference or interruption, and such licenses, franchises, permits,
certificates and authorizations held by Crawford Bank and Bank shall be
transferable to First Financial at the Effective Date without any restrictions
or limitations thereon or the need to obtain any consents of government agencies
or other third parties other than as set forth in this Agreement. Crawford
Bancorp has received no written inquiries from any regulatory agency or
government authority relating to its material compliance with the Bank Secrecy
Act, the Truth-in-Lending Act or the Community Reinvestment Act or any laws with
respect to the environment or the rules and regulations promulgated thereunder.
(b) All agreements, understandings and commitments with, and all orders
and directives of, all government regulatory agencies or authorities with
respect to the financial condition, results of operations, business, properties
or capital of Crawford Bancorp or Bank which presently are binding upon or
require action by, or at any time during the last five (5) years have been
binding upon or have required action by, Crawford Bancorp or Bank, including
without limitation, all correspondence, communications and commitments related
thereto, are set forth in the Disclosure Letter. There are no uncured
violations, or violations with respect to which refunds or restitutions may be
required, cited in any examination report to Crawford Bancorp or Bank as a
result of an examination by any regulatory agency or body or cited in any
accountant's, auditor's or other report to Crawford Bancorp or Bank.
(c) All of the existing offices and branches of Bank have been legally
authorized and established in accordance with all applicable federal, state and
local laws, statutes, regulations, rules, ordinances, orders, restrictions and
requirements. Bank has no approved but unopened offices or branches.
4.06. Accuracy of Statements Made and Materials Provided to First
-----------------------------------------------------------
Financial. (a) No representation, warranty or other statement made by nor any
- ---------
information provided by Crawford Bancorp or Bank in this Agreement or in the
Disclosure Letter and any update thereto, or any written report, statement,
list, certificate, materials or other information furnished or to be
A-7
<PAGE>
furnished by Crawford Bancorp or Bank to First Financial through and including
the Effective Date in connection with this Agreement or the Merger contemplated
hereby (including, without limitation, any written information which has been or
shall be supplied by Crawford Bancorp or Bank through and including the
Effective Date with respect to its business, affairs, results of operations,
assets, income, financial condition, and directors and officers for inclusion in
the proxy statement-prospectus, and registration statement relating to the
Merger), contains or shall contain (with respect to information relating to the
proxy statement-prospectus, at the time it is mailed to the shareholders of
Crawford Bancorp and with respect to information relating to the registration
statement, at the time it is declared effective) any untrue or misleading
statement of fact or omits or shall omit to state a fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not false or misleading. Crawford Bancorp has delivered to First
Financial a true, accurate and complete copy of each document, plan or contract
listed and described in the Disclosure Letter pursuant to this Section 4 and
---------
such documents are included in the Disclosure Letter.
(b) Any materials or information provided by Crawford Bancorp or Bank to
First Financial for use by First Financial in any filing with the Securities and
Exchange Commission ("SEC") or with any other state or federal regulatory agency
(including, without limitation, all regulatory applications relating to the
Merger) shall not contain any untrue or misleading statement of fact or shall
omit to state a fact necessary to make the statements contained therein, in
light of the circumstances in which they are made, not false or misleading.
(c) All written data, documents, materials and information referred to
in this Agreement and delivered by Crawford Bancorp or Bank pursuant to or in
connection with the Disclosure Letter are true, accurate and complete in all
respects on the date of delivery hereof (or as of the date thereof with respect
to data, documents, materials and information dated as of a specified date) and
with respect to such items delivered subsequent to the date hereof or with
respect to any update to the Disclosure Letter, shall be true, accurate and
complete in all respects on the date of delivery thereof.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in
----------------------------------
the Disclosure Letter, there are no claims, actions, suits, proceedings,
investigations or arbitrations pending or the threatened in any court or before
any government agency or authority, arbitration panel or otherwise against, or
any actions, suits or proceedings by, Crawford Bancorp or Bank which could have
an adverse effect on the financial condition, results of operations, business,
assets or capitalization of Crawford Bancorp on a consolidated basis, or which
could prevent the performance of this Agreement, declare the same unlawful or
cause the rescission hereof.
(b) Neither Crawford Bancorp nor Bank: (i) is subject to any outstanding
judgment, order, writ, injunction or decree of any court, any government agency
or authority or any arbitration panel; (ii) is charged presently with or is
under governmental investigation with respect to any actual or alleged
violations of any law, statute, regulation, rule, ordinance, order, restriction
or requirement; or (iii) is the subject of any pending or threatened proceeding
by any government agency or authority having jurisdiction over its business,
properties or operations.
4.08. Financial Statements and Reports. (a) Crawford Bancorp or its
--------------------------------
agents have delivered to First Financial copies of the following financial
statements and reports of Crawford Bancorp and Bank (collectively, "Crawford
Bancorp Financial Statements"):
A-8
<PAGE>
(i) Consolidated Balance Sheets and related Statements of Income
and Statements of Changes in Stockholders' Equity of Crawford
Bancorp as of and for the years ended December 31, 1992, 1993
and 1994 and for the year ended December 31, 1995, on an
unaudited basis;
(ii) Consolidated Statements of Cash Flows of Crawford Bancorp for
the years ended December 31, 1992, 1993 and 1994; and
(iii) Reports of Condition and Income ("Call Reports") for Bank as of
the close of business on December 31, 1992, 1993, 1994 and
1995.
(iv) Financial Statements of Crawford Bancorp on Form FRY-9C filed
with the Board of Directors of the Federal Reserve System
("Federal Reserve") as of the close of business on December 31,
1992, 1993 and 1994.
(b) The Crawford Bancorp Financial Statements are true, accurate and
complete in all respects and present fairly the consolidated or unconsolidated,
as applicable, financial positions of Crawford Bancorp and Bank as of and at the
dates shown and the consolidated or unconsolidated, as applicable, results of
operations for the periods covered thereby. The Crawford Bancorp Financial
Statements described in clauses (i) and (ii) above, which consist of fiscal
year-end information, are audited financial statements and have been prepared in
conformance with generally accepted accounting principles applied on a
consistent basis. The Crawford Bancorp Financial Statements described in clause
(i) above as of and for the year ended December 31, 1995 and in clause (iii)
above are unaudited and have been prepared on a basis consistent with past
accounting practices and as required by applicable rules or regulations and
present fairly the consolidated or unconsolidated, as applicable, financial
condition and results of operations at the dates and for the periods presented,
subject to year-end audit adjustments (which adjustments in the aggregate would
not reasonably be expected to be adverse to Crawford Bancorp and Bank on a
consolidated basis). The Crawford Bancorp Financial Statements do not include
any assets or omit to state any liabilities, absolute or contingent, or any
other facts, which inclusion or omission would render the Crawford Bancorp
Financial Statements false or misleading in any respect.
4.09. Properties, Contracts, Employee Plans and Other Agreements. (a)
----------------------------------------------------------
Set forth in the Disclosure Letter is a true, accurate and complete list or
description of the following:
(i) A brief description and the location of all real property owned by
Crawford Bancorp or Bank and the principal buildings and structures located
thereon, together with a legal description of such real property, and each lease
of real property to which Crawford Bancorp or Bank is a party, identifying the
parties thereto, the annual rental payable, the expiration date thereof and a
brief description of the property covered;
(ii) All loan and credit agreements, conditional sales contracts,
promissory notes, or other title retention agreements or security agreements
relating to money borrowed by Crawford Bancorp or Bank and agreements for the
purchase of federal funds, excluding deposit agreements with customers of Bank
entered into in the ordinary course of business and repurchase agreements;
A-9
<PAGE>
(iii) All agreements, contracts, loans, contracts, leases, licenses,
guaranties, letters of credit, lines of credit, obligations or commitments of
Crawford Bancorp or Bank not referred to elsewhere in this Section 4 which
---------
individually or in the aggregate:
(A) involve payment or receipt by Crawford Bancorp or Bank (other
than as disbursement of loan proceeds to customers or loan
payments by customers) of more than $25,000.00 in the aggregate
or in any twelve (12) month period;
(B) involve payments based upon profits of Crawford Bancorp or
Bank;
(C) relate to the future purchase of goods, products, supplies or
services in excess of $10,000.00
(D) were not made in the ordinary course of business; or
(E) may not be terminated without penalty within one (1) year from
the date of this Agreement.
(iv) All leases or licenses with respect to personal property, whether as
lessee or licensee, with annual rental or other payments due thereunder in
excess of $10,000.00; and
(v) The name and current annual compensation of each director, officer
and employee of Crawford Bancorp or Bank whose current annual compensation from
Crawford Bancorp, Bank or a combination thereof is in excess of $50,000.00, and
the profit sharing, bonus or other form of compensation (other than salary) paid
or payable by Crawford Bancorp, Bank or a combination thereof to or for the
benefit of each such person for the years ended December 31, 1993 and 1994 and
any employment agreement or arrangement with respect to each such person.
(b) Neither Crawford Bancorp nor Bank has made or engaged in any
discussions, negotiations, proposals or agreements, whether in writing or
verbally, which reasonably could be expected to result in any agreement,
contract, obligation, commitment, arrangement or lease in addition to those
described in this Section 4.09.
------------
4.10. Contracts. Each of the agreements, contracts, commitments, leases,
---------
instruments and documents set forth in the Disclosure Letter relating to Section
-------
4.09 of this Agreement is valid and enforceable in accordance with its terms.
- ----
Crawford Bancorp and Bank and all other parties thereto are in compliance with
the provisions thereof, and neither Crawford Bancorp nor Bank is in default
under or in breach of, or alleged to be in default under or in breach of, any
performance, observance or fulfillment of any obligation, covenant or provision
contained in any note, bond, indenture, mortgage, deed of trust, license,
security agreement, loan or credit agreement, conditional sales contract or
other title retention agreement, contract, lease, arrangement, commitment or any
other instrument or obligation which could have an adverse effect on the
financial condition, results of operations, business, assets or capitalization
of Crawford Bancorp and Bank on a consolidated basis. None of the foregoing
requires the consent of any party to its assignment in connection with the
Merger contemplated by this Agreement.
4.11 Absence of Undisclosed Liabilities. Except as set forth in the
----------------------------------
Disclosure Letter, except as disclosed or provided for in the Crawford Bancorp
Financial Statements, except for
A-10
<PAGE>
letters of credit, except for unfunded loan commitments to customers (all of
such loan commitments having been made in the ordinary course of business), and
except for trade payables incurred in the ordinary course of business, neither
Crawford Bancorp nor Bank has, or will have at the Effective Date, any
obligation, agreement, contract, commitment, liability, lease or license which
exceeds $5,000.00 individually or in the aggregate, or any obligation,
agreement, contract, commitment, liability, lease or license made outside of the
ordinary course of business, nor has Crawford Bancorp or Bank made or engaged in
any discussions, negotiations, proposals or agreements, whether in writing or
verbally, prior to the date of this Agreement which could reasonably be expected
to result in any such obligation, agreement, contract, commitment, liability,
lease or license.
4.12. Title to Assets. (a) Crawford Bancorp and Bank have good and
---------------
marketable title in fee simple absolute to all real property (including, without
limitation, all real property used as bank holding company or bank premises and
all other real estate owned) which is reflected in the Crawford Bancorp
Financial Statements as of December 31, 1994; good and marketable title to all
personal property reflected in the Crawford Bancorp Financial Statements as of
December 31, 1994, other than personal property disposed of in the ordinary
course of business since December 31, 1994; good and marketable title to all
other properties and assets (whether real or personal, tangible or intangible)
which Crawford Bancorp or Bank purports to own; good and marketable title to, or
right to use, by the terms of a valid and enforceable lease or contract, all
other property used in Crawford Bancorp's or Bank's business or operations; and
good and marketable title to all property and assets acquired and not disposed
of since December 31, 1994. All of such properties and assets are owned by
Crawford Bancorp and Bank free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges, claims, options, rights of third
parties and encumbrances of any nature except: (i) as set forth in the
Disclosure Letter; (ii) as specifically noted in reasonable detail the Crawford
Bancorp Financial Statements; (iii) statutory liens for taxes not yet delinquent
or being contested in good faith by appropriate proceedings; (iv) pledges or
liens required to be granted in connection with the acceptance of government
deposits or granted in connection with repurchase agreements; and (v) easements,
encumbrances and liens of record which do not impair the use thereof for the
purposes for which they are held. All real property owned by Crawford Bancorp or
Bank is in compliance with all applicable zoning laws.
(b) Each of Crawford Bancorp and Bank has conducted its business and
operations in compliance with all federal, state, county, municipal and other
laws, statutes, regulations, rules, ordinances, orders, directives, restrictions
and requirements relating to, without limitation, responsible property transfer,
underground storage tanks, petroleum products, air pollutants, water pollutants,
storm water, process waste water or otherwise relating to the environment or
toxic or hazardous substances or to the manufacturing, processing, distribution,
use, recycling, generation, treatment, handling, storage, disposal or transport
of any toxic or hazardous substances or petroleum products (including
polychlorinated biphenyls, whether contained or uncontained, and asbestos-
containing materials, whether friable or not), including, without limitation,
the Federal Solid Waste Disposal Act, the Hazardous and Solid Waste Amendments,
the Federal Clean Air Act, the Federal Clean Water Act, the Occupational Health
and Safety Act, the Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, and the Superfund Amendments and
Reauthorization Act of 1986, all as amended, and regulations of the
Environmental Protection Agency, the Nuclear Regulatory Agency, the Army Corp of
Engineers, the Department of Interior, the United States Fish and Wildlife
Service and any state department of natural resources or state environmental
protection agency now or at any
A-11
<PAGE>
time prior hereto in effect (collectively, the "Environmental Laws"). There are
no pending, threatened claims, actions or proceedings by any municipality, sewer
district or other governmental entity against Crawford Bancorp or Bank with
respect to the Environmental Laws and there is no basis or grounds for any such
claim, action or proceeding. No environmental permits or other governmental
approvals are required for the conduct of the business or operations of Crawford
Bancorp or Bank or the banking business of Bank or the consummation of the
Merger contemplated hereby. Neither Crawford Bancorp nor Bank is or has been the
owner or operator of any property on which any substances have been used,
stored, deposited, treated, recycled or disposed of, which substances if known
to be present on, at or under such property, would require clean-up, removal or
other remedial action under any Environmental Laws.
(c) Neither Crawford Bancorp nor Bank: (i) is in default in any respect
under or in breach of any agreements pursuant to which it leases real or
personal property; (ii) has knowledge of any default under or breach of such
agreements by any party thereto and; (iii) has knowledge of any event which,
with notice or lapse of time or both, would constitute a default under or breach
of such agreements.
4.13. Loans and Investments. (a) Except as set forth in the Disclosure
---------------------
Letter, there is no loan (for purposes of this Section 4.13, "loan" shall mean,
------------
without limitation, any loan, participated loan (in whole or in part, whether
with or without recourse), advance, payment, disbursement, credit, credit
facility, line of credit and commitment of any nature whatsoever, including,
without limitation, letters of credit and deposit account overdrafts, and any
commitment, understanding or agreement to make or do any of the foregoing,
whether in writing or verbally, by conduct or otherwise) of Bank in excess of
$10,000.00 (aggregating outstanding principal balance, accrued interest, costs
and expenses) that has been classified by bank regulatory examiners as "Other
Loans Specially Mentioned," "Substandard," "Doubtful" or "Loss" or in excess of
$10,000.00 that has been identified by accountants or auditors (internal or
external) as having a significant risk of uncollectibility. The most recent loan
watch list of Bank and a list of all loans in excess of $10,000.00 that Bank has
determined to be thirty (30) days or more past due with respect to principal or
interest payments, has restructured or has placed on nonaccrual status, are set
forth in the Disclosure Letter.
(b) All loans reflected in the Crawford Bancorp Financial Statements as of
December 31, 1995 and which have been made, extended, renewed, restructured,
approved, amended, acquired or participated in since December 31, 1995: (i) have
been made for good, valuable and adequate consideration in the ordinary course
of business; (ii) constitute the legal, valid and binding obligation of the
obligor and any guarantor named therein, except to the extent limited by general
principles of equity and by bankruptcy, insolvency, reorganization, liquidation,
moratorium, readjustment of debt or other laws of general application relative
to or affecting the enforcement of creditors' rights; (iii) are evidenced by
notes, instruments or other evidences of indebtedness which are true, genuine
and what they purport to be; and (iv) to the extent that Bank has a security
interest in collateral or a mortgage securing such loans, are secured by
perfected security interests or recorded mortgages naming Bank as the secured
party or mortgagee.
(c) The reserves, the allowance for possible loan and lease losses and the
carrying value for real estate owned which are shown on the Crawford Bancorp
Financial Statements as of and for the year ended December 31, 1995 are adequate
in all respects under the requirements of generally accepted accounting
principles applied on a consistent basis to provide for possible
A-12
<PAGE>
losses on items for which reserves were made, on loans and leases outstanding
and on real estate owned as of December 31, 1995. The aggregate loan balances
outstanding as of December 31, 1995 in excess of Bank's reserve for loan losses
as of such date are collectible in accordance with their respective terms.
(d) None of the investments reflected in the Crawford Bancorp Financial
Statements as of and for the year ended December 31, 1995 and none of the
investments made by Crawford Bancorp or Bank since December 31, 1995 are subject
to any restriction, whether contractual or statutory, which impairs the ability
of Crawford Bancorp or Bank to dispose freely of such investment at any time.
Except as set forth in the Disclosure Letter, neither Crawford Bancorp nor Bank
is a party to any repurchase agreements with respect to securities.
(e) Set forth in the Disclosure Letter is a true, accurate and complete
list of all letters of credit, loan commitments and lines of credit extended,
made, approved or committed to, whether in writing or verbally, by conduct or
otherwise, by Bank which exceed $25,000.00.
(f) Set forth in the Disclosure Letter is a true, accurate and complete
list of all loans in which Bank has any participation interest or which have
been made with or through any other financial institution on a recourse basis
against Bank.
(g) Except for the indebtedness incurred pursuant to Bank investment
instruments and that described in the Disclosure Letter, neither Crawford
Bancorp nor Bank has, or will have at the Effective Date, any indebtedness for
borrowed money.
4.14. Shareholder Rights Plan. Crawford Bancorp has no shareholder rights
-----------------------
plan or any other plan, program or agreement involving, restricting, prohibiting
or discouraging a change in control or merger of Crawford Bancorp or Bank or
which may be considered an anti-takeover mechanism.
4.15. Employee Benefit Plans. (a) With respect to the employee benefit
----------------------
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), sponsored or otherwise maintained by Crawford
Bancorp or Bank; in which Crawford Bancorp or Bank participates as a
participating employer; with respect to which Crawford Bancorp or Bank acts as
Trustee or fiduciary; to which Crawford Bancorp or Bank contributes; and
including any such plans which have been terminated, merged into another plan,
frozen or otherwise discontinued (collectively, "Crawford Bancorp Plans"): (i)
all such Crawford Bancorp Plans have, on a continuous basis since their
adoption, been maintained in compliance with the requirements prescribed by all
applicable statutes, orders and governmental rules or regulations, including,
without limitation, ERISA, the Code, and the Department of Labor ("Department")
and Treasury Regulations promulgated thereunder; (ii) all Crawford Bancorp Plans
intended to constitute tax-qualified plans under Section 401(a) and, where
applicable, Section 4975(e)(7) of the Code, have complied since their adoption,
or have been amended to comply, in all respects, with all applicable
requirements of the Code and the Treasury Regulations promulgated thereunder,
and favorable determination letters have been timely received from the Internal
Revenue Service ("Service") with respect to each such Crawford Bancorp Plan
stating that each, in its current form (or at the time of its disposition if it
has been terminated, merged, frozen or otherwise discontinued), is qualified
under and satisfies all applicable provisions of the Code and the Treasury
Regulations promulgated thereunder; (iii) neither Crawford Bancorp nor Bank has
any liability to the Department, the Service or the Pension Benefit Guaranty
Corporation ("PBGC") with respect to any Crawford
A-13
<PAGE>
Bancorp Plan subject to ERISA (including Title IV thereof) or the Code; (iv)
neither Crawford Bancorp nor Bank has engaged in any transaction that may
subject Crawford Bancorp or Bank or any Crawford Bancorp Plan to a civil penalty
imposed by Section 502 of ERISA; (v) no prohibited transaction (as defined in
Section 406 of ERISA and as defined in Section 4975(c) of the Code) has occurred
with respect to any Crawford Bancorp Plan; (vi) each Crawford Bancorp Plan
subject to ERISA or intended to be qualified under Section 401(a) of the Code
has been and, if applicable, is being operated in accordance with the applicable
provisions of ERISA and the Code and the Department and Treasury Regulations
promulgated thereunder; (vii) no participant or beneficiary or non-participating
employee has been denied any benefit due or to become due under any Crawford
Bancorp Plan or has been misled as to his or her rights under any Crawford
Bancorp Plan; (viii) all obligations required to be performed by Crawford
Bancorp and Bank under any provision of a Crawford Bancorp Plan have been
performed by them and they are not in default under, in breach of or in
violation of any provision of a Crawford Bancorp Plan; (ix) no event has
occurred which would constitute grounds for an enforcement action by any party
under Part 5 of Title I of ERISA under any Crawford Bancorp Plan; (x) there are
no actions, suits, proceedings or claims pending (other than routine claims for
benefits) or threatened against any Crawford Bancorp Plan or against the assets
of any Crawford Bancorp Plan; (xi) the actuarial assumptions used to fund any
Crawford Bancorp Plan subject to Title IV of ERISA are reasonable; (xii) the
present value of all "benefit liabilities" within the meaning of Section
401(a)(2) of the Code, including unvested benefit liabilities, with respect to
each Crawford Bancorp Plan subject to Title IV of ERISA do not exceed the net
fair market value of the Crawford Bancorp Plan assets allocated to such
benefits; (xiii) no Crawford Bancorp Plan owns or holds any equity or debt
instruments of Crawford Bancorp or any related or affiliated entity; (xiv)
except for liabilities to the PBGC under Section 4007 of ERISA, all of which
have been fully paid, and except for liabilities to the Service under Section
4971 of the Code, neither Crawford Bancorp nor Bank has any liability to the
PBGC or the Service with respect to any Crawford Bancorp Plan, other than
regular insurance premiums to the PBGC; and (xv) with respect to any Crawford
Bancorp Plan sponsored, participated in or contributed to by Crawford Bancorp or
Bank or with respect to which Crawford Bancorp or Bank is responsible for
complying with the reporting and disclosure requirements of ERISA or the Code,
there has been no violation of the reporting and disclosure requirements imposed
either under ERISA or the Code for which a penalty has been or may be imposed.
(b) With regard to any Crawford Bancorp Plan intended to be qualified
under Section 401(a) of the Code, no director, officer, employee or agent of
Crawford Bancorp or Bank has engaged in any action or failed to act in such a
manner that, as a result of such action or failure to act the Service could
revoke a favorable determination letter as to any Crawford Bancorp Plan's
qualification under Section 401(a) or, where applicable, Section 4975(e)(7) of
the Code, or the exemption under Section 501(a) of the Code of any trust related
to such Plan.
(c) With regard to any employee benefit plan, as defined in Section 3(3)
of ERISA, excluding the Crawford Bancorp Plans under which Crawford Bancorp or
Bank acts as administrator, custodian, trustee or fiduciary, including any such
plans which have been terminated, merged into another plan, frozen or otherwise
discontinued, no action, or failure to act, by Crawford Bancorp or Bank or by
any officer, employee or agent of Crawford Bancorp or Bank taken in the exercise
of its or his discretion in any such capacity without regard to direction by
other fiduciaries upon whose directions reliance could be had under applicable
plan documents and legal requirements would: (i) entitle the Service to revoke a
favorable determination letter as to any such plan under Section 401(a) of the
Code or the exempt status of any trust related to any such plan under Section
501(a) of the Code; (ii) subject Crawford
A-14
<PAGE>
Bancorp, Bank or any such plan to any income or excise tax or any penalty under
ERISA or the Code; or (iii) subject Crawford Bancorp, Bank or any such plan to
any financial liability under ERISA to any person, except pursuant to the terms
of any such plan in the ordinary course of business.
(d) Crawford Bancorp and Bank have provided to First Financial in the
Disclosure Letter true, accurate and complete copies, and, in the case of any
plan or program which has not been reduced to writing, a complete summary, of
all of the following: (i) pension, profit-sharing, savings, stock purchase,
stock bonus, stock ownership, stock option and stock appreciation or shareholder
rights plans and all amendments thereto; (ii) all employment, deferred
compensation (whether funded or unfunded), salary continuation, consulting,
bonus, severance and collective bargaining agreements, arrangements or
understandings; (iii) all executive and other incentive compensation plans and
programs; (iv) all group insurance and health contracts, policies or plans; and
(v) all other incentive, welfare or employee benefit plans or agreements,
maintained or sponsored, participated in, or contributed to by Crawford Bancorp
or Bank for any current or former directors, officers or employees. With respect
to any plan or program subject to ERISA, Crawford Bancorp and Bank have also
provided to First Financial in the Disclosure Letter true, accurate and complete
copies of the following: (i) current summary plan descriptions and all
summaries of material modifications thereto; (ii) summary annual reports for the
last five (5) years; (iii) annual reports on Forms 5500 (and any schedules
thereto) for the last five (5) years; (iv) all determination letters issued by
the Internal Revenue Service; and (v) filings with the Department of Labor. All
such plans have been, since their inception, drafted, implemented, administered
and, where applicable, amended or terminated, in accordance with their terms and
with applicable law.
(e) No current or former director, officer or employee of Crawford Bancorp
or Bank is entitled to any benefit under any welfare benefit plans (as defined
in Section 3(1) of ERISA) after termination of employment with Crawford Bancorp
or Bank, except that such individuals may be entitled to continue their health
care coverage pursuant to Section 4980B of the Code if they pay the cost of that
coverage pursuant to the applicable requirements of the Code with respect
thereto.
(f) With respect to any group health plan (as defined in Section 607(1) of
ERISA) sponsored or maintained by Crawford Bancorp or Bank, in which Crawford
Bancorp or Bank participates as a participating employer or to which Crawford
Bancorp or Bank contributes, no director, officer, employee or agent of Crawford
Bancorp or Bank has engaged in any action or failed to act in such a manner
that, as a result of such action or failure to act, the ability of: (i)
Crawford Bancorp or Bank to deduct contributions to such plans, or (ii) highly
compensated employees of Crawford Bancorp or Bank to exclude from income
employer-provided coverage or any benefit under such plans, would be impaired.
With respect to all such plans, all applicable provisions of Section 4980B of
the Code and Section 601 of ERISA have been complied with in all respects by
Crawford Bancorp and Bank.
(g) Except as otherwise provided in the Disclosure Letter, there are no
collective bargaining, employment, management, consulting, deferred
compensation, salary continuation, severance, termination or similar agreements,
commitments or understandings, or any employee benefit or retirement plan,
binding upon Crawford Bancorp or Bank and no such agreement, commitment,
understanding or plan is under discussion or negotiation by management of
Crawford Bancorp with any employee or group of employees, any member of Crawford
Bancorp's management or any other person.
A-15
<PAGE>
4.16. Obligations to Employees. All accrued obligations and liabilities
------------------------
of and all payments by Crawford Bancorp, Bank, and all Crawford Bancorp Plans
(as that term is defined in Section 4.15 herein), whether arising by operation
------------
of law, by contract or by past custom, for payments to trusts or other funds, to
any government agency or authority or to any present or former director,
officer, employee or agent (or his or her heirs, legatees or legal
representatives) of Crawford Bancorp or Bank have been and are being paid to the
extent required by applicable law or by the plan, trust or contract, and
adequate actuarial accruals and reserves for such payments have been and are
being made by Crawford Bancorp or Bank in accordance with generally accepted
accounting principles and actuarial methods and applicable law applied on a
consistent basis with respect to the following: (a) withholding, unemployment
compensation or social security taxes; (b) all pension, profit-sharing, savings,
stock purchase, stock bonus, stock ownership, stock option and stock
appreciation rights plans; (c) all employment, deferred compensation (whether
funded or unfunded), salary continuation, severance, consulting, reimbursement,
bonus or collective bargaining agreements; (d) all executive and other incentive
compensation plans or programs; (e) all group insurance and health contracts and
policies; and (f) all other incentive, welfare, retirement or employee benefit
plans or agreements maintained or sponsored, participated in, or contributed to,
by Crawford Bancorp or Bank for any current or former directors, officers,
employees and agents, including, without limitation, all liabilities and
obligations to the Crawford Bancorp Plans (as defined in Section 4.15 herein).
------------
All obligations and liabilities of Crawford Bancorp and Bank, whether arising by
operation of law, by contract or by past custom, for all other forms of
compensation which are or may be payable to any current or former directors,
officers, employees or agents have been and are being paid to the extent
required by applicable law or by the applicable plan or contract, and adequate
actuarial accruals and reserves for payment therefor have been and are being
made by Crawford Bancorp or Bank in accordance with generally accepted
accounting and actuarial principles applied on a consistent basis. All accruals
and reserves referred to in this Section 4.16 are correctly and accurately
------------
reflected and accounted for in all respects in the Crawford Bancorp Financial
Statements and in the books, statements and records of Crawford Bancorp and/or
Bank.
4.17. Taxes, Returns and Reports. Crawford Bancorp and Bank have: (a)
--------------------------
duly filed all federal, state, local and foreign tax returns of every type and
kind required to be filed as of the date hereof, and each such return is true,
accurate and complete in all respects; (b) paid all taxes, assessments and other
governmental charges due or claimed to be due upon each of them or any of its
income, properties or assets; and (c) not requested an extension of time for any
such payments. Except for taxes not yet due and payable, the reserve for taxes
in the Crawford Bancorp Financial Statements as of December 31, 1995 is adequate
to cover all of Crawford Bancorp's and Bank's tax liabilities (including,
without limitation, income taxes and franchise fees) that may become payable in
future years with respect to any transactions consummated and activities prior
to December 31, 1995. Neither Crawford Bancorp nor Bank has, or will have, any
liability for taxes of any nature for or with respect to the operation of its
business, including the business of any subsidiary, or ownership of its assets,
including the assets of any subsidiary, from the date hereof through and
including the Effective Date, except to the extent set forth in the Subsequent
Crawford Bancorp Financial Statements (as defined in Section 6.10 herein).
------------
Neither Crawford Bancorp nor Bank is currently under audit by any state or
federal taxing authority. None of the federal, state, or local tax returns filed
by Crawford Bancorp or Bank for the years from and including 1990 through 1994
have been audited by any taxing authority.
A-16
<PAGE>
4.18. Deposit Insurance. The deposits of Bank are insured by the FDIC in
-----------------
accordance with the Federal Deposit Insurance Act, as amended, and the Savings
Association Insurance Fund and all applicable laws, statutes, regulations,
rules, ordinances, orders, restrictions or requirements, and Bank has paid or
properly reserved or accrued for all current premiums and assessments with
respect to such deposit insurance.
4.19. Insurance. Set forth in the Disclosure Letter is a list and brief
---------
description of all policies of insurance (including, without limitation,
bankers' blanket bond, directors' and officers' liability insurance and
insurance providing benefits for employees) owned or held by Crawford Bancorp or
Bank as of the date hereof or with respect to which Crawford Bancorp or Bank
pays any premiums. Each such policy is in full force and effect and all premiums
due thereon have been paid when due.
4.20. Books and Records. The books and records of Crawford Bancorp and
-----------------
Bank are in all respects complete and correct and accurately reflect the basis
for the respective financial condition, results of operations, business, assets
and capitalization of Crawford Bancorp and Bank set forth in the Crawford
Bancorp Financial Statements.
4.21. Broker's, Finder's or Other Fees. Except for reasonable fees of
--------------------------------
Crawford Bancorp's attorneys, accountants and investment banker, for services
provided to Crawford Bancorp in connection with the Merger contemplated by this
Agreement, all of which will be paid by Crawford Bancorp prior to the Effective
Date, no agent, broker or other person acting on behalf of Crawford Bancorp or
Bank or under any authority of Crawford Bancorp or Bank is or shall be entitled
to any commission, broker's or finder's fee or any other form of compensation or
payment from any of the parties hereto relating to this Agreement and the Merger
contemplated hereby. A true, accurate and complete copy of Crawford Bancorp's
agreement with its investment banker has been provided to First Financial.
4.22. Interim Events. Except as otherwise permitted hereunder or as set
--------------
forth in the Disclosure Letter, since December 31, 1995, neither Crawford
Bancorp nor Bank has:
(a) Suffered any changes having an adverse effect on the financial
condition, results of operations, business, assets or capitalization of Crawford
Bancorp or Bank or in the operation or conduct of its business;
(b) Suffered any damage, destruction or loss to any of its properties or
the improvements located thereon, reasonable wear and tear excepted, whether or
not covered by insurance;
(c) Declared, distributed or paid any dividend or other distribution
with respect to its capital stock (except for (i) payment of dividends and
distributions from Bank to Crawford Bancorp in the ordinary course of business
for payment of reasonable and necessary business and operating expenses of
Crawford Bancorp and to provide funds for Crawford Bancorp's usual and customary
dividends to its shareholders in accordance with this Agreement, and (ii)
payment of semi-annual dividends by Crawford Bancorp to its shareholders as
permitted in Section 6.03(a)(iii) hereof), repurchased or redeemed or otherwise
--------------------
acquired shares of its common stock, issued any shares of its common stock or
any stock appreciation or shareholder rights or sold or agreed to issue or sell
any shares of its common stock or any right to purchase or acquire any such
stock or any security convertible into such stock or taken any action to
reclassify, recapitalize or split up its common stock;
A-17
<PAGE>
(d) Canceled or compromised any loan debt, claim, receivable or
obligation due to Bank other than in the ordinary course of business;
(e) Entered into any transaction, contract or commitment other than in
the ordinary course of business;
(f) Incurred, assumed or guaranteed any obligation or liability (fixed
or contingent) other than obligations and liabilities incurred in the ordinary
course of business;
(g) Mortgaged, pledged or subjected to a lien, security interest, option
or other encumbrance any of its assets except for tax or other liens which arise
by operation of law and with respect to which payment is not past due and except
for pledges or liens: (i) required to be granted in connection with acceptance
by Bank of government deposits; (ii) granted in connection with repurchase or
reverse repurchase agreements; or (iii) otherwise incurred in the ordinary
course of business;
(h) Conducted its business in any manner other than as it was being
conducted through December 31, 1995;
(i) Leased, sold or otherwise disposed of any of its assets except in
the ordinary course of business or leased, purchased or otherwise acquired from
third parties any assets except in the ordinary course of business;
(j) Except for the Merger contemplated by this Agreement, merged,
consolidated or sold shares of common stock of Crawford Bancorp or Bank, agreed
to merge or consolidate with or into any third party, agreed to sell any shares
of common stock of Crawford Bancorp or Bank or acquired or agreed to acquire any
stock, equity interest or business of any third party;
(k) Agreed to enter into any transaction for the borrowing or loaning of
monies, other than in the ordinary course of Bank's lending business;
(l) Granted or agreed to grant any increase in benefits payable or to
become payable under any employee welfare, pension, retirement, profit sharing,
health, bonus, insurance or other benefit plan to any employees, officers or
directors of Crawford Bancorp or Bank, except pursuant to the terms of any such
plan in the ordinary course of business;
(m) Increased the salary of any director, officer or employee, except
for increases in the ordinary course of business or in accordance with either
Crawford Bancorp's or Bank's existing employee welfare or benefit plans, or
entered into any employment or severance agreement with any officer or salaried
employee or installed any employee welfare, benefit, pension, retirement, stock
option, stock appreciation, stock dividend profit sharing or other similar plan
or arrangement; or
(n) Paid or committed to pay any management or consulting fees, except
as set forth in the Disclosure Letter.
4.23. Regulatory Filings. Crawford Bancorp and Bank have filed and will
------------------
continue to file in a timely manner all filings with all federal and state
regulatory agencies as required by applicable law. All such filings with
federal and state regulatory agencies were true, accurate and complete in all
respects as of the dates of the filings and have been prepared in conformity
A-18
<PAGE>
with generally accepted regulatory accounting principles applied on a consistent
basis, and no such filing contained any untrue statement or omitted to state a
fact necessary in order to make the statements, at the time and in light of the
circumstances under which they were made, not false or misleading.
4.24. No Third Party Options. There are no agreements, options,
----------------------
commitments or rights with, of, or to any third party to acquire any shares of
capital stock or assets of Crawford Bancorp or Bank.
4.25. Representatives and Warranties at the Effective Date. All
----------------------------------------------------
representations and warranties of Crawford Bancorp in this Section 4 shall be
---------
true, accurate and correct on and as of the Effective Date except as affected by
the transactions contemplated by and specified within the terms of this
Agreement.
4.26. Nonsurvival of Representations and Warranties. The representations
---------------------------------------------
and warranties of Crawford Bancorp and Bank contained in this Agreement shall
expire at the Effective Date. Thereafter, Crawford Bancorp and Bank and all
directors, officers and employees of Crawford Bancorp and Bank shall have no
liability with respect thereto except for fraud or for false or misleading
statements made intentionally or knowingly in such representations and
warranties.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF FIRST FINANCIAL
-------------------------------------------------
First Financial represents and warrants to Crawford Bancorp and Bank as
follows:
5.01. Organization and Authority. First Financial is a corporation duly
--------------------------
organized and validly existing under the laws of the State of Indiana, is a
registered bank holding company under the BHC Act and has the full power and
authority (corporate and other) to own and lease its properties as presently
owned and leased, and to conduct its business in the manner and by the means
utilized as of the date hereof.
5.02. Authorization. (a) First Financial has the requisite corporate
-------------
power and authority to enter into this Agreement and to carry out its
obligations hereunder subject to the fulfillment of the conditions precedent set
forth in Section 8 hereof. This Agreement, when executed and delivered, shall
---------
have been duly authorized and shall constitute a valid and binding obligation of
First Financial, subject to the conditions precedent set forth in Section 8
---------
hereof, and is enforceable in accordance with its terms, except to the extent
limited by general principles of equity and public policy and by bankruptcy,
insolvency, reorganization, liquidation, moratorium, readjustment of debt or
other laws of general application relating to or affecting the enforcement of
creditors' rights.
(b) Neither the execution of this Agreement, nor the consummation of
Merger contemplated by this Agreement hereby, does or will: (i) conflict with,
result in a breach of or constitute a default under First Financial's Articles
of Incorporation or By-Laws; (ii) conflict with or violate in any material
respect any local, state, federal or foreign law, statute, ordinance, rule or
regulation (provided that the approvals of government banking regulatory
agencies or bodies required for consummation of the Merger are obtained), or any
court or administrative
A-19
<PAGE>
judgment, injunction, writ, order or decree; or (iii) conflict with, result in a
breach of, or constitute a material default under any material note, bond,
indenture, mortgage, security agreement, contract, arrangement or commitment to
which First Financial is a party or by which First Financial is or may be
subject or bound; (iv) result in the creation of or give any person, corporation
or entity the right to create any lien, charge, claim, encumbrance or security
interest, or result in the creation of any other rights of any other party or
any other adverse interest, upon any right, property or asset of First
Financial; (v) terminate or give any person, corporation or entity the right to
terminate, amend, modify, abandon or refuse to perform any material note, bond,
indenture, security agreement, contract, arrangement or commitment to which
First Financial is a party or by which First Financial is subject or bound; or
(vi) accelerate or modify, or give any person, corporation or entity the right
to accelerate or modify the time within which, or the terms according to which,
First Financial is to perform any duties or obligations or receive any rights or
benefits under any material notes, bonds, indentures, security agreements,
contracts, arrangements or commitments.
(c) Other than in connection or in compliance with the provisions of the
BHC Act, federal and state securities laws, applicable Indiana and Illinois
banking laws and corporation statutes, all as amended, and the rules and
regulations promulgated thereunder, no notice to, filing with, exemption by or
consent, authorization or approval of any governmental agency or body is
necessary for the consummation by First Financial of the transactions
contemplated by this Agreement.
5.03. Capitalization. As of December 31, 1995, First Financial had
--------------
10,000,000 shares of common stock authorized, of which 5,753,304 shares were
issued and outstanding. Such issued and outstanding shares of First Financial
common stock have been duly and validly authorized by all necessary corporate
action of First Financial and are validly issued, fully paid and nonassessable.
5.04. Organizational Documents. The Amended Articles of Incorporation and
------------------------
By-Laws of First Financial in force as of the date hereof have been delivered to
Crawford Bancorp and represent true, accurate and complete copies of such
corporate documents of First Financial in effect as of the date of this
Agreement.
5.05. Accuracy of Statements. Neither this Agreement nor any written
----------------------
report, statement, list, certificate or information furnished or to be furnished
by First Financial to Crawford Bancorp in connection with this Agreement or any
of the transactions contemplated hereby (including, without limitation, any
information which has been or shall be supplied by First Financial with respect
to its business, operations, financial condition, directors and officers for
inclusion in the proxy statement and registration statement relating to the
Merger) contains or shall contain (with respect to information relating to the
proxy statement, at the time it is mailed and with respect to the registration
statement, at the time it becomes effective) any untrue statement of a material
fact or omits or shall omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading in any material respect.
5.06. Compliance With Law. First Financial has not engaged in any
-------------------
activity and has not taken or omitted to take any action which has resulted or
could result in the material violation of any local, state, federal or foreign
law, statute, rule, regulation or ordinance or of any order, injunction,
judgment or decree of any court or government agency or body, the violation of
which could materially adversely affect the business, prospects, condition
(financial
A-20
<PAGE>
or otherwise) or results of operations of First Financial. First Financial
possesses all licenses, franchises, permits and other authorizations necessary
for the continued conduct of its business without material interference or
interruption. There are no agreements or understandings with, nor any orders or
directives of, any regulatory agencies or government authorities, which would
have a material adverse effect on the consolidated financial position of First
Financial or any subsidiary of First Financial.
5.07. Financial Statements and Reports. (a) First Financial or its agents
--------------------------------
have delivered to Crawford Bancorp copies of the following financial statements
and reports of First Financial (collectively, "First Financial Statements"):
(i) Consolidated Balance Sheets and related Statements of Income
and Statements of Changes in Stockholders' Equity of First
Financial as of and for the years ended December 31, 1992,
1993 and 1994 and for the year ended December 31, 1995, on an
unaudited basis;
(ii) Consolidated Statements of Cash Flows of First Financial for
the years ended December 31, 1992, 1993 and 1994; and
(iii) Financial Statements of First Financial on Form FRY-9C filed
with the Board of Directors of the Federal Reserve System
("Federal Reserve") as of the close of business on December
31, 1992, 1993 and 1994.
(b) The First Financial Statements are true, accurate and complete in
all material respects and present fairly the consolidated or unconsolidated, as
applicable, financial positions of First Financial as of and at the dates shown
and the consolidated or unconsolidated, as applicable, results of operations for
the periods covered thereby. The First Financial Statements described in clauses
(i) and (ii) above, which consist of fiscal year-end information, are audited
financial statements and have been prepared in conformance with generally
accepted accounting principles applied on a consistent basis. The First
Financial Statements described in clause (i) above as of and for the year ended
December 31, 1995 are unaudited and have been prepared on a basis consistent
with past accounting practices and as required by applicable rules or
regulations and present fairly the consolidated or unconsolidated, as
applicable, financial condition and results of operations at the dates and for
the periods presented, subject to year-end audit adjustments (which adjustments
in the aggregate would not reasonably be expected to be materially adverse to
First Financial on a consolidated basis). The First Financial Statements do not
include any assets or omit to state any liabilities, absolute or contingent, or
any other facts, which inclusion or omission would render the First Financial
Statements false or misleading in any material respect.
5.08. Taxes, Returns and Reports. First Financial has: (a) duly filed all
--------------------------
federal, state, local and foreign tax returns of every type and kind required to
be filed as of the date hereof, and each such return is true, accurate and
complete in all material respects; (b) paid all taxes, assessments and other
governmental charges due or claimed to be due upon each of them or any of its
income, properties or assets; and (c) not requested an extension of time for any
such payments. Except for taxes not yet due and payable, the reserve for taxes
in the First Financial Statements as of December 31, 1995 is adequate to cover
all of First Financial's tax liabilities (including, without limitation, income
taxes and franchise fees) that may become payable in future years with respect
to any transactions consummated and activities prior to December 31, 1995. First
Financial has not, nor will have, any liability for taxes of any nature for or
with
A-21
<PAGE>
respect to the operation of its business, including the business of any
subsidiary, or ownership of its assets, including the assets of any subsidiary,
from the date hereof through and including the Effective Date, except to the
extent properly accrued in accordance with generally accepted accounting
principals on First Financial's financial statements. First Financial is not
currently under audit by any state or federal taxing authority. An Indiana State
Sales & Use Tax Audit for the years from and including 1992 through 1994 was
completed in February, 1996. None of the federal, state, or local tax returns
filed by First Financial for the years from and including 1990 through 1994 have
been audited by any taxing authority.
5.09. Regulatory Filings. First Financial has furnished to Crawford
------------------
Bancorp copies of all filings made with the SEC under the 1934 Act which it has
made from January 1, 1994 to the date of this Agreement. First Financial and
each of its subsidiaries have filed and will continue to file in a timely manner
all required filings with the SEC and all other federal and state regulatory
agencies as required by applicable law.
5.10. Litigation and Pending Proceedings. Except as disclosed in the
----------------------------------
financial statements included in such filings set forth in Section 5.07 herein,
------------
there are no claims of any kind, nor any actions, suits, proceedings,
arbitrations or investigations pending or, to the best knowledge of First
Financial after due inquiry, threatened in any court or before or by any
government agency or body, arbitration panel or otherwise (nor does First
Financial have any knowledge of any basis for any claim, action, suit,
proceeding, arbitration or investigation) against, by or affecting First
Financial or its business, prospects, conditions (financial or otherwise),
results of operations or assets, or which would prevent the performance of this
Agreement or declare the same unlawful or cause the rescission hereof.
5.11. Shares to be Issued in Merger. The shares of First Financial common
-----------------------------
stock which Crawford Bancorp shareholders shall be entitled to receive upon
consummation of the Merger pursuant to this Agreement shall, at the Effective
Date, be duly authorized and shall, when issued in accordance with this
Agreement, be validly issued, fully paid and nonassessable and shall have been
registered under the Securities Act of 1933, as amended ("1933 Act").
5.12. Shareholder Approval. The approval of First Financial's
--------------------
shareholders of the Merger contemplated by this Agreement is not required.
5.13. Representations and Warranties at the Effective Date. All
----------------------------------------------------
representations and warranties of First Financial contained in this Section 5
---------
shall be true, accurate and correct on and as of the Effective Date except as
affected by the transactions contemplated by and specified within the terms of
this Agreement.
5.14. Nonsurvival of Representations and Warranties. The representations
---------------------------------------------
and warranties contained in this Section 5 shall expire on the Effective Date,
---------
and thereafter First Financial and all directors, officers and employees of
First Financial shall have no further liability with respect thereto, except
for fraud or for false or misleading statements made intentionally or knowingly
in such representations and warranties.
SECTION 6
COVENANTS OF CRAWFORD BANCORP AND BANK
--------------------------------------
Crawford Bancorp and Bank covenant and agree with First Financial as
follows:
A-22
<PAGE>
6.01. Shareholder Approval. Crawford Bancorp shall submit this Agreement
--------------------
to its shareholders for approval at a meeting to be called and held in
accordance with applicable law and the Articles of Incorporation and By-Laws of
Crawford Bancorp at the earliest possible reasonable date. The Board of
Directors of Crawford Bancorp shall recommend to the shareholders of Crawford
Bancorp that such shareholders approve this Agreement and the Merger
contemplated hereby and shall solicit proxies voting in favor of this Agreement
from Crawford Bancorp's shareholders.
6.02. Other Approvals. Crawford Bancorp and Bank shall proceed
---------------
expeditiously, cooperate fully and use their best efforts to assist First
Financial in procuring upon reasonable terms and conditions all consents,
authorizations, approvals, registrations and certificates to complete all
filings and applications and to satisfy all other requirements prescribed by law
which are necessary for consummation of the Merger on the terms and conditions
provided in this Agreement at the earliest possible reasonable date. Crawford
Bancorp shall promptly advise First Financial in writing if, prior to the
Effective Date, it shall obtain knowledge of any fact that would make it
necessary to amend the registration statement or to supplement the prospectus
contained in the registration statement in order to make the statements therein
not misleading or to comply with applicable law.
6.03. Conduct of Business. (a) On and after the date of this Agreement
-------------------
and until the Effective Date or until this Agreement shall be terminated as
provided by Section 9 herein, neither Crawford Bancorp nor Bank shall, without
---------
the prior written consent of First Financial:
(i) make any changes in its capital stock accounts including, without
limitation, the issuance of any shares, any stock split,
recapitalization or reclassification;
(ii) authorize a class of stock or issue, or authorize the issuance of,
stock other than or in addition to the outstanding common stock as
set forth in Section 4.03 herein;
------------
(iii) declare, distribute or pay any dividends on its shares of common
stock, or authorize a stock split, or make any other distribution to
its shareholders, except that: (A) Bank may pay cash dividends to
Crawford Bancorp in the ordinary course of business for payment of
reasonable and necessary business and operating expenses of Crawford
Bancorp in an amount not to exceed $25,000.00 and to provide funds
for Crawford Bancorp's dividends to its shareholders in accordance
with this Agreement, and (B) Crawford Bancorp may pay to its
shareholders its usual and customary semi-annual cash dividend of no
greater than One Dollar ($1.00) per share of common stock for each
such dividend until the Effective Date, provided that no dividend
may be paid during the semi-annual period in which the Merger is
consummated if, during such semi-annual period, Crawford Bancorp's
shareholders will become entitled to receive dividends on their
shares of First Financial common stock received pursuant to this
Agreement;
(iv) redeem any of its outstanding shares of common stock;
(v) merge, combine or consolidate or effect a share exchange with or
sell substantially all of its assets or any of its securities to any
other person, corporation or entity or enter into any other
transaction not in the ordinary course of business;
A-23
<PAGE>
(vi) purchase any assets or assume any liabilities of another bank
holding company, bank or other entity (except for loan
participations and other transactions in the ordinary course of
business and in accordance with safe and sound banking practices and
except as otherwise permitted by Section 6.03(a)(viii) hereof);
--------------------
(vii) except in the ordinary course of business in accordance with safe
and sound banking practices (and, with respect to loan transactions
or commitments, only on terms and conditions which are not known to
be materially more favorable than those available to the borrower
from competitive sources in transactions in the ordinary course of
business), increase or decrease any outstanding indebtedness, incur
any liability or obligation, make any loan, commitment, payment or
disbursement, enter into any lease, contract, agreement,
understanding or arrangement or engage in any transaction;
(viii) acquire or dispose of any property or asset constituting a capital
investment in excess of $10,000.00 individually or $50,000.00 in the
aggregate, except for the sale of the branch office building located
in Oblong, Illinois;
(ix) except in the ordinary course of business and in accordance with
safe and sound banking practices subject any of its properties or
assets to a mortgage, lien, claim, charge, option, restriction,
security interest or encumbrance;
(x) promote to a new position or increase the rate of compensation
(except for promotions and compensation increases in the ordinary
course of business and in accordance with past practices and
established employment policies), or enter into any agreement to
promote to a new position or increase the rate of compensation, of
any director, officer or employee of Crawford Bancorp or Bank;
(xi) execute, create, institute, modify or amend (except with respect to
any amendments to the Crawford Bancorp Plans (as defined in Section
-------
4.15 herein) which are otherwise required to be made by applicable
----
law, rule or regulation) any employee welfare, pension, retirement,
savings, stock purchase, stock bonus, stock ownership, stock option,
stock appreciation or depreciation right or profit sharing plans;
any employment, deferred compensation, severance, consulting, bonus
or collective bargaining agreement; any group health or insurance
contract, program or policy; or any other incentive, retirement,
welfare or employee benefit plan or agreement for any current or
former directors, officers or employees of Crawford Bancorp or Bank;
or change the level of benefits or payments under any of the
foregoing or increase or decrease any severance or termination of
pay benefits or any other fringe or employee benefits other than as
required by applicable law or regulatory authorities;
(xii) modify, amend or institute new employment policies or practices, or
enter into, renew or extend any employment, consulting or severance
agreements with respect to any present or former directors, officers
or employees of Crawford Bancorp or Bank;
(xiii) hire or employ any new or additional employees of Crawford Bancorp
or Bank, except those that are reasonably necessary for the proper
operation of Crawford Bancorp's or Bank's business;
A-24
<PAGE>
(xiv) amend, modify or restate its respective Articles of Incorporation or
By-Laws from those in effect on the date of this Agreement and as
delivered to First Financial hereunder;
(xv) give, dispose, sell or convey; assign, hypothecate, pledge or
encumber; or otherwise transfer or grant a security interest in or
option or right to acquire any shares of common stock or
substantially all of the assets of Crawford Bancorp and/or Bank;
(xvi) fail to continue to make additions to in accordance with past
practices and to otherwise maintain in all respects Bank's reserve
for loan and lease losses, or any other reserve account, in
accordance with safe, sound and prudent banking practices and in
accordance with generally accepted accounting principles applied on
a consistent basis, or allow its loan loss reserve to be at an
amount less than one percent (1%) of total loans as reflected on the
December 31, 1995 balance sheet of Crawford Bancorp.
(xvii) fail to accrue, pay, discharge and satisfy all liabilities,
obligations and expenses, including, but not limited to, trade
payables, incurred in the regular and ordinary course of business as
such liabilities, obligations and expenses become due;
(xviii) except for trade payables and similar liabilities and obligations
incurred in the ordinary course of business and the payment,
discharge or satisfaction in the ordinary course of business of
liabilities reflected in the Crawford Bancorp Financial Statements
or the Subsequent Crawford Bancorp Financial Statements (as defined
in Section 6.10 herein), borrow any money or incur any
------------
indebtedness, including, without limitation, through the issuance of
debentures, or incur, pay, discharge or satisfy any liability or
obligation (whether absolute, accrued, contingent or otherwise) in
an aggregate amount exceeding $10,000.00;
(xix) issue, or authorize the issuance, of any securities convertible into
or exchangeable for common stock of Crawford Bancorp or Bank;
(xx) open a new office or branch, close permanently or move an office or
branch, or materially expand, diminish, renovate, alter or change
any of its branches or offices, except for the sale of the branch
office building located in Oblong, Illinois;
(xxi) pay or commit to pay any management or consulting fees or other
similar types of fees, except for those set forth in the Disclosure
Letter as of the date hereof; and
(xxii) enter into any contract, agreement, lease, commitment,
understanding, arrangement or transaction or incur any liability or
obligation (other than as contemplated by Section 6.03(a)(vii)
--------------------
hereof and reasonable legal and accounting fees related to the
Merger) requiring payments by Crawford Bancorp or Bank which exceed
$10,000.00, whether individually or in the aggregate, or that are
not in the ordinary course of business.
A-25
<PAGE>
(b) On and after the date of this Agreement and until the Effective
Date, Crawford Bancorp and Bank shall maintain, or cause to be maintained, in
full force and effect insurance on their respective assets, properties and
operations, fidelity coverage and directors' and officers' liability insurance
on their respective directors, officers and employees in such amounts and with
regard to such liabilities and hazards as are currently insured by Crawford
Bancorp and Bank as of the date of this Agreement.
6.04. Preservation of Business. On and after the date of this Agreement
------------------------
and until the Effective Date or until this Agreement is terminated as provided
by Section 9 herein, each of Crawford Bancorp and Bank shall: (a) conduct its
---------
business diligently, in the manner as is presently being conducted and in the
ordinary course of business; (b) use its best efforts to preserve its business
organization intact, keep available the services of its present officers and
employees and preserve its present relationships with customers and persons
having business dealings with it; (c) maintain all of its properties and assets
that it owns or utilizes in good operating condition and repair, reasonable wear
and tear excepted, and maintain insurance upon such assets and properties and
with respect to the conduct of its business in amounts and kinds comparable to
that in effect on the date of this Agreement; (d) maintain its books, records
and accounts in the usual, regular and ordinary manner, on a basis consistent
with prior years and in compliance with all statutes, laws, rules and
regulations applicable to it and to the conduct of its business; (e) comply with
all laws, statutes, ordinances, rules or regulations applicable to it and to the
conduct of its business, the noncompliance with which results or could result in
a material adverse effect on the financial condition, results of operations,
business, assets or capitalization of Crawford Bancorp and Bank on a
consolidated basis; and (f) not do or fail to do anything which will cause a
breach of or default in any contract, agreement, commitment, obligation,
understanding, arrangement, lease or license to which it is a party or by which
it is or may be subject or bound, which results or could result in a material
adverse effect on the financial condition, results of operations, business,
assets or capitalization of Crawford Bancorp and Bank on a consolidated basis.
6.05. Other Negotiations. (a) Except as set forth in Section 6.05(b), on
------------------ ---------------
and after the date of this Agreement and until the Effective Date or until this
Agreement is terminated as provided by Section 9 herein, Crawford Bancorp and
---------
Bank shall not, and shall not permit or authorize their respective directors,
officers, employees, agents or representatives to, directly or indirectly,
initiate, solicit, encourage or engage in discussions or negotiations with, or
provide information to, any corporation, association, partnership, person or
other entity or group concerning any merger, consolidation, share exchange,
combination, purchase or sale of substantial assets, sale of shares of capital
stock (or securities convertible or exchangeable into or otherwise evidencing,
or any agreement or instrument evidencing the right to acquire, capital stock)
or similar transaction to which Crawford Bancorp or Bank is or may become a
party (all such transactions are hereinafter referred to as "Acquisition
Transactions"). Crawford Bancorp and Bank shall communicate promptly to First
Financial, via telephone, and promptly confirm in writing, the terms of any
proposal or offer which either of them may receive with respect to an
Acquisition Transaction and any request by or indication of interest on the part
of any third party with respect to the initiation of any Acquisition Transaction
or discussions with respect thereto.
(b) On and after the date of this Agreement and until the Effective Date
or until this Agreement is terminated as provided by Section 9 herein, Crawford
---------
Bancorp and Bank may engage, and may permit and authorize their respective
directors, officers, employees, agents or representatives to, directly or
indirectly, engage in discussions or negotiations with, or provide
A-26
<PAGE>
information to, any corporation, association, partnership, person or other
entity or group concerning an unsolicited offer by such third party with respect
to an Acquisition Transaction only with the prior written approval of First
Financial, which approval shall be provided to Crawford Bancorp promptly upon
receipt by First Financial of a letter from Crawford Bancorp signed by at least
a majority of its Board of Directors then in office indicating that Crawford
Bancorp has received an unsolicited offer regarding an Acquisition Transaction
which the Board of Directors of Crawford Bancorp: (i) considers, in the
exercise of its fiduciary duties as a Board, to be substantially superior to the
then current offer of First Financial pursuant to this Agreement, and (ii)
concludes, after consultation with its counsel and after receiving a written
opinion from such counsel to the same effect, that its fiduciary duties as a
Board require it to consider and, in light of such duties, take such other
actions with respect to such unsolicited offer as may be necessary or
appropriate, and such approval may, in all other instances, be provided to
Crawford Bancorp when and if First Financial shall, in its sole discretion,
determine. This Section 6.05(b) shall not authorize Crawford Bancorp or Bank, or
---------------
its respective directors, officers, employers, agents or representatives, to
initiate any discussions or negotiations relative to an Acquisition Transaction
with a third party.
6.06. Restrictions Regarding Affiliates. Crawford Bancorp shall, within
---------------------------------
thirty (30) days after the date of this Agreement and promptly thereafter until
the Effective Date as is necessary to reflect any changes, provide First
Financial with a list identifying each person who may be deemed to be an
"affiliate" of Crawford Bancorp for purposes of Rule 145 under the 1933 Act. On
or prior to the Effective Date, Crawford Bancorp shall cause each director,
executive officer and other person who may be deemed to be such an affiliate of
Crawford Bancorp for purposes of the 1933 Act to deliver to First Financial on
or prior to the Effective Date hereunder a written agreement, in form and
substance satisfactory to counsel to First Financial, providing that such
person: (a) has not sold, pledged, transferred, disposed of or otherwise
reduced his or her market risk with respect to the shares of Crawford Bancorp
common stock directly or indirectly owned or held by such person during the
thirty (30) day period prior to the Effective Date, and (b) shall not sell,
pledge, transfer, dispose of or otherwise reduce his or her market risk with
respect to the shares of First Financial common stock to be received by such
person pursuant to this Agreement: (i) until such time as financial results
covering at least thirty (30) days of combined operations of First Financial and
Crawford Bancorp have been published as and when required within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies, and
(ii) unless such sales are pursuant to an effective registration statement under
the 1933 Act or pursuant to Rule 145 of the 1933 Act or another exemption from
the 1933 Act.
6.07. Press Releases. Neither Crawford Bancorp nor Bank shall issue any
--------------
press releases or make any other public announcements or disclosures relating to
the Merger without the prior written approval of First Financial.
6.08. Disclosure Letter Update. Crawford Bancorp shall promptly
------------------------
supplement, amend and update, upon the occurrence of any change prior to the
Effective Date, and as of the Effective Date, the Disclosure Letter with respect
to any matters hereafter arising which, if in existence or having occurred as of
the date of this Agreement, would have been required to be set forth or
described in the Disclosure Letter or pursuant to this Agreement and including,
without limitation, any fact which, if existing or known as of the date of this
Agreement, would have made any of the representations or warranties of Crawford
Bancorp or Bank contained herein incorrect, untrue or misleading.
A-27
<PAGE>
6.09. Information, Access Thereto, Confidentiality. First Financial and
--------------------------------------------
its representatives and agents shall, at all times during normal business hours
prior to the Effective Date, have full and continuing access to the facilities,
operations, books, records and properties of Crawford Bancorp and Bank. First
Financial and its representatives and agents may, prior to the Effective Date,
make or cause to be made such investigation of the operations, books, records
and properties of Crawford Bancorp and Bank and of their financial and legal
condition as First Financial shall deem necessary or advisable to familiarize
itself with such operations, books, records, properties and other matters;
provided, however, that such access or investigation shall not interfere
unnecessarily with the normal operations of Crawford Bancorp or Bank. Upon
request, Crawford Bancorp and Bank shall furnish to First Financial or its
representatives or agents, their attorneys' responses to external auditors
requests for information, management letters received from their external
auditors and such financial and operating data and other information requested
by First Financial which has been or is developed by Crawford Bancorp or Bank,
their auditors, accountants or attorneys (provided with respect to attorneys,
such disclosure would not result in the waiver by Crawford Bancorp or Bank of
any claim of attorney-client privilege), and will permit First Financial and its
representatives or agents to discuss such information directly with any
individual or firm performing auditing or accounting functions for Crawford
Bancorp or Bank, and such auditors and accountants shall be directed to furnish
to First Financial or its representatives or agents copies of any reports or
financial information as developed. No investigation by First Financial shall
affect the representations and warranties made by Crawford Bancorp or Bank
herein. Any confidential information or trade secrets received by First
Financial or its employees or agents in the course of such examination shall be
treated confidentially, and any correspondence, memoranda, records, copies,
documents and electronic or other media of any kind containing such confidential
information or trade secrets or both shall be destroyed by First Financial or,
at Crawford Bancorp's request, returned to Crawford Bancorp in the event this
Agreement is terminated as provided in Section 9 hereof. This Section 6.09
--------- ------------
shall not require the disclosure of any information to First Financial, the
disclosure to First Financial of which would be prohibited by law.
6.10. Subsequent Crawford Bancorp Financial Statements. As soon as
------------------------------------------------
available after the date hereof, Crawford Bancorp shall deliver to First
Financial the monthly unaudited consolidated balance sheets and profit and loss
statements of Crawford Bancorp prepared for its internal use, audited 1995 year
end financial statements of Crawford Bancorp, Bank's Call Reports for each
quarterly period completed prior to the Effective Date and all other financial
reports or statements submitted to regulatory authorities after the date hereof,
to the extent permitted by law (collectively, "Subsequent Crawford Bancorp
Financial Statements"). The Subsequent Crawford Bancorp Financial Statements
shall be prepared on a basis consistent with past accounting practices (except
as otherwise required for compliance with generally accepted accounting
principles) and generally accepted accounting principles and shall present
fairly the financial condition and results of operations as of the dates and for
the periods presented. The Subsequent Crawford Bancorp Financial Statements will
not include any assets or omit to state any liabilities, absolute or contingent,
or other facts, which inclusion or omission would render such financial
statements inaccurate, incomplete or misleading in any material respect.
6.11. Disposition of Crawford Bancorp Profit Sharing Plan. Effective as
---------------------------------------------------
of the Effective Date, all participants with an account balance under the profit
sharing plan sponsored by Bank ("Profit Sharing Plan") shall become fully vested
in such accounts regardless of their vested position under the plan. The Profit
Sharing Plan shall be terminated effective as of the first June 30th or December
31st which coincides with or immediately follows the Effective
A-28
<PAGE>
Date. In connection therewith, First Financial shall file an application with
the Internal Revenue Service for a determination letter to the effect that the
termination of the Profit Sharing Plan will not affect its tax qualified status.
If the Profit Sharing Plan is terminated effective as of June 30, 1996, no
contributions shall be made to the Plan for the 1996 plan year. If the Profit
Sharing Plan is terminated effective as of December 31, 1996, Bank may make a
contribution to the Plan for the 1996 plan year. Provided, however, such
contribution shall be calculated by Bank on a basis which is consistent with the
method it has used to calculate contributions to the Profit Sharing Plan for
prior plan years; and, in any event, the amount of such contribution shall be
subject to the prior approval of First Financial. As soon as practicable
following the issuance of a favorable determination letter by the Service with
respect to the termination of the Profit Sharing Plan, participants' benefits
under the Profit Sharing Plan shall be distributed to them. Such distributions
(or the cash proceeds thereof) shall be eligible to be rolled over directly to
the "rollover account" under the First Financial Corporation 401(k) Savings Plan
("Savings Plan"). First Financial shall be responsible for the termination of
the Profit Sharing Plan and for making application to the Service for a
determination letter to the effect that the termination of the Profit Sharing
Plan will not adversely affect its tax-qualified status. Crawford Bancorp shall
be responsible for and shall pay any and all costs and expenses associated with
such termination and determination letter.
6.12. Disposition of Deferred Compensation Agreement. Prior to the
----------------------------------------------
Effective, Date Crawford Bancorp shall cause that certain Deferred Compensation
Agreement set forth on Schedule 6.12 to be terminated on terms and conditions
-------------
mutually satisfactory to First Financial and Crawford Bancorp.
6.13. Employee Benefits. The terms of Section 7.03 hereof and the
----------------- ------------
provision of any employee benefits by First Financial to employees of Crawford
Bancorp or Bank shall not: (i) create any employment contract, agreement or
understanding with or employment rights for, or constitute a commitment or
obligation of employment to, any of the officers or employees of Crawford
Bancorp or Bank; or (ii) prohibit or restrict First Financial, whether before or
after the Effective Date, from changing, amending or terminating any employee
benefits provided to its employees from time to time.
SECTION 7
COVENANTS OF FIRST FINANCIAL
----------------------------
First Financial covenants and agrees with Crawford Bancorp and Bank as
follows:
7.01. Approvals. First Financial shall proceed expeditiously, cooperate
---------
fully and use its best efforts to procure, upon reasonable terms and conditions,
all consents, authorizations, approvals, registrations and certificates, to
complete all filings and applications and to satisfy all other requirements
prescribed by law which are necessary for consummation of the Merger on the
terms and conditions provided in this Agreement at the earliest possible
reasonable date.
7.02. Preservation of Business. On and after the date of this Agreement
------------------------
and until the Effective Date or until this Agreement is terminated as provided
in Section 9 herein, First Financial shall: (a) conduct its business
---------
substantially in the manner as is presently being conducted and in the ordinary
course of business; (b) file, and cause its subsidiaries to file, all required
reports with applicable regulatory authorities; (c) comply with all laws,
statutes, ordinances, rules or regulations applicable to it and to the conduct
of its business, the
A-29
<PAGE>
noncompliance with which results or could result in a material adverse effect on
the financial condition, results of operations, business, assets or
capitalization of First Financial on a consolidated basis; and (d) not do or
fail to do anything which will cause a material breach of, or material default
in, any contract, agreement, commitment, obligation, understanding, arrangement,
lease or license to which it is a party or by which it is or may be subject or
bound which results or could result in a material adverse effect on the
financial condition, results of operations, business, assets or capitalization
of First Financial on a consolidated basis.
7.03. Employee Benefit Matters.
------------------------
(a) Within a reasonable time following the Effective Date, First
Financial shall make available to officers and employees of Crawford
Bancorp and the Bank who continue as employees of any subsidiary of
First Financial after the Effective Date employee benefits,
including but not limited to health and welfare plans and vacation
arrangements, on terms and conditions which taken as a whole are
comparable to those provided by First Financial to similarly
situated employees of its existing banking subsidiaries as of the
Effective Date.
(b) Subject to the provisions of Section 6.11, years of service of an
------------
officer or employee of Bank prior to the Effective Date shall be
credited, effective as of the date on which such employees become
covered by First Financial's employee welfare and pension benefit
plans, to each such officer or employee eligible for coverage under
Section 7.03(a) hereof for purposes of (i) eligibility under First
---------------
Financial's employee welfare benefit plans, and (ii) eligibility and
vesting, but not for purposes of benefit accrual or contributions,
under the Savings Plan, the First Financial Corporation Employees'
Pension Plan ("Pension Plan") and the First Financial Corporation
Employee Stock Ownership Plan ("ESOP"). Such crediting of service
shall be calculated by First Financial by utilizing the service
crediting provisions of the welfare and pension benefit plans
sponsored by First Financial. Those officers and employees of Bank
who otherwise meet the eligibility requirements of the Savings Plan,
Pension Plan and ESOP, based upon their age and years of service
prior to the Effective Date, calculated under the service crediting
provisions of the Savings Plan, Pension Plan and ESOP, shall become
participants thereunder on the first "plan entry date" (as defined
in the Savings Plan, Pension Plan and ESOP) which coincides with or
next follows the Effective Date. Those officers or employees who do
not meet the eligibility requirements of the Savings Plan, Pension
Plan or ESOP on such date(s) shall become participants thereunder on
the first plan entry date(s) under the Pension Plan and ESOP, as the
case may be, which coincides with or next follows the date on which
such eligibility requirements are satisfied.
(c) First Financial will honor all contracts in effect as of the date of
this Agreement and that remain in effect as of the Effective Date,
relating to the compensation of any officers and employees of
Crawford Bancorp or Bank.
A-30
<PAGE>
7.04. Board of Directors After the Effective Date. Following the
-------------------------------------------
Effective Date, the Board of Directors of the Bank shall consist of the Board of
Directors of the Bank who are serving currently as directors of the Bank and one
designee of First Financial.
7.05. Securities and Exchange Commission Filings. First Financial will
------------------------------------------
provide Crawford Bancorp with copies of all filings made by First Financial with
the SEC under the 1934 Act, and the 1933 Act and the respective rules and
regulations of the SEC thereunder at the time such filings are made at any time
prior to the Effective Date.
7.06. Rule 144(c) Information. For not less than the two-year period
-----------------------
immediately following the Effective Date, First Financial shall make available
adequate current public information about itself as that terminology is used in
and as required by Rule 144(c) of the SEC under the 1933 Act.
7.07. Authorization of Common Stock. On the Effective Date and on such
-----------------------------
subsequent dates when the former shareholders of Crawford Bancorp surrender
their Crawford Bancorp share certificates for cancellation, the shares of First
Financial common stock to be exchanged with former shareholders of Crawford
Bancorp shall have been duly authorized and validly issued by First Financial
and shall be fully paid and non-assessable and subject to no pre-emptive rights.
7.08. Terms of Common Stock. First Financial shall not adopt or implement
---------------------
any amendment to its Articles of Incorporation or any Plan of Reorganization
which would affect in any manner the terms and provisions of the shares of First
Financial common stock or the rights of the shareholders of such shares or
reclassify the First Financial common stock from the date of this Agreement
until the Effective Date.
SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
The obligation of each of the parties hereto to consummate the transactions
contemplated by this Agreement is subject to the satisfaction and fulfillment of
each of the following conditions on or prior to the Effective Date; provided,
however, that no party's obligation to consummate the transactions contemplated
by this Agreement shall be waived or excused as a result of that party's failure
to satisfy or fulfill any of the following conditions:
8.01. Representations and Warranties at the Effective Date. Each of the
----------------------------------------------------
representations of the parties hereto contained in this Agreement shall be true,
accurate and correct in all material respects at and as of the Effective Date as
though such representations and warranties had been made or given on and as of
the Effective Date.
8.02. Covenants. Each of the covenants and agreements of the parties
---------
hereto shall have been fulfilled or complied with from the date of this
Agreement through and as of the Effective Date.
A-31
<PAGE>
8.03. Deliveries at Closing. Each of First Financial and Crawford Bancorp
---------------------
shall have received from each other at the Closing (as defined in Section 11
----------
herein) the items and documents, in form and content reasonably satisfactory to
First Financial and Crawford Bancorp, respectively, as set forth in Section 11
----------
hereof.
8.04. Shareholder Approval. The shareholders of Crawford Bancorp shall
--------------------
have approved and adopted this Agreement as required by applicable law and the
Articles of Incorporation of Crawford Bancorp.
8.05. Registration Statement Effective. First Financial shall have
--------------------------------
registered its shares of common stock to be issued to shareholders of Crawford
Bancorp in accordance with this Agreement with the SEC pursuant to the 1933 Act,
and all state securities and Blue Sky approvals, authorizations and exemptions
required to offer and sell such shares shall have been received by First
Financial. The registration statement with respect thereto shall have been
declared effective by the SEC and no stop order shall have been issued or
threatened. In addition, such shares shall be listed on the NASDAQ National
Market System.
8.06. Tax Opinion. The respective Boards of Directors of the parties to
-----------
this Agreement shall have obtained a written opinion of the law firm of Krieg
DeVault Alexander & Capehart, dated as of the Effective Date, in form and
content satisfactory to the parties hereto, to the effect that the Merger to be
effected pursuant to this Agreement shall constitute a tax-free reorganization
under the Code, as described in Section 1.06 hereof to each party hereto and to
------------
the shareholders of Crawford Bancorp, except with respect to cash received by
shareholders of Crawford Bancorp: (i) for fractional shares resulting from the
application of the Exchange Rate as defined in Section 2.01(a) herein, or (ii)
---------------
pursuant to the exercise of dissenters' rights as set forth in Section 3 hereof.
---------
8.07. Affiliate Agreements. First Financial shall have obtained: (a)
--------------------
from Crawford Bancorp, a list identifying each affiliate of Crawford Bancorp in
accordance with Section 6.06 hereof dated as of the Effective Date, and (b) from
------------
each affiliate of Crawford Bancorp, the agreements dated as of the Effective
Date contemplated by Section 6.06 hereof.
------------
8.08. Regulatory Approvals. The Board of Governors of the Federal Reserve
--------------------
System and the Illinois Commissioner of Banks and Trust Companies shall have
authorized and approved the Merger and the transactions related thereto on terms
and conditions satisfactory to First Financial. In addition, all appropriate
orders, consents, approvals and clearances from all other regulatory agencies
and governmental authorities whose orders, consents, approvals or clearances are
required by law for consummation of the transactions contemplated by this
Agreement shall have been obtained.
8.09. Officers' Certificate. Each of First Financial and Crawford Bancorp
---------------------
shall have delivered to each other a certificate signed by its respective
Chairman or President and Secretary, dated the Effective Date, certifying that:
(a) all the representations and warranties of its respective corporation are
true, accurate and correct on and as of the Effective Date; (b) all the
covenants of its respective corporation have been complied with from the date of
the Agreement through and as of the Effective Date; and (c) its respective
corporation has satisfied and fully complied with all conditions necessary to
make this Agreement effective as to it.
8.10. Fairness Opinion. Austin Associates, Inc. shall have issued its
----------------
written fairness opinion stating that the terms of the Merger are fair to the
shareholders of Crawford Bancorp
A-32
<PAGE>
from a financial point of view. Such written fairness opinion shall be: (a) in
form and substance reasonably satisfactory to Crawford Bancorp, (b) dated as of
a date not later than the mailing date of the Proxy Statement-Prospectus
relating to the Merger to be mailed to shareholders of Crawford Bancorp, (c)
included as an exhibit to the Proxy Statement-Prospectus, (d) confirmed by
Austin Associates, Inc. as of the Effective Date, and (e) not be modified or
withdrawn prior to the Effective Date.
8.11. Opinions of Counsel. The opinions of counsel contemplated by
-------------------
Section 11.02 hereof, shall have been delivered by First Financial and Crawford
- -------------
Bancorp to each other in the manner specified in Section 11.02.
-------------
8.12. Orders, Decrees and Judgments. Consummation of the transactions
-----------------------------
contemplated by this Agreement shall not violate any order, decree, writ or
judgment of any court or governmental body or agency having competent
jurisdiction.
8.13. Director's Agreement. Each of the directors of Crawford Bancorp, in
--------------------
his or her individual capacity, shall have executed as of the date of this
Agreement and delivered to First Financial the documents in the form attached
hereto as Exhibit A, pursuant to which each director agrees to vote, or cause to
---------
be voted, all shares of Crawford Bancorp common stock held by him or her, or
over which he or she holds a proxy, in favor of the Merger at the meeting of the
shareholders of Crawford Bancorp called to consider and vote upon this
Agreement.
SECTION 9
TERMINATION OF MERGER
---------------------
9.01. Manner of Termination. This Agreement and the Merger may be
---------------------
terminated at any time prior to the Effective Date by written notice delivered
by First Financial to Crawford Bancorp, or by Crawford Bancorp to First
Financial, as follows:
(a) By First Financial or Crawford Bancorp, if:
(i) the Merger contemplated by this Agreement has not been
consummated by September 30, 1996; provided, however, that a
party hereto in breach of or default hereunder as defined in
this Section 9 shall have no right to terminate for its own
---------
breach or default hereunder; or
(ii) a majority of the respective Boards of Directors of First
Financial and Crawford Bancorp mutually agree in writing to
terminate this Agreement.
(b) By First Financial, if:
(i) the Merger will not qualify for pooling-of-interest accounting
treatment for First Financial;
(ii) any item, event or information set forth in the Disclosure
Letter or in any update thereto has had or would be expected
to have, in the reasonable discretion of First Financial, a
material adverse effect on the business, prospects, assets,
capitalization, financial condition or results of
A-33
<PAGE>
operations of Crawford Bancorp or Bank, whether individually
or on a consolidated basis;
(iii) there has been a material misrepresentation or a breach of any
warranty by or on the part of Crawford Bancorp in its
representations and warranties set forth in Section 4 of this
---------
Agreement; provided, however, that Crawford Bancorp shall have
seven (7) calendar days in which to cure to the satisfaction
of First Financial such misrepresentation or breach of
warranty; provided, however, that in the event of any
inaccuracy in the representations and warranties contained in
Section 4.03 hereof relative to the number of issued and
------------
outstanding shares of capital stock of Crawford Bancorp or
Bank, First Financial shall have the absolute right to
terminate this Agreement;
(iv) there has been a breach of or failure to comply with any
covenant set forth in Section 6 of this Agreement by or on the
---------
part of Crawford Bancorp or Bank;
(v) it shall, in its sole discretion, reasonably determine that
the Merger contemplated by this Agreement has become
inadvisable or impracticable by reason of commencement or
threat of any claim, litigation or proceeding against First
Financial, Crawford Bancorp, Bank or any subsidiary of First
Financial, or any director or officer of any of such entities:
(A) relating to this Agreement or the Merger, or (B) which is
likely to have a material adverse effect on the business,
prospects, assets, capitalization, financial condition or
results of operations of Crawford Bancorp or Bank, whether
individually or on a consolidated basis, or of First
Financial;
(vi) there has been a material adverse change in the business,
prospects, assets, capitalization, financial condition or
results of operations of Crawford Bancorp or Bank as of the
Effective Date as compared to that in existence as of December
31, 1995;
(vii) the Market Value (as defined in Section 2.01(b) herein) of
---------------
First Financial's common stock is less than $27.00 per share;
or
(viii)the results of First Financial's due diligence review of
Crawford Bancorp are not satisfactory to First Financial, it
being understood by the parties hereto that First Financial
previously completed its due diligence review of the loan and
investment portfolio of Crawford Bancorp and Bank to its
satisfaction.
(c) By Crawford Bancorp, if:
(i) there has been a misrepresentation or a breach of any warranty
by or on the part of First Financial in its representations
and warranties set forth in Section 5 of this Agreement which
---------
has had or would be expected to have, in the reasonable
discretion of Crawford Bancorp, a material
A-34
<PAGE>
adverse effect on the business, assets, capitalization,
financial condition or results of operation of First Financial
on a consolidated basis; or
(ii) there has been a breach of or failure to comply with any
covenant set forth in Section 7 of this Agreement by or on the
---------
part of First Financial.
9.02. Effect of Termination. Upon termination by written notice, as
---------------------
provided in this Section 9, this Agreement shall be void and of no further force
---------
or effect, and there shall be no further obligations or restrictions on future
activities on the part of First Financial, Crawford Bancorp, Bank and their
respective directors, officers, employees, agents and shareholders, except as
provided in compliance with the confidentiality provisions of this Agreement set
forth in Section 6.09 hereof and the payment of expenses set forth in Section
------------ -------
12.09 hereof.
- -----
SECTION 10
EFFECTIVE DATE OF THE MERGER
----------------------------
Upon the terms and subject to conditions specified in this Agreement and
upon satisfaction of all requirements of law, the Merger shall become effective
at the close of business on the day specified in the Articles of Merger of
Crawford Bancorp with and into First Financial as filed with the Indiana
Secretary of State and the Illinois Secretary of State. The Effective Date shall
occur no later than the last business day of the month following: (a) the
fulfillment of all conditions precedent to the Merger set forth in Section 8 of
---------
this Agreement, (b) the receipt of the last required approval to consummate the
Merger, and (c) the expiration of all waiting periods in connection with the
bank regulatory applications filed for the approval of the Merger, if later. The
effective date for the Merger is referred to herein as the "Effective Date".
SECTION 11
CLOSING
-------
11.01. Closing Date and Place. So long as all conditions precedent set
----------------------
forth in Section 8 have been satisfied and fulfilled, the closing of the Merger
---------
("Closing") shall take place at the main office of First Financial on the
Effective Date.
11.02. Deliveries. (a) At the Closing, First Financial shall deliver to
----------
Crawford Bancorp the following:
(i) an opinion of First Financial's counsel dated as of the
Effective Date and substantially in the form set forth in
Exhibit B attached hereto;
---------
(ii) the officers' certificate contemplated in Section 8.09 hereof;
------------
(iii) copies of all approvals by bank regulatory agencies necessary
to consummate the Merger;
(iv) copies of the resolutions of the Board of Directors of First
Financial, certified by the President or Secretary of First
Financial, relative to the approval of this Agreement and the
Merger; and
A-35
<PAGE>
(v) such other documents that Crawford Bancorp or its legal
counsel may reasonably request.
(b) At the Closing, Crawford Bancorp shall deliver to First Financial
the following:
(i) an opinion of Crawford Bancorp's counsel dated as of the
Effective Date and substantially in the form set forth in
Exhibit C attached hereto;
---------
(ii) the officers' certificate contemplated in Section 8.09 hereof;
------------
(iii) the affiliate agreements and list of affiliates contemplated
in Section 8.07 hereof;
------------
(iv) a list of the shareholders of Crawford Bancorp as of the
Effective Date certified by the President and Secretary of
Crawford Bancorp;
(v) copies of the resolutions adopted by the Board of Directors
and shareholders of Crawford Bancorp and Bank, certified by
the President or Secretary of Crawford Bancorp and Bank,
respectively, relative to the approval of this Agreement and
the Merger; and
(vi) such other documents that First Financial or its legal counsel
may reasonably request.
SECTION 12
MISCELLANEOUS
-------------
12.01. Effective Agreement. This Agreement shall be binding upon and
-------------------
inure to the benefit of the respective parties hereto and their respective
successors.
12.02. Waiver; Amendment. (a) First Financial and Crawford Bancorp may by
-----------------
an instrument in writing executed in the same manner as this Agreement: (i)
extend the time for the performance of any of the covenants or agreements of the
other parties under this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other parties contained in this Agreement
or in any document delivered pursuant hereto or thereto; (iii) waive the
performance by the other parties of any of the covenants or agreements to be
performed by it or them under this Agreement; or (iv) waive the satisfaction or
fulfillment of any condition, the nonsatisfaction or nonfulfillment of which is
a condition to the right of the party so waiving to terminate this Agreement.
The failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. The waiver by any party hereto of a breach of or noncompliance
with any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach or noncompliance hereunder.
(b) Notwithstanding approval by the shareholders of Crawford Bancorp,
this Agreement may be amended, modified or supplemented by the written agreement
of First Financial and Crawford Bancorp without further approval of such
shareholders, except that no such amendment, modification or supplement shall
result in a decrease in the consideration
A-36
<PAGE>
specified in Section 2.01 hereof or shall materially and adversely affect the
------------
rights of shareholders of Crawford Bancorp without the further approval of such
shareholders.
12.03. Notices. All notices, requests and other communications required
-------
or permitted by this Agreement shall be in writing (which shall include
telecopier communications) and shall be deemed to have been duly given if
delivered in person and receipted for, sent by certified United States mail,
return receipt requested, first class postage prepaid, delivered by overnight
express receipted delivery service or telecopied if confirmed immediately
thereafter by also mailing a copy of such notice, request or other communication
by certified United States mail, return receipt requested, with first class
postage prepaid addressed as follows:
<TABLE>
<S> <C>
If to First Financial: with a copy to (which shall not constitute notice):
First Financial Corporation Krieg DeVault Alexander & Capehart
One First Financial Plaza One Indiana Square, Suite 2800
P.O. Box 540 Indianapolis, Indiana 46204-2017
Terre Haute, Indiana 47808 ATTN: John W. Tanselle, Esq.
ATTN: Donald E. Smith, Chairman Telephone: (317) 238-6216
Telephone: (812) 238-6377 Telecopier: (317) 636-1507
Telecopier: (812) 238-6140
If to Crawford Bancorp or Bank: with a copy to (which shall not constitute notice):
Crawford Bancorp, Inc. Brown, Hay & Stephens
108 West Main Street 700 First National Bank Building
Robinson, Illinois 62454 Springfield, Illinois 62705
ATTN: Jerry Bailey, President ATTN: Harvey B. Stephens, Esq.
Telephone: (618) 544-8666 Telephone: (217) 544-8491
Telecopier: (618) 544-2763 Telecopier: (217) 544-9609
</TABLE>
or such substituted address as any of them have given to the other in writing.
All such notices, requests or other communications shall be effective: (a) if
delivered by hand, when delivered; (b) if mailed in the manner provided herein,
three (3) business days after deposit with the United States Postal Service; (c)
if delivered by overnight express delivery service, on the next business day
after deposit with such service; and (d) if by telecopying, on the next business
day if also confirmed by mail in the manner provided herein.
12.04. Headings. The headings in this Agreement have been inserted solely
--------
for ease of reference and should not be considered in the interpretation or
construction of this Agreement.
12.05. Severability. In case any one or more of the provisions contained
------------
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had never been
contained herein.
A-37
<PAGE>
12.06. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
12.07. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Indiana and applicable federal laws.
12.08. Entire Agreement. This Agreement supersedes any and all other
----------------
prior or contemporaneous understanding, commitment, representation, negotiation
or agreement, whether oral or written, between First Financial and Crawford
Bancorp relating to the transactions or matters contemplated herein and
constitutes the entire agreement between the parties hereto. Upon the execution
of this Agreement by all the parties hereto, the preliminary non-binding Letter
of Intent, dated December 8, 1995, executed by First Financial and Crawford
Bancorp, and any and all other prior writings of either party relating to the
Merger, shall terminate and shall be rendered of no further force or effect.
12.09. Expenses. First Financial and Crawford Bancorp shall each pay
--------
their respective expenses incidental to the transactions contemplated hereby.
Notwithstanding the foregoing, if the Merger is not consummated because one
party unilaterally terminates this Agreement in a manner other than those
specified in Section 9.01 hereof, then the breaching party shall pay (or, if
------------
appropriate, reimburse) its own expenses and all reasonable expenses, including
attorneys' fees, of the non-breaching party relating to the Merger.
12.10. Limitation on Benefits. It is the explicit intention of the
----------------------
parties hereto that no person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto. Any covenants, undertakings and agreements
set forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto and thereto or their respective
successors and legal representatives as permitted hereunder.
12.11. Assignment. No party to this Agreement may assign its rights or
----------
obligations under this Agreement without the prior written consent of the other
party hereto.
12.12. Certain References. Whenever in this Agreement a singular word
------------------
is used, it also shall include the plural whenever required by the context and
vice-versa. Except expressly stated otherwise, all references in this Agreement
to periods of days shall be construed to refer to calendar, not business days.
The term "business day" shall mean any day except Saturday and Sunday when Terre
Haute First National Bank, the lead bank of First Financial, is open for the
transaction of business.
12.13. Construction. The parties hereto agree that each party and its
------------
counsel reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
A-38
<PAGE>
IN WITNESS WHEREOF, First Financial and Crawford Bancorp have made and
entered into this Agreement as of the day and year first written above and have
caused this Agreement to be executed and attested in counterparts by their duly
authorized officers.
FIRST FINANCIAL CORPORATION
By: /s/ DONALD E. SMITH
-------------------------------------
Donald E. Smith, Chairman
ATTEST:
/s/ JOHN W. PERRY
- -------------------------------
John W. Perry, Secretary
CRAWFORD BANCORP, INC.
By: /s/ W. J. CHAMBLIN
-------------------------------------
W. J. Chamblin, Chairman
ATTEST:
/s/ REBECCA J. GOODWIN
- --------------------------
Rebecca J. Goodwin , Secretary
CRAWFORD COUNTY STATE BANK
By: /s/ JERRY L. BAILEY
-------------------------------------
Jerry L. Bailey, President
ATTEST:
/s/ REBECCA J. GOODWIN
- ---------------------------
Rebecca J. Goodwin, Secretary
A-39
<PAGE>
APPENDIX B
----------
ILLINOIS BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS LAW
ARTICLE 11. MERGER AND CONSOLIDATION - DISSENTERS' RIGHTS
(S) 5/11.65. Right to Dissent
- -----------------------------
(a) A shareholder of a corporation is entitled to dissent from, and
obtain payment for his or her shares in the event of any of the following
corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption
or repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to
such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer
than all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights
B-1
<PAGE>
of a partial dissenter are determined as if the shares as to which dissent is
made and the other shares were recorded in the names of different shareholders.
A beneficial owner of shares who is not the record owner may assert dissenters'
rights as to shares held on such person's behalf only if the beneficial owner
submits to the corporation the record owner's written consent to the dissent
before or at the same time the beneficial owner asserts dissenters' rights.
(S) 5/11.70 Procedure to Dissent
- --------------------------------
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only if
the shareholder delivers to the corporation before the vote is taken a written
demand for payment for his or her shares if the proposed action is consummated,
and the shareholder does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not
to be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment of his or her shares.
(c) With 10 days after the date on which the corporate action giving
rise to the right to dissent is effective or 30 days after the shareholder
delivers to the corporation the written demand for payment, whichever is later,
the corporation shall send each shareholder who has delivered a written demand
for payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this
Section retains all other rights of a shareholder until those rights are
canceled or modified by the consummation
B-2
<PAGE>
of the proposed corporate action. upon consummation of that action, the
corporation shall pay to each dissenter who transmits to the corporation the
certificate or other evidence of ownership of the shares the amount the
corporation estimates to be the fair value of the shares, plus accrued interest,
accompanied by a written explanation of how the interest was calculated.
(e) If the shareholder does not agree with the opinion of the
corporation as to the estimated fair value of the shares or the amount of
interest due, the shareholder, within 30 days from the delivery of the
corporation's statement of value, shall notify the corporation in writing of the
shareholder's estimated fair value and amount of interest due and demand payment
for the difference between the shareholder's estimate of fair value and interest
due and the amount of the payment by the corporation or the proceeds of sale by
the shareholder, whichever is applicable because of the procedure for which the
corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the
shareholder notification of estimate of fair value of the shares and interest
due, the corporation and the dissenting shareholder have not agreed in writing
upon the fair value of the shares and interest due, the corporation shall either
pay the difference in value demanded by the shareholder, with interest, or file
a petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as 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. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair value of
his or her shares, plus interest, exceeds the amount paid by the corporation or
the proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
B-3
<PAGE>
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and 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 Section.
If the court finds that the services of counsel for any dissenter were of
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 that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure [735 ILCS 5/1.101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation 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.
(2) "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.
B-4
<PAGE>
APPENDIX C
----------
FAIRNESS OPINION OF
AUSTIN ASSOCIATES, INC.
June 4, 1996
Board of Directors
Crawford Bancorp, Inc.
108 West Main
Robinson, IL 62454
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Crawford Bancorp, Inc. ("CBI") and its shareholders of the terms of the
Agreement of Affiliation and Merger dated March 8, 1996 ("Agreement") between
and among CBI, Crawford County State Bank ("CCSB") and First Financial
Corporation, Terre Haute, Indiana ("FFC"). The terms of the Agreement provide
for the merger of CBI with and into FFC, with the result that CCSB will become a
wholly-owned subsidiary of FFC.
The terms of the Agreement provide for each outstanding share of CBI common
stock, other than those exercising dissenter's rights, to be converted into 3.75
shares of FFC common stock (the "Exchange Ratio"), subject to adjustment as
fully described in the Agreement. In general, the Exchange Ratio will be
increased in the event the Market Value, as that term is defined in the
Agreement, for FFC common stock is less than $29.50 per share. In this event,
each share of CBI stock would be exchanged for FFC stock with a Market Value of
no less than $110.62 per share, except that FFC would have the right to
terminate the Agreement if the Exchange Ratio would exceed 4.097 FFC shares for
each CBI share. FFC will pay cash for fractional shares.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of CBI and FFC, including but not
limited to the following: (i) the Proxy Statement-Prospectus; (ii) the financial
statements of CBI and FFC for the period 1991 through March 31, 1996; (iii)
certain other publicly available information regarding CBI and FFC; (iv)
publicly available information regarding the performance of certain other
companies whose business activities were believed by Austin Associates to be
generally comparable to those of CBI and FFC; (v) the financial terms, to the
extent publicly available, of certain comparable transactions; and (vi) such
other analysis and information as Austin Associates deemed relevant.
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 status of individual loans made by CBI or
FFC, and have instead relied upon representations and information concerning
loans of CBI and FFC 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 CBI or FFC, or to CBI shareholders receiving FFC stock. In
addition, we have assumed in the
C-1
<PAGE>
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 CBI 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 CBI and its shareholders.
For our services in rendering this opinion, CBI will pay us a fee and indemnify
us against certain liabilities.
We consent to the use of this opinion in the Proxy Statement-Prospectus which is
a part of FFC's Registration Statement on Form S-4 and to the references to us
under the heading "Experts" and elsewhere in the Proxy Statement-Prospectus.
/s/ Austin Associates, Inc.
- -------------------------------
Austin Associates, Inc.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that the Registrant will
indemnify any person who is or was a director, officer or employee of the
Registrant or of any other corporation for which he is or was serving in any
capacity at the request of the Registrant against all liability and expense that
may be incurred in connection with any claim, action, suit or proceeding with
respect to which such director, officer or employee is wholly successful or
acted in good faith in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant or such other corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A director, officer or employee of the Registrant
is entitled to be indemnified as a matter of right with respect to those claims,
actions, suits or proceedings where he has been wholly successful. In all other
cases, such director, officer or employee will be indemnified only if the Board
of Directors of the Registrant or independent legal counsel finds that he has
met the standards of conduct set forth above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are being filed as part of this Registration
Statement:
2.01* Agreement of Affiliation and Merger (included as Appendix A to
Prospectus)
3(i)* Articles of Incorporation of the Registrant (incorporated by
reference to Registrant's Registration Statement on Form S-4, File
No. 33-74352, dated January 20, 1994)
3(ii)* By-Laws of the Registrant (incorporated by reference to Registrant's
Registration Statement on Form S-4, File No. 33-35461, dated June
15, 1990)
4* The description of Registrant's common stock contained in its Report
on Form 8-A, dated April 25, 1988 (incorporated by reference
thereto)
5* Opinion of Krieg DeVault Alexander & Capehart re: legality
8* Opinion of Krieg DeVault Alexander & Capehart re: certain federal
income tax matters
21* Subsidiaries of the Registrant
23.01* Consent of Krieg DeVault Alexander & Capehart (included in Opinion
of Krieg DeVault Alexander & Capehart re: legality at Exhibit 5)
23.02 Consent of Coopers & Lybrand, L.L.P.
II-1
<PAGE>
23.03 Consent of Geo. S. Olive & Co. L.L.C.
23.04 Consent of Austin Associates, Inc. (included in Fairness Opinion of
Austin Associates, Inc. at Appendix C to Prospectus)
24* Powers of Attorney
99 Form of Proxy
(b) Financial Data Schedules
(c) Opinion of Austin Associates, Inc. (included as Appendix C to Prospectus)
*Previously filed in Registrant's Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on May 8, 1996
(File No. 333-3319).
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
the 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.
(2) The undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to paragraph (b)(1) immediately preceding
or (ii) that purports to meet the requirements of Section 10(a)(3) of the 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 Act, 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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,
II-2
<PAGE>
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 Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes 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.
(e) The undersigned registrant hereby undertakes 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-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this pre-effective amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Terre
Haute, State of Indiana, on June 11, 1996.
FIRST FINANCIAL CORPORATION
By: /s/ DONALD E. SMITH
---------------------------------
Donald E. Smith, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated below as of June 11, 1996.
Name Title
- ---- -----
/s/ DONALD E. SMITH Chairman of the Board, Director and
- ------------------------------------------
Donald E. Smith President (Chief Executive Officer)
/s/ MICHAEL A. CARTY Treasurer (Chief Financial Officer
- ------------------------------------------
Michael A. Carty and Principal Accounting Officer)
WALTER A. BLEDSOE* Director
- ------------------------------------------
Walter A. Bledsoe
B. GUILLE COX, JR.* Director
- ------------------------------------------
B. Guille Cox, Jr.
THOMAS T. DINKEL* Director
- ------------------------------------------
Thomas T. Dinkel
WELBY M. FRANTZ* Director
- ------------------------------------------
Welby M. Frantz
ANTON H. GEORGE* Director
- ------------------------------------------
Anton H. George
__________________________________________ Director
Mari H. George
II-4
<PAGE>
EXHIBIT 23.02
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference of this Registration Statement
of First Financial Corporation and subsidiaries on Form S-4 of our report dated
February 9, 1996, on our audits of the consolidated financial statements of
First Financial Corporation and subsidiaries as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995. We also
consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND, L.L.P.
- -----------------------------
Coopers & Lybrand, L.L.P.
Indianapolis, Indiana
June 7, 1996
<PAGE>
EXHIBIT 23.03
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
We consent to the use of our report dated January 6, 1996, except for note
2 for which the date is March 8, 1996, and note 16 for which the date is March
31, 1996, on the consolidated financial statements of Crawford Bancorp, Inc. and
to reference made to us under the caption "Experts" in the Registration
Statement on Form S-4 filed by First Financial Corporation with the United
States Securities and Exchange Commission.
/s/ GEO. S. OLIVE & CO. LLC
- ---------------------------
Geo. S. Olive & Co., LLCZ
Indianapolis, Indiana
June 7, 1966
<PAGE>
EXHIBIT 23.04
-------------
CONSENT OF FINANCIAL CONSULTANT
-------------------------------
The consent of Austin Associates, Inc. is included in its fairness opinion
attached to the Prospectus as Appendix C.
<PAGE>
PROXY EXHIBIT 99
----------
CRAWFORD BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
JULY 29, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jerry L. Bailey as proxy of the
undersigned, with full power of substitution and resubstitution, to represent
and to vote all of the shares of common stock of Crawford Bancorp, Inc.
("Crawford Bancorp") which the undersigned beneficially holds of record on March
31, 1996 and would be entitled to vote at the Special Meeting of Shareholders of
Crawford Bancorp, to be held at the main office of Crawford Bancorp, located at
108 West Main Street, Robinson, Illinois 62454, on July 29, 1996, at 3:00 p.m.,
local time, and at any adjournments thereof, with all of the powers the
undersigned would possess if personally present, on the matters set forth
below.
The Board of Directors of Crawford Bancorp recommends a vote FOR
---
approval and adoption of the Restated and Amended Agreement of Affiliation
and Merger specified in Item 1 below.
1. Approval and adoption of the Restated and Amended Agreement of
Affiliation and Merger ("Agreement"), dated March 8, 1996, among First
Financial Corporation ("First Financial"), Crawford Bancorp and
Crawford County State Bank, pursuant to which Crawford Bancorp will
affiliate through a merger with First Financial and each outstanding
share of Crawford Bancorp common stock will be converted into the
right to receive 3.75 shares of First Financial common stock, subject
to adjustment, all as provided for in the Agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, on such other matters as may properly come before
the Special Meeting.
Please sign on reverse side (continued on other side)
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NOT OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE AGREEMENT. ON ANY OTHER MATTERS THAT MAY
---
PROPERLY COME BEFORE THE SPECIAL MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF CRAWFORD BANCORP. THIS
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
DATED:______________________, 1996 __________________________________________
(Signature of Shareholder)
__________________________________________
(Signature of Shareholder)
Please sign exactly as your name appears on
your stock certificates and on the label
placed to the left. Joint owners should each
sign personally. Trustees, guardians,
executors and others signing in a
representative capacity should indicate the
capacity in which they sign.
