<PAGE>
As filed with the Securities and Exchange Commission on January 26, 1995
Registration No. 33-56823
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)
6712 Wisconsin 39-1471963
(Primary Standard Industrial (State of incorporation) (I.R.S. Employer
Classification Code Number) Identification No.)
1305 Main Street, Stevens Point, Wisconsin 54481 (715) 341-0400
------------------------------------------------ ----------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROBERT M. SALINGER, ESQ.
FIRST FINANCIAL CORPORATION
1305 Main Street, Stevens Point, Wisconsin 54481, (715) 341-0400
------------------------------------------------ ----------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
STUART G. STEIN, ESQ. JOHN BRUNO, ESQ.
Hogan & Hartson L.L.P. Muldoon, Murphy & Faucette
555 Thirteenth Street, N.W. 5101 Wisconsin Avenue, N.W.
Washington, D.C. 20004-1109 Washington, D.C. 20016
(202) 637-5600 (202) 362-0840
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
- --------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Section Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
<PAGE>
FIRST FINANCIAL CORPORATION
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K Between Items in
Part I of Form S-4 and Prospectus.
<TABLE>
<CAPTION>
Items of Form S-4 Location in Prospectus
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus........................... Forepart of Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................... Available Information; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............................ Summary; Certain Considerations
4. Terms of the Transaction................................... Summary; The Acquisition
5. Pro Forma Financial Information............................ Summary; Selected Unaudited Pro Forma
Condensed Combined Financial Information
6. Material Contracts With the Company Being
Acquired................................................. Summary; The Acquisition
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................................... Not applicable
8. Interests of Named Experts and Counsel..................... Not applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........... Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants................ Summary; Available Information,
Incorporation of Certain Documents by
Reference; Certain Considerations;
Description of FFC Common Stock and
Comparison of Stockholder Rights
11. Incorporation of Certain Information by
Reference................................................ Incorporation of Certain Documents by
12. Information with Respect to S-2 or S-3
Registrants.............................................. Not applicable
13. Incorporation of Certain Information by
Reference................................................ Not applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.............................. Not applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.................. Not applicable
16. Information with Respect to S-2 or S-3
Companies................................................ Not applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................................ Summary; Information Concerning FirstRock;
FirstRock Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Market For
and Dividends Paid on
FirstRock Common
Stock; Consolidated
Financial Statements of
FirstRock
<PAGE>
VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited....................... Summary; The Acquisition; Solicitation,
Voting and Revocability of Proxies;
Description of FFC Common Stock and
Comparison of Stockholder Rights
19. Information if Proxies, Consents or
Authorizations are Not to be Solicited or
in an Exchange Offer..................................... Not applicable
</TABLE>
<PAGE>
FIRSTROCK BANCORP, INC.
612 North Main Street
Rockford, Illinois 61103
January 26, 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of FirstRock Bancorp, Inc. ("FirstRock"), to be held on February 28, 1995, at
9:00 A.M., Central Standard Time, at Riverfront Museum Park, 711 North Main
Street, Rockford, Illinois.
As described in the enclosed Joint Proxy Statement/Prospectus,
stockholders of FirstRock will be asked at the Special Meeting of stockholders
to approve an acquisition of FirstRock by First Financial Corporation through a
merger with a new subsidiary of First Financial Corporation (the "Acquisition").
In the Acquisition, holders of FirstRock's common stock would receive First
Financial Corporation common stock equal in value to $27.10 for each share of
FirstRock common stock, subject to adjustment. The enclosed Joint Proxy
Statement/Prospectus contains a description of the proposed Acquisition and
other related matters.
The Board of Directors of FirstRock has unanimously approved the
Acquisition of FirstRock by First Financial Corporation and recommends that you
vote "FOR" approval of the Acquisition.
In order for the Acquisition to be consummated, the agreement for the
Acquisition must be approved by the holders of a majority of the outstanding
shares of FirstRock common stock entitled to vote at the Special Meeting of
stockholders. If the number of shares issued in connection with the acquisition
constitutes 20% or more of the outstanding shares of First Financial Corporation
common stock, the approval of First Financial Corporation shareholders of the
issuance of First Financial Corporation common stock will also be required.
Consummation of the Acquisition also is subject to certain other conditions.It
is important that your shares be voted at the Special Meeting. A failure to vote
has the same effect as a vote against the Acquisition.
If your proxy card is not signed and returned to us, your shares cannot
be voted unless you attend the Special Meeting and vote in person. Whether or
not you plan to attend the Special Meeting, please complete and return the
enclosed proxy card in the postage-paid envelope provided to you.
Sincerely,
David A. Ingrassia
President, Chief Executive
Officer and Director
<PAGE>
FIRST FINANCIAL CORPORATION
First Financial Center
1305 Main Street
Stevens Point, WI 54481-2811
(715) 341-0400
January ____, 1995
Dear Stockholder:
A special meeting of stockholders of First Financial Corporation ("FFC") is
to be held on February 28, 1995, at 3:00 p.m., Central Standard Time, at the
Holiday Inn, 1501 North Point Drive, Stevens Point, Wisconsin 54481.
At this meeting you will be asked to vote, in person or by proxy, to
approve the issuance of up to 5,500,000 shares of FFC Common Stock to
stockholders of FirstRock Bancorp., Inc. ("FirstRock") in connection with the
acquisition of FirstRock by FFC if such issuance constitutes 20% or more of the
then outstanding shares of FFC Common Stock. A joint proxy statement/prospectus
describing the proposal is enclosed. The presence, in person or by proxy, of at
least a majority of the shares of FFC Common Stock entitled to vote is necessary
to constitute a quorum at the special meeting, and the affirmative vote of the
holders of a majority of the votes cast is necessary to approve the issuance of
up to 5,500,000 shares of FFC Common stock if such issuance constitutes 20% or
more of the then outstanding shares.
The Board of Directors has unanimously approved the issuance of up to
5,500,000 shares of FFC Common Stock to stockholders of FirstRock and recommends
that you vote "FOR" the issuance of these shares.
Please note that this special meeting is solely in connection with the
issuance of shares for the acquisition of FirstRock and will have no impact on
FFC's annual meeting, currently scheduled to be held in April 1995. You will
receive an official notice and related materials regarding the annual meeting in
March 1995.
It is important that your shares be represented at the special meeting,
whether or not you are personally able to attend. You are urged to complete,
sign and mail the enclosed proxy card as soon as possible.
Sincerely,
Robert S. Gaiswinkler
Chairman of the Board
<PAGE>
FIRSTROCK BANCORP, INC.
612 North Main Street
Rockford, Illinois 61103
(815) 987-3500
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"FirstRock Meeting") of FirstRock Bancorp, Inc. ("FirstRock") will be held on
February 28, 1995 at 9:00 A.M., at Riverfront Museum Park, 711 North Main
Street, Rockford, Illinois for the following purposes:
(1) To approve and adopt the Agreement and Plan of Reorganization
dated as of October 26, 1994, as amended, by and among First
Financial Corporation ("FFC"), First Financial Acquisition
Company ("Acquisition Co.") and FirstRock, including the
Agreement and Plan of Merger attached thereto (collectively
referred to herein as the "Acquisition Agreement") pursuant to
which FFC will acquire FirstRock through a merger of
Acquisition Co. and FirstRock (the "Acquisition"), with each
outstanding share of common stock of FirstRock ("FirstRock
Stock") to be converted upon consummation of the Acquisition
into the right to receive and be exchangeable for such number
of shares (rounded to the nearest ten thousandth of a share)
of FFC common stock, par value $1.00 per share ("FFC Stock")
as shall be equal to (i) Twenty-Seven Dollars and Ten Cents
($27.10) divided by (ii) the average of closing trade prices
("Average Price") of FFC Stock on The Nasdaq Stock Market's
National Market System during the last fifteen trading days on
which reportable sales of FFC Stock took place immediately
prior to, but not including, the third business day prior to
the consummation of the transaction ("Closing"), together with
cash in lieu of fractional shares, subject to adjustment in
accordance with the terms and conditions of the Acquisition
Agreement, as described in the accompanying Joint Proxy
Statement/Prospectus; and
(2) To transact such other business as may properly come before
the FirstRock Meeting or any adjournments or postponements
thereof including, without limitation, a motion to adjourn or
postpone the FirstRock Meeting to another time and/or place
for the purpose of soliciting additional proxies in order to
approve the Acquisition Agreement or otherwise.
Pursuant to FirstRock's Bylaws, the Board of Directors has fixed the
close of business on January 18, 1995 as the record date for the determination
of stockholders entitled to notice of and to vote at the FirstRock Meeting. Only
holders of FirstRock Stock of record at the close of business on that date will
be entitled to notice of and to vote at the FirstRock Meeting or any
adjournments thereof. The affirmative vote of not less than a majority of the
outstanding shares of FirstRock Stock entitled to vote is required for approval
of the Acquisition Agreement and the consummation of the transactions
contemplated thereby. In the event there are not sufficient votes for a quorum
or to approve the Acquisition Agreement or otherwise at the time of the
FirstRock Meeting, the FirstRock Meeting may be adjourned in order to permit
further solicitation of proxies by FirstRock. A list of stockholders entitled to
vote at the FirstRock Meeting will be available at FirstRock Bancorp, Inc., 612
N. Main Street, Rockford, Illinois 61103, for a period of 10 days prior to the
FirstRock Meeting and will also be available at the FirstRock Meeting itself.
By Order of the Board of Directors
FIRSTROCK BANCORP, INC.
Donna K. Beilfuss
Secretary
Rockford, Illinois
January ____, 1995
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF
THE ACQUISITION AGREEMENT.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE FIRSTROCK MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE
PROVIDED TO YOU.
ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED. A PROXY MAY BE REVOKED BY FILING WITH THE SECRETARY OF FIRSTROCK A
WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. ANY
STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING. HOWEVER, IF YOU
ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL
NEED APPROPRIATE DOCUMENTATION FROM YOUR RECORDHOLDER TO VOTE PERSONALLY AT THE
SPECIAL MEETING.
<PAGE>
FIRST FINANCIAL CORPORATION
1305 Main Street
Stevens Point, Wisconsin 54481
(715) 341-0400
--------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1995
NOTICE IS HEREBY GIVEN that the special meeting of stockholders (the
"FFC Meeting") of First Financial Corporation ("FFC") will be held on February
28, 1995, at 3:00 p.m., at the Holiday Inn, 1501 North Point Drive, Stevens
Point, Wisconsin 54481, for the following purposes:
(1) To authorize the issuance of up to 5,500,000 shares of FFC Common
Stock to shareholders of FirstRock Bancorp, Inc. ("FirstRock") in connection
with the acquisition of FirstRock by FFC if such issuance constitutes 20% or
more of the then outstanding shares of FFC Common Stock; and
(2) To transact such other business as may properly come before the FFC
Meeting or any adjournments or postponements thereof including, without
limitation, a motion to adjourn or postpone the FFC Meeting to another time
and/or place for the purpose of soliciting additional proxies to approve the
issuance of up to 5,500,000 shares of FFC Common Stock to FirstRock shareholders
in connection with the acquisition of FirstRock by FFC if such issuance
constitutes 20% or more of the then outstanding shares of FFC Common Stock.
Pursuant to FFC's bylaws, the Board of Directors has fixed the close of
business on January 18, 1995 as the record date for the determination of
stockholders entitled to notice of and to vote at the FFC Meeting. Only holders
of record of FFC Common Stock at the close of business on that date will be
entitled to notice of and to vote at the FFC Meeting or any adjournments
thereof.
The presence, in person or by proxy, of at least a majority of the
shares of FFC Common Stock entitled to vote is necessary to constitute a quorum
at the FFC Meeting, and the affirmative vote of the holders of a majority of the
votes cast is necessary to approve the issuance of up to 5,500,000 shares of FFC
Common Stock if such issuance constitutes 20% or more of the then outstanding
shares of FFC Common Stock.
By order of the Board of Directors of
FIRST FINANCIAL CORPORATION
Robert S. Gaiswinkler
Chairman of the Board
Stevens Point, Wisconsin
January ____, 1995
<PAGE>
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE FFC MEETING, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FIRSTROCK BANCORP, INC.
FIRST FINANCIAL CORPORATION
612 Main Street
1305 Main Street
Rockford, Illinois 61103
Stevens Point, Wisconsin 54481
JOINT PROXY STATEMENT
FIRST FINANCIAL CORPORATION
PROSPECTUS
5,500,000 Shares of Common Stock
This Joint Proxy Statement/Prospectus ("Joint Proxy
Statement/Prospectus"), is being furnished to stockholders of FirstRock Bancorp,
Inc. ("FirstRock"), a Delaware corporation, and First Financial Corporation
("FFC"), a Wisconsin corporation, and relates to the special meeting of
stockholders of FirstRock (the "FirstRock Meeting"), to be held on February 28,
1995 at 9:00 a.m. at Riverfront Museum Park, 711 North Main Street, Rockford,
Illinois, and the special meeting of stockholders of FFC (the "FFC Meeting") to
be held on February 28, 1995 at 3:00 p.m. at the Holiday Inn, 1501 North Point
Drive, Stevens Point, Wisconsin 54481 (collectively, the "Stockholders
Meeting"), and at any adjournments thereof. This Joint Proxy
Statement/Prospectus is first being mailed to stockholders of FFC and FirstRock
on or around January ____, 1995. At the FirstRock Meeting, the principal item of
business will be to consider the Agreement and Plan of Reorganization dated as
of October 26, 1994, as amended, among FirstRock, FFC and First Financial
Acquisition Company, a Delaware corporation and wholly owned subsidiary of FFC
("Acquisition Co."), including the Agreement and Plan of Merger attached thereto
(collectively, the "Acquisition Agreement"), pursuant to which FFC will acquire
FirstRock (the "Acquisition"). The Acquisition will be effected by the merger of
Acquisition Co. into FirstRock (the "Merger"), whereupon each outstanding share
of FirstRock common stock, par value $.01 per share ("FirstRock Stock") will
convert into and represent the right to receive and be exchangeable for such
number of shares (rounded to the nearest ten thousandth of a share) of FFC
common stock, par value $1.00 per share ("FFC Stock") as shall be equal to (i)
Twenty-Seven Dollars and Ten Cents ($27.10) divided by (ii) the average of
closing trade prices ("Average Price") of FFC Stock on The Nasdaq Stock Market's
National Market System during the last fifteen trading days on which reportable
sales of FFC Stock took place immediately prior to, but not including, the third
business day prior to the consummation ("Closing") of the transaction (the
"Exchange Ratio"), together with cash in lieu of fractional shares. In
connection with the Acquisition Agreement, FirstRock has granted FFC an
irrevocable warrant (the "Warrant") to purchase up to 475,246 shares of newly
issued FirstRock Stock at a purchase price of $22.50 per share. For a more
detailed description of the Acquisition and the Warrant, see "The Acquisition."
The Acquisition is subject to various conditions. The Acquisition has received
the required approvals of applicable federal regulatory authorities. At the FFC
Meeting, the principal item of business will be to authorize the issuance of up
to 5,500,000 shares of FFC Stock issuable to FirstRock stockholders in
connection with the Acquisition if such issuance constitutes 20% or more of the
then outstanding shares of FFC Common Stock. This Joint Proxy
Statement/Prospectus also constitutes a prospectus of FFC with respect to up to
5,500,000 shares of FFC Stock issuable to FirstRock stockholders upon
consummation of the Acquisition.
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF FFC STOCK
OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
The information set forth in this Joint Proxy Statement/Prospectus
concerning FirstRock has been furnished by FirstRock. The information concerning
FFC and Acquisition Co. has been furnished by FFC. The description of the
Acquisition Agreement and other documents in this Joint Proxy
Statement/Prospectus is qualified by reference to the text of those documents,
copies of which will be provided promptly without charge upon written or oral
request addressed to Kenneth F. Csinicsek, Senior Vice President of Investor
Relations, First Financial Corporation, 1305 Main Street, Stevens Point,
Wisconsin 54481, telephone (715) 345-4602.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, OR INCORPORATED BY
REFERENCE HEREIN, IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING
OF SECURITIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FFC OR
FIRSTROCK. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OFFERED BY THIS
JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF FIRSTROCK OR FFC OR THE INFORMATION HEREIN OR THE DOCUMENTS OR
REPORTS INCORPORATED BY REFERENCE SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
The date of this Joint Proxy Statement/Prospectus is
January____, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information.................................................................................... 1
Incorporation of Certain Documents by Reference.......................................................... 1
Summary.................................................................................................. 2
The Parties......................................................................................... 2
The Acquisition..................................................................................... 4
Purpose and Effects of the Acquisition.............................................................. 4
Exchange Ratio...................................................................................... 5
Exchange of FirstRock Stock......................................................................... 5
Regulatory Approvals; Conditions.................................................................... 5
Conduct of Business Pending the Acquisition......................................................... 6
Opinions of Financial Advisors...................................................................... 6
Vote Required; Stockholders Entitled to Vote........................................................ 6
Recommendation of the Board of Directors of FirstRock............................................... 7
Recommendation of the Board of Directors of FFC..................................................... 7
Termination of the Acquisition Agreement............................................................ 7
Warrant Agreement................................................................................... 7
Certain Federal Income Tax Consequences............................................................. 8
Accounting Treatment................................................................................ 8
Dissenters' Rights.................................................................................. 8
Liquidation Account................................................................................. 8
Market Prices and Dividends on Common Stock......................................................... 9
Comparative Per Share Data............................................................................... 9
Selected Financial Data.................................................................................. 11
Recent Developments...................................................................................... 16
Certain Considerations................................................................................... 20
Issuance of FFC Stock............................................................................... 20
Legislative and Regulatory Developments............................................................. 20
Potential Adverse Impact of Interest Rate Changes................................................... 21
Interests of Certain Persons in the Acquisition..................................................... 21
Solicitation, Voting and Revocability of Proxies......................................................... 22
The Acquisition.......................................................................................... 24
The Parties......................................................................................... 24
Background of the Acquisition....................................................................... 24
Reasons for the Acquisition......................................................................... 26
Purpose and Effects of the Acquisition.............................................................. 27
Structure........................................................................................... 28
Exchange Ratio...................................................................................... 28
Delivery of FFC Stock............................................................................... 29
Shares for the Acquisition.......................................................................... 30
Regulatory Approvals................................................................................ 30
Conditions to the Acquisition....................................................................... 30
Conduct of Business Pending the Acquisition......................................................... 31
Interests of Certain Persons in the Acquisition..................................................... 31
Opinion of Financial Advisor........................................................................ 36
Certain Provisions of the Acquisition Agreement..................................................... 39
Termination and Amendment of the Acquisition Agreement.............................................. 40
Fees and Expenses................................................................................... 41
Certain Federal Income Tax Consequences............................................................. 41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS (Cont'd.)
<S> <C>
Page
Regulatory Approvals................................................................................ 42
Accounting Treatment................................................................................ 42
Restrictions on Resales by Affiliates............................................................... 42
Dissenters' Rights.................................................................................. 43
Warrant Agreement........................................................................................ 43
Recommendations of FirstRock's and FFC's Board of Directors.............................................. 44
Pro Forma Condensed Combined Financial Information....................................................... 45
Notes to Pro Forma Condensed Combined Financial Statements............................................... 53
FirstRock Bancorp, Inc................................................................................... 55
General............................................................................................. 55
Lending Activities.................................................................................. 55
Delinquencies and Classified Assets................................................................. 64
Investment Activities............................................................................... 68
Sources of Funds.................................................................................... 70
Subsidiary Activities............................................................................... 72
Competition......................................................................................... 73
Properties.......................................................................................... 74
Legal Proceedings................................................................................... 75
Personnel........................................................................................... 75
Management's Discussion and Analysis of FirstRock's
Financial Condition and Results of Operations................................................... 75
FirstRock Stock Owned by Management...................................................................... 84
Principal Holders of Voting Securities................................................................... 85
Transactions with Certain Related Persons................................................................ 87
Market For and Dividends Paid on FFC Stock............................................................... 87
Market For and Dividends Paid on FirstRock Stock......................................................... 88
Description of FFC Common Stock and Comparison of
Stockholders Rights................................................................................. 88
Adjournment of Stockholders Meetings to Permit further
Solicitation of Proxies............................................................................. 94
Stockholder Proposals.................................................................................... 94
Relationship with Independent Auditors................................................................... 94
Experts.................................................................................................. 95
FirstRock Bancorp, Inc. Consolidated Financial Statements................................................ F-1
Exhibit 1 - Opinion of The Chicago Corporation
</TABLE>
<PAGE>
AVAILABLE INFORMATION
FFC and FirstRock are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by FFC and
FirstRock with the Commission can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional offices located at 75
Park Place, Room 1400, New York, New York 10007 and Northwestern Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
FFC has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the FFC shares to be issued in connection with
the Acquisition. As permitted by the rules and regulations of the Commission,
this Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. Such additional information may be obtained
from the Commission's principal office in Washington, D.C. as set forth above.
Statements contained in this Proxy StatementProspectus or in any document
incorporated by reference herein as to the contents of any contract or other
document are not necessarily complete and, in each instance where such contract
or document as an exhibit to the Registration Statement, reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
FFC's Annual Report on Form 10-K and 10-K/A for the year ended December
31, 1993, Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1994, Quarterly Reports on Form 10-Q/A for the quarters
ended March 31 and June 30, 1994, Current Reports on Form 8-K for the events on
January 17, February 26, May 26, October 26, and December 5, 1994 and Definitive
Proxy Statement for the Annual Meeting of Shareholders held on April 20, 1994,
all as filed by FFC with the Commission pursuant to the Exchange Act, are
incorporated by reference herein. In lieu of incorporating by reference the
description of FFC Stock which is contained in a Registration Statement filed
under the Exchange Act, such description is included in this Joint Proxy
Statement/Prospectus. See "Description of FFC Common Stock and Comparison of
Stockholder Rights." Furthermore, all documents filed by FFC subsequent to the
date hereof, and prior to the Acquisition, pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act shall be deemed to be incorporated by reference
herein. Any statement contained in a document incorporated by reference herein
as of the date hereof shall be deemed to be modified or superseded hereby to the
extent that a statement contained herein, or in a document incorporated herein
subsequent to the date hereof, shall modify or supersede such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
FFC will provide without charge to each person to whom a copy of this Joint
Proxy Statement/Prospectus is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents referred to above or
elsewhere herein which have been incorporated by reference in this Joint Proxy
Statement/Prospectus, other than exhibits to such documents.
This Joint Proxy Statement/Prospectus incorporates documents by
reference which are not presented herein or delivered herewith. These documents
are available upon request from Kenneth F. Csinicsek, Senior Vice President of
Investor Relations, First Financial Corporation, 1305 Main Street, Stevens
Point, Wisconsin 54481, (715) 345-4602. In order to ensure timely delivery of
the documents, any request should be made by February 14, 1995.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary is not intended
to be a complete description of the Acquisition Agreement, the Acquisition or
the parties thereto, and is qualified in its entirety by the more detailed
information contained in this Joint Proxy Statement/Prospectus and the documents
referred to herein. Stockholders are urged to read this Joint Proxy
Statement/Prospectus in its entirety, including the Exhibits hereto, and to give
careful consideration to all of the information contained herein and in the
documents referred to herein.
THE ACQUISITION AGREEMENT AND THE ACQUISITION TO BE CONSIDERED AT THE
SPECIAL MEETINGS INVOLVES A MATTER OF GREAT IMPORTANCE TO FIRSTROCK'S AND FFC'S
STOCKHOLDERS. IF THE ACQUISITION AGREEMENT AND THE ACQUISITION ARE APPROVED AND
CONSUMMATED, EACH SHARE OF FIRSTROCK STOCK WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE AND BE EXCHANGEABLE FOR SUCH NUMBER OF SHARES (ROUNDED TO THE NEAREST
TEN THOUSANDTH OF A SHARE) OF FFC STOCK AS SHALL BE EQUAL TO (i) TWENTY-SEVEN
DOLLARS AND TEN CENTS ($27.10) DIVIDED BY (ii) THE AVERAGE OF CLOSING TRADE
PRICES ("AVERAGE PRICE") OF FFC STOCK ON THE NASDAQ STOCK MARKET'S NATIONAL
MARKET SYSTEM DURING THE LAST FIFTEEN TRADING DAYS ON WHICH REPORTABLE SALES OF
FFC STOCK TOOK PLACE IMMEDIATELY PRIOR TO, BUT NOT INCLUDING, THE THIRD BUSINESS
DAY PRIOR TO THE CONSUMMATION OF THE ACQUISITION (THE "CLOSING"), TOGETHER WITH
CASH IN LIEU OF FRACTIONAL SHARES, SUBJECT TO ADJUSTMENT, AND EACH FIRSTROCK
STOCKHOLDER'S SEPARATE EQUITY INTEREST IN FIRSTROCK WILL CEASE.
The Parties
First Financial Corporation. FFC, which was formed in 1984, currently
conducts business as a unitary thrift holding company. As a Wisconsin
corporation, FFC is authorized to engage in any activity permitted by the
Wisconsin Business Corporation Law. With total assets in excess of $5.05 billion
as of September 30, 1994, the principal business of FFC is the business of its
banking subsidiary, First Financial Bank, FSB ("FF Bank").
The mailing address and telephone number of FFC's principal executive
offices are 1305 Main Street, Stevens Point, Wisconsin 54481, telephone:
(715)341-0400. For further information regarding FFC, see the documents
incorporated by reference herein as to FFC.
First Financial Acquisition Company. Acquisition Co. is a Delaware
corporation which was formed on October 25, 1994 to facilitate the Acquisition,
and is a wholly-owned subsidiary of FFC.
First Financial Bank, FSB. FF Bank is a federally chartered, stock
savings institution whose deposits are insured by the SAIF, as administered by
the FDIC, and is a wholly-owned subsidiary of FFC. Business is conducted through
124 full-service branch offices and one limited loan origination office. Based
on the total assets of $4.95 billion at September 30, 1994, FF Bank is the
largest thrift institution headquartered in Wisconsin. The principal mortgage
lending area of FF Bank is Wisconsin and Illinois. In addition to first mortgage
loans, FF Bank originates a significant volume of consumer loans, home equity
loans, credit card loans and student loans. Consumer, home equity and student
lending activities are principally conducted in Wisconsin and Illinois, while
the credit card base and resulting loans are principally centered in the
Midwest. A significant portion of real estate loans generated are sold in the
secondary market and to other financial institutions with FF Bank retaining the
servicing of those loans. FF Bank offers brokerage services and also operates a
full-line independent insurance agency and a real estate appraisal company.
<PAGE>
FF Bank has grown significantly through mergers and acquisitions
since its stock conversion in 1980, when FF Bank had total assets of $244
million and 14 branch offices in central Wisconsin. In 1984, First Financial and
First State Savings of Wisconsin, concurrently with First State's stock
conversion, combined to form FFC, which operated as a multiple savings and loan
holding company from 1984 until August 1985 when FFC acquired First Savings
Association of Wisconsin. At that time, all three institutions were merged into
FF Bank. In 1988, FF Bank acquired National Savings and Loan Association of
Milwaukee, Wisconsin through a merger conversion. By the end of 1988, FF Bank's
total assets had grown to $2.3 billion and FF Bank operated 63 full-service
banking offices throughout Wisconsin. In 1989, FFC acquired Port Savings Bank,
F.S.B., Port Washington, Wisconsin, a $100 million asset institution, which it
operated as an independent thrift subsidiary until it was recently merged into
FF Bank.
Beginning in 1990, FF Bank expanded into southern Illinois
(suburban St. Louis) and the Peoria, Illinois markets by acquiring Illini
Federal Savings and Loan Association of Fairview Heights in a voluntary
supervisory merger conversion and by purchasing the deposits and nine branch
banking offices of two former Peoria thrifts from the Resolution Trust
Corporation ("RTC"). In 1991, FF Bank also acquired two western Wisconsin branch
bank offices from the RTC. During 1992, FF Bank acquired ten additional branch
banking offices in the Peoria market, including eight from LaSalle Talman Bank,
FSB, and two from the RTC. In 1993, FF Bank acquired Westinghouse Federal Bank,
FSB, d/b/a United Federal Bank ("United") of Galesburg, Illinois. As part of the
acquisition, United was merged into FF Bank and its twenty branches now operate
as branch banking offices of FF Bank. Also in 1993, FF Bank acquired four branch
banking offices in the Quincy, Illinois area from Citizens Federal Bank of
Miami, Florida.
In 1994, FF Bank acquired NorthLand Savings of Wisconsin, S.S.B.,
and the 10 NorthLand offices now operate as branches of FF Bank. Also, as
indicated above, Port Savings Bank, F.S.B. was merged into FF Bank effective
October 1, 1994 and Port's three offices now operate as FF Bank branches.
While pursuing its strategy of expansion by acquisition in
Wisconsin and Illinois, management of FF Bank has also curtailed lending
activities outside of the Midwest in recent years. In 1988, FF Bank liquidated
its West Coast mortgage banking operation which FF Bank had acquired as part of
the acquisition of a troubled thrift institution in 1985. This operation had
incurred continuing operating losses. In 1988, FF Bank sold a portion of its
credit card loan portfolio, totalling $44.8 million, consisting of loans
concentrated in California, Texas and the Northeastern states. FF Bank's credit
card lending activities are now focused on Wisconsin, Illinois and other
Midwestern states. During 1989, FF Bank curtailed manufactured housing lending
outside the Midwest, and in October 1994 FF Bank exited the manufactured housing
lending business altogether due to increased competition in the marketplace.
FF Bank is a member of the Federal Home Loan Bank System. FF Bank
is subject to comprehensive examination, supervision and regulation by the OTS
and the FDIC, and is regulated by the Board of Governors of the Federal Reserve
System as to reserves required to be maintained against deposits and certain
other matters.
The mailing address and telephone number of FF Bank's principal
executive offices are 1305 Main Street, Stevens Point, Wisconsin 54481;
(715)341-0400. For further information regarding FF Bank, see the documents
incorporated by reference herein as to FFC.
FirstRock Bancorp, Inc. FirstRock is a Delaware corporation and the
holding company for First Federal Savings Bank, F.S.B. ("First Federal"). At
September 30, 1994, FirstRock reported total assets of $408.0 million, deposits
of $302.5 million and stockholders equity of $48.6 million. First Federal
presently has six full-service offices located in the Rockford, Machesney Park
and Rochelle areas and loan origination offices located in Rockford, suburban
Chicago, and suburban Des Moines, Iowa.
<PAGE>
The primary business of FirstRock is the business of its insured
banking subsidiary, First Federal. The business of First Federal is primarily
that of obtaining savings deposits from the general public and making loans
secured by first mortgage liens on residential and other real estate to enable
borrowers to purchase or refinance the collateralized property. Funds for
lending are provided primarily by savings deposits, repayment of loans and the
sale of loans. First Federal's revenues are derived primarily from interest and
fees received in connection with its real estate loans, while interest paid on
its deposit accounts and borrowings constitutes its largest expense. Its
principal expenses are interest paid on savings accounts and overhead expenses
in the operation of its various offices. The mailing address and telephone
number of FirstRock's principal executive offices are 612 North Main Street,
Rockford, Illinois 61103; (815)987-3500.
The Acquisition
In 1994, FirstRock's Board of Directors, in consultation with its
financial advisors, explored various methods of enhancing shareholder value
including seeking a buyer for FirstRock. After FirstRock evaluated a number of
expressions of interest, on October 26, 1994, FirstRock and FFC entered into the
Acquisition Agreement. See "The Acquisition -Background of the Acquisition."
The Acquisition will be effected by the merger of Acquisition Co.
with and into FirstRock (the "Merger"). Upon the Merger, all of the issued and
outstanding shares of FirstRock Stock will convert into the right to receive
consideration consisting of FFC Stock.
Immediately after the Merger, FFC intends to cause the merger of
First Federal with and into FF Bank (the "Bank Merger"). The resulting
institution of the Bank Merger will combine the existing operations of FF Bank
and First Federal, and shall operate as FF Bank. It is presently anticipated
that FFC will, as soon as practical after the Bank Merger, effect the
liquidation and dissolution of FirstRock into FFC. See "The Acquisition --
Structure."
Purpose and Effects of the Acquisition
The purpose of the transactions contemplated by the Acquisition
Agreement is to enable FFC to acquire the assets and business of First Federal,
which FFC intends thereafter to operate as branches of FF Bank. Following the
Acquisition (based on September 30, 1994 deposit levels), FF Bank will operate
130 banking offices throughout Wisconsin and Illinois, with $4.40 billion in
deposits, including $302.5 million of First Federal deposits held in over 75,000
accounts. The Acquisition will allow the entry of FF Bank into Rockford,
Illinois, the second largest city by population in Illinois.
FF Bank intends to support and enhance First Federal's deposit and
residential lending activities. FF Bank believes that the current capacity of
First Federal's offices will facilitate deposit growth on a cost efficient
basis. FF Bank also intends to utilize First Federal's offices to originate
loans. Consistent with FFC's efforts to diversify income sources beyond net
interest income, FFC intends to expand the financial services offered through
the acquired First Federal offices. FF Bank also expects to significantly reduce
the overhead expenses of operating such offices by consolidating most "back
office" functions at FFC's headquarters in Stevens Point, Wisconsin.
FFC expects that the Acquisition will have a positive effect on
each of FFC's and FF Bank's capital levels, increasing tangible capital levels
by almost 10% and 5%, respectively, without appreciably diluting earnings per
share after a one-time charge of $4 million relative to Acquisition charges and
transaction costs is taken in connection with the Acquisition. See "The
Acquisition -- Purpose and Effects of the Acquisition."
The Exchange Ratio
Upon consummation of the Acquisition, each outstanding share of
FirstRock Stock will be converted into the right to receive and be exchangeable
for such number of shares (rounded to the nearest ten thousandth of a share) of
FFC common stock, par value $1.00 per share ("FFC Stock") as shall be equal to
(i) Twenty-Seven Dollars and Ten cents ($27.10) divided by (ii) the Average
Price of FFC Stock on The Nasdaq Stock Market's National Market System during
the last fifteen trading days on which reportable sales of FFC Stock took place
immediately prior to, but not including, the third business day prior to the
Closing, except that cash will be paid in lieu of fractional shares. If the
average of the last sales prices for the 15 trading days immediately preceding
the third business day prior to the Closing (the "Closing Market Value") is
greater than $20.00, FirstRock may terminate the transaction unless the Board of
Directors of FFC elects in its sole discretion to complete the Acquisition at a
fixed exchange ratio of 1.355 shares of FFC Stock for each share of FirstRock
Stock. If the Closing Market Value is less than $13.25, FFC may terminate the
transaction unless the Board of Directors of FirstRock elects in its sole
discretion to complete the Acquisition at a fixed exchange ratio of 2.045 shares
of FFC Stock for each share of FirstRock Stock.
All outstanding options to purchase FirstRock Stock, granted under
FirstRock's stock option plans, will become options to purchase FFC Stock,
subject to adjustment as set forth in the FirstRock stock option plans and the
relevant provisions of the Acquisition Agreement. See "The Acquisition -- The
Exchange Ratio."
Exchange of FirstRock Stock
The exchange of shares of FFC Stock for shares of FirstRock Stock
will be made promptly upon surrender of FirstRock Stock certificates to a paying
agent after the Closing. All FirstRock stockholders will be provided with
written instructions and related materials needed to effectuate the exchange of
their shares promptly after the Closing. No interest will be paid or accrued to
FirstRock's stockholders on amounts received by the paying agent from FFC.
SHARES OF FIRSTROCK STOCK SHOULD NOT BE SURRENDERED FOR PAYMENT PRIOR TO RECEIPT
OF WRITTEN INSTRUCTIONS FROM THE PAYING AGENT. See "The Acquisition -- Delivery
of FFC Stock."
Regulatory Approvals; Conditions
The transactions contemplated by the Acquisition Agreement have
received the approval of the Office of Thrift Supervision ("OTS"). No other
regulatory approvals are required to consummate the Acquisition. See "The
Acquisition -- Regulatory Approvals."
The obligations of FirstRock, FFC and Acquisition Co. under the
Acquisition Agreement are subject to the satisfaction of certain other
conditions. The material remaining conditions include the approval of the
Acquisition Agreement by FirstRock's stockholders, the approval by FFC
stockholders of the issuance of FFC Stock if the number of shares issued
constitutes 20% or more of the then outstanding shares of FFC Stock, the receipt
of various legal opinions customarily issued in transactions such as the
Acquisition, the absence of court orders and injunctions prohibiting the
consummation of the transactions contemplated by the Acquisition Agreement, the
absence of certain pending or threatened litigation, and the absence of any
material adverse changes in FirstRock and FFC. For a more complete description
of the conditions to the Acquisition, see "The Acquisition -- Conditions of the
Acquisition."
<PAGE>
Conduct of Business Pending the Acquisition
FirstRock has agreed to conduct its business and engage in
transactions prior to the Closing only in the ordinary course and consistent
with past practice, and subject to certain operating restrictions. FirstRock has
agreed, among other things, to maintain its current organizational and capital
structure and to comply with certain limitations on declaring dividends,
granting nonroutine increases in compensation, and acquiring or disposing of
assets. See "The Acquisition -- Conduct of Business Pending the Acquisition."
Opinions of Financial Advisors
By a written opinion dated October 26, 1994, The Chicago
Corporation ("TCC"), FirstRock's financial advisor selected by its Board of
Directors, stated that the proposed consideration to be received by the
stockholders of FirstRock pursuant to the Acquisition Agreement is fair to such
stockholders, from a financial point of view. On January 25, 1995, TCC
reconfirmed its opinion. For information concerning the matters considered in
the TCC opinion, see "The Acquisition -Opinions of Financial Advisors" and
Exhibit 1 to this Joint Proxy Statement/Prospectus, where the TCC opinion is set
forth in its entirety and incorporated herein by reference. Stockholders of
FirstRock are urged to read the TCC opinion.
FirstRock has agreed to pay TCC fees of $625,475 for its financial
advisory services, including the rendering of its opinion described above, which
are payable upon the Closing if the Acquisition is consummated. In connection
with the Agreement, FirstRock has also agreed to indemnify TCC for specified
matters relating to its duties thereunder. See "The Acquisition -- Opinions of
Financial Advisors."
Vote Required; Stockholders Entitled to Vote
Under applicable law, and in accordance with FirstRock's
Certificate of Incorporation, the Acquisition Agreement, including the
transactions contemplated thereby, must be approved by the holders of a majority
of the issued and outstanding shares of FirstRock Stock. The close of business
on January 18, 1995 has been fixed by the Board of Directors as the record date
(the "FirstRock Record Date") for the determination of the stockholders entitled
to vote at the FirstRock Meeting. At the close of business on that date, there
were 2,415,671 issued and outstanding shares of FirstRock Stock and 447 holders
of record of FirstRock Stock.
As of the FirstRock Record Date, FirstRock's directors and
executive officers, including their affiliates, beneficially owned 11.95% of the
outstanding shares entitled to vote at the FirstRock Meeting. None of FFC or
FFB's directors or executive officers, including their affiliates, owned any
FirstRock Stock as of the FirstRock Record Date.
Under the rules governing The Nasdaq Stock Market's National Market
System, the approval of FFC stockholders will be required if the number of
shares of FFC Stock issued to FirstRock stockholders pursuant to the Exchange
Ratio equals 20% or more of the outstanding shares of FFC Stock at the time of
issuance. Though the exact number of shares issued in connection with the
Acquisition will be determined by the Exchange Ratio, the Agreement contemplates
that a maximum of approximately 5,500,000 shares of FFC Stock may be issued,
which would be more than 20% of the outstanding shares of FFC Stock. In light of
such possibility, the FFC Board of Directors unanimously recommends that FFC
stockholders authorize the issuance of up to 5,500,000 shares of FFC Stock in
connection with the Acquisition if such issuance constitutes 20% or more of the
then outstanding shares of FFC Stock. Consummation of the Acquisition does not
require approval of FFC stockholders as to the issuance of stock if the number
of shares issued constitutes less than 20% of the then outstanding shares of FFC
Stock. The close of business on January 18, 1995 has been fixed by the FFC Board
of Directors as the record date (the "FFC Record Date") for the determination of
the stockholders entitled to vote at the FFC Meeting. At the close of business
on that date, there were 24,814,842 issued and outstanding shares of FFC Stock
and 3,927 holders of record of FFC Stock.
As of the FFC Record Date, FFC's directors and executive officers,
including their affiliates, beneficially owned 6.1% of the outstanding shares
entitled to vote at the FFC Meeting. None of FirstRock or FirstRock's directors
or executive officers, including their affiliates, owned any FFC Stock as of the
FFC Record Date.
<PAGE>
Recommendation of the Board of Directors of FirstRock
THE BOARD OF DIRECTORS OF FIRSTROCK UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL OF THE ACQUISITION AGREEMENT AND THE ACQUISITION.
After an evaluation of business, financial and market factors and consultation
with its financial and legal advisors, FirstRock's Board of Directors
unanimously approved the Acquisition Agreement and the Acquisition. The Board of
Directors of FirstRock believes that the terms of the Acquisition Agreement and
the Acquisition are in the best interests of FirstRock's stockholders. See "The
Acquisition -- Recommendation of FirstRock's Board of Directors."
Recommendation of the Board of Directors of FFC
THE BOARD OF DIRECTORS OF FFC UNANIMOUSLY RECOMMENDS THAT FFC
STOCKHOLDERS VOTE FOR AUTHORIZING THE ISSUANCE OF UP TO 5,500,000 SHARES OF FFC
STOCK IN CONNECTION WITH THE ACQUISITION PURSUANT TO THE EXCHANGE RATIO IF SUCH
ISSUANCE CONSTITUTES 20% OR MORE OF THE THEN OUTSTANDING SHARES OF FFC STOCK.
Consummation of the Acquisition does not
require approval of FFC stockholders as to the issuance of FFC Stock if the
number of shares issued constitutes less than 20% of the then outstanding shares
of FFC Stock.
Termination of the Acquisition Agreement
The Acquisition Agreement may be terminated by either FirstRock or
FFC under certain circumstances, including if the Acquisition has not been
consummated by July 31, 1995, if FirstRock's stockholders fail to approve the
Acquisition Agreement or if FFC's stockholders fail to approve the issuance of
FFC Stock if the number of shares issued constitutes 20% or more of the then
outstanding shares of FFC Stock. See "The Acquisition -- Termination and
Amendment of the Acquisition Agreement."
Warrant Agreement
In connection with the Acquisition Agreement, FirstRock and FFC
entered into a warrant agreement dated as of October 26, 1994 (the "Warrant
Agreement") pursuant to which FirstRock granted FFC a warrant (the "Warrant") to
purchase up to 475,246 newly issued shares of FirstRock Stock at a purchase
price of $22.50 per share. The Warrant is exercisable only upon the occurrence
of certain specified triggering events primarily involving new third party
agreements, proposals or transactions with regard to the acquisition of
FirstRock, as well as violation of the Acquisition Agreement by FirstRock or
failure of FirstRock's stockholders to approve the Acquisition Agreement while
third party offers may be outstanding. Under certain circumstances, in lieu of
FirstRock Stock, FFC is entitled to receive the cash value of the securities to
which the Warrant relates but such cash value is limited to $3 million. The
Warrant Agreement provides FFC with registration rights in connection with the
sale of shares of FirstRock Stock acquired pursuant to the Warrant. The Warrant
is not currently transferable. However, the Warrant would become transferable
upon the occurrence of a triggering event. The Warrant is intended to make it
more difficult for another party to acquire FirstRock thereby increasing the
likelihood that the Acquisition will occur. See "The Acquisition -- Warrant
Agreement."
Certain Federal Income Tax Consequences
Based on certain assumptions and representations of FFC, FirstRock
and certain affiliates of FirstRock, Hogan & Hartson, L.L.P., counsel to FFC,
has opined that the Acquisition will constitute a reorganization within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and that
no gain or loss will be recognized for Federal income tax purposes by FirstRock
stockholders who exchange FirstRock Stock solely for FFC Stock (except with
respect to cash received in lieu of a fractional share of FFC Stock). FIRSTROCK
STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION UNDER "THE
ACQUISITION--CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS.
<PAGE>
Accounting Treatment
The Acquisition will be accounted for as a pooling-of-interests. See
"The Acquisition -- Accounting Treatment."
Dissenters' Rights
Under applicable Delaware law, holders of FirstRock Stock will not
be entitled to dissenters' rights of appraisal in connection with the
Acquisition. See "The Acquisition -- Dissenters' Rights."
Under applicable Wisconsin law, holders of FFC Stock will not be
entitled to dissenters' rights of appraisal in connection with issuance of up to
5,500,000 shares of FFC Stock in connection with the Acquisition.
Liquidation Account
In connection with its conversion from the mutual to the stock form
of ownership, First Federal was required to establish a "liquidation account"
for the benefit of certain savings account holders at the time of the
conversion. The liquidation account grants such savings account holders who have
continued to maintain their savings accounts at First Federal the right to a
priority distribution from the liquidation account before any distribution is
made with respect to First Federal common stock in the event of a complete
liquidation of First Federal. Neither the Acquisition nor the Bank Merger
constitutes a complete liquidation and will not trigger a distribution from the
liquidation account. Upon consummation of the Acquisition and the Bank Merger,
the liquidation account will be maintained by FF Bank.
<PAGE>
Market Prices and Dividends on Common Stock
FirstRock Stock is quoted on The Nasdaq Stock Market's National
Market System ("NASDAQ") under the symbol "FROK." On January 24, 1995, the
closing sale price per share, as reported on NASDAQ, was $25.50. See "Market For
and Dividends Paid on FirstRock Stock."
FFC Stock is quoted on NASDAQ under the symbol "FFHC." On January
24, 1995, the closing sale price per share, as reported on NASDAQ, was $14.56.
See "Market For and Dividends Paid on FFC Stock."
The closing per share sales prices of FirstRock Stock and FFC
Stock, as of specified dates and as reported on NASDAQ, are set forth in the
following table:
<TABLE>
<CAPTION>
Closing Sales Price
Date FFC Stock FirstRock Stock
---- --------- ---------------
<S> <C> <C>
October 25, 1994 (1) $ 15.00 $ 22.50
January 24, 1995 14.56 25.50
- --------------------
<FN>
(1) Last trading date prior to announcement of the Acquisition Agreement.
</TABLE>
Comparative Per Share Data
Following are certain comparative historical per share data of FirstRock
and FFC, pro forma per share data of FirstRock and FFC and equivalent pro forma
per share data of FirstRock. The book value per share data is presented as of
September 30, 1994, December 31, 1993, December 31, 1992 and December 31, 1991.
The earnings and dividend per share data for the nine months ended September 30,
1994 and 1993 include the results of operations of FirstRock and FFC for the
nine months ended September 30, 1994 and 1993, respectively. The earnings and
dividends per share data for the year ended December 31, 1993 includes the
results of operations of FirstRock for the year ended June 30, 1994 and the
results of operations of FFC for the year ended December 31, 1993. The earnings
and dividends per share data for the year ended December 31, 1992 includes the
results of operations of FirstRock for the year ended June 30, 1993 and the
results of operations of FFC for the year ended December 31, 1992. The earnings
and dividends per share data for the year ended December 31, 1991 includes the
results of operations of FirstRock for the year ended June 30, 1992 and the
results of operations of FFC for the year ended December 31, 1991. The financial
data is based on the historical financial statements and the notes thereto of
FirstRock and FFC and on pro forma financial information and the notes thereto
of FirstRock and FFC and should be read in conjunction with the consolidated
financial statements and the notes thereto of FirstRock and FFC and Pro Forma
Condensed Combined Financial Statements and the notes thereto appearing
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma amounts are
not necessarily indicative of results which will be obtained on a combined
basis.
<PAGE>
<TABLE>
<CAPTION>
Comparative Per Share Data
FFC Common Stock FirstRock Common Stock
------------------------- --------------------------------
ProForma ProForma
Historical Combined Historical Equivalent (A)
---------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Fully Diluted Earnings Per Share:
For the Nine Months Ended:
September 30, 1994 $1.32 $1.25 $1.45 $2.17
September 30, 1993 1.32 1.22 1.25 2.12
For the Year Ended:
December 31, 1993 1.86 1.73 1.86 3.00
December 31, 1992 1.19 1.15 N/A 1.99
December 31, 1991 0.79 0.72 N/A 1.25
Cash Dividends Per Share:
For the Nine Months Ended:
September 30, 1994 $0.30 $0.30 $ -- $0.52
September 30, 1993 0.25 0.25 -- 0.43
For the Year Ended:
December 31, 1993 0.35 0.35 -- 0.61
December 31, 1992 0.22 0.22 -- 0.38
December 31, 1991 0.16 0.16 N/A 0.28
Book Value Per Share:
At September 30, 1994 $10.77 $10.75 $20.34 $18.64
At December 31, 1993 9.95 10.17 19.61 17.69
At December 31, 1992 8.34 8.71 17.35 15.11
At December 31, 1991 7.14 8.21 N/A 14.24
<FN>
N/A - Not applicable since FirstRock was formed in October 1992 upon the
conversion of First Federal from mutual to stock form.
(A) Equivalent pro forma per share amounts are calculated by multiplying the
pro forma continuing earnings per share, pro forma book value per share
and the pro forma dividends per share, as appropriate, by the estimated
Exchange Ratio. The estimated Exchange Ratio of 1.7344 was determined
using an assumed FFC Share Value of $15.625 (the closing price of FFC
Stock on January 17, 1995) and consideration equal to $27.10 per share
of FirstRock Stock. See "The Acquisition Exchange Ratio".
</TABLE>
<PAGE>
Selected Financial Data
The following tables present summary historical financial data for
FirstRock and FFC and summary pro forma financial data of FirstRock and FFC
combined as of the dates and for the periods indicated. This financial data is
based upon the consolidated financial statements of FirstRock and FFC and on pro
forma financial information of FirstRock and FFC and should be read in
conjunction with the consolidated financial statements and the notes thereto of
FirstRock and FFC and the Unaudited Pro Forma Condensed Combined Financial
Information and notes thereto appearing elsewhere in this Proxy
Statement/Prospectus. The condensed combined financial information has been
prepared based on the pooling-of-interests method of accounting and on the
assumption that an aggregate of 4,315,425 shares of FFC Stock would be issued
for FirstRock Stock in the Acquisition. See "Unaudited Pro Forma Condensed
Combined Financial Information." Amounts at September 30, 1994 and 1993 with
respect to FirstRock and FFC are unaudited. The following tables set forth
historical consolidated financial data for FFC for the five years ended December
31, 1993 and the nine months ended September 30, 1994 and 1993 and for FirstRock
for the five years ended June 30, 1994 and for the nine months ended September
30, 1994 and 1993. Because FirstRock's fiscal year ends on June 30 and FFC's on
December 31, the financial data for FirstRock has been presented to coincide
with the fiscal reporting period of FFC. The pro forma amounts are not
necessarily indicative of results which will be obtained on a combined basis.
All adjustments necessary for a fair presentation of financial position and
results of operations of interim periods have been included.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
At Or For The Nine Months At of For
Ended September 30, The Year Ended
(Unaudited) December 31,
-------------------------- --------------------
1994 1993 1993 1992
---------- ---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Selected financial condition data:
Total assets $5,051,199 $4,731,543 $4,773,783 $3,908,286
Mortgage-related securities 1,500,482 1,316,429 1,324,943 1,301,589
Loans receivable, including loans held for sale 3,133,628 2,836,675 2,922,504 2,210,717
Core deposit intangibles and goodwill 28,059 33,004 31,392 23,278
Deposits 4,101,449 4,089,930 4,050,520 3,206,112
Borrowings 591,145 324,036 438,598 461,948
Stockholders' equity 265,930 221,078 233,835 194,095
Common shares outstanding 24,698,852 23,560,066 23,586,827 23,266,414
Book value per share $ 10.77 $ 9.38 $ 9.91 $ 8.34
Tangible book value per share $ 9.63 $ 7.98 $ 8.58 $ 7.34
Selected operating information:
Interest income $ 262,809 $ 254,594 $ 340,123 $ 296,871
Interest expense 141,567 143,866 189,734 181,896
---------- ---------- ---------- ----------
Net interest income 121,242 110,728 150,389 114,975
Provision for losses on loans 4,878 7,824 10,219 13,851
---------- ---------- ---------- ----------
Net interest income after provision for losses on loans 116,364 102,904 140,170 101,124
Unrealized loss on impairment of mortgage-related securities (9,000) -- -- --
Non-interest income 26,419 27,645 37,721 32,209
Non-interest expense 80,637 79,801 105,804 88,711
---------- ---------- ---------- ----------
Net income before income taxes and accounting change 53,146 50,748 72,087 44,622
Income taxes 19,591 18,705 26,872 16,190
---------- ---------- ---------- ----------
Net income before accounting change 33,555 32,043 45,215 28,432
Cumulative effect of a change in accounting principle -- -- -- 5,600
---------- ---------- ---------- ----------
Net income $ 33,555 $ 32,043 $ 45,215 $ 34,032
========== ========== ========== ==========
Earnings per share:
Primary:
Income before change in accounting principle $ 1.33 $ 1.35 $ 1.88 $ 1.21
Cumulative effect of a change in accounting principle $ -- $ -- $ -- $ 0.24
Net income $ 1.33 $ 1.35 $ 1.88 $ 1.45
Fully diluted:
Income before change in accounting principle $ 1.32 $ 1.32 $ 1.86 $ 1.19
Cumulative effect of a change in accounting principle $ -- $ -- $ -- $ 0.24
Net income $ 1.32 $ 1.32 $ 1.86 $ 1.43
Weighted average common equivalent shares:
Primary 25,323 23,724 24,112 23,498
Fully diluted 25,380 24,243 24,369 23,822
Dividends per share $ 0.30 $ 0.25 $ 0.35 $ 0.22
Key ratios and other data:
Return on average assets (before accounting change) 0.90% 0.94% 0.98% 0.79%
Return on average equity (before accounting change) 17.40% 20.55% 21.24% 15.79%
Average equity to average assets 5.23% 4.56% 4.62% 4.99%
Dividend payout ratio 22.73% 18.94% 18.82% 18.49%
Net interest margin 3.40% 3.37% 3.41% 3.35%
Non-accrued loans to total loans 0.28% 0.28% 0.28% 0.71%
Non-performing assets to total assets 0.58% 0.32% 0.32% 0.76%
Number of full service banking offices at end of year 124 117 117 94
Regulatory capital ratios - FF Bank:
Tangible capital 5.54% 4.90% 5.19% 4.70%
Core capital 5.98% 5.51% 5.76% 5.20%
Risk-based capital 13.18% 11.87% 12.52% 11.68%
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION -- CONTINUED
<TABLE>
<CAPTION>
At Or For The Year Ended December 31,
-----------------------------------------------
1991 1990 1989
---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Selected financial condition data:
Total assets $3,220,002 $3,142,293 $2,456,695
Mortgage-related securities 893,733 569,085 162,056
Loans receivable, including loans held for sale 1,991,503 2,169,180 1,980,208
Core deposit intangibles and goodwill 20,388 23,178 5,505
Deposits 2,935,645 2,883,214 2,098,234
Borrowings 77,243 60,351 177,253
Stockholders' equity 164,535 149,576 137,081
Common shares outstanding 23,038,404 22,978,604 22,915,604
Book value per share $ 7.14 $ 6.51 $ 5.98
Tangible book value per share $ 6.26 $ 5.50 $ 5.74
Selected operating information:
Interest income $ 300,081 $ 292,141 $ 235,890
Interest expense 203,749 204,748 162,059
---------- ---------- ----------
Net interest income 96,332 87,393 73,831
Provision for losses on loans 18,333 16,044 18,306
---------- ---------- ----------
Net interest income after provision for losses on loans 77,999 71,349 55,525
Unrealized loss on impairment of mortgage-related securities -- -- --
Non-interest income 34,331 31,383 32,389
Non-interest expense 81,395 76,840 64,868
---------- ---------- ----------
Net income before income taxes and accounting change 30,935 25,892 23,046
Income taxes 12,409 9,870 8,670
---------- ---------- ----------
Net income before accounting change 18,526 16,022 14,376
Cumulative effect of a change in accounting principle -- -- --
---------- ---------- ----------
Net income $ 18,526 $ 16,022 $ 14,376
========== ========== ==========
Earnings per share:
Primary:
Income before change in accounting principle $ 0.80 $ 0.70 $ 0.63
Cumulative effect of a change in accounting principle $ -- $ -- $ --
Net income $ 0.80 $ 0.70 $ 0.63
Fully diluted:
Income before change in accounting principle $ 0.79 $ 0.70 $ 0.63
Cumulative effect of a change in accounting principle $ -- $ -- $ --
Net income $ 0.79 $ 0.70 $ 0.63
Weighted average common equivalent shares:
Primary 23,114 23,006 22,972
Fully diluted 23,395 23,006 22,972
Dividends per share $ 0.16 $ 0.16 $ 0.15
Key ratios and other data:
Return on average assets (before accounting change) 0.58% 0.54% 0.60%
Return on average equity (before accounting change) 11.85% 11.21% 10.82%
Average equity to average assets 4.86% 4.78% 5.59%
Dividend payout ratio 20.25% 22.86% 23.81%
Net interest margin 3.17% 3.11% 3.30%
Non-accrued loans to total loans 0.83% 0.76% 0.86%
Non-performing assets to total assets 1.30% 1.52% 1.95%
Number of full service banking offices at end of year 86 86 67
Regulatory capital ratios - FF Bank:
Tangible capital 4.44% 3.68% 4.37%
Core capital 4.94% 4.27% 4.37%
Risk-based capital 10.55% 8.36% 7.60%
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FIRSTROCK BANCORP, INC.
<TABLE>
<CAPTION>
At Or For The Nine Months
Ended September 30, At or For The
(Unaudited) Fiscal Year Ended June 30,
--------------------------- -------------------------------
1994 1993 1994 1993
---------- ---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Selected financial condition data:
Total assets $ 407,955 $ 406,664 $ 409,496 $ 414,912
Mortgage-related securities 50,836 50,912 55,030 54,233
Loans receivable, including loans held for sale 246,434 229,630 239,774 236,195
Deposits 302,483 297,170 301,590 294,192
Borrowings 38,574 19,719 32,166 21,019
Stockholders' equity 48,576 47,676 48,215 46,419
Common shares outstanding 2,388,171 2,512,750 2,387,642 2,512,750
Book value per share $ 20.34 $ 18.97 $ 20.19 $ 18.47
Tangible book value per share $ 20.34 $ 18.97 $ 20.19 $ 18.47
Selected operating information:
Interest income $ 19,075 $ 20,010 $ 25,728 $ 27,236
Interest expense 8,549 9,716 11,853 13,909
---------- ---------- ---------- ----------
Net interest income 10,526 10,294 13,875 13,327
Provision for losses on loans 215 263 322 381
---------- ---------- ---------- ----------
Net interest income after provisions for losses on loans 10,311 10,031 13,553 12,946
Non-interest income 5,486 5,418 7,502 7,069
Non-interest expense 9,881 10,019 13,352 13,186
---------- ---------- ---------- ----------
Net income before income taxes and accounting change 5,916 5,430 7,703 6,829
Income taxes 2,258 2,084 2,940 2,618
---------- ---------- ---------- ----------
Net income before accounting change 3,658 3,346 4,763 4,211
Cumulative effect of a change in accounting principle -- -- -- --
---------- ---------- ---------- ----------
Net income $ 3,658 $ 3,346 $ 4,763 $ 4,211
========== ========== ========== ==========
Earnings per share:
Primary:
Income before change in accounting principle $ 1.45 $ 1.25 $ 1.86 N/A
Cumulative effect of a change in accounting principle $ -- $ -- $ -- N/A
Net income $ 1.45 $ 1.25 $ 1.86 N/A
Fully diluted:
Income before change in accounting principle $ 1.44 $ 1.24 $ 1.85 N/A
Cumulative effect of a change in accounting principle $ -- $ -- $ -- N/A
Net income $ 1.44 $ 1.24 $ 1.85 N/A
Weighted average common equivalent shares:
Primary 2,527 2,680 2,556 N/A
Fully diluted 2,549 2,701 2,574 N/A
Dividends per share $ -- $ -- $ -- N/A
Key ratios and other data:
Return on average assets 1.23% 1.09% 1.17% 1.05%
Return on average equity 10.20% 9.55% 10.07% 10.31%
Average equity to average assets 12.11% 11.42% 11.66% 10.20%
Dividend payout ratio -- -- -- --
Net interest margin 3.87% 3.68% 3.73% 3.65%
Non-performing loans to loans held for investment 0.54% 1.28% 0.68% 1.21%
Non-performing assets to total assets 0.75% 1.02% 0.78% 1.02%
Number of full service banking offices at end of period 6 6 6 6
Regulatory capital ratios - First Federal:
Tangible capital 10.31% 9.65% 10.19% 9.15%
Core capital 10.31% 9.65% 10.19% 9.15%
Risk-based capital 19.97% 20.05% 20.61% 19.17%
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FIRSTROCK BANCORP, INC. -- CONTINUED
<TABLE>
<CAPTION>
At Or For The Fiscal Year Ended June 30,
-------------------------------------------------
1992 1991 1990
---------- -------- ---------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Selected financial condition data:
Total assets $ 371,869 $ 392,593 $ 423,918
Mortgage-related securities 52,521 59,605 63,209
Loans receivable, including loans held for sale 221,701 252,235 280,613
Deposits 291,227 307,492 346,455
Borrowings 27,335 36,049 40,641
Stockholders' equity 24,647 22,080 18,279
Common shares outstanding N/A N/A N/A
Book value per share N/A N/A N/A
Tangible book value per share N/A N/A N/A
Selected operating information:
Interest income $ 30,753 $ 35,809 $ 38,569
Interest expense 19,341 24,976 28,778
---------- ---------- ----------
Net interest income 11,412 10,833 9,791
Provision for losses on loans 2,044 670 381
---------- ---------- ----------
Net interest income after provisions for losses on loans 9,368 10,163 9,410
Non-interest income 6,289 7,443 5,147
Non-interest expense 12,950 11,529 11,690
---------- ---------- ----------
Net income before income taxes and accounting change 2,707 6,077 2,867
Income taxes 1,140 2,276 1,199
---------- ---------- ----------
Net income before accounting change 1,567 3,801 1,668
Cumulative effect of a change in accounting principle 1,000 -- --
---------- ---------- ----------
Net income $ 2,567 $ 3,801 $ 1,668
========== ========== ==========
Earnings per share:
Primary:
Income before change in accounting principle N/A N/A N/A
Cumulative effect of a change in accounting principle N/A N/A N/A
Net income N/A N/A N/A
Fully diluted:
Income before change in accounting principle N/A N/A N/A
Cumulative effect of a change in accounting principle N/A N/A N/A
Net income N/A N/A N/A
Weighted average common equivalent shares:
Primary N/A N/A N/A
Fully diluted N/A N/A N/A
Dividends per share N/A N/A N/A
Key ratios and other data:
Return on average assets 0.66% 0.95% 0.39%
Return on average equity 10.91% 18.53% 9.65%
Average equity to average assets 6.06% 5.12% 4.02%
Dividend payout ratio N/A N/A N/A
Net interest margin 3.24% 2.96% 2.48%
Non-performing loans to loans held for investment 1.29% 1.06% 0.93%
Non-performing assets to total assets 2.30% 2.41% 2.48%
Number of full service banking offices at end of period 6 6 7
Regulatory capital ratios - First Federal:
Tangible capital 6.64% 5.70% 4.33%
Core capital 6.64% 6.20% 4.33%
Risk-based capital 13.26% 11.10% 8.04%
</TABLE>
N/A - Not applicable since FirstRock was formed in October, 1992 upon the
conversion of First Federal from mutual to stock form.
<PAGE>
SELECTED UNAUDITED PRO-FORMA CONDENSED COMBINED FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
<TABLE>
<CAPTION>
At Or For The Nine Months At Or For The
Ended September 30, Year Ended December 31,
---------------------------------------------------------
1994 1993 1993 1992
---------- ---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Selected financial condition data:
Total assets $5,458,554 $5,138,207 $5,183,279 $4,323,198
Mortgage-related securities 1,551,318 1,367,341 1,379,973 1,355,822
Loans receivable, including loans held for sale 3,380,062 3,066,305 3,162,278 2,446,912
Core deposit intangibles and goodwill 28,059 33,004 31,392 23,278
Deposits 4,403,932 4,387,100 4,352,110 3,500,304
Borrowings 629,719 343,755 470,764 482,967
Stockholders' equity 310,031 268,754 282,050 240,514
Common shares outstanding (A) 28,840,895 27,918,180 27,727,953 27,624,528
Book value per share $ 10.75 $ 9.63 $ 10.17 $ 8.71
Tangible book value per share $ 9.78 $ 8.44 $ 9.04 $ 7.86
Selected operating information (B)(D):
Interest income $ 281,884 $ 274,604 $ 365,851 $ 324,107
Interest expense 150,116 153,582 201,587 195,805
---------- ---------- ---------- ----------
Net interest income 131,768 121,022 164,264 128,302
Provision for losses on loans 5,093 8,087 10,541 14,232
---------- ---------- ---------- ----------
Net interest income after provisions for losses on loans 126,675 112,935 153,723 114,070
Unrealized loss on impairment of mortgage-related securities (9,000) -- -- --
Non-interest income 31,905 33,063 45,223 39,278
Non-interest expense 90,518 89,820 119,156 101,897
---------- ---------- ---------- ----------
Net income before income taxes 59,062 56,178 79,790 51,451
Income taxes 21,849 20,789 29,812 18,808
---------- ---------- ---------- ----------
Net income from continuing operations $ 37,213 $ 35,389 $ 49,978 $ 32,643
========== ========== ========== ==========
Earnings per share (C):
Primary $ 1.25 $ 1.25 $ 1.75 $ 1.17
Fully diluted $ 1.25 $ 1.22 $ 1.73 $ 1.14
Weighted average common equivalent shares (A):
Primary 29,706 28,372 28,545 27,931
Fully diluted 29,801 29,928 28,833 28,324
Dividends per share $ 0.30 $ 0.25 $ 0.35 $ 0.22
Key ratios and other data:
Return on average assets 0.93% 0.95% 1.00% 0.81%
Return on average equity 16.27% 18.53% 19.21% 14.77%
Average equity to average assets 5.70% 5.12% 5.19% 5.51%
Dividend payout ratio 24.18% 20.44% 20.32% 19.22%
Net interest margin 3.45% 3.42% 3.43% 3.38%
Non-accrual loans to total loans 0.30% 0.33% 0.31% 0.73%
Non-performing assets to total assets 0.59% 0.38% 0.35% 0.79%
Number of full service banking offices at end of period 130 123 123 100
</TABLE>
SELECTED UNAUDITED PRO-FORMA CONDENSED COMBINED FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC. -- CONTINUED
<TABLE>
<CAPTION>
At Or For The Year Ended December 31,
-------------------------------------
1991 1990 1989
---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Selected financial condition data:
Total assets $3,591,871 $3,534,586 $2,880,613
Mortgage-related securities 946,254 628,690 225,265
Loans receivable, including loans held for sale 2,185,616 2,400,935 2,237,430
Core deposit intangibles and goodwill 20,388 23,178 5,505
Deposits 3,226,872 3,190,706 2,444,689
Borrowings 104,578 96,400 217,894
Stockholders' equity 189,182 171,656 155,360
Common shares outstanding (A) 23,038,404 22,978,604 22,915,604
Book value per share $ 8.21 $ 7.47 $ 6.78
Tangible book value per share $ 7.33 $ 6.46 $ 6.54
Selected operating information (B)(D):
Interest income $ 330,834 $ 327,950 $ 274,459
Interest expense 223,090 229,724 190,837
---------- ---------- ----------
Net interest income 107,744 98,226 83,622
Provision for losses on loans 20,377 16,714 18,687
---------- ---------- ----------
Net interest income after provisions for losses on loans 87,367 81,512 64,935
Unrealized loss on impairment of mortgage-related securities -- -- --
Non-interest income 40,620 38,826 37,536
Non-interest expense 94,345 88,369 76,558
---------- ---------- ----------
Net income before income taxes 33,642 31,969 25,913
Income taxes 13,549 12,146 9,869
---------- ---------- ----------
Net income from continuing operations $ 20,093 $ 19,823 $ 16,044
========== ========== ==========
Earnings per share (C):
Primary $ 0.73 $ 0.72 $ 0.58
Fully diluted $ 0.72 $ 0.72 $ 0.58
Weighted average common equivalent shares (A):
Primary 27,547 22,439 27,405
Fully diluted 27,859 27,470 27,436
Dividends per share $ 0.16 $ 0.16 $ 0.15
Key ratios and other data:
Return on average assets 0.56% 0.59% 0.57%
Return on average equity 11.17% 12.13% 10.68%
Average equity to average assets 4.99% 4.85% 5.32%
Dividend payout ratio 22.33% 22.32% 25.83%
Net interest margin 3.17% 3.09% 3.21%
Non-accrual loans to total loans 0.87% 0.79% 0.87%
Non-performing assets to total assets 1.41% 1.62% 2.03%
Number of full service banking offices at end of period 92 92 74
</TABLE>
<PAGE>
Notes To Selected Pro Forma Condensed Combined Financial Information (*)
(A) Includes an adjustment reflecting the par value of FFC Stock
to be issued in conjunction with the Acquisition, at an assumed Exchange Ratio
based upon an FFC Share Value of $15.625 (the closing price of FFC Stock on
January 17, 1995) and consideration equal to $27.10 per share of FirstRock
Stock.
(B) Acquisition charges and transaction costs are not reflected in
the Pro Forma Condensed Combined Statements of Income since these items do not
have a continuing impact on FFC.
(C) Pro Forma Combined Earnings Per Share data have been
determined based upon i) the combined historical net income of FFC and FirstRock
and ii) the combined historical weighted average common equivalent shares of FFC
and FirstRock, as adjusted for those shares of FFC Stock estimated to be issued
in conjunction with the Acquisition.
(D) FFC anticipates that, subsequent to the Acquisition,
significant cost savings will be realized through consolidation of operations,
including data processing and certain administrative office functions. The
extent of the cost savings realized and the timing of these savings may vary
from management expectations and may be negatively influenced by economic
conditions, inflation and regulatory actions. No adjustments have been included
in the Pro Forma Condensed Combined Financial Information for anticipated cost
reductions.
(*) See "Notes to Pro Forma Combined Financial Information" for more complete
information.
<PAGE>
RECENT DEVELOPMENTS
FFC. The following tables set forth certain recent consolidated
financial and other data of FFC at the dates and for the periods indicated.
Consolidated financial data for all periods presented except for the year ended
December 31, 1993 are unaudited. In the opinion of FFC's management, all
adjustments (which consist only of normal recurring accruals) necessary for a
fair presentation have been included.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Data:
Interest income................................... $ 93,334 $ 85,529 $356,143 $340,123
Interest expense.................................. (50,963) (45,868) (192,530) (189,734)
-------- -------- --------- --------
Net interest income............................... 42,371 39,661 163,613 150,389
Provisions for losses on loans.................... (1,662) (2,395) (6,540) (10,219)
Unrealized loss on impairment of mort-
gage related securities....................... -- -- (9,000) --
Non-interest income............................... 8,382 10,076 34,801 37,721
Non-interest expense.............................. (26,103) (26,003) (106,740) (105,804)
Income taxes...................................... (8,218) (8,167) (27,809) (26,872)
--------- --------- --------- --------
Net income.................................... $ 14,770 $ 13,172 $ 48,325 $ 45,215
======== ======== ======== ========
Earnings per share:
Primary....................................... $ 0.58 $ 0.54 $ 1.91 $ 1.88
Fully diluted................................. $ 0.58 $ 0.54 $ 1.91 $ 1.86
Dividends paid.................................... $ 0.10 $ 0.10 $ 0.40 $ 0.35
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1994 1994 1993
------------ ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Financial Condition Data:
Total assets........................................... $5,103,706 $5,051,199 $4,773,783
Loans receivable, includes loans held for sale......... 3,225,363 3,133,628 2,922,504
Mortgage-related securities............................ 1,455,301 1,500,482 1,324,943
Investment securities.................................. 160,089 163,406 275,696
Deposits............................................... $4,064,166 $4,101,449 $4,050,520
Borrowings............................................. 682,063 591,145 438,598
Stockholders' equity................................... $ 277,955 $ 265,930 $ 233,835
Shares outstanding..................................... 24,803,842 24,698,852 23,586,827
Stockholders' equity per share......................... $ 11.21 $ 10.77 $ 9.91
Asset Quality Data:
Non-accrual loans to total loans....................... 0.28% 0.28% 0.28%
Non-performing assets to total assets.................. 0.56% 0.58% 0.32%
Loan loss allowances to total loans.................... 0.70% 0.74% 0.80%
Loan loss allowances to non-accrual loans.............. 246.21% 261.13% 282.35%
Regulatory Capital Data (FF Bank):
Tangible capital....................................... 5.86% 5.54% 5.19%
Core capital........................................... 6.26% 5.98% 5.76%
Risk-based capital..................................... 13.77% 13.18% 12.52%
</TABLE>
<PAGE>
FFC reported net income of $14.8 million for the fourth quarter of
1994 compared to $13.2 million for the fourth quarter of 1993, or an increase of
12.1%. The annualized returns on average assets and average stockholders' equity
were 1.16% and 21.66%, respectively, for the fourth quarter of 1994 as compared
to 1.11% and 23.14%, respectively, for the same period in 1993. For the year
ended December 31, 1994, FFC reported net income of $48.3 million, up from the
$45.2 million reported for 1993. Fully diluted earnings per share improved to
$0.58 and $1.91, respectively, for the quarter and year ended December 31, 1994
from the $0.54 and $1.86, respectively, reported for the 1993 periods.
The major factors comprising the increase in earnings for the fourth
quarter of 1994, as compared to 1993 were (i) an increase of $2.7 million in net
interest income, (ii) a decrease of $700,000 in provisions for loan losses which
were offset by a $2.2 million decrease in gains realized on the sale of mortgage
loans held for sale and securities available for sale. FFC's net interest margin
was 3.50% for the quarters ended December 31, 1994 and 1993. At the same time,
FFC's earning asset ratio (representing interest-earning assets as a percentage
of interest-bearing liabilities) increased to 103.1% for the fourth quarter of
1994 as compared to 101.9% for the 1993 period, primarily as a result of
accumulated earnings over the past year. The 1994 decreases in provision for
losses on loans reflects (i) a lower level of delinquencies in 1994 and (ii) a
change in the mix of the loan portfolio due to the growth in the residential
mortgage loan portfolio, which traditionally displays a lower charge-off
experience than consumer-related loans or commercial real estate loans. The
stability in non-interest expense relates primarily to effective cost controls
and reductions in staff as a result of reduced mortgage lending volumes in 1994.
Gains on sales of mortgage loans held for sale decreased in 1994 due to a
significantly lower level of refinancings as a result of higher interest rates.
Earnings for fiscal 1994 were negatively affected by a pre-tax $9.0
million impairment loss recorded relative to two private issue subordinated
mortgage-backed securities which (i) transferred to non-performing status during
1994 and (ii) were also downgraded to below investment grade by a national
independent rating agency. As a result of the impairment loss, the returns on
average assets and average stockholders' equity decreased to 0.97% and 18.50%,
respectively, for fiscal 1994 from 0.98% and 21.23%, respectively, for fiscal
1993. Non-accrual loans remained stable at 0.28% of total loans receivable at
December 31, 1994, September 30, 1994 and December 31, 1993. As a result of the
impairment of mortgage-backed securities noted above, non-performing assets
increased to 0.56% of total assets at December 31, 1994 from the 0.32% reported
at the end of 1993. The non-performing asset ratio at the end of 1994 did,
however, improve from the 0.58% reported at September 30, 1994.
At December 31, 1994, FFC had total assets of $5.1 billion, deposits
of $4.1 million and stockholders' equity of $278.0 million. The increase in
total assets from the $4.8 billion at the end of 1993 relates to (i) the
acquisition of NorthLand Bank of Wisconsin, SSB in 1994 and (ii) loan
originations and purchases of adjustable rate agency guaranteed securities,
primarily collateralized mortgage obligations, funded by an increase in Federal
Home Loan Bank advances and other borrowings of $183.5 million in 1994.
FF Bank's regulatory capital ratios continued to increase from those
levels reported at September 30, 1994 and December 31, 1993. At the end of 1994,
FF Bank's regulatory capital was in excess of all fully phased-in OTS regulatory
capital requirements. In November 1994, the OTS completed scheduled examinations
of FFC and FF Bank and, based upon the written reports of the examiners to the
Boards of Directors of FFC and FF Bank, no material corrective action was
required.
<PAGE>
FirstRock. The following tables set forth certain recent
consolidated financial and other data of FirstRock at the dates and for the
periods indicated. Consolidated financial data at December 31, 1994, and
September 30, 1994 and for the three-month and six-month periods ended December
31, 1994 and 1993 are unaudited. In the opinion of FirstRock's management, all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation have been included.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1994 1993 1994 1993
--------- ------- ---------- ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Data:
Interest income................................... $ 6,646 $ 6,579 $13,162 $13,169
Interest expense.................................. (3,143) (3,045) (6,094) (6,255)
-------- -------- -------- --------
Net interest income............................... 3,503 3,534 7,068 6,914
Provisions for losses on loans.................... (69) (88) (138) (176)
Non-interest income............................... 2,007 1,837 3,712 3,721
Non-interest expense.............................. (3,746) (3,358) (6,942) (6,667)
Income taxes...................................... (649) (736) (1,417) (1,450)
-------- -------- -------- --------
Net income.................................... $ 1,046 $ 1,189 $ 2,283 $ 2,342
======= ======= ======== ========
Earnings per share:
Primary....................................... $ 0.41 $ 0.47 $ 0.90 $ 0.91
Fully diluted................................. $ 0.41 $ 0.47 $ 0.90 $ 0.91
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, June 30,
1994 1994 1994
------------ ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Financial Condition Data:
Total assets........................................... $ 398,118 $ 407,955 $ 409,496
Loans receivable....................................... 239,426 236,764 222,652
Mortgage-related securities............................ 47,190 51,421 55,030
Investment securities.................................. 65,124 68,243 67,337
Deposits............................................... $ 302,522 $ 302,483 $ 301,590
Borrowed funds......................................... 26,383 38,574 32,166
Stockholders' equity................................... $ 49,353 $ 48,576 $ 48,215
Shares outstanding..................................... 2,415,671 2,388,171 2,387,642
Stockholders' equity per share......................... $ 20.43 $ 20.34 $ 20.19
Asset Quality Data:
Non-accrual loans to total loans....................... 0.60% 0.54% 0.68%
Non-performing assets to total assets.................. 0.65% 0.75% 0.78%
Loan loss allowances to loans held for investment..... 1.14% 1.16% 1.24%
Loan loss allowances to non-performing loans........... 189.88% 212.25% 183.54%
Regulatory Capital Data (First Federal):
Tangible capital....................................... 10.93% 10.31% 10.19%
Core capital........................................... 10.93% 10.31% 10.19%
Risk-based capital..................................... 21.29% 19.97% 20.61%
</TABLE>
<PAGE>
FirstRock reported net income of $1.05 million for the second quarter
ended December 31, 1994 compared to $1.19 million for the comparable quarter in
1993, or a decrease of 12.0%. For the six months ended December 31, 1994, net
income was $2.28 million, compared to $2.34 million for the six months ended
December 31, 1993, a decrease of $59,000, or 2.5%. Earnings for the quarter and
the six months ended December 31, 1994 were negatively affected by pretax
adjustments totaling $709,000. A provision for losses on real estate owned of
$600,000 was recorded to increase the allowances for losses on foreclosed
properties. In addition, interest income was reduced by $109,000 related to
interest accruals on loans 90 days or more delinquent. As a result of these
adjustments, the annualized returns on average assets and average stockholders'
equity decreased to 1.05% and 8.55%, respectively, for the quarter ended
December 31, 1994, as compared to 1.14% and 10.10%, respectively, for the same
period in 1993. For the six months ended December 31, 1994, these ratios were
1.15% and 9.38%, respectively, compared to 1.13% and 9.95%, respectively, for
the same period in 1993. Fully diluted earnings per share also decreased to
$0.41 and $0.90, respectively, for the quarter and six months ended December 31,
1994, from $0.47 and $0.91, respectively, reported for the same periods in 1993.
The major factors comprising the decrease in earnings for the second
quarter ended December 31, 1994, as compared to 1993 were i) net interest income
before provisions for loan losses decreased $31,000 and ii) non-interest expense
increased $388,000, which were partially offset by an increase of $170,000 in
non-interest income. The net interest margin decreased primarily related to the
$109,000 adjustment for interest accruals on loans delinquent 90 days or more.
FirstRock's net interest margin for the quarter increased to 3.82%, from the
3.69% for the same period in 1993. Without the one time charge, the net interest
margin would have increased to 3.94%. Non-interest income increased as a result
of an increase in loan fees and servicing income of $275,000 and a gain on the
sale of real estate held for sale of $115,000, which were partially offset by a
decrease in gains on sales of loans of $380,000. In addition, in the prior
year's quarter, there was an unrealized loss on a trading account of $120,000.
Loan servicing income increased as a result of the servicing portfolio
increasing to $1.1 billion from $967 million at June 30, 1994 and $766 million
at December 31, 1993. Gains on sales of loans decreased in 1994 due to a
significantly lower level of loan originations and purchases as a result of
higher interest rates. Non-interest expense increased primarily as a result of
the $600,000 provision for losses on real estate owned that was recorded to
conform FirstRock's allowances for losses on foreclosed properties to that of
First Financial. Compensation and benefits increased $281,000, while other
expense decreased by $488,000, which is primarily due to a decrease in costs
associated with servicing certain mortgage-backed security pools and other
operating expenses.
At December 31, 1994, FirstRock had total assets of $398.1 million,
deposits of $302.5 million, and stockholders' equity of $49.4 million. The
decrease in total assets from $409.5 million at June 30, 1994 related primarily
to the decrease in mortgage loans held for sale due to the lower level of loan
production as a result of higher interest rates.
First Federal's regulatory capital ratios continue to increase from
those levels reported at September 30, 1994 and June 30, 1994, and exceed all
OTS regulatory capital requirements.
<PAGE>
CERTAIN CONSIDERATIONS
Holders of FirstRock Stock should consider, among other matters, the
following factors in connection with a decision to vote upon the Acquisition,
consummation of which will result in holders of FirstRock Stock receiving the
Purchase Price in shares of FFC Stock.
Holders of FFC Stock should consider, among other matters, the
following factors in connection with a decision to vote upon the issuance of up
to 5,500,000 shares of FFC Stock to FirstRock stockholders in the event such
issuance constitutes 20% or more of the then outstanding shares of FFC.
Issuance of FFC Stock
The consideration payable to holders of FirstRock Stock consists of
shares of FFC Stock together with cash in lieu of fractional shares. See "The
Acquisition -- The Exchange Ratio." The description of FFC Stock is contained
below. See "Description of FFC Stock and Comparison of Stockholder Rights." As
of the FFC Record Date, there were 24,814,842 shares of FFC Stock issued and
outstanding, held by 3,927 holders of record. Assuming an Exchange Ratio of
1.7344 (based on the closing price of FFC Stock on January 17, 1995 of 15.625
and consideration of $27.10 per share of FirstRock Stock) an additional
4,189,740 shares of FFC Stock would be issued in connection with the Acquisition
to 477 holders of record of FirstRock Stock. Such shares issued would constitute
14.4% of the issued and outstanding shares of FFC Stock following consummation
of the Acquisition.
Legislative and Regulatory Developments
General. FFC is subject to regulation as a thrift holding company and
FF Bank, as a federally chartered savings bank, is subject to extensive
regulation by the OTS and the FDIC. The OTS and FDIC have adopted numerous
regulations and undertaken other regulatory initiatives, and further regulations
and initiatives are anticipated. In December 1991, the Federal Deposit Insurance
Corporation Improvements Act of 1991 ("FDICIA") was enacted. Among other
significant effects, FDICIA provides for regulatory seizure in the event of
certain declines in the tangible capital levels of insured institutions,
requires risk-based deposit insurance premiums based on assessment of the risks
posed by an institution's assets, and imposes liability on holding companies for
regulatory capital deficiencies of insured institution subsidiaries under
certain circumstances. This legislation, or any future legislation, could have
an adverse effect on FFC.
Regulatory Capital. Regulatory capital requirements have increased
significantly in recent years and additional proposed increases are now pending.
Further increases are possible in future periods. Current OTS regulatory capital
requirements for federally insured thrift institutions include a tangible
capital to tangible assets ratio, a core capital to adjusted tangible assets
ratio and a risk-based capital measurement based upon assets weighted for their
inherent risk. As of September 30, 1994, FF Bank exceeded all currently
applicable OTS regulatory capital requirements on a fully phased-in basis.
The OTS has added an interest rate risk calculation such that an
institution with a measured interest rate risk exposure greater than specified
levels must deduct an interest rate risk component when calculating the OTS
risk-based capital requirement. At September 30, 1994, FF Bank was not required
to deduct any such interest rate risk component under the OTS regulations. The
OTS has adopted another final rule, which was effective on March 4, 1994,
disallowing any new core deposit intangibles, acquired after the rule's
effective date, from counting as regulatory capital. Core deposit intangibles
acquired prior to the effective date have been grandfathered for purposes of
this rule. The OTS also has proposed to increase the minimum required core
capital ratio from the current 3.00% to a range of 4.00% to 5.00% for all but
the most healthy financial institutions.
<PAGE>
In September 1990, FF Bank entered into an agreement with the FDIC to
meet certain capital requirements in order to obtain FDIC approval for FF Bank's
RTC acquisitions. These requirements were removed by the FDIC in July 1992 based
upon FF Bank's intent to be a "well-capitalized" institution by January 1, 1993,
within the meaning of the FDIC's deposit insurance assessment regulations, as
calculated under applicable OTS capital measurements. In order to be considered
well capitalized, FF Bank must maintain a total risk-based capital ratio of 10%
or more, a Tier 1 risk-based capital ratio of 6% or more and a leverage ratio of
5% or more. FF Bank has exceeded each of these requirements at all times since
January 1, 1993.
At September 30, 1994, FF Bank had total risk-based capital of
13.18%, Tier 1 risk-based capital of 12.33% and a leverage ratio of 5.98%,
thereby constituting a well-capitalized financial institution. After giving
effect to the Bank Merger, on a pro forma basis at September 30, 1994, FF Bank
would have had a total risk-based capital ratio of 13.75%, a Tier 1 risk-based
capital ratio of 12.95% and a leverage ratio of 6.33%. There can be no assurance
that FF Bank will meet future regulatory capital requirements.
Potentially Adverse Impact of Interest Rate Changes
FFC's results of operations depend to a large extent on the level of
net interest income, which is the difference between interest income from
interest-earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. The difference
between FFC's interest-rate sensitive assets and interest-rate sensitive
liabilities for a specified time-frame is referred to as "gap." FFC's positive
one-year gap at September 30, 1994 was $185,000 or 0.01% of total assets. In a
rising interest-rate environment, a positive gap position indicates that FFC
will generally experience a greater increase in the yield of its
interest-earning assets than in the cost of its interest-bearing liabilities.
Conversely, in a falling interest-rate environment, the yield on FFC's
interest-earning assets will generally decrease to a greater extent than the
cost of its interest-bearing liabilities. FFC seeks to maintain a balanced gap
position in order to limit its exposure to interest-rate risk. FFC's current gap
policy is to operate within a range of 10% positive gap to 10% negative gap.
Nonetheless, significant fluctuations in interest rates may adversely impact the
repricing characteristics of FFC's assets and liabilities and, therefore, net
interest income.
For further information regarding FFC's asset/liability management
and related matters, see the description of FFC's Business and FFC's
Management's Discussion and Analysis incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
Interests of Certain Persons in the Acquisition
Certain members of FirstRock's management and the FirstRock Board may
be deemed to have certain interests in the Acquisition that are in addition to
their interests as stockholders generally. Under the Acquisition Agreement, FFC
has funded a severance and retention pool for FirstRock employees, which certain
executive officers of FirstRock may participate with respect to the retention
portion. In addition, FirstRock and First Federal maintain employment agreements
and/or change in control agreements with the executive officers which provide
for certain payments and benefits in the event such officers are terminated in
the context of a change in control such as the Acquisition. In addition, the
Acquisition will result in the acceleration of vesting of certain option and
stock awards under FirstRock's employee stock award plans. Finally, the
Acquisition Agreement provides that FFC will indemnify the FirstRock Board and
management against certain liabilities following the Acquisition. See "The
Acquisition -- Interests of Certain Persons in the Acquisition."
<PAGE>
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Each outstanding share of FirstRock Stock entitles its owner to one
vote on all matters as to which a vote is taken at the FirstRock Meeting. As
provided in FirstRock's Certificate of Incorporation, recordholders of FirstRock
Stock who beneficially own in excess of 10% of the outstanding shares of
FirstRock Stock (the "Limit") are not entitled to any vote in respect to the
shares held in excess of the Limit. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as persons acting in concert with,
such person or entity. The Board of Directors of FirstRock has fixed the close
of business on January 18, 1995 as the record date for the FirstRock Meeting
(the "FirstRock Record Date). Only the holders of record of the outstanding
shares of FirstRock Stock on the FirstRock Record Date will be entitled to
notice of and to vote at the Special Meeting and any adjournments thereof. On
the FirstRock Record Date, 2,415,671 shares of FirstRock Stock were outstanding
and entitled to vote.
If the enclosed form of proxy is properly executed and returned to
FirstRock in time to be voted at the FirstRock Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted FOR approval of the Acquisition
Agreement and the Acquisition and FOR such other business as may properly come
before the meeting or any postponements or adjournments thereof, including,
without limitation, a motion to adjourn the FirstRock Meeting if necessary to
permit the further solicitation of proxies. Except for procedural matters
incident to the conduct of the FirstRock Meeting, FirstRock does not know of any
matters other than those described in the Notice of its Special Meeting that are
to come before the FirstRock Meeting. If any other matters are properly brought
before the FirstRock Meeting, the persons named in the accompanying proxy will
vote the shares represented by the proxies on such matters as determined by a
majority of FirstRock's Board of Directors. The presence, in person or by proxy,
of at least a majority of the total number of outstanding shares of FirstRock
Stock is necessary to constitute a quorum at the FirstRock Meeting. The
affirmative vote of the holders of a majority of the shares of FirstRock Stock
issued, outstanding and entitled to vote at the FirstRock Meeting is required to
approve the Acquisition Agreement and the Acquisition. All shares of FirstRock
Stock entitled to vote at the FirstRock Meeting whether voting "No" or
abstaining from voting will have the same effect as a negative vote.
Accordingly, an abstention from voting on the Acquisition Agreement and broker
non-votes will have the same effect as negative votes. This Joint Proxy
Statement/Prospectus is first being mailed to FirstRock and FFC stockholders on
or about January ____, 1995.
Each outstanding share of FFC Stock entitles its owner to one vote on
all matters at which vote is taken at the FFC Meeting. The close of business on
January 18, 1995 has been fixed by the Board of Directors of FFC as the record
date for determination of stockholders entitled to vote at the FFC Meeting (the
"FFC Record Date"). The number of shares of FFC Stock outstanding on the FFC
Record Date was 24,814,842. The presence, in person or by proxy, of at least a
majority of the shares entitled to vote is necessary to constitute a quorum at
the FFC Meeting, and the affirmative vote of the holders of a majority of the
votes cast is necessary to approve the issuance of up to 5,500,000 shares of FFC
Stock if such issuance constitutes 20% or more of the then outstanding shares of
FFC stock. Thus, abstentions will have no effect as to matters considered at the
FFC Meeting. Broker nonvotes will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the FFC
Meeting, but will not be counted as votes cast.
The accompanying proxy sent to FFC stockholders is being solicited on
behalf of the Board of Directors of FFC and the accompanying proxy sent to
FirstRock stockholders is being solicited on behalf of the Board of Directors of
FirstRock. All proxies in the enclosed form of proxy that are properly executed
and returned to FFC or FirstRock, as the case may be, prior to commencement of
voting at the applicable Stockholders Meeting will be voted at the applicable
meeting or any adjournments or postponements thereof in accordance with the
instructions thereon. All executed but unmarked FirstRock proxies will be voted
FOR approval and adoption of the Acquisition Agreement and FOR adjournment of
the meeting if necessary to permit further solicitation of proxies. Executed but
unmarked FFC proxies will be voted FOR the issuance of up to 5,500,000 shares of
FFC Stock and FOR adjournment of the FFC Meeting if necessary to permit further
solicitation of proxies.
<PAGE>
The presence of a stockholder at the Stockholders Meeting will not
automatically revoke such stockholder's proxy. A stockholder may, however,
revoke a proxy at any time prior to its exercise by delivering to FirstRock, or
FFC as the case may be, a duly executed proxy bearing a later date, or by
attending the Stockholders Meeting and voting in person, or by filing a written
notice of revocation with the Secretary of FirstRock or FFC. If you are a
stockholder whose shares are not registered in your own name, you will need
appropriate documentation from your recordholder to vote personally at the
Stockholders Meeting.
The cost of soliciting proxies from FirstRock stockholders or FFC
shareholders will be borne by FirstRock or FFC respectively. In addition to the
solicitation of proxies by mail, FirstRock, through its proxy solicitor,
directors, officers and regular employees, may also solicit proxies personally
or by telephone or telegraph. FirstRock will also request persons, firms, and
corporations holding shares in their names or in the name of their nominees,
which are beneficially owned by others, to send proxy material to and obtain
proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses. FirstRock has retained Morrow & Co., Inc. as its proxy
solicitor to assist in solicitation of proxies at a fee of $3,500, plus
reimbursement of certain out-of-pocket expenses.
On the FirstRock Record Date, FirstRock's directors and executive
officers, including their affiliates, in the aggregate beneficially owned
288,584 shares, or 11.95%, of the issued and outstanding shares of FirstRock
Stock entitled to vote at the FirstRock Meeting. An unrelated corporate trustee
of the FirstRock ESOP owned 185,150 shares of FirstRock Stock on the FirstRock
Record Date (constituting approximately 7.66% of the outstanding shares of
FirstRock Stock). Pursuant to the terms of the ESOP, shares held by the ESOP
that are allocated to the accounts of the ESOP participants shall be voted by
the ESOP trustee as directed by such participants. Shares held by the ESOP that
are currently unallocated shall be voted by the ESOP trustee proportionate to
the directions given by ESOP participants with respect to allocated shares so
long as such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974 as amended ("ERISA") . None of FFC or its
directors or executive officers, including their affiliates, owned any FirstRock
Stock as of the FirstRock Record Date.
As of the FFC Record Date, FFC's directors and executive officers,
including their affiliates, beneficially owned 6.1% of the outstanding shares
entitled to vote at the FFC Meeting. None of FirstRock or FirstRock's directors
or executive officers, including their affiliates, owned any FFC Stock as of the
FFC Record Date.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE STOCKHOLDERS MEETING, PLEASE
SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
THE ACQUISITION
The information under this Section is qualified in its entirety by
reference to the full text of the Acquisition Agreement, including each of the
exhibits thereto, the material features of which are described in this Joint
Proxy Statement/Prospectus, and copies of which will be provided promptly
without charge upon written or oral request addressed to Donna K. Beilfuss,
FirstRock Bancorp, Inc., 612 North Main Street, Rockford, Illinois 61103,
Telephone (815) 987-3500 or Kenneth F. Csinicsek, Senior Vice President of
Investor Relations, First Financial Corporation, 1305 Main Street, Stevens
Point, Wisconsin 54481, Telephone (715) 345-4602.
The Parties
The Acquisition Agreement was entered into by and among FFC,
Acquisition Co. and FirstRock.
FFC. FFC is a Wisconsin corporation and the financial institution
holding company for FF Bank. At September 30, 1994, FFC had total assets of
$5.05 billion, deposits of $4.10 billion, and stockholders' equity of $265.9
million. See "Summary -- The Parties." Additional information regarding FFC is
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
Acquisition Co. Acquisition Co. is a Delaware corporation which was
formed on October 25, 1994 to facilitate the Acquisition, and is a wholly-owned
subsidiary of FFC.
FirstRock. FirstRock is a Delaware corporation and the financial
institution holding company for First Federal. At September 30, 1994, FirstRock
had total assets of $408.0 million, deposits of $302.5 million and stockholders'
equity of $48.6 million. See "Summary -- The Parties." Additional information
regarding FirstRock is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
Background of the Acquisition
Originally chartered in 1934, First Federal converted to a stock form
of organization and formed FirstRock as a holding company in 1992. The period
subsequent to the conversion has been one of continued and substantial change in
the banking industry, characterized by heightened regulatory scrutiny and
intensifying competition and consolidation. Management of FirstRock and the
FirstRock Board focused on these changes and sought to best position FirstRock
and its stockholders.
In January 1994, FirstRock informally engaged The Chicago Corporation
("TCC") as an investment banking firm to render general financial advisory
services as well as merger and acquisition services to FirstRock. Although
FirstRock was not actively soliciting offers to sell FirstRock, the investment
advisor was instructed to present any indications of interest to senior
management in order for the FirstRock Board and senior management to evaluate
all methods of enhancing shareholder value.
Subsequently senior management also began exploring various avenues
of achieving its continuing goal of enhancing shareholder value. As part of this
process, FirstRock's senior management contacted Northwest Illinois Bancorp,
Freeport, Illinois, ("Northwest"), a bank holding company, in February of 1994
to discuss the possibility of pursuing a possible business combination with
FirstRock. These discussions led the senior management of both entities and
their respective financial advisors to explore the possibility of a "merger of
equals" with the bank and savings bank remaining as separate subsidiaries under
a common holding company. On March 15, 1994, the FirstRock Board met to consider
this possible transaction with TCC making a financial presentation that
included, among other things, a discussion of the financial terms of the
proposed transaction, a description of the historical market prices for both
FirstRock common stock and
<PAGE>
Northwest common stock, a comparison of the proposed transaction to numerous
other recent transactions involving midwestern bank and thrift mergers, and
comparative shareholder rates of return. The FirstRock Board thereafter
authorized senior management to continue exploring the possible merger of equals
concept. Subsequent to the March 15, 1994 Board meeting, Northwest conducted a
preliminary due diligence examination of FirstRock and FirstRock conducted a
preliminary due diligence examination of Northwest.
On April 7, 1994, FirstRock's Board met to consider the preliminary
proposal and authorized senior management to continue negotiations of a possible
merger with Northwest. In the interim, FirstRock and Northwest continued to
conduct arms-length negotiations with respect to the merger agreement. On April
9, 1994, the FirstRock Board considered and approved, by unanimous vote, the
merger, the merger agreement, the stock option agreement and the related
transactions. At the special meeting, presentations were made by both TCC and
FirstRock's legal counsel. Also at the special meeting, members of FirstRock's
senior management, together with its legal and financial advisors, reviewed with
the FirstRock Board, among other things, the background of the proposed
transaction, the potential benefits of the transaction, including the strategic
rationale for the transaction, a summary of their preliminary due diligence
findings, financial and valuation analyses of the transaction and the terms of
the proposed agreements. Additionally, TCC delivered to the FirstRock Board its
oral opinion to the effect that, as of such date, the exchange ratio was fair,
from a financial point of view, to FirstRock stockholders.
Following the execution of the merger agreement, FirstRock and
Northwest determined that based on changing financial conditions it would be
difficult to attain the financial goals necessary to make the merger successful
and, as a result, on May 14, 1994, the Boards of FirstRock and Northwest deemed
it advisable and in the best interests of their respective stockholders to
terminate the merger agreement.
In June of 1994 the FirstRock Board formally engaged TCC to provide
financial advisory and investment banking services, including a review of
FirstRock's strategic alternatives. From June of 1994 until October 1994,
FirstRock received several additional preliminary indications of interest from
other financial institutions concerning the possibility of pursuing a merger
with or acquisition of FirstRock. FirstRock entered into formal discussions with
two of the companies which submitted preliminary indications of interest. Both
companies were located in the mid-west; one was a super-regional multi-billion
dollar bank holding company and the other was an approximately $1 billion
savings and loan holding company. The proposals from both companies involved
merger transactions pursuant to which each share of FirstRock's common stock
would be exchanged for common stock of the acquiror, having an approximate
market value at the time of $28, in the case of the bank holding company and
$28.75, in the case of the savings and loan holding company, per share of
FirstRock common stock.
FirstRock's Board and its financial advisor had numerous special
meetings throughout August and September to review both preliminary indications
of interest. For both preliminary indications of interest, the FirstRock board,
working with TCC, addressed each of the following: the terms and conditions
thereof; the proposed exchange ratios and possible adjustment provisions; the
financial implications of a merger with each company, including a review of
earnings per share; dividend per share and book value per share on a pro forma
and stand alone basis; business background of each company; market price and
market history of both companies; comparative shareholder rates of return; pro
forma price of First Rock's stock for the preceding twelve months; potential
dilutive effects on FirstRock shareholders; and, comparable operating
characteristics and market data for each company. In addition, management of
FirstRock had meetings with senior management of both companies.
The FirstRock Board concluded that the bank holding company
preliminary indication of interest afforded FirstRock shareholders greater
potential shareholder value for a variety of reasons. These reasons included the
proven financial strength of the bank holding company, as well as the experience
of the bank holding company in successfully merging many other financial
institutions into its existing corporate structure. Additionally, the Board
compared the fixed price structure of the bank holding company's preliminary
indication of interest with the floating exchange ratio within narrow collars
and the fixed ratios outside such collars of the savings and loan holding
company's preliminary indication of interest. Further, the Board looked at the
potential greater impact of FirstRock's financial performance on the savings and
loan holding
<PAGE>
company, given its relative size, as compared to the impact of its performance
on the bank holding company, given its relative size.
On September 14, 1994, the FirstRock Board authorized the Chief
Executive Officer to continue to negotiate with the bank holding company on the
terms of the preliminary indication of interest. In addition, for the reasons
stated above, FirstRock's Board determined that a transaction with the savings
and loan holding company would not be in the best interests of FirstRock
shareholders. Both companies were subsequently informed of FirstRock's decision.
FirstRock and the bank holding company continued to negotiate following the
September 14, 1994 Board meeting. On or about October 3, 1994, the bank holding
company terminated negotiations and withdrew its indication of interest without
notifying FirstRock as to its specific reasons for such action.
Following the termination of negotiations with the bank holding
company, the FirstRock Board determined to continue considering its strategic
alternatives, including remaining independent or merging with another financial
institution. During the period following FirstRock's receipt of the two
preliminary indications of interest discussed above, the market for financial
institution stocks generally declined, partially in response to continued
increasing interest rates. In October 1994, subsequent to the bank holding
company negotiations, FirstRock received a preliminary indication of interest
from FFC. On October 13, 1994, a special meeting of the FirstRock Board was held
to consider the FFC preliminary indication of interest and the Board authorized
senior management to pursue further discussions with FFC. On October 17, 1994,
FirstRock's Board convened a special meeting to consider further FFC's
indication of interest. The Board authorized senior management to continue
negotiations with FFC and to clarify the proposed terms of the indication of
interest.
Negotiations between FirstRock and FFC continued over the next
several days and the FirstRock Board met again on October 21, 1994 to review and
consider the terms of FFC's indication of interest. TCC made a presentation
regarding the proposal, including a review of the specific terms and conditions
of the indication of interest. The presentation addressed each of the following:
the terms and conditions of the proposed Acquisition, including its tax-free
nature, the proposed Exchange Ratio and possible adjustment provisions, the
financial implications of the proposed Acquisition as related to FirstRock's
earnings per share, book value and dividend distribution, a description of the
historical market prices for both FirstRock Stock and FFC Stock, a comparison of
the financial and market performance of FirstRock to that of a comparable group
of savings institutions as well as a comparison of the financial and market
performance of FFC to that of a comparable group of savings institutions, a
comparison of the FFC proposal to numerous other recent transactions involving
midwestern thrift mergers, and a comparative shareholder rate of return. The
FirstRock Board expressed its preliminary view that the FFC proposal, as it then
existed, appeared to be in the best interests of FirstRock and its shareholders
and therefore the Board authorized senior management to pursue further
discussions with FFC to arrive at a definitive agreement.
During this period, both parties conducted due diligence examinations
as well as continued to negotiate the terms and conditions of the proposed
Acquisition. On October 26, 1994, the FirstRock Board held a special meeting,
with representatives of TCC and legal counsel in attendance, to consider the FFC
offer. The FirstRock Board was presented with the proposed Acquisition Agreement
and Warrant Agreement setting forth the terms and the financial and legal
implications of the proposal and the provisions of the Acquisition Agreement and
the Warrant Agreement. At such time, TCC issued a written opinion as to the
fairness of the consideration, from a financial point of view, to be paid to
holders of FirstRock Stock. Following discussion, the FirstRock Board
unanimously approved the Acquisition Agreement and the Warrant Agreement and
authorized their execution. Subsequently, the Acquisition Agreement and the
Warrant Agreement were executed.
Reasons for the Acquisition
The FirstRock Board, with the assistance of outside financial and
legal advisors, has evaluated the financial, legal and market conditions bearing
on the decision to recommend the Acquisition. The terms of the Acquisition,
including the price, are a result of arm's-length negotiations between
representatives of FirstRock and FFC. In reaching its determination that the
Agreements are fair to, and in the best interest of,
<PAGE>
FirstRock and holders of FirstRock Stock, the FirstRock Board considered a
number of factors, both from a short and long term perspective, including,
without limitation, the following:
(i) the FirstRock Board's familiarity with and review of FirstRock's
business, financial condition, results of operations, management,
prospects, including, but not limited to, its potential growth,
development, productivity and profitability, and the business risks
associated therewith;
(ii) the current and prospective environment in which FirstRock
operates, including national and local economic conditions, the
competitive environment for financial institutions generally, the
increased regulatory burden on financial institutions generally and
the trend toward consolidation in the financial services industry,
particularly in FirstRock's market area;
(iii) information concerning the business, operations, asset quality
and prospects of FFC, including recent acquisitions and the recent
performance of FFC Stock;
(iv) the oral and written presentations and written opinion of
FirstRock's financial advisor, TCC, that the consideration was fair
to the holders of FirstRock Stock from a financial point of view;
(v) FirstRock Board's belief that the terms of the proposed form of
Acquisition Agreement with FFC were attractive in that it would allow
FirstRock shareholders to receive stock in the Acquisition thus
permitting shareholders to defer any tax liability associated with
the increase in the value of their stock as a result of the
Acquisition and to become shareholders in FFC, an institution with
strong operations, management, earnings performance and stock
liquidity;
(vi) the expectation that FFC will continue to provide quality
service to the community and customers served by FirstRock and the
expectation that FFC would be likely to maintain most of FirstRock's
Rockford branch offices given FFC has no branch locations in
Rockford;
(vii) the compatibility of the respective business and management
philosophies of FirstRock and FFC, particularly given that FFC is a
thrift holding company;
(viii) the addition of products and services, as well as greater
convenience through additional locations, which will be afforded
FirstRock customers as a result of the Acquisition; and
(ix) the alternative strategic courses available to FirstRock,
including remaining independent or exploring other indications of
interest from other potential acquirors.
The importance of these factors relative to one another cannot
precisely be determined or stated herein. The FirstRock Board unanimously
approved the Acquisition Agreement and unanimously recommends that FirstRock
stockholders vote for approval of the Acquisition Agreement.
Purpose and Effects of the Acquisition
The purpose of the transactions contemplated by the Acquisition
Agreement is to enable FFC to acquire the assets and business of First Federal,
which FFC intends thereafter to merge with FF Bank and operate as branches of FF
Bank. As a result of the Acquisition, FFC will expand its branch system into the
Rockford, Illinois metropolitan market area. By acquiring First Federal branch
offices, FFC estimates that, based on September 30, 1994 data, it will assume
approximately $302.5 million of deposits held in over 75,000 accounts.
First Federal currently operates six full service banking offices,
five in Winnebago County and one in Ogle County, and also operates loan
origination offices in Rockford, suburban Chicago and suburban Des Moines, Iowa.
At September 30, 1994, FirstRock reported total assets of $408.0 million,
deposits of $302.5 million and stockholders' equity of $48.6 million. Proforma
net income for the combined company for the nine months ended September 30, 1994
and the years ended December 31, 1993, 1992 and 1991 would have been $37.2
million, $50.0 million, $32.6 million, and $20.1 million, respectively, compared
to FFC's
<PAGE>
reported net income during such periods of $33.6 million, $45.2 million, $28.4
million and $18.5 million, respectively. See "Pro Forma Condensed Combined
Financial Statements."
Following the Acquisition (based on September 30, 1994 deposit
levels), FF Bank will operate 130 full service banking offices throughout
Wisconsin and Illinois with $4.40 billion in deposits. As a result of the
Acquisition, FF Bank will expand its geographical coverage into Rockford, the
second largest city in Illinois by population. FF Bank intends to utilize its
market presence in Rockford to support and enhance FF Bank's deposit and
residential lending activities. FF Bank believes that the current capacity of
First Federal offices will facilitate deposit growth on a cost efficient basis.
FF Bank also intends to utilize First Federal's offices to originate loans.
Consistent with FFC's efforts to diversify income sources beyond net
interest income, FFC intends to expand the financial services offered through
the acquired First Federal banking offices, including a wider array of credit
cards, annuity products, insurance and discount brokerage services.
FFC also expects to achieve significant reductions in the current
operating expenses of First Federal upon the consolidation of First Federal's
operations into FF Bank. FFC intends to discontinue First Federal's in-house
data processing system and to reduce administrative and support personnel,
including senior management and directors. Most "back office" functions such as
marketing, accounting, loan processing, deposit administration and other support
services will be transferred to FFC's headquarters in Stevens Point, Wisconsin.
First Federal's loan portfolio consists primarily of single-family
residential loans secured by properties located in Illinois. Total classified
assets of First Federal at September 30, 1994 were $5.3 million, or 1.31% of its
total assets. At that date, non-performing assets totaled $3.1 million, or 0.75%
of total assets, and were comprised of $1.3 million of loans 90 days or more
past due and $1.8 million of real estate owned. Of total loans 90 days or more
delinquent at September 30, 1994, First Federal established an allowance for
loan losses of $2.7 million. FFC expects that the Acquisition will have little
effect on FFC's asset quality ratios since non-performing asset ratios of FF
Bank and First Federal are similar. See "FirstRock Bancorp, Inc. --
Delinquencies and Classified Assets."
Structure
The Acquisition will be effected by the merger of Acquisition Co.
with and into FirstRock (the "Merger"). Upon the Merger, all of the issued and
outstanding shares of FirstRock Stock will convert into the right to receive a
prorata number of shares of FFC Stock plus cash in lieu of fractional shares.
See "-Exchange Ratio." Immediately following the Merger, FFC intends to effect
the merger of First Federal with and into FF Bank (the "Bank Merger"). It is
anticipated that following the Bank Merger, the surviving corporation of the
Merger of Acquisition Co. and FirstRock will be dissolved and liquidated into
FFC.
Notwithstanding any provision of the Acquisition Agreement to the
contrary, FFC may elect to modify the structure of the transactions described
above so long as (i) there are no material adverse federal or state income tax
consequences to FirstRock and its stockholders or to holders of FirstRock
options as a result of such modification; (ii) the consideration to be paid to
holders of FirstRock Stock under the Acquisition Agreement is not thereby
reduced in amount because of such modification; and (iii) such modification will
not be likely to delay materially or jeopardize receipt of any required
regulatory approvals.
Exchange Ratio
Upon the Acquisition, each issued and outstanding share of FirstRock
Stock will convert into the right to receive and be exchangeable for such number
of shares (rounded to the nearest ten thousandth of a share) of FFC Stock as
shall be equal to (i) Twenty-Seven Dollars and Ten Cents ($27.10) divided by
(ii) the average of closing trade prices ("Average Price") of FFC Stock on The
Nasdaq Stock Market's National Market System during the last fifteen trading
days on which reportable sales of FFC Stock took place immediately prior to, but
not including, the third business day prior to the Closing, except that cash
will be paid in lieu of fractional shares. If the Average Price of FFC Stock
exceeds $20.00, FirstRock may terminate
<PAGE>
the transaction unless the Board of Directors of FFC elects in its sole
discretion to complete the Acquisition at a fixed Exchange Ratio of 1.355 shares
of FFC Stock for each FirstRock Share. If the Average Price is less than $13.25,
FFC may terminate the transaction unless the Board of Directors of FirstRock
elects in its sole discretion to complete the Acquisition at a fixed Exchange
Ratio of 2.045 shares of FFC Stock for each share of FirstRock Stock. See "--
Termination and Amendment of the Acquisition Agreement."
All options to purchase FirstRock Stock granted under FirstRock's
stock option plans which are outstanding at the Closing shall be converted
automatically into options to purchase FFC Stock. The number of shares of FFC
Stock subject to each new option shall be the product of the FirstRock Stock
subject to the original option and the Exchange Ratio rounded down to the
nearest share; and the exercise price per share of FFC Stock under the new
option shall equal the exercise price per share of FirstRock Stock under the
original option divided by the Exchange Ratio rounded up to the nearest cent.
Delivery of FFC Stock
The conversion of FirstRock Stock into the right to receive FFC Stock
will occur automatically upon the Acquisition. Pursuant to the Acquisition
Agreement, on or after the Closing, FFC will cause Norwest Bank Minnesota, N.A.
to be duly appointed as independent exchange agent (the "Agent") to effect the
exchange with respect to each holder of shares of FirstRock Stock who surrenders
the certificate or certificates representing such shares to the Agent, together
with a duly executed letter of transmittal.
The Agent will mail a letter of transmittal as soon as practical
after the Closing to each holder of record of FirstRock Stock immediately prior
to the Closing. FFC will cause to be deposited with the Agent a certificate or
certificates representing the aggregate amount of the FFC Stock to be paid to
FirstRock stockholders together with cash in immediately available funds
representing cash in lieu of fractional shares. No fractional shares of FFC
Stock will be issued. FFC shall not be obligated, however, to deliver or cause
to be delivered the Purchase Price to which any holder of FirstRock Stock would
otherwise be entitled as a result of the Acquisition until such holder
surrenders the certificate or certificates representing the shares of FirstRock
Stock for exchange, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by FFC. No
interest will be paid or accrued to FirstRock's stockholders on amounts received
by the Agent from FFC.
The Acquisition Agreement provides that after the Closing and until
FirstRock Stock certificates are exchanged, no dividend payable with respect to
FFC Stock will be paid to the holders of certificates previously representing
FirstRock Stock. Upon exchange of such certificates, however, there will be paid
the amount (without interest and less the amount of taxes, if any, which may
have been imposed or paid thereon) of all dividends, if any, which shall have
been declared and paid after the Closing with respect to the shares of FFC Stock
issuable under the Acquisition Agreement in respect to the FirstRock Stock
represented by such surrendered certificates.
If any exchange for shares of FirstRock Stock is to be made in a name
other than that in which the certificate for such shares surrendered in exchange
is registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall either (i) pay to
the Agent any transfer or other taxes required by reason of the exchange to a
person other than the registered holder of the certificate surrendered or (ii)
establish to the satisfaction of the Agent that such tax has been paid or is not
payable. After the close of business on the business day immediately preceding
the Closing Date, there shall be no transfers on the stock transfer books of
FirstRock of the shares of FirstRock Stock outstanding immediately prior to the
Closing Date and any such shares presented to the Agent after the Closing Date
shall be canceled and exchanged for the prorata number of shares of FFC Stock.
Any certificate made available to the Agent that remains unclaimed by
FirstRock's stockholders 120 days after the Closing Date shall be returned to
FFC, upon demand, and any stockholder of FirstRock who has not exchanged shares
of FirstRock Stock in accordance with the Acquisition Agreement prior to that
time shall thereafter look to FFC for the exchange of such shares, subject to
<PAGE>
applicable escheat laws. Notwithstanding the foregoing, FFC shall not be liable
to any stockholder of FirstRock for any amount paid to a public official
pursuant to applicable abandoned property laws.
STOCK CERTIFICATES FOR SHARES OF FIRSTROCK STOCK SHOULD NOT BE
RETURNED TO FIRSTROCK WITH THE ENCLOSED PROXY AND SHOULD ONLY BE FORWARDED TO
THE AGENT AFTER RECEIPT OF THE LETTER OF TRANSMITTAL. Shares for the Acquisition
Based on the closing price of FFC Stock of $15.625 at January 17,
1995, the aggregate consideration to be paid to holders of FirstRock Stock would
be approximately 4,189,740 shares of FFC Stock. See "-- Exchange Ratio."
Regulatory Approvals
The transactions contemplated by the Acquisition Agreement have
received the approval of the OTS. No other regulatory approvals are required to
effect the Acquisition pursuant to the Acquisition Agreement.
See "-- Conditions to the Acquisition."
Conditions to the Acquisition
The respective obligations of the parties under the Acquisition
Agreement to consummate the Acquisition are subject to the satisfaction of the
following conditions: (i) the Acquisition Agreement shall have been approved by
the requisite vote of FirstRock shareholders; (ii) required regulatory and other
consents and approvals for the Acquisition and Bank Merger shall have been
received and shall not contain any materially adverse or burdensome conditions
and shall not have been withdrawn or stayed; (iii) FFC shall have received a tax
opinion from Hogan & Hartson, L.L.P. that the transaction will qualify as a
tax-free reorganization under the Code; (iv) the Registration Statement shall
remain effective and shall not be subject to a stop order or any threatened stop
order; (v) FFC shall have obtained any material Blue Sky approvals required for
the issuance of FFC Stock; (vi) consummation of the transaction shall not
violate any judicial decree or governmental order; (vii) each of the parties
shall have received from its outside accountants a letter to the effect that
nothing has come to the accountant's attention which would prevent the
transaction from being accounted for as a pooling-of-interests; (viii) the
schedules to the Acquisition Agreement, and each of the parties' due diligence
investigation of the other, do not reveal a breach of warranty or representation
which, after notice, has not been sufficiently responded to by the breaching
party; and (ix) FFC and FirstRock shall have used best efforts to cause to exist
no contractual or other obligation to provide for or pay to any director,
officer or employee any "excess parachute payments" within the meaning of
Section 280G of the Code.
The obligations of FFC and Acquisition Co. under the Acquisition
Agreement to consummate the Acquisition are subject further to the satisfaction
of the following conditions: (i) if the number of shares of FFC Stock issued
pursuant to the Exchange Ratio equals 20% or more of the then outstanding shares
of FFC Stock, such issuance is approved by the FFC stockholders; (ii) the
representations and warranties of FirstRock contained in the Acquisition
Agreement shall be true, correct and complete in all material respects when made
on the date of the Acquisition Agreement and when made at Closing; (iii) all
financial statements and schedules furnished by FirstRock are accurate in all
material respects; (iv) FirstRock's defined net worth at Closing is no less than
that reported at September 30, 1994; (v) all documents delivered by FirstRock
are reasonably satisfactory to FFC; (vi) as of the Closing, there shall have
been no material adverse change in FirstRock; (vii) FFC shall have received
specified accounting and legal opinions and officer's certificates; (viii)
except as previously disclosed, no materially adverse litigation shall exist or
be threatened; (ix) specified agreements shall have been entered into by
FirstRock's affiliates; (x) the Bank Merger Agreement shall have been approved
by First Federal and all the conditions thereof shall have been fulfilled; and
(xi) no obligation shall exist for the payment of any "excess parachute
payments" as defined in Section 280G of the Code.
The obligations of FirstRock under the Acquisition Agreement to
consummate the Acquisition are subject further to the satisfaction of the
following conditions: (i) the representations and warranties of FFC contained in
the Acquisition Agreement shall be true, correct and complete in all material
respects when made on the date of the Acquisition Agreement and when made at
Closing; (ii) all financial statements furnished
<PAGE>
by FFC shall be accurate in all material respects; (iii) as of the Closing,
there shall have been no material adverse change in FFC; (iv) FirstRock shall
have received specific legal opinions and certificates from officers of FFC; (v)
all consents and approvals required by the Acquisition Agreement or otherwise
necessary to consummate the Acquisition shall have been obtained and shall be
reasonably satisfactory to FirstRock; and (vi) no litigation shall exist or be
threatened which would have or is likely to have a materially adverse effect on
FFC or which relates to the validity or propriety of the Acquisition.
Conduct of Business Pending the Acquisition
The Acquisition Agreement provides that generally, during the period
from the date of the Acquisition Agreement through Closing, each of FirstRock
and its subsidiaries will (i) conduct its business in the usual and ordinary
course and maintain books and records in accordance with generally accepted
accounting principles; (ii) conduct its business consistent with sound banking
practices; (iii) maintain adequate loan loss allowances; (iv) remain in good
standing with all regulatory authorities and preserve all existing banking
locations; (v) use best efforts to retain the services of present employees and
officers so that the goodwill and business relationships with customers and
others are not materially adversely affected; (vi) maintain adequate insurance
coverage; and (vii) consult with FFC prior to acquiring real property except in
the ordinary course of business.
In addition, FirstRock has agreed that generally, except as otherwise
approved by FFC, each of FirstRock and its subsidiaries will not (i) amend its
certificate of incorporation, charter or bylaws; (ii) except in connection with
the exercise of options or the Warrant, issue or sell any shares of its capital
stock or rights exchangeable or convertible into such capital stock, increase or
reduce the number of shares of capital stock, or repurchase any of its capital
stock; (iii) pay or declare any dividends; (iv) adopt or modify any employee
benefit plan, compensation plan or employment agreement except as specified in
the Acquisition Agreement; (v) mortgage, pledge, transfer, or lease any of its
assets, incur any obligations, liabilities or indebtedness, transfer any rights,
or otherwise enter into any transaction other than in the ordinary course of
business; (vi) enter into any material transaction, contract or agreement,
except as specified in the Acquisition Agreement, in excess of $25,000; (vii)
except as provided in the Acquisition Agreement, take any action which
constitutes a breach or default under such Agreement or which is likely to delay
or jeopardize receipt of approvals required thereby, which would preclude the
transaction from qualifying for pooling-of-interests accounting treatment or
which would cause any of the other conditions set forth in such Agreement to
fail; (viii) make or commit to any commercial business, commercial real estate
or construction loan over $150,000; (ix) purchase any bulk loan servicing
portfolio; or (x) make any payment to any officer or employee which is not
deductible under Sections 162(a)(1) or 404 of the Code.
The Acquisition Agreement also provides generally that neither
FirstRock nor any of its subsidiaries shall authorize or permit any of its or
their directors, officers, advisors, or other representatives to, directly or
indirectly, solicit or encourage or enter into any discussions or negotiations
with any third party concerning any offer or possible proposal regarding the
sale of FirstRock Stock or a merger, consolidation, sale of substantial assets
or other similar transaction involving FirstRock or First Federal. However,
nothing in the Acquisition Agreement shall prohibit the FirstRock Board of
Directors from taking, or permitting any officers, employees or agents of
FirstRock to take any action legally required for the discharge of the fiduciary
duties of the Board of Directors of FirstRock.
Interests of Certain Persons in the Acquisition
FirstRock and First Federal provide various employee benefit plans
and other arrangements for directors, officers and other employees. FirstRock
and First Federal also have entered into certain contractual arrangements with
their executive officers that provide certain of their executive officers with
benefits of which FirstRock shareholders should be aware in considering the
recommendation of the Board of Directors with respect to the Acquisition. Due to
the existence of these arrangements, certain members of FirstRock's Board of
Directors and management of FirstRock and/or First Federal might have a personal
interest in the Acquisition that might not be identical to the interests of
non-affiliated stockholders. The description of these arrangements set forth
under this caption is qualified in its entirety by reference to the agreements
and plans
<PAGE>
described under this caption, the full text of which are incorporated by
reference in the Registration Statement or copies of which will be provided
promptly without charge upon written or oral request addressed to Donna K.
Beilfuss, FirstRock Bancorp, Inc., 612 North Main Street, Rockford, Illinois
61103, telephone (815) 987- 3500. See "Incorporation of Certain Documents by
Reference."
Contractual Arrangements. First Federal and FirstRock have entered
into employment agreements with President and CEO David A. Ingrassia and
Chairman Daniel J. Nicholas. These employment agreements, effective as of June
28, 1993, have three-year terms and were renewed for an additional year on June
28, 1994. If the Acquisition is not consummated by June 28, 1995, it is
anticipated that the employment agreements will be renewed for an additional
year. The employment agreements provide for base salary for each of the
respective executives and in addition to base salary, the agreements provide
for, among other things, disability pay, participation in stock benefit plans
and other fringe benefits applicable to executive personnel. If termination of
employment follows a change in control of First Federal or FirstRock, as defined
in the employment agreement, each of Mssrs. Ingrassia and Nicholas, or in the
event of his death, his beneficiary, would be entitled to a payment equal to the
greater of (i) the payments due under the remaining term of the employment
agreement or (ii) three times his average annual compensation including bonuses
and contributions to employee benefit plans on his behalf over the three years
preceding his termination of employment. Also, First Federal and FirstRock would
also continue each executive's life, health and disability coverage for the
remaining unexpired term of the employment agreements to the extent allowed by
the plans or policies maintained by FirstRock from time to time. Payments to
each executive under First Federal's employment agreements will be guaranteed by
FirstRock in the event that payments or benefits are not paid by First Federal.
It is estimated that the employment agreements would provide for payments to
Mssrs. Ingrassia and Nicholas of approximately $959,000 and $589,000,
respectively, in the event of termination of employment following the
Acquisition during the term of the employment agreement. FFC does not anticipate
continuing the employment of Mssrs. Ingrassia and Nicholas following the
Acquisition.
First Federal and FirstRock have also entered into Change-In-Control
Agreements ("CICA") with executive officers Donna K. Beilfuss, William H.
Leefers, Robert M. Singer, and Creston B. Harris effective as of June 28, 1993.
Each CICA provides for a two-year term and each was renewed for an additional
year on June 28, 1994. If the Acquisition is not consummated by June 28, 1995,
it is anticipated that each CICA will be renewed for an additional year. Each
CICA provides that at any time following a change in control of First Federal or
FirstRock, if First Federal or FirstRock terminates the officer's employment for
any reason other than cause, or if the officer terminates his/her employment
following the officer's demotion, loss of title, office or significant
authority, a reduction in the officer's compensation, or relocation of the
officer's principal place of employment, the officer, or in the event of his/her
death, the officer's beneficiary, would be entitled to receive a payment equal
to two times the officer's current annual compensation including bonuses and
contributions to employee benefit plans on his/her behalf. First Federal and
FirstRock would also continue the officer's life, health and disability coverage
for the remaining unexpired term of the CICA to the extent allowed by the plans
or policies maintained by FirstRock from to time. Payments to the officer under
First Federal's CICAs are guaranteed by FirstRock in the event that payments or
benefits are not paid by First Federal. In the event of termination of
employment following the Acquisition, it is estimated that the CICAs would
provide for payments to Ms. Beilfuss and Mssrs. Leefers, Singer and Harris of
approximately $310,000, $303,000, $232,000 and $208,000, respectively.
Employee Bonuses. Under the Acquisition Agreement, FirstRock has
agreed not to pay, nor to permit any of its subsidiaries to pay, any bonuses to
any officer or employee except a prorated bonus pursuant to First Federal's
existing Incentive Compensation Plans for the period between July 1, 1994 and
December 31, 1994. As of the date of this Joint Proxy Statement/Prospectus, the
bonuses payable to the executive officers under such Plans cannot be calculated,
but are not expected to exceed, in the aggregate, the sum of $200,000.
Severance and Retention Pool. Under the Acquisition Agreement, FFC
will make available as of the Closing an aggregate of $1.2 million which will be
used for (i) payment of severance benefits to eligible employees (other than
those who are covered by employment agreements) whose employment is not
continued after the data processing system conversion date following the
Closing; and (ii) payment of retention bonuses
<PAGE>
to certain employees of First Federal. The Acquisition Agreement further
provides that FirstRock shall develop a severance and retention pool program to
administer the $1.2 million pool, which program shall be reasonably satisfactory
to FFC. As of the date of this Joint Proxy Statement/Prospectus, the payments to
the executive officers from such pool cannot be calculated, but are not expected
to exceed, in the aggregate, the sum of $9,000.
Retirement Plan. First Federal maintains a noncontributory defined
benefit plan ("Retirement Plan") under the Financial Institutions Retirement
Fund, a multiple employer pension fund, for the benefit of eligible employees of
First Federal. Employees of First Federal who have attained the age of 21 and
have completed one year of service (in which 1,000 hours are worked) are
eligible to participate in the Retirement Plan.
Under the Acquisition Agreement, FFC, except as provided in the
Acquisition Agreement or as permitted by the Code or the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), shall not
amend the Retirement Plan to reduce or eliminate any accrued benefits, whether
or not vested, any early retirement benefits or retirement-type subsidies, or
any optional benefits, to the extent such benefits existed under the Retirement
Plan prior to Closing. It is FFC's intention to combine the Retirement Plan into
an existing FFC defined benefit plan. Notwithstanding such combination of Plans,
under the Acquisition Agreement FFC shall deem the single sum payment optional
form of benefit and early retirement benefit known as "Rule of 80" as protected
benefits and shall make such benefits available to participants in the First
Federal Retirement Plan for 90 days after Closing.
The estimated annual standard form of benefit that would be payable
under the Retirement Plan at age 65, based upon current accrued benefits, to
executive officers Nicholas, Ingrassia, Beilfuss, Leefers, Singer and Harris
would be $115,000, $99,000, $13,000, $15,000, $38,000, and $23,000 respectively.
The benefit amount for Mr. Ingrassia also includes the amount payable under the
Benefit Equalization Plan.
Benefit Equalization Plan. First Federal maintains a non-qualified
Benefit Equalization Plan ("BEP") to provide benefits to certain employees which
would have been payable under the regulations governing First Federal's
Retirement Plan but for the limitations placed on the amount of benefits payable
to such employees by certain sections of the Code. Pursuant to the BEP, which
currently only covers Mr. Ingrassia, participants are generally entitled to
receive, upon retirement, death, or other termination of employment, an amount
equal to the annual benefit that would have been otherwise payable under the
First Federal's Retirement Plan.
First Federal ESOP. In 1992, First Federal established the First
Federal Employee Stock Ownership Plan and Trust ("ESOP") for employees age 21 or
older who have at least 1,000 hours of employment. At the time of the ESOP's
inception, the ESOP borrowed $1.6 million from FirstRock and used the funds to
purchase 185,150 shares of FirstRock Stock issued pursuant to the conversion of
First Federal from a federally chartered mutual savings bank to a federally
chartered stock savings bank in 1992 (the "Conversion"). Collateral for the loan
is the common stock purchased by the ESOP. The loan is being repaid from First
Federal's contributions to the ESOP over a period of seven years.
Under the ESOP, First Federal makes a matching contribution in an
amount determined by the Board each year based on employee salary reduction
contributions to the First Federal 401(k) Savings Plan. First Federal also makes
additional contributions to the ESOP. The contributions made by First Federal to
the ESOP are used to repay the ESOP loan. Shares purchased by the ESOP with the
proceeds of the ESOP loan are held in a suspense account and are released to the
ESOP participants as the loan is repaid. Shares released from the suspense
account attributable to First Federal's matching contributions with respect to
the 401(k) Savings Plan will be allocated in an amount equal to the matching
contributions made to participant accounts. Shares released from the suspense
account attributable to contributions by First Federal necessary for the ESOP to
make the balance of its annual principal and interest payments and discretionary
contributions to the ESOP are allocated among ESOP participants proportionately
on the basis of compensation for the year the contribution is made. Benefits
generally become 100% vested after five years of credited service, and prior
<PAGE>
to the completion of five years of credited service, a participant who
terminates employment for reasons other than death, retirement (or early
retirement) or disability will not receive any benefit under the ESOP.
Forfeitures will be reallocated among remaining participating employees, on the
same basis as contributions. Benefits may be payable upon death, retirement,
early retirement, disability or separation from service.
As of June 30, 1994 and 1993, the executive officers of First Federal
had unvested shares (aggregated with prior allocations and rounded to the
nearest share) allocated under the ESOP as follows:
As of June 30,
Name 1994 1993
---- ---- ----
Daniel J. Nicholas 1,716 736
David A. Ingrassia 1,975 791
Donna K. Beilfuss 1,293 547
William H. Leefers 1,418 573
Robert M. Singer 986 420
Creston B. Harris 803 292
In accordance with the Acquisition Agreement, at Closing all account
balances under the ESOP shall be fully vested and nonforfeitable within the
meaning of Section 411 of the Code. Upon the Closing, FF Bank will be
substituted for First Federal as the ESOP plan sponsor. It is anticipated that
the ESOP will continue in existence following the Closing and that it will
invest primarily in FFC Stock.
RRP. First Federal has established the First Federal Savings Bank,
F.S.B. Recognition Plan and Trust ("RRP") as a method of providing employees in
key management positions with a proprietary interest in FirstRock in a manner
designed to encourage such key employees to remain with First Federal and/or
FirstRock. First Federal contributed funds to the RRP which enabled it to
acquire 105,800 shares of Common Stock following the Conversion.
The Compensation Committee of the Board of Directors of First Federal
administers the RRP. Under the RRP, awards ("Awards") can be granted to key
employees in the form of shares of FirstRock Stock held by the RRP. Key
employees of First Federal become vested, over a period of time, in the shares
of FirstRock Stock covered by the Award at a rate of 20% per year commencing one
year following grant of the Award. Awards will be 100% vested upon termination
of employment due to death, disability or retirement, or following a change in
the control of First Federal or FirstRock. Under the RRP, 26,450, 26,450, 6,612,
6,612, 6,612 and 6,612 shares covered by the RRP have been awarded to executive
officers Nicholas, Ingrassia, Beilfuss, Leefers, Singer and Harris,
respectively, a total of an additional 24,814 shares have been allocated to
other officers and employees of First Federal Bank and 1,638 shares will be
surrendered to or FFC. When shares become vested and are actually distributed in
accordance with the RRP, the participants also receive amounts equal to any
accrued dividends (if any) with respect thereto. In each of 1994 and 1993,
5,290, 5,290, 1,322, 1,322, 1,322 and 1,322 shares under such plan were
distributed to executive officers Nicholas, Ingrassia, Beilfuss, Leefers, Singer
and Harris, respectively. Prior to vesting, recipients of Awards may direct the
voting of all shares allocated to them. Earned shares are distributed to
recipients as soon as practical following the day on which they are earned.
Under the Acquisition Agreement and subject to the terms and conditions of the
RRP, all Awards shall be fully vested at Closing.
Stock Option Plans. The FirstRock Bancorp, Inc. 1992 Incentive Stock
Option Plan (the "Incentive Plan") was created to advance the interests of
FirstRock and its stockholders by providing key employees of FirstRock and First
Federal with an incentive to perform in a superior manner as well as to attract
people of experience and ability. The Incentive Plan is administered by the
Compensation Committee of FirstRock's Board of Directors. Officers and employees
of First Federal and FirstRock are eligible to receive, at no cost to them,
options and/or limited rights under the Incentive Plan. Directors who are not
employees of First Federal or of FirstRock are not eligible to receive options
or limited rights under the Incentive Plan.
<PAGE>
At the time of the Conversion, FirstRock reserved 198,375 shares for
issuance pursuant to the Incentive Plan. Of the shares reserved, FirstRock
granted options and limited rights to purchase an aggregate of 193,085 shares of
FirstRock Stock to its officers and employees at the initial public offering
price of $8.75 per share. Of these, options for 52,900, 52,900, 13,225, 13,225,
13,225 and 13,225 shares were granted to executive officers Nicholas, Ingrassia,
Beilfuss, Leefers, Singer and Harris, respectively. As of January 18, 1995, the
options granted to Mssrs. Nicholas and Ingrassia were fully vested. As of
January 18, 1995, 162,411 options remain outstanding under the Incentive Plan.
These options become exercisable on a cumulative basis in five equal annual
installments, except that in the event of a change in control all options and
limited rights are immediately exercisable. Each option granted under the
Incentive Plan expires upon the earlier of 10 years following the date of the
option or a limited time following the date the optionee ceases to be an
employee of First Federal or FirstRock, as described in the Incentive Plan. In
the event the grant of an option expires without exercise, such options become
eligible to be regranted. The limited rights, which may be exercised by an
optionee in the event of a change of control and which upon exercise entitle the
optionee to a cash payment equal to the appreciation in the underlying FirstRock
Stock over the exercise price, have been waived by all Incentive Plan optionees.
As of the FirstRock Record Date Mr. Ingrassia had exercised options under the
Incentive Plan with respect to 27,500 shares of FirstRock Stock.
Under the FirstRock Bancorp, Inc. 1992 Stock Option Plan for Outside
Directors (the "Directors' Plan"), each member of FirstRock's Board of Directors
who is a nonemployee of First Federal or FirstRock was granted a single
non-qualified stock option to purchase shares of FirstRock Stock. In the
aggregate, members of the Board of Directors have been granted options to
purchase 66,125 shares of the FirstRock Stock. Of these, options for 13,225
shares were granted to each of Burdette E. Anderson, Michael A. Gaffney, Walter
P. Lohse, Roger E. Lundstrom and C. Gordon Smith, with an exercise price of
$8.75 per share. Each option granted under the Directors' Plan expires upon the
earlier of 10 years following the date of the option or one year following the
date the optionee ceases to be a director. As of January 26, 1994, there were
39,675 shares outstanding pursuant to the Directors' Plan.
Under the Acquisition Agreement, all outstanding options to purchase
FirstRock Stock granted under FirstRock's stock option plans at Closing will
become fully vested (if not already vested) and shall be converted into options
to purchase FFC Stock. The number of shares of FFC Stock subject to each new
option shall be the product of the FirstRock Stock subject to the original
option and the Exchange Ratio rounded down to the nearest share; and the
exercise price per share of FFC Stock under the new option shall equal the
exercise price per share of FirstRock Stock under the original option divided by
the Exchange Ratio rounded up to the nearest cent.
* * *
Notwithstanding the various obligations of FirstRock and First Federal
in connection with the employment, change-in-control or other arrangements
described above, each of FirstRock, First Federal and the executive officers
have agreed that all severance and termination payments, benefits, acceleration
of benefit vesting and any other compensation to be paid in connection with the
transactions contemplated by the Acquisition Agreement shall not exceed the
level of payments and benefits which would constitute excess parachute payments
under Section 280G of the Code, giving effect to any obligations of FFC or any
of its subsidiaries.
<PAGE>
Opinion of Financial Advisor
The Chicago Corporation ("TCC") has acted as FirstRock's
financial advisor in connection with the Acquisition. Prior to the execution and
delivery of the Acquisition Agreement, on October 26, 1994, TCC rendered a
written opinion to FirstRock's Board of Directors that the purchase price in
connection with the Acquisition is fair to FirstRock's stockholders from a
financial point of view. Such opinion was reconfirmed in writing on January 25,
1995. FirstRock's Board of Directors did not provide TCC with instructions or
limitations for the purpose of preparing such opinion. The following summary of
TCC's opinion is qualified in its entirety by reference to the full text of the
opinion, setting forth the assumptions made and matters considered and certain
limitations on the review undertaken by TCC. The TCC opinion, which is attached
to this Joint Proxy Statement/Prospectus at Exhibit 1, is incorporated herein by
reference.
In rendering its opinion, TCC has relied on the accuracy,
completeness and fairness of presentation of all financial and other information
supplied or otherwise made available to it by FirstRock and FFC, and has not
independently verified such information or undertaken an independent evaluation
or appraisal of the assets or liabilities of FirstRock or FFC. FirstRock's
stockholders are urged to read the TCC fairness opinion in its entirety.
TCC is not an expert in the evaluation of allowances for loan
losses and has not made an independent evaluation of the adequacy of the
allowance for loan losses of FirstRock or FFC nor has it reviewed any individual
credit files. With respect to the financial forecasts furnished by FirstRock and
FFC, which include the estimates of cost savings and operating synergies
projected by FFC to result from the Acquisition and projections regarding
under-performing and non-performing assets, net charge-offs and adequacy of
reserves, TCC has assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of FirstRock or FFC's
management as to the expected future financial performance of FirstRock, FFC or
the combined entity, as the case may be.
In arriving at its opinion, TCC has, among other things:
(1) reviewed FirstRock's Annual Reports to Stockholders,
FirstRock's Annual Reports on Forms 10-K and related
financial information for each of the fiscal years
ended June 30, 1994, 1993 and 1992, and FirstRock's
Quarterly Report on Form 10-Q and related unaudited
financial information for the three months ended
September 30, 1994;
(2) reviewed FFC's Annual Reports to Stockholders, FFC's
Annual Reports on Forms 10-K and related financial
information for each of the three fiscal years ended
December 31, 1993, 1992, and 1991 and FFC's Quarterly
Report on Form 10-Q and related unaudited financial
information for the nine months ended September 30,
1994;
(3) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash
flow, assets and prospects of FirstRock and FFC,
furnished to TCC by FirstRock and FFC, respectively;
(4) conducted discussions with members of senior
management of FirstRock and FFC concerning their
respective businesses and prospects;
(5) reviewed the historical market prices and trading
activity for the shares of FirstRock Stock and the
shares of FFC Stock and compared them with that of
certain publicly traded companies which TCC deemed to
be relevant;
(6) compared the results of operations of FirstRock and
FFC with that of certain companies which TCC deemed
to be relevant;
<PAGE>
(7) compared the proposed financial terms of the
transaction contemplated by the Acquisition Agreement
with the financial terms of certain other mergers and
acquisitions which TCC deemed to be relevant;
(8) reviewed the Acquisition Agreement;
(9) reviewed the Warrant Agreement; and
(10) reviewed such other financial studies and analyses
and performed such other investigations and taken
into account such other matters as TCC has deemed
necessary.
In connection with the update of its opinion as of January 25,
1995, TCC reviewed the unaudited financial statements of FirstRock and FFC as of
September 30, 1994, conducted discussions with senior management of FirstRock
and FFC, and reviewed such other information as TCC deemed necessary.
In connection with rendering its opinion dated October 26,
1994, and updated January 25, 1995, TCC performed a variety of financial
analyses, including those summarized below. The summary set forth below does not
purport to be a complete description of the analyses performed by TCC in this
regard. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analyses and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to a summary description.
Accordingly, notwithstanding the separate factors summarized below, TCC believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, or attempting to ascribe relative weights to some or all
such analyses and factors, could create an incomplete view of the evaluation
process underlying TCC's opinion.
In performing its analyses, TCC made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond FirstRock's and FFC's control. The analyses
performed by TCC are not necessarily indicative of actual values of future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the values of assets and
liabilities do not purport to be appraisals or to reflect the prices at which
such assets and liabilities actually may be sold or transferred to another
party.
Net Present Value Analysis. TCC prepared a net present value
analysis which indicated theoretical values for FirstRock based on return on
average assets ranging between 1.00% and 1.50% and asset growth rates ranging
between 2.00% and 10.00%. The results of this analysis indicated a range of
theoretical values for FirstRock between $11.26 per share (1.00% return on
average assets; 2.00% asset growth rate) and $21.93 per share (1.50% return on
average assets; 10.00% asset growth rate). With a return on average assets of
1.20%, which approximated FirstRock's recent historical performance, theoretical
values ranged from $13.51 (2.00% asset growth rate) to $17.54 (10.0% asset
growth rate). At an asset growth rate of 4.00%, which approximated FirstRock's
recent historical performance, theoretical values ranged from $12.04 (1.00%
return on average assets) to $18.06 (1.50% return on average assets). The
nominal value of the offer from FFC based on the five-day closing average for
FFC Stock on ____________, 19____ of $ was $27.10.
<PAGE>
Contribution Analysis. TCC prepared a contribution analysis
showing the percentage of assets, deposits, common equity, and 1993 and
estimated 1994 and 1995 calendar year net income contributed to the combined
company on a pro forma basis by FirstRock and FFC, and compared these
percentages to the pro forma ownership of FFC. This analysis showed that
FirstRock, as of September 30, 1994, would contribute 7.47% of pro forma
consolidated total assets, 6.87% of deposits, 15.45% of common equity, 9.53% of
1993 net income, 8.84% of estimated 1994 net income and 8.85% of estimated 1995
net income. Based on the FFC offer, stockholders of FirstRock would own
approximately 16.09% of the pro forma outstanding FFC Stock.
Comparable Transaction Analysis. TCC reviewed selected
comparable merger and acquisition transactions. The following merger
transactions were reviewed based on publicly available data:
<TABLE>
<CAPTION>
Buyer Seller
<S> <C>
Mid American Inc. Security First Corporation
National City Corporation Central Indiana Bancorp
Mercantile Bancorp UNSL Financial Corporation
KeyCorp Stock Home SB, FSB
Standard Federal Bank Mackinac Financial Corporation
First Banks, Inc. Heartland Savings
First Security, SB Security Savings Bank
Standard Federal Bank Central Holding Company
First of America LGF Bancorp
First Bancorp Ohio Great Northern Financial
Roosevelt Financial Home Federal Bancorp of Missouri
First Banks, Inc. First Federal Savings Bank/Proviso
Fourth Financial Corporation Great Southern Bancorp
Fifth Third Bancorp TriState Bancorp
Huntington Bancshares First Bancorp Indiana
Standard Federal Bank InterFirst Bankcorp
Metropolitan Financial Eureka Savings Bank, FSB
PNC Bank Corporation Gateway Fed Corporation
Iowa National Bankshares MidAmerica Financial
</TABLE>
Transactions were selected on the basis of comparability of
transaction value and the perceived comparability of the markets served by the
acquired institutions to those of FirstRock. For the comparable transactions,
the multiple of price to trailing 12 months earnings ranged from 7.41 to 20.47
with an average of 12.96. At September 30, 1994, the FFC proposed purchase price
represented a multiple of trailing 12 months earnings of 14.04.
For the comparable transactions, the percentage of purchase
price to book value ranged from 114.01% to 224.80% with an average of 169.26%.
The FFC offer to FirstRock represented a percentage to September 30, 1994 book
value of 133.24%.
Financial Implications to FirstRock Stockholders. TCC prepared
an analysis of the financial implications of the FFC offer to a FirstRock
stockholder. This analysis indicated that on a pro forma equivalent basis a
stockholder of FirstRock would achieve an increase in earnings per share, an
increase in per share dividends and ultimately an increase in book value per
share as a result of the consummation of the Acquisition.
<PAGE>
Comparative Stockholder Returns. TCC presented an analysis of
comparative theoretical stockholder returns for several scenarios, including
FirstRock remaining independent, FirstRock being acquired in 1997, and FirstRock
being acquired in 1994 by FFC. This analysis, which was based on projected
dividend streams and projected 1997 common stock valuations (using current
price-to-earnings multiples), indicated total stockholder returns of 3.57% for
FirstRock remaining independent, 6.20% for an acquisition in 1997 and 20.80%
based on the acceptance of FFC's offer in 1994 and a sale of stock in the market
in 1997, and 48.21% based on the acceptance of FFC's offer in 1994 and a
hypothetical sale of the pro forma company in 1997. TCC also prepared an
analysis of the possible pricing of an acquisition transaction with certain
other thrift and bank holding companies using estimated 1995 net income for
FirstRock and stock prices of selected companies assuming no earnings per share
dilution for the buyer, a 30% reduction in non-interest expense due to operating
efficiencies and a 100% stock transaction without share repurchases by the
acquiror. The holding companies reviewed included: First Midwest Bancorp, St.
Francis Capital Corporation, AMCORE Financial, Inc., Firstbank of Illinois,
Inc., Marshall & Ilsley Corporation, Old Kent Financial Corporation, First Bank
System, Inc., Norwest Corporation, First Federal Capital, NBD Bancorp, Inc.,
Banc One Corporation, Firstar Corporation, TCF Financial Corporation,
BankAmerica Corporation, First of America Bank Corporation and First Financial
Corporation.
Given the assumptions, the analysis indicated that these companies
could pay a high of $40.03 per share and a low of $19.90 per share for all of
the shares of FirstRock.
Comparable Company Analysis. TCC compared the market price,
market-to-book value and price- to-earnings multiples of FFC Stock with the
individual market multiples and averages of selected comparable companies which
it deemed to be reasonably similar to FFC in size, financial character,
operating character, historical performance and/or geographic market, as
follows: Standard Federal Bank, FirstFed Michigan Corporation, Metropolitan
Financial Corporation, Roosevelt Financial Group, Charter One Financial,
Commercial Federal Corporation, First Financial Corporation, TCF Financial
Corporation, St. Paul Bancorp, Inc., Great Lakes Bancorp, FSB, and Security
Capital Corporation.
This analysis indicated that FFC Stock sold at a price of 1.42 times
the September 30, 1994 book value and the comparables sold at an average price
of 1.26 times book value. FFC Stock sold at a multiple of price to trailing 12
months earnings of 8.2, while the comparable group average price-to-earnings
multiple was 9.8.
TCC's opinion does not constitute a recommendation to any FirstRock
shareholder as to how such shareholder should vote with respect to the
Acquisition.
TCC participated in the negotiation of the terms of the Acquisition
and the Acquisition Agreement on behalf of FirstRock and, in order to render its
opinion, evaluated the fairness to FirstRock's stockholders of the consideration
to be paid by FFC under the Acquisition Agreement.
Fees and Indemnification. The fees due to TCC under the agreement
between TCC and FirstRock ("TCC Agreement") are payable to FirstRock as follows:
$25,000 at the date of execution of TCC Agreement, a cash fee equal to 0.90% of
the consideration up to $25.00 per share and 1.0% of the consideration of any
amount in excess of $25.00 per share (less the $25,000) payable at the closing.
In addition to such fees, FirstRock has agreed to reimburse TCC for
all reasonable out-of-pocket expenses and will pay to TCC a fee of $1,500 per
day for preparation and court appearances should TCC be called upon in any legal
proceeding to deliver expert testimony with regard to the fairness opinion.
FirstRock has also agreed to indemnify TCC, its officers, directors, agents,
employees and certain controlling persons from and against any losses, claims,
damages and liabilities in connection with or arising out of the transactions or
services referred to in TCC Agreement. This indemnification is subject to
certain conditions and procedures set forth in an indemnification agreement
between FirstRock and TCC.
<PAGE>
In the ordinary course of business, TCC has performed investment
banking services for FFC, and TCC has engaged in transactions with FFC. Also,
TCC and other of its clients may from time to time perform services and engage
in transactions with FFC in the future. In addition, in the ordinary course of
its securities business, TCC actively trades the securities of FFC and FirstRock
for its own account and the accounts of customers and, accordingly, may from
time to time hold a long or short position in such securities.
Certain Provisions of the Acquisition Agreement
Under the Acquisition Agreement, FirstRock has made certain
representations and warranties to FFC, including (i) the due organization and
good standing of FirstRock and its subsidiaries; (ii) the execution and delivery
of the Acquisition Agreement; (iii) capitalization; (iv) the accuracy of
financial statements; (v) the absence of undisclosed liabilities; (vi)
availability of consents; (vii) no undisclosed legal proceedings; (vii) tax
matters; (ix) corporate properties; (x) employee benefit plans; (xi) broker's
fees; (xii) material agreements; (xiii) the provision of corporate records;
(xiv) no violation of orders injunctions or decrees; (xv) identity of 5%
shareholders; (xvi) regulatory filings; (xvii) loans; (xviii) conduct of
business in the ordinary course; (xix) compliance with fiduciary
responsibilities; (xx) compliance with environmental laws; (xxi) accuracy of
information; (xxii) compliance with rules on insider interests; (xxiii) no
sensitive transactions; (xxiv) no dissenter's rights; (xxv) CRA compliance;
(xxvi) availability of regulatory approvals; (xxvii) qualified thrift lender
compliance; (xxviii) the ESOP; (xxix) advice of changes; (xxx) liquidation
account; (xxxi) insurance; and (xxxii) options and RRP shares.
Under the Acquisition Agreement, FFC has made certain
representations and warranties to FirstRock including (i) the due organization
and good standing of FFC and its subsidiaries; (ii) the execution and delivery
of the Acquisition Agreement; (iii) capitalization; (iv) the accuracy of
financial statements; (v) the absence of undisclosed liabilities; (vi) no
violation of agreements or law; (vii) no material litigation; (viii) adequacy of
regulatory filings; (ix) compliance with ERISA; (x) advice of changes; (xi)
adequacy and registration of FFC Stock to be issued for the Acquisition; (xii)
no violation of orders, injunctions or decrees; (xiii) environmental matters;
(xiv) CRA compliance; (xv) availability of regulatory approvals; and (xvi) no
sensitive transactions.
Termination and Amendment of the Acquisition Agreement
The Acquisition Agreement may be terminated as follows:
(i) by agreement between FFC and FirstRock authorized by
a majority of the entire Board of Directors of each;
(ii) by FFC or FirstRock if adversely affected by the
nonfulfillment of any of the mutual conditions of the
Acquisition Agreement unless such condition shall
become impossible of fulfillment;
(iii) by FFC or FirstRock if any condition of the opposite
party contained in the Acquisition Agreement is not
fulfilled unless such condition shall become
impossible of fulfillment;
(iv) by FFC or FirstRock in the event of material breach
by the opposite party of any representation,
warranty, covenant or agreement contained in the
Acquisition Agreement which has not been cured within
30 days after written notice of such breach has been
given;
(v) by FFC or FirstRock in the event the transaction is
not closed on or before July 31, 1995.
<PAGE>
(vi) by FFC if the Average Price of FFC stock is less than
$13.25 unless FirstRock elects an Exchange Ratio of
2.045 shares of FFC Stock for each share of FirstRock
Stock; or
(vii) by FirstRock if the Average Price of FFC Stock is
more than $20.00 unless FFC elects an Exchange Ratio
of 1.355 shares of FFC Stock for each share of
FirstRock Stock.
The Acquisition Agreement also provides that the parties may (i) amend
the Acquisition Agreement, (ii) extend the time for the performance of any of
the obligations or other acts of the other party thereto, (iii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto, or (iv) waive compliance with any of the
agreements, covenants and closing conditions of the Acquisition Agreement,
provided that after the approval of the Acquisition Agreement by FirstRock's
shareholders, no such extension, waiver, amendment or modification shall
adversely affect the amount of consideration to be received by FirstRock
shareholders.
Fees and Expenses
Each party will generally bear its own costs and expenses, including
attorneys,' accountants,' financial advisors' and other professional fees
incurred in connection with the transactions contemplated by the Acquisition
Agreement. Each of FirstRock and FFC will be responsible for its own expenses in
connection with obtaining the approval of its stockholders, including the
expenses in connection with the printing and mailing of this Joint Proxy
Statement/Prospectus. FFC will be responsible for expenses in connection with
(i) obtaining the regulatory approvals required for the Acquisition and any
other transactions contemplated by the Acquisition Agreement; and (ii) the
registration, quotation, and "Blue Sky" registration and approval of the FFC
Stock. FFC and FirstRock estimate that their respective total expenses related
to the Acquisition will be approximately $100,000 and $750,000 respectively,
including the costs relating to legal, accounting and investment advisor fees,
and other costs and fees related to this Joint Proxy Statement/Prospectus and
the Acquisition generally.
Certain Federal Income Tax Consequences
The following is a discussion of certain federal income tax
consequences under the Code to FFC, FirstRock and FirstRock stockholders who
receive FFC Stock as a result of the Acquisition or who receive cash in lieu of
a fractional share of FFC Stock. The discussion does not deal with all aspects
of federal taxation that might be applicable to particular FirstRock
stockholders, such as the tax treatment applicable to dealers in securities, the
tax consequences for holders of FirstRock Stock acquired upon the exercise of
stock options or warrants, or the effects of state, local or foreign taxation.
Based on certain assumptions and representations of FFC, FirstRock and
certain affiliates of FirstRock, Hogan & Hartson L.L.P., counsel to FFC, has
opined that the Acquisition will constitute a reorganization within the meaning
of the Code and that no gain or loss will be recognized for Federal income tax
purposes by FirstRock stockholders who exchange FirstRock Stock solely for FFC
Stock (except with respect to cash received in lieu of a fractional share of FFC
Stock). However, such opinion is subject to the limitations discussed below and
the opinion will not be binding on the IRS. Neither FFC nor FirstRock has
requested a ruling from the IRS with respect to the federal income tax
consequences of the Acquisition.
Consequences to FFC and FirstRock. It is intended that the Acquisition
will constitute a tax-free exchange under Section 368 of the Code. If the
Acquisition does so qualify, no gain or loss will be recognized by FFC or
FirstRock upon consummation of the Acquisition.
Consequences to FirstRock Stockholders. If the Acquisition qualifies as
a tax-free exchange under Section 368 of the Code, generally (i) no gain or loss
will be recognized by a FirstRock stockholder upon the receipt of FFC Stock in
exchange for FirstRock Stock (except as discussed below with respect to cash
received in lieu of a fractional share of FFC Stock); (ii) the aggregate tax
basis of FFC Stock received by a FirstRock
<PAGE>
stockholder will be the same as the aggregate tax basis of the FirstRock Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share of FFC Stock for which cash is received); and (iii) the holding
period of FFC Stock received by a FirstRock stockholder will include the holding
period of the FirstRock Stock surrendered in exchange therefor, provided the
FirstRock Stock is held as a capital asset as of the Closing.
A FirstRock stockholder who receives cash in lieu of a fractional share
of FFC Stock will be treated as if the fractional share were distributed in the
Acquisition and then redeemed by FFC. Accordingly, the FirstRock stockholder
will recognize gain or loss equal to the difference between the amount of cash
received and the stockholder's basis in the fractional share (which will be a
pro rata portion of the stockholder's basis in the FFC Stock received in the
Acquisition). Such gain or loss will be capital gain or loss if the FirstRock
Stock held by the stockholder is held as a capital asset at the Closing.
Limitations on Opinion and Discussion. The opinion of counsel referred
to above and the above discussion of federal income tax law are subject to
certain assumptions and qualifications and are based on the accuracy of the
representations of the parties in the Acquisition Agreement and related
documents, including representations of officers, directors and certain
affiliates of the parties. Of particular importance to the opinion that the
Acquisition will be treated as a tax-free reorganization, as described above, is
the assumption that the Acquisition will satisfy the continuity of interest
requirement.
In order for the continuity of interest requirement to be met,
FirstRock stockholders must not, pursuant to a plan or intent existing at or
prior to the Acquisition, dispose of an amount of FFC Stock received in the
Acquisition (including under certain circumstances, pre-acquisition dispositions
of FirstRock Stock) so that they do not retain a meaningful continuing equity
ownership in FFC. Generally, as long as the FirstRock stockholders do not have a
plan or intention to dispose of FFC Stock to be received in the Acquisition that
would result in their retention, in the aggregate, of a continuing interest
through stock ownership in FFC that is equal in value, as of the Closing, to
less than 50% of the value of all of the formerly outstanding stock of FirstRock
as of the same date (the "50% Test"), this requirement will be satisfied. The
respective officers and directors of FirstRock, FFC and certain affiliates of
FirstRock have represented that they have no knowledge of a plan or intention
that would result in the 50% Test not being satisfied.
A successful IRS challenge to the tax-free status of the Acquisition
would result in a FirstRock stockholder recognizing a gain or loss with respect
to each share of FirstRock Stock surrendered. In addition, FirstRock would
recognize a gain and the tax on such gain would become the liability of FFC
following the Acquisition.
The foregoing is a summary of the anticipated federal income tax
consequences of the Acquisition to the FirstRock stockholders. It does not
include consequences of foreign, state, local or other tax laws or special
consequences to particular stockholders having special situations. FirstRock
stockholders are urged to consult with their own tax advisors regarding specific
tax consequences to them of the Acquisition, including the applicability and
effect of federal, state, local and foreign tax laws, and the subsequent sales
of FFC Stock.
<PAGE>
Regulatory Approvals
The Acquisition has received the approval of the OTS. No other
regulatory approvals are required to consummate the Acquisition.
Accounting Treatment
The Bank Merger is intended to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under the pooling-of-interests
method of accounting, the recorded assets and liabilities of FF Bank and its
subsidiaries, and those of First Federal and its subsidiaries, will be carried
forward to the Resulting Bank at their recorded amounts. Revenues and expenses
of the Resulting Bank will include revenues and expenses of FF Bank and First
Federal for the fiscal years in which the Bank Merger occurs, and prior fiscal
years will be combined and restated.
Restrictions on Resales by Affiliates
Although the FFC Stock to be issued to FirstRock stockholders in the
Acquisition have been registered under the Securities Act, any transfer of such
shares by any person who is an "affiliate" (as such term is defined under the
Securities Act) of FirstRock at the time the Acquisition was approved by the
Board of Directors of FirstRock or who becomes an affiliate of FFC will, under
existing law, require either (a) the further registration under the Securities
Act of the FFC Stock to be transferred, (b) compliance with Rule 145 (in the
case of affiliates of FirstRock) or Rule 144 (in the case of affiliates of FFC)
promulgated under the Securities Act or (c) the availability of another
exemption from registration under the Securities Act. Persons who may be deemed
to be affiliates of FirstRock or FFC generally include individuals or entities
that, directly or indirectly through one or more intermediaries, control, are
controlled by, or are under common control with FirstRock or FFC, and may
include certain directors and officers of such party, as well as principal
stockholders of such party. Stop transfer instructions will be given by FFC to
its transfer agent with respect to the FFC Stock owned or to be received by
persons subject to the restrictions described above, and the certificates for
such stock may be appropriately legended. This Joint Proxy Statement/Prospectus
may not be used by any such affiliate for the resale of any FFC Stock received
pursuant to the Acquisition.
In addition, pursuant to the Acquisition Agreement, and in order to
ensure that the Acquisition will be accounted for under the pooling-of-interests
method under generally accepted accounting principles, each affiliate of
FirstRock has submitted a letter to FFC agreeing not to sell, pledge, transfer
or otherwise dispose of the shares of FFC Stock owned during the period
commencing 30 business days prior to the Closing and continuing to the date on
which at least 30 days of post-Acquisition combined operations of FirstRock and
FFC have been published either by issuance of a quarterly earnings report on
Form 10-Q or other public issuance (such as a press release) which includes such
information. FFC's transfer agent has been given an appropriate stop transfer
order with respect to shares of FFC Stock owned by affiliates of FirstRock.
Dissenters' Rights
Pursuant to 262(b) of the Delaware General Corporation Law,
stockholders of Delaware corporations do not have the right to object and obtain
payment of the fair value of their shares in business combination transactions
if, on the record date fixed to determine the stockholders entitled to receive
notice of and vote at the meeting at which the corporate action is to be taken,
such shares are registered on a United States securities exchange registered
under the Securities Exchange Act of 1934 or traded on The Nasdaq Stock
<PAGE>
Market or a similar market. FirstRock Stock was traded on The Nasdaq Stock
Market's National Market System on the Record Date and the FFC Stock to be
issued in the Acquisition will be listed on The Nasdaq Stock Market's National
Market System, and therefore appraisal rights will not be available with respect
to the Acquisition.
Under applicable Wisconsin law, holders of FFC Stock will not be
entitled to dissenters' rights of appraisal in connection with issuance of up to
5,500,000 shares of FFC Stock in connection with the Acquisition.
Warrant Agreement
In consideration of FFC's entering into the Acquisition Agreement, FFC
and FirstRock entered in the Warrant Agreement immediately after the execution
of the Acquisition Agreement. Pursuant to the Warrant Agreement, FirstRock
granted FFC the Warrant which entitles FFC to purchase up to 475,246 fully paid
and nonassessable shares of FirstRock Stock, or approximately 19.9% of the
shares of FirstRock Stock then outstanding, under the circumstances described
below at a price of $22.50 per share, subject to adjustment in certain
circumstances. The Warrant Agreement is intended to increase the likelihood that
the Acquisition will be consummated in accordance with the terms of the
Acquisition Agreement, and is likely to discourage persons from proposing a
competing offer to acquire FirstRock, even if such offer involves a higher price
per share for the FirstRock Stock than the per share consideration to be paid
pursuant to the Acquisition Agreement. The existence of the Warrant would
significantly increase the cost to a potential acquiror of acquiring FirstRock
compared to its cost had FirstRock not entered into the Warrant Agreement.
FirstRock believes that the exercise of the Warrant would likely prohibit any
acquiror from accounting for an acquisition of, or merger with, FirstRock using
the pooling-of-interests accounting method for a period of up to two years which
could also discourage or preclude an acquisition by certain acquirors.
The following brief summary of certain provisions of the Warrant
Agreement is qualified in its entirety by reference to the Warrant Agreement,
which was filed as an exhibit to FFC's report on Form 8-K for the event on
October 26, 1994 with the Commission and is incorporated herein by reference.
See "Incorporation of Certain Documents by Reference."
Subject to applicable law and regulatory restrictions, FFC may exercise
the Warrant, in whole or in part, if, but only if, a "Purchase Event" (as
defined below) occurs prior to the occurrence of an "Exercise Termination Event"
(as defined below). "Purchase Event" means, in substance, either (i) the
acquisition by any third party of beneficial ownership of 25% or more of the
then outstanding FirstRock Stock or (ii) the entry by FirstRock (without FFC's
prior written consent) into a letter of intent or definitive agreement to engage
in a purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of beneficial ownership of 25% or more of the
voting power of FirstRock.
For purposes of the Warrant Agreement, "Acquisition Transaction" means
(x) a merger, consolidation or other business combination, involving FirstRock
or First Federal, (y) a purchase, lease or other acquisition of all or
substantially all of the assets of FirstRock or First Federal, or (z) a purchase
or other acquisition (including by way of merger, consolidation, share exchange
or otherwise) of beneficial ownership of 20% or more of the voting power of
FirstRock. The Warrant Agreement defines an "Exercise Termination Event" to mean
the earliest to occur of the following: (i) the time immediately preceding the
effective time (as defined in the Acquisition Agreement) of the Acquisition,
(ii) 18 months after the first occurrence of a Purchase Event, (iii) 18 months
after the termination of the Acquisition Agreement following the occurrence of a
Preliminary Purchase Event, (iv) upon the termination of the Acquisition
Agreement, prior to the occurrence of a Purchase Event or Preliminary Purchase
Event, by (A) mutual agreement of FFC and FirstRock, (B) FFC following a
material adverse change in FirstRock under the Acquisition Agreement), or (C)
FirstRock if any of its conditions to consummating the transaction have not been
satisfied, including the requirement that there shall have been no material
adverse change in FFC under the Acquisition Agreement, (v) six months after the
termination of the Acquisition Agreement in accordance with the terms thereof,
prior to the occurrence of a Purchase Event or a Preliminary Purchase Event,
except for a termination described in clause (vi) above or a termination by FFC
due to a material breach of any of FirstRock's representations,
<PAGE>
warrants, covenants or agreements under the Acquisition Agreement, (vi) 18
months after the termination of the Acquisition Agreement, by FFC due to an
unintentional default by FirstRock under the Acquisition Agreement, or (vii) 24
months after the termination of the Acquisition Agreement by FFC as a result of
a willful or intentional Default under the Acquisition Agreement by FirstRock.
"Preliminary Purchase Event", as defined in the Warrant Agreement,
includes any Acquisition Transaction described above as well as certain other
events involving FirstRock or its shareholders that are inconsistent with
FirstRock's intent to consummate the transactions contemplated by the
Acquisition Agreement or actions by third parties evidencing an intent or desire
to acquire control of FirstRock. Such events include (i) an acquisition by any
third party of beneficial ownership of 20% or more of the outstanding FirstRock
Stock or voting stock of First Federal; (ii) a default by FirstRock under the
Acquisition Agreement if such default would entitle FFC to terminate the
Acquisition Agreement; (iii) a failure by FirstRock's shareholders to approve
the Acquisition Agreement; or (iv) a withdrawal or modification in any manner
adverse to FFC by FirstRock's Board of Directors of its approval recommendation
as to the Acquisition Agreement.
The Warrant may not be assigned by FFC to any other person other than a
subsidiary of FFC without the express written consent of FirstRock, except that
FFC may assign its rights under the Warrant Agreement in whole or in part after
the occurrence of a Preliminary Purchase Event. FirstRock also has agreed to
prepare and file and keep current a registration statement with respect to the
shares to be issued upon exercise of the Warrant under applicable federal and
state securities laws and shall use best efforts to cause the registration
statement to become effective and remain effective for 180 days. Upon the
occurrence of a Purchase Event prior to an Exercise Termination Event, at the
request of FFC, FirstRock will be obligated to repurchase the Warrant, and any
shares of FirstRock Stock theretofore purchased pursuant to the Warrant, at
prices determined as set forth in Warrant Agreement not to exceed $3 million.
In the event that prior to an Exercise Termination Event, FirstRock
enters into a letter of intent or a definitive agreement (i) to consolidate or
merge with any third party, and FirstRock is not the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any third party to
merge into FirstRock and FirstRock is the continuing or surviving corporation,
but, in connection with such merger, the then outstanding shares of FirstRock
Stock shall be changed into or exchanged for stock or other securities of any
third party or cash or any other property or the then outstanding shares of
FirstRock Stock will after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or (iii) to sell
or otherwise transfer all or substantially all of its assets to any third party,
then, and in each such case, the letter of intent or definitive agreement
governing such transaction shall make proper provision so that the Warrant
shall, upon the consummation of such transaction, be converted into, or
exchanged for, a warrant (the "Substitute Warrant"), at the election of FFC, of
either (x) the acquiring corporation or (y) any person that controls the
acquiring corporation. The Substitute Warrant shall be exercisable for shares of
the issuer's common stock in such number and at such exercise price as is set
forth in the Warrant Agreement and will otherwise have the same terms as the
Warrant, except that the number of shares subject to the Substitute Warrant may
not exceed 19.9% of the issuer's outstanding shares of common stock.
Recommendations of FirstRock's and FFC's Board of Directors
FirstRock's Board of Directors has unanimously approved the Acquisition
Agreement, including the transactions contemplated thereby, and has determined
that the terms of the Acquisition of FirstRock by FFC are fair to and in the
best interests of FirstRock's shareholders. The Board unanimously recommends
that FirstRock's shareholders vote to approve the Acquisition.
FirstRock has been advised that each of its directors and officers, and
the senior officers of First Federal Bank, intend to vote their shares of
FirstRock Stock in favor of the Acquisition.
FFC's Board of Directors has unanimously approved the Acquisition
Agreement and issuance of FFC Stock to FirstRock stockholders and unanimously
recommends that FFC stockholders vote to authorize the issuance of up to
5,500,000 shares of FFC Stock in connection with the Acquisition in the event
such issuance constitutes 20% or more of the then outstanding shares of FFC
Stock.
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Under the terms of the Acquisition Agreement, Acquisition Co., a
wholly owned subsidiary of FFC, is to be merged into FirstRock, and all issued
and outstanding FirstRock Stock is to be converted into the right to receive FFC
Stock. It is probable that FirstRock will then be liquidated into FFC. See "The
Acquisition".
The following Pro Forma Condensed Combined Statement of Financial
Condition as of September 30, 1994 combines the historical consolidated
statements of financial condition of FFC and FirstRock as if the Acquisition had
occurred on September 30, 1994, after giving effect to pro forma adjustments
described in the accompanying notes.
The following Pro Forma Condensed Combined Statements of Income
are presented as if the Acquisition had been consummated at the beginning of
each period presented. FFC's fiscal year end s December 31 and FirstRock's ends
June 30. In the Pro Forma Combined Statement of Income, FirstRock's results of
operations are presented consistent with the fiscal year of FFC. The Pro Forma
Condensed Combined Statements of Income for the nine months ended September 30,
1994 and 1993 present the combined results of operations of FFC and FirstRock
for the periods indicated. The Pro Forma Condensed Combined Statements of Income
for the years ended December 31, 1993, 1992 and 1991 present the combined
results of operations of FFC for the fiscal years ended December 31, 1993, 1992
and 1991 with the results of operations of FirstRock for the fiscal years ended
June 30, 1994, 1993 and 1992, respectively.
The Pro Forma Condensed Combined Financial Information and the
related notes reflect the application of the pooling-of-interests method of
accounting. Under this method of accounting, the recorded assets, liabilities,
income and expenses of FFC and FirstRock and reporting policies of FFC and
FirstRock are combined and recorded at their historical cost-based amounts. The
significant accounting and reporting policies of FFC and FirstRock differ in
minor respects and no effect has been given to such variances in the Pro Forma
Condensed Combined Financial Information, except as noted in the related notes
thereto. Certain historical information of FirstRock has been reclassified to
conform to FFC's financial statement presentation.
The Pro Forma Condensed Combined Financial Information included
within is not necessarily indicative of the consolidated financial position or
results of future operations of the combined entity or the actual results that
would have been achieved had the Acquisition been consummated prior to the
periods indicated. The Pro Forma Condensed Combined Financial Information should
be read in conjunction with the separate historical consolidated financial
statements and related notes of FFC and FirstRock.
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
PRO-FORMA UNAUDITED CONDENSED COMBINED
STATEMENT OF FINANCIAL CONDITION
At September 30, 1994
<TABLE>
<CAPTION>
Pro-Forma
----------------------------
FFC FirstRock Adjustments Combined
---------- --------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 94,351 $ 16,989 $ -- $ 111,340
Securities available for sale:
Investment securities 6,625 67,635 -- 74,260
Mortgage-related securities 174,648 39,150 -- 213,798
Securities held to maturity:
Investment securities 130,577 -- -- 130,577
Mortgage-related securities 1,325,834 11,686 -- 1,337,520
Loans receivable:
Held for sale 6,839 9,670 -- 16,509
Held for investment 3,126,789 236,764 -- 3,363,553
Foreclosed properties and repos-
assessed assets 4,727 1,784 (600)(A) 5,911
Real estate held for investment
or sale 6,628 3,804 -- 10,432
Office properties and equipment 48,989 5,139 -- 54,128
Intangible assets, less accumu-
lated amortization 28,059 -- -- 28,059
Other assets 97,133 15,334 -- 112,467
---------- -------- ------- ----------
$5,051,199 $407,955 $ (600) $5,458,554
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $4,101,449 $302,483 -- $4,403,932
Borrowings 591,145 38,574 -- 629,719
Advance payments by borrowers
for taxes and insurance 59,149 717 -- 59,866
Other liabilities 33,526 17,605 3,875 (A) 55,006
---------- -------- ------- ----------
4,785,269 359,379 3,875 5,148,523
---------- -------- ------- ----------
Stockholders' equity:
Serial preferred stock -- -- -- --
Common stock 24,699 26 4,116 (B) 28,841
Additional paid-in capital 31,902 21,830 (4,116)(B) 49,616
Retained earnings, substan-
tially restricted 213,755 34,858 (4,475)(A) 244,138
Net unrealized holding loss
on securities available
for sale (4,426) (2,316) -- (6,742)
Treasury stock -- (4,109) -- (4,109)
Common stock purchased by:
Employee stock ownership
plan -- (1,157) -- (1,157)
Management recognition and
retention plans -- (556) -- (556)
---------- --------- ---------- ----------
Total stockholders' equity 265,930 48,576 (4,475) 310,031
---------- --------- ---------- ----------
$5,051,199 $407,955 $ (600) $5,458,554
========== ======== ======= ==========
</TABLE>
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Pro-Forma (C)
---------------------------
FFC FirstRock Adjustments Combined
-------- --------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $121,050 $10,988 $ -- $132,038
Other loans 71,118 2,495 -- 73,613
Mortgage-related securities 62,372 2,671 -- 65,043
Investments 8,269 2,921 -- 11,190
-------- ------- ------ --------
Total interest income 262,809 19,075 -- 281,884
-------- ------- ------ --------
Interest expense:
Deposits 123,241 6,887 -- 130,128
Borrowings 18,326 1,662 -- 19,988
-------- ------- ------ --------
Total interest expense 141,567 8,549 -- 150,116
-------- ------- ------ --------
Net interest income 121,242 10,526 -- 131,768
Provision for losses on loans 4,878 215 -- 5,093
-------- ------- ------ --------
116,364 10,311 -- 126,675
Non-interest income:
Loan fees and servicing income 10,268 2,555 -- 12,823
Deposit account service fees 5,803 1,912 -- 7,715
Insurance commissions 5,128 334 -- 5,462
Gain on sale of mortgage loans 1,666 453 -- 2,119
Gain (loss) on sale of available-
for-sale securities 1,375 (304) -- 1,071
Unrealized loss on impairment of
mortgage-related securities (9,000) -- -- (9,000)
Other 2,179 536 -- 2,715
-------- ------- ------ --------
Total non-interest income 17,419 5,486 -- 22,905
-------- ------- ------ --------
Operating income 133,783 15,797 -- 149,580
Non-interest expense:
Compensation and benefits 34,139 5,070 -- 39,209
Federal deposit insurance
premiums 7,177 556 -- 7,733
Occupancy 6,179 1,551 -- 7,730
Amortization of intangible assets 4,032 -- -- 4,032
Other 29,110 2,704 -- 31,814
-------- ------- ------ --------
Total non-interest expense 80,637 9,881 -- 90,518
-------- ------- ------ --------
Income before income taxes 53,146 5,916 -- 59,062
Income taxes 19,591 2,258 -- 21,849
-------- ------- ------ --------
Net income (E) $ 33,555 $ 3,658 $ -- $ 37,213
======== ======= ====== ========
Earnings per share (D):
Primary $ 1.33 $ 1.45 $ 1.25
======== ======= ========
Fully diluted $ 1.32 $ 1.44 $ 1.25
======== ======= ========
Weighted average common equivalent shares (D):
Primary 25,323 2,527 1,856 29,706
======== ======= ====== ========
Fully diluted 25,380 2,549 1,872 29,801
======== ======= ====== ========
</TABLE>
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Nine Months Ended September 30, 1993
<TABLE>
<CAPTION>
Pro-Forma (C)
---------------------------
FFC FirstRock Adjustments Combined
-------- --------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $119,927 $11,778 $ -- $131,705
Other loans 59,568 2,507 -- 62,075
Mortgage-related securities 66,694 2,946 -- 69,640
Investments 8,405 2,779 -- 11,184
-------- ------- ------ --------
Total interest income 254,594 20,010 -- 274,604
-------- ------- ------ --------
Interest expense:
Deposits 128,329 7,607 -- 135,936
Borrowings 15,537 2,109 -- 17,646
-------- ------- ------ --------
Total interest expense 143,866 9,716 -- 153,582
-------- ------- ------ --------
Net interest income 110,728 10,294 -- 121,022
Provision for losses on loans 7,824 263 -- 8,087
-------- ------- ------ --------
102,904 10,031 -- 112,935
Non-interest income:
Loan fees and servicing income 10,684 2,443 -- 13,127
Deposit account service fees 5,595 1,781 -- 7,376
Insurance commissions 4,822 432 -- 5,254
Gain on sale of mortgage loans 5,120 (9) -- 5,111
Gain (loss) on sale of available-
for-sale securities -- 128 -- 128
Other 1,424 643 -- 2,067
-------- ------- ------ --------
Total non-interest income 27,645 5,418 -- 33,063
-------- ------- ------ --------
Operating income 130,549 15,449 -- 145,998
Non-interest expense:
Compensation and benefits 33,359 4,817 -- 38,176
Federal deposit insurance
premiums 5,080 427 -- 5,507
Occupancy 5,680 1,554 -- 7,234
Amortization of intangible assets 4,815 -- -- 4,815
Other 30,867 3,221 -- 34,088
-------- ------- ------ --------
Total non-interest expense 79,801 10,019 -- 89,820
-------- ------- ------ --------
Income before income taxes 50,748 5,430 -- 56,178
Income taxes 18,705 2,084 -- 20,789
-------- ------- ------ --------
Net income (E) $ 32,043 $ 3,346 $ -- $ 35,389
======== ======= ====== ========
Earnings per share (D):
Primary $ 1.35 $ 1.25 $ 1.25
======== ======= ========
Fully diluted $ 1.32 $ 1.24 $ 1.22
======== ======= ========
Weighted average common equivalent shares (D):
Primary 23,724 2,680 1,968 28,372
======== ======= ====== ========
Fully diluted 24,243 2,701 1,984 29,928
======== ======= ====== ========
</TABLE>
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Year Ended December 31, 1993
<TABLE>
<CAPTION>
Pro-Forma (C)
---------------------------
FFC FirstRock Adjustments Combined
-------- --------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $160,372 $14,851 $ -- $175,223
Other loans 81,272 3,251 -- 84,523
Mortgage-related securities 86,052 3,700 -- 89,752
Investments 12,427 3,926 -- 16,353
-------- ------- ------ --------
Total interest income 340,123 25,728 -- 365,851
-------- ------- ------ --------
Interest expense:
Deposits 169,741 9,483 -- 179,224
Borrowings 19,993 2,370 -- 22,363
-------- ------- ------ --------
Total interest expense 189,734 11,853 -- 201,587
-------- ------- ------ --------
Net interest income 150,389 13,875 -- 164,264
Provision for losses on loans 10,219 322 -- 10,541
-------- ------- ------ --------
140,170 13,553 -- 153,723
Non-interest income:
Loan fees and servicing income 14,112 3,011 -- 17,123
Deposit account service fees 7,567 2,580 -- 10,147
Insurance commissions 6,276 566 -- 6,842
Gain (loss) on sale of mortgage
loans 7,997 961 -- 8,958
Gain (loss) on sale of available-
for-sale securities (422) (392) -- (814)
Other 2,191 776 -- 2,967
-------- ------- ------ --------
Total non-interest income 37,721 7,502 -- 45,223
-------- ------- ------ --------
Operating income 177,891 21,055 -- 198,946
Non-interest expense:
Compensation and benefits 43,765 6,434 -- 50,199
Federal deposit insurance
premiums 7,341 747 -- 8,088
Occupancy 7,534 2,093 -- 9,627
Amortization of intangible assets 6,427 -- -- 6,427
Other 40,737 4,078 -- 44,815
-------- ------- ------ --------
Total non-interest expense 105,804 13,352 -- 119,156
-------- ------- ------ --------
Income before income taxes 72,087 7,703 -- 79,790
Income taxes 26,872 2,940 -- 29,812
-------- ------- ------ --------
Net income (E) $ 45,215 $ 4,763 $ -- $ 49,978
======== ======= ====== ========
Earnings per share (D):
Primary $ 1.88 $ 1.86 $ 1.75
======== ======= ========
Fully diluted $ 1.86 $ 1.85 $ 1.73
======== ======= ========
Weighted average common equivalent shares (D):
Primary 24,112 2,556 1,877 28,545
======== ======= ====== ========
Fully diluted 24,369 2,574 1,890 28,833
======== ======= ====== ========
</TABLE>
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Year Ended December 31, 1992
<TABLE>
<CAPTION>
Pro-Forma (C)
---------------------------
FFC FirstRock Adjustments Combined
-------- --------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $131,206 $16,368 $ -- $147,574
Other loans 73,148 3,439 -- 76,587
Mortgage-related securities 83,040 4,101 -- 87,141
Investments 9,477 3,328 -- 12,805
-------- ------- ------ --------
Total interest income 296,871 27,236 -- 324,107
-------- ------- ------ --------
Interest expense:
Deposits 174,042 10,849 -- 184,891
Borrowings 7,854 3,060 -- 10,914
-------- ------- ------ --------
Total interest expense 181,896 13,909 -- 195,805
-------- ------- ------ --------
Net interest income 114,975 13,327 -- 128,302
Provision for losses on loans 13,851 381 -- 14,232
-------- ------- ------ --------
101,124 12,946 -- 114,070
Non-interest income:
Loan fees and servicing income 12,961 3,425 -- 16,386
Deposit account service fees 5,933 2,158 -- 8,091
Insurance commissions 5,666 569 -- 6,235
Gain (loss) on sale of mortgage
loans 4,859 (89) -- 4,770
Gain (loss) on sale of available-
for-sale securities 41 161 -- 202
Other 2,749 845 -- 3,594
-------- ------- ------ --------
Total non-interest income 32,209 7,069 -- 39,278
-------- ------- ------ --------
Operating income 133,333 20,015 -- 153,348
Non-interest expense:
Compensation and benefits 37,177 6,546 -- 43,723
Federal deposit insurance
premiums 6,968 588 -- 7,556
Occupancy 5,973 2,022 -- 7,995
Amortization of intangible assets 3,713 -- -- 3,713
Other 34,880 4,030 -- 38,910
-------- ------- ------ --------
Total non-interest expense 88,711 13,186 -- 101,897
-------- ------- ------ --------
Income before income taxes and
cumulative effect of a change
in accounting principle 44,622 6,829 -- 51,451
Income taxes 16,190 2,618 -- 18,808
-------- ------- ------ --------
Net income from continuing
operations $ 28,432 $ 4,211 $ -- $ 32,643
======== ======= ====== ========
Earnings per share (D):
Primary $ 1.21 $ 1.65 $ 1.17
======== ======= ========
Fully diluted $ 1.19 $ 1.64 $ 1.15
======== ======= ========
Weighted average common equivalent shares (D):
Primary 23,498 2,556 1,877 27,931
======== ======= ====== ========
Fully diluted 23,860 2,574 1,890 28,324
======== ======= ====== ========
</TABLE>
<PAGE>
FIRST FINANCIAL CORPORATION
FIRSTROCK BANCORP, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Year Ended December 31, 1991
<TABLE>
<CAPTION>
Pro-Forma (C)
---------------------------
FFC FirstRock Adjustments Combined
-------- --------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $143,574 $19,826 $ -- $163,400
Other loans 75,204 3,718 -- 78,922
Mortgage-related securities 67,650 4,472 -- 72,122
Investments 13,653 2,737 -- 16,390
-------- ------- ------ --------
Total interest income 300,081 30,753 -- 330,834
-------- ------- ------ --------
Interest expense:
Deposits 199,768 15,540 -- 215,308
Borrowings 3,981 3,801 -- 7,782
-------- ------- ------ --------
Total interest expense 203,749 19,341 -- 223,090
-------- ------- ------ --------
Net interest income 96,332 11,412 -- 107,744
Provision for losses on loans 18,333 2,044 -- 20,377
-------- ------- ------ --------
77,999 9,368 -- 87,367
Non-interest income:
Loan fees and servicing income 15,143 3,282 -- 18,425
Deposit account service fees 5,053 1,916 -- 6,969
Insurance commissions 5,681 667 -- 6,348
Gain (loss) on sale of mortgage
loans 3,241 (34) -- 3,207
Gain (loss) on sale of available-
for-sale securities 2,319 56 -- 2,375
Other 2,894 402 -- 3,296
-------- ------- ------ --------
Total non-interest income 34,331 6,289 -- 40,620
-------- ------- ------ --------
Operating income 112,330 15,657 -- 127,987
Non-interest expense:
Compensation and benefits 34,047 6,391 -- 40,438
Federal deposit insurance
premiums 6,276 687 -- 6,963
Occupancy 6,558 1,931 -- 8,489
Amortization of intangible assets 2,790 -- -- 2,790
Other 31,724 3,941 -- 35,665
-------- ------- ------ --------
Total non-interest expense 81,395 12,950 -- 94,345
-------- ------- ------ --------
Income before income taxes 30,935 2,707 -- 33,642
Income taxes 12,409 1,140 -- 13,549
-------- ------- ------ --------
Net income $ 18,526 $ 1,567 $ -- $ 20,093
======== ======= ====== ========
Earnings per share (D):
Primary $ 0.80 $ 0.61 $ 0.73
======== ======= ========
Fully diluted $ 0.79 $ 0.61 $ 0.72
======== ======= ========
Weighted average common equivalent shares (D):
Primary 23,114 2,556 1,877 27,547
======== ======= ====== ========
Fully diluted 23,395 2,574 1,890 27,859
======== ======= ====== ========
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Financial Information
(A) FirstRock, at FFC's request, has established an additional
allowance for foreclosure loss of $600,000 in order to conform FirstRock's
accounting for foreclosure losses to that of FFC's. In connection with the
accounting for foreclosure losses, FFC intends to liquidate FirstRock's larger
foreclosure properties on a rapid sale basis as opposed to the longer holding
period anticipated by FirstRock. Prior to or at the Closing, FFC or FirstRock,
as appropriate, will establish accruals for anticipated Acquisition charges and
transaction costs to be incurred on conjunction with i) the Acquisition itself
or ii) relative to the reorganization of FirstRock's operations following the
Acquisition. The aggregate amount of the foreclosure loss allowance and the
additional accruals currently are estimated to total $4.5 million on an
after-tax basis, including the $600,000 additional allowance for foreclosure
loss and a pre-tax $6.5 million charge for Acquisition charges and transaction
costs. The Acquisition charges and transaction costs include i)
transaction-related costs, including investment banker fees, attorneys fees and
accounting fees, ii) anticipated payouts relating to
employment/change-in-control agreements upon termination of certain officers,
iii) retention bonuses and severance payments to be made to FirstRock employees,
iv) writedowns of assets not needed by FFC in the conduct of FirstRock's
business following the Acquisition, and v) other writeoffs/accruals relating to
those contracts and business practices of FirstRock not having future value to
FFC. The additional reserve and accruals are not reflected in the Pro Forma
Condensed Combined Statements of Income since these items do not have a
continuing impact upon FFC.
The following table summarizes the financial impact of the
additional reserve and accruals as reflected in the Pro Forma Condensed Combined
Statement of Financial Condition (in thousands):
Anticipated change-in-control payments to $2,700
officers not retained after closing
Retention bonuses and severance payments 1,200
to be made to FirstRock employees
Transaction costs (including investment 725
bankers, attorneys, accountants)
Redundant data processing hardware 625
and software
Expense to be recorded due to early vesting 600
of the RRP upon change-in-control
Underfunding of officer/employee benefits 350
payable upon termination at change-in-control
Miscellaneous expenses 250
-------
Total additional accruals $6,450
Additional reserve for foreclosure loss 600
------
Total pre-tax adjustments $7,050
Income tax effect (2,575)
------
Net after-tax effect of adjustments $4,475
All of the accrual adjustments noted above are deemed to be period costs and
will be expensed in the quarter in which the Acquisition closes.
(B) Represents an adjustment to common stock reflecting the par
value of FFC Stock to be issued in conjunction with the Acquisition and a
related adjustment to additional paid-in capital. FFC Stock to be issued in
connection with the Acquisition was determined by multiplying the outstanding
FirstRock Stock by 1.7344, an assumed exchange ratio determined using an assumed
FFC Share Value of $15.625 (the closing price of FFC Common Stock on January 17,
1995) and a purchase price of $27.10 per share of FirstRock Stock. See "The
Acquisition - Exchange Ratio" for more details relative to the methodology for
determining the exchange ratio and the amount of FFC Stock to be issued.
(C) FFC anticipates that, subsequent to the Acquisition,
significant cost savings will be realized through consolidation of operations,
including data processing and certain administrative office functions. The
extent of the cost savings realized and the timing of these savings may vary
from management expectations and may be negatively influenced by economic
conditions, inflation and regulatory actions (such as an increase in FDIC
insurance costs). No adjustments have been included in the Pro Forma Condensed
Combined Statements of Income for anticipated cost reductions.
(D) Pro Forma Combined Earnings Per Share data have been determined
based upon i) the combined historical net income of FFC and FirstRock and ii)
the combined historical weighted average common equivalent shares of FFC and
FirstRock. For purposes of this determination, FirstRock's historical weighted
average common shares outstanding were multiplied by 1.7344, an assumed exchange
ratio determined using an assumed FFC Share Value of $15.625 (the closing price
of FFC Common Stock on January 17, 1995) and a purchase price of $27.10 per
share of FirstRock Stock. See "The Acquisition Exchange Ratio" for further
details relative to the methodology for determining the value and amount of FFC
Stock to be issued.
For presentation purposes, since First Federal's conversion from
mutual to stock form and the related formation of FirstRock did not occur until
October 1992, Pro Forma Combined Earnings Per Share data presented in the Pro
Forma Condensed Combined Statements of Income for the years ended December 31,
1992 and 1991 were determined assuming that the historical weighted average
common equivalent shares of FirstRock for those years were substantially
identical to the weighted average common shares of FirstRock Stock as set forth
in the Pro Forma Condensed Combined Statement of Income for the year ended
December 31, 1993.
(E) FFC's fiscal year ends December 31 and FirstRock's ends June
30. The Pro Forma Condensed Combined Statement of Income for the nine months
ended September 30, 1994 includes FirstRock's operations for that period. The
following table sets forth FirstRock's net interest income and net income for
the six month period ended June 30, 1994 that have been included in the Pro
Forma Condensed Combined Statements of Income for both the nine months ended
September 30, 1994 and the year ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Six Months Six Months
Ended Ended Ended
June 30, December 31, June 30,
1994 1993 1994
------- ------ ------
<S> <C> <C> <C>
Net interest income $13,875 $6,914 $6,961
======= ====== ======
Net income $ 4,763 $2,342 $2,421
======= ====== ======
</TABLE>
<PAGE>
FIRSTROCK BANCORP, INC.
General
FirstRock completed its initial offering of common stock on October
2, 1992, with the simultaneous conversion of First Federal Savings and Loan
Association of Rockford, a federally chartered mutual savings and loan
association, to First Federal, a federally chartered stock savings bank and the
formation of FirstRock. FirstRock utilized approximately 50% of the net proceeds
to acquire all of the issued and outstanding stock of First Federal. The
remaining 50% was retained by FirstRock and is currently being used for general
corporate purposes. FirstRock was incorporated under Delaware law on June 26,
1992. FirstRock is a savings and loan holding company and is subject to
regulation by the OTS, FDIC and the Commission. FirstRock is headquartered in
Rockford, Illinois and its principal business currently consists of the
operations of its wholly-owned subsidiary, First Federal. FirstRock had no
operations prior to October 2, 1992 and accordingly the results of operations
prior to this date reflect only those of First Federal and its subsidiaries.
First Federal was established in 1934 as a federally chartered
savings and loan association and in 1992 converted to a federally chartered
savings bank. First Federal is a member of the Federal Home Loan Bank ("FHLB")
System and its deposits are insured to the maximum allowable amount by the FDIC.
First Federal's principal business has been and continues to be
attracting retail deposits from the general public and investing those deposits,
together with other available funds, in mortgage loans secured by
one-to-four-family residential real estate, and to a lesser extent, loans
secured by multi-family residential and commercial real estate. First Federal
also originates a variety of consumer loans, and invests in mortgage-backed
securities and other short-term investments, including U.S. Government and
federal agency securities and other marketable securities. First Federal
originates and purchases loans for investment and for sale, generally retaining
the servicing rights from all loans sold. First Federal's revenues are derived
principally from interest on its mortgage loans, consumer loans, mortgage-backed
and investment securities, loan fees and servicing income, and other
non-interest income. First Federal's primary sources of funds are deposits and
principal and interest payments on loans and mortgage-backed securities, FHLB
advances and reverse repurchase agreements.
First Federal is a community-oriented savings institution offering
a variety of financial products and services to meet the needs of the
communities it serves. First Federal's deposit gathering area is concentrated in
the neighborhoods surrounding its six full service offices, located in the
northern Illinois cities of Rockford, Machesney Park, and Rochelle. First
Federal's residential mortgage lending base primarily covers the same area and
extends, to a lesser extent, to the Chicago, Illinois and Des Moines, Iowa
metropolitan areas, where First Federal operates two of its three mortgage
origination offices. Its multi-family and commercial real estate lending area
extends beyond these areas to southern Wisconsin. First Federal's home office is
located in Rockford, Illinois, where approximately 90% of its deposits
originate. Management believes that all of its offices are located in
communities that can generally be characterized as including stable, residential
neighborhoods of predominantly one-to-four-family residences. Additionally, from
the early 1980's, the Chicago metropolitan market has grown westward towards
Rockford and First Federal's market area. Adding to the westward growth are
significant developments including corporate offices for both Sears and
Ameritech.
Lending Activities
Loan and Mortgage-Backed Securities Portfolio Compositions. First
Federal's loan portfolio consists primarily of conventional first mortgage loans
secured by one-to-four-family residences and, to a lesser extent, multi-family
residences. At September 30, 1994, First Federal's total mortgage loans held for
investment were $205.6 million, of which $147.4 million were one-to-four family
residential mortgage loans, or 60.0% of First Federal's total loans held for
investment. At the same date, multi-family residential mortgage loans totalled
$22.0 million or 9.0% of total loans held for investment. The remainder of First
<PAGE>
Federal's mortgage loans held for investment, at September 30, 1994, consisted
of $19.0 million of commercial real estate loans, or 7.7% of total loans held
for investment and $17.2 million of construction loans, or 7.0% of total loans
held for investment.
At June 30, 1994, these portfolios included loans with adjustable
interest rates as follows: 47.3% of one-to-four family mortgage loans, 51.2% of
multi-family residential mortgage loans, 16.6% of commercial mortgage loans, and
100% of construction loans.
Consumer loans held for investment by First Federal were $39.8
million or 16.2% of total loans held for investment at September 30, 1994, and
consisted principally of home equity and secured installment loans.
First Federal also invests in mortgage-backed securities. At
September 30, 1994, total mortgage-backed securities aggregated $50.8 million,
or 12.5% of total assets. As of September 30, 1994, mortgage-backed securities
were insured or guaranteed by either the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC"), or in the case of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"), backed by the collateral of such agencies.
<PAGE>
The following table sets forth the composition of First Federal's
loans held for investment portfolio and mortgage-backed securities portfolio in
dollar amounts and in percentage of the respective portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At September 30, At June 30,
-----------------------------------------------------------------
1994 1994 1993 1992
------------------------- --------------------- ---------------------- -----------------
Percent Percent Percent Percent
Amount Of Total Amount Of Total Amount Of Total Amount Of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family $147,361 60.04% $136,488 58.85% $103,539 52.43% $106,764 52.16%
Multi-family 21,984 8.96 23,430 10.10 26,706 13.52 27,385 13.37
Commercial 18,984 7.74 19,453 8.39 20,334 10.30 21,057 10.29
Construction 17,246 7.03 15,466 6.67 13,507 6.84 17,679 8.64
--------- ------ --------- ------ ---------- ------ --------- ------
Total mortgage loans
held for investment 205,575 83.77 194,837 84.01 164,086 83.09 172,885 84.46
Consumer loans 39,841 16.23 37,080 15.99 33,385 16.91 31,808 15.54
--------- ------ --------- ------ ---------- ------ --------- ------
Total loans held for investment 245,416 100.00% 231,917 100.00% 197,471 100.00% 204,693 100.00%
====== ====== ====== ======
Less:
Loans in process 6,446 7,022 6,085 7,294
Unearned discounts,
premiums and deferred
loan fees, net (532) (523) (228) 851
Allowance for loan losses 2,738 2,766 2,543 2,435
--------- --------- --------- ---------
Loans held for investment, net $236,764 $222,652 $189,071 $194,113
======== ======== ======== ========
Mortgage-backed securities:
CMOs and REMICs $ 12,833 24.75% $ 14,065 25.91% $ 6,781 12.65% $ 5,241 10.01%
FHLMC 13,890 26.79 14,594 26.89 12,263 22.87 9,870 18.85
FNMA 8,304 16.01 8,249 15.20 11,055 20.62 3,794 7.25
GNMA 5,146 9.92 4,581 8.44 2,140 3.99 2,902 5.54
FHLMC securing CMO (1) 11,686 22.53 12,786 23,56 21,374 39.87 30,544 58.35
-------- ------ -------- ------ ------ ------ -------- ------
Total mortgage-backed securities 51,859 100.00% 54,275 100.00% 53,613 100.00% 52,351 100.00%
====== ====== ====== ======
Mark-to-market adjustment (1,720) -- -- --
Net premiums and (discounts) 697 755 620 170
-------- --------- ------- ---------
Net mortgage-backed securities $ 50,836 $ 55,030 $ 54,233 $ 52,521
======== ======== ======== ========
</TABLE>
TABLE CONTINUED
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------
1991 1990
------------------------- -------------------
Percent Percent
Amount Of Total Amount Of Total
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to-four family $136,679 57.11% $163,482 61.27%
Multi-family 28,584 11.94 29,885 11.20
Commercial 27,991 11.70 27,873 10.44
Construction 11.619 4.86 13,102 4.91
-------- ------ -------- -----
Total mortgage loans
held for investment 204,873 85.61 234,342 87.82
Consumer loans 34,447 14.39 32,487 12.18
-------- ------ --------- -----
Total loans held for investment 239,320 100.00% 266,829 100.00%
====== ======
Less:
Loans in process 4,881 5,704
Unearned discounts,
premiums and deferred
loan fees, net 2,072 3,631
Allowance for loan losses 612 272
--------- -------
Loans held for investment, net $231,755 $257,222
======== ========
Mortgage-backed securities:
CMOs and REMICs $ 4,009 6.73% $ 1,835 2.90%
FHLMC 7,381 12.39 7,409 11.72
FNMA 3,284 5.51 3,713 5.87
GNMA 5,189 8.71 5,772 9.13
FHLMC securing CMO (1) 39,722 66.66 44,505 70.38
-------- ------ ------- -----
Total mortgage-backed securities 59,585 100.00% 63,234 100.00%
====== =====
Mark-to-market adjustment -- --
Net premiums and (discounts) 20 (25)
-------- --------
Net mortgage-backed securities $ 59,605 $ 63,209
======== =======
<FN>
(1) These securities are pledged to secure certain collateralized mortgage
obligations issued in 1985.
</TABLE>
<PAGE>
The following table shows the maturity of First Federal's loans held
for investment and mortgage-backed securities portfolio at June 30, 1994. The
table does not include prepayments or scheduled principal amortization. Payments
and scheduled amortization on mortgage loans totaled $ 74.8 million, $77.5
million and $78.7 million for the years ended June 30, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
At June 30, 1994
---------------------------------------------------------------------------------------------------------
Totals
--------------------------------------
One-to- Total Mortgage-
Four- Multi- Loans Backed
Family Family Commercial Construction Consumer Receivable Securities Total
--------- -------- ---------- ------------ -------- ---------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 189 $ 828 $ 1,929 $15,466 $ 3,547 $ 21,959 $ 112 $ 22,071
After one year:
One to five years 23,880 14,568 14,476 -- 32,009 84,933 9,168 94,101
Five to ten years 41,166 1,184 603 -- 1,300 44,253 3,444 47,697
Over ten years 71,253 6,850 2,445 -- 224 80,772 41,551 122,323
--------- -------- -------- ---------- -------- --------- ------- --------
Total due after one
year 136,299 22,602 17,524 -- 33,533 209,958 54,163 264,121
--------- ------- -------- ---------- ------- --------- ------- --------
Total amounts due 136,488 23,430 19,453 15,466 37,080 231,917 54,275 286,192
Less:
Loans in process 37 -- -- 6,985 -- 7,022 -- 7,022
Unearned discounts,
premiums and
deferred loan fees,
net (531) -- -- -- 8 (523) (755) (1,278)
Allowance for loan
losses 996 -- 1,171 203 396 2,766 -- 2,766
---------- ---------- -------- -------- -------- --------- ---------- ---------
Loans held for invest-
ment and mortgage-
backed securities $135,986 $23,430 $18,282 $ 8,278 $36,676 $222,652 $55,030 $277,682
======== ======= ======= ======= ======= ======== ======= ========
</TABLE>
The following table sets forth at June 30, 1994, the dollar amount
of all loans held for investment contractually due after June 30, 1995, and
whether such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After June 30, 1995
--------------------------------------
Fixed Adjustable Total
------- ------------ -------
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One-to-four family $ 71,740 $64,559 $136,299
Multi-family 10,607 11,995 22,602
Commercial real estate 14,285 3,239 17,524
Consumer loans 25,980 7,553 33,533
-------- -------- ---------
Total loans held for investment $122,612 $87,346 $209,958
======== ======= ========
</TABLE>
<PAGE>
Origination, Purchase, Sale and Servicing of Residential Mortgage
Loans. First Federal originates and purchases fixed-rate mortgage loans
primarily for sale in the secondary market through securitization by FNMA,
FHLMC, and GNMA, and retains a substantial majority of the servicing rights on
all such loans sold. First Federal's origination activities are conducted
primarily through its home office and four mortgage origination offices. At
September 30, 1994, First Federal's loans held for sale were $9.7 million,
consisting of 129 loans. In addition, First Federal has entered into agreements
with mortgage loan originators ("Correspondents") to purchase one-to-four family
loans that are originated and underwritten in conformity with First Federal's
standards and agency guidelines. First Federal has maintained relationships with
ten to fifteen Correspondents at any one time, who are generally located in the
Chicago metropolitan area. First Federal's policies require all Correspondents
to be approved by the Board. Loans purchased from Correspondents are normally
processed and closed by the Correspondents and separately underwritten by First
Federal. First Federal's policies provide that all originations and purchases of
one-to-four family residential mortgage loans conform to the applicable agency
or investor guidelines.
First Federal generally sells all long term fixed-rate mortgage
loans originated or purchased on a non-recourse basis and retains all
adjustable-rate, five year balloon, and ten year fully-amortizing mortgage
loans. First Federal typically retains the servicing rights on all originated
and purchased loans, and in addition, has purchased servicing rights related to
mortgage loans originated by other institutions. The gross servicing fee income
is generally 1/4% to 1/2% of the total balance of the loans serviced. For the
year ended June 30, 1994, sales of loans were $307.1 million, a decrease of
17.7% from the previous year, which was due primarily to the decreased loan
volume from refinancing activity in the fourth quarter of fiscal 1994. At
September 30, 1994, loans with an outstanding balance of $965 million were
serviced for others by First Federal, including $198.9 million in loans, the
servicing rights of which were purchased, and $181.6 million in loans, the
servicing rights of which were retained from loans purchased from
Correspondents, and $77.1 million which were subserviced for others. For
servicing rights retained from originated and purchased loans sold, First
Federal recognizes the present value of the income attributable to excess
servicing rights upon sale. First Federal amortizes the net excess servicing
asset or "imputed gains" over the period of estimated servicing income. Such
amortization is increased by provisions charged to operations to reflect
accelerated prepayment experience, which affects estimated future net servicing
revenue. At September 30, 1994, First Federal's net excess servicing asset was
$1.4 million.
First Federal engages in certain hedging activities to facilitate
the sale of its originated and purchased mortgage loans in an attempt to
minimize interest rate risk from the time the loan applications are made to the
time until the loans are securitized or packaged and sold. A variety of hedging
instruments are utilized by First Federal, including but not limited to forward
cash sales to FNMA, FHLMC, and other approved investors, forward mortgage-backed
security sales to primary security dealers, sales or purchases of
over-the-counter put and call options related to mortgage-backed securities,
purchases or sales of exchange traded options on interest rate futures contracts
related to mortgage-backed securities, and purchases or sales of interest rate
futures contracts related to mortgage-backed securities.
Generally, First Federal will enter into contracts to deliver
agency mortgage-backed securities to primary security dealers at a future date
for a specified price while First Federal simultaneously processes and closes
loans, thereby protecting the price of currently processed loans from interest
rate fluctuations that may occur from application to sale. As loans are closed
and funded, they are pooled to create mortgage-backed securities which will be
delivered to fulfill the contracts with the primary dealers. In order to assure
its ability to deliver the mortgage loans or mortgage-backed securities, First
Federal may enter into agreements to buy or sell loans or securities and/or buy
and sell options to take delivery or to deliver loans or securities to cover any
shortfall or excess of loans. First Federal limits its risk of non-delivery or
non-payment on loan sale and purchase transactions by dealing only with primary
security dealers, FNMA, FHLMC, other approved investors, and Board approved
Correspondents. For the year ended June 30, 1994, First Federal had gains of
$961,000 attributable to the sale of loans which includes hedging gains and
losses. For the quarter ended September 30, 1994, First Federal had losses of
$83,000 attributable to loan sales including hedging gains and losses.
<PAGE>
One-to-Four Family Lending. First Federal primarily originates
first mortgage loans secured by one-to-four family residences, including town
house and condominium units. Typically, such residences are single or two-family
homes that serve as the primary residence of the owner. To a lesser extent,
First Federal also originates loans secured by non-owner occupied one-to-four
family residential real estate. Loan applications are customarily obtained from
existing or past customers, members of local communities, First Federal's
mortgage origination offices, local real estate agent referrals and
builder/developer referrals within First Federal's market area. First Federal
offers fixed-rate and adjustable-rate ("ARM") loans which are generally
amortized over 15 or 30 years, with terms of up to 30 years. Interest rates
charged on fixed-rate loans are priced based on market conditions. First Federal
earns origination fees and fees for related origination expenses such as
appraisals and other closing costs on all one-to-four family residential
mortgage loans. Generally, all residential mortgage loans originated by First
Federal or purchased from Correspondents are underwritten in conformity with the
FHLMC, FNMA, GNMA, FHA or VA guidelines. First Federal sells substantially all
long term fixed rate one-to-four family residential first mortgage loans,
retaining the servicing rights to such loans, and generally retains all ARM,
five-year balloon and ten year fully-amortizing loans.
First Federal offers ARM loans on which interest rates are adjusted
based on a spread above an agreed upon index, such as a U.S. Treasury Index.
Interest rates and origination fees on ARM loans are priced to be competitive in
the local market. First Federal's ARM loan interest rates are generally subject
to an annual limitation on interest rate increases or decreases with a lifetime
cap on the increase in the interest rate of 6%. These limits, based on the
initial rate, help to reduce the interest rate sensitivity of such loans during
periods of changing interest rates. However, during periods of rising interest
rates, the increase in the borrower's monthly payment may increase the
likelihood of delinquencies. First Federal's ARM loans do not provide for
negative amortization.
First Federal currently offers two balloon mortgage loan programs
which contain a conditional right to refinance: a 5/25 and a 7/23 loan. The
initial interest rate is for either a five or seven year period, and at the end
of this period, if certain conditions are met, the loan may be extended for the
remaining 25 or 23 years at a rate equal to the FNMA published net yield for a
thirty year fixed rate mortgage, rounded to the nearest eighth percent, plus
one-half percent.
First Federal generally makes first mortgage loans secured by
one-to-four family, owner-occupied residential real estate in amounts up to 80%
of the lower of the purchase price or appraised value. First Federal, however,
will originate first mortgage loans secured by single family owner-occupied
properties in amounts up to 95% of the lower of the purchase price or appraised
value and single-family owner-occupied FHA insured and VA guaranteed loans with
loan to value ratios of up to the agency limits. First Federal also originates
first mortgage loans secured by one-to-four family residential investment
properties in amounts up to 70% of the appraised value of the property. It is
First Federal's policy to require private mortgage insurance ("PMI") on any
conventional loan with a loan to value ratio or loan to purchase price ratio
greater than 80%. In addition, First Federal generally requires certain housing
expense to income ratios and monthly debt payment to income ratios for all
borrowers which vary depending on the loan to value ratio. Substantially all
mortgage loans originated by First Federal include due-on-transfer clauses which
provide First Federal with the contractual right to deem the loan immediately
due and payable, in most instances, in the event that the borrower transfers
ownership of the property without First Federal's consent. It is First Federal's
policy to enforce due-on-transfer provisions. At September 30, 1994, $147.4
million or 60.0% of First Federal's total loans held for investment consisted of
one-to-four family first mortgage loans.
Multi-Family, Commercial Real Estate and Construction Lending.
First Federal originates fixed and adjustable rate multi-family loans (five
units or more), commercial real estate loans and construction loans. First
Federal to a lesser extent purchases or participates in such loans. First
Federal's lending area for originated and purchased multi-family, commercial and
construction lending is generally the same as its primary market area for its
one-to-four family residential mortgage loans, namely, the greater Rockford,
Chicago and Des Moines areas, but also extends to southern Wisconsin. First
Federal's policy limits the amount of a new loan to $1,000,000, with exceptions
when conditions warrant, subject to Board approval. The loans generally have
terms up to 5 years with amortization of up to 30 years. First Federal
customarily charges origination fees of 1% of the loan amount for newly
originated loans and lesser fees for renewals or
<PAGE>
modifications of existing loans. First Federal's policies generally require
personal guarantees from the borrowers with joint and several liability. First
Federal's underwriting decisions relating to these loans are primarily based
upon the net operating income generated by the property in relation to the debt
service ("debt coverage ratio"), the borrower's cash-at-risk position, financial
resources and income, the borrower's experience in owning or managing similar
property, the marketability of the property and First Federal's lending
relationship with the borrower. At September 30, 1994, $58.2 million or 23.7% of
First Federal's loans held for investment consisted of multi-family, commercial
real estate and construction loans.
First Federal's multi-family loans are typically secured by
residential properties containing 6, 8 or 12 dwelling units located in its
primary market area. First Federal makes such loans in amounts up to 80% of the
appraised value of the property. First Federal generally requires debt coverage
ratios of 1.15 on properties that are 10 years old or less and 1.20 on all other
properties. Multi-family loans are offered with fixed or adjustable interest
rates. Fixed rate loans generally bear interest of 225 to 300 basis points over
the equivalent term U.S. Treasury issue and adjustable rate loans generally bear
initial rates of 250 basis points over the equivalent term U.S. Treasury issue
and adjust periodically to 300 basis points over the equivalent term U.S.
Treasury issue. First Federal offers commercial real estate loans typically
secured by office buildings, retail shopping centers, light industrial/warehouse
facilities, medical facilities and ecumenical buildings. First Federal
customarily makes such loans in amounts up to 80% of the appraised value of the
property and requires debt coverage ratios of at least 1.15. First Federal
offers fixed and adjustable rate commercial real estate loans pursuant to the
same interest terms applicable to multi-family loans. In addition to originating
commercial real estate loans, First Federal to a lesser extent purchases
commercial real estate loans or participates in such loans originated by other
institutions. At September 30, 1994, First Federal's commercial real estate loan
portfolio totalled $19.0 million, or 7.7% of First Federal's total loans held
for investment.
First Federal's construction loans principally finance the
construction of owner-occupied, one-to-four family residential properties.
Preference is given to contractors with whom First Federal has had long-term
successful relationships. Substantially all of these loans are made to builders
and to borrowers who have obtained permanent loan commitments. These loans are
generally made in amounts which do not exceed 90% of the appraised value of the
property. All other construction loans are made in amounts up to 80% of
appraised value of the property and First Federal's policies require the
borrowers to have a minimum of 10% of the "hard dollar" cost of the property at
risk. First Federal's policies also require personal guarantees by the borrowers
with joint and several liability on all construction loans. First Federal's
construction loans generally have terms of 6 months which bear adjustable
interest rates of 1% to 2% over the prime rate. Loan proceeds are disbursed in
increments as construction progresses and as property inspections warrant. At
September 30, 1994, $17.2 million or 7.0% of First Federal's total loans held
for investment consisted of construction loans.
Consumer Lending. First Federal also offers a variety of consumer
loans which primarily consist of home equity loans, but which also include
installment loans secured by automobiles, boats and recreational vehicles,
student loans and other secured and unsecured consumer loans. First Federal
currently offers its customers, on an agency basis, credit cards funded by
another institution. First Federal's home equity loans consist of fixed and
adjustable rate mortgage loans secured by mortgages on single family
owner-occupied residential properties located in its primary market area. The
second mortgage loan products are currently offered in two formats, 5 year
interest-only adjustable-rate home equity revolving lines of credit and
fixed-rate fixed-term loans with terms of 5 years or less. At September 30,
1994, $39.8 million or 16.2% of First Federal's loans held for investment
consisted of consumer loans.
Loan Approval Procedures and Authority. Designated officers have
authority to approve loans up to specified dollar amounts. One-to-four family
first mortgage loans conforming to agency standards and fitting existing
commitments in the secondary market may be approved by the Senior Vice
President-Real Estate Lending Division, Vice President-Secondary Marketing
Department and designated underwriters up to the agency maximum loan
limitations. Non-conforming one-to-four family first mortgage loans may be
approved by the Senior Vice President-Real Estate Lending Division in amounts up
to $300,000, provided a secondary market commitment exists. Secured and
unsecured consumer loans may be approved by the Vice
<PAGE>
President-Consumer Loan Department and designated underwriters in amounts up to
$50,000 and $10,000, respectively. First Federal's policies provide that all
other loans are to be approved by the Board or certain committees which include
Board members. In this regard, First Federal's policies provide that all
multi-family and commercial real estate loans, all construction loans over
$150,000, all unsecured consumer loans over $10,000 and secured consumer loans
over $75,000 require approval of at least one Board member. All multi-family and
commercial real estate loans over $500,000 and one-to-four family construction
loans over $500,000 require approval by a majority of the Board.
For all loans originated by First Federal, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered. For all mortgage loans and certain other loans, income and certain
other information is verified and additional financial information is obtained,
if necessary. All borrowers of one-to-four family residential mortgage loans are
qualified pursuant to applicable agency guidelines. First Federal's policies
require appraisals on all real estate intended to secure a proposed loan, which
are performed by independent or staff appraisers designated and approved by
First Federal. Further, for all loan transactions of $1 million or more,
non-residential transactions of $250,000 or more and complex residential
transactions of $250,000 or more, First Federal requires appraisals conducted by
state certified appraisers. The Board annually approves the independent
appraisers used by First Federal and reviews First Federal's appraisal policy.
It is First Federal's policy to obtain title insurance on all real estate first
mortgage loans. Borrowers must also obtain hazard insurance prior to closing.
Borrowers generally are required to advance funds on a monthly basis together
with each payment of principal and interest to a mortgage escrow account from
which First Federal makes disbursements for items such as real estate taxes and
hazard insurance premiums.
Mortgage-Backed Securities. First Federal also invests in
mortgage-backed securities. At September 30, 1994, mortgage-backed securities
totalled $50.8 million or 12.5% of total assets, including $11.7 million of
FHLMC securities which are pledged. See "Sources of Funds--Borrowings." Included
in the total mortgage-backed securities are CMOs and REMICs which had a
historical cost of $12.8 million. First Federal's policies require that the CMOs
and REMICs purchased be rated in one of the two highest rating categories by a
nationally recognized rating agency. At September 30, 1994, First Federal's
mortgage-backed securities portfolio was directly insured or guaranteed by GNMA,
FNMA or FHLMC, or in the case of CMO and REMIC securities, backed by the
collateral of such agencies. At such date, the mortgage-backed securities
portfolio had a weighted average interest rate of 7.02%.
<PAGE>
The following table sets forth First Federal's loan originations,
loan and mortgage-backed securities purchases, sales, principal repayments and
other activity for the periods indicated.
<TABLE>
<CAPTION>
Quarter
Ended
September 30, Year Ended June 30,
1994 1994 1993 1992 1991 1990
------------- ------ ------ ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans (gross):
At beginning of period $194,837 $164,086 $172,885 $204,873 $234,342 $265,639
Mortgage loans originated:
One-to-four family 22,853 266,795 298,583 199,183 94,180 114,804
Multi-family 541 6,546 9,113 8,946 2,486 4,870
Commercial real estate 335 7,476 8,736 11,933 4,275 9,298
Construction loans 5,442 27,017 23,224 20,958 14,933 20,006
--------- --------- --------- --------- -------- --------
Total mortgage loans originated 29,171 307,834 339,656 241,020 115,874 148,978
--------- -------- -------- -------- -------- --------
Mortgage loans purchased:
One-to-four family 20,426 75,063 122,434 76,586 38,869 46,935
--------- --------- -------- -------- -------- --------
Total mortgage loans purchased 20,426 75,063 122,434 76,586 38,869 46,935
--------- --------- -------- -------- -------- --------
Total mortgage loans originated
and purchased 49,597 382,897 462,090 317,606 154,743 195,913
--------- -------- -------- -------- -------- --------
Transfer of mortgage loans to
real estate owned (137) (187) (696) (636) (666) (1,692)
Principal repayments (11,946) (74,844) (77,514) (78,697) (52,953) (67,607)
Sales of mortgage loans (34,228) (307,117) (373,143) (263,153) (133,505) (160,466)
Net decrease (increase) in
loans held for sale 7,452 30,002 (19,536) (7,108) 2,912 2,555
--------- --------- --------- --------- --------- ---------
At end of period $205,575 $194,837 $164,086 $172,885 $204,873 $234,342
======== ======== ======== ======== ======== ========
Consumer loans (gross):
At beginning of period $ 37,080 $ 33,385 $ 31,808 $ 34,447 $ 32,487 $ 25,329
Consumer loans originated 8,127 23,910 20,729 16,895 16,718 17,015
Principal repayments (5,366) (20,215) (19,152) (19,534) (14,758) (9,857)
--------- --------- -------- -------- -------- ---------
At end of period $ 39,841 $ 37,080 $ 33,385 $ 31,808 $ 34,447 $ 32,487
======== ======== ======== ======== ======== ========
Mortgage-backed securities (net):
At beginning of period $ 55,030 $ 54,233 $ 52,521 $ 59,605 $ 63,209 $ 91,376
Mortgage-backed securities
purchased 1,182 24,543 25,215 9,956 3,443 1,354
Mortgage-backed securities trans-
ferred to held for sale -- -- (5,743) -- -- --
Mortgage-backed securities sold (710) -- -- (3,953) -- (21,627)
Mark-to-market adjustment (1,720) -- -- -- -- --
Principal repayments (2,946) (23,746) (17,760) (13,087) (7,047) (7,894)
--------- -------- -------- -------- --------- ---------
At end of period $ 50,836 $ 55,030 $ 54,233 $ 52,521 $ 59,605 $ 63,209
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Delinquencies and Classified Assets
Delinquent Loans. The Board of Directors performs a monthly review
of delinquent loans. The procedures taken by First Federal with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. First Federal's policies generally provide that delinquent mortgage
loans be reviewed and that a written late charge notice be mailed no later than
the 16th day of delinquency. The policies also require telephone contacts for
loans more than 16 days late to ascertain the reasons for the delinquency and
the prospects of repayment. Face-to-face interviews and collection notices are
generally required for FHA and VA loans more than 30 days delinquent and on a
case by case basis for other mortgage loans. After 60 days, First Federal will
either set a date by which the loan must be brought current, enter into a
written forbearance agreement, foreclose on any collateral or take other
appropriate action. First Federal's policies regarding delinquent consumer loans
are similar except that telephone contacts and correspondence will generally
occur after a consumer loan is more than 15 days delinquent. It is First
Federal's policy to continue to accrue interest on all loans 90 days past due
and discontinue the accrual of interest on a case-by-case basis. First Federal
will cease the accrual of interest on loans and establish a reserve upon a
determination that the loan may result in a loss. Property acquired by First
Federal as a result of a foreclosure on a mortgage loan is classified as real
estate owned and is recorded at the lower of the unpaid principal balance or
fair value at the date of acquisition and subsequently carried at the lower of
cost or net realizable value.
Classified Assets. Federal regulations require the classification
of loans and other assets such as debt and equity securities, considered by the
OTS to be of lesser quality, as "substandard," "doubtful" or "loss" assets.
First Federal's classification policies provide that assets will be classified
according to OTS regulations. An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. Substandard assets include those
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified substandard,
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, conditions, and
values, highly questionable and improbable. Assets classified as "loss" are
those considered uncollectible and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
First Federal's policies provide that the Classification of Assets
Committee and Board of Directors review a report of all classified assets on a
monthly basis and that such classified asset reports be provided to the OTS on a
quarterly basis. When First Federal determines that an asset should be
classified, it generally does not establish a specific allowance for such asset
unless it determines that such asset may result in a loss. First Federal may,
however, increase its general valuation allowance in an amount deemed prudent.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. First Federal's policy provides for the establishment of a
specific allowance equal to 100% of the amount of an asset classified as "loss"
or to charge-off such amount. A savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS which can order the establishment of additional
general or specific loss allowances. First Federal reviews the problem loans in
its portfolio on a monthly basis to determine whether any loans require
classification in accordance with applicable regulations, and believes its
classification policies are consistent with OTS policies.
<PAGE>
Delinquent Loans. At June 30, 1994, 1993 and 1992, delinquencies in First
Federal's held for investment portfolio were as follows:
<TABLE>
<CAPTION>
At June 30, 1994 At June 30, 1993
----------------------------------------------- -------------------------------------------------
60 - 89 Days 90 Days Or More 60 - 89 Days 90 Days Or More
-------------------- ------------------ --------------------
Number Principal Number Principal Number Principal Number Principal
Of Balance Of Balance Of Balance Of Balance
Loans Of Loans Loans Of Loans Loans Of Loans Loans Of Loans
------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family 8 $189 26 $ 899 14 $385 43 $1,616
Multi-family -- -- 3 505 -- -- 2 235
Commercial 1 199 -- -- -- -- 2 348
Construction -- -- -- -- -- -- -- --
Consumer loans 3 15 19 75 10 24 18 43
-- ----- -- ------ -- ----- -- ------
Total loans 12 $403 48 $1,479 24 $409 65 $2,242
== ==== == ====== == ==== == ======
Delinquent loans to
total loans held
for investment 0.18% 0.66% 0.22% 1.19%
==== ==== ==== ====
</TABLE>
TABLE CONTINUED
<TABLE>
<CAPTION>
At June 30, 1992
------------------------------------------------
60 - 89 Days 90 Days Or More
-------------------- ---------------------
Number Principal Number Principal
Of Balance Of Balance
Loans Of Loans Loans Of Loans
------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to-four family 14 $324 44 $1,484
Multi-family -- -- -- --
Commercial -- -- 2 61
Construction -- -- 3 823
Consumer loans 13 26 10 43
-- ----- -- -------
Total loans 27 $350 59 $2,411
== ==== == ======
Delinquent loans to
total loans held
for investment 0.18% 1.24%
==== ====
</TABLE>
<PAGE>
Non-performing Assets. The following table sets forth information
regarding loans which are 90 days or more delinquent, non-accrual loans and
other real estate owned. First Federal continues accruing interest on loans 90
days past due. Upon determination that the loan will result in a loss, First
Federal discontinues the accrual of interest and/or establishes a reserve in the
amount of the anticipated loss. For the fiscal year ended June 30, 1994, First
Federal recognized interest income of $103,076 on loans more than 90 days past
due as of such date. First Federal recorded income of $27,700 on all non-accrual
loans at June 30, 1994 for the fiscal year ended June 30, 1994. If all
non-accrual loans, at June 30, 1994 had been currently performing in accordance
with their original terms, First Federal would have recognized interest income
from such loans of $37,985 for the fiscal year ended June 30, 1994. There were
no other non-performing assets except as included in the table below for the
dates indicated.
<TABLE>
<CAPTION>
At
September 30, At June 30,
-----------------------------------------
1994 1994 1993 1992
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Mortgage loans delinquent 90 days or more $1,013 $1,037 $1,132 $ 176
Nonaccrual delinquent mortgage loans 225 395 1,110 2,294
Consumer loans delinquent 90 days or more 52 75 43 43
------- ------- ------- -------
Total non-performing loans 1,290 1,507 2,285 2,513
Total real estate owned, net of related
allowance for losses (1) 1,784 1,697 1,935 6,026
------ ------ ------ ------
Total non-performing assets $3,074 $3,204 $4,220 $8,539
====== ====== ====== ======
Non-performing loans to loans held for
investment 0.54% 0.68% 1.21% 1.29%
Total non-performing assets to total assets 0.75% 0.78% 1.02% 2.30%
</TABLE>
TABLE CONTINUED
<TABLE>
<CAPTION>
At June 30,
1991 1990
----------- ---------
<S> <C> <C>
Mortgage loans delinquent 90 days or more $ 971 $ 1,115
Nonaccrual delinquent mortgage loans 1,320 1,170
Consumer loans delinquent 90 days or more 164 117
------- -------
Total non-performing loans 2,455 2,402
Total real estate owned, net of related
allowance for losses (1) 7,012 8,131
------ -------
Total non-performing assets $9,467 $10,533
====== =======
Non-performing loans to loans held for
investment 1.06% 0.93%
Total non-performing assets to total assets 2.41% 2.48%
<FN>
(1) Decrease in 1993 due to the transfer of one property with a carrying value of $3.9 million to real estate held for sale.
</TABLE>
<PAGE>
All assets classified by First Federal as substandard, doubtful or
loss are included in non-performing loans delinquent 90 days or more or in real
estate owned. As of September 30, 1994, First Federal had $3,080,301, $5,739 and
$2,193,594 of assets classified as substandard, doubtful and loss.
Classified assets include a 57,870 square foot shopping center
located in Fort Worth, Texas, owned by First Federal as a result of foreclosure
upon the property in 1986. First Federal originally purchased a 90%
participation in a loan secured by this property in 1983. As a result of the
lead lending institution's failure in 1985, the FDIC assumed control of the
remaining 10% which First Federal purchased in 1991. As of December 31, 1994,
the property had a net carrying value of $1.0 million, which is classified as
substandard. A specific valuation allowance of $2.8 million had been established
for the property for the amount that is classified as a loss. An April 1991
appraisal estimates the market value of the property to be $2.3 million.
Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on management's evaluation
of the risk inherent in its loan portfolio and the general economy. Such
evaluation, which includes a review of all loans on which full collectibility
may not be reasonably assured, considers among other matters the estimated net
realizable value of the underlying collateral, national and regional economic
conditions, trends in the real estate markets in its primary market area,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan loss allowance. In recent years, in response to
the general decline in the economic conditions of its primary market area and
national economy in general, management has, from time to time, increased its
provision to account for its evaluation of the potential effects of such
declines. The increase in the allowance for the year ended June 30, 1994
reflects management's evaluation of the risks inherent in its loan portfolio.
Management will continue to monitor and modify allowances for loan losses as
conditions dictate. Although management maintains allowances at levels which it
considers adequate to provide for potential losses, there can be no assurances
that such losses will not exceed the estimated amounts or that higher provisions
will not be necessary in the future.
<PAGE>
The following table sets forth the changes in First Federal's
allowance for loan losses and related ratios at the dates indicated.
<TABLE>
<CAPTION>
Quarter
Ended
September 30, Year Ended June 30,
----------------------------------
1994 1994 1993 1992 1991 1990
------------- ------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $2,766 $2,543 $2,435 $ 612 $272 $512
Charge-offs, net (1) (97) (99) (273) (221) (176) (161)
Provision charged to income 69 322 381 2,044 670 381
Transfer to/from losses on REO -- -- -- -- (154) (460)
-------- -------- -------- -------- ---- ----
Balance at end of period $2,738 $2,766 $2,543 $2,435 $612 $272
====== ====== ====== ====== ==== ====
Ratio of net charge-offs during
the period to average loans
outstanding during the period (2) (0.04)% (0.04)% (0.12)% (0.09)% (0.07)% (0.06)%
Ratio of allowance for loan losses
to loans receivable at end of
period 1.11% 1.24% 1.34% 1.25% 0.26% 0.11%
Ratio of allowance for loan losses
to total non-performing assets
at end of period 89.07% 86.33% 60.26% 28.52% 6.46% 2.58%
Ratio of allowance for loan losses
to non-performing loans at end
of period 212.25% 183.54% 111.29% 96.90% 24.93% 11.32%
<FN>
(1) Recoveries are insignificant for all periods reported.
(2) Average loans include loans held for sale.
</TABLE>
The following table sets forth First Federal's allowance for loan
losses to the total amount of loans held for investment in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, 1994 1994 1993 1992
Amount % Amount % Amount % Amount %
(Dollars in thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $ 981 69.00% $ 996 68.95% $ 902 65.95% $ 814 65.53%
Commercial 1,141 7.74 1,171 8.39 1,114 10.30 1,001 10.29
Construction 212 7.03 203 6.67 170 6.84 307 8.64
Consumer loans 404 16.23 396 15.99 357 16.91 313 15.54
------- ------- ------- ------ ------- ------- ------- -------
Total allowance for loan losses $2,738 100.00% $2,766 100.00% $2,543 100.00% $2,435 100.00%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Investment Activities.
Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including United States treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and thrifts, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, First Federal must maintain minimum
levels of investments that qualify as liquid assets under OTS regulations.
Historically, First Federal has maintained liquid assets above the minimum OTS
requirements and at a level believed to be adequate to meet its normal daily
activities.
The investment policy of First Federal, established by the Board of
Directors and implemented by the Asset/Liability Committee, attempts to provide
and maintain liquidity, generate a favorable return on investments without
incurring undue interest rate and credit risk, and complement First Federal's
lending activities. FirstRock invests in securities similar to First Federal. On
September 30, 1994, FirstRock had investment securities in the aggregate amount
of $69.4 million based on historical cost, with a market value of $67.6 million.
The investment securities are classified as available for sale and accounted for
at fair value. At September 30, 1994, FirstRock's investment securities included
mutual fund investments with a market value of $45.4 million.
<PAGE>
The following table sets forth certain information regarding the
historical cost, carrying value and market value of FirstRock's investment
security portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At June 30,
1994 1994 1993
--------------------------- ------------------------ ---------
Historical Market Carrying Market Carrying
Cost Value Value Value Value
---------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Interest-earning deposits:
FHLB daily investment $ 768 $ 768 $ 4,582 $ 4,582 $17,282
Other daily investments 217 217 214 214 5,000
-------- -------- -------- -------- --------
Total interest-earning deposits $ 985 $ 985 $ 4,796 $ 4,796 $22,282
======== ======== ======= ======= =======
Investment securities:
Held for sale, Real Estate Investment
Trust $ 2,371 $ 2,457 $ 2,371 $ 2,886 $ --
Mutual funds 47,041 45,440 44,821 44,821 35,602
U.S. Government securities and agency
obligations 17,035 16,766 17,169 16,906 21,429
FHLB-Chicago stock 2,226 2,226 2,226 2,226 2,431
Other investments 750 746 750 750 1,764
-------- -------- -------- -------- --------
Total investment securities $69,423 $67,635 $67,337 $67,589 $61,226
======= ======= ======= ======= =======
</TABLE>
TABLE CONTINUED
<TABLE>
<CAPTION>
At June 30,
1993 1992
---------- ------- --------
Market Carrying Market
Value Value Value
---------- ------- --------
<S> <C> <C> <C>
Interest-earning deposits:
FHLB daily investment $17,282 $34,613 $34,613
Other daily investments 5,000 3,000 3,000
-------- -------- --------
Total interest-earning deposits $22,282 $37,613 $37,613
======= ======= =======
Investment securities:
Held for sale, Real Estate Investment
Trust $ -- $ -- $ --
Mutual funds 35,624 9,075 9,079
U.S. Government securities and agency
obligations 21,682 10,148 10,188
FHLB-Chicago stock 2,431 2,494 2,494
Other investments 1,789 4,976 4,952
------- -------- --------
Total investment securities $61,526 $26,693 $26,713
======= ======= =======
</TABLE>
The table below sets forth certain information regarding the
weighted average life, historical cost, market value and weighted average yield
of FirstRock's investment securities at September 30, 1994.
<TABLE>
<CAPTION>
Average
Remaining Approximate Weighted
Years To Historical Market Average
Maturity Cost Value Yield
(Dollars in thousands)
<S> <C> <C> <C> <C>
Held for sale, Real Estate Investment
Trust (1) -- $ 2,371 $ 2,457 8.50%
Mutual funds (1) -- 47,041 45,440 5.04%
U.S. Government securities and agency
obligation (2) 3.204 17,035 16,766 5.05%
FHLB-Chicago stock (1) -- 2,226 2,226 5.50%
Other investments 0.833 750 746 5.65%
----- -------- ------- ----
Total investment securities 3.069 $69,423 $67,635 5.18%
===== ======= ======= ====
<FN>
(1) Included for total purposes only, such securities do not have fixed
maturities.
(2) All of the securities in this category mature or reprice within
42 months.
</TABLE>
<PAGE>
Sources of Funds
General. Deposits, loan and mortgage-backed security repayments,
retained earnings, FHLBChicago advances and reverse repurchase agreements are
the primary sources of First Federal's funds for use in lending, investing and
for other general purposes.
Deposits. First Federal offers a variety of deposit accounts
having a range of interest rates and terms. First Federal's deposits consist of
passbook savings, NOW, SuperNow, money market and certificate accounts. The flow
of deposits is influenced significantly by general economic conditions, changes
in money market rates, prevailing interest rates and competition. First
Federal's deposits are obtained primarily from the areas in which its home
office is located. First Federal relies primarily on customer service and
long-standing relationships with customers to attract and retain these deposits.
Certificate accounts in excess of $100,000 are not actively solicited by First
Federal nor does First Federal use brokers to obtain deposits. Management
constantly monitors First Federal's deposit accounts and, based on historical
experience, management believes it will retain a large portion of such accounts
upon maturity.
The following table presents, by various rate categories, the
amount and maturities of certificate accounts outstanding at June 30, 1994.
<TABLE>
<CAPTION>
Three Six Months Two to Over
Less Than Months to To One to Three Three
Three Months Six Months One Year Two Years Years Years Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less $16,268 $12,029 $ 8,295 $ 1,283 $ 47 $ -- $ 37,922
4.00% to 4.99% 7,297 15,712 4,032 24,783 2,462 1,431 55,717
5.00% to 5.99% 9,783 7,715 5,524 11,082 6,271 2,540 42,915
6.00% to 7.99% 844 886 2,340 839 1,275 10,116 16,300
8.00% to 9.05% 407 147 159 495 292 748 2,248
-------- --------- -------- -------- -------- -------- --------
Total $34,599 $36,489 $20,350 $38,482 $10,347 $14,835 $155,102
======= ======= ======= ======= ======= ======= ========
</TABLE>
The following table represents the deposit activity of First
Federal for the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Deposits $1,035,937 $1,021,766 $946,369
Withdrawals 1,034,528 1,026,058 973,621
---------- ---------- --------
Net withdrawals 1,409 (4.292) (27,252)
Interest credited on deposits 5,989 7,257 10,987
---------- ---------- --------
Increase (decrease) in deposits $ 7,398 $ 2,965 $ (16,265)
=========== =========== ==========
</TABLE>
Time deposits at September 30, 1994 over $100,000 were as follows:
Maturity Period Amount
(In thousands)
Three months or less $10,452
Over three through six months 3,750
Over six through twelve months 1,101
Over twelve months 5,442
-------
Total $20,745
=======
Deposits. The following table sets forth the distribution of
First Federal's deposit accounts at the dates indicated and the weighted average
nominal interest rates on each category of deposits presented.
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Year Ended June 30,
September 30, 1994 1994 1993
----------------------------- ---------------------------------- ----------------------
Weighted Weighted
Percent Average Percent Average Percent
Average Of Total Nominal Average Of Total Nominal Average Of Total
Balance Deposits Rate Balance Deposits Rate Balance Deposits
------- -------- -------- ------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 47,023 15.71% 1.74% $ 47,891 15.99% 1.85% $ 44,830 15.31%
NOW and SuperNOW
accounts 34,727 11.60 1.09 35,043 11.70 1.16 34,562 11.80
Non-interest bearing Now
accounts 19,602 6.55 -- 18,672 6.22 -- 16,160 5.52
-------- ------ ---- -------- ------ ----- -------- ------
Total Passbook and NOW
accounts 101,352 33.86 101,606 33.91 95,552 32.63
-------- ------ -------- ------- -------- ------
Money market accounts 43,312 14.47 2.13 45,860 15.31 2.17 47,821 16.33
-------- ------ -------- ------- -------- ------
Certificate accounts:
Thirty-one day 1,064 0.36 2.63 1,091 0.36 2.75 921 0.31
Ninety-one day 1,280 0.43 2.81 1,813 0.61 2.92 3,544 1.21
Five to six month 8,842 2.95 2.99 13,613 4.54 3.17 20,599 7.04
Eight to ten month 7,816 2.61 3.38 10,335 3.45 3.40 22,286 7.61
One year 9,632 3.22 3.20 14,485 4.83 3.62 21,987 7.51
Eighteen month 3,165 1.06 4.17 3,991 1.33 3.78 4,996 1.71
Twenty-four to twenty-six
month 30,757 10.28 4.47 22,792 7.61 4.63 11,158 3.81
Thirty month 45,278 15.13 4.96 39,066 13.04 4.99 27,769 9.48
Three to three and one-half
year 16,681 5.57 5.40 18,188 6.07 5.84 13,810 4.72
Five to seven year 19,997 6.68 6.46 19,587 6.55 6.89 14,857 5.07
Jumbos 10,129 3.38 4.46 7,167 2.39 3.29 7,515 2.57
--------- ------ --------- ------ -------- ------
Total certificates 154,641 51.67 152,128 50.78 149,442 51.04
-------- ------ -------- ------ -------- ------
Total deposits $299,305 100.00% $299,594 100.00% $292,815 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
TABLE CONTINUED
<TABLE>
<CAPTION>
Year Ended June 30,
1993 1992
-------- ------------------
Weighted Weighted
Average Percent Average
Nominal Average Of Total Nominal
Rate Balance Deposits Rate
------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Passbook accounts 2.52% $ 39,775 13.29% 4.18%
NOW and SuperNOW
accounts 1.83 32,543 10.88 3.68
Non-interest bearing Now
accounts -- 13,551 4.53 --
-------- ------
Total Passbook and NOW
accounts 85,869 28.70
-------- ------
Money market accounts 2.82 49,728 16.62 4.30
-------- ------
Certificate accounts:
Thirty-one day 3.04 800 0.27 4.38
Ninety-one day 3.64 3,351 1.12 4.86
Five to six month 3.90 25,555 8.54 5.48
Eight to ten month 4.29 40,053 13.39 5.96
One year 4.53 26,790 8.95 6.21
Eighteen month 4.38 5,736 1.92 6.22
Twenty-four to twenty-six
month 5.87 11,106 3.71 7.13
Thirty month 5.62 14,531 4.85 7.61
Three to three and one-half
year 6.91 13,327 4.45 7.64
Five to seven year 7.59 12,518 4.18 8.12
Jumbos 4.13 9,861 3.30 6.17
-------- ------
Total certificates 163,628 54.68
-------- ------
Total deposits $299,225 100.00%
======== ======
</TABLE>
<PAGE>
Borrowings. Although deposits are First Federal's primary source of
funds, borrowings are utilized as an alternative or less costly source of funds.
First Federal obtains advances from the FHLB-Chicago. These advances are
collateralized by the capital stock of the FHLB-Chicago held by First Federal
and certain of First Federal's mortgage loans. Such advances are made pursuant
to several different credit programs, each of which has its own interest rate
and range of maturities. The maximum amount that the FHLB-Chicago will advance
to member institutions, including First Federal, for purposes other than meeting
withdrawals, fluctuates from time to time in accordance with the policies of the
OTS and the FHLB-Chicago. The maximum amount of FHLB-Chicago advances to a
member institution generally is reduced by borrowings from any other source. At
September 30, 1994, First Federal's FHLB-Chicago advances totalled $18.2
million, of which $407,000 relate to First Federal's involvement in affordable
housing programs. In addition, First Federal borrows money through reverse
repurchase agreements, which were $10.4 million at September 30, 1994.
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
At Or For
The Quarter Ended At Or For The Year Ended
---------------------------
September 30, 1994 1994 1993 1992
------------------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Short-term borrowings:
Average balance outstanding $ 14,007 $ 789 $ 150 $150
Maximum amount outstanding at
any month-end during the period 31,057 19,857 150 150
Balance outstanding at end
of period 28,154 19,857 150 150
Weighted average interest rate
during the period 4.50% 3.83% 3.67% 3.67%
Weighted average interest rate at
the end of the period 4.97% 4.69% 3.67% 3.67%
</TABLE>
In June 1985, First Federal, in exchange for approximately $77
million in cash (net after transactional costs), pledged approximately $88
million of FHLMC mortgage-backed securities as collateral for certain
collateralized mortgage obligations ("CMOs") issued by Solomon Capital Access
Corporation (the"Issuer"). The proceeds of this transaction were primarily used
by First Federal to purchase mortgage loans and mortgage-backed securities.
These CMOs are also secured by GNMA and FNMA mortgage-backed securities pledged
by other institutions. In connection with this transaction, First Federal formed
a wholly-owned special purpose finance subsidiary, FFS Funding Corp., Inc.,
which established and pledged to the CMO trustee a $776,000 reserve account. The
other pledgors similarly established special finance subsidiaries and pledged
reserve accounts. The CMOs are repaid from distributions on the pledged
securities. First Federal has no right to retain any distributions from or
income generated by the pledged securities until repayment of the CMOs. After
repayment of the CMOs, First Federal will have the right to any residual
interest in the pledged securities which, if any, is expected to be de minimus.
In the event the monthly distributions from the pledged securities cannot cover
the payments due to CMO holders, the shortfall is paid from the amounts
remaining in the pledged reserve accounts. As of September 30, 1994, the
principal amount of the FHLMC securities pledged was $11.7 million. The average
cost of the CMOs for the year ended June 30, 1994 was 14.34%.
Subsidiary Activities
First Service Corporation, a wholly-owned subsidiary of First
Federal, is engaged in the sale of insurance products and securities brokerage
services primarily to First Federal's customers and members of the local
community. At June 30, 1994, First Service Corporation had $149,000 in total
assets and for the year ended June 30, 1994 had net income of $129,000.
<PAGE>
Megarock Corporation is a wholly-owned subsidiary of First Federal
formed in 1987 for the purpose of entering into a joint venture partnership. The
joint venture was formed to complete development of an apartment project located
in Dallas, Texas. The joint venture purchased the apartment project from First
Federal and other lenders participating in a $9.7 million loan which was
foreclosed upon in 1985. Megarock Corporation had a 28.5% interest in the
completed 208 unit project. In December 1993, the company's interest in the
property was exchanged for shares in a publicly-traded real estate investment
trust, which as of September 30, 1994, had a book value of $2.4 million and a
market value of $2.5 million. The shares are subject to a one year holding
period which will be satisfied in December 1994.
FFS Funding Corp., Inc. is a wholly-owned inactive limited purpose
finance subsidiary formed in 1985 to facilitate the issuance of CMOs. See
"Sources of Funds--Borrowings."
First Federal has two additional wholly-owned subsidiaries which are
inactive, Megavest Corporation and Megavest Financial Services, Inc.
Competition
First Federal faces significant competition both in the origination
of loans and attraction of deposits from thrifts, savings banks, mortgage
banking companies, insurance companies and commercial banks, many of which may
have greater financial and marketing resources. Its most direct competition for
deposits has historically come from other thrifts, savings banks, commercial
banks, and credit unions. Based on total assets at September 30, 1994, First
Federal was the largest thrift institution headquartered in Rockford, Illinois.
First Federal's market share of deposit accounts in Winnebago County was 45% of
all deposits held by savings institutions located in the county and 9.0% of all
deposits held by all banks and thrifts located in the county. First Federal
estimates that of all loan originations in the greater Rockford area,
approximately 10% of such originations are with First Federal. First Federal
faces additional competition for deposits from short-term money market funds and
other corporate and government securities funds. First Federal also faces
increased competition from other financial institutions such as brokerage firms
and insurance companies for deposits. Competition may also increase as a result
of the lifting of restrictions on the interstate operations of financial
institutions and potential regulatory changes in the marketing of mutual funds.
<PAGE>
Properties
First Federal conducts its business through six full service offices
and three mortgage origination offices. FirstRock believes that First Federal's
current facilities are adequate to meet the present and immediately foreseeable
needs of First Federal and FirstRock.
<TABLE>
<CAPTION>
Net Book Value Of
Original Property Or Leasehold
Leased Leased Date Improvements
Or Or Of Lease At
Location Description Owned Acquired Expiration 09/30/94
(In thousands)
<S> <C> <C> <C> <C> <C>
Five Points Branch Retail Branch Owned 06/29/74 $ 586
4400 Center Terrace
Rockford, IL 61108
Rockton Avenue Branch Retail Branch Owned 06/23/86 $ 862
3333 North Rockton Ave.
Rockford, IL 61103
Downtown Building Main Office Building 07/01/57 6/30/2057 $1,206
612 North Main St. Owned/
Rockford, IL 61103 Land Leased
Edgebrook Branch Retail Branch Building 04/01/76 3/31/2016 $ 200
1601 North Alpine Rd. Owned/
Rockford, IL 61107 Land Leased
Machesney Park Branch Retail Branch Building 06/01/81 1/31/2012 $ 171
622 Machesney Rd. with ATM Kiosk Owned/
Machesney Park, IL 61115 Land Leased
Rochelle Branch Retail Branch Leased 03/01/92 2/28/2002 $ 20
Highway 38
Eagle Shopping Center
Rochelle, IL 61068
Des Moines Mortgage
Office Mortgage Office Leased 10/01/92 09/30/95 $ 2
7733 Douglas Avenue
Urbandale, IA 50322
Roselle Mortgage Office Mortgage Office Leased 01/14/91 Monthly $ --
400 West Lake Street
Roselle, IL 60172
Rockford Mortgage Office Mortgage Office Leased 06/01/92 5/31/2002 $ 26
5100 East State Street
Rockford, IL 61107
Other Properties Owned or Leased Various $ 349
------
Total Net Book Value $3,422
</TABLE>
<PAGE>
Legal Proceedings
In October 1992, legal proceedings were instituted by the United
States Attorney before the United States District Court of the Northern District
of Illinois, Western Division, alleging that, in connection with First Federal's
Conversion, certain persons (none of whom were affiliated with FirstRock or
First Federal) engaged in the unlawful sale of subscription rights. The United
States Marshall seized 277,774 shares of FirstRock's Stock subscribed for in the
conversion by such persons. From those legal proceedings, other litigation arose
involving FirstRock and other defendants. All the seized shares of stock were
subsequently sold on the open market and, but for the execution and filing with
the court of miscellaneous documents, all litigation has been settled.
FirstRock and First Federal are also involved in certain lawsuits in
the course of their general lending business and other operations. Management
believes there are sound defenses against the claims asserted therein and is
vigorously defending these actions. Management, after review with its legal
counsel, is of the opinion that the ultimate disposition of its litigation will
not have a material effect on FirstRock's or First Federal's financial
condition.
Personnel
At September 30, 1994, First Federal had 172 full-time employees and
82 part-time employees. The employees are not represented by a collective
bargaining unit, and First Federal considers its relationship with its employees
to be good.
Management's Discussion and Analysis of FirstRock's Financial
Condition and Results of Operations
General
FirstRock has conducted no business other than that directly related
to First Federal. FirstRock's results of operations are primarily dependent on
First Federal's net interest income, which is the difference between interest
income on interest-earning assets and interest expense on interest-bearing
liabilities. Interest income is a function of the weighted average balances of
interest-earning assets outstanding during the period and the weighted average
yields earned on such assets. Interest expense is a function of the weighted
average amount of yields earned on such assets. Interest expense is a function
of the weighted average amount of interest-bearing liabilities outstanding
during the period and weighted average rates paid on such liabilities. First
Federal also generates non-interest income, such as income from loan servicing
and other fees and commissions on sales of insurance. First Federal's net income
is further affected by the level of its non-interest expenses, such as employee
salaries and benefits, occupancy and equipment costs, and federal insurance
premiums.
Financial Condition
At September 30, 1994, total assets of FirstRock were $408 million, a
decrease of $1.5 million from June 30, 1994. On July 1, 1994, FirstRock adopted
the provisions of the Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Debt and Equity Securities" ("Statement No. 115"). Under
Statement No. 115, FirstRock elected to classify all investments as available
for sale, except those mortgage-backed securities securing the collateralized
mortgage obligation bonds, which are held to maturity. At September 30, 1994,
$45.4 million, $22.1 million and $39.2 million of mutual funds, investment
securities and mortgage-backed securities, respectively, are available for sale
and reported at fair value, with net unrealized losses after tax of $2.3
million, which is reported as a separate of stockholders' equity. Mortgage
<PAGE>
loans held for sale decreased $7.5 million from June 30, 1994 to $9.7 million at
September 30, 1994 primarily due to lower loan volume. Loans held for sale are
carried at the lower of cost or market value. Net mortgage loan originations and
purchases in the held for sale portfolio totalled $14.9 million and $11.9
million, respectively for the quarter ended September 30, 1994. Proceeds from
the sale of loans held for sale were $34.1 million in this period. Loans
receivable increased $14.1 million to $236.8 million at September 30, 1994,
primarily as a result of increased volume in adjustable rate mortgage loan and
consumer loan originations.
Deposits were $302.5 million at September 30, 1994 compared to $301.6
million at June 30, 1994. Other borrowings increased $8.7 million to $28.6
million at September 30, 1994. Custodial balances on loans serviced for others
decreased $9.5 million from June 30, 1994 to $10.4 million as a result of lower
loan prepayments on loans serviced for others. The stockholders' equity
increased $361,000 from June 30, 1994 primarily attributable to the net income
for the three months ended September 30, 1994 of $1.2 million, which was offset
in part by a decrease in the net unrealized losses on investments of $985,000.
The adoption of Statement No. 115 accounted for $454,000 of this decrease.
Liquidity and Capital Resources
First Federal's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, sales of loans held
for sale, custodial balances held for investors on serviced loans, advances from
the FHLB-Chicago, and other short term borrowings. While maturities and
scheduled amortization of loans and mortgage-backed securities are predictable
sources of funds, deposit flows, loan sales, and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. Pursuant to OTS regulations, First Federal is required to maintain
a minimum ratio of liquid assets ("liquidity ratio"). This requirement, which
may be varied at the direction of the OTS depending upon economic conditions and
deposit flows, is based upon a percentage of the average daily balance of net
deposits and short-term borrowings. The current required ratio is 5.0%, as
compared to First Federal's liquidity ratio at September 30, 1994 which was
6.64%.
First Federal's most liquid assets are cash and cash equivalents,
which include investments in highly liquid, short-term investments. The levels
of these assets are dependent on First Federal's operating, financing, lending
and investing activities during any given period. At September 30, 1994, cash
and cash equivalents totalled $17 million, as compared to $22.8 million at June
30, 1994. First Federal's cash flows are comprised of three classifications:
cash flows from operating activities, cash flows from investing activities, and
cash flows from financing activities. Cash flows provided by operating
activities for the three months ended September 30, 1994 consisted primarily of
the sale of $34.1 million of loans held for sale, which was offset by the
utilization of funds for the origination and purchase of $26.8 million of such
loans. The volume of originations and purchases decreased during the quarter
ended September 30, 1994 due to the higher interest rate environment and the
corresponding decrease in loan demand. Net cash used by investing activities,
consisting primarily of loan originations net of principal payments and
principal payments on mortgage-backed securities, was $13 million for the three
months ended September 30, 1994. Net cash provided by financing activities of
$6.5 million for the three months ended September 30, 1994 consisted primarily
of proceeds from other borrowings and payments on collateralized mortgage
obligation bonds.
At September 30, 1994, First Federal had outstanding loan commitments
of $34.8 million. First Federal anticipates that it will have sufficient funds
available to meet its current loan origination and purchase commitments.
Certificates of deposit which are scheduled to mature in one year or less from
September 30, 1994 totalled $100.6 million. Management believes that a
significant portion of such deposits will remain with First Federal.
<PAGE>
Regulatory Capital
First Federal currently meets all regulatory requirements by a
significant margin. Current federal regulations require savings institutions to
maintain a minimum regulatory tangible capital ratio equal to 1.5% of total
assets, a minimum 3% leverage (core capital) ratio, and a minimum 8% risk-based
capital ratio. At September 30, 1994, First Federal was in compliance with the
capital requirements, summarized as follows:
<TABLE>
<CAPTION>
Regulatory
Capital
Requirement Actual Capital Excess Capital
% Amount % Amount % Amount
<S> <C> <C> <C> <C> <C> <C>
Tangible 1.50% $6,056 $10.31% $41,618 8.81% $35,562
Core 3.00 12,111 10.31 41,618 7.31 29,507
Risk-Based 8.00 16,746 19.97 41,807 11.97 25,061
</TABLE>
In addition, on August 23, 1993, the OTS issued a final rule for
calculating an interest rate risk component that would be incorporated into the
OTS regulatory capital rule. Under the final rule, only savings institutions
with "above normal" interest rate risk exposure would be required to maintain
additional capital. That dollar amount of capital would be in addition to an
institution's existing risk-based capital requirement. This rule is not expected
to have a material impact on the amount of regulatory capital required to be
held by First Federal.
Asset/Liability Management
FirstRock manages its assets and liabilities to control the impact of
changing interest rates on its net interest margin and limit interest rate risk.
One of the methods used in managing assets and liabilities is examining the
extent to which they are "interest rate sensitive" and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. Accordingly, during a period of rising interest rates, an
institution with a positive gap position would be in a better position to invest
in higher yielding assets which, consequently may result in the yield on its
assets increasing at a pace more closely matching the increase in the cost of
its interest-bearing liabilities than if it had a negative gap. During a period
of falling interest rates, an institution with a positive gap position would
tend to have its assets repricing at a faster rate than one with a negative gap
which, consequently may tend to restrain the growth of its net interest margin.
FirstRock's investment strategies have focused on short term assets
and have resulted in a positive gap position. At June 30, 1994, total
interest-earning assets maturing or repricing within one year exceeded total
interest-bearing liabilities maturing or repricing in the same time by $26.1
million, representing a positive one year cumulative gap ratio of 6.39%. This is
a decrease from the positive one year cumulative gap at June 30, 1993 of 13.1%.
Management generally attempts to limit its one year gap position from negative
10% to positive 10%.
<PAGE>
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1994 which are
anticipated by FirstRock, based upon certain assumptions, to reprice or mature
in each of the future periods shown. The data reflects estimated prepayment and
withdrawal rates on assets and liabilities based on First Federal's assumptions
and historical performance. Management believes these assumptions are
reasonable, although actual prepayments of assets and liabilities may vary
substantially.
<TABLE>
<CAPTION>
More More More More
Than Than Than Than
1 Year 3 Years 5 Years 10 Years More
1 Year To To To To Than
Or Less 3 Years 5 Years 10 Years 20 Years 20 Years Total
------- --------- -------- ---------- --------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $117,207 $39,146 $29,686 $17,311 $1,216 $ 988 $205,554
Consumer loans (1) 23,085 11,822 2,013 66 -- -- 36,986
Mortgage-backed securities 15,634 19,436 18,460 1,500 -- -- 55,030
Interest-bearing deposits 4,796 -- -- -- -- -- 4,796
Investment securities 44,357 18,201 2,997 -- 1,782 -- 67,337
-------- -------- -------- ---------- -------- --------- --------
Total interest-earning assets 205,079 88,605 53,156 18,877 2,998 988 369,703
Deferred expenses 35 70 48 70 42 8 273
---------- ---------- ---------- --------- --------- --------- ---------
Total net interest-earning assets 205,114 88,675 53,204 18,947 3,040 996 369,976
-------- -------- -------- -------- -------- -------- ========
Interest-bearing liabilities:
Passbook accounts 8,179 12,422 8,098 10,278 7,110 2,020 48,107
NOW accounts 20,285 18,568 4,969 6,669 3,661 672 54,824
Money market accounts 34,411 4,792 2,281 1,749 316 8 43,557
Certificate accounts 92,041 48,226 14,711 124 -- -- 155,102
Borrowed funds 24,050 3,040 2,273 1,856 947 -- 32,166
-------- --------- --------- --------- -------- ---------- --------
Total interest-bearing liabilities 178,966 87,048 32,332 20,676 12,034 2,700 333,756
-------- -------- -------- -------- ------- -------- ========
Interest sensitivity gap per period $ 26,148 $ 1,627 $ 20,872 $ (1,729) $(8,994) $(1,704)
======== ======== ======== ======== ======= =======
Cumulative interest sensitivity gap $ 26,148 $ 27,775 $ 48,647 $ 46,918 $ 37,924 $ 36,220
======== ======== ======== ======== ======== ========
Cumulative interest sensitivity gap
as a percentage of total assets 6.39% 6.78% 11.88% 11.46% 9.26% 8.85%
Cumulative net interest-earning
assets as a percentage of interest-
bearing liabilities 114.61% 110.44% 116.31% 114.71% 111.46% 110.85% 110.85%
<FN>
(1) For purposes of the gap analysis, mortgage and consumer loans are not reduced for the allowances for loan losses.
</TABLE>
<PAGE>
Results of Operations
Three Months Ended September 30, 1994 and 1993
General. Net income for the three months ended September 30, 1994 was
$1.2 million, an increase of $84,000, or 7.3% from September 30, 1993. The
increase in net income is primarily attributable to an increase in net interest
income.
Net Interest Income. FirstRock's net interest income before provision
for loan losses was $3.6 million for the quarter ended September 30, 1994, an
increase of $185,000 from quarter ended September 30, 1994. The increase in net
interest income is primarily due to FirstRock's interest-bearing liabilities
repricing downward, resulting in a decrease in interest expense of $259,000.
This decrease was partially offset by a decrease in interest income from
interest-earning assets of $74,000 for the quarter ended September 30, 1994. The
annualized yield on interest-earning assets increased from 6.96% for the quarter
ended September 30, 1993 to 7.18% for the quarter ended September 30, 1994. The
annualized cost on interest-bearing liabilities decreased from 4.00% for the
quarter ended September 30, 1993 to 3.65% for the quarter ended September 30,
1994. As a result, FirstRock's net interest margin increased to 3.93% for the
quarter ended September 30, 1994 from 3.57% for the previous year's quarter.
Provision For Loan Losses. FirstRock recorded a provision for loan
losses of $69,000 for the three months ended September 30, 1994, a decrease of
$19,000 from the provision in the previous year's quarter. The provisions are
based on management's analysis of the risks inherent in its loan portfolio in
consideration of the local and national economy.
Non-Interest Income. Non-interest income decreased $179,000 for the
quarter ended September 30, 1994 compared to the previous year's quarter,
primarily as a result of activities in mortgage banking operations. Sales of
loans in the secondary market resulted in a loss of $83,000, a decrease of
$172,000 from the previous year's quarter. This decrease was offset in part by
an increase in loan fees and servicing income of $154,000 for the three months
ended September 30, 1994, due primarily to increased servicing income. In
addition, insurance and security commissions and income from real estate
decreased $93,000 and $74,000, respectively from the previous year's quarter.
Non-Interest Expense. Non-interest expense decreased $113,000 for the
three months ended September 30, 1994 primarily as a result of a decrease in
other expense of $259,000, which was partially offset by an increase in
compensation and benefits of $175,000.
Income Taxes. For the three months ended September 30, 1994, income
tax expense increased by $54,000 to $768,000 due to an increase in income before
taxes of $138,000.
Results of Operations
Year Ended June 30, 1994 and 1993
General. FirstRock completed its first full year of operations as a
publicly held company in 1994. Net income for the year ended June 30, 1994 was
$4.8 million, compared to $4.2 million for the year ended June 30, 1993, an
increase of 13.1%.
Interest Income. Total interest income was $25.7 million for the year
ended June 30, 1994 compared to $27.2 million for the year ended June 30, 1993.
For the year ended June 30, 1994, although the average balance of
interest-earning assets increased $7 million, the average yield on
interest-earning assets decreased to 6.92% from 7.46% for the year ended June
30, 1993. This decrease is primarily due to the lower interest rate environment
which existed for most of the year. The primary component of interest income is
interest on mortgage loans, which decreased $1.5 million from $16.4 million to
$14.9 million at June 30, 1993 and 1994, respectively.
<PAGE>
Interest Expense. Total interest expense decreased by $2.1 million,
also due to the lower interest rate environment. The decrease was primarily due
to the decrease in interest expense on deposit accounts of $1.3 million from
$10.8 million for the year ended June 30, 1993 to $9.5 million for the year
ended June 30, 1994. The average cost of interest-bearing liabilities decreased
from 4.38% to 3.75% at June 30, 1993 and 1994, respectively.
Net Interest Income. FirstRock's net interest income before provision
for loan losses was $13.9 million for the year ended June 30, 1994, an increase
of $548,000 or 4.1% from $13.3 million for the year ended June 30, 1993. This
increase resulted primarily from the lower interest rate environment which
existed for most of the year and FirstRock's interest-bearing liabilities
pricing downward faster than interest-earning assets. The net interest margin
increased to 3.73% for the year ended June 30, 1994 from 3.65% for the year
ended June 30, 1993.
Provision for Loan Losses. FirstRock recorded a provision for loan
losses of $322,000 for the year ended June 30, 1994, compared to $381,000 for
the year ended June 30, 1993. The decrease in the 1994 provision reflects the
decrease in the level of non-performing loans in such period and management's
analysis of the risks inherent in its loan portfolio.
Non-Interest Income. Non-interest income increased $433,000 from $7.1
million for the year ended June 30, 1993 to $7.5 million for the year ended June
30, 1994. The increase is primarily attributable to the increases in service
charges on deposit accounts of $422,000 and gain on sale of loans of $1.1
million, which is offset in part by a decrease in loan fees and servicing income
of $414,000 and a loss on the trading portfolio of $355,000.
Non-Interest Expense. Non-interest expense increased $166,000 from
$13.2 million for the year ended June 30, 1993 to $13.4 million for the year
ended June 30, 1994.
Income Taxes. For the year ended June 30, 1994, income tax expense
was $2.9 million, an effective rate of 38.2%, compared to income tax expense of
$2.6 million, an effective tax rate of 38.3%, in 1993.
Results of Operations
Year Ended June 30, 1993 and 1992
General. FirstRock completed its first year of operations as a
publicly held company in 1993. Net income for the year ended June 30, 1993 was
$4.2 million, compared to $2.6 million for the year ended June 30, 1992, an
increase of $1.6 million or 64.09%.
Interest Income. Total interest income was $27.2 million for the year
ended June 30, 1993, compared to $30.8 million for the year ended June 30, 1992.
For the year ended June 30, 1993, although the average balance of
interest-earning assets increased $12.6 million, the average yield on
interest-earning assets decreased to 7.46% from 8.73% for the year ended June
30, 1992. This decrease is primarily due to the lower interest rate environment.
The primary component of interest income is interest on mortgage loans, which
decreased $3.4 million from $19.8 million to $16.4 million at June 30, 1992 and
1993, respectively.
Interest Expense. Total interest expense decreased by $5.4 million,
also due to the lower interest rate environment. The decrease was primarily due
to the decrease in interest expense on deposit accounts of $4.7 million from
$15.5 million for the year ended June 30, 1992 to $10.8 million for the year
ended June 30, 1993. The average cost of interest-bearing liabilities decreased
from 5.82% to 4.38% at June 30, 1992 and 1993, respectively.
<PAGE>
Net Interest Income. FirstRock's net interest income before provision
for loan losses was $13.3 million for the year ended June 30, 1993, an increase
of $1.9 million or 16.78% from $11.4 million for the year ended June 30, 1992.
This increase resulted primarily from the lower interest rate environment and
FirstRock's interest-bearing liabilities pricing downward faster than
interest-earning assets. The net interest margin increased to 3.65% for the year
ended June 30, 1993 from 3.24% for the year ended June 30, 1992.
Provision for Loan Losses. FirstRock recorded a provision for loan
losses of $381,000 for the year ended June 30, 1993, compared to $2 million for
the year ended June 30, 1992. The provision in 1992 reflects managements' intent
to increase general loan loss allowances in light of the level of non-performing
loans. The decrease in the 1993 provision reflects the decrease in the level of
non-performing loans in such period and management's analysis of the risks
inherent in its loan portfolio.
Non-Interest Income. Non-interest income increased $780,000 from $6.3
million for the year ended June 30, 1992 to $7.1 million for the year ended June
30, 1993. The increase is primarily attributable to the increases in loan fees
and servicing income of $143,000, service charges on deposit accounts of
$242,000 and gains on sale of mortgage-backed securities held for sale of
$161,000.
Non-Interest Expense. Non-interest expense increased $236,000 from
$12.9 million to $13.2 million for the years ended June 30, 1992 and 1993,
respectively. The provisions for losses on real estate owned decreased $1.3
million for the year ended June 30, 1993 compared to the same period in 1992.
The 1992 provision is attributable to management's adjustment of the carrying
value of two properties by $500,000 each, based upon management's assessment of
the downturn in the economy and its potential effect on the values of the
properties. The decrease was partially offset by an increase in other expense of
$952,000 related to losses on servicing certain mortgage-backed security pools.
This increase is caused by the high level of loan prepayments in the loan
servicing portfolio during periods of low interest rates.
Income Taxes. For the year ended June 30, 1993, income tax expense
was $2.6 million, an effective rate of 38.3%, compared to income tax expense of
$1.1 million, an effective tax rate of 42.1%, in 1992. The primary reason for
the decrease in the effective tax rate was the larger provision for losses on
loans and real estate owned in 1992 which did not generate an income tax benefit
due to the accounting standards used by FirstRock during that period.
Cumulative Effect of Change in Accounting for Income Tax. For the
year ended June 30, 1992, Statement No. 109 ("Accounting for Income Taxes") was
adopted. The cumulative effect was to reduce income tax expense by $1 million
for the year ended June 30, 1992.
Average Balance Sheet
The following table sets forth certain information relating to
FirstRock's average balance sheet and reflects the average yield on assets and
the average cost of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average daily balance of assets
or liabilities, respectively, for the periods shown. The average balance of
loans receivable includes loans on which FirstRock has discontinued accruing
interest. The yields and costs include fees which are considered adjustments to
yields.
<PAGE>
Average Balance Sheet
<TABLE>
<CAPTION>
Quarter Ended Year Ended June 30,
September 30, 1994 1994 1993
------------------------------ -------------------------------- -------------------
Average Average
Average Yield/ Average Yield/ Average
Balance Interest Cost Balance Interest Cost Balance Interest
------- -------- --------- -------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $202,987 $3,866 7.62% $190,945 $14,851 7.78% $199,061 $16,368
Other loans 38,144 891 9.34% 34,195 3,251 9.51% 32,563 3,439
Mortgage-backed securities 53,188 853 6.41% 56,969 3,700 6.49% 55,193 4,101
Interest-earning deposits 810 13 6.42% 20,968 685 3.27% 29,255 950
Investments in mutual funds 45,512 587 5.16% 39,167 1,757 4.49% 23,483 1,096
Investment securities 22,466 306 5.45% 29,842 1,484 4.97% 25,484 1,282
--------- ------- ---- --------- -------- ---- --------- --------
Total interest-earning assets 363,107 6,516 7.18% 372,086 25,728 6.92% 365,039 $27,236
------- ---- ------- ----
Non-interest earning assets 32,340 33,340 35,350
--------- --------- ---------
Total assets $395,447 $405,426 $400,389
======== ======== ========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Passbook accounts $ 47,023 205 1.74% $ 47,891 884 1.85% $ 44,830 1,130
Certificate accounts 154,641 1,825 4.72% 152,128 7,195 4.73% 149,442 7,739
NOW accounts 54,329 95 0.70% 53,715 407 0.76% 50,722 631
Money market accounts 43,312 231 2.13% 45,860 997 2.17% 47,821 1,349
Borrowed funds 24,301 595 9.79% 16,687 2,370 14.20% 24,671 3,060
--------- ------- ---- --------- -------- ----- --------- -------
Total interest-bearing liabilities 323,606 2,951 3.65% 316,281 11,853 3.75% 317,486 13,909
------- ---- ------- ----- -------
Other liabilities 23,440 41,863 42,062
--------- --------- ---------
Total liabilities 347,046 358,144 359,548
Stockholders' equity 48,401 47,282 40,841
--------- --------- ---------
Total liabilities and stockholders'
equity $395,447 $405,426 $400,389
======== ======== ========
Net interest income/interest rate
spread (1) $3,565 3.53% $13,875 3.17% $13,327
====== ===== ======= ===== =======
Net interest-earnings assets/net
interest margin (2) $ 39,501 3.93% $ 55,805 3.73% $ 47,553
======== ===== ======== ===== ========
Ratio of interest-earning assets to
interest-bearing liabilities 1.12 1.18 1.15
</TABLE>
<PAGE>
Average Balance Sheet -- CONTINUED
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1992
------- ------------------------------
Average Average Average
Yield/ Average Yield/
Cost Balance Interest Cost
------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans 8.22% $210,112 $19,826 9.44%
Other loans 10.56% 31,582 3,718 11.77%
Mortgage-backed securities 7.43% 54,404 4,472 8.22%
Interest-earning deposits 3.25% 44,863 2,033 4.53%
Investments in mutual funds 4.67% 2,149 112 5.21%
Investment securities 5.03% 9,333 592 6.34%
----- --------- -------- -----
Total interest-earning assets 7.46% 352,443 30,753 8.73%
----- ------- -----
Non-interest earning assets 35,690
Total assets $388,133
========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Passbook accounts 2.52% 39,775 1,663 4.18%
Certificate accounts 5.18% 163,628 10,545 6.44%
NOW accounts 1.24% 46,094 1,196 2.59%
Money market accounts 2.82% 49,728 2,136 4.30%
Borrowed funds 12.40% 33,131 3,801 11.47%
----- --------- -------- -----
Total interest-bearing liabilities 4.38% 332,356 19,341 5.82%
Other liabilities 32,254
---------
Total liabilities 364,610
Stockholders' equity 23,523
---------
Total liabilities and stockholders'
equity $388,133
========
Net interest income/interest rate
spread (1) 3.08% $11,412 2.91%
===== ======= =====
Net interest-earnings assets/net
interest margin (2) 3.65% $ 20,087 3.24%
===== ======== ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.06
<FN>
(1) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
(2) Net Interest margin represents net income by average interest-earning assets.
</TABLE>
<PAGE>
Rate/Volume Analysis
Net interest can also be analyzed in terms of the impact of changing
rates and changing volumes. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected FirstRock's interest income and
interest expense during the fiscal years ended June 30, 1994, 1993 and 1992.
Information is provided in each category with respect to i) changes attributable
to changes in volume (change in volume multiplied by prior rate), ii) changes
attributable to changes in rate (changes in rate multiplied by prior volume) and
iii) the net change. The changes attributable to the combined impact of volume
and rate have been allocated proportionately to the changes due to volume and
the changes due to rate.
<TABLE>
<CAPTION>
Fiscal 1994 vs. 1993 Fiscal 1993 vs. 1992
Increase/(Decrease) Due To Increase/(Decrease) Due To
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $ (652) $ (865) $(1,517) $(1,004) $(2,454) $(3,458)
Consumer loans 167 (355) (188) 113 (392) (279)
Mortgage-backed securities 129 (530) (401) 64 (435) (371)
Interest-earning deposits (271) 6 (265) (597) (486) (1,083)
Investment in mutual funds 705 (44) 661 997 (13) 984
Investment securities 217 (15) 202 835 (145) 690
------- ------- ------- -------- ------- --------
Total 295 (1,803) (1,508) 408 (3,925) (3,517)
------- ------ ------- -------- ------- -------
Interest-bearing liabilities:
Deposits 246 (1,612) (1,366) (326) (4,365) (4,691)
Borrowed funds (1,089) 399 (690) (1,031) 290 (741)
------ ------ ------- ------- ------- --------
Total (843) (1,213) (2,056) (1,357) (4,075) (5,432)
------- ------ ------- ------- ------- -------
Net change in interest income $1,138 $ (590) $ 548 $ 1,765 $ 150 $ 1,915
====== ====== ======= ======= ======= =======
</TABLE>
Impact of New Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement No.
114, ("Accounting by Creditors for Impairment of a Loan") in May 1993 and
subsequently issued Statement No. 118 ("Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures") in October 1994. Statement Nos.
114 and 118 are effective for fiscal years beginning after December 15, 1994.
Early adoption of either Statement is allowed. Statement No. 114 requires that
impaired loans be measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. Statement No. 118 amends certain accounting and
disclosure requirements set forth in Statement No. 114. Management does not
believe that the adoption of Statement Nos. 114 and 118 will have a material
impact on FirstRock's financial condition or results of operations.
In May 1993, the FASB issued Statement No. 115, ("Accounting for
Certain Investments in Debt and Equity Securities"). This Statement addresses
the accounting for equity securities that have readily determinable fair values
and for all investments in debt securities. Those investments are to be
classified in three categories and accounted for as follows: Debt securities
that the entity has the positive intent and ability to hold to maturity are
classified as "held-to-maturity" and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as "trading securities" and reported at fair
value, with unrealized gains and losses included in earnings. Debt and equity
securities not classified as either "held-to-maturity" or "trading securities"
are classified as "available-for-sale securities" and reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. On July 1, 1994 FirstRock and First
<PAGE>
Federal adopted the provisions of Statement No. 115, which had the effect of
decreasing stockholders' equity by $454,000, net of tax. Both companies elected
to classify all investments as available for sale except those mortgage-backed
securities securing the collateralized mortgage obligation bonds, which are
held-to-maturity.
The FASB also issued Statement No. 119 ("Disclosure about Derivative
Financial Instruments andFair Value of Financial Instruments") in October 1994
relating to disclosures relative to derivative financial instruments. Management
believes that Statement No. 119 will have limited applicability to FirstRock.
FIRSTROCK STOCK OWNED BY MANAGEMENT
The following table sets forth, as of January 25, 1995, the shares of
FirstRock Stock beneficially owned by each FirstRock director and by all
FirstRock directors and executive officers as a group.
<TABLE>
<CAPTION>
Name of Shares of Ownership As
Beneficial FirstRock Stock a Percent of
Owner Beneficially Owned(1) Class(2)
<S> <C> <C>
Burdette E. Anderson 20,082 (3) 0.82%
Michael A. Gaffney 16,818 (3) 0.69%
David A. Ingrassia 110,560 (4)(5)(6) 4.48%
Walter P. Lohse 34,514 (3) 1.41%
Daniel J. Nicholas 104,855 (4)(5)(6) 4.20%
C. Gordon Smith 32,482 (3) 1.32%
Donna K. Beilfuss 19,462 (4)(5) 0.80%
Creston B. Harris 18,116 (4)(5) 0.74%
William H. Leefers 35,488 (4)(5) 1.45%
Robert M. Singer 24,441 (4)(5) 1.00%
All Directors and
Executive Officers as
a group (11 persons) 416,818 (7) 16.15%
- ------------------
<FN>
(1) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares
reported.
(2) The calculation of the beneficial ownership for each person presented
includes shares subject to options which are exercisable by such person
within 60 days as of January 25, 1995. The total number of shares of
FirstRock Stock outstanding on January 25, 1995 was 2,442,121.
(3) Includes 13,225 shares subject to options granted under the Directors Plan
which are currently exercisable.
(4) Includes 26,450 shares awarded to each of Messrs. Nicholas and Ingrassia
and 6,612 shares awarded to each of executive officers Beilfuss, Harris,
Leefers and Singer under the RRP and as to which voting may be directed by
them. Under the RRP, the awarded shares vest at a rate of 20% per year
commencing October 2, 1993.
(5) Includes 25,400 and 52,900 shares, respectively to Mssrs. Ingrassia and
Nicholas, and 5,290 shares to each of executive officers Beilfuss, Harris,
Leefers and Singer subject to options granted under the Incentive Plan
which are currently exercisable.
(6) Includes 979 shares and 1,185 shares allocated to Messrs. Nicholas and
Ingrassia, respectively, pursuant to the ESOP as of June 30, 1994.
(7) Includes 79,348 shares allocated pursuant to the RRP and 139,135 shares
subject to options exercisable by executive officers and directors on
October 2, 1994, including those set forth in footnotes 3 and 5. Does not
include 31,740 shares subject to options not exercisable within 60 days of
January 25, 1995.
</TABLE>
Information regarding ownership of FFC Stock by management of FFC is
incorporated by reference from FFC's Annual Report on Form 10-K for the year
ended December 31, 1994, and FFC's proxy statement for its annual meeting of
stockholders held on April 20, 1994. See "Incorporation of Certain Documents by
Reference."
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as to those persons
believed by management to be beneficial owners of more than 5% of the
outstanding shares of FirstRock Stock on the October 31, 1994, as disclosed in
certain reports regarding such ownership filed with the Company and with the
Commission, in accordance with Section 13(d) or 13(g) of the Exchange Act by
such persons and groups. Other than those persons listed below, the Company is
not aware of any person or group, as such term is defined in the Exchange Act,
that own more than 5% of FirstRock Stock.
Number of Shares and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership Class (1)
First Federal Savings Bank, 185,150 7.75%
F.S.B. Employee Stock
Ownership Plan and Trust
(2)
Jeffrey S. Halis 155,000 (3) 6.49%
500 Park Avenue
Fifth Floor
New York, New York 10022
Financial Institution Partners, 210,454 (4) 8.81%
Partners, L.P.,
Hovde Capital, Inc.
Eric D. Hovde
Steven D. Hovde
Braddock J. LaGrua
1826 Jefferson Place, N.W.
Washington, D.C. 20036
- -------------
(1) The total number of shares of FirstRock Stock outstanding on October 31,
1994 was 2,388,171 shares.
(2) Ranier Trust has been appointed as the corporate trustee for the ESOP ("ESOP
Trustee"). As of October 31, 1994, 46,287 shares of FirstRock Stock in the
ESOP have been allocated to participating employees. Under the ESOP,
unallocated shares held in the suspense account will be voted by the ESOP
Trustee in a manner calculated to most accurately reflect the instructions
received from participating employees regarding the allocated stock so long
as such vote is in accordance with the provisions of ERISA.
(3) Based on information in a Schedule 13D, Jeffrey S. Halis is a general
partner of Halo/GTO Capital Partners, L.P. ("Halo/GTO"), which is a sole
general partner of Tyndall Partners, L.P. ("Tyndall") and Madison Avenue
Partners, L.P. ("Madison"). Tyndall and Madison are engaged in investment
activities, and owned 133,300 (5.58%) and 21,700 (.91%) shares of the
Company's stock respectively, over which Mr. Halis possesses sole voting and
investment control.
(4) Based on information in a Schedule 13D, Financial Institution Partners L.P.
is the owner of 210,454 shares of the Company. Hovde Capital, Inc. is the
General Partner of Financial Institution Partners L.P. and Eric D. Hovde,
Steven D. Hovde and Braddock J. LaGrua are beneficial owners, directors and
executive officers of Hovde Capital, Inc. According to the Schedule 13D,
Eric D. Hovde and Steven D. Hovde are each 25% beneficial owners of the
corporate general partner of Woodside Development Limited Partnership which
beneficially owns 22,500 shares of FirstRock Stock. In addition, Steven D.
Hovde owns 1,000 shares of FirstRock Stock with his spouse; 580 shares are
held in his Individual Retirement Account ("IRA"); and 450 shares are held
in his spouses' IRA as to which he disclaims beneficial ownership.
<PAGE>
Information regarding the principal holders of FFC Stock is
incorporated by reference from FFC's Annual Report on Form 10-K for the year
ended December 31, 1994, and FFC's proxy statement for its annual meeting of
stockholders held on April 20, 1994. See "Incorporation of Certain Documents by
Reference."
To the knowledge of the Board of Directors of FirstRock and the
Board of Directors of FFC, no arrangement exists other than the Acquisition
Agreement, including any pledge by any person of the securities of the company,
the operation of which may at a subsequent date result in a change in control of
the Company.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Federal law and regulation require that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
First Federal's policy regarding loans to directors and executive officers is in
accordance with such requirements. Pursuant to such policy, loans to directors
or executive officers must be approved in advance by a majority of the
disinterested members of the Board of Directors. First Federal's policy also
provides that all loans made by First Federal to its directors and executive
officers shall be made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and shall not involve more
than the normal risk of collectibility or present other unfavorable features.
<PAGE>
MARKET FOR AND DIVIDENDS PAID ON FFC STOCK
The following table sets forth the range of high and low sale prices
of FFC Common Stock as reported on The Nasdaq Stock Market's National Market
System, as well as cash dividends paid during the periods indicated:
<TABLE>
<CAPTION>
Market Price Dividends
High Low Paid
Quarter Ended:
<S> <C> <C> <C>
March 31, 1991............................................... $ 4.063 $ 2.688 $ .040
June 30, 1991................................................ 4.500 3.688 .040
September 30, 1991........................................... 5.063 3.625 .040
December 31, 1991............................................ 5.813 4.625 .040
March 31, 1992............................................... 7.500 5.625 .050
June 30, 1992................................................ 8.500 6.375 .050
September 30, 1992........................................... 9.313 7.250 .060
December 31, 1992............................................ 11.750 7.500 .060
March 31, 1993............................................... 16.000 11.250 .075
June 30, 1993................................................ 15.750 12.250 .075
September 30, 1993........................................... 18.000 13.500 .100
December 31, 1993............................................ 19.750 14.250 .100
March 31, 1994............................................... 17.000 14.250 .100
June 30, 1994................................................ 17.250 14.250 .100
September 30, 1994........................................... 17.250 14.500 .100
December 31, 1994............................................ 17.250 13.250 .100
</TABLE>
On October 25, 1994, the last full trading day prior to the public
announcement of the Acquisition, the closing price of FFC Stock as reported on
NASDAQ was $15.00 per share.
On January 24, 1995, the most recent practical date prior to the
printing of this Joint Proxy Statement/Prospectus, the closing price of FFC
Stock as reported on NASDAQ was $14.56 per share.
It is FFC's longstanding policy to pay dividends to its shareholders
in an amount equal to 20% of net income for the trailing four quarters.
<PAGE>
MARKET FOR AND DIVIDENDS PAID ON FIRSTROCK STOCK
FirstRock Stock is quoted on The Nasdaq Stock Market's National
Market System under the symbol "FROK." The following table sets forth the high
and low sales prices during each period as reported by NASDAQ. On January 24,
1995, the most recent practical date prior to the printing of this Joint Proxy
Statement/Prospectus the closing price of FirstRock Stock, as reported by
NASDAQ, was $25.50.
<TABLE>
<CAPTION>
Market Price Dividends
High Low Paid
Quarter Ended:
<S> <C> <C> <C>
December 31. 1992 13 1/8 9 1/4 0
March 31, 1993 15 5/8 11 3/4 0
June 30, 1993 17 1/4 14 0
September 30, 1993 17 14 1/2 0
December 31, 1993 18 1/4 15 1/4 0
March 31, 1994 19 1/4 15 1/4 0
June 30, 1994 20 1/4 16 15/16 0
September 30, 1994 24 19 0
December 31, 1994 25 1/4 22 0
</TABLE>
As of the close of business on January 18, 1995, there were 447
recordholders of FirstRock Stock.
DESCRIPTION OF FFC STOCK AND COMPARISON OF STOCKHOLDER RIGHTS
Set forth below is a description of the FFC Stock, as well as a summary
of the material differences between the rights of holders of FirstRock Stock and
their prospective rights as holders of FFC Stock. If the Acquisition Agreement
is approved and adopted and the Acquisition consummated, and in the event 20% or
more of the outstanding FFC Stock is to be issued, such issuance is approved by
the FFC stockholders, the holders of FirstRock Stock will become holders of FFC
Stock. Therefore, the articles of incorporation and bylaws of FFC, and the
applicable provisions of the Wisconsin Business Corporation Law ("WBCL"), will
govern the rights of current stockholders of FirstRock. The following comparison
is based on the current terms of the governing documents of the respective
companies and on the current provisions of applicable state law. Although it is
not practical to note all of the differences between applicable law and between
the applicable governing documents, the discussion is intended to highlight
certain significant differences between the rights of holders of FirstRock Stock
and FFC Stock.
Authorized Capital Stock
The authorized capital stock of FFC consists of 75,000,000 shares of
common stock, $1.00 par value per share, and 3,000,000 shares of serial
preferred stock, $1.00 par value per share. As of December 31, 1994, there were
24,803,842 shares of FFC common stock outstanding and no shares of preferred
stock outstanding. Based on the $15.625 per share closing price of FFC Stock on
January 17, 1995 and the $27.10 per share consideration, FFC will issue
approximately 4,189,740 shares of FFC common stock and no shares of serial
preferred stock in the Acquisition. Based on these assumptions, upon completion
of the Acquisition, approximately 28,993,582 shares of FFC common stock will be
outstanding. The board of directors of FFC is authorized to issue preferred
stock in series and to fix and state the voting powers, designations,
preferences and relative participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Preferred stock may rank prior to the FFC common stock as to dividend
rights, liquidation preferences, or both, any may have full or limited voting
rights; accordingly, the issuance of preferred stock could adversely affect the
rights of common stockholders. The holders of the preferred stock would be
entitled to vote as a separate class or series under Wisconsin law in a number
of circumstances, including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and preferences (including
substituting the surviving entity in a merger consolidation for FFC).
<PAGE>
The authorized capital of FirstRock consists of 3,500,000 of common
stock, $0.01 par value per share and 1,000,000 shares of preferred stock, $0.01
par value per share. As of December 31, 1994 there were 2,415,671 shares of
common stock outstanding and no shares of preferred stock outstanding.
FFC Stock
Each share of FFC Stock has the same relative rights and is identical
in all respects to each other share of FFC Stock. The FFC Stock is
nonwithdrawable capital, is not an insurable type and is not federally insured
by the FDIC. Holders of FFC Stock are entitled to one vote per share on each
matter properly submitted to shareholders for their vote, including the election
of directors. Holders of FFC Stock do not have the right to cumulate their votes
for the election of directors, and they have no preemptive or conversion rights
with respect to any shares that may be issued. Holders of FFC Stock are entitled
to receive dividends when and as declared by the FFC Board of Directors out of
funds legally available for distribution.
The FFC Stock is not subject to additional calls or assessments by FFC
and all shares of FFC Stock currently outstanding are fully paid and
nonassessable, subject to the limitation contained in the Wisconsin Business
Corporation Law which makes stockholders of Wisconsin corporations, including
FFC, personally liable up to an amount equal to the "par value" of their shares
for debts owing to employees of the corporation for services performed, but not
in excess of six months service for any employee. For purposes of assessability
of stock, "par value" has been construed by a Wisconsin trial court to mean the
consideration paid for the stock. This decision was upheld by a split decision
of the Wisconsin Supreme Court with one justice abstaining.
In the unlikely event of any liquidation or dissolution of FFC, the
holders of FFC Stock would be entitled to receive, after payment or provision
for payment of all debts and liabilities of FFC, if any, and after payment of
the liquidation preferences of all outstanding shares of preferred stock, if
any, all remaining assets of FFC available for distribution, in cash or in kind.
The transfer agent and registrar for FFC Stock is Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, P. O. Box 738, South St. Paul,
Minnesota 55075-0738.
Articles of Incorporation and Bylaw Provisions
Directors. FFC's articles of incorporation provide that FFC's board of
directors shall consist of a variable number of directors between 12 and 24. The
exact number is currently fixed at 13. FFC's articles of incorporation also
provide that a director may only be removed for cause and then only after the
affirmative vote of two-thirds of the total shares eligible to vote at a duly
constituted meeting of the stockholders called expressly for that purpose. The
articles of incorporation also provide that at least 20 days' written notice
must be provided to any director or directors whose removal is to be considered
at a stockholders' meeting called for such purpose.
FirstRock's articles of incorporation provide the number of directors
constituting the board of directors shall be as determined by the board, with
the exact number currently fixed at seven and that a director may only be
removed for cause by an affirmative vote of 80% of the total shares then
outstanding.
Amendment of Articles of Incorporation; Amendment of Bylaws. FFC's
articles of incorporation may be amended with the approval of two-thirds of the
directors then in office and the holders of 66 2/3% of the shares of FFC Stock.
FFC's Bylaws may be amended upon the approval of two-thirds of the directors
then in office or holders of 66 23% of the FFC Stock. Pursuant to FFC's Bylaws,
the board of directors of FFC may change or repeal any bylaw adopted by the FFC
stockholders within three years of the date of its adoption.
<PAGE>
Under Delaware law, an amendment to FirstRock's articles of
incorporation requires the approval of the board of directors of FirstRock and
the approval of the holders of a majority of FirstRock Stock. Additionally,
FirstRock's articles of incorporation requires that an amendment of certain of
its provisions, including the beneficial ownership limitation and the fair price
provisions, be approved by the holders of 80% of FirstRock Stock. Pursuant to
FirstRock's Bylaws, the Bylaws may be amended by the FirstRock Board or upon the
approval of the holders of 80% of the voting power of FirstRock capital stock
then outstanding.
Special Stockholders' Meeting. FirstRock's Bylaws provide that a
special meeting of FirstRock stockholders may only be called by a majority of
the full board of directors. FFC's articles of incorporation allow the chairman
of the board, the president, or a majority of the directors then in office to
call a special meeting of stockholders and require that a meeting be called upon
the written request of the holders of 33 1/3% of the shares of outstanding FFC
Stock.
Beneficial Ownership Limitation. The articles of incorporation of FFC
contain a provision prohibiting any person from directly or indirectly offering
to acquire or acquiring the beneficial ownership of 10% or more of the issued
and outstanding voting stock of FFC as long as FFC is registered with the OTS as
a thrift holding company. The term "person" means an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust or any unincorporated organization or similar company. This provision
will not apply to acquisitions approved by the OTS and by the holders of
two-thirds of FFC's outstanding voting stock. In the event voting stock is
acquired in violation of this provision, the excess shares shall not be entitled
to vote on any matter or to take other stockholder action or be counted in
determining the total number of outstanding shares for purposes of any matter
involving stockholder action, and the board of directors may cause such excess
shares to be transferred to an independent trustee for sale on the open market
or otherwise.
The FirstRock Certificate contains a provision limiting the voting
rights of any person who beneficially owns more than 10% of the then-outstanding
shares of FirstRock Stock (the "Limit"). A person who beneficially owns
FirstRock Stock in excess of the Limit shall not be entitled, or permitted to
any vote in respect of the shares held in excess of the Limit. The number of
votes which may be cast by any record owner of FirstRock Stock in excess of the
Limit shall be a number equal to the total number of votes which a single record
owner of all FirstRock Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
FirstRock Stock beneficially owned by such person owning shares in excess of the
Limit. The FirstRock Certificate authorizes the Board of Directors (i) to make
all determinations necessary to implement and apply the Limit, including
determining whether persons or entities are acting in concert, and (ii) to
determine that a person who is reasonably believed to beneficially own stock in
excess of the Limit, be required to supply information to FirstRock to enable
the Board of Directors to implement and apply the Limit.
Criteria for Evaluating Certain Offers. The board of directors of FFC
when evaluating any offer of another person to (i) make a tender or exchange
offer for any equity security of FFC, (ii) merge or consolidate FFC with another
institution or (iii) purchase or otherwise acquire all or substantially all of
the properties and assets of FFC, shall, in connection with the exercise of its
judgment in determining what is in the best interests of FFC and its
stockholders, give due consideration to all relevant factors, including without
limitation the social and economic effects of acceptance of such offer on
depositors, borrowers, and employees of any thrift subsidiaries of FFC and on
the communities in which such subsidiaries operate or are located and the
ability of such subsidiaries to fulfill the objectives of thrifts under
applicable state and federal statutes and regulations. This provision may hinder
or preclude an attempt to acquire a large block of FFC Stock by certain persons
and, by having these standards in the articles of incorporation, the board of
directors may be in a stronger position to oppose such a transaction if the
board concludes that on balance the transaction would not be in the best
interests of FFC and its stockholders, even if the price offered was
significantly greater than the market price of the FFC Stock at such time.
<PAGE>
FirstRock's articles of incorporation contains similar provisions which
authorize, but do not require, the FirstRock Board to consider the social and
economic effects on its present and future employees and customers of accepting
an offer for FirstRock, FirstRock Stock or substantially all of its assets when
evaluating whether acceptance of such an offer is in the best interests of
FirstRock and its stockholders.
Fair Price Provision. Under state law applicable to FFC, FFC will be
able to merge or consolidate with other corporations or sell all or
substantially all of its assets, with the approval of a majority of the shares
entitled to vote on the proposal. FFC's articles of incorporation, however, also
contain a "fair price" provision. In general, the fair price provision requires
the approval by at least two-thirds of the voting power of the outstanding
capital stock of FFC entitled to vote generally in the election of directors
(the "Voting Stock"), voting as a single class, excluding Voting Stock held by a
holder of more than 10% of the Voting Stock ("Interested Stockholders") or any
affiliate thereof, as a condition for mergers and certain other business
combinations of FFC ("Business Combinations") with any Interested Stockholder
unless the transaction is either approved by at least a majority of the members
of the board of directors who are unaffiliated with the Interested Stockholder
(the "Continuing Directors") or certain minimum price and procedural
requirements are met.
The term "Interested Stockholder" is defined in the fair price
provision to mean any person (other than FFC or any subsidiary) who is: (a) the
beneficial owner, directly or indirectly, of more than 10% of the voting power
of the outstanding Voting Stock; (b) an affiliate of FFC, and which at any time
within the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the then outstanding Voting Stock; or (c) an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall have occurred
in the course of transactions not involving a public offering within the meaning
of the Securities Act.
The term "Business Combination" is defined to include: (a) any merger
or consolidation of FFC or any subsidiary with any Interested Stockholder or any
other corporation (whether or not itself an Interested Stockholder) which is, or
after such merger of consolidation would be, an affiliate of an Interested
Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any affiliate of any Interested Stockholder of any
assets of FFC or any subsidiary having an aggregate fair market value of $1
million or more; or (c) the issuance or transfer by FFC or any subsidiary (in
one transaction or a series of transactions) of any securities of FFC or any
subsidiary to any Interested Stockholder or any affiliate of any Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof) having an aggregate fair market value of $1 million or more; or (d) the
adoption of any plan or proposal for the liquidation or dissolution of FFC
proposed by or on behalf of an Interested Stockholder or any affiliate of any
Interested Stockholder; or (e) any reclassification of securities (including any
reverse stock split) or recapitalization of FFC, or any merger or consolidation
of FFC with any of its subsidiaries or any other transaction (whether or not
with or into or otherwise involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of FFC or
any subsidiary which is directly or indirectly owned by any Interested
Stockholder or any affiliate of any Interested Stockholder.
It should be noted that, while the fair price provision is designed to
help assure fair treatment of all stockholders vis-a-vis other stockholders in
the event of a takeover, it is not the purpose of the provision to assure that
stockholders will receive a premium price for their shares in a takeover.
Accordingly, this provision will not preclude FFC's board of directors from
opposing any future takeover proposal which it believes not to be in the best
interests of FFC and its stockholders, whether or not such proposal satisfies
the minimum price criteria and procedural requirements of the fair price
provision.
<PAGE>
FirstRock's articles of incorporation have similar provisions, except
that (i) an 80 % vote of all outstanding shares is required to approve a
business combination involving FirstRock unless a majority of disinterested
directors approve such business combination and certain minimum price and
procedural requirements are met, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of FirstRock assets will not trigger the
supermajority shareholder approval requirement unless such assets comprise 25%
or more of FirstRock's total assets and (iii) the issuance or transfer by
FirstRock to an interested stockholder of FirstRock or any affiliate of such
interested stockholder (both as defined in FirstRock's articles of
incorporation) of any securities of FirstRock will not trigger the supermajority
shareholder approval requirement unless such securities have an aggregate fair
market value of 25% or more of FirstRock's total stockholders' equity.
Applicable Law
Wisconsin Business Corporation Law. Under Section 180.1152(2) of the
WBCL, the voting power of shares of an "issuing public corporation," such as
FFC, which are held by any person in excess of 20% of the voting power in the
election of directors shall be limited (in voting on any matter) to 10% of the
full voting power of such excess shares, unless full voting rights have been
restored at a special meeting of the shareholders called for that purpose. This
statute is a "scaled voting rights/control share acquisition" statute and is
designed to protect corporations against uninvited takeover bids by reducing to
one-tenth of their normal voting power all shares in excess of twenty percent
owned by an acquiring person. Shares held or acquired under certain
circumstances are excluded from the application of section 180.1150(2),
including (among others) shares acquired directly from FFC and shares acquired
in certain mergers or share exchanges to which FFC is a party.
Sections 180.1130 to 180.1134 of the WBCL provide generally that in
addition to the vote otherwise required by law or the articles of incorporation
of an "issuing public corporation," such as FFC, certain business combinations
not meeting certain fair price standards specified in the statute must be
approved by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by the outstanding voting shares of the corporation, and (ii) two-thirds of
the votes entitled to be cast by the holders of voting shares other than voting
shares beneficially owned by a "significant shareholder" or an affiliate or
associate thereof who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
share exchange of the issuing public corporation (or any subsidiary thereof)
with, or the sale or other disposition of substantially all of the property and
assets of the issuing public corporation to, any significant shareholder or
affiliate thereof. "Significant shareholder" is defined generally to mean a
person that is the beneficial owner of 10% or more of the voting power of the
outstanding voting shares of the issuing public corporation. The statute also
restricts the repurchase of shares and the sale of corporate assets by an
issuing public corporation in response to a takeover offer.
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "residential domestic corporation," such as FFC, and a
person beneficially owning 10% or more of the voting power of the outstanding
voting stock of such corporation (an "interested shareholder") within three
years after the date such person became a 10% beneficial owner, unless the
business combination or the acquisition of such stock has been approved before
the stock acquisition date by the corporation's board of directors. After such
three-year period, a business combination with the interested shareholder may be
consummated only with the approval of the holders of a majority of the voting
stock not beneficially owned by the interested shareholder at a meeting called
for that purpose, unless the business combination satisfies certain
adequacy-ofprice standards intended to provide a fair price for shares held by
disinterested shareholders.
The WBCL gives Wisconsin corporations the authority to adopt
shareholder rights or options plans which adjust upon a reorganization, merger,
share exchange, sale of assets or other occurrence. Such rights or option plans
may include conditions that prevent the holder of a specified percentage of the
outstanding shares of the corporation, including subsequent transferees of the
holder, from exercising such rights or options. Generally these so-called
"poison pill" rights or option plans give a corporation's shareholders increased
shares or value in the corporation or the acquiring corporation and thereby make
an acquisition more expensive for a hostile acquiror. FFC has issued no such
rights or options.
<PAGE>
Delaware Business Corporation Law. Under Section 203 of the Delaware
General Corporation Law ("DGCL"), a Delaware corporation may not engage in a
business combination with an interested stockholder for a period of three years
after the date such person became an interested stockholder, unless (i) prior to
such date the board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in such
person becoming an interested stockholder, the interested stockholder owned at
least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding for determining the number of shares
outstanding shares owned by (a) persons who are directors and officers and (b)
employee stock plans, in certain instances), or (iii) on or subsequent to such
date the business combination is approved by the board of directors and
authorized by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder. Section 203 of
the DGCL defines the term "business combination" to encompass a wide variety of
transactions with or caused by an interested stockholder in which the interested
stockholder receives or could receive a benefit on other than a pro rata basis
with other stockholders, including certain mergers, consolidations, asset sales,
transfers and other transactions resulting in financial benefit to the
interested stockholder. "Interested stockholder" means a person who owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
stock, and the affiliates and associates of such person. Section 203 of the DGCL
does not apply to the Acquisition.
Federal Law. Both FFC and FirstRock are subject to federal law. Federal
law provides that, subject to certain exemptions, no person acting directly or
indirectly or through or in concert with one or more other persons may acquire
"control" of an insured institution, without giving at least 60 days' prior
written notice providing specified information to the OTS. "Control" is defined
for this purpose as the power, directly or indirectly, to direct the management
or policies of an insured institution or to vote 25 percent or more of any class
of voting securities of an insured institution. Control is presumed to exist
where the acquiring party has voting control of at least 10 percent of any class
of the institution's voting securities which is registered under Section 12 of
the Exchange Act and is actively traded. The term "actively traded" is defined
in the regulation to mean securities that are either listed on a securities
exchange or quoted on The Nasdaq Stock Market. The OTS may prohibit the
acquisition of control if it finds among other things that (i) the acquisition
would result in a monopoly or substantially lessen competition; (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution or (iii) the competence, experience or integrity of
any acquiring person or any of the proposed management personnel indicates that
it would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
<PAGE>
ADJOURNMENT OF STOCKHOLDERS MEETINGS TO PERMIT
FURTHER SOLICITATION OF PROXIES
In the event that there are not sufficient votes to approve the
proposal to be considered at the applicable Stockholders Meeting, such proposal
could not be approved unless the Stockholders Meeting were adjourned in order to
permit further solicitation of proxies. In order to allow proxies that have been
received by the FFC or FirstRock at the time of its Stockholders Meeting to be
voted for such adjournment, if necessary, each of FFC and FirstRock has
submitted the question of adjournment under such circumstances to its
shareholders as a separate matter for their consideration. The affirmative vote
of the holders of at least a majority of the shares of FFC Stock present in
person or by proxy is required to approve the FFC adjournment proposal. The
affirmative vote of the holders of at least a majority of the shares of
FirstRock Stock present in person or by proxy and entitled to vote is required
to approve the FirstRock adjournment proposal. Each of FFC's and FirstRock's
Board of Directors recommends that shareholders vote their proxies in favor of
such adjournment so that their proxies may be used for such purpose in the event
it should become necessary. Properly executed proxies will be voted in favor of
any such adjournment unless otherwise indicated thereon. If it is necessary to
adjourn a Stockholders Meeting, shareholders will be given notice of the time
and place of the adjourned meeting.
STOCKHOLDER PROPOSALS
In the event the Acquisition is not consummated before FirstRock's 1995
annual meeting of stockholders, any proposal intended to be presented by any
stockholder for action at the 1995 annual meeting of stockholders of FirstRock
must be received by the Secretary of FirstRock, 612 Main Street, Rockford,
Illinois 60113, not later than 120 days before the anniversary date of the
release of proxy materials for FirstRock's 1994 Annual Meeting in order for the
proposal to be considered for inclusion in the proxy statement and proxy
relating to the 1995 annual meeting.
Any stockholder of FFC who intends to present a proposal for action at
the 1996 annual meeting of stockholders must forward a copy of the proposal or
proposals to FFC's corporate offices. Any such proposal or proposals intended to
be presented at the 1996 annual meeting and included in FFC's proxy statement
and form of proxy relating to that meeting must be received by FFC by November
____, 1995. The deadline for inclusion of a stockholder proposal in FFC's proxy
statement and form of proxy for the 1995 FFC annual meeting has already passed.
The bylaws of FFC provide that any director nominations and new
business submitted by stockholders must be filed with the secretary of FFC at
least 30 business days prior to the date of the meeting. If notice of the
meeting is given less than 45 days before the meeting, such submissions must be
filed not later than 15 days after notice of the meeting is given.
RELATIONSHIP WITH INDEPENDENT AUDITORS
KPMG Peat Marwick LLP is currently serving as the independent auditors
for FirstRock. It is expected that a representative of KPMG Peat Marwick LLP
will be present at the FirstRock Meeting to respond to appropriate questions and
such representative will have an opportunity to make a statement if he or she so
desires.
EXPERTS
The consolidated financial statements of FFC for each of the three
years in the period ended December 31, 1993, incorporated by reference in this
Joint Proxy Statement/Prospectus and the Registration Statement, have been
audited by Ernst & Young L.L.P., independent auditors, as set forth in their
report thereon as incorporated herein, and are incorporated herein by reference
in reliance upon such report given upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements of FirstRock for
each of the three years in the period ended June 30, 1994, included in this
Joint Proxy Statement/Prospectus and the Registration Statement have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon as incorporated herein, and are included herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE STOCKHOLDERS MEETING, PLEASE
SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
FirstRock Bancorp, Inc.
We have audited the accompanying consolidated statements of
financial condition of FirstRock Bancorp, Inc. and subsidiary as of June 30,
1994 and 1993, and the related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1994. 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 referred to
above present fairly, in all material respects, the financial position of
FirstRock Bancorp, Inc. and subsidiary at June 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1994, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
July 29, 1994
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
-------- ------
Assets (In thousands)
<S> <C> <C>
Cash on hand and in banks $ 18,022 $ 9,989
Interest-earning deposits 4,796 22,282
Investments in mutual funds (note 2) 44,821 35,602
Investments held for sale (note 2) 2,371 --
Investments (approximate market value of
$19,882 in 1994, and $25,902 in 1993)(note 2) 20,145 25,624
Mortgage loans held for sale 17,122 47,124
Mortgage-backed securities held for sale -- 3,606
Mortgage-backed securities (approximate market value
of $53,626 in 1994 and $55,769 in 1993) (note 3) 55,030 54,233
Loans receivable, net of allowance for loan losses
of $2,766 in 1994 and $2,543 in 1993) (note 4) 222,652 189,071
Accrued interest on loans and investments (note 5) 2,868 2,926
Real estate held for sale 3,819 6,177
Real estate owned, net of allowance for losses
of $2,175 in 1994 and $2,175 in 1993 (note 4) 1,697 1,935
Premises and equipment (note 6) 5,201 5,152
Other assets 10,952 11,191
--------- ---------
$409,496 $414,912
Liabilities and Stockholders' Equity
Liabilities:
Deposit accounts (note 7) $301,590 $294,192
Collateralized mortgage obligation bonds (note 8) 12,309 20,869
Other borrowings (note 9) 19,857 150
Advance payments by borrowers for taxes and insurance 1,450 1,443
Custodial balances on loans serviced for others 19,909 44,033
Accrued interest and other liabilities 6,166 7,806
--------- ---------
Total Liabilities $361,281 $368,493
-------- --------
Stockholders' equity (notes 11, 12 & 15):
Preferred stock, $.01 par value, authorized 1,000,000 shares;
none outstanding -- --
Common stock, $.01 par value, authorized 3,500,000 shares;
issued 2,645,000 shares; outstanding 2,387,642 and 2,512,750
shares at June 30, 1994 and 1993, respectively 26 26
Additional paid-in capital 21,834 21,769
Retained earnings, substantially restricted 33,621 28,858
Treasury stock, 257,358 and 132,250 shares at cost
at June 30, 1994 and 1993, respectively (4,118) (2,001)
Common stock purchased by:
Employee stock ownership plan (1,215) (1,446)
Management recognition and retention plans (602) (787)
Unrealized loss on mutual funds (1,331) --
-------- -----------
Total stockholders' equity 48,215 46,419
--------- ---------
$409,496 $414,912
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the Years Ended June 30, 1994 1993 1992
- ---------------------------- -------- -------- ------
<S> <C> <C> <C>
Interest income: (In thousands)
First mortgage loans $14,851 $16,368 $19,826
Consumer loans 3,251 3,439 3,718
Mortgage-backed securities 3,700 4,101 4,472
Interest-earning deposits 685 950 2,033
Investment in mutual funds 1,757 1,096 112
Investments 1,484 1,282 592
------- ------- -------
Total interest income 25,728 27,236 30,753
------- ------- -------
Interest expense:
Deposits 9,483 10,849 15,540
Collateralized mortgage obligations and
other borrowings 2,370 3,060 3,801
------- ------- -------
Total interest expense 11,853 13,909 19,341
------- ------- -------
Net interest income before provision for loan losses 13,875 13,327 11,412
Provision for loan losses (note 4) 322 381 2,044
------- ------- -------
Net interest income after provision for loan losses 13,553 12,946 9,368
------- ------- -------
Non-interest income:
Loan fees and servicing income 3,011 3,425 3,282
Insurance/security commissions 566 569 667
Income from real estate and joint ventures 428 601 103
Service charges on deposit accounts 2,580 2,158 1,916
Gain (loss) on sale of loans 961 (89) (34)
Gain (loss) on trading account (355) -- 124
Loss on sale of investments and mortgage-backed securities (4) -- (68)
Gain (loss) on sale of mortgage-backed securities held for sale (33) 161 --
Gain on sale of real estate held for sale 165 -- --
Other income 183 244 299
------- ------- -------
Total non-interest income 7,502 7,069 6,289
------- ------- -------
Non-interest expense:
Compensation and benefits (note 11) 6,434 6,546 6,391
Office occupancy and equipment expenses 2,093 2,022 1,931
Federal deposit insurance premiums 747 588 687
Gain on operation and sale of real estate, net (17) 12 (415)
Provision for losses on real estate owned (note 4) -- -- 1,290
Other expense 4,095 4,018 3,066
------- ------- -------
Total non-interest expense 13,352 13,186 12,950
------- ------- -------
Income before taxes 7,703 6,829 2,707
Provision for federal and state income taxes 2,940 2,618 1,140
------- ------- -------
Income before cumulative effect of change
in accounting principle 4,763 4,211 1,567
Cumulative effect of change in accounting
for income taxes (note 10) -- -- 1,000
------- ------- -------
Net income $ 4,763 $ 4,211 $ 2,567
======= ======= =======
Primary earnings per share $ 1.86 N/A N/A
======= ======= =======
</TABLE>
N/A--The information is not applicable as the stock conversion was completed
October 2, 1992. See accompanying notes to the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended June 30, 1994, 1993 and 1992
Common Common Unrealized
Additional Stock Stock Loss on
Common Paid-in Retained Treasury Purchased Purchased Mutual
Stock Capital Earnings Stock By ESOP By RRPs Funds Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1991 $-- $ -- $22,080 $ -- $ -- $-- $-- $22,080
Net income -- -- 2,567 -- -- -- -- 2,567
--- ------- ------- ------- ------- --- --- -------
Balance June 30, 1992 -- -- 24,647 -- -- -- -- 24,647
Net proceeds of common
stock issued in stock
conversion 26 21,769 -- -- -- -- -- 21,795
Common stock purchased
for employee stock
ownership plan (ESOP) -- -- -- -- (1,620) -- -- (1,620)
Common stock purchased
for recognition and
retention plans (RRPs) -- -- -- -- -- (926) -- (926)
Net income -- -- 4,211 -- -- -- -- 4,211
Purchase of treasury stock
(132,250 shares) -- -- -- (2,001) -- -- -- (2,001)
Payment on ESOP loan -- -- -- -- 174 -- -- 174
Amortization of RRP's -- -- -- -- -- 139 -- 139
--- ------- ------- ------- ------- ----- --- -------
Balance June 30, 1993 26 21,769 28,858 (2,001) (1,446) (787) -- 46,419
Net income -- -- 4,763 -- -- -- -- 4,763
Purchase of treasury stock
(125,637 shares) -- -- -- (2,125) -- -- -- (2,125)
Payment on ESOP loan -- -- -- -- 231 -- -- 231
Amortization of RRP's -- -- -- -- -- 185 -- 185
Tax benefit related to
vested RRP stock -- 68 -- -- -- -- -- 68
Exercise of stock options
(529 shares) -- (3) -- 8 -- -- -- 5
Adjustment of mutual
funds to market -- -- -- -- -- -- (1,331) (1,331)
---- ---------- ---------- --------- --------- ------- ------- --------
Balance June 30, 1994 $26 $21,834 $33,621 $(4,118) $(1,215) $(602) $(1,331) $48,215
=== ======= ======= ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended June 30, 1994 1993 1992
- ---------------------------- -------- -------- ------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,763 $ 4,211 $ 2,567
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization (accretion) of premiums (discounts) on
loans and securities, net 3,493 2,503 (1,052)
Provision for loss on loans and real estate owned 322 381 3,334
Depreciation of premises and equipment 785 773 740
Depreciation of real estate held for sale 125 -- --
Amortization of intangibles and premium on
collateralized mortgage obligation bonds 856 781 821
(Gain) loss on sale of loans (961) 89 34
(Gain) loss on sale of investments and mortgage-backed
securities 4 -- 68
Loss on mortgage-backed securities held for sale 33 (161) --
Gain on sale of real estate owned (42) (51) (72)
Loss on trading portfolio 355 -- (124)
Purchase of trading account investments net of proceeds (359) -- --
Tax benefit related to vested RRP stock 68 -- --
FHLB stock dividends -- (68) (156)
Loan originations for held for sale, net of origination
fees and principal payments received (225,643) (280,311) (196,601)
Purchases of loans for resale (51,810) (118,707) (73,680)
Proceeds from sale of loans held for sale 308,078 373,143 263,139
Proceeds from sale of mortgage-backed securities and
investments held for sale 3,573 5,905 --
Increase (decrease) in cash due to:
Deferred income taxes 319 (177) (1,468)
Accrued interest 58 (454) 1,430
Other assets 34 (2,262) (1,170)
Accrued interest and other liabilities (1,959) 2,254 (3,640)
Custodial balances (24,124) 22,441 6,920
-------- -------- --------
Total adjustments 13,205 6,079 (1,477)
-------- -------- --------
Net cash provided by operating activities 17,968 10,290 1,090
-------- -------- --------
Cash flows from investing activities:
Loan originations, net of loan origination fees and
principal payments received (37,854) 4,434 36,170
Principal payments on mortgage-backed securities 24,534 17,545 13,216
Proceeds from maturities of investments 19,673 6,659 4,802
Proceeds from sales of investments
and mortgage-backed securities -- 600 4,012
Redemption of FHLB stock 205 131 350
Purchases of investments and mortgage-backed securities (49,671) (67,184) (34,160)
Proceeds from sales of real estate owned, net 329 904 325
Purchase of premises and equipment, net (834) (984) (658)
--------- --------- ---------
Net cash provided (used) by investing activities (43,618) (37,895) 24,057
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended June 30, 1994 1993 1992
- ---------------------------- -------- -------- ------
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of stock $-- $19,249 $--
Decrease in employee stock ownership and
recognition plans 416 313 --
Purchase of treasury stock (2,125) (2,001) --
Proceeds from exercised options 5 -- --
Net increase (decrease) in deposit accounts 7,398 2,965 (16,265)
Proceeds from other borrowings 19,707 -- 50
Payments on collateralized mortgage obligation bonds (9,211) (6,910) (9,300)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 7 104 (124)
---------- --------- ---------
Net cash provided (used) by financing activities 16,197 13,720 (25,639)
-------- -------- --------
Net decrease in cash and cash equivalents (9,453) (13,885) (492)
Cash and cash equivalents at beginning of year 32,271 46,156 46,648
-------- -------- --------
Cash and cash equivalents at end of year $ 22,818 $ 32,271 $46,156
======== ======== =======
Supplemental disclosures of cash flow information: Payments during the period
for:
Interest $11,914 $12,918 $20,246
Income taxes 3,016 2,856 1,954
Noncash investing activity:
Transfer loans to real estate owned 187 696 558
Transfer loans held for sale to mortgage-backed securities 1,085 -- --
Transfer mortgage-backed securities to held for sale portfolio -- 9,349 --
Exchange of real estate held for sale for shares
of a Real Estate Investment Trust 2,243 -- --
Transfer real estate owned to real estate held for sale -- 3,934 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
The following comprise the significant accounting policies which the
Company follows in preparing and presenting its financial statements:
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of FirstRock Bancorp, Inc. (Company) and its wholly owned subsidiary
First Federal Savings Bank, F.S.B. (Bank), formerly First Federal Savings and
Loan Association of Rockford, and its wholly owned subsidiaries, First Service
Corporation of Rockford, Megavest Corporation, FFS Funding Corp., Inc., Megavest
Financial Services, Inc., and Megarock Corporation. All significant intercompany
transactions and balances have been eliminated. See footnote 15 for additional
discussion of the conversion from a mutual to stock form of ownership.
(b) Investments
Investment securities, other than marketable equity securities, are
carried at amortized cost, adjusted for premiums and discounts because it is
management's opinion that they have the intent and ability to hold them to
maturity. Marketable equity securities, which include mutual fund investments,
are carried at the lower of cost or market with temporary declines in market
value, if any, reflected as a reduction in stockholders' equity.
Securities to be held for indefinite periods of time, including
securities that management intends to use as part of its asset/liability
strategy, or that may be sold in response to changes in interest rates, changes
in prepayment risk, the need to increase regulatory capital or other similar
factors, are classified as held for sale and are carried at lower of cost or
market value. Amortization of premiums and accretion of discounts are recognized
in interest income over the estimated life of the respective securities using
the level yield method.
(c) Mortgage-Backed Securities
Mortgage-backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced by the issuers
of the securities. These securities are carried at current unpaid principal
balances, adjusted for premiums and discounts because it is management's opinion
that they have the intent and ability to hold them to maturity. Securities to be
held for indefinite periods of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, the need to
increase regulatory capital or other similar factors, are classified as held for
sale and are carried at the lower of cost or market value. Amortization of
premiums and accretion of discounts are recognized in interest income over the
estimated life of the respective securities using the level yield method.
(d) Change in Accounting for Investments and Mortgage-Backed Securities
On July 1, 1994, the Bank adopted the provisions of the Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of Statement No. 115
had the effect of decreasing stockholders' equity by $454,000, net of tax. The
Bank has elected to classify all investments as available for sale except those
mortgage-backed securities securing the collateralized mortgage obligation
bonds, see footnotes 3 and 8. Statement No. 115 establishes the accounting and
reporting for investments in equity and debt securities that have readily
determinable fair values. Under Statement No. 115, investments which the entity
has the positive intent
<PAGE>
and ability to hold to maturity are classified as "held-to-maturity" and
measured at amortized cost. Investments purchased for the purpose of being sold
are classified as "trading securities" and measured at fair value with any
changes in fair value included in earnings. All other investments that are not
classified as "held-to-maturity" or "trading" are classified as "available for
sale." Investments available for sale are measured at fair value with any
changes in fair value reflected as a separate component of stockholders' equity,
net of tax.
(e) Mortgage Loans Held for Sale
Management designates substantially all fixed-rate residential
mortgage loans originated or purchased from correspondents as held for sale.
Mortgage loans held for sale are valued at the lower of aggregate cost or market
value. The market value calculation includes the gain or loss from hedging in
the futures and options market to assist in reducing its overall interest rate
risk from the time of loan commitment to sale in the secondary mortgage loan
market. Gains and losses on closed hedge transactions are deferred and amortized
over the term to maturity of the related hedged loan pool as an adjustment of
interest income or expense using the straight-line method, which is not
materially different from the interest method. At June 30, 1994, 1993, and 1992,
the deferred gain (loss) on futures and options was approximately $87,000,
($200,000), and ($187,000), respectively.
(f) Loans Receivable
Loans receivable are stated at unpaid principal balances less
unearned discounts, loans in process, net deferred loan origination fees, and
allowance for loan losses.
Loan origination fees and certain direct loan origination costs are
deferred, and the net fees or costs are recognized using the level-yield method
over the contractual life of the loans. Any unamortized net fees or costs on
loans sold or repaid prior to maturity are credited to income in the year such
loans are sold or repaid.
Valuation allowances for estimated losses on specific loans and real
estate owned and in redemption are charged to earnings when any significant and
permanent decline reduces the market value of the underlying security to less
than the net book value of the asset. Management's periodic evaluation of the
adequacy of the general allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, and current and prospective economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination. In the opinion of
management, the allowance, when taken as a whole, is adequate to absorb
reasonable foreseeable losses.
Interest on loans contractually delinquent, that is deemed
potentially uncollectible, is excluded from earnings and is credited to a
reserve for uncollected interest, which is reflected as a reduction to accrued
interest receivable on the consolidated statements of financial condition. The
accrual of interest is resumed if the delinquent loan is returned to current
status.
Gains or losses resulting from sales of loans or participating
interests in loans are recorded at the time of sale and are determined by the
difference between the net sales proceeds and the carrying value of the loans
sold. When servicing is retained, an additional gain or loss is recognized and
an excess servicing fee receivable or payable is recorded at the time of sale
based upon the net present value of
<PAGE>
expected amounts to be received or paid resulting from the difference between
the contractual interest rates received from the borrowers and the rate paid to
the buyer. Excluded from the net present value portion of the gain or loss is an
amount equal to the present value of a normal servicing fee. At June 30, 1994
and 1993, the resulting excess servicing fee receivable was approximately
$1,397,000 and $1,079,000, respectively, and is included in other assets on the
consolidated statements of financial condition. Servicing fee income, net of
amortization of excess and purchased servicing fees, was $1,681,000, $1,718,000,
and $1,994,000 for the years ended June 30, 1994, 1993, and 1992, respectively.
Mortgage loans serviced for others as of June 30, 1994, 1993 and 1992, were
approximately $966,999,000, $812,261,000 and $838,328,000, respectively.
Servicing rights purchased, which are recorded at cost, are
amortized using the interest method over the period of estimated net servicing
income. Such amortization is increased by provisions charged to operations to
reflect accelerated prepayment experience, which affects estimated future net
servicing revenue. At June 30, 1994, and 1993, the purchased servicing rights
were approximately $4,154,000, and $2,959,000, respectively, and are included in
other assets on the consolidated statements of financial condition.
(g) Real Estate Held for Sale
Real estate held for sale is carried at the lower of cost or net
realizable value. The cost is adjusted for earnings or losses and distributions
received.
(h) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure and is initially recorded at the lower of the principal balance of
the former mortgage loan plus costs of obtaining title and possession, or fair
value, including estimated cost of disposition. Subsequent valuation adjustments
are made if net realizable value of the property falls below the carrying
amount. Expenses relating to holding such real estate, net of rental and other
income, are charged against income as incurred.
(i) Premises and Equipment
Office properties and equipment are recorded at cost less
depreciation, which is accumulated on a straight-line basis over the estimated
useful lives of the related assets. Leasehold improvements are recorded at cost
less accumulated amortization computed on a straight-line basis over the term of
the lease or the life of the asset, whichever is shorter.
(j) Taxes on Income
The Company, the Bank, and its subsidiaries file a consolidated
Federal income tax return. Income taxes are allocated by the Company to its
subsidiaries based on the use of their income or loss in the consolidated
return. See further discussion at note 10.
(k) Earnings Per Share
Earnings per share were determined by dividing net income for each
period by the weighted average number of common stock and common stock
equivalents outstanding. Stock options are regarded as common stock equivalents
and are therefore considered in both primary and fully diluted earnings per
share calculations. Annual earnings per share are not presented for the period
ended June 30, 1993, because the Bank did not complete its mutual to stock
conversion and issue stock until October 2, 1992.
(l) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash on hand and in banks and interest-earning
deposits.
<PAGE>
(m) Fair Value Disclosures
Fair value disclosures are required under Statement of Financial
Accounting Standards No. 107 "Disclosures about the Fair Value of Financial
Instruments". Such fair value estimates are made at a specific point in time
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. The tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
Fair value disclosures have been included for investments (note 2),
mortgage-backed securities (note 3), loans receivable (note 4), deposits (note
7), collateralized mortgage obligation bonds (note 8), other borrowings (note
9), and concentrations of credit risk and financial instruments with off-balance
sheet risk (note 14).
(n) Reclassifications
Certain reclassifications of prior year amounts have been made to
conform with current year presentations.
(2) Investments
Investments held for sale, mutual funds and investment securities
are summarized as follows at June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approx. Gross Gross Approx.
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held for sale, Real
Estate Investment
Trust $ 2,371 $515 $ -- $ 2,886 $ -- $ -- $-- $ --
Mutual funds 44,821 -- -- 44,821 35,602 31 9 35,624
U.S. Government
securities and
agency
obligations 17,169 11 274 16,906 21,429 268 15 21,682
Stock in Federal
Home Loan Bank
of Chicago 2,226 -- -- 2,226 2,431 -- -- 2,431
Other investments 750 -- -- 750 1,764 25 -- 1,789
------- ---- ---- ------- ------- ---- --- -------
$67,337 $526 $274 $67,589 $61,226 $324 $24 $61,526
======= ==== ==== ======= ======= ==== === =======
</TABLE>
<PAGE>
The Company did not sell any investment securities prior to their
scheduled maturity dates during the years ended June 30, 1994, 1993 and 1992.
Shares of stock for certain mutual fund investments were redeemed resulting in a
loss of approximately $4,000 for the year ended June 30, 1994. Proceeds from the
sale of securities, held in a trading portfolio, were $4,679,000 and $73,324,000
for the years ended June 30, 1994 and 1992, respectively. Gross gains (losses)
of ($355,000) and $124,000 were realized from sales of securities held in a
trading portfolio for the years ended June 30, 1994 and 1992, respectively. The
market value of all investment securities is based on quoted market prices
obtained from securities brokers or financial newspapers. Investment securities
with a carrying value of $6,036,000 will mature within 12 months, $9,096,000
will mature after 12 months and within five years, $1,005,000 will mature after
five years and within ten years, and $1,782,000 will mature after ten years. The
stock in the FHLB of Chicago and the mutual funds are equity securities and, as
such, have no stated maturities.
(3) Mortgage-Backed Securities
Mortgage-backed securities are summarized as follows as of June 30,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approx. Gross Gross Approx.
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed secur-
ities:
CMOs and
REMICs $14,147 $ -- $ 693 $13,454 $ 6,763 $ 97 $2 $ 6,858
FHLMC 14,999 17 479 14,537 12,487 176 -- 12,663
FNMA 8,555 -- 323 8,232 11,453 100 -- 11,553
GNMA 4,543 5 152 4,396 2,156 83 -- 2,239
FHLMC securing
CMO bonds 12,786 221 -- 13,007 21,374 1,082 -- 22,456
------- ---- -------- ------- ------- ------ --- -------
$55,030 $243 $1,647 $53,626 $54,233 $1,538 $2 $55,769
======= ==== ====== ======= ======= ====== == =======
</TABLE>
Proceeds from the sale of mortgage-backed securities (held for sale
in 1994 and 1993) were $3,606,000, $5,900,000 and $3,900,000 for the years ended
June 30, 1994, 1993 and 1992, respectively. Gross gains (losses) of ($33,000),
$161,000 and ($68,000) were realized on the sales of mortgage-backed securities
for the years ended June 30, 1994, 1993 and 1992, respectively. The market value
of all mortgage-backed securities is based on quoted market prices obtained from
securities brokers or financial newspapers.
Mortgage-backed securities with an approximate book value of
$5,024,000 and $6,002,000 were pledged to secure certain deposits in excess of
deposit insurance limits at June 30, 1994 and 1993, respectively.
<PAGE>
(4) Loans Receivable
Loans receivable are summarized as follows as of June 30, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
-------- ------
(In thousands)
<S> <C> <C>
Mortgage Loans:
One-to-four-family $136,488 $103,539
Multi-family 23,430 26,706
Commercial 19,453 20,334
Construction 15,466 13,507
-------- --------
Total mortgage loans 194,837 164,086
Consumer loans 37,080 33,385
-------- --------
Total loans receivable 231,917 197,471
Less:
Loans in process 7,022 6,085
Unearned discounts, premiums and deferred loan fees, net (523) (228)
Allowance for loan losses 2,766 2,543
--------- ---------
Loans receivable, net $222,652 $189,071
======== ========
</TABLE>
Activity in the allowances for losses on loans receivable and on
real estate owned is summarized as follows as of June 30, 1994,1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Allowance for losses on loans: (In thousands)
Balance at beginning of period $2,543 $2,435 $ 612
Provision charged to income 322 381 2,044
Charge-offs (99) (273) (221)
------- ------- -------
Balance at end of period $2,766 $2,543 $2,435
====== ====== ======
Allowance for losses on real estate owned:
Balance at beginning of period $2,175 $2,825 $1,551
Provision charged to income -- -- 1,290
Charge-offs -- (650) (16)
-------- ------- -------
Balance at end of period $2,175 $2,175 $2,825
====== ====== ======
</TABLE>
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as fixed or
adjustable one-to-four-family residential, multi-family, commercial real estate,
construction, and consumer loans. Each loan category is further segmented into
fixed and adjustable rate interest terms and by performing and non-performing
categories.
The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimated maturity is based on the weighted average of the contractual
obligation remaining for each loan classification. For non-performing loans
estimated cash flows are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding credit risk,
cash flows, and discount rates are judgmentally determined.
The fair value of adjustable and fixed rate one-to-four-family
mortgage loans at June 30, 1994 was $64,919,000 and $69,195,000, respectively.
The fair value of multi-family, commercial and construction loans at June 30,
1994 was $52,855,000. The fair value of consumer loans at June 30, 1994 was
$37,239,000.
<PAGE>
(5) Accrued Interest Receivable on Loans and Investments
Accrued interest receivable on loans and investments are summarized
as follows as of June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- ------
(In thousands)
<S> <C> <C>
Mortgage loans $1,334 $1,208
Mortgage-backed securities 790 1,073
Investment securities 501 513
Consumer loans 243 132
------- -------
$2,868 $2,926
</TABLE>
(6) Premises and Equipment
Premises and equipment, at cost, are summarized as follows as of
June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- ------
(In thousands)
<S> <C> <C>
Land $957 $954
Buildings 5,450 5,319
Leasehold improvements 153 146
Furniture and equipment 5,963 5,584
------- -------
12,523 12,003
Less allowance for depreciation and amortization 7,322 6,851
------- -------
$5,201 $5,152
</TABLE>
Depreciation expense for the year ended June 30, 1994, 1993, and
1992 was $785,000, $773,000, and $740,000, respectively.
<PAGE>
(7) Deposits
Deposit balances by interest rate are summarized as follows as of
June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------- ----------------------------------------
Percent Weighted Percent Weighted
of Average of Average
Total Nominal Total Nominal
Amount Deposits Rate Amount Deposits Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 48,107 15.95% 1.74% $ 46,442 15.79% 2.10%
NOW and Super NOW accounts 36,613 12.14 1.07 33,852 11.51 1.32
Non-interest-bearing NOW accounts 18,211 6.04 -- 15,926 5.41 --
-------- ------ ---- -------- ------ ----
102,931 34.13 1.19 96,220 32.71 1.48
-------- ------ ---- -------- ------ ----
Money market accounts 43,557 14.44 2.14 47,118 16.02 2.60
Certificate accounts:
Thirty-one day 1,128 0.37 2.70 927 0.32 2.75
Ninety-one day 1,554 0.52 2.88 2,392 0.81 3.00
Six month 10,119 3.36 2.96 16,542 5.62 3.46
Eight to ten month 8,193 2.72 3.30 13,219 4.49 3.66
One year 10,554 3.50 3.19 18,648 6.34 3.95
Eighteen Month 3,281 1.09 3.64 4,688 1.59 4.23
Twenty-four to twenty-six
month 30,433 10.09 4.40 11,588 3.94 5.25
Thirty month 42,598 14.12 4.86 40,411 13.74 4.55
Thirty-five to forty-two
month 17,060 5.66 5.40 16,100 5.47 6.39
Five to seven year 19,508 6.47 6.43 17,870 6.07 7.28
Jumbos 10,674 3.53 4.29 8,469 2.88 3.44
-------- ------ ---- -------- ------ ----
155,102 51.43 4.60 150,854 51.27 4.74
-------- ------ ---- -------- ------ ----
Total deposits $301,590 100.00% 3.09% $294,192 100.00% 3.33%
======== ====== ==== ======== ====== ====
</TABLE>
Interest expense by deposit type is as follows for the years ended
June 30, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
Passbook accounts $ 884 $ 1,130 $ 1,663
NOW accounts 407 631 1,196
Money market accounts 997 1,349 2,136
Certificate accounts 7,195 7,739 10,545
------ ------- -------
$9,483 $10,849 $15,540
====== ======= =======
</TABLE>
Under Financial Accounting Statement No. 107, the fair value of
deposit accounts with no stated maturity, such as passbook, NOW, money market
and checking accounts, is equal to the amount payable on demand as of June 30,
1994. The fair value of certificate accounts is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities. The fair value estimates
on the following page do not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of borrowing
funds in the market.
<PAGE>
The following table presents the fair value of deposits at June 30,
1994:
<TABLE>
<CAPTION>
Estimated
Fair Value
(In thousands)
<S> <C>
Passbook accounts $ 48,107
NOW accounts 54,824
Money market accounts 43,557
Certificate accounts 160,461
--------
$306,949
</TABLE>
(8) Collateralized Mortgage Obligation Bonds (CMO)
A summary of CMO bonds payable as of June 30, 1994 and 1993
follows:
<TABLE>
<CAPTION>
1994 1993
------ -----
(In thousands)
<S> <C> <C>
Series 1985-1 bonds, weighted average interest rate of 7.9%, net
of premium of $725 and $1,015 at June 30, 1994 and 1993 $7,382 $11,619
Series 1985-2 bonds, weighted average interest rate of 9.15%, net
of premium of $899 and $1,260 at June 30, 1994 and 1993 4,927 9,250
-------- --------
Total $12,309 $20,869
======= =======
</TABLE>
The effective rate of the CMO bonds for the year ended June 30,
1994 was 14.8%. The following is a summary of estimated principal maturities
during the next five years:
<TABLE>
<CAPTION>
Year ended Series Series
June 30 1985-1 1985-2 Total
---------- ------ ------ -----
(In thousands)
<S> <C> <C> <C>
1995 $1,491 $1,484 $2,975
1996 1,416 1,002 2,418
1997 1,180 1,002 2,182
1998 944 651 1,595
1999 787 301 1,088
</TABLE>
Actual principal maturities will be determined based on the
repayment experience of the underlying mortgage-backed certificates.
The fair value of the CMO bonds was determined by discounting the
contractual cash flows of each bond series. The cash flows were adjusted for
prepayments which have historically accelerated the principal amount subject to
the contractual terms. If prepayments were not considered in the discounted cash
flow model, the fair value of the bonds would be increased. The fair value of
the CMO bonds at June 30, 1994 was $12,587,000.
(9) Other Borrowings
The Bank has outstanding advances from the Federal Home Loan Bank
of Chicago of $19,857,000, consisting of $19,450,000 in short term adjustable
interest rate advances at 5.85% as of June 30, 1994. Additionally the Bank has a
$100,000, 5.5% advance maturing on January 25, 2001, and a $307,000, 2.5%
advance maturing on July 30, 2003. All advances approximate fair value as of
June 30, 1994.
<PAGE>
(10) Income Taxes
Accrued interest and other liabilities in the accompanying balance
sheets include deferred income taxes of approximately $372,000, $53,000, and
$230,000, at June 30, 1994, 1993 and 1992, respectively. The components of
income taxes are as follows for the years ended June 30, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Federal:
Current $2,177 $2,394 $2,048
Deferred (benefit) 280 (196) (1,044)
------- ------- -------
2,457 2,198 1,004
State:
Current 444 401 560
Deferred (benefit) 39 19 (424)
------- ------- -------
Total income tax expense $2,940 $2,618 $1,140
====== ====== ======
</TABLE>
The reasons for the difference between the effective income tax
rate and the corporate federal tax rate for the years ended June 30, 1994, 1993
and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Federal tax rate 34.0% 34.0% 34.0%
Items affecting federal income tax rate:
General loan provision in excess of tax
bad debt deduction allowable -- -- 3.4
Decrease in valuation allowance on tax assets -- (4.5) --
State taxes, net federal benefit 4.1 4.1 4.7
Other .1 4.7 --
---- ---- -----
Total 38.2% 38.3% 42.1%
==== ==== ====
</TABLE>
In February, 1992, the Financial Accounting Standards Board issued
Financial Accounting Statement No. 109, "Accounting for Income Taxes". Statement
No. 109 requires a change from the deferred method under APB Opinion 11 to the
asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying the applicable tax rate to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Under Statement No. 109, the effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes the
enactment date of any such tax law change.
Effective July 1, 1991, the Association adopted Statement No. 109.
The cumulative effect of the change in the method of accounting for income taxes
as of July 1, 1991 increased net income by approximately $1,000,000, net of a
$300,000 valuation reserve, and is reported separately in the consolidated
statements of earnings.
<PAGE>
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets at
June 30, 1994, 1993, and 1992 are:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Gain on sale of loans, deferred for tax purposes $ 926 $ 664 $ 736
Hedging transactions, recognized currently for tax purposes 132 185 230
Income reported for tax purposes when received 181 238 244
Dividends received in stock, not recognized for tax purposes 85 93 69
Tax depreciation in excess of book depreciation 19 64 103
Excess of tax bad debt reserve over base year 193 -- --
Other -- 126 45
-------- -------- -------
1,536 1,370 1,427
Deferred tax assets:
General allowances for losses on loans (1,058) (976) (923)
Deferred loan fees (106) (142) (147)
Base year tax bad debt reserve in excess of tax bad debt reserve -- (199) (427)
-------- -------- -------
(1,164) (1,317) (1,497)
Valuation allowance on deferred tax assets -- -- 300
-------- -------- -------
(1,164) (1,317) (1,197)
------ ------ ------
Net deferred tax liability $ 372 $ 53 $ 230
====== ====== ======
</TABLE>
Retained earnings as of June 30, 1994, includes approximately
$5,229,000 for which no provision for federal income tax has been made. This
amount represents allocations of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than tax bad debt
losses will create income for tax purposes only, which will be subject to the
then current income tax rate.
(11) Benefit Plans
The Company and its subsidiaries have a defined benefit retirement
plan which covers all employees who have attained at least twenty-one years of
age and completed one year of service. During fiscal year 1991 the Company
merged its defined benefit retirement plan into the Financial Institutions
Retirement Fund (FIRF), a multiple employer, industry-sponsored plan. In
addition, the Company and its subsidiaries have a 401(k) plan covering
substantially the same group of employees after completion of one year of
service. The Company has agreed to make contributions to the defined benefit
retirement plan sufficient to pay benefits to plan participants. Contributions
to the 401(k) plan are discretionary. The Company incurred total expenses to
fund the plans of approximately $408,000, $463,000, and $577,000 for the years
ended June 30, 1994, 1993 and 1992, respectively.
The Bank established an Employee Stock Ownership Plan (ESOP), on
October 2, 1992, contemporaneously with the conversion from mutual to stock form
of ownership. The plan covers substantially all employees with more than one
year of service who have attained the age of twenty-one. The ESOP borrowed
$1,620,000 from the Company to purchase 185,150 shares of the Company's stock at
$8.75 per share. The Bank has agreed to make scheduled contributions to the ESOP
sufficient to service the amount borrowed. The total contributions used to fund
payments on the debt totalled $231,000 and $174,000 in 1994 and 1993,
respectively.
In conjunction with the Bank's conversion, the Bank established two
stock option plans which granted options to individuals to purchase common stock
of the Company at a price equal to the fair market value at the date of grant,
subject to the terms and conditions of the plan. The total number of shares
authorized under the incentive stock option plan is 198,375, equal to 7.5% of
the total number of shares of common stock issued in the initial public
offering. The option term can not exceed ten years. The Bank granted 193,085 of
these options to officers of the Bank in connection with the conversion at an
<PAGE>
(11) Benefit Plans (Continued)
exercise price of $8.75 per share. Options are currently exercisable for the
Chairman and President of the Bank, and for other officers on a cumulative basis
in equal installments at a rate of 20% per year commencing one year from the
date of grant, October 2, 1992. During the year under the incentive stock option
plan, 529 options were exercised and issued from treasury stock. The stock
option plan for outside directors who are not officers or employees of the Bank
granted options to directors for 2.5% or 66,125 shares in conjunction with the
conversion. The exercise price per share will be $8.75 for each option. Each
option granted under the outside directors stock option plan are exercisable and
expire upon the earlier of 10 years following the date of grant or one year
following the date the optionee ceases to be a director.
In conjunction with the conversion, the Bank also established
several Recognition and Retention Plans and Trusts (RRPs), as a method of
providing officers of the Bank with a proprietary interest in the Company. Such
awards are to be earned by employees subject to terms of the plans. The total
number of shares purchased and granted by the plans in conjunction with the
conversion totalled 105,800 shares or 4% of the total shares offered in the
conversion. The stock grants awarded to the officers of the Bank will vest on a
cumulative basis in equal installments at a rate of 20% per year commencing one
year from the date of grant, October 2, 1992. The cost of the awards are
amortized on a straight-line basis over their five year terms.
In December 1990, the Financial Accounting Standards Board issued
Statement No. 106, Employers' Accounting for Post-Retirement Benefits other than
Pensions. Currently, the Company provides no post-retirement benefits other than
the pension plan described above and as such, SFAS No. 106 will have no impact
on the Company's operations.
(12) Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
of 1989
FIRREA includes provisions for changes in the federal regulatory
structure for institutions including minimum capital requirements, a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate debt and
certain other investments. FIRREA also increases the required ratio of housing
related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum regulatory
tangible capital equal to 1.5% of total assets, a minimum 3.0% core capital
ratio, and an 8.0% risk-based capital ratio. The Bank is in compliance with the
fully phased-in capital requirements at June 30, 1994.
Management anticipates continued compliance with the capital
requirements of FIRREA and that the other provisions of FIRREA will not
materially impact the Bank's operations.
(13) Lease Commitments
Minimum rental commitments under all noncancelable operating leases
for land and office space are as follows:
<TABLE>
<CAPTION>
Year ended
June 30, Amount
(In thousands)
<S> <C>
1995 $189
1996 159
1997 131
1998 60
1999 39
</TABLE>
Rental expense for the years ended June 30, 1994, 1993 and 1992 was
approximately $222,000, $227,000, and $186,000, respectively.
<PAGE>
(14) Concentrations of Credit Risk and Financial Instruments with Off-Balance-
Sheet Risk
The Bank's lending base primarily covers the greater Rockford,
Illinois area and extends, to a lesser extent, to the Chicago, Illinois and Des
Moines, Iowa metropolitan areas, where the Bank operates three of its mortgage
loan origination offices. The Bank evaluates each customer's creditworthiness on
a case-by-case basis.
Commitments to fund or purchase loans at June 30, 1994 and 1993
amounted to approximately $55,080,000 and $85,270,000, respectively, including
approximately $10,907,000 and $10,900,000, respectively, of unadvanced lines of
credit and $9,800,000 and $13,800,000, respectively, in fixed rate loans ranging
from 7.5 to 9.9 percent and 6.5 to 10.9 percent, respectively. Commitments to
sell loans and participating interests in loans at June 30, 1994 and 1993
aggregated approximately $21,722,000 and $72,800,000, respectively.
The Bank has purchased financial options and futures to hedge
interest rate exposure on mortgage loans and the related commitments. Options to
place mortgage-backed securities at June 30, 1994 were $11,000,000 to purchase
and $11,000,000 to sell. There were no options on financial futures contracts at
June 30, 1994. The unamortized cost of such options and futures and the exposure
to loss on the ultimate fulfillment of sales commitments is not expected to
result in significant loss, if any, to the Bank.
The fair value of the aforementioned loan commitments, options and
futures is included in the calculation of fair value of mortgage loans held for
sale. See note 1(d).
(15) Stockholders' Equity
On October 2, 1992, FirstRock Bancorp, Inc. issued 2,645,000 shares
of common stock at $8.75 per share. The net proceeds, after deducting conversion
expenses of $1.3 million, were $21.8 million, and are reflected as common stock
and additional paid-in capital in the accompanying consolidated statements of
financial condition. The Company used $10.9 million of the net proceeds to
acquire all the capital stock of the Bank.
As part of the conversion, the Bank established a liquidation
account for the benefit of eligible depositors as of December 31, 1991, the
eligibility record date, who continue to maintain deposits in the Bank after the
conversion. In the unlikely event of a complete liquidation of the Bank, each
eligible account holder would receive from the liquidation account, a
liquidation distribution based on their proportionate share of the then total
remaining qualifying deposits, prior to any distribution with respect to the
Bank's capital stock. The Bank may not declare or pay a cash dividend to the
Company on, or repurchase any of, its capital stock, if the effect thereof would
cause the retained earnings of the Bank to be reduced below the amount then
required for the liquidation account.
<PAGE>
(16) Condensed Parent Company Only Financial Statements
The following condensed statement of financial condition as of June
30, 1994 and 1993 and condensed statements of earnings and cash flows for the
year ended June 30, 1994 and the period from October 2, 1992 to June 30, 1993
for FirstRock Bancorp, Inc. should be read in conjunction with the consolidated
financial statements and notes thereto (in thousands).
<TABLE>
<CAPTION>
Statement of Financial Condition
June 30, June 30,
1994 1993
<S> <C> <C>
Assets:
Cash on hand and in banks $1,202 $ 110
Investments 4,466 7,545
Loans receivable for ESOP 1,215 1,446
Accrued interest on loans and investments 18 33
Investment in First Federal Savings Bank, F.S.B. 44,267 39,541
Other assets 43 3
------- -------
$51,211 $48,678
======= =======
Liabilities:
Accrued interest and other liabilities $ 56 $ 26
Stockholders' equity:
Preferred stock -- --
Common stock 26 26
Additional paid-in capital 21,766 21,769
Retained earnings 33,621 28,858
Unrealized loss on mutual funds (140) --
Treasury stock (4,118) (2,001)
------- -------
51,155 48,652
------- -------
$51,211 $48,678
======= =======
Period from
Statement of Earnings Year ended October 2,
June 30, 1992 to
1994 June 30, 1993
Equity in earnings of the Bank $4,726 $3,035
Interest income 384 382
Loss on redemption of mutual funds (4) --
Other expense (320) (33)
Income tax expense (23) (134)
------- -------
Net income $ 4,763 $ 3,250
======= =======
Period from
Statement of Cash Flows Year ended October 2,
June 30, 1992 to
1994 June 30, 1993
Operating activities:
Net income $ 4,763 $ 3,250
Less equity in earnings of the Bank not providing funds (4,726) (3,035)
Amortization of premiums on investments 3 --
Loss on redemption of mutual funds 4 --
Increase in accrued interest and other assets (25) (36)
Increase in other liabilities 30 26
------- -------
Net cash provided by operations 49 205
------- ------
<PAGE>
<CAPTION>
Statement of Cash Flows (Continued)
Period From
Year ended October 2,
June 30, 1992 to
1994 June 30, 1993
Investing activities:
Loan originations -- (1,620)
Purchase of investments (1,700) (8,145)
Proceeds from the redemption and maturity of investments 4,632 600
Repayments of loans 231 174
Purchase of capital stock of the Bank -- (10,898)
--------- -------
Net cash used by investing activities 3,163 (19,889)
------- -------
Financing activities:
Net proceeds from sale of common stock -- 21,795
Proceeds from options exercised 5 --
Purchase of treasury stock (2,125) (2,001)
------- -------
Net cash provided by financing activities (2,120) 19,794
------- -------
Net increase in cash and cash equivalents 1,092 110
Cash and cash equivalents at beginning of period 110 --
------- ---------
Cash and cash equivalents at end of period $ 1,202 $ 110
======= =======
</TABLE>
(17) Quarterly Results of Operations (Unaudited)
The following table sets forth certain unaudited income and expense
data on a quarterly basis for the period indicated.
<TABLE>
<CAPTION>
Quarter ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
1994 1994 1993 1993 1993 1993 1992 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $6,294 $6,265 $6,579 $6,590 $6,862 $6,559 $7,009 $6,806
Interest expense 2,765 2,833 3,045 3,210 3,257 3,249 3,555 3,848
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 3,529 3,432 3,534 3,380 3,605 3,310 3,454 2,958
------ ------ ------ ------ ------ ------ ------ ------
Provision for loan losses 58 88 88 88 87 88 88 118
Total non-interest income 1,895 1,886 1,837 1,884 1,638 1,678 1,669 1,687
Total non-interest expense 3,391 3,294 3,358 3,309 3,347 3,146 3,318 2,978
Income taxes (benefit) 755 735 736 714 696 674 660 588
------- ------- ------- ------- ------- ------- ------- ------
Net income $1,220 $1,201 $1,189 $1,153 $1,113 $1,080 $1,057 $ 961
====== ====== ====== ====== ====== ====== ====== ======
Primary earnings per share $ 0.48 $ 0.47 $ 0.47 $ 0.44 $ 0.42 $ 0.40 $ 0.39 N/A
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
N/A - Earnings per share are not available as the stock conversion was complete
October 2, 1992.
<PAGE>
(This page intentionally left blank)
<PAGE>
FIRSTROCK BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 16,004 $ 18,022
Interest-earning deposits 985 4,796
Investments in mutual funds at market 45,440 44,821
Investment securities available for sale 22,195 --
Investment securities held to maturity -- 22,516
Mortgage loans held for sale 9,670 17,122
Mortgage-backed securities available for sale 39,150 --
Mortgage-backed securities held to maturity 11,686 55,030
Loans receivable, net 236,764 222,652
Accrued interest receivable 2,917 2,868
Real estate held for sale 3,804 3,819
Real estate owned, net 1,784 1,697
Premises and equipment 5,139 5,201
Other assets 12,417 10,952
-------- --------
Total Assets $407,955 $409,496
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $302,483 $301,590
Collateralized mortgage obligation bonds 10,013 12,309
Other borrowings 28,561 19,857
Advance payments by borrowers for taxes and insurance 717 1,450
Custodial balances on loans serviced for others 10,428 19,909
Accrued interest and other liabilities 7,177 6,166
---------- -----------
Total liabilities 359,379 361,281
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, authorized 1,000,000
shares; none outstanding -- --
Common stock, $.01 par value, authorized 3,500,000
shares; issued 2,645,000 shares; outstanding
2,388,171 shares at 9/30/94 and 2,387,642 shares
at 6/30/94 26 26
Additional paid-in capital 21,830 21,834
Retained earnings, substantially restricted 34,858 33,621
Treasury stock, at cost, 256,829 shares at 9/30/94
and 257,358 shares at 6/30/94 (4,109) (4,118)
Common stock purchased by:
Employee stock ownership plan (1,157) (1,215)
Management recognition and retention plan (556) (602)
Net unrealized loss on securities (2,316) (1,331)
--------- ---------
Total stockholders' equity 48,576 48,215
--------- ---------
Total liabilities and stockholders' equity $407,955 $409,496
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FIRSTROCK BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1994 1993
<S> <C> <C>
Interest income:
First mortgage loans $3,866 $3,881
Consumer loans 891 831
Mortgage-backed securities 853 916
Interest-earning deposits 13 238
Investment in mutual funds 587 353
Investment securities 306 371
------- -------
Total interest income 6,516 6,590
------- -------
Interest expense:
Deposits 2,356 2,533
Borrowed funds 595 677
------- -------
Total interest expense 2,951 3,210
------- -------
Net interest income before provision for loan losses 3,565 3,380
Provision for loan losses 69 88
------- -------
Net interest income after provision for loan losses 3,496 3,292
Non-interest income:
Loan fees and servicing income 927 773
Insurance/security commissions 92 185
Income from real estate 77 151
Service charges on deposit accounts 681 674
Gain (loss) on sale of loans (83) 89
Gain (loss) on sale of investment securities (36) (33)
Other income 47 45
------ -------
Total non-interest income 1,705 1,884
------ ------
Non-interest expense:
Compensation and benefits 1,728 1,553
Office occupancy and equipment 504 538
Federal deposit insurance premiums 182 187
Gain on operation and sale of REO, net (16) (26)
Other expense 798 1,057
------ ------
Total non-interest expense 3,196 3,309
------ ------
Income before income taxes 2,005 1,867
Income taxes 768 714
------- -------
Net income $1,237 $1,153
====== ======
Primary earnings per share $ 0.49 $ 0.44
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FIRSTROCK BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Common Common Loss On
Additional Stock Stock Securities
Common Paid-in Retained Treasury Acquired Acquired Available
Stock Capital Earnings Stock By ESOP By RRPs For Sale Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $26 $21,834 $33,621 $(4,118) $(1,215) $(602) $(1,331) $48,215
Net income for the
three months ended
September 30, 1994 -- -- 1,237 -- -- -- -- 1,237
Payment on ESOP loan -- -- -- -- 58 -- -- 58
Amortization of RRP's -- -- -- -- -- 46 -- 46
Exercise of stock options
(529 shares) -- (4) -- 9 -- -- -- 5
Change in net unrealized loss
on securities available
for sale -- -- -- -- -- -- (985) (985)
---- ---------- ---------- --------- --------- ------- -------- --------
Balance, September 30, 1994 $26 $21,830 $34,858 $(4,109) $(1,157) $(556) $(2,316) $48,576
=== ======= ======= ======= ======= ===== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FirstRock Bancorp, Inc.
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1994 1993
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,237 $ 1,153
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization (accretion) of premiums (discounts) on
loans and securities, net 322 1,276
Provision for loss on loans and real estate owned 69 88
Depreciation of premises and equipment 186 209
Depreciation of real estate held for sale 33 27
Amortization of intangibles and premium on
collateralized mortgage obligation bonds 179 220
(Gain) loss on sale of loans 83 (56)
Loss on sale of investments and mortgage-backed
securities 36 --
Loss on mortgage-backed securities held for sale -- 33
Gain on sale of real estate owned -- (32)
Loan originations for held for sale, net of origination
fees and principal payments received (14,910) (78,075)
Purchases of loans for resale (11,866) (22,448)
Proceeds from sale of loans held for sale 34,145 107,547
Proceeds from sale of mortgage-backed securities and
investments held for sale -- 3,573
Increase (decrease) in cash due to:
Accrued interest (49) (21)
Other assets (315) 875
Accrued interest and other liabilities 1,011 (897)
Custodial balances (9,481) (9,474)
------- -------
Total adjustments (557) 2,845
-------- -------
Net cash provided by operating activities 680 3,998
-------- -------
Cash flows from investing activities:
Loan originations, net of loan origination fees and
principal payments received (14,512) (1,667)
Principal payments on mortgage-backed securities 2,887 5,229
Proceeds from maturities of investments 91 4,112
Proceeds from sales of investments
and mortgage-backed securities 673 --
Purchases of investments and mortgage-backed
securities (2,071) (6,507)
Proceeds from sales of real estate owned, net 7 258
Purchase of premises and equipment, net (124) (528)
-------- --------
Net cash provided (used) by investing activities (13,049) 897
------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FirstRock Bancorp, Inc.
Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> For the Three Months
Ended September 30,
1994 1993
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Decrease in employee stock ownership and
recognition plans 104 104
Proceeds from exercised options 4 --
Net increase in deposit accounts 893 2,978
Proceeds from other borrowings net 8,704 307
Payments on collateralized mortgage obligation bonds (2,432) (1,774)
Net decrease in advance payments by
borrowers for taxes and insurance (733) (812)
-------- -------
Net cash provided by financing activities 6,540 803
-------- -------
Net increase (decrease) in cash and cash equivalents (5,829) 5,698
Cash and cash equivalents at beginning of the quarter 22,818 32,271
------- -------
Cash and cash equivalents at end of quarter $16,989 $37,969
======= =======
Supplemental disclosures of cash flow information: Payments during the period
for:
Interest 2,811 3,144
Income taxes 4 210
Noncash investing activity:
Transfer loans to real estate owned 112 --
Transfer of securities to available for sale 67,337 --
Transfer of mortgage-backed securities to available
for sale 42,244 --
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FIRSTROCK BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
September 30, 1994 and June 30, 1994
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation have been included.
The results of operations and other data for the interim periods are not
necessarily indicative of results that may be expected for the entire fiscal
year ending June 30, 1995.
The unaudited consolidated financial statements include the accounts of
FirstRock Bancorp, Inc. (the "Company") and its wholly owned subsidiary, First
Federal Savings Bank, FSB and its subsidiaries (the "Bank") as of September 30,
1994 and for the three month periods ended September 30, 1994 and 1993. All
material intercompany accounts and transactions have been eliminated in
consolidation.
(2) Conversion to Stock Ownership
FirstRock Bancorp, Inc. completed its initial public offering on October 2, 1992
with the simultaneous conversion of First Federal Savings and Loan Association
of Rockford, a federally chartered mutual savings and loan association to First
Federal Savings Bank, FSB, a federally chartered stock savings bank. Pursuant to
the public offering, the Company sold 2,645,000 shares of common stock at $8.75
per share to depositors and borrowers of the Bank during the subscription
offering. Total net proceeds were $19.2 million. The Company utilized $10.9
million of the proceeds to acquire all of the issued and outstanding capital
stock of the Bank.
(3) Earnings per Share
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period. Stock options are regarded as common stock equivalents and are
computed using the treasury stock method. The weighted average number of common
stock and common stock equivalents for the calculation of primary earnings per
share were 2,542,503 and 2,632,633 for the three months ended September 30, 1994
and 1993, respectively. The weighted average number of common stock and common
stock equivalents for the fully diluted earnings per share computation, were
2,549,878 and 2,638,543 for the three months ended September 30, 1994 and 1993,
respectively (which are not materially dilutive).
<PAGE>
(4) Commitments and Contingencies
Commitments to originate and purchase loans at September 30, 1994 were $34.8
million, including $11.9 million of unadvanced lines of credit. Commitments to
sell loans totalled $16.8 million at September 30, 1994.
(5) Legal Proceedings
In October, 1992, legal proceedings were instituted by the United States
Attorney before the United States District Court of the Northern District of
Illinois, Western Division, alleging that, in connection with the Bank's
conversion to stock form and the accompanying initial public offering of common
stock by the Company, certain persons (none of whom were affiliated with the
Company or the Bank) engaged in the unlawful sale of subscription rights. The
United States Marshall seized 277,774 shares of the Company's stock subscribed
for in the conversion by such persons. On November 2, 1994, the United States
Marshall sold 235,454 shares of Company common stock as part of a court-approved
partial settlement of the above-referenced legal proceeding. The remaining
42,320 shares remain subject to the legal proceeding. Neither the Company, the
Bank, nor any of its affiliates have been or are parties to this litigation. On
October 11, 1994, the one remaining claimant in the above-referenced legal
proceeding filed a shareholders derivative complaint naming the Company and the
United States of America as defendants. The complaint seeks no monetary damages
from the Company, but seeks to have the shares at issue sold by the United
States Marshall directly to FirstRock at the initial public offering price. The
Company believes that the complaint is without merit and it intends to
vigorously defend this action.
(6) Reclassifications
Certain amounts in the unaudited consolidated financial statements for the
period presented in the fiscal year 1994 have been reclassified to conform with
the presentation in fiscal year 1995.
<PAGE>
EXHIBIT 1
October 25, 1994
Board of Directors
FirstRock Bancorp, Inc.
612 North Main Street
Rockford, Illinois 61103
Members of the Board:
You have requested our opinion as to the fairness of the merger consideration
(the "Merger Consideration"), from a financial point of view, to the
shareholders of FirstRock Bancorp, Inc. ("FirstRock") with respect to the
proposed merger of FirstRock with and into First Financial Corporation ("First
Financial"). FirstRock has entered into an Agreement and Plan of Reorganization
and a related Agreement and Plan of Merger (collectively the "Agreements"), both
dated October 26, 1994, between First Financial and FirstRock. As is set forth
in the Agreements, each outstanding share of common stock of FirstRock will be
converted into and be exchangeable for the number of shares of Common Stock,
$1.00 par value per share, of First Financial equal to a fraction, the numerator
of which shall be equal to $27.10 and the denominator of which shall be equal to
the average closing price per share of Common Stock of First Financial as
reported on the Nasdaq Stock Market for the fifteen trading days ending on the
fourth trading day prior to the Effective Date of the Merger.
During the course of our engagement, we have, among other things:
1) reviewed the Agreements, the audited financial statements of
FirstRock and First Financial for the most recent three fiscal years,
and unaudited financial statements through September 30, 1994 as
reported on Form 10-Q, Office of Thrift Supervision ("OTS") Thrift
Financial Reports of FirstRock, as well as other internally generated
FirstRock reports relating to asset/liability management, asset
quality and so forth;
2) reviewed and analyzed other material bearing upon the financial
and operating condition of First Financial and FirstRock and material
prepared in connection with the proposed transaction;
3) reviewed the operating characteristics of certain other financial
institutions deemed relevant to the contemplated transaction;
4) reviewed the nature and terms of recent sale and merger
transactions involving banks, thrifts, bank and thrift holding
companies and other financial institutions that we consider relevant;
<PAGE>
October 25, 1994
Board of Directors
FirstRock Bancorp, Inc.
Page -2-
5) reviewed historical and current market data for First Financial
and FirstRock common stock;
6) reviewed financial and other information provided to us by the
managements' of First Financial and FirstRock;
7) conducted meetings with members of the senior management of First
Financial and FirstRock for the purpose of reviewing the future
prospects of First Financial and FirstRock;
8) reviewed certain information including forecasts pertaining to
prospective cost savings and revenue enhancements relative to the
proposed transactions;
9) evaluated the proforma ownership of First Financial common stock
by FirstRock shareholders, relative to the proforma condition of
FirstRock's assets, liabilities, equity and earnings to the proforma
company.
The Chicago Corporation, as part of its investment banking business, is
continually engaged in the valuation of banks and bank holding companies and
thrifts and thrift holding companies in connection with mergers and acquisitions
as well as initial and secondary offerings of securities as well as valuations
for other purposes. The Chicago corporation is a member of all principal U.S.
Securities exchanges and in the conduct of our broker-dealer activities may from
time to time purchase securities from, and sell securities to, FirstRock and
First Financial and as a market maker buy or sell the equity securities of
FirstRock for our own account and for the accounts of customers. In rendering
this fairness opinion we have acted exclusively on behalf of the Board of
Directors of FirstRock and will receive a fee from FirstRock for our services.
In rendering this opinion, we have relied upon, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by First Financial and FirstRock.
We have relied upon the management of FirstRock and First Financial as to the
reasonableness and achievability of the financial forecasts and projections (and
the assumptions and basis therefore) provided to us, and have assumed that such
forecasts and projections are the best available estimates of management.
Based on the foregoing and our experience as investment bankers, we are of the
opinion that, as of the date hereof, the Merger Consideration to be paid to the
shareholders of FirstRock as described in the Agreements, is fair from a
financial point of view.
Sincerely,
THE CHICAGO CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article 7 of First Financial Corporation's ("FFC" or the
"Registrant") Articles of Incorporation states as follows:
Article 7: Indemnification. The Corporation shall
indemnify each person (and the heirs and legal representatives
of such person) who is or was a director or officer of the
Corporation, or of any other corporation, partnership, joint
venture, trust or other enterprise which he or she served in
any capacity at the request of the Corporation, against any
and all liability and reasonable expense that may be incurred
by him or her in connection with or resulting from any claim,
action, suit, or proceeding (whether brought by or in the
right of the Corporation or such other corporation,
partnership, joint venture, trust or other enterprise or
otherwise), civil, criminal, administrative or investigative,
or threat thereof, or in connection with an appeal relating
thereto, in which he or she may become involved, as a party or
otherwise, by reason of his or her being or having been such
director or officer, or by reason of any past or future action
or omission or alleged action or omission (including those
antedating the adoption of these Articles) by him or her in
such capacity, whether or not he or she continues to be such
at the time such liability or expense is incurred.
Each person identified above shall be indemnified by
the Corporation provided such person acted in good faith, in
what he or she believed to be in or not opposed to the best
interest of the Corporation or such other corporation,
partnership, joint venture, trust or other enterprise, as the
case may be, and in addition, with respect to any criminal
action or proceeding, had no reasonable cause to believe that
his or her conduct was unlawful.
Any such officer or director referred to in this
Article may rely upon an opinion of counsel, whether general
counsel for the Corporation or any designated counsel retained
by the Corporation, to provide an opinion to such person as to
the propriety of acting and if said person relies upon said
opinion, he or she shall have deemed to have acted in good
faith.
Any such officer or director referred to in this
Article who has been wholly successful, on the merits or
otherwise, with respect to any claim, action, suit or
proceeding shall have been deemed to have acted in good faith.
Termination of any claim, action, suit or proceeding
by judgment, settlement or conviction, or upon a plea of
guilty or nolo contendere, or its equivalent, shall not create
a presumption that a director or officer did not meet the
standards of conduct set forth above.
As used in this Article, the terms "liability" and
"expense" shall include, but not be limited to, counsel fees
and disbursements and amounts of judgments, fines and
penalties against, and amounts paid in settlement by or on
behalf of a director or officer. Expenses incurred with
respect to any such claim, action, suit or proceeding may be
advanced by the Corporation prior to the final disposition
thereof upon receipt of any undertaking by or on behalf of the
recipient to repay such amount unless he or she is entitled to
indemnification under this Article.
The Corporation shall purchase and maintain insurance
on behalf of any person who is or was a director or officer of
the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against
liability asserted against him or her and incurred by him or
her in any such capacity or arising out of his status as such,
whether or not the Corporation would have power to indemnify
him against such liability under the provision of this
Article.
<PAGE>
The rights of indemnification provided in this
Article shall be in addition to any rights to which any person
concerned may otherwise be entitled by contract or as a matter
of law, and irrespective of the provisions of this Article,
the board of directors may, at any time and from any time to
time, approve indemnification of directors, officers or
employees to the full extent permitted by the provisions of
the Wisconsin Business Corporation Law at the time in effect,
whether on account of past or future actions.
FFC also has the power to purchase and maintain insurance on
behalf of its directors and officers. FFC has in effect a policy of
liability insurance covering its directors and officers, the effect of
which is to reimburse the directors and officers of FFC against certain
damages and expenses resulting from certain claims made against them
caused by their negligent act, error or omission.
The Wisconsin Business Corporation Law provides for the
indemnification of directors and officers of corporations organized
thereunder in certain circumstances. Sections 180.0850 to 180.0859 of
the Wisconsin Business Corporation Law are attached at Exhibit 28.1 to
this Registration Statement and incorporated herein by reference. FFC
has the power to indemnify its directors and officers against liability
for certain of their acts.
The foregoing indemnity and insurance provisions have the
effect of reducing directors' and officers' exposure to personal
liability for actions taken in connection with their respective
positions.
Item 21. Exhibits and Financial Statement Schedules.
a. Exhibits
2.1 Agreement and Plan of Reorganization dated October 26, 1994
among FFC, First Financial Acquisition Company
("Acquisition"), and FirstRock Bancorp, Inc. ("FirstRock")
(filed as Exhibit 2.1 to FFC's Current Report on Form 8-K
filed November 3, 1994 and incorporated herein by reference).
2.2 Amendment No. 1 to Agreement and Plan of Reorganization among
FFC, Acquisition and FirstRock dated December 5, 1994 (filed
as Exhibit 2 to FFC's Current Reporton Form 8-K filed December
7, 1994 and incorporaetd herein by reference).
2.3 Warrant Agreement dated October 26, 1994 between FFC and
FirstRock (filed as Exhibit 2.2 to FFC's Current Report on
Form 8-K filed November 3, 1994 and incorporated herein by
reference).
3.1 Restated Articles of Incorporation of Registrant dated January
18, 1995.
4.1 Form of Certificate of Common Stock (incorporated herein by
reference to Exhibit 4.3 of the Registrant's Registration
Statement on Form S-1 (Registration No. 2-88289) filed on
December 7, 1983).
5 Opinion of Robert M. Salinger, Esq. as to the legality of the
securities registered hereunder.
8 Tax Opinion of Hogan & Hartson, L.L.P.
21 Subsidiaries of Registrant
23.1 Consent of Robert M. Salinger, Esq. (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of The Chicago Corporation.
28.1 Sections 180.0850 - 180.0859 of the Wisconsin Business
Corporation Law.*
99.1 Form of Proxy for FFC shareholders.*
<PAGE>
99.2 Form of Proxy for FirstRock shareholders.*
__________________
* previously filed
b. Financial Statement Schedules -- None
c. Report, Opinion or Appraisal -- (attached to this Joint Proxy
Statement/Prospectus as Exhibit 1
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Exchange Act) 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.
(c) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (d) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of
the Securities Act and is used in connection with an offering
of securities subject to Rule 415 under the Securities Act
will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability
under the Securities Act, 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.
<PAGE>
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(f) 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.
(g) 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stevens Point, State of Wisconsin, on January 25, 1995.
FIRST FINANCIAL CORPORATION
By: /s/ John C. Seramur
John C. Seramur
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below appoints John C. Seramur and Robert M. Salinger, jointly and
severally, each in his own capacity, his true and lawful attorneys-in-fact, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities to sign any amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 25, 1995.
/s/ John C. Seramur President and Chief Executive Officer,
John C. Seramur Director
/s/ Thomas H. Neuschaefer Vice President, Treasurer and
Thomas H. Neuschaefer Chief Financial Officer
/s/ Robert S. Gaiswinkler Chairman of the Board, Director
Robert S. Gaiswinkler
/s/ Gordon M. Haferbecker Director
Gordon M. Haferbecker
<PAGE>
/s/ James O. Heinecke Director
James O. Heinecke
/s/ Robert T. Kehr Director
Robert T. Kehr
/s/ Paul C. Kehrer Director
Paul C. Kehrer
/s/ Robert P. Konopack Director
Robert P. Konopacky
/s/ Dr. George R. Leach Director
Dr. George R. Leach
/s/ Ignatius H. Robers Director
Ignatius H. Robers
/s/ John H. Sproule Director
John H. Sproule
/s/ Ralph R. Staven Director
Ralph R. Staven
/s/ Norman L. Wanta Director
Normal L. Wanta
/s/ Arlyn G. West Director
Arlyn G. West
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
3.1 Restated Articles of Incorporation of Registrant
5 Opinion of Robert M. Salinger, Esq. as to legality of securities registered
hereunder
8 Tax Opinion of Hogan & Hartson, L.L.P.
21 Subsidiaries of Registrant
23.1 Consent of Robert M. Salinger, Esq. (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Chicago Corporation
</TABLE>
- -----------------
<PAGE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
FIRST FINANCIAL CORPORATION
Article 1. Corporate Name. The name of the corporation is First Financial
Corporation (hereinafter called the "Corporation").
Article 2. Duration. The duration of the Corporation is perpetual.
Article 3. Purposes. The purpose for which the Corporation is organized is
to engage in any lawful activity within the purposes for which corporations may
be organized under the Wisconsin Business Corporation Law.
Article 4. Capital Stock. The total number of shares of all classes of the
capital stock which the Corporation has authority to issue is seventy-eight
million (78,000,000) of which seventy-five million (75,000,000) shall be common
stock, $1.00 par value per share, amounting in the aggregate to seventy-five
million dollars ($75,000,000), and three million (3,000,000) shall be serial
preferred stock, $1.00 par value per share, amounting in the aggregate to three
million dollars ($3,000,000). The shares may be issued by the Corporation from
time to time as approved by its board of directors without the approval of its
shareholders. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value per share.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of the shares of the Corporation. The consideration for
the shares shall be paid in whole or in part in money, in other property,
tangible or intangible, or in labor or services actually performed for the
Corporation. In the absence of fraud in the transaction, the judgment of the
board of directors or the shareholders, as the case may be, as to the value of
the consideration received for the shares shall be conclusive. Upon payment of
such consideration such shares shall be deemed to be fully paid and
nonassessable by the Corporation.
A description of the different classes and series of the Corporation's
capital stock and a statement of the powers, designations, preferences,
limitations and relative rights of the shares of each class of and series of
capital stock are as follows:
A. Common Stock. Except as provided in this Article 4 (or in any resolution
or resolutions adopted by the board of directors pursuant hereto) the holders of
the common stock shall exclusively possess all voting power. Each holder of
shares of common stock shall be entitled to one vote for each share held by such
holder. There shall be no cumulative voting rights in the election of directors.
Each share of common stock shall have
<PAGE>
the same relative rights as and be identical in all respects with all other
shares of common stock.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends; but only when and as
declared by the board of directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the common stock in the event of liquidation,
dissolution or winding up of the full preferential amounts of which they are
respectively entitled, the holders of the common stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
B. Serial Preferred Stock. The board of directors of the Corporation is
authorized, by resolution or resolutions from time to time adopted, to provide
for the issuance of serial preferred stock in series, including convertible
preferred stock, and to fix and state the voting powers, full or limited, or no
voting powers, and such designations, preferences, limitations and relative
rights thereof. Each share of each series of serial preferred stock shall have
the same relative rights as and be identical in all respects with all other
shares of the same series.
Duplicate copies of a resolution adopted by the directors pursuant to this
Article 4 with a certificate thereto affixed, signed by the president or a vice
president and a secretary or an assistant secretary and sealed with the
corporate seal, stating the fact and date of adoption, and that such copies are
true copies of the original shall be filed in the office of the secretary of
state and recorded in the office of the register of deeds of the county in which
the registered office of the Corporation is located, and when so filed and
recorded shall constitute an amendment to these Articles of Incorporation.
Article 5. Preemptive Rights. Holders of the capital stock of the
Corporation shall not be entitled to preemptive rights with respect to any
shares or other securities of the Corporation which may be issued.
Article 6. Internal Affairs. The Corporation shall be under the direction
of a board of directors. The board of directors shall consist of not less than
twelve (12) nor more than twenty-four (24) directors. The number of directors
shall be as stated in the Corporation's by-laws, as may be amended from time to
time. The board of directors shall divide the directors into three classes and,
when the number of directors is changed, shall determine the class or classes to
which the increased or decreased number of directors shall be apportioned;
provided, that the directors in each class shall be as nearly equal in number as
possible; provided, further, that no decrease in the number of directors shall
affect the term of any director then in office; and provided that no
classification of directors shall be effective prior to the first annual meeting
of shareholders.
<PAGE>
The term of office of directors elected at the first annual meeting of
shareholders shall be as follows: the term of office of directors of the first
class shall expire at the first annual meeting of shareholders after their
election; the term of office of directors of the second class shall expire at
the second annual meeting of shareholders after their election and the term of
office of directors of the third class shall expire at the third annual meeting
of shareholders after their election; and, as to directors of each class, when
their respective successors are elected and qualified. At each subsequent annual
meeting of shareholders, directors elected to succeed those whose terms are
expiring shall be elected for a term of office to expire at the third succeeding
annual meeting of shareholders and when their respective successors are elected
and qualified. Any vacancy occurring in the board of directors, including any
vacancy created by reason of an increase in the number of directors, shall be
filled by a majority vote of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office until the next election of
directors by the shareholders.
Any director may be removed for cause by an affirmative vote of at least
two-thirds of the total votes eligible to be cast by shareholders at a duly
constituted meeting of shareholders called expressly for that purpose. At least
twenty (20), but not more than sixty (60), days prior to such meeting of
shareholders, written notice shall be sent to the director or directors whose
removal will be considered at such meeting. No director may be removed as a
director except for cause.
The board of directors or the shareholders may adopt, alter, amend or
repeal the by-laws of the Corporation. Such action by the board of directors
shall require the affirmative vote of at least two-thirds of the directors then
in office at a duly constituted meeting of the board of directors called
expressly for such purpose. Such action by the shareholders shall require the
affirmative vote of at least two-thirds of the total votes eligible to be cast
by shareholders at a duly constituted meeting of shareholders called expressly
for such purpose.
Special meetings of the shareholders for any purpose or purposes may be
called at any time by the chairman of the board, the president, or a majority of
the directors then in office and shall be called by the chairman of the board,
the president, or the secretary upon the written request of the holders of not
less than one-third of all the stock of the Corporation entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered at the registered office of the Corporation addressed to
the chairman of the board, the president or the secretary.
Article 7. Indemnification. The Corporation shall indemnify each person
(and the heirs and legal representatives of such person) who is or was a
director or officer of the Corporation, or of any other corporation,
partnership, joint venture, trust or other enterprise which he or she served in
any capacity at the request of the Corporation, against any and all liability
and reasonable expense that may be incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding (whether brought by or in
the right of the Corporation or such other corporation, partnership, joint
venture, trust or other enterprise or otherwise), civil, criminal,
administrative or investigative, or threat thereof, or in connection with an
appeal relating thereto, in which he or she may become involved, as a party or
otherwise, by reason of his or her being or having been such director or
officer, or by reason of any past or future action or omission or alleged action
or omission (including those antedating the adoption of these Articles) by him
or her in such capacity, whether or not he or she continues to be such at the
time such liability or expense is incurred.
<PAGE>
Each person identified above shall be indemnified by the Corporation
provided such person acted in good faith, in what he or she believed to be in or
not opposed to the best interest of the Corporation or such other corporation,
partnership, joint venture, trust or other enterprise, as the case may be, and
in addition, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was unlawful.
Any such officer or director referred to in this Article may rely upon an
opinion of counsel, whether general counsel for the Corporation or any
designated counsel retained by the Corporation, to provide an opinion to such
person as to the propriety of acting and if said person relies upon said
opinion, he or she shall have deemed to have acted in good faith.
Any such officer or director referred to in this Article who has been
wholly successful, on the merits or otherwise, with respect to any claim,
action, suit, or proceeding shall have been deemed to have acted in good faith.
Termination of any claim, action, suit or proceeding by judgment,
settlement or conviction, or upon a plea of guilty or nolo contendere, or its
equivalent, shall not create a presumption that a director or officer did not
meet the standards of conduct set forth above.
As used in this Article, the terms "liability" and "expense" shall include,
but not be limited to, counsel fees and disbursements and amounts of judgments,
fines and penalties against, and amounts paid in settlement by or on behalf of a
director or officer. Expenses incurred with respect to any such claim, action,
suit or proceeding may be advanced by the Corporation prior to the final
disposition thereof upon receipt of an undertaking by on or behalf of the
recipient to repay such amount unless he or she is entitled to indemnification
under this Article.
The Corporation shall purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
liability asserted against him or her and incurred by him or her in any such
capacity or arising out of his status as such, whether or not the Corporation
would have power to indemnify him against such liability under the provision of
this Article.
The rights of indemnification provided in this Article shall be in addition
to any rights to which any person concerned may otherwise be entitled by contact
or as a matter of law, and irrespective of the provisions of this Article, the
board of directors may, at any time and from any time to time, approve
indemnification of directors, officers or employees to the full extend permitted
by the provisions of the Wisconsin Business Corporation Law at the time in
effect, whether on account of past or future actions.
Article 8. Registered Office and Registered Agent. The initial registered
office of the Corporation is located in Dane County, Wisconsin, the address of
such registered office is 222 West Washington Avenue, Madison, Wisconsin 53703,
and the name of its initial registered agent at such address is C T Corporation
System.
<PAGE>
Article 9. Beneficial Ownership Limitation. As long as the Corporation is
registered with the Federal Savings and Loan Insurance Corporation as a holding
company, no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of 10 percent or more of the issued and outstanding Voting
Stock (as defined in Article 10 hereto) of the Corporation, unless such offer to
acquire or acquisition has received the prior approvals of (i) the Federal
Savings and Loan Insurance Corporation, and (ii) the holders of at least
two-thirds of the outstanding Voting Stock of the Corporation entitled to vote
at a duly constituted meeting of shareholders called for such purpose. In the
event Voting Stock is acquired in violation of this Article 9, the excess shares
shall no longer be entitled to vote on any matter or take other shareholder
action or be counted in determining the total number of outstanding shares for
purposes of any matter involving shareholder action, and the board of directors
may cause such excess shares to be transferred to an independent trustee for
sale on the open market or otherwise, with the expenses of such trustee to be
paid out of the proceeds from such sale. The term "person" as used in this
Article 9 means an individual, group acting in concert, a corporation, a
partnership, an association, a joint stock company, a trust, and any
unincorporated organization or similar company. The term "offer" as used in this
Article 9 includes every offer to buy or acquire, solicitation of an offer to
sell, tender offer for, or request or invitation for tender of, a security or
interest in a security for value.
The board of directors of the Corporation, when evaluating any offer of
another person (as defined in Article 9 hereof) to (i) make a tender or exchange
offer for any equity security of the Corporation, (ii) merger or consolidate the
Corporation with another institution, or (iii) purchase or otherwise acquire all
or substantially all of the properties and assets of the Corporation, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation the social and economic effects
of acceptance of such offer on (a) depositors, borrowers and employees of
savings and loan association subsidiaries of the Corporation, and on the
communities in which such subsidiaries operate or are located and (b) the
ability of such subsidiaries to fulfill the objectives of savings and loan
associations under applicable Wisconsin and federal statutes and regulations.
Article 10. Certain Business Combinations.
Subsection 1. Vote Required for Certain Business Combinations.
A. Higher Vote for Certain Business Combinations.
In addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in subsection 2 of
this Article 10:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (a) any Interested Shareholder (as
hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Shareholder)
which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an
Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with
any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the
Corporation or any Subsidiary having an aggregate
Fair Market Value of $1,000,000 or more; or
(iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or
a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested
Shareholder in exchange for cash, securities or other
property (or a combination thereof) having an
aggregate Fair Market Value of $1,000,000 or more; or
(iv) the adoption of any plan or proposal
for the liquidation or dissolution of the Corporation
proposed by or on behalf of an Interested Shareholder
or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities
(including any reverse stock split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not
with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or
convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by
any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of (a) the holders of at least two-thirds of
the voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class and (b) the holders of at least a
majority of the Voting Stock, voting together as a single class, excluding for
purposes of calculating both the affirmative vote and the number of outstanding
shares of Voting Stock all shares of Voting Stock of which the beneficial owner
is an Interested Shareholder or any Affiliate of an Interested Shareholder
referred to in clauses (i) through (v) referred to in this paragraph A. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law.
B. Definition of "Business Combination." The
term "Business Combination" as used in this Article 10 shall mean any
transaction which is referred to in any one or more of clauses (i) through (v)
of paragraph A of this subsection 1.
<PAGE>
Subsection 2. When Higher Vote is Not Required.
The provisions of subsection 1 of this Article 10 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of these Articles of Incorporation, if all of the conditions specified
in either of the following paragraphs A and B are met:
A. Approval by Continuing Directors. The Business
Combination shall have been approved by a majority of
the Continuing Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the
following conditions shall have been met: (i) The
aggregate amount of the cash and the Fair Market
Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of
consideration other than cash to be received per
share by holders of common stock in such Business
Combination shall be at least equal to the highest of
the following:
(a) (if applicable) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the Interested Shareholder for any shares of common
stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date") or (2) in the transaction in
which it became an Interested Shareholder, whichever
is higher; or
(b) the Fair Market Value per share
of common stock on the Announcement Date or on the
date on which the Interested Shareholder became an
Interested Shareholder (such latter date is referred
to in this Article 10 as the "Determination Date"),
whichever is higher.
(ii) The aggregate amount of the cash and
the Fair Market Value as of the date of the
consummation of the Business Combination of
consideration other than cash to be received per
share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to
the highest of the following (it being intended that
the requirements of this paragraph B (ii) shall be
required to be met with respect to every class of
outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any
shares of a particular class of Voting Stock):
<PAGE>
(a) (if applicable) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the Interested Shareholder for any shares of such
class of Voting Stock acquired by it (1) within
two-year period immediately prior to the Announcement
Date or (2) in the transaction in which it became an
Interested Shareholder, whichever is higher;
(b) (if applicable) the highest
preferential amount per share to which the holders of
shares of such class of Voting Stock are entitled in
the event of any voluntary or involuntary
liquidation, dissolution or winding up the Bank; or
(c) the Fair Market Value per share
of such class of Voting Stock on the Announcement
Date or on the Determination Date, whichever is
higher.
(iii) The consideration to be received by
holders of outstanding Voting Stock (including common
stock) in the Business Combination shall be in cash
or in the same form as the Interested Shareholder has
previously paid for shares of such class of Voting
Stock. If the Interested Shareholder has paid for
shares of any class of Voting Stock with varying
forms of consideration, the form of consideration for
such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares
of such class of Voting Stock previously acquired by
it.
(iv) After such Interested Shareholder has
become an Interested Shareholder and prior to the
consummation of such Business Combination: (a) there
shall have been (1) no reduction in the annual rate
of dividends paid on the capital stock (except as
necessary to reflect any subdivision of the capital
stock), except as approved by a majority of the
Continuing Directors, and (2) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of common stock, unless
the failure so to increase such annual rate is
approved by a majority of the Continuing Directors;
and (b) such Interested Shareholder shall have not
become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction
which results in such Interested Shareholder becoming
an Interested Shareholder.
<PAGE>
(v) After such Interested Shareholder has
become an Interested Shareholder, such Interested
Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees,
pledges or other financial assistance or any tax
credits or other tax advantages provided by the
Corporation, whether in anticipation of or in
connection with such Business Combination or
otherwise.
(vi) A proxy or information statement
describing the proposed Business Combination and
complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to
public shareholders of the Corporation at least 20
days prior to the consummation of such Business
Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such
Act or subsequent provisions).
Subsection 3. Certain Definitions.
For the purposes of this Article 10:
A. A "person" shall mean any individual, firm,
corporation or other entity.
B. "Interested Shareholder" shall mean any person
(other than the Corporation or any Subsidiary) who or
which:
(i) is the beneficial owner, directly or
indirectly, of more than 10% of the voting power of
the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and
at any time within the two-year period immediately
prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at
any time within the two-year period immediately prior
to the date in question beneficially owned by any
Interested Shareholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a
public offering within the meaning of the Securities
Act of 1933.
C. A person shall be a "beneficial owner" of any
Voting Stock:
(i) which such person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly; or
<PAGE>
(ii) which such person or any of its
Affiliates or Associates has (a) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right
to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly
or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of Voting Stock.
D. For the purpose of determining whether a person is
an Interested Shareholder pursuant to paragraph B of this subsection 3, the
number of shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of paragraph C of this subsection 3 but shall
not include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934.
F. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph B of this subsection 3, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation.
G. "Continuing Director" means any member of the
board of directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the board of directors of the Corporation prior
to the time that the Interested Shareholder became an Interested Shareholder,
and any successor of a Continuing Director who is unaffiliated with the
Interested Shareholder and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board of directors of the
Corporation.
H. "Fair Market Value" means:
(i) in the case of stock, the highest
closing sale price during the 30-day period
immediately preceding the date in question of a share
of such stock on the principal United States
securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a
share of such stock during the 30-day period
preceding the date in question on the National
Association of Securities Dealers, Inc. Automated
Quotations Systems or any system then in use, or if
no such quotations are available, the fair market
value on the date in question of a share of such
stock as determined by the board of directors of the
Corporation in good faith; and
(ii) in the case of property other than cash
or stock on the date in question as determined by the
board of directors of the Corporation in good faith.
Subsection 4. Powers of the Board of Directors.
A majority of the directors of the Corporation shall have the power and
duty to determine for the purposes of this Article 10, on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Shareholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or Associate of
another, and (D) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more.
Subsection 5. No Effect on Fiduciary Obligations of Interested
Shareholders.
Nothing contained in this Article 10 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
Article 11. Amendment of Articles of Incorporation. Except as set forth
in this Article or as otherwise required by law, no amendment, addition,
alteration, change or repeal of any provision of these Articles of Incorporation
shall be made, unless such is first proposed by the board of directors of the
Corporation, upon the affirmative vote of at least two-thirds of the directors
then in office at a duly constituted meeting of the board of directors called
expressly for such purpose, and thereafter approved by the shareholders by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote thereon, unless any class or series of shares is entitled to vote thereon
as a class in which event the proposed amendment, addition, alteration, change
or repeal of any provision of these Articles of Incorporation shall be adopted
upon receiving the affirmative vote of holders of a majority of the shares of
each class and of each series entitled to vote thereon and of the total shares
entitled to vote thereon. Any amendment, addition, alteration, change or repeal
of any provision of these Articles of Incorporation shall be effective on
<PAGE>
the date it is filed with the Secretary of State of the State of Wisconsin or
within thirty-one (31) days after such filing if so specified in such approval
of shareholders.
Article 12. Incorporators. The name and address of each
incorporator are as follows:
<TABLE>
<CAPTION>
Name Address
<S> <C>
Ralph R. Staven 300 Wisconsin Avenue, Waukesha, Wisconsin 53187
Bruce R. Buss 1305 Main Street, Stevens Points, Wisconsin 54481
</TABLE>
IN WITNESS WHEREOF, these Restated Articles of Incorporation have been
duly adopted by the Board of Directors of First Financial Corporation on January
18, 1995 pursuant to Sections 180.1007(1) and (2) of the Wisconsin Business
Corporation Law and supersede and take the place of the existing articles of
incorporation and any amendments to the articles of incorporation.
/s/Robert M. Salinger
Robert M. Salinger, Secretary
This document was drafted by:
Attorney Robert M. Salinger
RETURN TO:
Robert M. Salinger
1305 Main Street
Stevens Point, WI 54481-2811
<PAGE>
EXHIBIT 5
December 7, 1994
Board of Directors
First Financial Corporation
1305 Main Street
Stevens Point, Wisconsin 54481
Gentlemen:
I am the General Counsel and Secretary of First Financial
Corporation, a Wisconsin corporation (the "Company"). This opinion letter is
given in connection with the Company's registration statement on Form S-4 (the
"Registration Statement"), as filed with the Securities and Exchange Commission
on the date hereof and relating to the proposed offering of up to 5,500,000
shares of the Company's common stock, par value $1.00 per share, all of which
shares (the "Shares") may be issued in connection with the proposed acquisition
of FirstRock Bancorp, Inc. ("FirstRock") pursuant to an Agreement and Plan of
Reorganization dated as of October 26, 1994, as amended, among the Company,
FirstRock and First Financial Acquisition Company (the "Agreement"). This
opinion letter is furnished to you at your request to enable you to fulfill the
requirements of Item 60(b)(5) of Regulation S-K, 17 C.F.R. ss. 229.601(b)(5), in
connection with the Registration Statement.
For purposes of this opinion letter, I have examined copies of
the following documents:
1. An executed copy of the Registration Statement.
2. The Certificate of Incorporation of the Company.
3. The Bylaws of the Company.
4. The Agreement.
5. Resolutions of the Board of Directors of the Company
adopted on October 19, 1994 relating to the issuance
of the Shares and arrangements in connection
therewith.
This opinion letter is given, and all statements herein are
made, in the context of the foregoing.
<PAGE>
Board of Directors
First Financial Corporation
December 7, 1994
Page 2
This opinion letter is based as to matters of law solely on
the Business Corporation Law of the State of Wisconsin. I express no opinion
herein as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, I am of
the opinion that following (i) effectiveness of the Registration Statement, (ii)
issuance of the Shares pursuant to the terms of the Agreement and (iii) receipt
by the Company of the consideration for the Shares specified in the resolutions
of the Board of Directors, the Shares will be validly issued, fully paid and non
assessable under the Business Corporation Law of the State of Wisconsin, except
as may be found under Section 180.0622(2)(b) of Business Corporation Law of the
State of Wisconsin.
I assume no obligation to advise you of any changes in the
foregoing subsequent to the delivery of this opinion letter.
I hereby consent to the filing of this opinion letter as
Exhibit 5 to the Registration Statement and to the reference to me in the
prospectus constituting a part of the Registration Statement. In giving this
consent, I do not thereby admit that I am an "expert" within the meaning of the
Securities Act of 1933, as amended.
Very truly yours,
/s/Robert M. Salinger
Robert M. Salinger
General Counsel and Secretary
<PAGE>
Exhibit 8
HOGAN & HARTSON
L.L.P.
COLUMBIA SQUARE
555 THIRTEENTH STREET NW
WASHINGTON DC 20004-1109
(202)637-5600
January 26, 1995
Board of Directors
First Financial Corporation
1305 Main Street
Stevens Point, Wisconsin 54481
Board of Directors
FirstRock Bancorp, Inc.
612 North Main Street
Rockford, Illinois 61103
Gentlemen:
You have requested that we render to you our opinion with
respect to certain federal income tax consequences of the following proposed
transaction: First Financial Acquisition Company ("FFC-Acquisition") shall be
merged with and into FirstRock Bancorp, Inc. ("Company"), with Company surviving
(the "Surviving Corporation") the merger (the "Holding Company Merger").
Immediately thereafter, First Federal Savings Bank, F.S.B., Rockford, Illinois
("First Federal"), shall be merged with and into First Financial Bank, F.S.B.
("FF-Bank"), with FF-Bank surviving the merger (the "Bank Merger"). Following
the Holding Company Merger and the Bank Merger, it is anticipated that Company
shall be merged with and into First Financial Corporation ("First Financial")
with Company surviving the merger (the "Subsidiary Merger") (collectively, the
Holding Company Merger, the Bank Merger and the Subsidiary Merger shall be
referred to as the "Proposed Transaction").
In connection with the preparation of this opinion, we have
examined and relied upon the Agreement and Plan of Reorganization by and among
First Financial, FFC-Acquisition and Company dated October 26, 1994, as amended
by Amendment No. 1 thereto dated November 30, 1994, including the exhibits
thereto (the "Plan"), certain letters from affiliates of FirstRock to First
Financial (the "Affiliate Letters") the form of which is Exhibit B to the Plan,
and the Registration Statement filed on Form S-4 by First Financial with the
Securities and Exchange Commission on December 8, 1994 (the "Registration
Statement") and by amendment thereto.
In rendering the opinion set forth hereinafter, we have
assumed the accuracy of all information contained in the documents described in
the preceding paragraph, and we have also assumed the accuracy of all copies,
and the genuineness of all signatures thereof. We have not attempted to verify
independently the accuracy of any information in the these documents.
The Proposed Transaction
Based solely upon our review of the above described documents,
and upon such information as First Financial has provided us (which we have not
attempted to verify in any respect), and in reliance upon such documents and
information, we understand that the Proposed Transaction and the relevant facts
with respect thereto are as follows:
First Financial is a corporation organized, validly existing
and in good standing under the laws of the State of Wisconsin. First Financial
is a registered savings and loan holding company under the Home Owners' Loan
Act. FFC-Acquisition is a corporation organized, validly existing and in good
standing under the laws of the State of Delaware. FFC-Acquisition is a
wholly-owned subsidiary of First Financial. First Financial owns 100 percent of
the issued and outstanding capital stock of FF-Bank. FF-Bank is a federally
chartered stock savings association organized and existing under the laws of the
United States.
Company is a corporation organized, validly existing and in
good standing under the laws of the State of Delaware. Company owns 100 percent
of the issued and outstanding capital stock of First Federal. First Federal is a
federally chartered stock savings association organized and existing under the
laws of the United States.
First Financial desires to enter into the Proposed Transaction
in order to acquire the assets and business of First Federal, which First
Financial intends to operate as branches of FF-Bank, and thereby expand its
market. Upon the consummation of the Holding Company Merger, each issued and
outstanding share of FFC-Acquisition common stock shall be automatically
converted into a right to receive a share of common stock of the Surviving
Corporation. In exchange for their shares of Company common stock, the
shareholders of Company shall receive shares of First Financial common stock,
and if applicable, cash in lieu of any fraction thereof, in each case as
specified at Section 1.03 of the Plan. Holders of Company common stock have no
dissenters' rights.
Immediately after the Holding Company Merger, FF-Bank and
First Federal shall enter into the Bank Merger. Upon the consummation of the
Bank Merger, each share of First Federal common stock shall be canceled. Each
share of FF-Bank common stock issued and outstanding immediately prior to the
Bank Merger shall remain issued and outstanding. Such FF-Bank common stock shall
constitute the only shares of capital stock of the surviving corporation of the
Bank Merger.
It is contemplated that, following the Bank Merger, First
Financial and Company will enter into the Subsidiary Merger. Upon the
consummation of the Subsidiary Merger, each share of Company common stock shall
be canceled. Each share of First Financial common stock issued and outstanding
immediately prior to the Subsidiary Merger shall remain issued and outstanding.
Such First Financial common stock shall constitute the only shares of capital
stock of the surviving corporation of the Subsidiary Merger.
Company and First Financial entered into a warrant agreement
dated October 26, 1994 (the "Warrant Agreement) pursuant to which Company
granted First Financial an unconditional, irrevocable warrant to purchase up to
475,246 shares of Company common stock at a price of $22.50 per share, subject
to adjustments provided in the Warrant Agreement (the "Warrant"). Company issued
the Warrant to First Financial as a condition and an inducement to First
Financial entering into the Plan. First Financial may exercise the Warrant only
after the occurrence of a Purchase Event and before the occurrence of an
Exercise Termination Event, as those terms are defined in the Warrant Agreement.
First Federal Savings Bank, F.S.B. Employee Stock Ownership
Plan and Trust ("ESOP") is the beneficial owner of 185,150 shares of common
stock of Company. This amount represents 7.75 percent of the total number of
shares of Company common stock outstanding on October 31, 1994. ESOP has
represented that it has no plan or intention to sell, exchange or otherwise
dispose of any shares of First Financial stock it receives in the Holding
Company Merger except to the extent that such sales, exchanges or dispositions
are required by the terms of the Plan or otherwise requested by law.
First Financial, and/or Company where appropriate, has made
the following additional representations and certifications in connection with
the Holding Company Merger and the Subsidiary Merger, the accuracy and
completeness of which we also have relied upon in rendering the opinion
hereinafter set forth:
(a) The fair market value of the First Financial stock
received by each Company shareholder pursuant to the Holding Company Merger will
be approximately equal to the fair market value of the Company common stock
surrendered in exchange therefor.
(b) To the best of the knowledge of the management of Company
and First Financial and the Board of Directors of Company and First Financial,
there is no plan or intention on the part of any shareholder of Company to sell,
exchange, or otherwise dispose of a number of shares of First Financial stock
received in the Holding Company Merger that would reduce the Company
shareholders' ownership of First Financial stock to a number of shares having a
value, as of the date of the Holding Company Merger, of less than fifty percent
(50 percent) of the value of all of the formerly outstanding stock of Company as
of the same date. For purposes of this representation, shares of Company stock
exchanged for cash in lieu of fractional shares of First Financial stock will be
treated as outstanding Company stock on the date of the Holding Company Merger.
Moreover, shares of Company stock and shares of First Financial stock held by
Company shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this representation.
(c) First Financial will acquire at least ninety percent (90
percent) of the fair market value of the net assets and at least seventy percent
(70 percent) of the fair market value of the gross assets held by Company
immediately prior to the Holding Company Merger. For purposes of this
representation, amounts used by Company to pay its reorganization expenses and
all redemptions and distributions (except for regular, normal dividends) made by
Company immediately preceding the transfer will be included as assets of Company
held immediately prior to the transaction.
(d) First Financial has no plan or intention to reacquire any
of its stock issued in the Holding Company Merger.
(e) First Financial has no plan or intention to sell or
otherwise dispose of any of the assets of Company acquired in the Holding
Company Merger and Subsidiary Merger, except for dispositions made in the
ordinary course of business or transfers described in section 368(a)(2)(C) of
the Code.
(f) Company will distribute the stock, securities, and other
property it receives in the Holding Company Merger, and its other properties, in
pursuance of the plan of reorganization.
(g) The liabilities of Company assumed by First Financial and
the liabilities to which the transferred assets of Company are subject were
incurred by Company in the ordinary course of its business.
(h) Following the Holding Company Merger and Subsidiary
Merger, First Financial will continue the historic business of Company or use a
significant portion of Company's historic business assets in a business.
(i) First Financial, FFC-Acquisition, Company, and the
shareholders of Company will pay their respective expenses, if any, incurred in
connection with the Holding Company Merger and Subsidiary Merger.
(j) There is no intercorporate indebtedness existing among
First Financial, FFC-Acquisition and Company that was issued, acquired, or will
be settled at a discount.
(k) None of the parties to the Holding Company Merger or
Subsidiary Merger are investment companies as defined in section
368(a)(2)(F)(iii) of the Code.
(l) First Financial does not own, directly or indirectly, nor
has it owned during the past five years, directly or indirectly, any stock of
Company. First Financial does own the Warrant.
(m) The fair market value of the assets of Company received by
First Financial in the Holding Company Merger and Subsidiary Merger will equal
or exceed the sum of the liabilities assumed by First Financial, plus the amount
of liabilities, if any, to which the transferred assets are subject.
(n) Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of section 368(a)(3)(A) of the Code.
(o) The payment of cash in lieu of fractional shares of First
Financial stock is solely for the purpose of avoiding the expense and
inconvenience to First Financial of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash consideration
that will be paid in the Holding Company Merger to the Company shareholders
instead of issuing fractional shares of First Financial stock will not exceed
one percent of the total consideration that will be issued in the Holding
Company Merger to the Company shareholders in exchange for their shares of
Company stock. The fractional share interests of each Company shareholder will
be aggregated, and no Company shareholder will receive cash in an amount equal
to or greater than the value of one full share of First Financial stock.
(p) None of the compensation received by any
shareholder-employees of Company will be separate consideration for, or
allocable to, any of their shares of Company stock; none of the shares of First
Financial stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
First Financial, and/or the Company where appropriate, has
made the following additional representations and certifications in connection
with the Bank Merger, the accuracy and completeness of which we also have relied
upon in rendering the opinion hereinafter set forth:
(aa) First Financial has no plan or intention to liquidate
FF-Bank; to merge FF-Bank with and into another corporation; to sell, exchange
or otherwise dispose of the stock of FF-Bank; or to cause FF-Bank to sell or
otherwise dispose of any of the assets of First Federal acquired in the
transaction, except for dispositions made in the ordinary course of business or
transfers described in section 368(a)(2)(C) of the Code.
(bb) The liabilities of First Federal assumed by FF-Bank and
the liabilities to which the transferred assets of First Federal are subject
were incurred by First Federal in the ordinary course of its business.
(cc) Following the transaction, FF-Bank will continue the
historic business of First Federal or use a significant portion of First
Federal's business assets in a business.
(dd) FF-Bank and First Federal, and their shareholders will
pay their respective expenses, if any, incurred in connection with the
transaction.
(ee) There is no intercorporate indebtedness existing between
FF-Bank and First Federal that was issued, acquired, or will be settled at a
discount.
(ff) Neither party in the transaction is an investment company
as defined in section 368(a)(2)(F)(iii) of the Code.
(gg) First Federal is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of section 368(a)(3)(A) of the
Code.
(hh) The fair market value of the assets of First Federal
transferred to FF-Bank will equal or exceed the sum of the liabilities assumed
by FF-Bank, plus the amount of liabilities, if any, to which the transferred
assets are subject.
(ii) The sum of the fair market values of the First Federal
stock and FF-Bank stock held by First Financial and Company immediately before
the Bank Merger will be approximately equal to the fair market value of the
FF-Bank stock held by First Financial immediately after the Bank Merger.
(jj) No stock of FF-Bank will be issued in the Bank Merger.
Opinion - Federal Income Tax Consequences
Based upon and subject to the foregoing, it is our opinion
that for federal income tax purposes the following will result:
(1) For federal income tax purposes, the Holding Company
Merger and Subsidiary Merger will be considered either a merger of Company into
First Financial or an acquisition by First Financial, in exchange for its voting
common stock, of substantially all of the assets of Company. (Rev. Rul. 67-274,
1967-2 C.B. 141 and Rev. Rul. 72-405, 1972-2 C.B. 217).
(2) The Holding Company Merger and the Subsidiary Merger will
constitute a reorganization within the meaning of section 368(a)(1)(A) or
368(a)(1)(C) of the Code. For purposes of this opinion, "substantially all"
means at least 90 percent of the fair market value of the net assets and at
least 70 percent of the fair market value of the gross assets of Company. First
Financial and Company will each be a "party to a reorganization" within the
meaning of section 368(b) of the Code.
(3) No gain or loss will be recognized by Company on the
transfer of substantially all of its assets and the assumption of Company's
liabilities by First Financial (sections 357(a) and 361(b)).
(4) No gain or loss will be recognized by First Financial on
the receipt of the assets of Company in exchange for First Financial voting
common stock (section 1032(a)).
(5) The basis of the assets of Company in the hands of First
Financial will be the same as the basis of such assets in the hands of Company
immediately prior to the exchange (section 362(b)).
(6) The holding period of the assets of Company in the hands
of First Financial will include the holding period during which such assets were
held by Company (section 1223(2)).
(7) No gain or loss will be recognized by Company upon the
distribution to its shareholders of the First Financial common stock pursuant to
the plan of reorganization (section 361(c)).
(8) Except as provided in (11) below, no gain or loss will be
recognized by the shareholders of Company upon the receipt of First Financial
voting common stock solely in exchange for their shares of Company common stock
(section 354(a)(1)).
(9) The basis of First Financial voting common stock
(including any fractional share interest to which they may be entitled) received
by the shareholders of Company will be the same as the basis of the Company
common stock surrendered in exchange therefor (section 358(a)(1).
(10) The holding period of the First Financial voting common
stock (including any fractional share interest to which they may be entitled)
received by the shareholders of Company in the exchange will include the holding
period of the Company common stock surrendered in exchange therefor, provided
the Company common stock was held as a capital asset by the shareholders of
Company on the date of the exchange (section 1223(1)).
(11) The payment of cash in lieu of fractional share interests
of First Financial voting common stock will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by First
Financial. These cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as provided in
section 302(a) of the Code (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc.
77-41, 1977-2 C.B. 574).
(12) For federal income tax purposes, provided that the merger
of First Federal with and into FF-Bank qualifies as a statutory merger under
applicable United States law, the merger will constitute a reorganization within
the meaning of section 368(a)(1)(A) of the Code. First Federal and FF-Bank will
each be "a party to a reorganization" within the meaning of section 368(b) of
the Code.
(13) First Federal will recognize no gain or loss upon the
transfer of its assets to FF-Bank solely in constructive exchange for FF-Bank
stock and FF-Bank's assumption of the First Federal liabilities (sections 357(a)
and 361(a)).
(14) FF-Bank will recognize no gain or loss on its receipt of
the assets of First Federal in constructive exchange for FF-Bank stock (section
1032(a)).
(15) FF-Bank's basis of the First Federal assets received in
the merger will equal the basis of such assets in the hands of First Federal
immediately prior to the merger (section 362(b)).
(16) FF-Bank's holding period of the First Federal assets
received in the merger will include the period during which such assets were
held by First Federal immediately prior to the merger (section 1223(2)).
(17) First Financial will recognize no gain or loss on its
constructive exchange of shares of First Federal stock for FF-Bank stock
(section 354(a)).
(18) First Financial's basis in the FF-Bank stock held
immediately after the merger will equal the sum of the basis of such stock
immediately prior to the merger plus the basis in the hands of Company of the
First Federal stock canceled in the merger (section 358(a)(1)).
Our opinion set forth above is based upon the description of
the proposed transaction found in the section captioned "The Proposed
Transaction." If the actual facts relating to any aspect of the transaction
differ from this description in any material respect, our opinion may become
inapplicable. Further, our opinion is based upon the Code, the Income Tax
Regulations, interpretations made by the Internal Revenue Service, and judicial
precedents as of the date hereof. If there is any change in the applicable law
as reflected in these sources, our opinion may become inapplicable.
Sincerely yours,
/s/ Hogan & Hartson L.L.P.
Hogan & Hartson L.L.P.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
First Financial Bank, FSB (including all of its wholly-owned subsidiaries)
<PAGE>
EXHIBIT 23.2
The Board of Directors
FirstRock Bancorp, Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Joint Proxy/Prospectus
and registration statement.
/s/KPMG Peat Marwick, L.L.P.
January 26, 1995
Chicago, Illinois
<PAGE>
EXHIBIT 23.3
Consents of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-4 No.
33-56823) and related Prospectus of First Financial Corporation for the
registration of up to 5,500,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 17, 1994, with
respect to the consolidated financial statements of First Financial Corporation
included in its Annual Report to Shareholders and incorporated by reference in
its Amended Annual Report (Form 10-K/A No. 1) for the year ended December 31,
1993, filed with the Securities and Exchange Commission.
/s/Ernst & Young
Milwaukee, Wisconsin
January 26, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF THE CHICAGO CORPORATION
We hereby consent to the summarization of our fairness opinion letter and
references to our firm under the captions "SUMMARY" -- Opinion of Financial
Advisor" and "THE MERGER" and to the inclusion of such letter as an Appendix to
the Proxy Statement/Prospectus which is part of this Registration Statement on
Form S-4 of First Financial Corporation. By giving such consent, we do not
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in the Securities and
Exchange Commission promulgated thereunder.
THE CHICAGO CORPORATION
/s/ The Chicago Corporation
Chicago, Illinois
December 8, 1994
<PAGE>
