As filed with the Securities and Exchange Commission on August 18, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST PLACE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 6036 34-1880130
(Primary Standard (IRS Employer
(State or other Industrial Identification No.)
jurisdiction Classification Code
of incorporation or Number)
organization) ---------------
185 East Market Street
Warren, Ohio 44482
(330) 373-1221
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
Steven R. Lewis
President and Chief Executive Officer
185 East Market Street
Warren, Ohio 44482
(330) 373-1221
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Joseph G. Passaic, Jr., Esquire James Fleischer, Esquire
Patton Boggs LLP Silver, Freedman & Taff
2550 M Street, N.W. 1100 New York Avenue, NW
Washington, D.C. 20037 7th Floor
(202) 457-6000 Washington, D.C. 20005
(202) 414-6100
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of each Class of Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Registration
Registered Registered(1) Per Unit(2) Price(3) Fee(3)
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Common Stock, Par Value
$0.01 per share....... 7,283,249 $11.83 $81,301,380 $22,602
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(1) Represents the estimated maximum number of shares of common stock, par
value $0.01 per share, of First Place Financial Corp. ("First Place"),
expected to be issued in exchange for up to 6,775,115 shares of common
stock, par value $.01 per share, of FFY Financial Corp. ("FFY Financial"),
upon consummation of the merger of FFY Financial with and into First Place,
as described in this registration statement.
(2) The estimated maximum offering price per unit has been calculated by
multiplying $11.00, which is the closing market price per share of First
Place's common stock on the Nasdaq Stock Market on August 16, 2000, by the
exchange ratio of 1.075.
(3) Estimated solely for the purpose of calculating the registration fee. The
registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the average of the high and
low prices ($12.00) of shares of FFY Financial's common stock on the Nasdaq
Stock Market on August 16, 2000, and 6,775,115 shares of FFY Financial
common stock to be received by the registrant in the merger.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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EXPLANATORY NOTE
This registration statement contains two forms of the joint proxy
statement/prospectus to be delivered separately to stockholders of First Place
Financial Corp. and FFY Financial Corp. in connection with their respective
annual meetings. The joint proxy statement/prospectus to be delivered to First
Place stockholders in connection with the merger described in this registration
statement will contain (i) a separate notice of the annual meeting, (ii)
separate table of contents (iii) separate section on the election of First
Place directors at the end of the joint proxy statement/prospectus and (iv)
separate section on the ratification of the selection of independent auditors
at the end of the joint proxy statement/prospectus. Similarly, the joint proxy
statement/prospectus to be delivered to FFY Financial stockholders in
connection with the merger will contain a (i) a separate notice of the annual
meeting, (ii) separate table of contents and (iii) separate section on the
election of FFY Financial directors at the end of the joint proxy
statement/prospectus and (iv) separate section on the appointment of
independent auditors at the end of the joint proxy statement/prospectus.
LOGO OF LOGO OF
FIRST PLACE FINANCIAL CORP. FFY FINANCIAL CORP.
To the Stockholders of First Place Financial Corp. and FFY Financial Corp.
PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT
The boards of directors of First Place and FFY Financial have agreed to
combine in a merger of equals. We believe that our combined companies will be a
complementary strategic fit of our businesses and will create a more effective
competitor of other financial institutions in our Ohio market area. The
surviving corporation upon completion of the merger will be First Place and
half of its board of directors will be designated by each of First Place and
FFY Financial for up to four years after the merger is completed. Senior
management of First Place after the merger will be comprised of executive
officers from both First Place and FFY Financial.
As a result of the merger, each share of FFY Financial common stock will be
converted automatically into the right to receive 1.075 shares of First Place
common stock. Following the merger, former FFY Financial stockholders will hold
approximately 40.4% and the current First Place stockholders will hold
approximately 59.6% of the outstanding common stock of First Place on a fully
diluted basis.
The boards of directors of both First Place and FFY Financial have approved
the merger and recommend that their respective stockholders vote FOR adoption
of the merger agreement. Information about the merger is contained in this
joint proxy statement/prospectus. We encourage you to read this entire document
carefully including the section describing risk factors that begins on page 14.
The dates, times and places of the meetings are as follows:
For First Place stockholders: For FFY Financial stockholders:
November 16, 2000, 10:00 a.m., local November 15, 2000, 2:00 p.m., local
time time
The Avalon Inn The Holiday Inn
9519 East Market Street 7410 South Avenue
Warren, Ohio 44482 Youngstown, Ohio 44512
We cannot complete the merger unless the stockholders of both our companies
approve it. Each of us will hold a meeting of our stockholders to vote on this
merger proposal as well as proposals to elect directors and ratify auditors for
2001. Your vote is very important. Whether or not you plan to attend your
stockholder meeting, please vote as soon as possible to make sure that your
shares are represented at the meeting. If you do not vote, it will have the
same effect as a vote against the merger.
We strongly support this combination of our companies and join with our
boards of directors in enthusiastically recommending that you vote in favor of
the merger.
Steven R. Lewis Jeffrey L. Francis
President and Chief Executive Officer President and Chief Executive Officer
First Place Financial Corp. FFY Financial Corp.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this joint proxy statement/prospectus or the merger
described in the joint proxy statement/prospectus. Any representation to the
contrary is a criminal offense. These securities are not savings or deposit
accounts or other obligations of any bank or nonbank subsidiary of any of the
parties, and they are not insured by the Federal Deposit Insurance Corporation,
the Savings Association Insurance Fund or any governmental agency.
For any questions, or to request assistance, please call our proxy
solicitor, Georgeson Shareholder Communications, Inc., at 1-800-223-2064.
This joint proxy statement/prospectus is dated [ ], 2000 and will be
first mailed to stockholders of First Place and FFY Financial on or about [
], 2000.
FIRST PLACE FINANCIAL CORP.
185 East Market Street
Warren, Ohio 44482
(330) 373-1221
Notice of Annual Meeting of Stockholders
November 16, 2000 at 10:00 a.m.
Notice is hereby given that an annual meeting of stockholders of First Place
Financial Corp. will be held at the Avalon Inn, 9519 East Market Street,
Warren, Ohio 44482 on Thursday, November 16, 2000 at 10:00 a.m., local time,
for the following purposes, all of which are more completely set forth in the
attached joint proxy statement/prospectus:
1. Adoption of Merger Agreement. To consider and vote upon a proposal to
adopt the Agreement and Plan of Merger by and between First Place Financial
Corp. and FFY Financial Corp. pursuant to which FFY Financial will merge
with and into First Place and each share of FFY Financial common stock will
be converted into 1.075 shares of First Place common stock.
2. Election of Directors. The election of three directors of First
Place.
3. Ratification of Auditors. The ratification of the appointment of
Crowe, Chizek and Company, LLP, as independent auditors of First Place for
the fiscal year ending June 30, 2001.
4. Other Business. To transact such other business as may properly come
before the annual meeting or any adjournment or postponement thereof,
including proposals to adjourn the annual meeting to permit further
solicitation of proxies by the board of directors in the event that there
are not sufficient votes to approve any proposal at the time of the annual
meeting.
Holders of record of First Place common stock at the close of business on
September 20, 2000, the record date, are entitled to notice of and to vote at
the annual meeting and any adjournment or postponement thereof. A list of First
Place stockholders entitled to vote at the annual meeting will be available for
examination for any purpose relevant to the annual meeting, during ordinary
business hours, at the principal executive offices of First Place located at
185 East Market Street, Warren, Ohio 44482 for ten days prior to the annual
meeting and will also be available at the annual meeting.
In the event that there are not sufficient votes to approve the foregoing
proposal at the time of the First Place meeting, the annual meeting may be
adjourned in order to permit further solicitation by First Place, provided that
no proxies voted against the merger will be voted in favor of adjournment to
solicit additional proxies in favor of the merger.
By Order of the Board of Directors
Dominique Stoeber
Corporate Secretary
Warren, Ohio
, 2000
Whether or not you plan to attend the annual meeting, you are urged to
complete, sign, date and return the enclosed proxy in the accompanying pre-
addressed postage-paid envelope. If your shares are held in an account at a
brokerage firm or bank, you must instruct them on how to vote your shares. If
you do not vote or do not instruct your broker or bank how to vote, it will
have the same effect as voting against the merger.
FFY FINANCIAL CORP.
724 Boardman-Poland Road
Youngstown, Ohio 44512
(330) 726-3396
Notice of Annual Meeting of Stockholders
November 15, 2000 at 2:00 p.m.
Notice is hereby given that an annual meeting of stockholders of FFY
Financial Corp. will be held at the Holiday Inn, 7410 South Avenue, Youngstown,
Ohio 44512 on Wednesday, November 15, 2000 at 2:00 p.m., local time, for the
following purposes, all of which are more completely set forth in the attached
joint proxy statement/prospectus:
1. Adoption of Merger Agreement. To consider and vote upon a proposal to
adopt the Agreement and Plan of Merger by and between First Place Financial
Corp. and FFY Financial Corp. pursuant to which FFY Financial will merge
with and into First Place and each share of FFY Financial common stock will
be converted into 1.075 shares of First Place common stock.
2. Election of Directors. The election of two directors of FFY
Financial.
3. Ratification of Auditors. The ratification of the appointment of KPMG
LLP, as independent auditors of FFY Financial for the fiscal year ending
June 30, 2001.
4. Other Business. To transact such other business as may properly come
before the annual meeting or any adjournment or postponement thereof,
including proposals to adjourn the annual meeting to permit further
solicitation of proxies by the board of directors in the event that there
are not sufficient votes to approve any proposal at the time of the annual
meeting.
Holders of record of FFY Financial common stock at the close of business on
September 29, 2000, the record date, are entitled to notice of and to vote at
the annual meeting and any adjournment or postponement thereof. A list of FFY
Financial stockholders entitled to vote at the annual meeting will be available
for examination for any purpose relevant to the annual meeting, during ordinary
business hours, at the principal executive offices of FFY Financial located at
724 Boardman-Poland Rd., Youngstown, Ohio 44512 for ten days prior to the
annual meeting and will also be available at the annual meeting.
In the event that there are not sufficient votes to approve the foregoing
proposal at the time of the annual meeting, the annual meeting may be adjourned
in order to permit further solicitation by FFY Financial, provided that no
proxies voted against the merger will be voted in favor of adjournment to
solicit additional proxies in favor of the merger.
By Order of the Board of Directors
J. Craig Carr
Secretary
Youngstown, Ohio
, 2000
Whether or not you plan to attend the annual meeting, you are urged to
complete, sign, date and return the enclosed proxy in the accompanying pre-
addressed postage-paid envelope. If your shares are held in an account at a
brokerage firm or bank, you must instruct them on how to vote your shares. If
you do not vote or do not instruct your broker or bank how to vote, it will
have the same effect as voting against the merger.
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
The Annual Meetings..................................................... 4
Recommendation of the Boards of Directors and Opinions of Financial
Advisors............................................................... 4
Board of Directors and Management after the Merger...................... 4
Interests of Directors and Officers in the Merger....................... 5
Treatment of Stock Options and Restricted Stock......................... 5
Tax Consequences........................................................ 5
No Appraisal Rights of Stockholders..................................... 5
Overview of the Merger Agreement........................................ 5
Amendment to the First Place Certificate of Incorporation............... 7
Stock Option Agreements................................................. 7
Voting Agreements....................................................... 7
Market Price Information................................................ 7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 8
COMPARATIVE PER SHARE DATA (UNAUDITED).................................... 13
RISK FACTORS.............................................................. 14
Fluctuations in market prices may cause the value of the shares of First
Place common stock that you receive to be less than the value of your
shares of FFY Financial common stock................................... 14
First Place may fail to realize the anticipated benefits of the merger.. 14
Directors of First Place and FFY Financial have potential conflicts of
interest in recommending that you vote in favor of adoption of the
merger agreement....................................................... 14
FORWARD-LOOKING STATEMENTS................................................ 15
THE ANNUAL MEETINGS....................................................... 16
Joint Proxy Statement/Prospectus........................................ 16
Date, Time and Place.................................................... 16
Purpose of the Annual Meetings.......................................... 16
Stockholder Record Date for the Annual Meetings......................... 16
Proxies; Voting and Revocation.......................................... 17
Solicitation of Proxies................................................. 18
Vote Required for Adoption of the Merger Agreement...................... 18
THE MERGER................................................................ 19
Background of the Merger................................................ 19
Reasons for the Merger.................................................. 20
Recommendation of First Place's Board of Directors...................... 23
Opinion of First Place's Financial Advisor.............................. 23
Recommendation of FFY Financial's Board of Directors.................... 26
Opinion of FFY Financial's Financial Advisor............................ 26
Interests of Certain First Place Directors and Executive Officers in the
Merger................................................................. 32
Interests of Certain FFY Financial Directors and Executive Officers in
the Merger............................................................. 32
Completion and Effectiveness of the Merger.............................. 34
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Page
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Structure of the Merger and Conversion of FFY Financial Common Stock... 34
Treatment of FFY Financial Stock Options and Other Equity Based
Awards................................................................ 35
Procedures for Exchanging Your Stock Certificates...................... 35
Employee Matters....................................................... 36
Regulatory Approvals Needed to Complete the Merger..................... 37
Nasdaq Stock Market Listing and Delisting.............................. 38
Accounting Treatment of The Merger..................................... 38
Material United States Federal Income Tax Consequences of the Merger... 38
Selling the First Place Stock You Receive in the Merger................ 39
No Appraisal Rights.................................................... 39
Coordination of Dividends; Dividends to be Paid After The Merger....... 39
The Merger Agreement................................................... 40
Amendment to the First Place Certificate of Incorporation.............. 44
Stock Option Agreements................................................ 45
Voting Agreements...................................................... 46
BOARD OF DIRECTORS AND MANAGEMENT OF FIRST PLACE FOLLOWING THE MERGER.... 48
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS.............................................................. 50
DESCRIPTION OF FIRST PLACE CAPITAL STOCK................................. 54
General................................................................ 54
Common Stock........................................................... 54
Preferred Stock........................................................ 54
Anti-Takeover Considerations........................................... 55
COMPARISON OF STOCKHOLDERS' RIGHTS....................................... 55
General................................................................ 55
Capitalization......................................................... 55
Voting Rights.......................................................... 55
Number and Election of Directors....................................... 56
Vacancies on the Board of Directors and Removal of Directors........... 56
Amendment of the Certificate of Incorporation.......................... 57
Amendment of Bylaws.................................................... 57
Action by Written Consent.............................................. 57
Ability to Call Special Meetings....................................... 58
Stockholder Nominations for Directors and Proposals for New Business... 58
State Anti-Takeover Statutes........................................... 59
Fair Price Provisions.................................................. 59
MARKET PRICES AND DIVIDEND INFORMATION................................... 60
FIRST PLACE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 62
BUSINESS OF FIRST PLACE.................................................. 71
FFY FINANCIAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION................................................ 88
ii
Page
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BUSINESS OF FFY FINANCIAL................................................. 101
LEGAL MATTERS............................................................. 124
EXPERTS................................................................... 124
WHERE YOU CAN FIND MORE INFORMATION....................................... 124
ELECTION OF FIRST PLACE DIRECTORS; RATIFICATION OF FIRST PLACE INDEPENDENT
AUDITORS................................................................. 126
Principal Stockholders.................................................. 126
What First Place's Directors and Executive Officers Own................. 127
Election of Directors................................................... 127
Meetings of the Board of Directors and Committees of the Board of
Directors of First Place............................................... 129
Directors' Compensation................................................. 129
Executive Compensation.................................................. 129
Employment and Change in Control Agreements............................. 132
Employee Benefit Plans.................................................. 134
Additional Information About Our Directors and Executive Officers....... 135
Ratification of First Place Independent Auditors........................ 136
ADDITIONAL INFORMATION FOR FIRST PLACE.................................... 137
Stockholder Proposals................................................... 137
Notice of Business to be Conducted at an Annual Meeting................. 137
Other Matters Which May Properly Come Before the Meeting................ 137
ELECTION OF FFY FINANCIAL DIRECTORS; RATIFICATION OF FFY FINANCIAL
INDEPENDENT AUDITORS..................................................... 138
Principal Stockholders.................................................. 138
What FFY's Directors and Executive Officers Own......................... 139
ELECTION OF DIRECTORS..................................................... 140
Meetings and Committees of the Board.................................... 142
EXECUTIVE COMPENSATION.................................................... 144
Report on Executive Compensation........................................ 146
ADDITIONAL INFORMATION FOR FFY FINANCIAL.................................. 150
Stockholder Proposals................................................... 150
Other Matters........................................................... 150
CONSOLIDATED FINANCIAL STATEMENTS OF FFY FINANCIAL........................ F-1
CONSOLIDATED FINANCIAL STATEMENTS OF FIRST PLACE.......................... F-28
ANNEX A Agreement and Plan of Merger
ANNEX B First Place Stock Option Agreement
ANNEX C FFY Financial Stock Option Agreement
ANNEX D Form of Voting Agreement
ANNEX E Opinion of Keefe, Bruyette & Woods, Inc.
ANNEX F Opinion of Sandler O'Neill & Partners, L.P.
ANNEX G Proposed Amended and Restated Certificate of Incorporation of First
Place
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are First Place and FFY Financial proposing the merger?
A: We are proposing the merger because we believe that it will create a strong
Northeast Ohio banking franchise. First Place will become the fourth largest
thrift institution in Ohio. We believe that our combined companies will be a
complementary strategic fit of our businesses and will create a more
effective competitor of other financial institutions in our Ohio market
area. The merger will also permit each company to diversify beyond its
current businesses and its current strengths by expanding the marketing of
its products and services to the customers now served by the other, and will
enable the combined company to continue to provide a broad array of
innovative financial services and products to the customers and communities
currently served by each.
Q: What will I receive in the merger?
A: Stockholders of FFY Financial will receive 1.075 shares of First Place
common stock for each share of FFY Financial common stock they own.
Q: What stockholder approvals are needed?
A: The affirmative vote of the holders of a majority of the outstanding shares
of First Place's common stock and FFY Financial's common stock entitled to
vote is required to adopt the merger agreement. Each holder of common stock
is entitled to one vote per share. As of the record date, First Place
directors and executive officers and their affiliates owned [ ]% of the
outstanding shares of First Place common stock. As of the record date, FFY
Financial directors and executive officers and their affiliates, owned
approximately [ ]% of the outstanding shares of FFY Financial common stock.
The directors and executive officers of both First Place and FFY Financial
are parties to voting agreements and have agreed to vote all their shares of
First Place common stock and FFY Financial common stock in favor of the
adoption of the merger agreement.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please respond by completing, signing and
dating your proxy card or voting instructions and returning it in the
enclosed postage paid envelope as soon as possible so that your shares may
be represented at your annual meeting.
Q: What if I don't vote?
A: .If you fail to respond, it will have the same effect as a vote against the
merger.
.If you respond and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger.
.If you respond and abstain from voting, your proxy will have the same
effect as a vote against the merger.
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
annual meeting. You can do this in one of three ways. First, you can revoke
your proxy. Second, you can submit a new proxy. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy to the secretary of First Place or FFY Financial, as appropriate,
before the annual meeting. If your shares are held in an account at a
brokerage firm or bank, you should contact your brokerage firm or bank to
change your vote. Third, if you are a holder of record, you can attend the
annual meeting and vote in person.
1
Q: Should I send in my FFY Financial stock certificates now?
A: No. After the merger is completed, you will receive written instructions
from the exchange agent on how to exchange your FFY Financial stock
certificates for shares of First Place common stock. Please do not send in
your stock certificates with your proxy.
Q: Where will my shares of First Place common stock be listed?
A: We intend to apply to have the shares of First Place common stock to be
issued in the merger approved for quotation on the Nasdaq Stock Market.
First Place common stock currently trades on the Nasdaq Stock Market under
the symbol "FPFC."
Q: Will I receive dividends on my First Place shares?
A: First Place and FFY Financial have agreed that, subject to any legal
restrictions, the board of First Place after the merger will declare a cash
dividend of no less than $0.125 per share for the first quarter immediately
following completion of the merger. After such period, decisions concerning
the payment of dividends on the common stock will depend upon our results of
operations, financial condition and capital expenditure plans as well as
such other factors as the board of directors, in its sole discretion, may
consider relevant.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the last quarter of calendar 2000.
Q: Who can help answer questions?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement/prospectus or
the enclosed proxy card or voting instructions, you should contact:
Georgeson Shareholder Communications, Inc.
17 State Street
10th Floor
New York, NY 10004
Telephone: 1-800-223-2064
2
SUMMARY
This brief summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read the entire joint proxy
statement/prospectus including the annexes and the other documents to which
this joint proxy statement/prospectus refers you to fully understand the
merger.
The Companies (see pages 62 and 88)
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
(330) 373-1221
First Place is a savings and loan holding company organized under the laws
of the State of Delaware in 1998. First Place's wholly owned subsidiary, First
Federal Savings and Loan Association of Warren, operates sixteen full-service
banking offices in Trumbull, Mahoning and Portage Counties of Ohio and six loan
production offices in Northeast Ohio. First Federal is a federally-chartered
savings association which has operated since 1922. First Federal's deposits are
insured by the Savings Association Insurance Fund of the FDIC. In May 2000,
First Place completed its acquisition of The Ravenna Savings Bank, an Ohio-
chartered savings bank, by a merger of Ravenna with and into First Federal,
with First Federal as the surviving association.
At June 30, 2000, First Place had total assets of $1,051.6 million, deposits
of $586.7 million and stockholders' equity of $148.0 million.
For more information about First Place, see "First Place Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business of First Place."
FFY Financial Corp.
724 Boardman-Poland Road
Youngstown, Ohio 44512
(330) 726-3396
FFY Financial is a savings and loan holding company organized under the laws
of the State of Delaware in 1993. FFY Financial's wholly owned subsidiary, FFY
Bank, operates 11 full service banking facilities and three limited service
banking facilities located in Mahoning and Trumbull Counties, Ohio. FFY Bank is
a federally-chartered stock savings bank which has operated since 1900. FFY
Bank's deposits are insured by the Savings Association Insurance Fund of the
FDIC.
At June 30, 2000, FFY Financial had total assets of $674.5 million, deposits
of $446.0 million, and stockholders' equity of $65.2 million.
For more information about FFY Financial, see "FFY Financial Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business of FFY Financial."
3
The Annual Meetings (see page 16)
Annual Meeting of First Place. The First Place annual meeting will be held
on November 16, 2000 at 10:00 a.m., local time, at the Avalon Inn, 9519 East
Market Street, Warren, Ohio 44482. At the First Place annual meeting, you will
be asked to:
.adopt the merger agreement between FFY Financial and First Place;
.elect directors;
.ratify the auditors for the June 30, 2001 fiscal year; and
.act on any other items that may be submitted to a vote at the meeting.
Annual Meeting of FFY Financial. The FFY Financial annual meeting will be
held on November 15, 2000 at 2:00 p.m., local time, at the Holiday Inn, 7410
South Avenue, Youngstown, Ohio 44512. At the FFY Financial annual meeting, you
will be asked to:
.adopt the merger agreement between FFY Financial and First Place;
.elect directors;
.ratify the auditors for the June 30, 2001 fiscal year; and
.act on any other items that may be submitted to a vote at the meeting.
Recommendation of the Boards of Directors and Opinions of Financial Advisors
(see page 23)
To First Place Stockholders: The board of directors of First Place believes
that the merger is fair to you, and unanimously recommends that you vote "FOR"
the adoption of the merger agreement.
To FFY Financial Stockholders: The FFY Financial board of directors believes
that the merger is fair to you and unanimously recommends that you vote "FOR"
the adoption of the merger agreement.
Opinion of First Place's Financial Advisor. Keefe, Bruyette & Woods, Inc.
has delivered to the First Place board of directors its opinion that, as of the
date of the merger agreement, the exchange ratio was fair to the holders of
First Place common stock from a financial point of view. The full text of this
opinion is attached as Annex E to this joint proxy statement/prospectus. First
Place urges its stockholders to read the opinion of Keefe, Bruyette & Woods in
its entirety.
Opinion of FFY Financial's Financial Advisor. Sandler O'Neill & Partners,
L.P. has delivered to the FFY Financial board of directors its opinion that, as
of the date of the merger agreement, the exchange ratio was fair to the holders
of FFY Financial common stock from a financial point of view. The full text of
this opinion is attached as Annex F to this joint proxy statement/prospectus.
FFY Financial urges its stockholders to read the opinion of Sandler O'Neill in
its entirety.
Board of Directors and Management after the Merger (see page 48)
We have agreed that after the merger, the First Place board of directors
will be made up of 16 directors with eight of the directors to be designated by
First Place and eight of the directors to be designated by FFY Financial. We
are required to maintain this equal membership for up to four years after the
merger is completed.
W. Terry Patrick, Chairman of FFY Financial, will become Chairman for three
years following the completion of the merger. Paul A. Watson, Chairman of First
Place, will become Vice Chairman for a period not to exceed three years from
the completion of the merger at which time the Vice Chairman position will be
4
eliminated. Steven R. Lewis, President and Chief Executive Officer of First
Place will become President and Chief Executive Officer of First Place after
the merger. Jeffrey L. Francis, President and Chief Executive Officer of FFY
Financial will become Executive Vice President and Chief Operating Officer of
First Place after the merger. Therese Ann Liutkus, Chief Financial Officer of
FFY Financial will become Chief Financial Officer of First Place after the
merger.
Interests of Directors and Officers in the Merger (see page 32)
Some of the directors and officers of First Place and FFY Financial have
interests in the merger that are different from, or are in addition to, your
interests as stockholders. These interests include the potential for positions
as directors or executive officers of First Place after the merger,
acceleration of vesting of options or restricted stock as a result of the
merger and the right to continued indemnification and insurance coverage by
First Place for acts or omissions occurring prior to the merger.
Treatment of Stock Options and Restricted Stock (see page 35)
When the merger is completed, each outstanding FFY Financial stock option
will be converted into an option to purchase a number of shares of First Place
common stock and at an exercise price per share adjusted by the exchange ratio.
In addition, each outstanding restricted share of FFY Financial common stock
will be converted into 1.075 restricted shares of First Place common stock. As
a result of the completion of the merger, 209,148 FFY Financial stock options
and 56,000 shares of restricted FFY Financial common stock outstanding on
[ ], 2000, will vest and become exercisable or free of restrictions upon
completion of the merger.
Tax Consequences (see page 38)
We have structured the merger so that First Place, FFY Financial and the FFY
Financial stockholders who exchange their shares for First Place common stock
will not recognize gain or loss for United States federal income tax purposes
in connection with the merger, except to the extent of cash received by FFY
Financial stockholders instead of fractional shares of First Place common
stock.
No Appraisal Rights of Stockholders (see page 39)
Under Delaware law, First Place stockholders and FFY Financial stockholders
are not entitled to appraisal rights in connection with the merger.
Overview of the Merger Agreement (see page 40)
Conditions to the Completion of the Merger. The completion of the merger
depends on a number of conditions being met, including those listed below:
. adoption of the merger agreement by both the First Place stockholders and
the FFY Financial stockholders;
. the receipt of all regulatory approvals required to consummate the merger
and the merger of our subsidiaries;
. First Place must receive an opinion from tax counsel to the effect that
the merger will qualify as a tax-free reorganization;
. approval by the Nasdaq Stock Market of the listing of the shares of First
Place common stock to be issued in exchange for FFY Financial common
stock;
5
. the absence of any injunction, order, decree or legal restraint
preventing the completion of the merger or the merger of our subsidiaries
or any of the transactions contemplated thereby;
. the receipt of any consent, approval or waiver, other than regulatory
approvals, necessary to permit the succession of the material
obligations, rights or interests of First Place and FFY Financial;
. the absence of any burdensome condition or restriction on First Place or
FFY Financial imposed pursuant to any regulatory approval;
. our respective representations and warranties in the merger agreement
must be true and correct in all material respects; and
. we must have complied with our respective covenants in the merger
agreement.
Termination of the Merger Agreement. We can agree at any time to terminate
the merger agreement without completing the merger, even if the stockholders of
both our companies have approved it. Also, either of us can decide, without the
consent of the other, to terminate the merger agreement if:
. any government agency denies an approval we need to complete the merger,
or if any government authority issues an order blocking the merger;
. we do not complete the merger by December 31, 2000, unless the failure to
complete the merger by that time is due to the failure to perform or
observe the covenants and agreements contained in the merger agreement by
the party seeking to terminate;
. either company's stockholders do not vote to adopt the merger agreement
at a duly held meeting of that company's stockholders;
. one party breaches any representation, warranty, covenant or other
agreement under the merger agreement in a material way which has not been
promptly cured or could not be cured by closing of the merger and, as
long as the party seeking to terminate the merger agreement has not also
violated the merger agreement; or
. the board of directors of First Place or FFY Financial does not recommend
in the joint proxy statement/prospectus to its stockholders to adopt the
merger agreement or withdraws, modifies or qualifies its recommendation.
"No Solicitation" Provisions. The merger agreement contains detailed
provisions prohibiting First Place and FFY Financial from seeking an
alternative transaction. These "no solicitation" provisions prohibit First
Place and FFY Financial, as well as their officers, directors, employees or
agents, from taking any action to solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes a takeover
proposal. In addition, the merger agreement prohibits First Place and FFY
Financial and their boards of directors from recommending or endorsing any
takeover proposal, or participating in any discussions or negotiations, or
providing third parties with any nonpublic information, relating to any inquiry
or proposal, or otherwise facilitating any effort or attempt to make or
implement a takeover proposal except to the extent legally required for the
discharge of the fiduciary duties of their boards of directors.
Regulatory Matters. We may not complete the merger until we have filed the
necessary applications and requests with, and received the approval of the
Office of Thrift Supervision and the non-objection of the Federal Deposit
Insurance Corporation. We have filed, or will timely file, all of the required
applications or notices with the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. As of the date of this joint proxy
statement/prospectus, we have not yet received the required approvals. We
cannot assure you that we will obtain all regulatory approvals to complete the
merger or that the granting of these approvals will not involve the imposition
of conditions on the completion of the merger or require changes to the terms
of the merger. These conditions or changes could result in the conditions to
the merger not being satisfied.
6
Accounting Treatment of the Merger. We will account for the merger under the
purchase method of accounting for business combinations.
Completion and Effectiveness of the Merger. We will complete the merger when
all of the conditions to completion of the merger are satisfied or waived in
accordance with the merger agreement. The merger will become effective when we
file certificates of merger with the State of Delaware. We expect to complete
the merger during the last quarter of calendar 2000.
Amendment to the First Place Certificate of Incorporation (see page 44)
The First Place certificate of incorporation as amended and restated will be
the governing document of First Place after the merger. The proposed amendment
and restatement of the First Place certificate of incorporation was agreed upon
by both First Place and FFY Financial in the merger agreement. Delaware law
permits a certificate of merger to include amendments to the certificate of
incorporation of the surviving corporation. First Place stockholders will be
approving the amendment and restatement of their certificate of incorporation
by approving the merger. The information concerning the terms of the proposed
amended and restated First Place certificate of incorporation in this joint
proxy statement/prospectus is qualified in its entirety by reference to the
proposed amended and restated First Place certificate of incorporation attached
as Annex G.
Stock Option Agreements (see page 45)
Each of First Place and FFY Financial has granted the other company an
option to purchase up to 19.9% of its outstanding shares. An option becomes
exercisable in whole or in part only upon the occurrence of several events
relating to an acquisition of a controlling interest in First Place or FFY
Financial as described on page [ ].
Voting Agreements (see page 46)
Each of First Place and FFY Financial have entered into voting agreements
with the other company's directors and executive officers pursuant to which the
directors and executive officers have agreed to vote their shares of First
Place common stock and FFY Financial common stock in favor of the adoption of
the merger agreement. As of the First Place record date, First Place directors
and executive officers owned shares representing approximately [ ]% of the
outstanding shares of First Place common stock and as of the FFY Financial
record date, owned shares representing [ ]% of the outstanding shares of FFY
Financial common stock. As of the FFY Financial record date, FFY Financial
directors and executive officers owned shares representing approximately [ ]%
of the outstanding shares of FFY Financial common stock and as of the First
Place record date, owned shares representing less than 1% of the outstanding
shares of First Place common stock.
Market Price Information (see page 60)
Shares of each of First Place common stock and FFY Financial common stock
are quoted on the National Market System of the Nasdaq Stock Market. On May 23,
2000, the last trading day before we announced the merger, First Place common
stock closed at $9.75 per share and FFY Financial common stock closed at $10.00
per share. Based on the per share exchange ratio in the merger, which is 1.075,
the pro forma equivalent per share value of the FFY Financial common stock on
[ ], 2000 was equal to approximately $[ ] per share.
7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical financial data of First
Place, (2) selected historical financial data of FFY Financial and (3) selected
unaudited pro forma consolidated financial data of First Place, which reflect
the merger.
FIRST PLACE
Selected Historical Financial And Other Data
The selected historical financial data of First Place is derived from the
audited consolidated financial statements and related notes of First Place for
each of the years in the five-year period ended June 30, 2000. The historical
data is only a summary, and you should read it in conjunction with the
historical financial statements and related notes included elsewhere in this
joint proxy statement/prospectus. First Place was organized under Delaware law
in August 1998. Therefore, all First Place financial information contained
herein for periods prior to December 31, 1998 relates solely to its wholly
owned subsidiary, First Federal Savings and Loan Association of Warren.
At June 30,
-----------------------------------------------
2000 1999 1998 1997 1996
---------- -------- -------- -------- --------
(In thousands)
Selected Financial Data:
Total assets................... $1,051,577 $747,332 $609,398 $548,870 $523,131
Loans receivable, net.......... 705,066 453,791 353,012 285,212 254,435
Loans available for sale....... 13,071 945 -- -- --
Securities available for sale.. 261,051 249,159 211,185 202,677 202,176
Securities held to maturity.... -- -- 28,295 44,875 47,918
Deposits....................... 586,748 429,225 435,462 412,934 392,350
Federal Home Loan Bank
advances...................... 227,762 94,811 44,820 58,398 76,078
Repurchase agreements.......... 75,000 54,430 60,430 16,000 --
Total stockholders' equity..... 147,975 158,054 59,357 53,747 48,823
For the Years Ended June 30,
-----------------------------------------------
2000 1999 1998 1997 1996
---------- -------- -------- -------- --------
(In thousands, except per share data)
Selected Operating Data:
Total interest income.......... $ 58,506 $ 48,126 $ 42,482 $ 38,413 $ 36,436
Total interest expense......... 32,657 25,682 25,512 22,929 21,858
---------- -------- -------- -------- --------
Net interest income.......... 25,849 22,444 16,970 15,484 14,578
Provision for loan losses...... 2,294 1,062 1,779 590 238
---------- -------- -------- -------- --------
Net interest income after
provision for loan losses... 23,555 21,382 15,191 14,894 14,340
Total noninterest income....... 2,447 1,981 1,751 444 1,220
Total noninterest expense (1)
(2)........................... 15,890 20,692 10,372 11,898 9,149
---------- -------- -------- -------- --------
Income before income tax..... 10,112 2,671 6,570 3,440 6,411
Provision for income tax....... 3,298 616 2,498 1,216 2,262
---------- -------- -------- -------- --------
Net income................... $ 6,814 $ 2,055 $ 4,072 $ 2,224 $ 4,149
========== ======== ======== ======== ========
Basic earnings per share (since
conversion)................... $ .75 $ (.02) N/A N/A N/A
========== ======== ======== ======== ========
Diluted earnings per share
(since conversion)............ $ .75 $ (.02) N/A N/A N/A
========== ======== ======== ======== ========
- --------
(1) For the year ended June 30, 1999, noninterest expense included $8.0 million
as a result of the contribution to the Foundation.
(2) For the year ended June 30, 1997, noninterest expense included a one-time
charge of $2.5 million to recapitalize the Savings Association Insurance
Fund (SAIF).
8
For the Years Ended June 30,
------------------------------------
2000 1999 1998 1997 1996
----- ------ ------ ----- ------
Selected Financial Ratios and Other
Data:
Performance Ratios:(1)
Return on average assets................ 0.83% 0.30% 0.70% 0.42% 0.82%
Return on average equity................ 4.80 1.86 7.00 4.39 8.52
Net interest rate spread(2)............. 2.39 2.67 2.55 2.52 2.48
Net interest margin(3).................. 3.25 3.42 3.00 2.97 2.94
Total noninterest expense to average
assets................................. 1.94 3.03 1.77 2.23 1.81
Efficiency ratio(4)..................... 56.03 84.72 55.40 74.70 57.91
Dividend Payout Ratio(5)................ 44.00 N/A N/A N/A N/A
Capital Ratios:
Equity to Total Assets at end of
Period................................. 14.07 21.15 9.74 9.79 9.33
Average Equity to Average Assets........ 17.34 16.21 9.94 9.51 9.61
Tangible capital(6)..................... 8.75% 14.08% 9.52% 9.80% 9.79%
Core capital(6)......................... 8.75 14.08 9.52 9.80 9.79
Total risk-based capital(6)............. 15.27 30.12 21.84 23.85 25.64
Asset Quality Data and Ratios:
Nonperforming assets as a percent of
total assets(7)........................ 0.71% 0.24% 0.35% 0.45% 0.22%
Allowance for loan losses as a percent
of loans(8)............................ 0.86 0.79 0.85 0.60 0.49
Allowance for loan losses as a percent
of nonperforming loans(7).............. 93.67 230.23 141.25 69.48 111.81
- --------
(1) The performance ratios include the $8.0 million contribution to the
Foundation in the year ended June 30, 1999, and the $2.5 million charge to
recapitalize SAIF in the year ended June 30, 1997.
(2) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(4) The efficiency ratio represents the ratio of noninterest expense divided by
the sum of net interest income and noninterest income.
(5) Cash dividends per share divided by earnings per share
(6) Regulatory capital ratios of the First Federal.
(7) Nonperforming assets consist of nonperforming loans, repossessed autos and
other real estate owned.
(8) Loans represent loans receivable, net, excluding the allowance for loan
losses.
9
FFY FINANCIAL
Selected Historical Financial And Other Data
The selected historical financial data of FFY Financial is derived from the
audited consolidated financial statements and related notes of FFY Financial
for each of the years in the five-year period ended June 30, 2000. The
historical data is only a summary, and you should read it in conjunction with
the historical financial statements and related notes included elsewhere in
this joint proxy statement/prospectus.
At June 30,
------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
Selected Consolidated
Financial Condition Data:
Total assets................ $674,475 $675,691 $651,746 $599,249 $575,602
Loans receivable, net....... 484,517 453,839 482,463 460,712 438,790
Loans available for sale.... 171 442 -- -- --
Allowance for loan losses... 2,659 2,645 2,740 2,962 3,439
Non-performing assets....... 3,392 2,356 3,324 3,993 4,673
Securities available for
sale....................... 158,136 190,326 140,793 112,036 109,836
Deposits.................... 446,049 457,343 444,017 450,224 456,541
Short-term repurchase
agreements(1).............. 6,938 6,618 13,088 7,307 6,640
Long-term repurchase
agreements(1).............. 51,300 51,300 51,300 25,000 --
Short-term borrowed funds... 17,500 22,800 33,985 27,455 1,200
Long-term borrowed funds.... 79,280 60,000 -- -- --
Stockholders' equity........ 65,195 70,117 84,216 82,174 101,921
Years ended June 30,
------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands, except per share data)
Selected Consolidated
Operations Data:
Total interest income....... $ 49,796 $ 49,084 $ 48,006 $ 45,925 $ 43,716
Total interest expense...... 28,123 26,515 25,559 23,823 22,133
-------- -------- -------- -------- --------
Net interest income......... 21,673 22,569 22,447 22,102 21,583
Provision for loan losses... 476 494 565 688 325
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses.. 21,197 22,075 21,882 21,414 21,258
Service charges............. 1,106 897 700 563 522
Gain (loss) on sale of
securities................. 46 203 247 (320) 30
Gain on sale of loans....... 234 720 134 -- --
Other non-interest income... 639 730 684 375 548
Total non-interest expense.. (12,835) (12,495) (11,771) (14,288) (11,991)
-------- -------- -------- -------- --------
Income before income taxes
and minority interest...... 10,387 12,130 11,876 7,744 10,367
Income tax expense.......... 3,048 4,083 4,147 2,420 3,465
Minority interest in loss of
consolidated subsidiaries.. (21) (93) -- -- --
-------- -------- -------- -------- --------
Net income.................. $ 7,360 $ 8,140 $ 7,729 $ 5,324 $ 6,902
======== ======== ======== ======== ========
Basic earnings per
share(2)................... $ 1.15 $ 1.15 $ 1.03 $ 0.62 $ 0.71
======== ======== ======== ======== ========
Diluted earnings per
share(2)................... $ 1.12 $ 1.11 $ 0.99 $ 0.60 $ 0.68
======== ======== ======== ======== ========
Cash dividends declared per
share(2)................... $ 0.50 $ 0.45 $ 0.40 $ 0.35 $ 0.30
======== ======== ======== ======== ========
- --------
(1) Securities sold under agreements to repurchase.
(2) Per share figures were restated for years prior to 1999 to reflect a 100%
stock dividend, effected in the form of a two-for-one stock split, declared
on January 19, 1999.
10
At or for the Years Ended June
30,
-------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ----- ------
Selected Financial Ratios and Other
Data:
Performance Ratios:
Return on average assets(1)........... 1.10% 1.23% 1.25% 0.90% 1.20%
Return on average equity(2)........... 11.28 10.26 9.28 5.73 6.58
Interest rate spread information:
Average during the period(3).......... 2.97 3.08 3.19 3.16 3.04
End of period(3)...................... 2.66 2.99 2.94 3.06 2.95
Net interest margin(3)(4)............... 3.46 3.62 3.81 3.89 3.89
Operating expense to average assets..... 1.92 1.88 1.90 2.42 2.09
Efficiency ratio(5)..................... 54.02 49.84 49.08 62.01 52.93
Dividend payout ratio(6)................ 44.64 40.54 40.40 58.82 43.80
Quality Ratios:
Non-performing assets to total
assets............................... 0.50% 0.35% 0.51% 0.67% 0.81%
Allowance for loan losses to non-
performing assets.................... 78.39 112.27 82.43 74.18 73.59
Allowance for loan losses to gross
loans outstanding.................... 0.54 0.58 0.56 0.64 0.77
Capital Ratios:
Equity to total assets at end of
period............................... 9.67% 10.38% 12.92% 13.71% 17.71%
Average equity to average assets...... 9.76% 11.96 13.47 15.71 18.29
Book value per share(7)............... $ 9.70 $ 9.85 $10.50 $9.91 $10.03
Tangible book value per share(7)...... $ 9.56 $ 9.81 $10.49 $9.91 $10.03
Change in book value per share due to
SFAS No. 115......................... $(0.95) $(0.40) $ 0.10 $0.01 $(0.09)
Ratio of average interest-earning
assets to average interest-bearing
liabilities.......................... 1.10x 1.13x 1.15x 1.17x 1.21x
- --------
(1) Ratio of net income to average total assets.
(2) Ratio of net income to average equity.
(3) Ratio is presented on a fully taxable equivalent basis using the FFY
Financial's federal statutory tax rate of 34%.
(4) Net interest income divided by average interest earning assets--calculated
without consideration of the unrealized gain (loss) on securities available
for sale.
(5) Ratio is calculated without consideration on goodwill amortization and gain
(loss) on sale of securities.
(6) Cash dividends per share divided by diluted earnings per share.
(7) Per share figures were restated for years prior to 1999 to reflect a 100%
stock dividend declared on January 19, 1999.
11
FIRST PLACE
Selected Unaudited Pro Forma Consolidated
Financial Information
The selected unaudited pro forma consolidated financial data of First Place,
after the merger, have been derived from the unaudited pro forma consolidated
financial statements included elsewhere in this joint proxy
statement/prospectus.
At June 30, 2000
----------------------
(In thousands)
Pro Forma Consolidated Balance Sheet:
Total assets............................................ $1,730,779
Loans Receivable........................................ $1,184,213
Deposits................................................ $1,033,580
Federal Home Loan Bank Advances......................... $ 324,034
Repurchase agreements................................... $ 132,718
Total stockholders' equity.............................. $ 217,024
For the Year Ended
June 30, 2000
----------------------
(In thousands,
except per share data)
Pro Forma Consolidated Statement of Income
Net interest income after provision for loan losses..... $ 45,227
Net income.............................................. $ 16,461
Earnings per common share:
Basic................................................. 1.05
Diluted............................................... 1.03
Cash dividends declared per common share................ $ 0.30
12
COMPARATIVE PER SHARE DATA
(UNAUDITED)
We have summarized below the per share information of First Place and FFY
Financial as separate corporations and on a pro forma consolidated and pro
forma equivalent basis. You can use this table to understand how the merger
would have affected First Place's earnings, dividends and book value, all on a
per share basis, if the merger had taken effect on the first day of the period
described below. We have derived the unaudited pro forma consolidated per share
information from the unaudited pro forma consolidated financial statements
presented elsewhere in this joint proxy statement/prospectus. The first item
listed in each category gives you historical information relating to First
Place and the second item gives you historical information about FFY Financial.
The information set forth below is only a summary and you should read it in
conjunction with the historical financial statements and related notes of First
Place and FFY Financial presented elsewhere in this joint proxy
statement/prospectus.
At or For the
Year Ended
June 30, 2000
-------------
Net Income per Share Basic(1):
First Place Financial Corp...................................... $ 0.75
FFY Financial Corp.............................................. 1.15
First Place Financial Corp. Pro Forma........................... 1.05
FFY Financial Corp. Pro Forma Equivalent........................ 1.13
Net Income per Share Fully Diluted(1):
First Place Financial Corp...................................... $ 0.75
FFY Financial Corp.............................................. 1.12
First Place Financial Corp. Pro Forma........................... 1.03
FFY Financial Corp. Pro Forma Equivalent........................ 1.11
Cash Dividends Declared Per Share(2):
First Place Financial Corp...................................... $ 0.32
FFY Financial Corp.............................................. 0.50
First Place Financial Corp. Pro Forma........................... 0.33
FFY Financial Corp. Pro Forma Equivalent........................ 0.50
Book Value per Share at Period End(3):
Stated:
First Place Financial Corp...................................... $13.84
FFY Financial Corp.............................................. 9.70
First Place Financial Corp. Pro Forma........................... 12.12
FFY Financial Corp. Pro Forma Equivalent........................ 13.02
Tangible:
First Place Financial Corp...................................... $12.61
FFY Financial Corp.............................................. 9.56
First Place Financial Corp. Pro Forma........................... 10.92
FFY Financial Corp. Pro Forma Equivalent........................ 11.74
- --------
(1) The pro forma earnings per share of First Place common stock is based on
the pro forma net income of First Place and FFY Financial for the year
ended June 30, 2000 divided by the average pro forma basic and diluted
common shares of the combined entities. FFY Financial pro forma equivalent
earnings per share represent such amounts multiplied by the exchange ratio
of 1.075.
(2) First Place pro forma cash dividends per share reflect an agreement by
First Place and FFY Financial that, subject to any legal restrictions, the
board of First Place after the merger will declare a cash dividend of no
less than $.125 per share for the first quarter immediately following
completion of the merger. First Place pro forma cash dividends per share
shown above reflect the annualized agreed upon dividend. FFY Financial pro
forma equivalent cash dividends per share represent such amount multiplied
by the exchange ratio of 1.075.
(3) First Place pro forma stated and tangible book value per share amounts are
based on the pro forma stockholders' equity of the combined entity divided
by the total pro forma common shares of the combined entity based on the
exchange ratio of 1.075. The FFY Financial pro forma equivalent stated and
tangible book value per share represent such amounts multiplied by the
exchange ratio of 1.075.
13
RISK FACTORS
In addition to the other information contained in this joint proxy
statement/prospectus, you should carefully consider the following risk factors
in deciding whether to vote for adoption of the merger agreement.
Fluctuations in market prices may cause the value of the shares of First Place
common stock that you receive to be less than the value of your shares of FFY
Financial common stock
Upon completion of the merger, all shares of FFY Financial common stock will
be converted into shares of First Place common stock. The ratio at which the
shares will be converted is fixed, and there will be no adjustment for changes
in the market price of either FFY Financial common stock or First Place common
stock. Any change in the price of First Place common stock will affect the
value FFY Financial stockholders will receive in the merger. The value of the
shares of First Place common stock received by FFY Financial stockholders in
the merger may go up or down as the market price of First Place common stock
goes up or down. Stock price changes may result from a variety of factors that
are beyond the control of First Place and FFY Financial, including changes in
their businesses, operations and prospects, regulatory considerations and
general market and economic conditions. Neither party is permitted to "walk
away" from the merger or resolicit the vote of its stockholders solely because
of changes in the market price of either party's common stock.
The prices of First Place common stock and FFY Financial common stock at the
closing of the merger may vary from their respective prices on the date of this
joint proxy statement/prospectus and on the dates of the annual meetings.
Because the date the merger is completed will be later than the dates of the
annual meetings, the prices of First Place common stock and FFY Financial
common stock on the dates of the annual meetings may not be indicative of their
respective prices on the date the merger is completed.
First Place may fail to realize the anticipated benefits of the merger
First Place and FFY Financial may not be able to integrate their operations
without encountering difficulties including, without limitation, the loss of
key employees and customers, the disruption of their respective ongoing
businesses or possible inconsistencies in standards, controls, procedures and
policies. Additionally, in determining that the merger is in the best interests
of First Place and FFY Financial, as the case may be, each of the First Place
and the FFY Financial board of directors considered that enhanced earnings may
result from the consummation of the merger, including from cross-marketing
opportunities. However, there can be no assurance that any enhanced earnings
will result from the merger.
Directors of First Place and FFY Financial have potential conflicts of interest
in recommending that you vote in favor of adoption of the merger agreement
Directors of First Place and FFY Financial who recommended that you vote in
favor of the adoption of the merger agreement have employment agreements or
other benefit arrangements that provide them with interests in the merger that
differ from yours. Following completion of the merger, Steven R. Lewis, Chief
Executive Officer and President of First Place, will continue after the merger
to serve as First Place's Chief Executive Officer and President and Jeffrey L.
Francis, Chief Executive Officer and President of FFY Financial will serve as
Executive Vice President and Chief Operating Officer of First Place.
The receipt of compensation or other benefits in the merger, including the
vesting of stock options and restricted stock, or the continuation of
indemnification arrangements for current directors of First Place and FFY
Financial following completion of the merger, may influence these directors in
making their recommendation that you vote in favor of the adoption of the
merger agreement.
14
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus, or any other written or oral
statements made by, or on behalf of, First Place and FFY Financial may include
forward-looking statements (within the meaning of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995) with respect to the
financial condition, results of operations and business of First Place and FFY
Financial as well as certain information relating to the proposed merger,
including, without limitation, (1) statements relating to the cost savings and
estimated accretion to reported earnings estimated to result from the proposed
merger, (2) statements relating to revenues estimated to result from the
proposed merger, (3) statements relating to integration costs estimated to be
incurred in connection with the proposed merger, and (4) statements preceded
by, followed by or that include "plans", "believes", "expects", "anticipates",
"estimates" or similar words or expressions.
These forward-looking statements involve both known and unknown risks and
uncertainties. Actual results or performance may differ materially from those
contemplated by these forward-looking statements due to the following factors
and events, among others, that might occur (the order of which does not
necessarily reflect significance):
. costs or difficulties related to the integration of the business of
First Place and FFY Financial or other acquired businesses prove to be
greater than expected;
. dependence on key personnel to manage the integration of the two
companies;
. difficulties related to the integration of First Place's and FFY
Financial's management teams;
. fluctuations in the economy, especially in the market areas of First
Place and FFY Financial;
. changes in the interest rate environment;
. First Place's and FFY Financial's ability to realize anticipated cost
savings relating to the merger;
. First Place's and FFY Financial's success in combining their operations
and cultures;
. the continued growth of the markets in which First Place and FFY
Financial operate; and
. the enactment of legislation or administrative regulations impacting
First Place and FFY Financial.
Because these forward-looking statements are subject to both known and
unknown risks and uncertainties, actual results or performance may differ
materially from those expressed or implied by these forward-looking statements.
Stockholders of First Place and FFY Financial are cautioned not to place undue
reliance on these statements, which speak only as of the date of this joint
proxy statement/prospectus.
All subsequent written and oral forward-looking statements attributable to
First Place or FFY Financial or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither First Place nor FFY Financial undertakes any
obligation to update publicly any forward-looking statements to reflect events,
circumstances or new information after the date of this joint proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
15
THE ANNUAL MEETINGS
Joint Proxy Statement/Prospectus
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of proxies by each of First Place's and FFY
Financial's board of directors in connection with the proposed merger.
Date, Time and Place
The annual meetings are scheduled to be held as follows:
For First Place stockholders: For FFY Financial stockholders:
November 16, 2000 November 15, 2000
10:00 a.m., local time 2:00 p.m., local time
The Avalon Inn The Holiday Inn
9519 East Market Street 7410 South Avenue
Warren, Ohio Youngstown, Ohio
Purpose of the Annual Meetings
At each meeting, stockholders will be asked to vote upon:
. a proposal to adopt the merger agreement;
. election of directors;
. ratification of auditors; and
. other matters properly brought before the annual meeting.
Adoption of the merger agreement will also constitute approval of the merger
and the other transactions contemplated by the merger agreement. If the
stockholders of First Place and FFY Financial adopt the merger agreement, upon
completion of the merger, each outstanding share of FFY Financial common stock
will be converted into 1.075 shares of First Place common stock.
First Place. Additional information with respect to the election of
directors and the ratification of the selection of independent auditors is set
forth in the section entitled "Election of First Place Directors; Ratification
of First Place Independent Auditors" which is included in the joint proxy
statement/prospectus to be delivered to First Place stockholders.
FFY Financial. Additional information with respect to the election of
directors and the ratification of the selection of independent auditors is set
forth in the section entitled "Election of FFY Financial Directors;
Ratification of FFY Financial Independent Auditors" which is included in the
joint proxy statement/prospectus to be delivered to FFY Financial stockholders.
Stockholder Record Date for the Annual Meetings
First Place. The First Place board has fixed the close of business on
September 20, 2000 as the record date for determining which stockholders are
entitled to notice of and to vote at the First Place meeting. Only holders of
record of First Place common stock at the close of business on the record date
will be entitled to notice and to vote. As of the record date, there were [ ]
shares of First Place common stock outstanding held by approximately [ ]
holders of record.
FFY Financial. The FFY Financial board has fixed the close of business on
September 29, 2000 as the record date for determining which stockholders are
entitled to notice of and to vote at the FFY Financial
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meeting. Only holders of record of FFY Financial common stock at the close of
business on the record date will be entitled to notice and to vote. As of the
record date, there were [ ] shares of FFY Financial common stock outstanding
held by approximately [ ] holders of record.
Proxies; Voting and Revocation
Other than by attending the annual meeting and voting in person, there are
two ways registered stockholders may vote their shares by proxy:
. By mail; or
. By facsimile or similar reliable transmission.
To vote by mail, simply mark, sign and date the enclosed proxy card and
return it in the postage-paid envelope provided. You may vote by delivering
your proxy card by facsimile or other reliable reproduction of the proxy card,
provided that the facsimile or other reliable reproduction of the proxy card is
a complete reproduction of the entire original writing or transmission. You may
submit your proxy card by facsimile or other reliable reproduction 24 hours a
day, 7 days a week at (908) 497-2310 if you are a First Place stockholder, or
(800) 837-2755 if your are a FFY Financial stockholder. If you hold your shares
through a broker, bank or other nominee, you will receive separate instructions
from the nominee describing how to vote your shares.
Whether or not you plan to attend the annual meeting, you are encouraged to
vote by proxy to assure that your shares will be represented. Properly executed
proxies that are received by the proxy committee before adjournment of the
annual meeting will be voted in accordance with the directions provided. If no
directions are given, your shares will be voted by the proxy committee as
recommended by the board of directors. If a properly executed proxy card or
voting instruction is returned and the stockholder has abstained from voting on
the adoption of the merger agreement, the First Place common stock or FFY
Financial common stock represented by the proxy or voting instruction will be
considered present at the annual meeting for purposes of determining a quorum,
but will not be considered to have been voted in favor of adoption of the
merger agreement. If your shares are held in an account at a brokerage firm or
bank, you must instruct them on how to vote your shares. If an executed proxy
card is returned by a broker or bank holding shares which indicates that the
broker or bank does not have discretionary authority to vote on adoption of the
merger agreement, the shares will be considered present at the meeting for
purposes of determining the presence of a quorum, but will not be considered to
have been voted in favor of adoption of the merger agreement. Your broker or
bank will vote your shares only if you provide instructions on how to vote
following the information provided to you by your broker. If you hold shares
through a benefit plan, your shares may be voted even if you do not instruct
the trustee how to vote, as explained in your voting instruction card.
Because adoption of the merger agreement requires the affirmative vote of at
least a majority of the shares of common stock outstanding and entitled to vote
on the record date, abstentions, failures to vote and broker non-votes will
have the same effect as a vote against adoption of the merger agreement.
The First Place annual meeting or the FFY Financial annual meeting may be
adjourned or postponed, including by their respective chairmen, in order to
permit further solicitation of proxies. No proxy voted against the proposal to
adopt the merger agreement will be voted in favor of any proposal to adjourn or
postpone the annual meeting that is submitted to the stockholders for a vote.
You may revoke your proxy at any time before it is voted by:
. written notice delivered to the corporate secretary of First Place at 185
East Market Street, Warren, Ohio 44482 if you are a First Place
stockholder, or the corporate secretary of FFY Financial at 724
Boardman--Poland Road, Youngstown, Ohio 44512 if your are a FFY Financial
stockholder;
. by submission of a proxy bearing a later date; or
. by casting a ballot at the annual meeting.
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Solicitation of Proxies
First Place and FFY Financial will equally share the expenses incurred in
connection with the printing and mailing of this joint proxy
statement/prospectus. First Place has retained Georgeson Shareholder
Communications, Inc. to assist in the distribution of proxy materials and
solicitation of votes for a fee of $4,000, plus reimbursement of reasonable
out-of-pocket expenses. FFY Financial also has retained Georgeson to assist in
the distribution of proxy materials and solicitation of votes for a fee of
$4,000, plus reimbursement of reasonable out-of-pocket expenses. In addition to
soliciting proxies by mail, directors, officers and employees of First Place
and FFY Financial may also solicit proxies personally, by telephone or by other
appropriate means. Further, First Place, FFY Financial and their respective
proxy solicitors will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse those parties for their expenses in doing so.
Vote Required for Adoption of the Merger Agreement
First Place. A majority of the outstanding shares of First Place common
stock must be represented, either in person or by proxy, to constitute a quorum
at the First Place annual meeting. The affirmative vote of the holders of a
majority of the shares of First Place's common stock outstanding and entitled
to vote as of the record date is required to adopt the merger agreement. At the
First Place annual meeting, each share of First Place common stock is entitled
to one vote on all matters properly submitted to the First Place stockholders.
First Place's certificate of incorporation provides that holders of common
stock who own or may be considered to own more than 10% of the outstanding
shares of common stock can only vote their stock up to the 10% limit. The limit
includes shares which people have the right to acquire through any agreement or
the exercise of any rights, warrants or options.
As of the record date, First Place directors and executive officers, and
their affiliates, owned approximately [ ]% of the outstanding shares of First
Place common stock. The First Place directors and executive officers have
entered into voting agreements with FFY Financial and have agreed to vote all
their shares of First Place common stock in favor of the adoption of the merger
agreement.
FFY Financial. One-third of the outstanding shares of FFY Financial common
stock must be represented, either in person or by proxy, to constitute a quorum
at the FFY Financial annual meeting. The affirmative vote of the holders of a
majority of the shares of FFY Financial's common stock outstanding and entitled
to vote as of the record date is required to adopt the merger agreement. At the
FFY Financial annual meeting, each share of FFY Financial common stock is
entitled to one vote on all matters properly submitted to the FFY Financial
stockholders. FFY Financial's certificate of incorporation provides that
holders of common stock who own or may be considered to own more than 10% of
the outstanding shares of common stock can only vote their stock up to the 10%
limit. The limit includes shares which people have the right to acquire through
any agreement or the exercise of any rights, warrants or options.
As of the record date, FFY Financial directors and executive officers, and
their affiliates, owned approximately [ ]% of the outstanding shares of FFY
Financial common stock. The FFY Financial directors and executive officers have
entered into voting agreements with First Place and have agreed to vote all
their shares of FFY Financial common stock in favor of the adoption of the
merger agreement.
18
THE MERGER
This section of the joint proxy statement/prospectus describes material
aspects of the proposed merger, including the merger agreement, the stock
option agreements and the voting agreements. While we believe that the
description covers the material terms of the merger, this summary may not
contain all of the information that is important to you. You should read this
entire joint proxy statement/prospectus and the other documents we refer to
carefully for a more complete understanding of the merger.
Background of the Merger
During 1998, FFY Financial approached First Federal proposing discussions
that could possibly lead to a merger of equals between the two organizations,
concurrent with the conversion of First Federal from a mutual savings
institution to a stock organization. General discussions were held between Mr.
Lewis, Chief Executive Officer of First Place and Mr. Francis, Chief Executive
Officer of FFY Financial. Later, representatives of each board of directors met
to discuss the issues relating to a possible combination. These 1998
discussions did not result in the parties reaching an agreement.
On February 7, 2000, Mr. Francis suggested to Mr. Lewis that many of the
issues which previously prohibited a combination may now be resolvable. On
February 8, 2000, Mr. Francis and Mr. Lewis met with a representative of
Sandler O'Neill, FFY Financial's financial advisor. During this discussion
certain structural issues relating to a proposed combination were discussed.
On February 14, 2000, Mr. Lewis met with the First Place board of directors
to inform them about merger discussions that took place with Mr. Francis. Mr.
Lewis was instructed to continue those discussions at a prudent pace in light
of the pending acquisition of Ravenna Savings Bank. Subsequently, Mr. Lewis
continued the analysis with representatives of Keefe, Bruyette & Woods, Inc.
who are acting as First Place's financial advisor.
On February 15, 2000, Mr. Francis met with the FFY Financial Merger and
Acquisition Committee. At that time, the committee agreed that Mr. Francis
should proceed with discussions. On March 20, 2000, Mr. Francis met again with
the FFY Financial Merger and Acquisition committee. The committee was updated
on areas of agreement as well as open issues between Mr. Lewis and Mr. Francis.
On March 29, 2000, Mr. Patrick, FFY Financial board chairman, and Mr.
Francis met with representatives of Sandler O'Neill in the Sandler O'Neill
offices in New York. During this meeting, the financial analysis and governance
considerations of the proposed combination were discussed.
On April 10, 2000, the First Place board of directors met with Mr. Lewis and
representatives of Keefe, Bruyette & Woods to properly consider all merger
issues identified to date and to review the financial analysis of the
transaction.
On April 12, 2000, two outside directors of First Place and two outside
directors of FFY Financial met, together with Messrs. Lewis and Francis to
discuss various management and governance issues. The boards of directors of
both organizations met again on May 9, 2000, to further discuss various
governance issues.
On April 17, 2000, Mr. Lewis and Mr. Francis met along with a representative
of from Keefe, Bruyette & Woods, and Sandler O'Neill in order to perform pro
forma analysis and to further discuss terms. Updates of discussions were then
provided to the First Place board of directors on April 24, April 28, May 8 and
May 18.
On April 27, 2000, the board of FFY Financial met and considered the terms
of the proposed transaction. After consultation with its executive officers,
financial advisors and special counsel, the consensus of the FFY Financial
board was to move ahead with the transaction. During the period from April 28
to May 22, 2000, the parties negotiated the terms of the merger agreement and
completed their respective due diligence efforts.
19
On May 16, 2000, the FFY Financial board authorized retaining Sandler
O'Neill to act as FFY Financial's financial advisor in connection with the
proposed merger of equals. Sandler O'Neill has provided general investment
banking and merger and acquisition advisory services to FFY Financial since
1993. Sandler O'Neill made an independent analysis of the proposal. See "--
Opinion of FFY Financial's Financial Advisor" on page 26.
On May 23, 2000, the board of FFY Financial met with its financial advisors
and special counsel to review the financial and legal arrangements of the
merger agreement. After careful consideration, the FFY Financial board
authorized the execution of the merger agreement and recommendation to
stockholders of the advisability of the merger. Following the conclusion of the
board meeting, FFY Financial executed and delivered the merger agreement and
the stock option agreement. Each director and executive officer of FFY
Financial also agreed to execute a voting agreement obligating him or her to
vote their shares for the adoption of the merger agreement.
On May 23, 2000, the board of First Place met with its financial advisors
and special counsel to review the financial and legal arrangements of the
merger agreement. After careful consideration, the First Place board authorized
the execution of the merger agreement and recommendation to stockholders of the
advisability of the merger. Following the conclusion of the board meeting,
First Place executed and delivered the merger agreement and the stock option
agreement. Each director and executive officer of First Place also agreed to
execute a voting agreement obligating him or her to vote their shares for the
adoption of the merger agreement.
Reasons for the Merger
General. The merger will create a strong Northeast Ohio banking franchise.
First Place will become the fourth largest thrift institution in Ohio. We
believe that our combined companies will be a complementary strategic fit of
our businesses and will create a more effective competitor of other financial
institutions in our Ohio market area. The merger will also permit each company
to diversify beyond its current businesses and its current strengths by
expanding the marketing of its products and services to the customers now
served by the other, and will enable the combined company to continue to
provide a broad array of innovative financial services and products to the
customers and communities currently served by each.
The boards of directors of First Place and FFY Financial believe the
following are key specific reasons that the merger will be beneficial to First
Place and FFY Financial and in the best interest of their respective
stockholders:
. creates the largest financial institution ever headquartered in the
Mahoning Valley with assets of approximately $1.7 billion and
approximately a $170.0 million market capitalization;
. expands core market area and creates critical mass in Northeastern Ohio
with a very strong local presence;
. enhances ability to compete and widens product range through a broadened
customer base with similar demographics;
. provides an additional platform for further growth;
. accretive to GAAP and cash earnings of both companies;
. maintains a strong capital position;
. purchase accounting provides flexibility to continue stock repurchases;
. increases liquidity for the sale and purchase of the combined company's
common stock;
. identified cost savings of approximately $4 million; and
. revenue enhancements and/or deployment of excess capital/incremental
cash is expected to further enhance financial benefits.
20
First Place's Reasons for the Merger. In connection with its approval of the
merger, the First Place board's determination that the merger is fair to and in
the best interest of First Place's stockholders and its recommendation that
stockholders adopt the merger agreement, the board of directors of First Place
consulted with its legal advisors regarding the duties of the members of the
board, as well as with members of management and its financial advisor. The
First Place board also considered the following material information and
factors in reaching its determination to approve the merger, to conclude that
the merger is fair to and in the best interest of First Place's stockholders,
and to recommend that stockholders adopt the merger agreement:
. the reasons described under "--Reasons for the Merger--General;"
. the exchange ratio being used in the merger and the resulting continuing
59.6% ownership interest in First Place by First Place's stockholders
and the history of the negotiations between First Place and FFY
Financial;
. presentations by senior members of First Place's management regarding
the strategic advantage of combining with FFY Financial, operational
aspects of the transaction, and the results of management's operational
and legal due diligence review;
. historical information concerning First Place's and FFY Financial's
respective businesses, financial performance and condition, asset
quality, operations, technology, management, competitive position, and
stock performance;
. First Place management's view as to the financial condition, results of
operations and businesses of First Place and FFY Financial before and
after giving effect to the merger based on management's due diligence
and publicly available earnings estimates;
. the strategic fit of First Place and FFY Financial, including the belief
that the merger has the potential to enhance stockholder value through
the numerous growth opportunities and synergies resulting from combining
the two companies' complementary strengths and assets;
. the merger consideration to be paid to FFY Financial's stockholders in
relation to the market value, book value, earnings per share and
dividend rates of FFY Financial common stock;
. industry and economic conditions;
. the impact of the merger on the depositors, employees, customers and
communities served by First Place and FFY Financial;
. the opinion of Keefe, Bruyette & Woods as to the fairness of the merger
consideration, from a financial point of view, to the holders of First
Place common stock;
. the general structure of the transaction;
. the likelihood of receiving the required approvals in a timely manner;
. the ability of the combined enterprise to compete in relevant banking
markets;
. the terms and conditions of the merger agreement, stock option
agreements and voting agreements including the fact that the exchange
ratio is fixed, the agreement of the directors and executive officers of
each company to vote in favor of the merger, the limitations on the
interim business operations of each of First Place and FFY Financial,
the conditions to consummation of the merger, the circumstances under
which the merger agreement could be terminated; the grant of reciprocal
options to purchase shares of common stock by each company, as well as
the advice of First Place's financial and legal advisors that these
provisions were reasonable in the context of the transaction;
. the corporate governance arrangements established for the transaction,
including the board composition and designation of key senior management
which are designed to promote the continuity of management from each
company and smooth integration of the businesses;
. the expected tax treatment of the merger for U.S. federal income tax
purposes;
21
. the accounting treatment of the transaction as a "purchase" transaction,
including the goodwill that will be recorded on the financial statements
of First Place; and
. the interests of the officers and directors of First Place and FFY
Financial in the merger, including the matters described under "--
Interests of Certain First Place Directors and Executive Officers in the
Merger," and the impact of the merger on First Place's stockholders,
customers and employees.
The First Place board also considered the potential adverse consequences of
other factors on the proposed merger, including:
. the challenges of combining the businesses, assets and workforces of the
two companies and the risks of not achieving the expected operating
efficiencies or growth;
. the risk of diverting management focus and resources from other
strategic opportunities and from operational matters while working to
implement the merger; and
. the risk that the merger will not be consummated.
This discussion of the information and factors considered by the First Place
board is not intended to be exhaustive, but includes the material factors
considered. The First Place board did not assign particular weight or rank to
the factors it considered in approving the merger. In considering the factors
described above, individual members of the First Place board may have given
different weight to various ones. The First Place board considered all the
factors as a whole, and overall considered them to be favorable to and to
support its determination.
FFY Financial's Reasons for the Merger. The FFY Financial board of directors
believes that the merger presents a unique opportunity to combine two strong
companies to create a powerful franchise in Northeast Ohio with a commitment
and the resources to significantly enhance stockholder value.
In deciding to approve the merger agreement, the stock option agreement and
the transactions contemplated by such agreements, the FFY Financial board
considered the following material factors:
. The FFY Financial board's familiarity with and review of FFY Financial's
business, operations, earnings, prospects, financial condition, asset
quality, and capital levels.
. The FFY Financial board's review of the business, operations, prospects,
earnings, financial condition, asset quality and capital levels of First
Place on both an historical and a prospective basis. The FFY Financial
board considered the results of the due diligence investigation conducted
by FFY Financial's management and legal and financial advisors,
including, among other things, assessments of First Place's credit
policies, asset quality, interest rate risk and adequacy of loan loss
reserves.
. The opportunities for expense reductions, operating efficiencies and
revenue enhancements in the combined entity, including the belief of both
parties that the merger will be accretive to earnings per share within
the first year, estimated to be 5% accretive to FFY Financial's earnings
per share, and significantly enhance the combined company's future
earnings per share growth rate.
. The respective contributions of each party to the combined entity,
including the 40% equity position that the FFY Financial stockholders
would have in the combined entity.
. The presentation of Sandler O'Neill, to the FFY Financial board and the
opinion of Sandler O'Neill rendered on May 23, 2000, that, as of that
date and based upon and subject to the procedures followed, assumptions
made, matters considered, and limitations on the analyses undertaken, the
exchange ratio was fair, from a financial point of view, to the FFY
Financial stockholders. For a discussion of the opinion of Sandler
O'Neill, see "--Opinion of FFY Financial's Financial Advisor."
. The complementary nature of the business, business strategies, cultures
and products of FFY Financial and First Place, including the fact that
FFY Financial's core deposits would enhance the combined organization's
deposit mix.
22
. The merger is expected to be tax-free for FFY Financial for federal
income tax purposes as well as to FFY Financial shareholders (except for
cash paid in lieu of fractional shares). See "--Material United States
Federal Income Tax Consequences of the Merger."
. The nature of, and likelihood of obtaining, the regulatory approvals that
would be required with respect to the merger. See "--Regulatory Approvals
Needed to Complete the Merger." The FFY Financial board also considered
the nature and scope of the conditions to the merger and the likelihood
of these conditions being satisfied.
. The existence of the reciprocal stock option agreements, which might
discourage third parties from seeking to acquire FFY Financial by
increasing the cost of such an acquisition and which might also preclude
any third party from being able to effect a merger with FFY Financial
that would qualify for "pooling-of-interests" accounting treatment.
. The non-financial terms of the merger agreement, including that FFY
Financial will have equal representation on the board of directors of
First Place, that the current Chairman of FFY Financial will become the
Chairman of First Place and that the President and Chief Executive
Officer and Chief Financial Officer of FFY Financial will become the
Chief Operating Officer and Chief Financial Officer of the combined
company.
. The current and prospective economic and competitive environment facing
the financial services industry generally, and FFY Financial in
particular, including the continued rapid consolidation in the industry
and the increasing importance of operational scale and financial
resources in maintaining efficiency and remaining competitive over the
long term and in being able to capitalize on technological developments
which significantly impact industry competition.
The FFY Financial board has determined that the terms of the merger and the
merger agreement are fair to, and in the best interests of, FFY Financial and
its stockholders. In reaching its determination to approve and deem advisable
the merger agreement, and to approve the stock option agreement and the
transactions contemplated therein, the FFY Financial board did not assign any
relative or specific weights to the various factors considered by it, and
individual directors may have given differing weights to different factors.
Recommendation of First Place's Board of Directors
The First Place board of directors believes that the merger is fair to and
in the best interest of First Place's stockholders, and recommends the adoption
of the merger agreement.
In considering the recommendation of the First Place board of directors with
respect to the merger agreement, you should be aware that certain directors and
executive officers of First Place have interests in the merger that are
different from, or are in addition to, the interests of First Place
stockholders. Please see the section entitled "--Interests of Certain First
Place Directors and Executive Officers in the Merger."
Opinion of First Place's Financial Advisor
In May 2000, Keefe, Bruyette & Woods was retained by First Place to evaluate
a potential strategic combination between First Place and FFY Financial. Keefe,
Bruyette & Woods, as part of its investment banking business, is regularly
engaged in the evaluation of business and securities in connection with mergers
and acquisitions, negotiated underwritings, and distributions of listed and
unlisted securities. Keefe, Bruyette & Woods is familiar with the market for
common stocks of publicly traded banks, thrifts and bank and thrift holding
companies. The First Place board selected Keefe, Bruyette & Woods on the basis
of the firm's reputation and its experience and expertise in transactions
similar to the merger and its prior work for and relationship with First Place.
Pursuant to its engagement, Keefe, Bruyette & Woods was asked to render an
opinion as to the fairness, from a financial point of view, of the merger
consideration to stockholders of First Place. Keefe, Bruyette &
23
Woods delivered its opinion to the First Place board that, as of May 23, 2000,
the merger consideration is fair, from a financial point of view, to the
stockholders of First Place. No limitations were imposed by the First Place
board upon Keefe, Bruyette & Woods with respect to the investigations made or
procedures followed by it in rendering its opinion. Keefe, Bruyette & Woods has
consented to the inclusion herein of the summary of its opinion to the First
Place board and to the reference to the entire opinion attached hereto as Annex
E.
The full text of the opinion of Keefe, Bruyette & Woods, which is attached
as Annex E to this joint proxy statement/prospectus, sets forth certain
assumptions made, matters considered and limitations on the review undertaken
by Keefe, Bruyette & Woods, and should be read in its entirety. The summary of
the opinion of Keefe, Bruyette & Woods set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the opinion.
In rendering its opinion, Keefe, Bruyette & Woods:
. reviewed the merger agreement;
. reviewed First Place's Annual Reports, Proxy Statements and Form 10-K's
since completing its initial public offering in December 1998 and the
unaudited quarterly financial information for the quarter ended March 31,
2000 and FFY Financial's Annual Reports, Proxy Statements and Form 10-K's
for each of the years ended June 30, 1997, 1998, and 1999 and the
unaudited quarterly financial information for the quarter ended March 31,
2000 and certain other information considered relevant;
. discussed with senior management and the boards of directors of First
Place and its wholly owned subsidiary, First Federal Savings and Loan
Association of Warren, the current position and prospective outlook for
First Place to enhance future stockholder value;
. discussed with senior management of FFY Financial their operations,
financial performance and future plans and prospects;
. considered historical quotations, levels of activity and prices of
recorded transactions in First Place's and FFY Financial's common stock;
. reviewed financial and stock market data of other thrifts in a comparable
asset range to First Place and FFY Financial;
. reviewed certain recent business combinations of strategic alliance
transactions which Keefe, Bruyette & Woods deemed comparable in whole or
in part; and
. performed other analyses which Keefe, Bruyette & Woods considered
appropriate.
In rendering its opinion, Keefe, Bruyette & Woods assumed and relied upon
the accuracy and completeness of the financial information provided to it by
First Place and FFY Financial. In its review, with the consent of the First
Place board, Keefe, Bruyette & Woods did not undertake any independent
verification of the information provided to it, nor did it make any independent
appraisal or evaluation of the assets or liabilities, and potential or
contingent liabilities of First Place or FFY Financial.
Keefe, Bruyette & Woods presented the following analyses.
Pro Forma Analysis of Affiliation. Keefe, Bruyette & Woods analyzed certain
pro forma effects resulting from the strategic alliance. This analysis, based
upon historical annualized March 31, 2000 quarterly results and estimates for
the next three-five years for First Place and FFY Financial based upon business
plan assumptions provided by management of each institution, projected an
earnings per share accretion of 11% by 2001 for First Place. This assumes cost
savings of approximately $4 million (pre tax). The purpose of this analysis is
to project the financial effects of the merger on the balance sheet and income
statement of First Place, and the per share impact on the stock of First Place.
The outcome of this analysis, both independently as well as in conjunction with
other analyses, partially formulates the basis for Keefe, Bruyette & Woods's
opinion.
24
Contribution Analysis. Keefe, Bruyette & Woods reviewed the relative
contributions to total assets, total loans, total deposits, total equity and
net income to be made by First Place and FFY Financial to the combined company
based on data for the quarter ended March 31, 2000. The analysis assumed the
completion of the First Place acquisition of Ravenna Savings Bank as of March
31, 2000 and made certain other assumptions regarding the combined First
Place--Ravenna Savings Bank--FFY Financial company. This analysis indicated
that First Place would contribute 60.8% of the total assets, 59.3% of total
loans, 57.0% of total deposits, 69.2% of total equity and 55.9% of net income.
Based upon the exchange ratio of 1.075 First Place shares for each FFY
Financial share outstanding, holders of First Place common stock would own
59.6% of the outstanding shares of the combined company.
Regional Group Analysis. Keefe, Bruyette & Woods reviewed the financial
performance of First Place based on various financial measures of asset size,
earnings performance, tangible equity/assets, market pricing ratios, market
capitalization, dividend-related ratios and deposit market share to all
publicly-traded thrift institutions headquartered in Ohio (33 in the group).
This analysis showed among other things, that as of March 31, 2000, First Place
and the combined company compared as follows:
Price to
Tangible Price to Tangible
Equity/ Market Price to Book Book Dividend
Assets Assets Capitalization EPS Value Value Yield
-------------- -------- -------------- -------- -------- -------- --------
First Place............. $1,036 million 14.10% $ 96 million 9.3x 60.0% 60.0% 3.10%
Combined Company........ $1,703 million 12.39% $169 million NA NA NA NA
Median.................. $ 151 million 11.92% $ 17 million 12.7x 79.8% 79.9% 3.68%
Analysis of Selected Merger of Equals Transactions. Keefe, Bruyette & Woods
analyzed 19 merger of equals transactions which occurred between thrift
institutions since 1995. Keefe, Bruyette & Woods reviewed the terms of the
merger transactions with regard to the respective parties in each transaction
and the pro forma effect of each transaction. The merger-of-equals transactions
reviewed by Keefe, Bruyette & Woods included the following: Golden State
Bancorp, Inc./First Nationwide Holdings, Dime Bancorp/Anchor Bancorp, Charter
One Financial/FirstFed Michigan Corporation, Associated Banc-Corp/First
Financial Corporation, Hudson Chartered Bancorp/Progressive Bank, Pinnacle
Financial Services/Indiana Federal Corporation, Cohoes Bancorp, Inc./Hudson
River Bancorp, Hinsdale Financial Corporation/Liberty Bancorp, Security Capital
Bancorp/Omni Capital Group, Coal City Corporation/Avondale Financial Corp.,
Main Street Community Bancorp/Lexington Savings Bank, Fidelity Financial of
Ohio/Glenway Financial Corp., FCB Financial Corp./OSB Financial Corp, TriState
Bancorp/First Savings Bancorp, Mutual Bancorp of the Berkshires/Lenox Financial
Services Corporation, North Country Savings Bank/Canton Federal Savings & Loan
Association, Liberty National Bank/Key Florida Bancorp, Perpetual Federal
Savings & Loan Association/Progressive Federal Savings Bank, Peoples Building
Loan & Savings Company/Oakley Improved Building & Loan Company.
No company or transaction used in any of the above analyses as a comparison
is identical to First Place, FFY Financial or the contemplated transaction.
Accordingly, an analysis of the results of the foregoing is not formulaic;
rather, it involves complex considerations and judgments concerning differences
in financial, market and operating characteristics of the companies and other
factors that could affect the public trading value of the companies to which
they are being compared.
Based on the above information Keefe, Bruyette & Woods concluded that the
merger consideration was fair from a financial point of view relative to
comparable transactions. Further, the fairness analysis considered:
. the relative market performance of the thrift stocks in general,
especially small cap stocks, over the past year;
. the relative historical returns on equity of First Place and FFY
Financial; and
. the expected performance of each company given additional considerations
such as the business plan, asset mix, net interest margin, net interest
spread and asset quality.
25
The summary does not purport to be a complete description of the analysis
performed by Keefe, Bruyette & Woods and should not be construed independently
of the other information considered by Keefe, Bruyette & Woods in rendering its
opinion. Selecting portions of Keefe, Bruyette & Woods analysis or isolating
certain aspects of the comparable transactions without considering all analysis
and factors, could create an incomplete or potentially misleading view of the
evaluation process.
In preparing its analysis, Keefe, Bruyette & Woods made numerous assumptions
with respect to industry performance, business and economic conditions and
other matters, many of which are beyond the control of Keefe, Bruyette & Woods
and First Place. The analyses performed by Keefe, Bruyette & Woods are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses and do not
purport to be appraisals or reflect the prices at which a business may be sold.
Keefe, Bruyette & Woods will receive a fee equal to .50% of the total fair
market value of the merger consideration for services rendered in connection
with advising and issuing a fairness opinion regarding the merger. As of the
date of this joint proxy statement/prospectus, Keefe, Bruyette & Woods has
received $50,000 of such fee, the remainder of the fee is due upon closing of
the merger.
Recommendation of FFY Financial's Board of Directors
The FFY Financial board of directors believes that the merger is fair to and
in the best interest of FFY Financial's stockholders, and recommends the
adoption of the merger agreement.
In considering the recommendation of the FFY Financial board of directors
with respect to the merger agreement, you should be aware that certain
directors and executive officers of FFY Financial have interests in the merger
that are different from, or are in addition to, the interests of FFY Financial
stockholders. Please see the section entitled "--Interests of Certain FFY
Financial Directors and Executive Officers in the Merger."
Opinion of FFY Financial's Financial Advisor
In May, 2000, FFY Financial retained Sandler O'Neill as an independent
financial advisor in connection with FFY Financial's consideration of a
possible business combination with First Place. Sandler O'Neill is a nationally
recognized investment banking firm whose principal business specialty is
financial institutions. In the ordinary course of its investment banking
business, Sandler O'Neill is regularly engaged in the valuation of financial
institutions and their securities in connection with mergers and acquisitions
and other corporate transactions.
Sandler O'Neill acted as financial advisor to FFY Financial in connection
with the merger and participated in certain of the negotiations leading to the
merger agreement. At the request of the FFY Financial board, representatives of
Sandler O'Neill attended the May 23, 2000 meeting of the FFY Financial board at
which the board considered and approved the merger agreement. At the meeting,
Sandler O'Neill delivered to the FFY Financial board its oral opinion,
subsequently confirmed in writing, that as of such date, the exchange ratio was
fair to the FFY Financial stockholders from a financial point of view. The full
text of the Sandler O'Neill opinion is attached as Annex F to this joint proxy
statement/prospectus. The Sandler O'Neill opinion outlines the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Sandler O'Neill in rendering the
opinion. The Sandler O'Neill opinion is incorporated by reference into this
description of the opinion and this description is qualified in its entirety by
reference to the Sandler O'Neill opinion. FFY Financial stockholders are urged
to carefully read the Sandler O'Neill opinion in connection with their
consideration of the proposed merger.
The Sandler O'Neill opinion was directed to the FFY Financial board and was
provided for its information in considering the merger. The Sandler O'Neill
opinion is directed only to the fairness of the exchange ratio to FFY Financial
stockholders from a financial point of view. It does not address the underlying
business decision of FFY Financial to engage in the merger or any other aspect
of the merger
26
and is not a recommendation to any FFY Financial stockholder as to how such
stockholder should vote at the annual meeting with respect to the merger or any
other related matter.
In rendering its opinion, Sandler O'Neill performed a variety of financial
analyses. The following is a summary of the material analyses performed by
Sandler O'Neill, but is not a complete description of all the analyses
underlying Sandler O'Neill's opinion. The preparation of a fairness opinion is
a complex process involving subjective judgments as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. The process, therefore, is not necessarily
susceptible to a partial analysis or summary description. Sandler O'Neill
believes that its analyses must be considered as a whole and that selecting
portions of the factors and analyses considered without considering all factors
and analyses, or attempting to ascribe relative weights to some or all such
factors and analyses, could create an incomplete view of the evaluation process
underlying its opinion. Also, no company included in Sandler O'Neill's
comparative analyses described below is identical to FFY Financial or First
Place and no transaction is identical to the merger. Accordingly, an analysis
of comparable companies or transactions is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading values or merger transaction values, as the
case may be, of FFY Financial or First Place and the companies to which they
are being compared.
The earnings projections for FFY Financial and First Place relied upon by
Sandler O'Neill in its analyses were reviewed with management and were based
upon 2000 and 2001 internal projections of FFY Financial and First Place
provided to Sandler O'Neill. For periods after 2001, Sandler O'Neill assumed an
annual growth rate on earning assets of 3.00%. The 2000 and 2001 earnings
projections furnished to Sandler O'Neill were prepared by the senior
managements of FFY Financial and First Place for internal purposes only and not
with a view towards public disclosure. Those projections, as well as the other
earnings estimates relied upon by Sandler O'Neill in its analyses, were based
on numerous variables and assumptions which are inherently uncertain and
accordingly, actual results could vary materially from those set forth in such
projections.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of FFY Financial, First Place and Sandler O'Neill. The analyses
performed by Sandler O'Neill are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Sandler O'Neill prepared its analyses solely for
purposes of rendering its opinion and provided such analyses to the FFY
Financial board. Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. Such estimates are inherently subject to
uncertainty and actual values may be materially different. Accordingly, Sandler
O'Neill's analyses does not necessarily reflect the value of FFY Financial
common stock or the prices at which FFY Financial common stock may be sold at
any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of First Place common stock on
May 23, 2000 of $9.75 and an exchange ratio of 1.075, Sandler O'Neill
calculated an implied transaction value per share of FFY Financial common stock
of $10.48. The implied aggregate transaction value was approximately $71
million.
Sandler O'Neill noted that the negotiated exchange ratio of 1.075 was
designed to approximate a market for market exchange of common stock. Sandler
O'Neill calculated the implied exchange ratio as of April 26, 2000 based upon
the one day, ten day and 20 day average closing prices of FFY Financial common
stock and First Place common stock as of that date. The table below sets forth
the implied exchange ratios.
FFY Financial First Place
------------------------- -------------------------
Implied Exchange Ratio
Average Stock Price Financial Stock Price -------------------------
------------------------- -------------------------
1-Day 10-Day 20-Day 1-Day 10-Day 20-Day 1-Day 10-Day 20-Day
----- ------ ------ ------ ------ ------ ------ ------ ------
$11.06 $10.99 $10.91 $10.38 $10.11 $10.11 1.0663 1.0865 1.0788
27
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of FFY Financial common stock and First Place common
stock, and the relationship between the movements in the prices of FFY
Financial common stock and First Place common stock, respectively, to movements
in certain stock indices, including the Standard & Poor's 500 Index, the Nasdaq
Bank Index, and the median performance of a composite group of publicly traded
regional savings institutions selected by Sandler O'Neill. During the one year
period ended May 23, 2000, FFY Financial common stock underperformed each of
the indices to which it was compared. Since it's initial public offering date
of January 4, 1999, the First Place common stock underperformed the S&P 500
index, and outperformed both the Nasdaq Bank and composite indices.
Beginning Index Value Ending Index Value
May 23, 1999 May 23, 2000
--------------------- ------------------
FFY Financial.......................... 100.00% 64.60%
Regional Composite Group............... 100.00 80.35
Nasdaq Bank Index...................... 100.00 81.97
S&P 500 Index.......................... 100.00 107.22
Beginning Index Value Ending Index Value
January 4, 1999 May 23, 2000
--------------------- ------------------
First Place ........................... 100.00% 94.77%
Regional Composite Group............... 100.00 70.75
Nasdaq Bank Index...................... 100.00 82.35
S&P 500 Index.......................... 100.00 118.42
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
FFY Financial and First Place and two groups of financial institutions selected
by Sandler O'Neill. The "Regional Group" consisted of FFY Financial and the
following 11 publicly traded regional savings institutions:
Camco Financial Corp.(1) First Federal Financial Corp.(1)
Home Federal Bancorp Hallmark Capital Corp.
First Federal Bankshares, Inc.(1) First Midwest Financial Inc. (1)
HMN Financial Inc.(1) EFC Bancorp.(1)
HF Financial Corp.(1) PVF Capital Corp.(1)
Fidelity Bancorp, Inc.
The "Highly Valued Group" consisted of the following 9 publicly traded
savings institutions which had a return on average equity (based on last twelve
months' earnings) of greater than 13.4% and a price-to-tangible book value of
greater than 121%.
Home Federal Bancorp Highland Bancorp Inc.(1)
American Bank of Connecticut Bancorp Connecticut Inc.
MetroWest Bank Warren Bancorp Inc.
Coastal Financial Corp.(1) WVS Financial Corp
Abington Bancorp Inc.(1)
(1) Last twelve months information is for the period ended December 31, 1999.
The analysis compared publicly available financial information for FFY
Financial and First Place as of and for the last twelve months ended March 31,
2000, and the median data for each of the Regional Group and Highly Valued
Group as of and for each of the years ended December 31, 1994 through 1998 and
as of and for the twelve months ended December 31, 1999, or if available, March
31, 2000.
28
The table below sets forth the comparative data as of and for the twelve
months ended December 31, 1999, or if available, March 31, 2000.
Highly
First Regional Valued
FFY Financial Place Group Group
------------- -------- -------- --------
Total assets.......................... $667,684 $804,850 $636,640 $696,250
Annual growth rate of total assets.... 1.43% 8.15% 9.15% 11.72%
Tangible equity/ assets............... 9.74% 16.31% 7.55% 7.07%
Net loans/total assets................ 71.66% 64.22% 76.53% 65.04%
Gross loans/total deposits............ 108.61% 116.92% 111.62% 100.70%
Total borrowings/total assets......... 22.17% 26.93% 23.32% 28.09%
Non-performing assets/total assets.... 0.48% 0.25% 0.28% 0.37%
Loan loss reserves/gross loans........ 0.56% 0.72% 0.67% 1.42%
Net interest margin................... 3.41% 3.52% 3.24% 3.60%
Non-interest income/Average assets.... 0.30% 0.29% 0.44% 0.49%
Non-interest expense/Average assets... 1.87% 1.76% 1.93% 2.19%
Efficiency ratio...................... 51.64% 46.96% 57.03% 52.77%
Return on average assets.............. 1.18% 1.28% 0.85% 1.26%
Return on average equity.............. 11.71% 6.23% 9.49% 16.56%
Price/tangible book value per share... 115.48% 63.04% 86.34% 149.87%
Price/earnings per share.............. 9.38x 10.40x 9.09x 9.13x
Dividend yield........................ 4.29% 2.21% 3.43% 4.17%
Dividend payout ratio................. 40.25% 23.20% 40.25% 42.95%
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other transactions involving publicly traded savings institutions with
transaction values greater than $15 million. Sandler O'Neill reviewed 13
transactions announced nationwide from January 1, 2000 to May 23, 2000 and 4
transactions announced from January 1, 2000 to May 23, 2000 in the Midwest
Region. Sandler O'Neill also reviewed certain other transactions involving
publicly traded commercial banks and savings institutions with transaction
values greater than $15 million and less than $2 billion involving mergers of
equals. Sandler O'Neill reviewed 12 transactions announced nationwide for
commercial banks and 3 transactions announced nationwide for savings
institutions from January 1, 1998 to May 23, 2000. Sandler O'Neill reviewed and
computed high, low, mean and median multiples and premiums for the respective
groups of transactions and reviewed them with the FFY Financial board.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill also
performed an analysis which estimated the future stream of after-tax dividend
flows of FFY Financial through June 30, 2004 under various circumstances,
assuming FFY Financial's current dividend payout ratio and that FFY Financial
performed in accordance with the earnings forecasts reviewed with management.
To approximate the terminal value of FFY Financial common stock at June 30,
2004, Sandler O'Neill applied price/earnings multiples ranging from 6x to 18x
and applied multiples of tangible book value ranging from 50% to 200%. The
dividend income streams and terminal values were then discounted to present
values using different discount rates ranging from 9% to 15% chosen to reflect
different assumptions regarding required rates of return of holders or
prospective buyers of FFY Financial common stock. As illustrated in the
following table, this analysis indicated an imputed range of values per share
of FFY Financial common stock of $6.34 to $19.15 when applying the
price/earnings multiples and $5.65 to $19.66 when applying multiples of
tangible book value.
Price/Earnings
Multiples Tangible Book Value Multiples
------------------- -------------------------------
Discount Rate 6x 13x 18x 50x 1.20x 2.00x
------------- ----- ------ ------ --------- ---------- ----------
9%....................... $8.10 $14.54 $19.15 $ 7.14 $ 12.98 $ 19.06
12....................... 7.15 12.63 16.54 6.33 11.31 16.99
15....................... 6.34 11.00 14.34 5.65 9.88 14.72
29
Sandler O'Neill also performed a similar analysis which estimated the future
stream of after-tax dividend flows of First Place through June 30, 2004 under
various circumstances, assuming First Place performed in accordance with the
earnings forecasts reviewed with its management. To approximate the terminal
value of First Place common stock at June 30, 2004, Sandler O'Neill applied
price to earnings multiples ranging from 6x to 19x and applied multiples of
tangible book value ranging from 50% to 180%. The dividend income streams and
terminal values were then discounted to present values using different discount
rates ranging from 9% to 15% chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of First Place common
stock. As illustrated in the following table, this analysis indicated an
imputed range of values per share of First Place common stock of between $5.39
and $17.08 when applying the price to earnings multiples and between $6.11 and
$21.76 when applying multiples of tangible book value.
Price/Earnings Tangible Book Value
Multiples Multiples
------------------- -------------------
Discount Rate 6x 11x 19x .50x 1.30x 1.80x
------------- ----- ------ ------ ----- ------ ------
9%.................................. $6.68 $10.68 $17.08 $7.61 $16.32 $21.76
11................................... 6.21 9.87 15.73 7.06 15.03 20.01
13................................... 5.78 9.13 14.50 6.56 13.86 18.42
15................................... 5.39 8.46 13.38 6.11 12.79 16.97
In connection with its analysis, Sandler O'Neill considered and discussed with
the FFY Financial board how the present value analysis would be affected by
changes in the underlying assumptions, including variations with respect to the
growth rate of assets, net interest spread, non-interest income, non-interest
expenses and dividend payout ratio. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or future results.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total securities, total net loans, total
deposits, total borrowings, total equity and net income to be made by FFY
Financial and First Place to the combined institution based on data at and for
the quarter ended March 31, 2000 for FFY Financial and for the quarter ended
December 31, 1999 for First Place. The balance sheet information for First
Place was adjusted to reflect the pro forma impact of the acquisition of
Ravenna Savings Bank. This analysis indicated that FFY Financial's implied
contribution was 39.8% of total assets, 37.3% of total securities, 41.8% of
total net loans, 43.6% of total deposits, 34.9% of total borrowings, 31.2% of
total equity, and 46.7% of the last nine months annualized net income. Based
upon an exchange ratio of 1.075, holders of the FFY Financial Common stock
would own approximately 40.4% of the fully diluted outstanding shares of the
combined institution.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon an exchange ratio of 1.075, FFY
Financial's and First Place's current and projected income statements and
balance sheets, and assumptions regarding the economic environment, accounting
and tax treatment of the merger, charges associated with the merger, operating
efficiencies and other adjustments discussed with the senior managements of FFY
Financial and First Place. First Place results reflect the pro forma impact of
the acquisition of Ravenna Savings Bank, completed May 12, 2000. For purposes
of its analysis, Sandler O'Neill assumed a closing date of June 30, 2000 for a
merger. As illustrated in the following table, this analysis indicated that the
merger would be accretive to FFY Financial's projected earnings per share in
the first full year following completion of the merger and accretive to FFY
Financial's tangible book value per share at closing of the merger. The
analysis indicated that the merger would be accretive to First Place's earnings
per share and dilutive to tangible book value per share. The actual results
achieved by First Place and FFY Financial may vary from projected results and
the variations may be material.
30
FFY Financial First Place
--------------------- ---------------------
Year ending June 30, 2001 Stand-alone Pro Forma Stand-alone Pro Forma
------------------------- ----------- --------- ----------- ---------
Projected EPS................. $1.32 $1.35(1) $1.10 $1.26
Projected tangible book
value(2)..................... 9.74 11.68(1) 12.25 10.87
Projected tangible equity
ratio(2)..................... NM NM 13.58% 11.80%
- --------
(1) First Place Pro Forma values multiplied by an exchange ratio of 1.075.
(2) Projected book values and equity ratios are at closing.
In connection with rendering its opinion, Sandler O'Neill reviewed, among
other things: (1) the Agreement and exhibits thereto; (2) the Stock Option
Agreements, dated May 23, 2000, by and between FFY Financial and First Place;
(3) certain publicly available financial statements of FFY Financial and other
historical financial information provided by FFY Financial that they deemed
relevant; (4) certain publicly available financial statements of First Place
and other historical financial information provided by First Place that they
deemed relevant; (5) certain internal financial analyses and forecasts of FFY
Financial prepared by and reviewed with management of FFY Financial and the
views of senior management of FFY Financial, based on certain limited
discussions with certain members of senior management, regarding FFY
Financial's past and current business, financial condition, results of
operations and future prospects; (6) certain internal financial analyses and
forecasts of First Place prepared by and reviewed with management of First
Place and the views of senior management of First Place, based on certain
limited discussions with certain members of senior management, regarding First
Place's past and current business, financial condition, results of operations
and future prospects; (7) the pro forma impact of the Merger; (8) the publicly
reported historical price and trading activity for FFY Financial's and First
Place's common stock, including a comparison of certain financial and stock
market information for FFY Financial and First Place with similar publicly
available information for certain other companies the securities of which are
publicly traded; (9) the financial terms of recent business combinations in the
banking industry, to the extent publicly available; (10) the current market
environment generally and the banking environment in particular; and (11) such
other information, financial studies, analyses and investigations and
financial, economic and market criteria as they considered relevant.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill did not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of FFY Financial or First
Place or any of their respective subsidiaries, or the collectibility of any
such assets, nor was it furnished with any such evaluations or appraisals.
Sandler O'Neill is not an expert in the evaluation of allowances for loan
losses and it has not made an independent evaluation of the adequacy of the
allowance for loan losses of FFY Financial or First Place, nor has it reviewed
any individual credit files relating to FFY Financial or First Place. With FFY
Financial's consent, Sandler O'Neill has assumed that the respective allowances
for loan losses for both FFY Financial and First Place are adequate to cover
such losses and will be adequate on a pro forma basis for the combined entity.
In addition, Sandler O'Neill has not conducted any physical inspection of the
properties or facilities of FFY Financial or First Place. With respect to all
financial projections reviewed with each company's management and used by
Sandler O'Neill in its analyses, Sandler O'Neill assumed that they reflected
the best currently available estimates and judgments of the respective
managements of the respective future financial performances of FFY Financial
and First Place and that such performances will be achieved. Sandler O'Neill
expressed no opinion as to such financial projections or the assumptions on
which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the Agreement and
all related
31
agreements are true and correct, that each party to such agreements will
perform all of the covenants required to be performed by such party under such
agreements and that the conditions precedent in the merger agreement are not
waived. Sandler O'Neill also assumed, with FFY Financial's consent, that there
has been no material change in FFY Financial's and First Place's assets,
financial condition, results of operations, business or prospects since the
date of the last publicly filed financial statements available to them, that
FFY Financial and First Place will remain as going concerns for all periods
relevant to its analyses, and that the merger will be accounted for as a
purchase and will qualify as a tax-free reorganization for federal income tax
purposes.
FFY Financial has agreed to pay Sandler O'Neill a transaction fee in
connection with the merger, a substantial portion of which is contingent upon
the closing of the merger. FFY Financial will pay Sandler O'Neill a transaction
fee of approximately 1.00% of the total deal value, of which approximately
$212,000 has been paid and the balance will be paid when the merger is closed.
FFY Financial has also paid Sandler O'Neill a fee of $150,000 for rendering its
fairness opinion, which shall be credited against any fee that will become due
and payable upon closing of the Merger. FFY Financial has also agreed to
reimburse Sandler O'Neill for its out-of-pocket expenses incurred in connection
with its engagement and to indemnify Sandler O'Neill and its affiliates and
their respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
Sandler O'Neill has in the past provided certain other investment banking
services to FFY Financial and has received compensation for such services. In
the ordinary course of its business as a broker-dealer, Sandler O'Neill may
also purchase securities from and sell securities to FFY Financial and First
Place and may actively trade the equity or debt securities of FFY Financial and
First Place and their respective affiliates for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Interests of Certain First Place Directors and Executive Officers in the Merger
In considering the recommendation of the board of directors of First Place
to vote for the proposal to adopt the merger agreement, stockholders of First
Place should be aware that members of First Place's management and the First
Place board of directors may have interests in the merger that are in addition
to, or different from the interests of First Place stockholders. The First
Place board of directors was aware of these interests and considered them in
approving the merger agreement.
Board and Management Positions. Following the completion of the merger,
First Place and First Federal will each increase their respective boards to 16
members, of which eight members will be appointed by First Place's board of
directors. The directors appointed by First Place will receive the customary
board fees and retainers. For additional information on the composition of the
board of directors of First Place after the merger, see "--Amendment of the
First Place Certificate of Incorporation" and "Board of Directors and
Management of First Place following the Merger."
The merger agreement also provides that, upon completion of the merger:
. Paul A. Watson, Chairman of First Place, will serve as Vice Chairman of
First Place and cannot be removed from this position for a period of
three years from the date the merger is completed; and
. Steven R. Lewis, President and Chief Executive Officer of First Place,
will serve as President and Chief Executive Officer of First Place after
the merger.
Interests of Certain FFY Financial Directors and Executive Officers in the
Merger
In considering the recommendation of the board of directors of FFY Financial
to vote for the proposal to adopt the merger agreement, stockholders of FFY
Financial should be aware that members of FFY Financial's management and the
FFY Financial board of directors may have interests in the merger that are in
addition to, or different from the interests of FFY Financial stockholders. The
FFY Financial board of directors was aware of these interests and considered
them in approving the merger agreement.
32
Board and Management Positions. Following the completion of the merger,
First Place and First Federal will each increase their respective boards to 16
members of which eight members will be appointed by FFY Financial's board of
directors. The directors appointed by FFY Financial will receive the customary
board fees and retainers. For additional information on the composition of the
board of directors of First Place after the merger, see "--Amendment of the
First Place Certificate of Incorporation" and "Board of Directors and
Management of First Place following the Merger."
The merger agreement also provides that, upon completion of the merger:
. W. Terry Patrick, Chairman of FFY Financial, will serve as Chairman of
First Place and cannot be removed from this position for a period of
three years from the date the merger is completed;
. Jeffrey L. Francis, President and Chief Executive Officer of FFY
Financial, will serve as Chief Operating Officer and Executive Vice
President of First Place; and
. Therese Ann Liutkus, Chief Financial Officer of FFY Financial, will serve
as Chief Financial Officer of First Place.
Existing Severance and Employment Agreements. As a consequence of the
proposed change in control of FFY Financial contemplated by the merger
agreement, Mr. Jeffrey L. Francis is entitled to receive certain payments and
benefits from FFY Financial in connection with the merger as a result of an
Amended and Restated Employment Agreement between Mr. Francis and FFY Financial
dated March 21, 2000 and an Incentive Stock Option Agreement between Mr.
Francis and FFY Financial dated May 23, 2000. The payments and benefits which
Mr. Francis is entitled to receive in connection with his employment agreement
and incentive stock option agreement as a result of the merger in the event his
employment is terminated six months prior to the completion of the merger or
within 24 months after the completion of the merger are as follows:
. a monthly liquidated damages payment equal to $17,917 per month for the
lesser of three years following the termination date or the remaining
term of the employment agreement;
. continuation of certain employee benefits for the lesser of three years
following the termination date or the remaining term of the employment
agreement;
. a change in control payment of $778,380, which is equal to 299% of Mr.
Francis' base amount of his compensation as determined under Section
280(G) of the Internal Revenue Code, as amended, less the value of
payments that are deemed "parachute payments" under Section 280(G); and
. acceleration of all unvested stock options.
Mr. Francis has signed a waiver and release, waiving his right to receive
payments and benefits under his employment agreement with FFY Financial, unless
Mr. Francis's employment is involuntarily terminated within 12 months of the
completion of the merger.
Mr. Randy L. Shaffer also has an employment agreement with FFY Bank dated
May 11, 1993. As a result of the change in control contemplated in the merger
agreement, Mr. Shaffer may be entitled to certain payments in connection with
the merger if his employment is involuntary terminated upon completion of the
merger or within twelve months after the merger. In the event of an involuntary
termination, Mr. Shaffer would be entitled to a change in control payment equal
to $598,288, which is equal to 299% of Mr. Shaffer's base compensation as
determined under Section 280(G) of the Internal Revenue Code, as amended, less
the value of payments that are deemed "parachute payments" under Section
280(G).
The other four executive officers of FFY Financial and FFY Bank have
identical change in control severance agreements with FFY Bank. In the event of
a change in control, such as the merger, the executive officer becomes entitled
to receive the following severance payments and benefits in the event that such
executive officer's employment is terminated within 24 months following a
change in control:
. payment of salary through the date of termination of employment; and
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. payment of 100% of the executive's base annual salary in effect prior to
the date that the notice of termination is given, excluding any bonus,
less the aggregate present value of payments or benefits arising under
any employee benefit plans or agreements which constitute excess
"parachute payments" under Section 280(G) of the Internal Revenue Code,
as amended.
Grant of FFY Financial Restricted Stock and Stock Options. FFY Financial
granted to Mr. Francis 25,000 shares of restricted FFY Financial common stock
through the FFY Financial Recognition and Retention Plan on May 23, 2000. The
value of Mr. Francis' restricted stock on the date of grant was $256,250. FFY
Financial also granted Mr. Shaffer and Mr. Carr each 5,000 shares of restricted
stock through the Recognition and Retention Plan on May 23, 2000. The value of
each of Mr. Shaffer's and Mr. Carr's shares on the date of grant was $51,250.
All of the shares of restricted stock granted to Mr. Francis, Mr. Shaffer and
Mr. Carr will vest upon completion of the merger.
Mr. Francis was granted 50,000 stock options through the FFY Financial Stock
Option Plan on May 23, 2000 at an exercise price of $10.25 per share. The stock
options granted to Mr. Francis will vest in five equal annual installments
beginning on March 23, 2001 and expire ten years from the date of grant or May
23, 2010.
Indemnification and Insurance. First Place has agreed to indemnify, defend
and hold harmless those directors, officers and employees of FFY Financial or
any of its subsidiaries who held such positions prior to the completion of the
merger against all expenses, judgments, fines, losses, claims, damages or
liabilities arising from acts or omissions occurring at or before the effective
date, to the fullest extent permitted by Delaware law and to the extent of FFY
Financial's obligations under its certificate of incorporation as in effect as
of the date of the merger agreement.
First Place has also agreed that, for a period of three years from the
effective date of the merger, it will use its reasonable best efforts to
provide directors' and officers' insurance for the present and former officers
and directors of FFY Financial with respect to claims arising from facts or
events occurring prior to the effective date. The insurance provided by First
Place must contain at least the same coverage and amounts with terms and
conditions no less advantageous than FFY Financial's current policy; provided,
however, that First Place is not required to expend more than 150% percent of
the current amount expended by FFY Financial to maintain or obtain that
insurance coverage in 2000. If First Place cannot maintain or obtain the
required insurance coverage within the 150% percent limit, it is required to
use its reasonable best efforts to obtain as much comparable insurance as is
available for that amount. Finally, if First Place merges into or consolidates
with any other entity or sells substantially all its assets to another entity,
First Place must cause its successors or assigns to assume these obligations.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the adoption of the merger agreement
by the stockholders of First Place and FFY Financial, and the receipt of the
necessary regulatory approvals. The merger will become effective upon the
filing of the certificate of merger with the Delaware Secretary of State's
Office.
We are working toward completing the merger as quickly as possible. We
expect to complete the merger during the last quarter of calendar 2000.
Structure of the Merger and Conversion of FFY Financial Common Stock
Structure. Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, upon completion of the merger FFY Financial
will merge with and into First Place. First Place will be the surviving
corporation in the merger, and will continue its corporate existence under
Delaware law under the name First Place Financial Corp. At such time, the
separate corporate existence of FFY Financial will terminate.
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In connection with the merger, First Federal and FFY Bank have entered into
a plan of merger pursuant to which FFY Bank will merge with and into First
Federal, with First Federal being the surviving institution. First Federal will
change its name to First Place Bank. The plan of merger may be terminated by
mutual consent of the parties at any time and will be terminated automatically
in the event the merger agreement is terminated.
Conversion of FFY Financial Common Stock. Upon completion of the merger,
each share of FFY Financial common stock will be converted into the right to
receive 1.075 shares of First Place common stock. However, certain shares will
not be so converted. These shares include:
.shares held by FFY Financial as treasury stock and any shares held by its
subsidiaries;
.shares held by First Place or any of its subsidiaries; and
.shares held by First Place or FFY Financial in respect of a debt
previously contracted.
The number of shares of First Place common stock issuable in the merger will
be proportionately adjusted for any stock split, stock dividend or similar
event with respect to the First Place common stock or FFY Financial common
stock effected between the date of the merger agreement and the date of
completion of the merger.
The market price of First Place common stock will always fluctuate. Because
the number of shares of First Place common stock to be received by FFY
Financial's stockholders in the merger is fixed, subject to possible increase
described above, and because the market price of the First Place common stock
will fluctuate, the value of the shares of First Place common stock that FFY
Financial stockholders would receive in the merger may increase or decrease
prior to and after the merger. For further information concerning the market
prices of First Place common stock and FFY Financial common stock, see "Market
Prices and Dividend Information." No assurance can be given as to what the
market price of First Place common stock will be before or after the completion
of the merger.
No fractional shares of First Place common stock will be issued in
connection with the merger. Instead, First Place will make a cash payment to
each FFY Financial stockholder who would otherwise receive fractional shares.
The cash payment will equal the product of (1) the fractional portion which a
FFY Financial stockholder would otherwise receive and (2) the average of the
daily closing sales price of a share of First Place common stock for the ten
consecutive trading days ending on the fifth trading day prior to the
completion of the merger.
Treatment of FFY Financial Stock Options and Other Equity Based Awards
Each outstanding and unexercised option to purchase shares of FFY Financial
common stock will be converted into an option to purchase shares of First Place
common stock. The number of shares of First Place common stock subject to
converted options will be equal to the product of the number of shares of FFY
Financial common stock subject to FFY Financial options and the exchange ratio.
The exercise price per share of the new First Place options will equal the
exercise price per share of the FFY Financial stock option, divided by the
exchange ratio. Upon completion of the merger, 209,148 FFY Financial stock
options will vest and become exercisable upon the date the merger is completed.
Each outstanding share of restricted FFY Financial common stock will be
converted into 1.075 shares of First Place common stock. Upon completion of the
merger, 56,000 shares of restricted FFY Financial common stock will vest and
become free of restrictions upon the date the merger is completed.
Procedures for Exchanging Your Stock Certificates
First Place. Shares of First Place common stock issued and outstanding
immediately prior to the completion of the merger will remain issued and
outstanding and be unaffected by the merger.
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FFY Financial. Within five business days after the completion of the merger,
a designated agent which will be either a bank or trust company, will be
selected by First Place and reasonably satisfactory to FFY Financial, which
will mail to each former holder of record of FFY Financial common stock a
letter with instructions on how to exchange FFY Financial stock certificates
for First Place stock certificates, and cash for fractional shares.
Holders of FFY Financial common stock should not send in their certificates
until they receive the letter of transmittal and instructions from the
designated agent, and should not return such stock certificates with the
enclosed proxy.
After you mail in these materials to the designated agent, your First Place
stock certificates and, where applicable, a check for your fractional shares,
will be mailed back to you. The FFY Financial certificates you surrender will
be canceled.
As a FFY Financial stockholder, you will receive First Place dividends or
other distributions declared after the completion of the merger only if you
surrendered your FFY Financial stock certificates. If you have not surrendered
your FFY Financial stock certificates any First Place dividends or other
distributions declared after the completion of the merger will be withheld,
without interest, until the FFY Financial stock certificates are surrendered
for First Place stock certificates. In addition, FFY Financial stockholders who
have not surrendered their FFY Financial stock certificates will not be
entitled to vote the shares of First Place common stock until the FFY Financial
stock certificates are converted.
After the completion of the merger, there will be no transfers of FFY
Financial common stock issued and outstanding immediately prior to the
completion of the merger. FFY Financial stock certificates presented for
transfer after the completion of the merger will be canceled and exchanged for
First Place stock certificates.
Holders of FFY Financial stock certificates may have the First Place stock
certificate issued in another name provided that the FFY Financial stockholder:
. properly endorses the FFY Financial stock certificate; and
. pays all applicable transfer or other taxes required to be paid in
connection with the issuance of the First Place stock in a name other
than the registered holder either directly to the taxing authority, in
advance to the designated agent or proves such tax is not payable.
FFY Financial stockholders will not receive First Place stock certificates
representing fractional shares and will not have any right to dividends or
other distributions with respect to such fractional shares.
If your FFY Financial stock certificates have been lost, stolen or
destroyed, you will have to prove your ownership of these certificates by
signed affidavit attesting that the certificates were lost, stolen or destroyed
before you receive any consideration for your shares. First Place may direct
the stockholder seeking replacement stock certificates to secure a bond for
such amount as First Place may request. The designated agent will send you
instructions on how to provide such evidence.
Employee Matters
Each FFY Financial employee whose employment is not specifically terminated
will become an employee of First Place. FFY Financial employees continuing with
First Place after the merger will be entitled to participate in First Place's
employee benefit plans to the same extent as similarly positioned employees of
First Place. The employee benefits received by FFY Financial employees will
include:
. First Place's group health, life and disability insurance plans on the
same terms and conditions as similarly situated First Place employees,
with the FFY Financial employee(s) and any dependents having pre-existing
medical conditions or exclusions eligible for health insurance coverage
without any uninsured waiting period;
36
. FFY Financial employees will be entitled to participate in First Place's
401(k) savings plan on the same terms and conditions as similarly
situated First Place employees, with First Place giving effect to the
years of service of the FFY Financial employee with FFY Financial as if
such service was with First Place, for purposes of determining
eligibility and vesting;
. As of the next entry date beginning one year after the closing of the
merger, First Place shall permit FFY Financial employees to participate
in the First Federal Savings and Loan Association of Warren Employee
Stock Ownership Plan on the same terms and conditions as First Place and
First Federal employees. First Place shall give effect to years of
service with FFY Financial as if such service was with First Place, for
purposes of determining eligibility and vesting;
. FFY Financial employees are entitled to receive either full credit from
First Place for each day of sick leave accumulated under FFY Financial's
sick leave plan or cash for each day of sick leave accumulated, provided
that FFY Financial accrued those sick leave benefits for its employees as
if the employee terminated service and received cash for his or her sick
leave under the FFY Financial sick leave plan;
. FFY Financial employees will receive the First Place welfare benefit
plans, such as vacation, sick leave and severance and will have prior
service with FFY Financial recognized for purposes of determining
eligibility, vesting and benefits accrual;
. First Place will honor existing employment agreements, severance and
other compensation agreements and arrangements of FFY Financial existing
prior to the date of the merger agreement, including existing employment
agreements, the FFY Financial severance policy and change in control
provisions of the change in control severance agreements between FFY
Financial and certain employees and other FFY Financial benefit plans.
First Place will also honor the payment of benefits by FFY Financial
under such agreements and plans to the extent these obligations have been
previously disclosed to First Place. Payments under the FFY Financial
employment agreements may be made by FFY Financial immediately prior to
the completion of the merger at the discretion of First Place;
. FFY Financial retirement policy for directors shall terminate and the FFY
Financial directors shall be subject to First Place's retirement policy;
. First Place will provide extended coverage of the FFY Financial
director's and officer's liability insurance policy for the directors and
officers covered by the policy prior to the completion of the merger for
a period of three years after the completion of the merger, subject to a
limitation of payment of premiums in an amount not to exceed 150% of the
premiums paid by FFY Financial; and
. First Place agrees to indemnify, defend and hold harmless those
directors, officers and employees of FFY Financial or any of its
subsidiaries who held such positions prior to the completion of the
merger against all expenses, judgments, fines, losses, claims, damages or
liabilities arising from acts or omissions occurring at or before the
completion of the merger, to the fullest extent permitted by Delaware law
and to the extent of FFY Financial's obligations under its certificate of
incorporation as in effect as of the date of the merger agreement.
As of the completion of the merger, the FFY Financial combination 401(k) and
Employee Stock Ownership Plan shall be terminated. All outstanding indebtedness
under the combination plan will be repaid, with the balance under the
combination plan being allocated to the FFY Financial employees in the manner
set forth under the combination plan, provided such allocation is permitted
under law. FFY Financial will promptly apply to the Internal Revenue Service
for a favorable determination letter on (1) the tax-qualified status of the
combination plan on termination and (2) any amendments made to the combination
plan in connection with its termination.
Regulatory Approvals Needed to Complete the Merger
Completion of the merger is subject to a number of regulatory approvals and
consents including the prior approval of the OTS. In reviewing applications,
the OTS must consider, among other factors, the financial and managerial
resources and future prospects of the existing and resulting institutions, and
the convenience and
37
needs of the communities to be served. In addition, the OTS may not approve a
transaction if it will result in a monopoly or otherwise be anticompetitive. In
addition, as discussed below, a waiting period of 15 to 30 days must be
satisfied prior to completion of the merger after OTS approval. First Place
filed an application with the OTS on , 2000.
Under the Community Reinvestment Act of 1977, the OTS must take into account
the record of performance of First Federal and FFY Bank in meeting the credit
needs of the entire community, including low- and moderate-income
neighborhoods, served by each institution. As part of the review process, the
banking agencies frequently receive comments and protests from community groups
and others.
A period of 15 to 30 days must expire following approval by the OTS, within
which period the United States Department of Justice may file objections to the
merger under the federal antitrust laws. While First Place and FFY Financial
believe that the likelihood of such action by the Department of Justice is
remote in this case, there can be no assurance that the Department of Justice
will not initiate such proceeding, or if such a proceeding is instituted or
challenge is made, as to the result thereof.
The merger cannot proceed in the absence of the requisite regulatory
approvals. See "--The Merger Agreement--Conditions to the Merger." There can be
no assurance that such regulatory approvals will be obtained, and if obtained,
there can be no assurance as to the date of any such approval. There can also
be no assurance that any such approvals will not contain a condition or
requirement that causes such approvals to fail to satisfy the condition set
forth in the merger agreement.
First Place is not aware of any other regulatory approvals that would be
required for completion of the merger, except as described above. Should any
other approvals be required, it is presently contemplated that such approvals
would be sought. There can be no assurance that any other approvals, if
required, will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by FFY
Financial stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
Nasdaq Stock Market Listing and Delisting
First Place common stock is listed on the Nasdaq Stock Market. First Place
has agreed to cause the shares of First Place common stock to be issued in the
merger to be approved for quotation on the Nasdaq Stock Market, prior to or at
the completion of the merger. The obligations of the parties to complete the
merger are subject to approval for quotation on the Nasdaq Stock Market of such
shares. Upon completion of the merger, FFY Financial common stock will be
delisted from the Nasdaq Stock Market and will be deregistered under the
Securities Exchange Act of 1934.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. The unaudited pro
forma condensed combined consolidated financial information contained in this
joint proxy statement/prospectus has been prepared using the purchase
accounting method to account for the merger. See "Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements."
Material United States Federal Income Tax Consequences of the Merger
The following is a discussion of the material federal income tax
consequences of the merger to First Place, FFY Financial and holders of FFY
Financial common stock. The discussion is based upon the Internal Revenue Code,
Treasury regulations, Internal Revenue Service rulings, and judicial and
administrative decisions in effect as of the date of this joint proxy
statement/prospectus. This discussion assumes that the FFY Financial common
38
stock is generally held for investment. In addition, this discussion does not
address all of the tax consequences that may be relevant to a holder of FFY
Financial common stock in light of his or her particular circumstances or to
holders subject to special rules, such as foreign persons, financial
institutions, tax-exempt organizations, dealers in securities or foreign
currencies or insurance companies. The opinions of counsel referred to in this
section will be based on facts existing at the completion of the merger. In
rendering their opinions, counsel will require and rely upon representations
contained in certificates of officers of First Place and FFY Financial. Holders
of FFY Financial common stock should consult their tax advisors as to the
particular tax consequences to them of the merger.
It is a condition to First Place's obligation to complete the merger that it
have received an opinion of its counsel, dated as of the completion of the
merger, that the merger will be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. If First Place waives
the requirement of receiving a tax opinion and there is a material change in
tax consequences to FFY Financial stockholders, you will be notified of such an
event and given the opportunity to confirm or change your vote. Because the
merger will be treated as a reorganization:
. none of First Place, FFY Financial, First Federal, or FFY Bank will
recognize a gain or a loss as a result of the merger;
. FFY Financial stockholders will not recognize a gain or a loss for
exchanging their FFY Financial shares for First Place shares, except for
cash received for fractional shares; and
. FFY Financial stockholders will not have their individual tax basis or
holding periods affected by exchanging their FFY Financial shares for
First Place shares, except to the extent cash is received for fractional
shares.
Selling the First Place Stock You Receive in the Merger
The shares of First Place common stock to be issued in the merger will be
registered under the Securities Act of 1933 and will be freely transferable
under the Securities Act of 1933, except for shares issued to any person who is
deemed to be an "affiliate" of either FFY Financial or First Place at the time
of the annual meetings. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under the
common control of either of First Place or FFY Financial and may include our
executive officers and directors as well as any stockholders owning 10% or more
of our stock. Affiliates may not sell their shares of First Place common stock
acquired in connection with the merger, except under an effective registration
statement under the Securities Act of 1933 covering such shares or in
compliance with another applicable exemption from the registration requirements
of the Securities Act of 1933. This joint proxy statement/prospectus does not
cover any resales of First Place common stock received by our affiliates. FFY
Financial has obtained from each person who is an affiliate of FFY Financial
and has delivered to First Place, a written agreement intended to ensure
compliance with the Securities Act of 1933.
No Appraisal Rights
Under Delaware law, First Place stockholders and FFY Financial stockholders
are not entitled to appraisal rights in connection with the merger.
Coordination of Dividends; Dividends to be Paid After The Merger
Until the completion of the merger, First Place and FFY Financial will
coordinate with each other regarding the declaration of any dividend or other
distributions with respect to their respective common stock, the record dates
for the dividend and the payment dates, with the intention of the parties that
neither party will declare more than one dividend or fail to receive one
dividend for any single calendar quarter on their respective shares of common
stock. After the completion of the merger, the First Place board of directors
will declare a cash dividend of no less than $0.125 per share for the first
quarter immediately following the closing date, subject to the directors'
fiduciary duties and statutory and regulatory restrictions.
39
The Merger Agreement
The following summary of the merger agreement is qualified in its entirety
by reference to the complete text of the merger agreement, which is
incorporated by reference and attached as Annex A to this joint proxy
statement/prospectus. We urge you to read the full text of the merger
agreement.
Conditions to the Merger. The obligations of First Place and FFY Financial
to close the merger are conditioned on the following being satisfied at or
prior to the completion of the merger:
. the adoption of the merger agreement by the affirmative vote of:
. the holders of at least a majority of the outstanding shares of FFY
Financial common stock; and
. the holders of at least a majority of the outstanding shares of First
Place common stock;
. the shares of First Place common stock which will be issued to the
stockholders of FFY Financial upon consummation of the merger shall have
been authorized for listing on the Nasdaq Stock Market, subject to
official notice of issuance;
. the requisite regulatory approvals must be obtained and in full force and
effect and all statutory waiting periods must have expired;
. none of the requisite regulatory approvals shall impose any term,
condition or restriction that First Place or FFY Financial, in good
faith, reasonably determines would so materially adversely affect the
economic or business benefits of the merger as to render inadvisable the
completion of the merger;
. the absence of any law, order or injunction prohibiting completion of the
merger or the merger of our subsidiaries or any other transaction
contemplated thereby; and
. the declaration of effectiveness of the registration statement, of which
this joint proxy statement/prospectus forms a part, by the SEC and the
absence of any stop order or threatened or pending proceedings seeking a
stop order.
The obligation of First Place to complete the merger is subject to the
satisfaction or waiver of the following additional conditions before completion
of the merger:
. FFY Financial's representations and warranties must be true and correct
in all material respects as of the date of the merger agreement and as of
the date of completion of the merger;
. FFY Financial must have performed in all material respects all
obligations required to be performed by it under the merger agreement;
. First Place must have obtained all material consents, approvals or
waivers to permit First Place to assume FFY Financial's and any of its
subsidiaries' rights, obligations or interests under any loan, credit
agreement, note, mortgage, indenture, license, leases or other agreements
or instruments after the merger;
. no proceeding shall have been initiated by any governmental entity
seeking an injunction against the merger; and
. receipt of an opinion from its counsel, dated as of the completion of the
merger, that the merger and the merger of the subsidiaries, will be
treated for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code and
that accordingly for federal income tax purposes:
. no gain or loss will be recognized by First Place or FFY Financial as a
result of the merger;
. no gain or loss will be recognized by First Federal or FFY Bank as a
result of the merger of the subsidiaries;
40
. no gain or loss will be recognized by FFY Financial's stockholders who
exchange all of their FFY Financial common stock solely for First Place
common stock except for cash received in lieu of fractional shares; and
. the aggregate tax basis of stock received by FFY Financial's
stockholders in the merger will be the same as the aggregate tax basis
of their FFY Financial common stock reduced by any amount allocable to
a fractional share interest for which cash is received.
The obligation of FFY Financial to complete the merger is subject to the
satisfaction or waiver of the following additional conditions before completion
of the merger:
. First Place's representations and warranties must be true and correct in
all material respects as of the date of the merger agreement and as of
the date of completion of the merger;
. First Place must have performed in all material respects all obligations
required to be performed by it under the merger agreement;
. First Place must have obtained all material consents, approvals or
waivers to permit First Place to assume First Place's and any of its
subsidiaries' rights, obligations or interests under any loan, credit
agreement, note, mortgage, indenture, license, leases or other agreements
or instruments after the merger; and
. no proceeding shall have been initiated by any governmental entity
seeking an injunction against the merger.
No Other Transactions Involving First Place or FFY Financial. First Place
and FFY Financial have agreed not to authorize or permit any of their officers,
directors, employees or agents to directly or indirectly:
. solicit, initiate or encourage any inquiries relating to, or the making
of any proposal which constitutes a takeover proposal; or
. except to the extent legally required for the discharge of the fiduciary
duties of their boards of directors, recommend or endorse any takeover
proposal, or participate in any discussions or negotiations, or provide
third parties with any nonpublic information, relating to any such
inquiry or proposal or otherwise facilitate any effort or attempt to make
or implement a takeover proposal.
A "takeover proposal" means:
. any tender or exchange offer;
. proposal for a merger, consolidation or other business combination
involving First Place or FFY Financial or their subsidiaries; or
. any proposal or offer to acquire in any manner a substantial equity
interest in, or substantial portion of the assets of First Place or FFY
Financial or their subsidiaries.
If First Place or FFY Financial does enter into negotiations with a third
party regarding a takeover proposal, it has to furnish the other with written
information of all relevant details.
Termination. The merger agreement may be terminated prior to the completion
of the merger, whether before or after the stockholder approvals have been
obtained by:
. the mutual consent of First Place and FFY Financial in a written
instrument, if the board of directors of each so determines by a vote of
a majority of the members of its entire board;
. either First Place or FFY Financial upon written notice to the other;
. 60 days after the date on which any request or application for a
requisite regulatory approval shall have been denied or withdrawn at
the request of the governmental entity unless a petition for
41
rehearing or amended application has been filed, except that this right
to terminate the agreement will not be available to any party whose
failure to fulfill any obligation under the merger agreement has been
the cause of the denial or request for withdrawal; or
. if any governmental entity shall have issued a final nonappealable
order enjoining or otherwise prohibiting the completion of the merger
or any transaction contemplated by the merger agreement;
. either First Place or FFY Financial if the merger is not completed by
December 31, 2000 except that this right to terminate the merger
agreement will not be available to any party whose failure to fulfill any
obligation under the merger agreement has been the cause of, or has
resulted in, the failure to complete the merger by December 31, 2000;
. either First Place or FFY Financial if the stockholders of either company
do not approve the merger agreement at a duly held meeting of First
Place's or FFY Financial's stockholders;
. either First Place or FFY Financial if the other has breached any
representation, warranty, covenant or other agreement under the merger
agreement in a material way which has not been promptly cured or could
not be cured by closing of the merger and, as long as the party seeking
to terminate the merger agreement has not also violated the merger
agreement; or
. either First Place or FFY Financial if:
. the board of directors of the other party does not recommend in this
joint proxy statement/prospectus that its stockholders adopt the merger
agreement; or
. after recommending in this joint proxy statement/prospectus that
stockholders adopt the merger agreement, the board of directors shall
have withdrawn, modified or qualified such recommendation in any
respect adverse to the terminating party.
Conduct of Business Pending the Merger. Except as expressly provided in the
merger agreement, the stock option agreements, the plan of merger between our
subsidiaries or as consented to by the other, First Place and FFY Financial
have each agreed that until the completion of the merger it will carry on its
business in the ordinary course consistent with past practice and consistent
with prudent banking practices. First Place and FFY Financial have each agreed
to use its best efforts to:
. preserve intact its business organization and that of its subsidiaries;
. keep available to itself and the other party the present services of its
and its subsidiaries' employees; and
. preserve for itself and the other party the goodwill of its and its
subsidiaries' customers and others with whom business relationships
exist.
In addition to those agreements regarding the conduct of business generally,
each of First Place and FFY Financial has agreed to some specific restrictions
relating to the following:
. the declaration or payment of dividends;
. the alteration of share capital, including, among other things, stock
splits, combinations or reclassifications;
. the issuance or sale of capital stock or securities convertible into or
exchangeable for its capital stock;
. amendment of its certificate of incorporation or bylaws;
. solicitation of any takeover proposal as described under "--No Other
Transactions Involving First Place or FFY Financial;"
. the incurrence of capital expenditures;
. the entering into of any new line of business;
42
. the acquisition of assets or other entities;
. any actions that would result in any of its representations and
warranties set forth in the merger agreement being or becoming untrue in
any material respect or any condition to the merger agreement not being
satisfied;
. accounting policies and procedures;
. compensation of directors, executive officers and key employees;
. any actions that would disqualify the merger as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code;
. the disposition of assets;
. the incurrence or the guarantee of debt;
. any applications to relocate or close any branch office;
. the breach or default under any regulatory agreement or material
contract;
. the making or restructuring of loans;
. the acquisition of any bulk loan portfolio;
. the engaging in any structured transactions, derivative securities,
arbitrage or hedging activities;
. equity investments in real estate;
. the creation, amendment or termination of any material contract;
. actions causing the termination or cancellation by the FDIC of deposit
insurance;
. the settlement of any claim, action or proceeding involving any
liability;
. election of directors; or
. the agreement to do any of the foregoing.
Amendment, Extension and Waiver. Prior to the completion of the merger, any
provision of the merger agreement may be amended by the parties. However, after
the vote by the stockholders of FFY Financial, no amendment or modification may
be made that would reduce the amount or change the form of the consideration to
be received by FFY Financial's stockholders under the terms of the merger
agreement.
At any time before the completion of the merger, the parties may, by action
taken or authorized by their respective boards of directors, to the extent
legally allowed:
. extend the time for the performance of any of the obligations or other
acts of the other party;
. waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement; and
. waive compliance with any of the agreements or conditions contained in
the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
Expenses. All costs and expenses incurred in connection with the merger will
be paid by the party incurring the expense except that the costs and expenses
of printing and mailing this joint proxy statement/prospectus to the
stockholders of First Place and FFY Financial shall be borne equally by First
Place and FFY Financial. However, if First Place or FFY Financial exercises
their respective right to terminate the merger agreement following a material
breach of any representation, warranty, covenant or other agreement which
breach was not cured in 30 days following written notice of the breach and has
a material adverse effect
43
on the non-breaching party then the terminating party shall receive from the
other party, in addition to any other amounts payable by such party pursuant to
the merger agreement, its reasonable costs and expenses incurred in connection
with the transactions contemplated by the merger agreement.
Representations and Warranties. Both First Place and FFY Financial have made
certain customary representations and warranties relating to their businesses.
For detailed information on these representations and warranties, please refer
to the merger agreement attached as Annex A.
Amendment to the First Place Certificate of Incorporation
The First Place certificate of incorporation as amended and restated will be
the governing document of First Place after the merger. The proposed amendment
and restatement of the First Place certificate of incorporation was agreed upon
by both First Place and FFY Financial in the merger agreement. Delaware law
permits a certificate of merger to include amendments to the certificate of
incorporation of the surviving corporation. First Place stockholders will be
approving the amendment and restatement of their certificate of incorporation
by adopting the merger agreement. The information concerning the terms of the
proposed amended and restated First Place certificate of incorporation in this
joint proxy statement/prospectus is qualified in its entirety by reference to
the proposed amended and restated First Place certificate of incorporation
attached as Annex G.
The proposed amendment to the First Place certificate of incorporation will
be in effect until October 15, 2004 and provides for the following:
. the number of directors serving on the First Place board of directors
would increase from eight to 16 directors, subject to adjustment upon
removal, retirement or other termination of a director or directors from
the board of directors;
. the initial 16 member First Place board of directors will be comprised of
eight directors appointed by the current FFY Financial directors and
eight directors appointed by the current First Place directors;
. the 16 members of the board of directors shall be divided into three
classes, as nearly equal in number as possible, with the:
. first class consisting of six members (three appointed by the First
Place directors and three appointed by the FFY Financial directors)
with a term expiring at the 2001 annual meeting;
. second class consisting of six members (three appointed by the First
Place directors and three appointed by the FFY Financial directors)
with a term expiring at the 2002 annual meeting; and
. third class consisting of four members (two appointed by the First
Place directors and two appointed by the FFY Financial directors) with
a term expiring at the 2003 annual meeting;
. the directors appointed to the board of directors by the FFY Financial
directors shall nominate those FFY Financial directors who are up for
reelection at the 2001, 2002 and 2003 annual meetings, and the directors
appointed to the board of directors by the First Place directors shall
nominate those First Place directors who are up for reelection at the
2001, 2002 and 2003 annual meetings. Nominations of directors for each
year after the 2003 annual meeting, shall be as set forth in the bylaws;
. upon the first resignation, removal or other termination of service of a
director following the completion of the merger, but prior to October 15,
2004, such director:
. if initially designated by the FFY Financial directors, shall be
replaced by a person designated by the remaining FFY Financial
directors; or
. if initially designated by the First Place directors, shall be replaced
by a director designated by the remaining First Place directors;
44
. upon the second resignation, removal or other termination of service of a
director following completion of the merger:
. if such director was designated by the FFY Financial directors, a
director designated by the First Place directors shall resign; or
. if such resigning director was designated by the First Place
directors, a director designated by the FFY Financial directors shall
resign, whereupon the board shall be reduced to 14 members;
. if prior to October 15, 2004, the board of directors desires to both
reduce the total number of board members below 14 and the number of FFY
Financial directors and First Place directors would be unequal, then an
80% vote of the board of directors would be required; and
. if prior to October 15, 2004, the board of directors desires to reduce
the total number of board members below 14 and the number of FFY
Financial directors and First Place directors would be equal, then a
majority vote of the board of directors would be required.
Adoption of the merger agreement by a majority of First Place stockholders
will also approve the proposed amendment and restatement to the First Place
certificate of incorporation. Stockholders are urged to read carefully the full
text of the proposed amended and restated First Place certificate of
incorporation in Annex G.
Stock Option Agreements
The following summary of the stock option agreements is qualified in its
entirety by reference to the complete text of the stock option agreements,
which are incorporated by reference and attached as Annexes B and C to this
joint proxy statement/prospectus.
In connection with the execution and delivery of the merger agreement, First
Place and FFY Financial entered into:
. the FFY Financial stock option agreement, under which FFY Financial
granted to First Place an irrevocable option to purchase, in whole or in
part, an aggregate of up to 1,348,921 shares of FFY Financial common
stock at a price of $10.00 per share; and
. the First Place stock option agreement, under which First Place granted
to FFY Financial an irrevocable option to purchase, in whole or in part,
an aggregate of up to 2,158,602 shares of common stock at a price of
$9.75 per share.
Exercise of the Options. The First Place stock option and the FFY Financial
stock option are only exercisable upon the occurrence of both an initial
triggering event and a subsequent triggering event prior to the expiration of
the right to purchase common stock. An "initial triggering event" will be
deemed to have occurred if one of the following events occurs to First Place,
FFY Financial or their subsidiaries at or after the date of the stock option
agreement:
. either party enters into an agreement to engage in a merger,
consolidation, an asset purchase of all or substantially all of a party's
assets or deposits or the purchase or other acquisition of securities
representing 10% or more of the voting power of a party;
. acquisition by any person, other than a party to the merger agreement, of
10% or more of the outstanding shares of First Place common stock or FFY
Financial common stock;
. stockholders of First Place or FFY Financial do not adopt the merger
agreement and prior to their respective stockholder meetings there is a
public announcement that a person will have made or disclosed an
intention to make a proposal to engage in a merger, consolidation, asset
purchase, or the purchase of 10% or more of the voting power of First
Place or FFY Financial with a person that is not a party to the merger
agreement;
45
. First Place's or FFY Financial's board of directors will have withdrawn,
modified or qualified its recommendation that their respective
stockholders adopt the merger agreement;
. filing of a registration statement or tender offer materials with the
Securities and Exchange Commission by a person not a party to the merger
agreement;
. breach of any covenant or obligation contained in the merger agreement
after a third party has made an overture to engage in a merger,
consolidation, asset purchase or purchase of 10% or more of the voting
power of First Place or FFY Financial; or
. filing of an application or notice with the Office of Thrift Supervision
or other federal bank regulatory agency or antitrust authority for
approval to engage in a merger, consolidation, asset purchase or to
purchase of 10% or more of the voting power of First Place or FFY
Financial.
A "subsequent triggering event" will be deemed to have occurred if one of
the following events occurs to First Place, FFY Financial or their subsidiaries
after the date of the stock option agreement:
. acquisition by a third party of beneficial ownership of 25% or more of
the then outstanding shares of First Place common stock or FFY Financial
common stock; or
. either party enters into an agreement to engage in a merger,
consolidation, an asset purchase of all or substantially all of a party's
assets or deposits or the purchase or other acquisition of securities
representing 25% or more of the voting power of a party.
The right to purchase shares of common stock under each of the FFY Financial
stock option agreement and the First Place stock option agreement will expire
on the first to occur of:
. the completion of the merger;
. termination of the merger agreement if such termination occurs prior to
the occurrence of an initial triggering event other than a termination
pursuant to a willful breach of representations, warranties, covenants or
other agreements contained in the merger agreement; or
. the passage of 18 months after termination of the merger agreement if
such termination occurs after the occurrence of an initial triggering
event or is a termination pursuant to a willful breach of
representations, warranties, covenants or other agreements contained in
the merger agreement.
The FFY Financial stock option and the First Place stock option are not
currently exercisable, and until the stock options become exercisable, the
holder of such stock option does not have the right to vote or dispose of any
shares of common stock that may be purchased upon exercise of the stock option.
Effect of Stock Option Agreements. The stock option agreements are intended
to increase the likelihood that the merger will be completed on the terms set
forth in the merger agreement. Consequently, the stock option agreements may
discourage persons who might be interested in acquiring all or a significant
interest in First Place or FFY Financial before completion of the merger from
considering or proposing an acquisition, even if those persons were prepared to
offer higher consideration per share for FFY Financial common stock than the
consideration implicit in the merger or a higher price per share for FFY
Financial common stock or First Place common stock than the stock market price.
Voting Agreements
The following summary of the voting agreements is qualified in its entirety
by reference to the complete text of the form of voting agreements, which are
attached as Annex D to this joint proxy statement/prospectus. We urge you to
read the full text of the voting agreement.
Each of First Place and FFY Financial have entered into voting agreements
with the other company's directors and executive officers pursuant to which the
directors and executive officers have agreed to vote their shares of First
Place common stock and FFY Financial common stock in favor of the adoption of
the merger
46
agreement. As of the First Place record date, First Place directors and
executive officers owned shares representing approximately [ ]% of the
outstanding shares of First Place common stock, and as of the FFY Financial
record date, owned shares representing [ ]% of the outstanding shares of FFY
Financial common stock. As of the FFY Financial record date, FFY Financial
directors and executive officers owned shares representing approximately [ ]%
of the outstanding shares of FFY Financial common stock, and as of the First
Place record date, owned shares representing less than 1% of the outstanding
shares of First Place common stock.
47
BOARD OF DIRECTORS AND MANAGEMENT
OF FIRST PLACE FOLLOWING THE MERGER
General. Upon completion of the merger, FFY Financial will merge with and
into First Place and, simultaneously, FFY Bank will merge with and into First
Federal. Following consummation of the merger and the bank merger, the separate
existence of FFY Financial and FFY Bank shall cease. First Federal will change
its name to First Place Bank. The board of directors and management of First
Place and First Place Bank will be drawn from First Place, First Federal, FFY
Financial and FFY Bank.
Board of Directors. The merger agreement provides that the board of
directors of First Place and First Place Bank following the merger shall
consist of 16 persons, eight of whom shall be persons designated by the board
of directors of First Place and eight of whom shall be persons designated by
the board of directors of FFY Financial.
The board of directors of First Place and First Place Bank will continue to
be divided into three classes, with the terms of the office of the classes
ending in successive years. The terms of the directors of First Place and First
Place Bank after the completion of the merger have been allocated so that, as
nearly as practicable, the terms of the same number of persons designated as
directors by each party will expire in each year.
Set forth below is a table showing each person currently named by First
Place and FFY Financial to serve on the board of directors of First Place and
First Place Bank following the completion of the merger. The table also shows
the year in which each director's term of office is set to expire.
Initial Term
Name to Expire Designee of:
- ---- ------------ -------------
A. Gary Bitonte, M.D. ............................... 2001 FFY Financial
George J. Gentithes.................................. 2001 First Place
Earl T. Kissel....................................... 2001 First Place
E. Jeffrey Rossi..................................... 2001 First Place
William A. Russell................................... 2001 FFY Financial
Robert L. Wagmiller.................................. 2001 FFY Financial
Jeffrey L. Francis................................... 2002 FFY Financial
Steven R. Lewis...................................... 2002 First Place
Robert S. McGeough................................... 2002 First Place
Samuel A. Roth....................................... 2002 FFY Financial
Ronald P. Volpe, Ph.D. .............................. 2002 FFY Financial
Paul A. Watson, Vice Chairman........................ 2002 First Place
Robert P. Grace...................................... 2003 First Place
Thomas M. Humphries.................................. 2003 First Place
Marie Izzo Cartwright................................ 2003 FFY Financial
W. Terry Patrick, Chairman........................... 2003 FFY Financial
Mr. Patrick will hold his chairman position for 3 years following the
completion of the merger. Mr. Watson will hold his vice chairman position for a
period not to exceed 3 years from the completion of the merger, at which time
the position will be eliminated.
48
Management. Upon completion of the merger the executive officers of First
Place and First Place Bank will change to include executive officers of FFY
Financial and FFY Bank. The executive officers of First Place upon completion
of the merger will be as follows:
Executive Officers Position
- ------------------ --------
Steven R. Lewis............ Chief Executive Officer and President
Jeffrey L. Francis......... Chief Operating Officer and Executive Vice President
Therese Ann Liutkus........ Chief Financial Officer
The executive officers of First Place Bank upon completion of the merger
will be as follows:
Executive Officers Position
- ------------------ --------
Steven R. Lewis............ Chief Executive Officer
Jeffrey L. Francis......... Chief Operating Officer and President
Richard K. Smith........... Chief Financial Officer
49
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
The following statements contain selected consolidated financial information
for First Place and FFY Financial, on an unaudited pro forma condensed combined
consolidated basis giving effect to the merger applying the purchase method of
accounting. The pro forma condensed statements of income reflecting the merger
assume the merger with FFY Financial was completed on the first day of each of
the periods presented.
The unaudited pro forma condensed balance sheet presents the combined
financial position of First Place and FFY Financial as of June 30, 2000. The
unaudited pro forma condensed balance sheet reflects (1) the merger of FFY
Financial with First Place applying the purchase method of accounting; and (2)
certain adjustments that are directly attributable to the merger, including
allocation of the purchase price for the merger. The pro forma condensed
balance sheet assumes that the merger of FFY Financial with and into First
Place was completed as of June 30, 2000.
The unaudited pro forma condensed financial statements have been prepared
based upon currently available information and assumptions deemed appropriate
by management of First Place and FFY Financial. This pro forma information may
not be indicative of what actual results would have been, nor does such data
purport to represent the combined financial results of First Place and FFY
Financial for future periods.
There may be certain cost savings and/or revenue enhancements that will
result from the merger. The information furnished in the statements does not
reflect either the expected cost savings or the revenue enhancements that may
or may not be achieved.
50
FIRST PLACE FINANCIAL CORP.
FFY FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
At June 30, 2000
-------------------------------------------------------
Historical Historical Proforma
First FFY Adjustments Footnote Pro Forma
Place Financial Dr (Cr) Reference Combined
---------- ---------- ----------- --------- ----------
(Dollars in thousands)
Assets
Cash and cash
equivalents............ $ 13,421 $ 11,033 $ -- $ 24,454
Interest-bearing
deposits in other
financial
institutions........... 16,222 -- -- 16,222
Securities available for
sale................... 249,638 158,136 (645) (1) 407,129
Loans receivable, net... 705,066 484,517 (5,370) (2) 1,184,213
Loans available for
sale................... 13,071 171 1 (2) 13,243
Office properties and
equipment, net......... 10,390 7,172 2,441 (3) 20,003
Federal Home Loan Bank
stock, at cost......... 11,413 5,193 -- 16,606
Goodwill................ 13,148 925 7,361 (4) 21,434
Other assets............ 19,208 7,328 939 27,475
---------- -------- -------- ----------
Total assets...... $1,051,577 $674,475 $ 4,727 $1,730,779
========== ======== ======== ==========
Liabilities
Deposits................ $ 586,748 $446,049 $ (783) (5) $1,033,580
Federal Home Loan Bank
Advances............... 227,762 96,780 508 (6) 324,034
Repurchase agreements... 75,000 58,238 520 (6) 132,718
Advance payments by
borrowers for taxes and
insurance.............. 3,163 2,348 -- 5,511
Other payables and
accrued expenses....... 10,929 5,865 (1,118) (7) 17,912
---------- -------- -------- ----------
Total
liabilities...... 903,602 609,280 (873) 1,513,755
Stockholders' equity
Common stock.......... 112 76 4 (8) 184
Additional paid-in
capital.............. 109,657 38,456 (33,442) (8) 181,555
Retained earnings..... 62,855 50,500 50,500 (8) 62,855
Treasury stock, at
cost................. (6,364) (14,865) (14,220) (1),(8) (7,009)
Accumulated other
comprehensive loss... (5,509) (6,416) (6,416) (8) (5,509)
Common stock purchased
by:
Employee Stock
Ownership and
401(k) Plan........ (8,012) (2,274) -- (16) (10,286)
Recognition and
Retention Plans.... (4,764) (282) (280) (8) (4,766)
---------- -------- -------- ----------
Total
stockholders'
equity........... 147,975 65,195 (3,854) 217,024
---------- -------- -------- ----------
Total liabilities
and stockholders'
equity........... $1,051,577 $674,475 $ (4,727) $1,730,779
========== ======== ======== ==========
See accompanying notes to the unaudited pro forma condensed combined
consolidated financial statements.
51
FIRST PLACE FINANCIAL CORP.
FFY FINANCIAL CORP.
PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF INCOME
(UNAUDITED)
Year ended June 30, 2000
----------------------------------------------------
Historical Historical Proforma Pro
First FFY Adjustments Footnote Forma
Place Financial Dr (Cr) Reference Combined
---------- ---------- ----------- --------- --------
(Dollars in thousands, except for per share data)
Interest Income......... $58,506 $49,796 $ (597) (2) $108,899
Interest expense........ 32,657 28,123 123 (5),(6) 60,903
Net interest income..... 25,849 21,673 (474) 47,996
Provision for loan
losses................. 2,294 476 2,770
Net interest income
after provision for
loan losses............ 23,555 21,197 (474) 45,226
Noninterest income...... 2,447 2,025 4,472
Noninterest expense..... 15,890 12,835 (3,510) (9) 25,215
Income before income
taxes and minority
interest............... 10,112 10,387 (3,984) 24,483
Income tax expense...... 3,298 3,048 1,523 (10) 7,869
Minority interest in
loss of consolidated
subsidiaries........... (21) (21)
Net income.............. $ 6,814 $ 7,360 $(2,461) (14),(15) $ 16,635
Earnings per share:
Basic................. $ 0.75 $ 1.15 (11),(14)
Diluted............... $ 0.75 $ 1.12 (11),(14)
Pro forma earnings per
share
Basic................. (12) $ 1.05
Diluted............... (13) $ 1.03
See accompanying notes to the unaudited pro forma condensed combined
consolidated financial statements.
52
FIRST PLACE FINANCIAL CORP.
FFY FINANCIAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS
(1) Reflects reclassification of 60,000 shares of First Place stock owned by
FFY Financial to treasury stock.
(2) Represents the estimated fair market value adjustment related to the loan
portfolio and is assumed to amortize into interest income on a straight
line basis over the estimated life of the portfolio which is 9 years.
(3) Represents the estimated fair market value adjustment related to office
properties and equipment and is assumed to amortize on a straight line
basis over the estimated life of the assets which is 20 years.
(4) Represents the estimate of the excess of the total direct acquisition
costs over the estimated fair value of the net assets acquired and is
assumed to amortize on a straight line basis over 20 years. For purposes
of these pro forma condensed combined consolidated financial statements,
First Place is assumed to acquire 100% of the outstanding shares of FFY
Financial common stock by issuing 7,224,124 shares of First Place common
stock valued at $72.0 million.
(5) Represents the estimated fair market value adjustment related to deposits
and is assumed to amortize into interest expense on a straight line basis
over the estimated life of the deposits which is 2 years.
(6) Represents the estimated fair market value adjustment related to Federal
Home Loan Bank advances and repurchase agreements and is assumed to
amortize into interest expense on a straight line basis over the estimated
life of the liabilities which is 2 years.
(7) Represents accrual of certain acquisition costs.
(8) Represents the elimination of FFY Financial's equity.
(9) Represents synergies related to the acquisition comprised primarily of
reduced salary and benefits, data processing and other operating expenses
totaling $4.0 million net of goodwill amortization and depreciation
related to purchase accounting adjustments.
(10) Represents the income tax effects of the estimated purchase accounting
adjustments at an estimated tax rate of 35%.
(11) First Place historical weighted average shares outstanding totaled
9,036,419 for the year ended June 30, 2000 for purposes of computing basic
and diluted earnings per share. FFY Financial historical weighted average
shares outstanding totaled 6,388,100 and 6,575,702 for the year ended June
30, 2000 for purposes of computing basic and diluted earnings per share,
respectively.
(12) Pro forma basic earnings per share is based on 15,903,627 weighted average
shares outstanding for the year ended June 30, 2000.
(13) Pro forma diluted earnings per share is based on 16,105,299 weighted
average shares outstanding for the year ended June 30, 2000.
(14) First Place earnings for the year ended June 30, 2000 were effected by the
one-time charges related to the purchase of Ravenna Savings Bank. Merger
expenses for the acquisition of Ravenna Savings Bank totaled $689,000. In
addition, First Place increased the provision by $1.2 million and
allocated the reserves to specifically identified loans acquired from
Ravenna Savings Bank subsequent to the acquisition.
(15) The amortization of purchase accounting adjustments on earnings per share
for the next two years are $0.01 and $0.01 for the years ending June 30,
2001 and June 30, 2002 respectively. The remaining years of amortization
has no material impact to earnings per share.
(16) The pro forma condensed combined consolidated statement of financial
condition does not reflect termination of the FFY Financial Employee Stock
Ownership and 401(k) Plan, which will occur as of the completion of the
merger.
53
DESCRIPTION OF FIRST PLACE CAPITAL STOCK
General
The authorized capital stock of First Place consists of 33,000,000 shares of
First Place common stock, par value of $0.01 per share and 3,000,000 shares of
preferred stock, par value of $0.01 per share. As of June 30, 2000 there were
10,688,450 shares of First Place common stock outstanding and no shares of
preferred stock outstanding. Upon completion of the merger there will be
17,912,574 shares of First Place common stock outstanding.
The First Place common stock will represent capital that cannot be
withdrawn. In addition, the First Place common stock will not be an account of
an insurable type and will not be insured by the FDIC.
Common Stock
Dividends. First Place can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its board of directors. The
payment of dividends by First Place is subject to limitations which are imposed
by Delaware law and the Office of Thrift Supervision regulation. Holders of
First Place common stock will be entitled to receive and share equally in such
dividends as may be declared by the board of directors out of funds that are
legally available. If First Place issues preferred stock, the holders thereof
may have a priority over the holders of the First Place common stock with
respect to dividends.
First Place and FFY Financial have agreed that, subject to any legal
restrictions, the board of First Place after the merger will declare a cash
dividend of no less than $0.125 per share for the first quarter immediately
following completion of the merger. After such period, decisions concerning the
payment of dividends on the common stock will depend upon our results of
operations, financial condition and capital expenditure plans as well as such
other factors as the board of directors, in its sole discretion, may consider
relevant.
Voting Rights. Each outstanding share of common stock is entitled to one
vote per share. Holders of First Place common stock do not have any right to
cumulate votes in the election of directors. First Place's certificate of
incorporation provides that holders of common stock who own or may be
considered to own more than 10% of the outstanding shares of common stock can
only vote their stock up to the 10% limit. The limit includes shares which
people have the right to acquire through any agreement or the exercise of any
rights, warrants or options. Certain matters require an 80% stockholder vote to
approve. Those matters are set forth in more detail in "--Comparison of
Stockholders' Rights--Amendment of the Certificate of Incorporation." If First
Place issues preferred stock, holders of the preferred stock may also possess
voting rights.
Liquidation. In the event of liquidation, dissolution or winding up of First
Place, the holders of its common stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of First Place available for distribution. If preferred stock is issued,
the holders thereof may have a priority over the holders of the First Place
common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of First Place common stock are not entitled to
preemptive rights with respect to any shares which may be issued. The First
Place common stock is not subject to redemption.
Preferred Stock
First Place has not issued any shares of preferred stock. However, preferred
stock may be issued with such preferences and designations as the board of
directors may from time to time determine. The board of directors can, without
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the common stock and may assist management in impeding an unfriendly takeover
or attempted change in control.
54
Anti-Takeover Considerations
Delaware law and the First Place amended and restated certificate of
incorporation and bylaws will contain a number of provisions which may have the
effect of discouraging transactions that involve an actual or threatened change
of control of First Place. For a description of the provisions, see "--
Comparison of Stockholders' Rights--Amendment of the Certificate of
Incorporation," "--Amendment of Bylaws," "--State Anti-Takeover Statutes," and
"--Fair Price Provisions."
COMPARISON OF STOCKHOLDERS' RIGHTS
General
Both FFY Financial and First Place are Delaware corporations, and, the
holders of voting common stock of the respective corporations are subject to
the same privileges and restrictions under the Delaware General Corporation Law
as will be the stockholders of First Place after the merger. However, the
stockholders of FFY Financial and First Place are subject to certain different
corporate governance requirements under their respective certificates of
incorporation and bylaws. Upon completion of the merger, First Place's
certificate of incorporation will govern the continuing corporation, with
certain amendments that are described under "The Merger--Amendment to the First
Place Certificate of Incorporation." The First Place certificate of
incorporation is substantially similar to FFY Financial's existing certificate
of incorporation.
The following paragraphs briefly summarize differences that exist between
the rights of stockholders of First Place and FFY Financial. This section
includes a brief description of the material rights that First Place
stockholders are expected to have following completion of the merger, although
in some cases the board of directors of First Place retains the discretion to
alter those rights without stockholder consent. The description does not
purport to be a complete statement of all the differences between the rights of
stockholders of FFY Financial and First Place and the identification of certain
differences is not meant to indicate that other differences do not exist. The
following summary is qualified in its entirety by reference to the Delaware
General Corporation Law, the certificates of incorporation and bylaws of First
Place and FFY Financial.
Copies of such governing documents of First Place and FFY Financial are
available, without charge, to any person to whom this document is delivered, on
written or oral request.
Capitalization
First Place. The authorized capital stock of First Place consists of:
.33,000,000 shares of First Place common stock; and
.3,000,000 shares of First Place preferred stock.
FFY Financial. The authorized capital stock of FFY Financial consists of:
.15,000,000 shares of FFY Financial common stock; and
.5,000,000 shares of FFY Financial preferred stock.
Voting Rights
First Place. Each holder of First Place common stock has the right to cast
one vote for each share of First Place common stock held of record on all
matters submitted to a vote of stockholders of First Place. First Place's
certificate of incorporation provides that holders of common stock who own or
may be considered to own more than 10% of the outstanding shares of common
stock can only vote their stock up to the 10% limit.
55
The limit includes shares which people have the right to acquire through any
agreement or the exercise of any rights, warrants or options.
FFY Financial. Each holder of FFY Financial common stock has the right to
cast one vote for each share of FFY Financial common stock held of record on
all matters submitted to a vote of stockholders of FFY Financial. FFY
Financial's certificate of incorporation provides that holders of common stock
who own or may be considered to own more than 10% of the outstanding shares of
common stock can only vote their stock up to the 10% limit. The limit includes
shares which people have the right to acquire through any agreement or the
exercise of any rights, warrants or options.
Number and Election of Directors
First Place. The bylaws of First Place provide that the number of directors
shall be designated by the board of directors, but in the absence of such
designation, the number shall be eight (8). Upon completion of the merger, the
amended and restated First Place certificate of incorporation would fix the
number of directors on the First Place board of directors at 16 directors,
subject to downward adjustment for removal, resignation or other termination.
In addition, the amended and restated First Place certificate of incorporation
would permit the board of directors to decrease the size of the board. The
changes to the composition of the First Place board of directors as a result of
the merger are set forth in more detail under "The Merger--Amendment to the
First Place Certificate of Incorporation."
The First Place certificate of incorporation and bylaws provide for the
First Place board of directors to be divided into three classes, as nearly
equal in size as possible, with one class being elected annually. Members of
the First Place board of directors are elected to serve a term of three years,
and until their successors are elected and qualified.
Under Delaware law, stockholder do not have cumulative voting rights for the
election of directors unless the corporation's certificate of incorporation so
provides. First Place's certificate of incorporation does not provide for
cumulative voting.
FFY Financial. The certificate of incorporation of FFY Financial provides
that the number of directors shall be determined from time to time pursuant to
a resolution adopted by a majority of the board of directors.
The FFY Financial certificate of incorporation and bylaws provide for the
FFY Financial board of directors to be divided into three classes, as nearly
equal in size as possible, with one class being elected annually. Members of
the FFY Financial board of directors are elected to serve a term of three
years, and until their successors are elected and qualified.
FFY Financial's certificate of incorporation does not provide for cumulative
voting.
Vacancies on the Board of Directors and Removal of Directors
First Place. The certificate of incorporation and bylaws of First Place
provide that any directorship to be filled by the resignation, removal or death
of a director or for any other reason shall be filled by the majority vote of
the then remaining directors. Any director so appointed by the board holds
office only until the annual stockholder meeting at which the term of office of
the class to which they were appointed expires. Upon completion of the merger,
First Place's amended and restated certificate of incorporation will require
until October 15, 2004, that vacancies by removal, resignation or other
termination be replaced by either (1) the directors appointed by FFY Financial
if such vacancy was a director initially appointed by FFY Financial directors
or (2) by the directors appointed by First Place if such vacancy is a First
Place director. See " The Merger--Amendment to the First Place Certificate of
Incorporation."
56
First Place's certificate of incorporation provides that directors may be
removed only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of First Place
capital stock entitled to vote generally in the election of directors, voting
together as one group.
FFY Financial. The certificate of incorporation and bylaws of FFY Financial
provide that any directorship to be filled by the resignation, removal or death
of a director or for any other reason shall be filled by the majority vote of
the then remaining directors. Any director so appointed by the board holds
office only until the annual stockholder meeting at which the term of office of
the class to which they have been elected expires.
FFY Financial's certificate of incorporation provides that directors may be
removed only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of FFY Financial
capital stock entitled to vote generally in the election of directors, voting
together as one group.
Amendment of the Certificate of Incorporation
General. Under Delaware law, an amendment to the certificate of
incorporation of a corporation requires the approval of the corporation's board
of directors and the approval of holders of a majority of the outstanding stock
entitled to vote upon the proposed amendment, unless a higher vote is required
by the corporation's certificate of incorporation.
First Place. First Place's certificate of incorporation requires the
affirmative vote of 80% of the outstanding stock to amend its provisions
relating to voting limitations of stockholders, stockholder action, election,
and removal and filling vacancies of directors, amending the bylaws,
transactions with interested stockholders, insurance and indemnification of
directors and amending the certificate of incorporation.
FFY Financial. FFY Financial's certificate of incorporation requires the
affirmative vote of 80% of the outstanding stock to amend provisions related to
voting limitations of stockholders, stockholder action, election and removal of
directors and filling of director vacancies, amending the bylaws, transactions
with interested stockholders, insurance and indemnification of directors and
amending the certificate of incorporation.
Amendment of Bylaws
General. Under Delaware law, stockholders entitled to vote have the power to
adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the bylaws, even
though the board may also be delegated the power.
First Place. First Place's certificate of incorporation provides that the
bylaws may be amended by the affirmative vote of a majority of the entire board
of directors. Also, First Place's bylaws may be amended, repealed or adopted by
the affirmative vote of 80% of the voting power of the outstanding shares of
capital stock entitled to vote generally in the election of directors.
FFY Financial. FFY Financial's certificate of incorporation provides that
the bylaws may be amended or repealed by a majority vote of the entire board of
directors. FFY Financial's bylaws may also be adopted, amended or repealed by
the affirmative vote of 80% of the voting power of the outstanding shares of
capital stock entitled to vote generally in the election of directors.
Action by Written Consent
General. Delaware law provides that, unless otherwise stated in the
certificate of incorporation, any action which may be taken at an annual
meeting or special meeting of stockholders may be taken without a meeting, if a
consent in writing is signed by the holders of the outstanding stock having the
minimum number of votes necessary to authorize the action at a meeting of
stockholders.
57
First Place. First Place's certificate of incorporation prohibits
stockholder action by written consent.
FFY Financial. FFY Financial's certificate of incorporation prohibits
stockholder action by written consent.
Ability to Call Special Meetings
First Place. Special meetings of First Place stockholders may be called by
First Place's board of directors, by affirmative vote of a majority of the
total number of authorized directors.
FFY Financial. Special meetings of FFY Financial stockholders may be called
by FFY Financial's board of directors, by affirmative vote of a majority of the
total number of authorized directors.
Stockholder Nominations for Directors and Proposals for New Business
First Place. Procedures to be followed by stockholders of First Place
seeking to make nominations for directors and proposals for new business are
contained in First Place's bylaws. In order for a stockholder of First Place to
make any such nominations and/or proposals, he or she shall give written notice
to the corporate secretary not less than 90 days prior to the date of any such
meeting; provided, however, that if less than 90 days notice or public
disclosure of the meeting is given to stockholders, such written notice must be
received not later than the close of business on the tenth day following the
day on which notice of the date of the meeting was mailed to stockholders or
publicly disclosed. Each such notice given by a stockholder with respect to
nominations for the election of directors must set forth (1) each person
nominated by the stockholder for election to the board and the information
required about each nominee in a proxy statement; (2) the name and address as
they appear on First Place's books of such stockholder; and (3) the class and
number of shares that are beneficially owned by such stockholder. The presiding
officer of the stockholders' meeting may disregard any nomination not made in
accordance with these procedures and may instruct the vote counters to
disregard all votes cast for such nominee. Each such notice given by a
stockholder to the corporate secretary with respect to proposals to be brought
before a meeting must set forth in writing as to each matter: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting; (ii) the name and address
of the stockholder proposing such business; (iii) the class and number of
shares of First Place common stock which are beneficially owned by the
stockholder; and (iv) any material interest of the stockholder in such
business.
FFY Financial. FFY Financial's bylaws set forth procedures to be followed by
stockholders seeking to make nominations for directors and proposals for new
business. FFY Financial's bylaws provide nominations for directors by
stockholders must be made in writing and delivered to the Secretary of FFY
Financial at least 60 days prior to the meeting date. If, however, less than 70
days' notice of the date of the meeting is first given or made to stockholders
by public announcement or mail, then nominations must be received by FFY
Financial not later than the close of business on the tenth day following the
earlier of the day on which notice of the date of the meeting was mailed or the
day on which public announcement of the date of the meeting was first made.
Each such notice given by a stockholder with respect to nominations for the
election of directors must set forth (1) each person nominated by the
stockholder for election to the board and the information required about each
nominee in a proxy statement; (2) the name and address as they appear on the
FFY Financial's books of such stockholder; and (3) the class and number of
shares that are beneficially owned by such stockholder. The presiding officer
of the stockholders' meeting may disregard any nomination not made in
accordance with these procedures and may instruct the vote counters to
disregard all votes cast for such nominee. Each such notice given by a
stockholder to the corporate secretary with respect to proposals to be brought
before a meeting must set forth in writing as to each matter: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting; (ii) the name and address
of the stockholder proposing such business; (iii) the class and number of
shares of FFY Financial common stock which are beneficially owned by the
stockholder; and (iv) any material interest of the stockholder in such
business.
58
State Anti-Takeover Statutes
General. Under the business combination statute of Delaware law, a
corporation is prohibited from engaging in any business combination with an
interested stockholder who, together with its affiliates or associates, owns,
or who is an affiliate or associate of the corporation and within a three-year
period did own 15% or more of the corporation's voting stock for a three year
period following the time the stockholder became an interested stockholder,
unless:
. prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
and interested stockholder;
. the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
. at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at
an annual or special meeting and not by written consent, of at least 66
2/3% of the outstanding voting shares of the corporation, excluding
shares held by that interested stockholder.
A business combination generally includes:
. mergers, consolidations and sales or other dispositions of 10% or more of
the assets of a corporation to or with an interested stockholder;
. specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or bylaws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
First Place. Because First Place has not adopted any provision in its
certificate of incorporation to "opt-out" of the Delaware business combination
statute, the statute is applicable to business combinations involving First
Place. The First Place amended and restated certificate of incorporation will
also not contain a provision to "opt-out" of the Delaware business combination
statute.
FFY Financial. Because FFY Financial has not adopted any provision in its
certificate of incorporation to "opt-out" of the Delaware business combination
statute, the statute is applicable to business combinations involving FFY
Financial.
Fair Price Provisions
First Place. The First Place certificate of incorporation requires that any
merger or business combination of First Place or any of its subsidiaries with
an interested stockholder or any other corporation that is or would be an
affiliate of an interested stockholder, requires the affirmative vote of at
least 80% of the voting power of the then-outstanding stock of First Place
entitled to vote.
FFY Financial. FFY Financial's certificate of incorporation has a similar
provision requiring the vote of 80% of outstanding stock.
59
MARKET PRICES AND DIVIDEND INFORMATION
First Place. First Place common stock is listed on the Nasdaq Stock Market
under the symbol "FPFC." The following table lists the high and low prices per
share for First Place common stock as reported on the Nasdaq Stock Market, and
the quarterly cash dividends declared by First Place for the periods indicated.
First Place common stock began trading on the Nasdaq Stock Market on January 4,
1999. Therefore, we present no historical data for the price of First Place
common stock prior to the first calendar quarter of 1999.
Common Stock
---------------------------
Calendar Period High Low Dividends
- --------------- -------- -------- ---------
1998
Quarter ended March 31............................ N/A N/A N/A
Quarter ended June 30............................. N/A N/A N/A
Quarter ended September 30........................ N/A N/A N/A
Quarter ended December 31......................... N/A N/A N/A
1999
Quarter ended March 31............................ $11.4375 $ 10.125 --
Quarter ended June 30............................. $ 12.375 $ 9.625 $0.075
Quarter ended September 30........................ $12.9375 $ 11.375 $0.075
Quarter ended December 31......................... $ 12.25 $10.4375 $0.075
2000
Quarter ended March 31............................ $11.4375 $ 10.00 $0.075
Quarter ended June 30............................. $10.9375 $ 9.4375 $0.100
FFY Financial. FFY Financial common stock is listed on the Nasdaq Stock
Market under the symbol "FFYF." The following table lists the high and low
prices per share for FFY Financial common stock as reported on the Nasdaq Stock
Market, and the quarterly cash dividends declared by FFY Financial for the
periods indicated.
Common Stock
-----------------------
Calendar Period High Low Dividends
- --------------- ------ ------ ---------
1998
Quarter ended March 31................................ $18.00 $15.94 $0.1000
Quarter ended June 30................................. $17.63 $16.19 $0.1000
Quarter ended September 30............................ $18.69 $13.13 $0.1125
Quarter ended December 31............................. $17.75 $13.25 $0.1125
1999
Quarter ended March 31................................ $18.88 $16.75 $0.1125
Quarter ended June 30................................. $19.00 $16.88 $0.1125
Quarter ended September 30............................ $19.00 $18.38 $0.1250
Quarter ended December 31............................. $19.00 $11.88 $0.1250
2000
Quarter ended March 31................................ $13.13 $10.50 $0.1250
Quarter ended June 30................................. $11.44 $ 9.38 $0.1250
60
The following table shows the closing price per share of First Place common
stock and FFY Financial common stock on (i) May 23, 2000, which is the last
business day preceding the public announcement of the proposed merger; and (ii)
[ ], 2000, which is the last practicable trading day prior to the mailing
of this joint proxy statement/prospectus.
First Place FFY Financial
Date Common Stock Common Stock
---- ------------ -------------
May 23, 2000........................................ $9.75 $10.00
[ ], 2000.......................................
You should obtain current market quotations for First Place common stock and
FFY Financial common stock as the market price of First Place's common stock
and FFY Financial's common stock will fluctuate between the date of this joint
proxy statement/prospectus and the date on which the merger is completed, and
thereafter. Because the number of shares of First Place common stock that FFY
Financial stockholders will receive is generally fixed and because the market
price of First Place common stock fluctuates, the value of the shares of First
Place common stock that FFY Financial stockholders would receive may increase
or decrease prior to and after the merger.
61
FIRST PLACE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
First Place was formed with the conversion of First Federal from a
federally-chartered mutual savings and loan association to a federally-
chartered stock savings and loan association. First Federal is a community-
oriented financial institution engaged primarily in gathering deposits to
originate one- to- four family residential mortgage loans and consumer loans.
Management's discussion should be read in conjunction with the consolidated
financial statements and footnotes.
On May 12, 2000, First Place acquired The Ravenna Savings Bank in a tax-free
exchange accounted for as a purchase. First Place issued treasury stock valued
at $23.9 million on the date the transaction was consummated to acquire all of
the outstanding shares of Ravenna. At the date of acquisition, Ravenna was
merged into First Federal.
Financial Condition at June 30, 2000 and 1999
Total assets increased $304.3 million, or 40.7%, and totaled $1,051.6
million at June 30, 2000 compared to $747.3 million at June 30, 1999. The
increase in assets was primarily attributable to growth in loans receivable and
the purchase of Ravenna.
Securities available for sale as of June 30, 2000 increased $11.9 million or
4.8% and totaled $261.1 million compared to $249.2 million at June 30, 1999.
Equity and debt securities increased $23.2 million and $4.2 million, while
mortgage-backed securities decreased $15.5 million. The increase in equity
securities was a result of First Place's purchase of FNMA and FHLMC preferred
stock.
Net loans receivable increased from $453.8 million at June 30, 1999 to
$705.1 million at June 30, 2000. This growth was primarily concentrated in one-
to- four family and construction loans, which comprised 80.3% of the growth. Of
the total increase, $150.5 million were acquired from Ravenna. The increase in
loans from Ravenna included $12.1 million of loans held for sale as Ravenna had
an active mortgage bank operation that is being continued by First Federal.
While First Place remains committed to its traditional mortgage lending
business, continued focus is being placed on diversification of the portfolio.
This diversification was evidenced by the fact that each loan portfolio grew
during 2000, including increases in consumer loans of $18.5 million, commercial
real estate loans of $17.6 million and multi-family loans of $12.2 million. The
commercial loan portfolio grew to $9.1 million at June 30, 2000 and First Place
management anticipates growth in this portfolio to accelerate in 2001 as the
new commercial loan department concentrates on growing the portfolio.
Total deposits were $586.7 million at June 30, 2000, an increase of $157.5
million, or 36.7%, compared to $429.2 million at June 30, 1999. This increase
was concentrated in certificates of deposit and money market funds and was
primarily due to the acquisition of Ravenna which contributed $118.3 million of
the growth.
Federal Home Loan Bank Advances increased $133.0 million to $227.8 at June
30, 2000 compared to $94.8 million at June 30, 1999. Management uses FHLB
advances as a source to fund loan growth and as a source for longer term
borrowings which are not as readily available through retail deposits. As First
Place management identifies the need for additional advances, it plans to
acquire additional FHLB stock and increase its borrowing capacity. Securities
sold under agreement to repurchase increased $20.6 million during 2000.
Repurchase agreements are obtained through brokers and secured by mortgage-
backed securities. First Place management intends to utilize this funding
source as needed to help fund loan growth and when attractive rates can be
obtained compared to the other funding alternatives.
62
Total shareholders' equity decreased to $148.0 million at June 30, 2000
compared to $158.1 million at June 30, 1999. This decrease was primarily due to
the treasury stock and recognition and retention plan shares acquired and the
increase in the unrealized loss on securities available for sale.
Comparison of Results of Operations for Years Ended June 30, 2000 and 1999
General. Net income for the year ended June 30, 2000 was $6.8 million,
compared to $2.1 million for the year ended June 30, 1999. The increase in net
income was due to an increase in net interest income of $3.4 million, an
increase in noninterest income of $466,000 and a decrease in noninterest
expense of $4.8 million which was partially offset by an increase in the
provision for loan losses of $1.2 million and an increase in the income tax
provision of $2.7 million. The increase in net income was significantly
impacted by the $8.0 million contribution to fund the Foundation which was
charged to earnings during 1999. Excluding this item, net income would have
been $7.4 million in 1999. Basic and diluted earnings (loss) per share for 2000
totaled $0.75 and ($0.02) for 1999 (since conversion).
Net interest income. Net interest income increased $3.4 million, or 15.2%,
and totaled $25.8 million for the year ended June 30, 2000 compared to $22.4
million for the year ended June 30, 1999. The increase in net interest income
was mainly due to an increase in average loans outstanding of $128.7 million,
or 31.8%. This increase was partially offset by an increase in interest
expense, primarily due to the increase in average FHLB advances of $60.1
million, or 85.4%. The net interest margin for the year ended June 30, 2000 was
3.25% compared with 3.42% for the year ended June 30, 1999. Much of the
decrease in margin was due to the increase in the cost of funds from 4.65% in
1999 to 4.94% in 2000, primarily due to higher rates on FHLB advances and NOW
and money market deposit accounts.
Total interest income increased $10.4 million and totaled $58.5 million for
the year ended June 30, 2000 compared to $48.1 million for the year ended June
30, 1999. This 21.6% increase was primarily due to the increase in average
loans outstanding discussed above and to a lesser extent the $14.9 million
increase in average investment securities as well as an increase in the yields
on investment and mortgage backed securities.
Total interest expense increased $7.0 million, or 27.2%. Deposit interest
expense increased $1.8 million to $20.7 million for the year ended June 30,
2000. The expense for borrowed funds (FHLB advances and repurchase agreements)
increased $5.2 million to $12.0 million. The increase in deposit expense and
the cost of borrowed funds is attributed to both an increase in the average
balances and an increase in rates paid.
Provision for loan losses. The provision for loan losses increased $1.2
million for the year ended June 30, 2000 compared to the year ended June 30,
1999. During the year ended June 30, 2000, additional provision was accrued due
to higher levels of nonperforming assets, and the increase in charge-offs in
2000. The increase in the provision during 2000 was primarily due to an
increase in impaired loans for which First Place management specifically
allocated a portion of the allowance, the increase in the level of
nonperforming loans and an increase in net charge-offs. The increase in
impaired and nonperforming loans was due in part to loans acquired in the
Ravenna acquisition and not due to any changes in underwriting standards of
First Place. At June 30, 2000, the allowance for loan losses as a percent of
loans increased to 0.86% from 0.79% at June 30, 1999. However, the allowance as
a percentage of nonperforming loans dropped from 230.23% at June 30, 1999 to
93.67% at June 30, 2000. While the allowance coverage of nonperforming loans
declined, management feels that based on its analysis of individual problem
loans and the collateral supporting these loans, the allowance for loan losses
is adequate at June 30, 2000.
Noninterest income. Noninterest income increased $466,000, or 23.5%, to $2.4
million for the year ended June 30, 2000, from $2.0 million for the prior year.
This increase was partially due to increased fee income associated with NOW
accounts and automated teller machine transactions. Also contributing to the
increase in noninterest income were gains recognized on the sale of loans from
mortgage banking activities.
63
Noninterest expense. Noninterest expense decreased $4.8 million to $15.9
million for the year ended June 30, 2000 compared to $20.7 million for the
prior year. The decrease in noninterest expense was primarily due to the $8.0
million contribution to the Foundation recorded in 1999. Salaries and benefits
increased $2.0 million or 30.3% compared to the year ended June 30, 1999. The
increase was due to an increase in benefit expense, primarily from the
recognition and retention plan, as well as an increase in salaries due to the
increase in the level of staffing. The increase in personnel costs from the
Ravenna acquisition is expected to increase salaries in 2001 since the impact
in 2000 reflected less than two months salaries for the additional staffing.
Noninterest expense also increased due to merger related costs of $690 thousand
recorded during 2000. Merger related charges primarily related to professional
fees for converting data systems and staff severance and bonus arrangements.
Other noninterest expenses increased $786,000 during 2000. The increase was
primarily due to increased marketing expenditures, the costs incurred for
closing a branch facility and other general increases from operations due to
the increased size of First Place.
Income taxes. The provision for income taxes totaled $3.3 million in 2000
compared to $616,000 in 1999. This increase reflects the higher level of income
before taxes.
Comparison of Results of Operations for Years Ended June 30, 1999 and 1998
General. Net income for the year ended June 30, 1999 was $2.1 million,
compared to $4.1 million for the year ended June 30, 1998. The decrease in net
income was primarily the result of an $8.0 million contribution to fund the
Foundation. Excluding this item, net income would have been $7.4 million.
Basic and diluted earnings (loss) per share (since conversion) for 1999,
totaled ($0.02). Earnings per share are not presented for the prior year since
the conversion was not completed until December 31, 1998.
Net interest income. Net interest income increased $5.4 million, or 32.3%,
and totaled $22.4 million for the year ended June 30, 1999 compared to $17.0
million for the year ended June 30, 1998. The increase in net interest income
was mainly due to an increase in average loans outstanding of $89.3 million, or
28.3%. In addition, the net interest margin for the year ended June 30, 1999
was 3.42% compared with 3.00% for the year ended June 30, 1998. Much of the
increase in margin was due to the use of the proceeds from the conversion to
fund the increase in loans outstanding.
Total interest income increased $5.6 million and totaled $48.1 million for
the year ended June 30, 1999 compared to $42.5 million for the year ended June
30, 1998. This 13.3% increase was primarily due to the increase in average
loans outstanding discussed above partially offset by a decrease in the yield
on earning assets of 20 basis points.
Total interest expense remained flat year to year increasing by $170,000, or
less than 1%. While deposit expense declined $974,000 to $18.9 million for the
year ended June 30, 1999, the expense for borrowed funds (FHLB advances and
repurchase agreements) increased $1.1 million to $6.8 million. The decrease in
deposit expense was primarily due to the lower rate environment in 1999
resulting in a reduction in the rates paid on certificates of deposit. The
increase in the cost of borrowed funds reflects the increased volume in 1999
compared to 1998.
Provision for loan losses. The provision for loan losses declined $717,000
for the year ended June 30, 1999 compared to the year ended June 30, 1998.
During the year ended June 30, 1998, additional provision was accrued due to
higher levels of nonperforming assets, the increase in the size of the indirect
auto portfolio and the possible closing of General Motors' Lordstown plant. For
the year ended June 30, 1999, the allowance for loan losses as a percent of
nonperforming loans had improved to 230.2% compared to 141.3% for the year
ended June 30, 1998. Also, General Motors announced its intention to remain at
their Lordstown facility at least through the year 2004.
64
Noninterest income. Noninterest income increased $230,000, or 13.1%, to $2.0
million for the year ended June 30, 1999, from $1.8 million for the prior year.
This increase was due to increased fee income associated with NOW accounts and
automated teller machine transactions. Also contributing to the increase in
noninterest income were gains realized on the sale of loans from the Akron
secondary market mortgage operation.
Noninterest expense. Noninterest expense increased $10.3 million to $20.7
million for the year ended June 30, 1999 compared to $10.4 million for the
prior year. The increase in expense was primarily attributable to the $8.0
million contribution to the Foundation. Other items included a charge of
$495,000 to terminate a fixed rate advance from the Federal Home Loan Bank and
$330,000 as a result of the establishment of the Employee Stock Ownership Plan
(ESOP). In addition, results for the year ended June 30, 1999 include personnel
expense for the Akron operation for approximately three months and a full
twelve months of personnel expense for the Canfield, Ohio lending operation
that was opened in May of 1998.
Income taxes. The provision for income taxes totaled $616,000 in 1999
compared to $2.5 million in 1998. This decrease reflects the lower level of
income before taxes primarily due to the contribution to the Foundation.
65
Average Balances, Interest Rates and Yields. The following table presents
for the periods indicated the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed in both
dollars and rates. Average balances are derived from daily average balances.
For the Years Ended June 30,
-------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- ------- -------- -------- ------- -------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable, net.. $533,676 $41,221 7.72% $405,036 $32,087 7.92% $315,726 $25,736 8.15%
Mortgage-backed and
related
securities(1).......... 213,218 14,014 6.57 218,181 13,913 6.38 200,866 13,581 6.84
Investment
securities(1) (2)..... 42,132 2,461 6.35 27,177 1,523 5.84 41,498 2,507 6.04
Other earning assets... 4,728 318 6.73 2,710 235 8.67 4,107 306 7.45
FHLB stock............. 7,225 492 6.81 5,216 368 7.06 4,869 352 7.23
-------- ------- -------- ------- -------- -------
Total interest-earning
assets................ 800,979 58,506 7.33 658,320 48,126 7.32 567,066 42,482 7.52
Noninterest-earning
assets: 18,524 23,746 18,267
-------- -------- --------
Total assets........... $819,503 $682,066 $585,333
======== ======== ========
Interest-bearing
liabilities:
NOW and money market
accounts.............. $124,817 4,563 3.66 $114,876 3,705 3.23 $ 95,871 3,301 3.44
Savings accounts....... 65,127 1,392 2.14 67,145 1,465 2.18 68,945 1,661 2.41
Time deposits.......... 269,214 14,706 5.46 246,584 13,716 5.56 251,130 14,898 5.93
Repurchase agreements.. 70,632 4,082 5.78 53,800 3,092 5.75 45,044 2,595 5.76
FHLB advances.......... 130,612 7,914 6.06 70,472 3,704 5.26 52,396 3,057 5.83
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities........... 660,402 32,657 4.94 552,877 25,682 4.65 513,386 25,512 4.97
------- ------- -------
Noninterest-bearing
liabilities............ 17,017 18,655 13,739
-------- -------- --------
Total liabilities...... 677,419 571,532 527,125
Stockholders' equity.... 142,084 110,534 58,208
-------- -------- --------
Total liabilities and
stockholders' equity.. $819,503 $682,066 $585,333
======== ======== ========
Net interest
income/interest rate
spread................. $25,849 2.39% $22,444 2.67% $16,970 2.55%
======= ====== ======= ====== ======= ======
Net interest margin (net
interest income as a
percent of average
interest-earning
assets)................ 3.25% 3.42% 3.00%
====== ====== ======
Average interest-earning
assets to interest-
bearing liabilities.... 121.29% 119.07% 110.46%
====== ====== ======
- --------
(1) Includes unamortized discounts and premiums. Average balance is computed
using the carrying value of securities. The average yield has been computed
using the historical amortized cost average balance for available for sale
securities.
(2) Average yields are stated on a fully taxable equivalent basis.
66
Rate/Volume Analysis of Net Interest Income. The following table presents
the dollar amount of changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase or decrease related to changes in balances
and/or changes in interest rates. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (i.e., changes in volume multiplied by
old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old
volume). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
Year Ended June 30, 2000 Year Ended June 30, 1999
Compared to Compared to
Year Ended June 30, 1999 Year Ended June 30, 1998
---------------------------- ---------------------------
Increase
Increase (Decrease) Due
(Decrease) Due to to
------------------ -----------------
Volume Rate Net Volume Rate Net
--------- -------- -------- ----------------- --------
(Dollars in thousands)
Interest-earning assets:
Loans receivable,
net.................. $ 10,221 $ (1,087) $ 9,134 $ 7,095 $ (744) $ 6,351
Mortgage-backed and
related securities... (355) 456 101 1,225 (893) 332
Investment
securities........... 764 174 938 (903) (81) (984)
Other earning assets.. 258 (175) 83 (93) 22 (71)
FHLB stock............ 142 (18) 124 24 (8) 16
-------- -------- -------- ------- -------- --------
Total interest-
earning assets..... 11,030 (650) 10,380 7,348 (1,704) 5,644
-------- -------- -------- ------- -------- --------
Interest-bearing
liabilities:
NOW and money market
accounts............. 346 512 858 616 (212) 404
Savings accounts...... (44) (29) (73) (42) (154) (196)
Time deposits......... 1,265 (275) 990 (266) (916) (1,182)
Repurchase
agreements........... 967 23 990 502 (5) 497
FHLB advances......... 3,269 941 4,210 970 (323) 647
-------- -------- -------- ------- -------- --------
Total interest-
bearing
liabilities........ 5,803 1,172 6,975 1,780 (1,610) 170
-------- -------- -------- ------- -------- --------
Net change in net
interest income........ $ 5,227 $ (1,822) $ 3,405 $ 5,568 $ (94) $ 5,474
======== ======== ======== ======= ======== ========
Asset and Liability Management and Market Risk
General. The principal market risk affecting First Federal is interest rate
risk. First Federal does not maintain a trading account for any class of
financial instrument, and First Federal is not affected by foreign currency
exchange rate risk or commodity price risk. Because First Federal does not hold
any equity securities other than stock in the FHLB of Cincinnati, First Federal
is not subject to equity price risk.
First Federal, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. As part of its efforts to monitor and
manage the interest rate risk of First Federal, the Board of Directors has
adopted an interest rate risk policy which charges the Board with reviewing
quarterly reports related to interest rate risk and to set exposure limits for
First Federal as a guide to senior management in setting and implementing day
to day operating strategies.
Quantitative Aspects of Market Risk. As part of its efforts to monitor and
manage interest rate risk, First Federal uses the net portfolio value ("NPV")
methodology adopted by the OTS as part of its capital regulations. In essence,
NPV is the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities. First
Federal uses a net portfolio value simulation model prepared in-house as the
primary method of managing interest rate risk. The model utilizes the actual
cash flows and repricing characteristics of its assets and liabilities and
incorporates market-based assumptions
67
regarding the impact of changing interest rates on future volumes and
prepayment rates. For purposes of valuing core deposit products, valuations
derived by the OTS for First Federal each quarter are utilized.
Presented below, as of June 30, 2000, is an analysis of First Federal's
interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis point increments in market interest
rates. The percentage changes fall within the policy limits set forth by the
board of directors of First Federal.
NPV as % of
Portfolio
Interest Rates Net Portfolio Value Value of Assets
In Basis Points ------------------------------------- ----------------------
(Rate Shock) Amount $ Change % Change NPV Ratio Change
- --------------- ------ -------- -------- --------- ------
(Dollars in thousands)
300 $ 44,312 $(63,498) -58.90% 4.92% -591 bp
200 64,875 (42,935) -39.82 6.96 -386
100 86,268 (21,542) -19.98 8.95 -187
0 107,810 -- -- 10.82 --
(100) 126,227 18,417 17.08 12.31 149
(200) 128,490 20,680 19.18 12.35 152
(300) 117,764 9,954 9.23 11.28 46
As illustrated in the table, First Federal's NPV is more sensitive to
increases in interest rates than to decreases. This sensitivity arises because
as interest rates rise, borrowers become less likely to prepay fixed-rate loans
than when rates are falling. Since a majority of First Federal's assets have
longer terms and its liabilities have shorter terms, an increase in market
interest rates results in the cash flow characteristics of First Federal's
liabilities changing more rapidly than the cash flow characteristics of its
assets resulting in a decrease in NPV from the base.
In evaluating First Federal's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
table must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in varying
degrees to changes in market interest rates. In addition, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Furthermore, in the event of a change in interest
rates, prepayments on loans and mortgage-backed securities and early
withdrawals of certificates of deposit would likely deviate significantly from
those assumed in calculating the table. Therefore, the actual effect of
changing interest rates may differ from that presented in the foregoing table.
The board of directors and management of First Federal believe that certain
factors afford First Federal the ability to operate successfully despite its
exposure to interest rate risk. First Federal manages its interest rate risk by
maintaining capital and liquidity well in excess of regulatory requirements.
First Federal continually manages interest rate risk, and formally measures
changes in interest rate risk quarterly using its own interest rate risk model,
as well as the OTS model outlined above. The board of directors sets interest
rate risk limits to give management guidelines and limitations as to how much
risk can be maintained. The guidelines are reviewed periodically to ensure
effectiveness. Management makes adjustments to both assets and liabilities
continuously to mitigate interest rate risk exposure.
68
Liquidity and Capital Resources
Liquidity. First Federal's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
These activities are summarized below for the years ended June 30, 2000 and
1999.
Year Ended June
30,
-------------------
2000 1999
-------- ---------
(Dollars in
thousands)
Net income............................................ $ 6,814 $ 2,055
Adjustments to reconcile net income to net cash from
operating activities................................. (336) 6,999
-------- ---------
Net cash from operating activities.................... 6,478 9,054
Net cash used in investing activities................. (86,623) (141,286)
Net cash from financing activities.................... 87,717 131,412
-------- ---------
Net change in cash and cash equivalents............... 7,572 (820)
Cash and cash equivalents at beginning of period...... 5,849 6,669
-------- ---------
Cash and cash equivalents at end of period............ $ 13,421 $ 5,849
======== =========
First Federal's sources of funds include customer deposits, other borrowings
including FHLB advances and repurchase agreements, loan and mortgage-backed
securities repayments and other funds provided by operations. First Federal
also has the ability to borrow additional funds from the FHLB of Cincinnati.
First Federal maintains investments in liquid assets based upon management's
assessment of (i) First Federal's need for funds, (ii) expected deposit flows,
(iii) the yields available on short-term liquid assets, and (iv) the objectives
of First Federal's asset/liability management program. The OTS requires savings
associations to maintain minimum levels of liquid assets. OTS regulations
currently require First Federal to maintain an average daily balance of liquid
assets equal to at least 4.0% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
June 30, 2000 and 1999, First Federal had commitments to originate loans or
fund outstanding lines of credit totaling $47.7 million and $38.3 million,
respectively. First Federal considers its liquidity sufficient to meet its
outstanding short- and long-term needs. First Federal expects to be able to
fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
Capital Resources. Federally insured savings institutions, such as First
Federal, are required to meet a 1.5% tangible capital requirement, a 4.0%
leverage ratio (core capital to risk weighted assets) requirement, a 4.0%
leverage ratio (core capital to adjusted total assets) requirement and an 8.0%
risk-based capital requirement. At June 30, 2000, First Federal exceeded these
requirements with a tangible capital ratio of 8.8%, a core capital to risk
weighted assets ratio of 14.5%, a core capital to adjusted total assets of 8.8%
and a risk-based capital ratio of 15.3%.
Impact of Inflation
Consolidated financial data of First Place included herein has been prepared
in accordance with generally accepted accounting principles (GAAP). Presently,
GAAP requires First Place to measure financial position and operating results
in terms of historical dollars, except for investment and mortgage-backed
securities available for sale which are carried at fair value. Changes in the
relative value of money due to inflation or recession are generally not
considered.
In management's opinion, changes in interest rates affect the financial
condition of First Place to a far greater degree than changes in the inflation
rate. While interest rates are greatly influenced by changes in the inflation
rate, they do not move concurrently. Rather, interest rate volatility is based
on changes in the expected rate of inflation, as well as changes in monetary
and fiscal policy. A financial institution's ability to be
69
relatively unaffected by changes in interest rates is a good indicator of its
capability to perform in a volatile economic environment. In an effort to
protect itself from the effects of interest rate volatility, First Place
reviews its interest rate risk position frequently, monitoring its exposure and
taking necessary steps to minimize any detrimental effects on First Place's
profitability.
70
BUSINESS OF FIRST PLACE
First Place was organized in August 1998 at the direction of the Board of
Directors of First Federal for the purpose of becoming a holding company to own
all of the outstanding capital stock of First Federal. The conversion of First
Federal from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association was completed on
December 31, 1998. On May 12, 2000, Ravenna Savings Bank was merged into First
Federal, creating a company with consolidated assets of $1.1 billion at June
30, 2000. On May 26, 2000, First Place announced that FFY Financial would be
combining with First Place in a merger of equals to form an institution with
$1.7 billion in assets. First Place expects the merger of equals to close in
December of calendar year 2000.
First Federal's principal business consists of accepting retail deposits
from the general public and investing these funds primarily in one- to four-
family residential loans, automobile and home equity loans and, to a lesser
extent, multi-family, commercial real estate, commercial and construction
loans. Headquartered in Warren, Ohio, in proximity to Youngstown, Ohio and
approximately halfway between the cities of Cleveland, Ohio and Pittsburgh,
Pennsylvania, First Federal is a community-oriented savings institution that
was organized in 1922. First Federal currently operates fourteen full-service
banking facilities, two limited service banking facilities and six loan
production offices. The banking facilities of First Federal are located in
Trumbull, Mahoning and Portage Counties of Ohio while the loan production
offices are spread throughout northeast Ohio.
The major employers in the Youngstown/Warren area include Delphi Packard
Electric Systems, General Motors, MCI Worldcom and HM Health Systems. First
Place's business and operating results could be significantly affected by
changes in general economic conditions, as well as changes in population
levels, unemployment rates, strikes and layoffs.
Competition
First Federal faces significant competition both in making loans and in
attracting deposits. The State of Ohio has a high density of financial
institutions, many of which are branches of significantly larger institutions
that have greater financial resources than First Federal, and all of which are
competitors of First Federal to varying degrees. First Federal's competition
for loans comes principally from savings banks, savings and loan associations,
commercial banks, mortgage banking companies, credit unions, insurance
companies and other financial service companies. Its most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks and credit unions. First Federal faces additional
competition for deposits from non-depository competitors such as the mutual
fund industry, securities and brokerage firms and insurance companies.
Competition may also increase as a result of the lifting of restrictions on the
interstate operations of financial institutions.
Lending Activities
General. First Federal's principal lending activity is the origination of
conventional real estate loans secured by one- to four-family residences
located in First Federal's primary market area. First Federal also originates
fixed rate mortgage loans which, if they qualify, may be sold to various
investors including the Federal Home Loan Mortgage Corporation (FHLMC) and the
Federal National Mortgage Association (FNMA). First Federal also originates
automobile and other consumer loans that generally have higher yields and
shorter durations than traditional mortgage loans. First Federal additionally
offers multifamily and nonresidential real estate loans.
71
The following table presents the composition of First Federal's loan
portfolio in dollar amounts and in percentages of the respective portfolios at
the dates indicated.
At June 30,
----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
Real estate mortgage
loans:
One- to four family.... $527,543 71.68% $357,374 76.09% $267,950 73.77% $215,549 73.92% $202,697 78.14%
Multi-family........... 17,068 2.32 4,804 1.02 4,481 1.23 2,293 0.79 1,397 0.54
Commercial real
estate................ 27,787 3.78 10,192 2.17 8,627 2.38 6,789 2.33 7,159 2.76
Construction........... 45,770 6.22 13,993 2.98 6,301 1.73 5,376 1.84 2,515 0.97
Home equity............ 17,768 2.41 8,944 1.90 9,189 2.53 9,822 3.37 6,531 2.52
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
mortgage loans........ 635,936 86.41 395,307 84.16 296,548 81.64 239,829 82.25 220,299 84.93
Consumer loans:
Automobiles............ 62,694 8.52 53,243 11.34 52,847 14.55 43,172 14.80 31,234 12.04
Home equity lines of
credit................ 25,584 3.48
Other(1)............... 2,679 0.36 19,217 4.09 11,242 3.10 6,521 2.24 6,675 2.57
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans... 90,957 12.36 72,460 15.43 64,089 17.65 49,693 17.04 37,909 14.61
Commercial loans........ 9,092 1.23 1,925 0.41 2,587 0.71 2,068 0.71 1,188 0.46
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans
receivable............ 735,985 100.00% 469,692 100.00% 363,224 100.00% 291,590 100.00% 259,396 100.00%
====== ====== ====== ====== ======
Less:
Net deferred loan
origination fees...... 1,519 1,867 1,319 1,316 1,517
Loans in process....... 23,250 10,411 5,866 3,339 1,837
Allowance for loan
losses................ 6,150 3,623 3,027 1,723 1,259
-------- -------- -------- -------- --------
Loans receivable, net... $705,066 $453,791 $353,012 $285,212 $254,783
======== ======== ======== ======== ========
- --------
(1) Other consumer loans consists primarily of home equity lines of credit in
prior years.
72
Loan Originations. First Federal's mortgage lending activities are conducted
primarily by its loan personnel operating from its loan production offices. All
loans originated by First Federal are underwritten by First Federal pursuant to
First Federal's policies and procedures. First Federal originates both
adjustable-rate and fixed-rate mortgage loans, commercial loans and consumer
loans. First Federal's ability to originate fixed- or adjustable-rate loans is
dependent upon the relative customer demand for such loans, which is affected
by the current and expected future level of interest rates.
The following tables presents First Federal's loan originations and
principal repayments for the periods indicated.
For the Years Ended June
30,
--------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Total loans receivable(1):
Balance outstanding at beginning of period......... $459,281 $357,358 $288,251
Loans purchased (Ravenna Savings Bank)............. 161,061
Loans originated(2):
Real estate mortgage loans:
One- to four-family and home equity............ 124,407 152,962 105,184
Multi-family and commercial real estate........ 14,199 3,675 4,515
Construction................................... 21,096 15,898 7,882
Consumer loans(3)................................ 43,598 46,158 33,457
Commercial loans................................. 8,279 321 62
-------- -------- --------
Total loans originated......................... 211,579 219,014 151,100
Less:
Principal repayments............................. 106,347 112,546 79,466
Change in loans in process(4).................... 12,839 4,545 2,527
-------- -------- --------
Total loans receivable at end of period.............. $712,735 $459,281 $357,358
======== ======== ========
- --------
(1) Total loans receivable does not include unearned discounts, deferred loan
fees and the allowance for loan losses.
(2) Amounts for each period include loans in process at period end.
(3) Consists primarily of originations of automobile loans and disbursements on
equity lines of credit.
(4) Represents change in loans in process, which primarily represent
undisbursed funds on construction loans, from first day to last day of the
period.
73
Loan Maturity and Repricing. The following table shows the contractual
maturity of First Federal's loan portfolio at June 30, 2000. Demand loans and
other loans having no stated schedule of repayments or no stated maturity are
reported as due in one year or less. The table does not include prepayments,
scheduled principal amortization or enforcement of due-on-sale clauses.
At June 30, 2000
---------------------------------------
Real Total
Estate Loans
Mortgage Consumer Commercial Receivable
-------- -------- ---------- ----------
(In thousands)
Amounts due:
Within one year....................... $ 21,203 $ 1,292 $7,515 $ 30,010
-------- ------- ------ --------
After one year:
More than one year to three years..... 9,176 15,397 135 24,708
More than three years to five years... 13,094 37,766 1,128 51,988
More than five years to 10 years...... 36,415 13,029 309 49,753
More than 10 years to 20 years........ 134,775 23,128 5 157,908
More than 20 years.................... 421,273 345 -- 421,618
-------- ------- ------ --------
Total due after June 30, 2001........... 614,733 89,665 1,577 705,975
-------- ------- ------ --------
Total amount due.................... 635,936 90,957 9,092 735,985
-------- ------- ------ --------
Less:
Net deferred loan origination fees.... 1,519
Loans in process...................... 23,250
Allowance for loan losses............. 6,150
--------
Loans receivable, net................... $705,066
========
The following table presents at June 30, 2000, the dollar amount of total
loans receivable contractually due after June 30, 2001, and whether such loans
have fixed interest rates or adjustable interest rates.
Due After June 30, 2001
----------------------------
Fixed Adjustable Total
-------- ---------- --------
(In thousands)
Real estate mortgage loans........................ $474,682 $140,051 $614,733
Consumer loans.................................... 64,135 25,530 89,665
Commercial loans.................................. 471 1,106 1,577
-------- -------- --------
Total loans..................................... $539,288 $166,687 $705,975
======== ======== ========
One- to Four-Family Lending. First Federal currently offers both fixed-rate
and adjustable-rate mortgage loans with maturities up to 30 years secured by
one- to four-family residences, substantially all of which are located in First
Federal's primary market area. One- to four-family mortgage loan originations
are generally obtained from First Federal's loan originators, from existing or
past customers, through advertising, and through referrals from local builders,
real estate brokers and attorneys. At June 30, 2000 First Federal's one- to
four-family mortgage loans totaled $527.5 million, or 71.7%, of total loans.
First Federal currently offers fixed-rate one- to four-family mortgage loans
with terms of up to 30 years. These loans have generally been priced
competitively with current market rates for such loans. First Federal currently
offers a number of adjustable-rate mortgage loans with terms of up to 30 years
and interest rates which adjust every year from the outset of the loan or which
adjust annually after a three, five or seven year initial fixed period. The
interest rates for First Federal's adjustable-rate mortgage loans are indexed
to the one-year U.S. Treasury Index. First Federal's adjustable-rate mortgage
loans generally provide for periodic (not more than 2%) and overall (not more
than 6%) caps on the increase or decrease in the interest rate at any
adjustment date and over the life of the loan.
74
The origination of adjustable-rate one- to four-family mortgage loans, as
opposed to fixed-rate one- to four-family mortgage loans, helps reduce First
Federal's exposure to increases in interest rates. However, adjustable-rate
loans generally pose credit risks not inherent in fixed-rate loans, primarily
because as interest rates rise, the underlying payments of the borrower rise,
thereby increasing the potential for default. Periodic and lifetime caps on
interest rate increases help to reduce the risks associated with adjustable-
rate loans but also limit the interest rate sensitivity of such loans.
Generally, First Federal originates one- to four-family residential mortgage
loans in amounts up to 97% of the appraised value or selling price of the
property, whichever is lower, securing the loan. Private mortgage insurance may
be required for such loans with a loan-to-value ratio of greater than 85%. One-
to four-family mortgage loans originated by First Federal generally include
due-on-sale clauses which provide First Federal with the contractual right to
deem the loan immediately due and payable in the event the borrower transfers
ownership of the property without First Federal's consent. Due-on-sale clauses
are an important means of adjusting the yields on First Federal's fixed-rate
one- to four-family mortgage loan portfolio. First Federal requires fire,
casualty, and, in required cases, flood insurance on all properties securing
real estate loans made by First Federal.
Commercial Lending. In the past, First Federal has originated commercial
loans on a very limited basis in the form of term loans and lines of credit to
small- and medium-sized businesses operating in First Federal's primary market
area. During the year, First Federal lent a local bank holding company $7.0
million. This holding company is well capitalized and management felt that the
loan presented very little risk to its balance sheet. Additionally, the wholly
owned subsidiary bank of this holding company deposited $7.0 million with First
Federal for the same term as the loan. At June 30, 2000, First Federal had $9.1
million of commercial loans, which amounted to 1.2% of First Federal's total
loans.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment, and which are
secured by real property whose value tends to be more easily ascertainable,
commercial loans are of higher risk and typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value based on the success of
the business.
It is the intention of First Federal to expand its commercial lending
operations in its primary market. In June of 2000, First Federal hired an
experienced, local commercial banker to lead this division. While First Federal
understands the inherent risks associated with commercial lending, it feels
that bank consolidation in its primary market area is providing opportunities
to grow this area of its business.
Consumer Lending. Consumer loans at June 30, 2000 amounted to $91.0 million,
or 12.4% of First Federal's total loans, and consisted of new and used
automobile loans, home equity lines of credit and secured and unsecured
personal loans. Such loans are generally originated in First Federal's primary
market area and generally are secured by real estate, deposit accounts,
personal property and automobiles. Approximately half of First Federal's
automobile loans are made on used vehicles; First Federal will generally not
make a loan on a vehicle manufactured before 1993. The average automobile loan
is for $13,000. First Federal originates automobile loans through an automobile
dealer network, primarily composed of new car dealers located in First
Federal's primary market area. The typical loan term is sixty-six months. At
June 30, 2000, personal loans (both secured and unsecured) totaled $2.7 million
and automobile loans totaled $62.7 million, or 8.5% of total loans and 68.9% of
consumer loans.
First Federal also offers a variable rate home equity line of credit line
based on the applicant's income and equity in the home. Generally, the credit
line, when combined with the balance of the prior mortgage liens, may not
exceed 95% of the appraised value of the property at the time of the loan
commitment. Home equity lines of credit are secured by a mortgage on the
underlying real estate. First Federal holds the first mortgage on a
75
substantial majority of the properties securing such lines of credit. First
Federal presently charges no origination fees for these loans. A borrower is
required to make monthly payments of principal and interest. At June 30, 2000,
First Federal had outstanding home equity lines of credit of $25.6 million.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family residential mortgage
loans. In such cases, repossessed collateral for a defaulted loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the underlying
collateral. Further, collections on these loans are dependent on the borrower's
continuing financial stability and, therefore, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans in the event of a default.
Sale of Mortgage Loans. During the year ended June 30, 2000, First Federal
continued to expand its secondary mortgage banking operation. The acquisition
of Ravenna Savings Bank broadened the scope of this operation even further as
Ravenna has been selling production to investors for many years. First Federal
originated and sold $17.4 million of fixed-rate mortgages during fiscal year
2000 and recorded a gain of $332,000 on the sale of these loans. First Federal
sells loans both servicing retained as well as servicing released.
Loan Approval Procedures and Authority. The board of directors of First
Federal establishes the lending policies and loan approval limits of First
Federal. As such, the board of directors has designated certain officers of
First Federal to consider and approve all loans within their designated
authority as established by the board.
The board of directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: one- to four-family
mortgage loans up to $240,000 may be approved by any of the designated
officers; one- to four-family mortgage loans in excess of $240,000 and up to
$400,000 may be approved by two of the designated officers; one- to four-family
mortgage loans in excess of $400,000 to $750,000 must be approved by the
residential loan committee plus one outside board member; one- to four-family
mortgage loans in excess of $750,000 must be approved by the directors' loan
committee which is comprised of three outside directors and the President.
Secured consumer loans, including home equity lines of credit, may be approved
by any of the designated officers up to $150,000. Consumer loans over $150,000
and up to $400,000 must be approved by two of the designated officers.
Commercial loans up to $200,000 may be approved by any designated officer with
joint approval required for loans from $200,000 to $400,000. Commercial loans
between $400,000 and $1,000,000 must be approved by two members of the
commercial loan committee plus one outside board member. Commercial loans
greater than $1,000,000 must be approved by the directors' loan committee.
With respect to all loans originated by First Federal, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by an independent credit
agency. If necessary, additional financial information may be required. An
appraisal of real estate intended to secure a proposed loan generally is
required to be performed by First Federal's "in-house" appraisers or outside
appraisers approved by First Federal. The board annually approves independent
appraisers used by First Federal. First Federal's policy is to obtain hazard
insurance on all mortgage loans and flood insurance when necessary and First
Federal may require borrowers to make payments to a mortgage escrow account for
the payment of property taxes and insurance premiums.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies, Classified Assets and Real Estate Owned. Reports listing all
delinquent accounts are generated and reviewed by management on a monthly basis
and the board of directors performs a monthly review of all loans or lending
relationships delinquent 30 days or more. The procedures taken by First Federal
76
with respect to delinquencies vary depending on the nature of the loan, period
and cause of delinquency and whether the borrower is habitually delinquent.
When a borrower fails to make a required payment on a loan, First Federal takes
a number of steps to have the borrower cure the delinquency and restore the
loan to current status. First Federal generally sends the borrower a written
notice of non-payment after the loan is first past due. First Federal's
guidelines provide that telephone, written correspondence and/or face-to-face
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment once a loan becomes 60 days past due. When contact is
made with the borrower at any time prior to foreclosure, First Federal will
attempt to obtain full payment, offer to work out a repayment schedule with the
borrower to avoid foreclosure or, in some instances, accept a deed in lieu of
foreclosure. In the event payment is not then received or the loan not
otherwise satisfied, additional letters and telephone calls generally are made.
Once the loan becomes 90 days past due, First Federal notifies the borrower in
writing that if the loan is not brought current within two weeks, First Federal
will commence foreclosure proceedings against any real property that secured
the loan. If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the property
securing the loan generally is sold at foreclosure and, if purchased by First
Federal, becomes real estate owned.
Federal regulations and First Federal's internal policies require that First
Federal utilize an internal asset classification system as a means of reporting
problem and potential problem assets. First Federal currently classifies
problem and potential problem assets as "Substandard," "Doubtful" or "Loss"
assets. 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 First Federal 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 there continuance as assets, without the establishment
of a specific loss reserve, is not warranted. Assets which do not currently
expose First Federal to a sufficient degree of risk to warrant classification
in one of the aforementioned categories but possess weaknesses are required to
be designated "Special Mention."
When First Federal classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for possible
loan losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When First Federal classifies one or more
assets, or portions thereof, as Loss, it is required either to establish a
specific allowance for losses equal to 100% of the amount of the assets so
classified or to charge off such amount.
First Federal'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. The
OTS, in conjunction with the other federal banking agencies, recently adopted
an interagency policy statement on the allowance for loan and lease losses. The
policy statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy
statement. While First Federal believes that it has established an adequate
allowance for possible loan losses, there can be no assurance that regulators,
in reviewing First Federal's loan portfolio, will not request First Federal to
materially increase at that time its allowance for possible loan losses,
thereby negatively affecting First Federal's financial condition and earnings
at that time. Although management believes that adequate specific and general
loan loss allowances have been established, future provisions are dependent
upon
77
future events such as loan growth and portfolio diversification and, as such,
further additions to the level of specific and general loan loss allowances may
become necessary.
First Federal reviews and classifies its assets on a quarterly basis and the
Board of Directors reviews the results of the reports on a quarterly basis.
First Federal classifies its assets in accordance with the management
guidelines described above. At June 30, 2000, First Federal had $3.0 million,
or 0.29%, of assets designated as Substandard, consisting primarily of mortgage
loans secured by single-family owner-occupied residences. Assets classified as
Doubtful at June 30, 2000, totaled $3.0 million consisting primarily of
mortgage loans secured by single family owner-occupied residences and to a
lesser extent, automobile loans and equity lines of credit. At June 30, 2000,
First Federal had $853,000, or 0.001%, of assets designated as Special Mention,
consisting primarily of mortgage loans. At June 30, 2000, these classified
assets totaled $6.9 million, representing 0.66% of total assets.
The following tables present delinquencies in First Federal's loan portfolio
past due 30 days or more:
At June 30, 2000 At June 30, 1999
--------------------------------- ---------------------------------
30-89 Days 90 Days or More 30-89 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)
Real estate mortgage
loans.................. 59 $2,864 69 $5,258 13 $ 864 37 $1,263
Consumer loans.......... 101 1,071 73 1,308 103 999 45 311
Commercial loans........ -- -- -- -- 4 484 -- --
--- ------ --- ------ --- ------ --- ------
Total delinquent
loans(1)............. 160 $3,935 142 $6,566 120 $2,347 82 $1,574
=== ====== === ====== === ====== === ======
Delinquent loans to
total loans(1)......... 0.55% 0.92% 0.51% 0.34%
====== ====== ====== ======
At June 30, 1998
---------------------------------
30-89 Days 90 Days or More
---------------- ----------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
------ --------- ------ ---------
(Dollars in thousands)
Real estate mortgage
loans.............. 39 $1,298 59 $1,673
Consumer loans...... 138 1,287 58 470
Commercial loans.... -- -- -- --
--- ------ --- ------
Total delinquent
loans(1)......... 177 $2,585 117 $2,143
=== ====== === ======
Delinquent loans to
total loans(1)..... 0.73% 0.60%
====== ======
- --------
(1) Total loans represent gross loans receivable less deferred loan fees and
loans in process.
78
Nonperforming Assets. The following table presents information regarding
nonperforming loans and REO. At June 30, 2000, First Federal had no troubled-
debt restructured loans within the meaning of SFAS 15. There were five REO
properties at June 30, 2000 along with 34 repossessed automobiles. It is the
general policy of First Federal to cease accruing interest on loans 90 days or
more past due when, in management's opinion, the collection of all or a portion
of the loan principal has become doubtful and to fully reserve for all
previously accrued interest. For the years ended June 30, 2000, 1999, 1998,
1997 and 1996 the amount of additional interest income that would have been
recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $531,000, $90,000, $94,000,
$172,000 and $109,000, respectively.
At June 30,
--------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(In thousands)
Nonperforming loans(1):
Real estate mortgage loans.......... $5,258 $1,263 $1,673 $1,767 $ 825
Consumer loans...................... 1,308 311 470 713 200
Commercial loans.................... -- -- -- -- 101
------ ------ ------ ------ ------
Total nonperforming loans......... 6,566 1,574 2,143 2,480 1,126
------ ------ ------ ------ ------
Repossessed automobiles............... 417 208 -- -- --
Real estate owned, net................ 433 -- -- -- --
------ ------ ------ ------ ------
Total nonperforming assets........ $7,416 $1,782 $2,143 $2,480 $1,126
====== ====== ====== ====== ======
Nonperforming loans as a percent of
total loans(2)....................... 0.92% 0.34% 0.60% 0.86% 0.44%
Nonperforming assets as a percent of
total assets(3)...................... 0.71 0.24 0.35 0.45 0.22
- --------
(1) Nonperforming loans represent non-accrual loans. First Federal had no loans
past due greater than 90 days still accruing.
(2) Loans represent loans receivable, net, excluding the allowance for loan
losses.
(3) Nonperforming assets consist of nonperforming loans, REO and repossessed
automobiles.
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan
losses based on management's on-going evaluation of the risks inherent in its
loan portfolio in consideration of the trends in its loan portfolio, the
national and regional economies and the real estate market in First Federal's
primary lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover estimated losses in its loan portfolio
which are deemed probable and estimable based on information currently known to
management. First Federal's loan loss allowance determinations also incorporate
factors and analyses which consider the potential principal loss associated
with the loan, costs of acquiring the property securing the loan through
foreclosure or deed in lieu thereof, the periods of time involved with the
acquisition and sale of such property, and costs and expenses associated with
maintaining and holding the property until sale and the costs associated with
First Federal's inability to utilize funds for other income producing
activities during the estimated holding period of the property.
As of June 30, 2000, First Federal's allowance for loan losses was $6.2
million, or 0.86% of total loans and 93.7% of nonperforming loans as compared
to $3.6 million, or 0.8%, of total loans and 230.2% of nonperforming loans as
of June 30, 1999. The increased allowance for loan losses was due primarily to
specific and classified loss allocations on known problem loans including
certain loans acquired from Ravenna Savings. First Federal had total
nonperforming loans of $6.6 million at June 30, 2000, and nonperforming loans
to total loans of 0.9%. First Federal will continue to monitor and modify its
allowance for loan losses as conditions dictate. Management believes that,
based on information currently available, First Federal's allowance for loan
losses is sufficient to cover losses inherent in its loan portfolio at this
time.
79
The following table presents activity in First Federal's allowance for loan
losses for the periods set forth in the table.
At or For the Years Ended June 30,
--------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Balance at beginning of period........ $3,623 $3,027 $1,723 $1,259 $1,186
Provision for loan losses............. 2,294 1,062 1,779 590 238
Reserves acquired through purchase.... 822
Charge-offs:
Real estate mortgage loans:
One- to four-family............... 92 6 31 -- --
Consumer............................ 628 536 484 138 236
Commercial.......................... -- -- -- -- --
------ ------ ------ ------ ------
Total charge-offs............... 720 542 515 138 236
Recoveries:
Real estate mortgage loans:
One- to four-family............... 65 1 2 3 --
Consumer............................ 66 75 38 9 71
Commercial.......................... -- -- -- -- --
------ ------ ------ ------ ------
Total recoveries................ 131 76 40 12 71
------ ------ ------ ------ ------
Balance at end of period.............. $6,150 $3,623 $3,027 $1,723 $1,259
====== ====== ====== ====== ======
Allowance for loan losses as a percent
of loans(1).......................... 0.86% 0.79% 0.85% 0.60% 0.49%
Allowance for loan losses as a percent
of nonperforming loans(2)............ 93.67 230.23 141.25 69.48 111.81
Net charge-offs as a percent of
average loans........................ 0.11 0.12 0.15 0.05 0.07
- --------
(1) Loans receivable, net, excluding the allowance for loan losses.
(2) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due.
80
The following table presents First Federal's percent of allowance for loan
losses to total allowance and the percent of loans to total loans in each of
the categories listed at the dates indicated.
At June 30,
---------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
Percent Percent of Percent Percent of Percent Percent of
of Loans in of Loans in of Loans in
Allowance Each Allowance Each Allowance Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans Amount
------ --------- ----------- ------ --------- ----------- ------ --------- ----------- ------
(Dollars in thousands)
Real estate
mortgage loans... $4,460 72.52% 86.41% $1,976 54.54% 84.16% $1,458 48.17% 81.64% $ 911
Consumer loans... 1,599 26.00 12.36 1,086 29.98 15.43 901 29.77 17.65 432
Commercial
loans............ 91 1.48 1.23 19 0.52 0.41 9 0.30 0.71 7
Unallocated...... -- -- 542 14.96 -- 659 21.76 -- 373
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for loan
losses.......... $6,150 100.00% 100.00% $3,623 100.00% 100.00% $3,027 100.00% 100.00% $1,723
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
1997 1996
--------------------- ----------------------------
Percent Percent of Percent Percent of
of Loans in of Loans in
Allowance Each Allowance Each
to Total Category to to Total Category to
Allowance Total Loans Amount Allowance Total Loans
--------- ----------- ------ --------- -----------
Real estate
mortgage loans... 52.87% 82.25% $ 836 66.40% 84.93%
Consumer loans... 25.07 17.04 275 21.84 14.61
Commercial
loans............ 0.41 0.71 11 0.87 0.46
Unallocated...... 21.65 -- 137 10.89 --
--------- ----------- ------ --------- -----------
Total allowance
for loan
losses.......... 100.00% 100.00% $1,259 100.00% 100.00%
========= =========== ====== ========= ===========
81
Real Estate Owned. At June 30, 2000, First Federal had five REO in its
portfolio with a net book value of $433,000. When First Federal acquires
property through foreclosure or deed in lieu of foreclosure, it is initially
recorded at fair value of the related assets at the date of foreclosure, less
the costs to sell. Any initial loss is recorded as a charge to the allowance
for loan losses before being transferred to REO. Thereafter, if there is a
further deterioration in value, First Federal provides for a specific valuation
allowance and charges operations for the decrease in value.
Investment Activities
The board of directors of First Federal sets the investment policy and
procedures of First Place and First Federal. This policy generally provides
that investment decisions will be made based on the safety of the investment,
liquidity requirements and, to a lesser extent, potential return on the
investments. In pursuing these objectives, First Place and First Federal
consider the ability of an investment to provide earnings consistent with
factors of quality, maturity, marketability and risk diversification. While the
board of directors has final authority and responsibility for the securities
investment portfolio, First Federal has established an investment committee
comprised of the Chief Executive Officer, the Chief Financial Officer and at
least one member of the Board of Directors to supervise investment activities.
A chief investment officer is appointed annually to oversee daily investment
activities. The investment committee meets quarterly and evaluates all
investment activities for safety and soundness, adherence to First Federal's
investment policy, and assurance that authority levels are maintained.
On October 1, 1998, First Place adopted SFAS No, 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 allowed First
Place a one-time reclassification of securities held to maturity to
classification as available for sale or trading. First Federal transferred
securities with an amortized cost of $27.0 million previously classified as
held to maturity to available for sale upon adoption. The unrealized gain on
the securities transferred totaled $260,000.
During the year, First Federal entered into an interest rate swap agreement
with a notional value of $10.0 million with a national broker/dealer. Under
terms of this agreement, First Federal will pay a fixed rate of interest on the
notional amount of the swap and receive one month LIBOR on the notional amount
of the swap. No other derivative financial instruments are currently being
utilized. Similarly, First Federal does not invest in mortgage-related
securities which are deemed to be "high risk," or purchase bonds which are not
rated investment grade. First Federal believes that interest rate swaps offer a
more efficient way of obtaining longer term fixed rate funding than can be
obtained from certificates of deposit or Federal Home Loan Bank advances. At
June 30, 2000, this interest rate swap qualified as a "cash flow" hedge under
SFAS No. 133.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages.
The issuers of such securities (generally U.S. Government agencies and
government-sponsored enterprises, including FNMA, FHLMC and GNMA) pool and
resell the participation interests in the form of securities to investors and
guarantee the payment of principal and interest. Mortgage-backed securities
generally yield less than the loans that underlie such securities because of
the cost of payment guarantees and credit enhancements. In addition, mortgage-
backed securities are usually more liquid than individual mortgage loans and
may be used to collateralize certain liabilities and obligations of First
Federal. Investments in mortgage-backed securities involve a risk that actual
prepayments will be greater than estimated prepayments over the life of the
security, which may require adjustments to the amortization of any premium
relating to such instruments thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. First Federal estimates prepayments for its
mortgage-backed securities at purchase to ensure that prepayment assumptions
are reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to
82
determine the yield and estimated maturity of its mortgage-backed security
portfolio. The actual maturity of a mortgage-backed security, however, may be
less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is
the most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related
security. Under such circumstances, First Federal may be subject to
reinvestment risk because, to the extent that First Federal's mortgage-backed
securities prepay faster than anticipated, First Federal may not be able to
reinvest the proceeds of such repayments and prepayments at a comparable rate.
Investment Securities. At June 30, 2000, First Federal's investment
securities portfolio totaled $62.2 million. Such portfolio consists of short-
to medium-term (maturities of one to five years) agency securities and
municipal obligations along with longer term positions in FNMA and FHLMC
preferred stock.
The following table presents the composition of First Federal's investment
and mortgage-backed securities portfolios in dollar amounts and in percentages
at the dates indicated:
At June 30,
-----------------------------------------------------
2000 1999 1998
---------------- ---------------- -----------------
Percent Percent
of of Percent
Amount Total Amount Total Amount of Total
-------- ------- -------- ------- -------- --------
(Dollars in thousands)
Available for sale:
U.S. Government
agencies................ $ 26,704 10.23% $ 22,074 8.86% $ 15,797 6.60%
Obligations of states and
political subdivisions.. 6,288 2.41 6,694 2.69 853 0.36
FHLB stock............... 11,413 4.37 5,947 2.39 4,415 1.84
FNMA/FHLMC Preferred
Stock................... 17,707 6.78 -- -- -- --
-------- ------ -------- ------ -------- ------
Total investment
securities.......... 62,112 23.79 34,715 13.94 21,065 8.80
-------- ------ -------- ------ -------- ------
Mortgage-backed securities:
GNMA..................... 55,537 21.27 45,389 18.22 37,714 15.75
FNMA..................... 58,826 22.53 73,755 29.60 50,518 21.09
FHLMC.................... 84,091 32.21 94,636 37.98 100,898 42.13
Other mortgage-backed
securities.............. 485 0.19 664 0.26 990 0.41
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities............ 198,939 76.21 214,444 86.06 190,120 79.38
-------- ------ -------- ------ -------- ------
Total securities available
for sale.................. $261,051 100.00% $249,159 100.00% 211,185 88.18
======== ======== ========
Held to maturity:
U.S. Treasury
securities.............. -- -- -- -- 6,005 2.52
U.S. Government
agencies................ -- -- -- -- 4,147 1.73
Obligations of states and
political subdivisions.. -- -- -- -- 364 0.15
-------- ------ -------- ------ -------- ------
Total investment
securities............ -- -- -- -- 10,516 4.40
-------- ------ -------- ------ -------- ------
Mortgage-backed securities:
GNMA..................... -- -- -- -- 1,512 0.63
FNMA..................... -- -- -- -- 16,267 6.79
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities............ -- -- -- -- 17,779 7.42
-------- ------ -------- ------ -------- ------
Total securities held to
maturity.................. -- -- -- -- 28,295 11.82
-------- ------ -------- ------ -------- ------
Total securities........... $261,051 100.00% $249,159 100.00% $239,480 100.00%
======== ======== ========
83
The table below presents certain information regarding the carrying value,
weighted average yields and contractual maturities of First Federal's
securities portfolio, excluding FHLB stock.
At June 30, 2000
-----------------------------------------------------------------------------------------
More than One More than Five
Year to Five Years to Ten More than
One Year or Less Years Years Ten Years Total
----------------- ----------------- ----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Available for sale:
U.S. Government
agencies.............. $11,910 5.24% $ -- -- % $14,794 7.57% $ -- -- % $ 26,704 6.65%
Obligations of state
and political
subdivisions.......... 185 5.87 5,682 6.36 421 6.14 -- -- 6,288 6.33
FNMA/FHLMC Preferred
Stock................. -- -- -- -- -- -- 17,707 8.89 17,707 8.89
Mortgage-backed
securities:
GNMA................... -- -- -- -- 818 8.36 54,719 6.87 55,537 6.89
FNMA................... -- -- -- -- 8,664 5.85 50,162 6.55 58,826 6.45
FHLMC.................. -- -- 5,206 6.54 4,222 5.74 74,663 6.81 84,091 6.74
Other mortgage-backed
securities............ -- -- -- -- -- -- 485 10.00 485 10.00
------- ------- ------- -------- --------
Total securities
available for sale.... $12,095 5.25 $10,888 6.45 $28,919 6.79 $197,736 6.76 $249,638 6.84
======= ======= ======= ======== ========
Sources of Funds
General. Deposits, loan repayments, cash flows generated from operations
(primarily cash basis net income) and FHLB advances 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 with a range of
interest rates and terms. First Federal's deposit accounts consist of savings,
retail checking/NOW accounts, business checking accounts, money market
accounts, club accounts and certificate of deposit accounts. First Federal
offers jumbo certificates and also offers Individual Retirement Accounts and
other qualified plan accounts.
Although First Federal has a significant portion of its deposits in core
deposits, management monitors activity on First Federal's core deposits and,
based on historical experience and First Federal's current pricing strategy,
believes it will continue to retain a large portion of such accounts. First
Federal is not limited with respect to the rates it may offer on deposit
products.
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 predominantly from the areas
in which its branch offices are located. First Federal relies primarily on
customer service and long-standing relationships with customers to attract and
retain these deposits; however, market interest rates and rates offered by
competing financial institutions affect First Federal's ability to attract and
retain deposits. First Federal uses traditional means of advertising its
deposit products, including radio and print media and generally does not
solicit deposits from outside its primary market area. While jumbo certificates
are accepted by First Federal, and may be subject to preferential rates, First
Federal does not actively solicit such deposits as such deposits are more
difficult to retain than core deposits. First Federal's policies do not permit
the use of brokered deposits.
84
The following table presents the deposit activity of First Federal for the
periods indicated.
For the Years Ended June
30,
---------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Beginning balance.................................. $429,225 $435,462 $412,934
Purchase of Ravenna Savings Deposits............... 118,322
Net deposits (withdrawals)......................... 18,692 (25,121) 2,579
Interest credited on deposit accounts.............. 20,509 18,884 19,949
-------- -------- --------
Total increase (decrease) in deposit accounts...... 157,523 (6,237) 22,528
-------- -------- --------
Ending balance................................... $586,748 $429,225 $435,462
======== ======== ========
At June 30, 2000, First Federal had outstanding $76.0 million in certificate
of deposit accounts in amounts of $100,000 or more, maturing as follows:
Weighted
Maturity Period Amount Average Rate
- --------------- ------- ------------
(Dollars in
thousands)
Three months or less....................................... $ 8,973 5.83%
Over three through six months.............................. 9,645 5.70
Over six through 12 months................................. 32,480 6.31
Over 12 months............................................. 24,882 6.24
-------
Total.................................................... $75,980 6.15
=======
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The following table presents the distribution of First Federal's deposit
accounts at June 30, 2000 and the distribution of the average deposit accounts
for the periods indicated and the weighted average interest rates on each
category of deposits presented.
For the Year Ended June For the Year Ended June For the Year Ended June
At June 30, 2000 30, 2000 30, 1999 30, 1998
-------------------------- -------------------------- -------------------------- --------------------------
Percent Weighted Percent Weighted Percent Weighted Percent Weighted
of Total Average Average of Total Average Average of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Noninterest
bearing demand... $ 11,088 1.89% -- % $ 6,203 1.33% -- % $ 6,027 1.39% -- % $ 4,560 1.08% -- %
NOW and money
market........... 153,056 26.09 4.07 124,817 26.82 3.66 114,876 26.43 3.23 95,871 22.80 3.44
Savings.......... 76,230 12.99 2.37 65,127 13.99 2.14 67,145 15.45 2.18 68,945 16.40 2.41
Certificates of
deposit.......... 346,374 59.03 5.81 269,213 57.86 5.46 246,584 56.73 5.56 251,130 59.72 5.93
-------- ------ -------- ------ -------- ------ -------- ------
Total deposits.. $586,748 100.00% 4.89 $465,360 100.00% 4.41 $434,632 100.00% 4.69 $420,506 100.00% 4.72
======== ====== ======== ====== ======== ====== ======== ======
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The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
Period to Maturity from June 30, 2000
------------------------------------------------------------------------
Less Total at
than One One to Two to Three to Four to Over June 30,
Year Two Years Three Years Four Years Five Years Five Years 2000
-------- --------- ----------- ---------- ---------- ---------- --------
(Dollars in thousands)
Certificate accounts:
0to 4.00%............. $ 3,230 $ 11 $ 346 $ -- $ -- $ 250 $ 3,837
4.01 to 5.00%......... 29,092 5,140 2,727 1,487 513 459 39,418
5.01 to 6.00%......... 82,096 19,616 19,244 2,066 1,741 6,082 130,845
6.01 to 7.00%......... 95,508 42,664 13,180 4,522 8,323 850 165,047
7.01 to 8.00%......... 5,354 204 72 -- 283 -- 5,913
8.01 to 9.00%......... 1,307 -- 6 1 -- -- 1,314
-------- ------- ------- ------ ------- ------ --------
Total at June 30,
1999............... $216,587 $67,635 $35,575 $8,076 $10,860 $7,641 $346,374
======== ======= ======= ====== ======= ====== ========
Borrowings. First Federal's policy has been to utilize borrowings as an
alternative and/or less costly source of funds. First Federal obtains advances
from the FHLB of Cincinnati, which are collateralized by the capital stock of
the Federal Home Loan Bank of Cincinnati held by First Federal, and certain
mortgage loans of First Federal. First Federal also borrows funds through
reverse repurchase agreements with the FHLB of Cincinnati and primary
broker/dealers. Advances from the FHLB of Cincinnati are made pursuant to
several different credit programs, each of which has its own interest rate and
maturity. The maximum amount that the FHLB of Cincinnati will advance to member
institutions, including First Federal, for purposes of other than meeting
withdrawals, fluctuates from time to time in accordance with the policies of
the FHLB of Cincinnati and the OTS. The maximum amount of FHLB of Cincinnati
advances permitted to a member institution generally is reduced by borrowings
from any other source. At June 30, 2000, First Federal's FHLB of Cincinnati
advances totaled $227.8 million.
During the year ended June 30, 2000, First Federal continued to borrow funds
from primary broker/dealers. The borrowings are collateralized by designated
mortgage-backed securities and investment securities. The total of these
borrowings at June 30, 2000, was $75.0 million. First Federal has the right to
freely substitute collateral as long as the margin is at least 95% of all
outstanding borrowings, including accrued interest. First Federal has used
these repurchase agreements in arbitrage strategies, using the funds to
purchase a mix of fixed and adjustable rate mortgage-backed securities, to
generate a spread of approximately 100 to 120 basis points, as well as to help
reduce First Federal's interest rate risk.
First Federal also has an available overnight line-of-credit with the FHLB
of Cincinnati for a maximum of $200.0 million. There was no fee for the line-
of-credit for the year ended June 30, 2000. First Federal may continue to
increase borrowings in the future to fund asset growth. To the extent it does
so, First Federal may experience an increase in its cost of funds.
Personnel
As of June 30, 2000, First Federal had 215 full-time employees and 36 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.
87
FFY FINANCIAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following presents management's discussion and analysis of FFY
Financial's financial condition and results of operations. This discussion and
analysis highlights significant changes in balance sheet items and principal
factors affecting earnings for each of the periods presented. Financial
information for prior years is presented when appropriate to discuss. The
objective of this commentary is to enhance the reader's understanding of the
accompanying financial statements, tables and charts and should be read in
conjunction with the financial statements and notes thereto.
General
FFY Financial is a unitary savings and loan holding company incorporated
under the laws of Delaware and is engaged in financial services through its
wholly-owned subsidiaries, FFY Bank and FFY Holdings, Inc. FFY Bank is a
federally chartered savings bank and FFY Holdings, Inc. invests in entities
offering expanded financial services to its customers. In June 1993, FFY Bank
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank. As part of the conversion, FFY Financial acquired
all of the outstanding common stock of FFY Bank. FFY Holdings, Inc., which was
formed in August 1997, has a one-third interest in Coldwell Banker FFY Real
Estate and a 100% interest in FFY Insurance Agency, Ltd. (formerly known as
Daniel W. Landers Insurance Agency, Ltd.). Real estate services are offered
through Coldwell Banker FFY Real Estate and property and casualty insurance is
offered through FFY Insurance Agency, Ltd.
In May 2000, FFY Holdings, Inc. acquired the minority interest in FFY
Insurance Agency, Ltd. Also in May 2000, FFY Insurance Agency, Ltd. acquired
Moreman-Yerian Insurance Agency, which had an over 100-year history of
providing insurance products to consumers in FFY Financial's market area.
On May 23, 2000, FFY Financial and First Place, the holding company for
First Federal Savings and Loan Association of Warren, entered into a definitive
agreement to combine in a merger of equals. The merger agreement calls for a
tax-free exchange of each outstanding share of FFY Financial common stock for
1.075 shares of First Place common stock, with cash paid in lieu of fractional
shares. In addition, pursuant to the merger agreement, FFY Bank will merge with
First Federal Savings and Loan Association of Warren to become First Place
Bank.
The merger will be accounted for as a purchase and is expected to close in
the fourth quarter of calendar year 2000. The merger agreement has been
approved by the boards of directors of both companies. However, it is subject
to certain other conditions, including the approvals of the stockholders of
both companies and the approvals of regulatory authorities.
Forward-Looking Statements
The words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties including changes in economic conditions in
FFY Financial's market area, changes in policies by regulatory agencies,
fluctuations in interest rate changes in the relationship between short- and
long-term interest rates, demand for loans in FFY Financial's market area and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. FFY Financial
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. FFY Financial wishes
to advise readers that the factors listed above could affect FFY Financial's
financial performance and could cause FFY Financial's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
88
FFY Financial does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Changes in Financial Condition
General. Total assets at June 30, 2000 were $674.5 million compared to
$675.7 million at June 30, 1999, a decrease of $1.2 million, or 0.2%. The
decrease during fiscal year 2000 was primarily due to a decline in the
securities portfolio, partially offset by growth in FFY Bank's loan portfolio.
Total liabilities at June 30, 2000 were $609.3 million compared to $605.6
million at June 30, 1999, an increase of $3.7 million, or 0.6%. This increase
was primarily due to an increase in borrowed funds, partially offset by a
decline in deposit accounts. The discussion below provides greater detail
regarding significant changes in balance sheet items.
Securities Portfolio. FFY Financial's securities portfolio decreased $32.2
million, or 16.9%, during fiscal year 2000 and totaled $158.1 million at June
30, 2000 compared to $190.3 million at June 30, 1999. The decrease during
fiscal year 2000 was comprised primarily of $15.4 million, $8.8 million and
$3.0 million in security sales, principal receipts and maturities,
respectively. Also contributing to the decline in securities was a $5.5 million
increase in the gross unrealized loss in the securities portfolio, resulting
from an increase in interest rates. Management believes that the decline in
fair value is temporary and that there is no impairment of securities. Security
purchases totaling $743,000 partially offset the aforementioned declines.
Proceeds provided by the sales, principal receipts and maturities of securities
were primarily used to fund the growth in loans receivable. A summary of the
securities portfolio can be found in Note 2 of the Notes to Consolidated
Financial Statements contained in this document.
Loan Portfolio. Net loans receivable increased $30.7 million, or 6.80%,
during fiscal year 2000 and totaled $484.5 million at June 30, 2000 compared to
$453.8 million at June 30, 1999.
First mortgage loans at June 30, 2000 totaled $442.9 million, or 88.5% of
total gross loans compared to $412.4 million, or 88.3% of total gross loans at
June 30, 1999. The dollar volume increase in first mortgage loans was primarily
in loans secured by one- to four-family residences and commercial real estate.
One- to four-family residential loans totaled $351.4 million, or 70.2%, of
total gross loans at June 30, 2000, compared to $335.1 million, or 71.7%, of
total gross loans one year earlier. This increase in one- to four-family loans
was largely the result of retaining such newly-originated loans in FFY Bank's
portfolio as opposed to selling them in the secondary market during the
increasing interest rate environment that existed during fiscal year 2000--see
below. Commercial real estate loans totaled $44.6 million, or 8.9%, of the
total gross loans at June 30, 2000, compared to $33.7 million, or 7.2%, of
total gross loans one year earlier. This increase was attributable to FFY
Financial's management identifying commercial real estate lending as a growth
area throughout fiscal 2000.
Consumer and other loans at June 30, 2000 totaled $57.4 million, or 11.5% of
total gross loans compared to $53.5 million, or 11.4% of total gross loans at
June 30, 1999. The dollar volume growth in consumer and other loans was
primarily in home equity loans, which totaled $44.4 million, or 8.9%, of total
gross loans at June 30, 2000, compared to $37.9 million, or 8.1% of total gross
loans one year earlier. Like commercial real estate lending, this increase was
attributable to FFY Financial's management identifying home equity lending as a
growth area throughout fiscal 2000.
FFY Bank's secondary market mortgage lending operation originates and sells
qualifying loans to the Federal National Mortgage Association (Fannie Mae).
During fiscal year 2000, FFY Bank sold 192 loans with an aggregate principal
balance of $14.9 million resulting in a pre-tax gain of $234,000. This compares
to sales in fiscal year 1999 of 390 loans with an aggregate principal balance
of $31.0 million and a pre-tax gain of $720,000. FFY Bank's secondary market
sales slowed during fiscal year 2000 due to rising market interest rates, which
caused us to keep more loans in our portfolio. However, management expects that
the secondary market mortgage lending program will continue as long as market
conditions allow it to be profitable.
89
Deposits. Deposit accounts decreased $11.3 million, or 2.5%, during fiscal
year 2000 and totaled $446.0 million at June 30, 2000 compared to $457.3
million at June 30, 1999. Declines in certificate and passbook accounts of
$10.9 million and $10.1 million, respectively, were partially offset by
increases of $7.7 million and $2.0 in money market and demand accounts,
respectively. The net deposit outflow during fiscal year 2000 was primarily
funded by increased borrowings. The level of deposit flows during any given
period is heavily influenced by factors such as the general level of interest
rates as well as alternative yields that investors may obtain on competing
instruments, such as money market mutual funds and other investments. The
weighted average cost of deposits increased 29 basis points during fiscal year
2000, from 4.27% at June 30, 1999 to 4.56% at June 30, 2000.
Repurchase Agreements and Borrowed Funds. Short-term repurchase agreements
increased $320,000, or 4.8%, during fiscal year 2000 and totaled $6.9 million
at June 30, 2000 compared to $6.6 million at June 30, 1999. Long-term
repurchase agreements totaled $51.3 million at both June 30, 2000 and 1999.
Short-term borrowings decreased $5.3 million, or 23.2%, during fiscal year
2000, whereas long-term borrowings increased $19.3 million, or 32.1%, during
the same period. Short- and long-term borrowings totaled $17.5 million and
$79.3 million, respectively, at June 30, 2000 compared to $22.8 million and
$60.0 million, respectively, at June 30, 1999. Due to the rising interest rate
environment that existed during fiscal year 2000, the weighted average cost of
borrowings increased 162 basis points, from 5.06% at June 30, 1999 to 6.68% at
June 30, 2000. Both short- and long-term borrowed funds consist of advances
from the Federal Home Loan Bank of Cincinnati. Repurchase agreements and
borrowed funds are managed within FFY Financial's guidelines for
asset/liability management, profitability and overall growth objectives.
Stockholders' Equity. Total stockholders' equity declined $4.9 million, or
7.0%, during fiscal year 2000 and totaled $65.2 million at June 30, 2000
compared to $70.1 million at June 30, 1999. This decline resulted principally
from stock repurchases, dividends paid to stockholders and a decline in market
value of available-for-sale securities, net of tax, totaling $7.1 million, $3.1
million and $3.6 million, respectively. These declines were partially offset by
net income for fiscal year 2000 totaling $7.4 million and other increases
totaling $1.5 million. On January 19, 1999, FFY Financial announced a 100%
stock dividend, which is equivalent to a two-for-one stock split, that was paid
on March 5, 1999 to stockholders of record on February 19, 1999. Accordingly,
all share and per share data have been restated as a result of the stock
dividend.
Results of Operations
FFY Financial's results of operations depend primarily on the level of net
interest income, which is the difference, or "spread", between the average
yield earned on interest-earning assets and the average rate paid on interest-
bearing liabilities. Interest-earning assets consist primarily of loans
receivable and securities, whereas interest-bearing liabilities consist
primarily of deposits, repurchase agreements and borrowed funds. The ratio of
average interest-earning assets to average interest-bearing liabilities during
fiscal year 2000 was 1.10:1 compared to 1.13:1 during fiscal year 1999. Net
interest income is affected by both changes in the level of interest rates and
changes in the amount and composition of interest-earning assets and interest-
bearing liabilities. Results of operations are also dependent upon, among other
things, the provision for loan losses, non-interest income, non-interest
expense and income taxes.
Comparison of Years Ended June 30, 2000 and 1999
General. FFY Financial recorded net income for the year ended June 30, 2000
of $7.4 million, a decrease of $780,000, or 9.6%, from net income of $8.1
million for the year ended June 30, 1999. Diluted earnings per share for the
year ended June 30, 2000 were $1.12, a 0.90% increase from diluted earnings per
share of $1.11 for the year ended June 30, 1999. FFY Financial's return on
equity for fiscal year 2000 was 11.28% compared to 10.26% for fiscal year 1999.
Interest Income. Total interest income for the year ended June 30, 2000 was
$49.8 million, an increase of $712,000, or 1.5%, compared to $49.1 million for
the year ended June 30, 1999. Interest income from loans
90
totaled $39.0 million for both of the years ended June 30, 2000 and 1999. A
$4.1 million increase in the average balance of loans receivable was offset by
an 8 basis point decline in yield earned on the loan portfolio. The increase in
total interest income was primarily from an increase in interest earned on the
securities portfolio. Interest income from securities totaled $10.4 million for
the year ended June 30, 2000, an increase of $801,000, or 8.4%, compared to
$9.6 million for the year ended June 30, 1999. The increase in interest from
securities was due to a $10.2 million increase in the average balance of
securities, using amortized cost basis, and a 27 basis point increase in yield
(on a fully-taxable equivalent basis). The average balance of securities, using
amortized cost basis, was $176.3 million and $166.1 million for the years ended
June 30, 2000 and 1999, respectively, and the securities portfolio yielded
6.39% and 6.12% for the same respective periods. Although the average balance
of securities increased comparing June 30, 2000 and 1999, the trend of a
growing securities portfolio reversed during fiscal year 2000 due to proceeds
from securities transactions being primarily used to fund loan growth.
Interest Expense. Total interest expense for the year ended June 30, 2000
was $28.1 million, an increase of $1.6 million, or 6.1%, compared to $26.5
million for the year ended June 30, 1999. The increase in interest expense was
due to an increase in both the average balance and cost of long-term borrowed
funds. The average balance of long-term borrowed funds increased $38.5 million,
from $30.2 million for fiscal year 1999 to $68.7 million for fiscal year 2000.
The average rate paid on long-term borrowed funds increased 87 basis points,
from 5.05% for the year ended June 30, 1999 to 5.92% for the year ended June
30, 2000 as a result of the rising interest rate environment that existed
during fiscal year 2000. The increase in interest expense from long-term
borrowings was partially offset by a decline in interest expense associated
with interest-bearing deposit accounts. The average balance of interest-bearing
deposit accounts declined $10.1 million, from $447.5 million for fiscal year
1999 to $437.4 million for fiscal year 2000. Additionally, a 7 basis point
decline in cost of interest-bearing deposit accounts, from 4.49% for fiscal
year 1999 to 4.42% for fiscal year 2000, contributed to the decline in interest
expense associated with deposit balances. To a lesser extent, rate increases in
short- and long-term repurchase agreements and short-term borrowings, partially
offset by a decline in volume of short-term borrowings, contributed to the
increased interest expense comparing fiscal years 2000 and 1999.
Net Interest Income. Net interest income for the year ended June 30, 2000
totaled $21.7 million, a decline of $896,000, or 4.0%, compared to $22.6 for
the year ended June 30, 1999. FFY Financial's net interest margin declined 16
basis points, from 3.62% for fiscal year 1999 to 3.46% for fiscal year 2000.
The decline in net interest margin was principally due to the increased cost of
borrowings.
Provision for Loan Losses. The provision for loan losses totaled $476,000
for the year ended June 30, 2000 compared to $494,000 for the year ended June
30, 1999. The provision for loan losses reflects management's evaluation of the
underlying credit risk of FFY Bank's loan portfolio to adequately provide for
probable loan losses inherent in the loan portfolio as of the balance sheet
date. The allowance for loan losses totaled 78.4% of non-performing loans at
June 30, 2000, down from 112.3% at June 30, 1999 due to a $1.0 million increase
in non-performing loans, principally one- to four -family loans. FFY
Financial's management analyzes the adequacy of the allowance for loan losses
regularly through reviews of the performance of the loan portfolio, economic
conditions, changes in interest rates and the effect of such changes on real
estate values and changes in the composition of the loan portfolio. Future
additions to the allowance for loan losses will be dependent on these factors.
Management believes that the allowance for loan losses is adequate at June 30,
2000.
Non-Interest Income and Expense. Non-interest income for the year ended June
30, 2000 totaled $2.0 million, a decline of $525,000, or 20.6% compared to $2.6
million for the year ended June 30, 1999 largely due to a $486,000 decline in
gains from sales of loans. The decline in non-interest income was also due to a
$158,000 decrease in gains from security sales comparing fiscal year 2000 to
fiscal year 1999. Partially offsetting the decline was a $209,000 increase in
service charge income, primarily non-sufficient funds charges, service fees on
commercial checking accounts, debit card income and automated teller machine
income. Non-interest expense increased $339,000 in fiscal year 2000 and totaled
$12.8 million for the year compared to $12.5 million for the year ended June
30, 1999 primarily due to $329,000 in expenses related to the proposed
91
merger of equals with First Place. Operating expense to average assets without
the merger expenses totaled 1.87% for fiscal year 2000 compared to 1.88% for
fiscal year 1999.
Income Taxes. Federal income taxes for the year ended June 30, 2000 totaled
$3.0 million, a decline of $992,000 compared to $4.0 million for the year ended
June 30, 1999. The decline in federal income taxes resulted from less income
subject to tax and a reduction in FFY Financial's effective tax rate due to
increased income from tax-exempt securities.
Minority Interest. Minority interest in loss of consolidated subsidiaries
represents the portion of net loss from the real estate and insurance
affiliates not wholly-owned by FFY Holdings, Inc. during the year.
Comparison of Years Ended June 30, 1999 and 1998
General. FFY Financial recorded net income for the year ended June 30, 1999
of $8.1 million, an increase of $411,000, or 5.3%, from net income of $7.7
million for the year ended June 30, 1998. Basic and diluted earnings per share
for the year ended June 30, 1999 totaled $1.15 per share and $1.11 per share,
respectively, compared to $1.03 per share and $0.99 per share, respectively,
for the year ended June 30, 1998. This represents an increase in basic and
diluted earnings per share of 11.7% and 12.1%, respectively. FFY Financial's
return on average equity for fiscal year 1999 was 10.26% compared to 9.28% for
fiscal year 1998.
Interest Income. Total interest income for the year ended June 30, 1999 was
$49.1 million, an increase of $1.1 million, or 2.2%, compared to $48.0 million
for the year ended June 30, 1998. Interest income from loans declined $738,000,
or 1.9%, and totaled $39.0 million for the year ended June 30, 1999 compared to
$39.8 million for year ended June 30, 1998. This decrease was the result of a
20 basis point decline in the average yield earned on loans, from 8.59% to
8.39%, partially offset by an increase of $2.5 million in the average balance
of loans outstanding. The average yield earned on loans declined due to a
decrease in market rates for most of fiscal year 1999. Although net loans
receivable declined $28.6 million from June 30, 1998 to June 30, 1999, the
average balance of loans receivable increased as mentioned previously. The June
30, 1998 loans receivable balance included approximately $17.1 million of
short-term loans made to customers in June 1998 to fund their stock
subscriptions in a local financial institution's initial public offering which
remained outstanding for part of the first quarter of fiscal year 1999, thus
impacting the average balance for fiscal year 1999. Interest income from
securities increased $1.9 million, or 25.3%, and totaled $9.5 million for the
year ended June 30, 1999 compared to $7.6 million for the year ended June 30,
1998. This increase was the result of a $42.5 million increase in the average
balance of securities, primarily Federal agency obligations, municipal
securities and trust preferred securities. The increase in volume of securities
was partially offset by a 29 basis point decline in the average yield on
securities, from 6.41% to 6.12%. The decline in the weighted average yield was
largely the result of reinvesting proceeds from a high level of loan repayments
and prepayments at lower market rates.
Interest Expense. Interest expense increased $955,000, or 3.7%, and totaled
$26.5 million for the year ended June 30, 1999 compared to $25.6 million for
the year ended June 30, 1998. This increase was primarily due to volume
increases in long-term repurchase agreements and borrowed funds, partially
offset by a rate decline in deposits and, to a lesser extent, volume and rate
declines in short-term repurchase agreements. The average balance of long-term
repurchase agreements and borrowed funds increased $17.1 million and $30.2
million, respectively. The average cost of interest on deposits declined 28
basis points, from 4.77% for fiscal year 1998 to 4.49% for fiscal year 1999.
This decline in rate primarily reflects an overall reduction in market interest
rates throughout FFY Financial's 1999 fiscal year.
Net Interest Income. Net interest income increased $122,000 or 0.5%, and
totaled $22.6 million for the year ended June 30, 1999 compared to $22.4
million for the year ended June 30, 1998. FFY Financial's net interest margin
(net interest income as a percentage of average interest-earning assets) was
3.62% for the year ended June 30, 1999, down 19 basis points from 3.81% for the
year ended June 30, 1998. FFY Financial's net interest margin declined due
mainly to a lower yield earned on loans and securities as well as increased
92
borrowings, which tend to have a higher cost than core deposits. However, FFY
Financial's net interest margin was positively affected by lower rates paid on
deposits and short-term borrowings.
Provision for Loan Losses. The provision for loan losses totaled $494,000
for the year ended June 30, 1999 compared to $566,000 for the year ended June
30, 1998. The provision for loan losses reflects management's evaluation of the
underlying credit risk of FFY Bank's loan portfolio to adequately provide for
probable loan losses inherent in the loan portfolio as of the balance sheet
date. The allowance for loan losses totaled 112.3% of non-performing loans at
June 30, 1999, up from 82.4% at June 30, 1998 due primarily to a 29% decline in
non-performing loans. More aggressive collection efforts contributed to the
decline in non-performing loans.
Non-Interest Income. Non-interest income totaled $2.6 million for the year
ended June 30, 1999, an increase of $785,000, or 44.5%, compared to $1.8
million for the year ended June 30, 1998. Largely contributing to this increase
was FFY Bank's secondary market operation, which began during fiscal year 1998
and accounted for $720,000 in gains from loan sales during the 1999 fiscal year
compared to $134,000 in gains from loan sales during the 1998 fiscal year.
Service charge income increased 28.1% from $700,000 for the year ended June 30,
1998 to $897,000 for the year ended June 30, 1999 largely due to increased fees
on NOW accounts and fees from a loan extension program.
Non-Interest Expense. Non-interest expense totaled $12.5 million for the
year ended June 30, 1999, an increase of $724,000, or 6.2%, compared to $11.8
million for the year ended June 30, 1998. Largely contributing to this increase
were the activities of FFY Holding's insurance affiliate, FFY Insurance Agency,
Ltd., which began operations on April 1, 1998, and therefore only had three
months activity during fiscal year 1998. Also contributing to the fiscal year
1999 growth in non-interest expense was increased depreciation, primarily due
to Year 2000 computer-related purchases, and advertising. In addition,
severance pay was awarded to a long-tenured Company officer in December 1998 as
a result of her retirement. FFY Financial's efficiency ratio totaled 49.8% for
the year ended June 30, 1999 compared to 49.1% for the year ended June 30,
1998.
Income Taxes. Federal income taxes totaled $4.0 million for the year ended
June 30, 1999, a decline of $107,000 compared to $4.1 million for the year
ended June 30, 1998. The decline in federal income taxes resulted from a
reduction in FFY Financial's effective tax rate due to increased income from
tax-exempt securities.
Minority Interest. Minority interest in loss of consolidated subsidiaries
represents the portion of the net loss from the real estate and insurance
affiliates not owned by FFY Holdings, Inc.
93
The following table presents for the periods indicated average balance
sheets, the total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest expense on the
average interest-bearing liabilities, and the resultant costs, expressed both
in dollars and rates. Average balances for all years presented are daily
average balances. Interest on non-accruing loans has been included in the table
to the extent received.
Average Balances, Interest Rates and Yields
Years ended June 30,
------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- --------------------------- ---------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
(Dollars in Thousands)
Interest-Earning Assets:
Loans receivable(1).... $469,756 39,046 8.31% $465,622 39,047 8.39% $463,118 39,785 8.59%
Securities available
for sale, net(2)(3)... 168,185 11,269 6.39% 167,217 10,163 6.12% 124,764 7,916 6.41%
FHLB Stock............. 5,023 363 7.23% 4,677 333 7.12% 4,284 312 7.28%
Other.................. 991 34 3.43% 3,343 151 4.52% 5,556 287 5.17%
-------- ------- -------- ------ -------- ------
Total interest-earning
assets(2)............. 643,955 50,712 7.78% 640,859 49,694 7.77% 597,722 48,300 8.10%
------- ------ ------
Noninterest-earning
assets................. 24,257 22,392 20,942
-------- -------- --------
Total assets........... $668,212 $663,251 $618,664
======== ======== ========
Interest-Bearing
Liabilities:
Demand and NOW
accounts.............. $ 73,244 2,204 3.01% $ 63,148 1,613 2.55% $ 54,962 1,399 2.55%
Savings accounts....... 87,852 1,985 2.26% 92,049 2,091 2.27% 100,125 2,683 2.68%
Certificate accounts... 276,300 15,139 5.48% 292,328 16,413 5.61% 291,841 17,200 5.89%
Short-term repurchase
agreements............ 6,913 406 5.87% 9,054 450 4.97% 15,241 872 5.72%
Long-term repurchase
agreements............ 51,300 3,128 6.10% 51,300 2,974 5.80% 34,241 2,043 5.97%
Short-term borrowings.. 20,382 1,194 5.86% 27,596 1,451 5.26% 24,004 1,362 5.67%
Long-term borrowings... 68,680 4,067 5.92% 30,175 1,523 5.05% -- -- --
-------- ------- -------- ------ -------- ------
Total interest-bearing
liabilities........... 584,671 28,123 4.81% 565,650 26,515 4.69% 520,414 25,559 4.91%
------- ------ ------
Noninterest-bearing
liabilities(4)......... 18,311 18,291 14,935
-------- -------- --------
Total liabilities...... 602,982 583,941 535,349
Stockholders' equity.... 65,230 79,310 83,315
-------- -------- --------
Total liabilities and
equity................. $668,212 $663,251 $618,664
======== ======== ========
Net interest income..... $22,589 23,179 22,741
Less fully taxable
equivalent adjustment.. (916) (610) (294)
------- ------ ------
Net interest income per
statement of income.... $21,673 22,569 22,447
======= ====== ======
Net interest rate
spread................. 2.97% 3.08% 3.19%
==== ==== ====
Net earning assets...... $ 59,284 $ 75,209 $ 77,308
======== ======== ========
Net yield on average
interest-earning
assets(2).............. 3.46% 3.62% 3.81%
==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities............ 1.10 x 1.13 x 1.15 x
======= ====== ======
- -------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Yield is calculated without consideration of the unrealized gain (loss) on
securities available for sale.
(3) Interest is presented on a fully taxable equivalent basis using FFY
Financial's federal statutory tax rate of 34%.
(4) Includes noninterest-bearing checking accounts.
94
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (changes in volume multiplied by old rate) and (ii)
changes in rate (changes in rate multiplied by old volume). For purposes of
this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
the change due to rate.
Rate/Volume Analysis
Years ended June 30,
-----------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
-------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
-------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- -------- ---------- ---------- --------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable...... $ 359 (360) (1) $ 210 (948) $ (738)
Securities (1)........ 642 464 1,106 2,620 (373) 2,247
FHLB stock............ 25 5 30 28 (7) 21
Other................. (87) (30) (117) (103) (33) (136)
---------- -------- ------- --------- --------- ------
Total interest-
earning assets..... $ 939 79 1,018 2,755 (1,361) 1,394
========== ======== ======= ========= ========= ======
Interest-bearing
liabilities:
Demand and NOW
accounts............. $ 278 313 591 214 -- 214
Savings accounts...... (97) (9) (106) (204) (388) (592)
Certificate accounts.. (895) (379) (1,274) 29 (816) (787)
Short-term repurchase
agreements........... (117) 73 (44) (319) (103) (422)
Long-term repurchase
agreements........... -- 154 154 991 (60) 931
Short-term
borrowings........... (410) 153 (257) 193 (104) 89
Long-term borrowings.. 2,241 303 2,544 1,523 -- 1,523
---------- -------- ------- --------- --------- ------
Total interest-
bearing
liabilities........ $ 1,000 608 1,608 $ 2,427 (1,471) 956
========== ======== ======= ========= ========= ======
Net interest income
(1).................... $ (590) $ 438
======= ======
- --------
(1) Presented on a fully taxable equivalent basis.
Asset/Liability Management
Asset/liability management is the measurement and analysis of FFY
Financial's exposure to changes in the interest rate environment. Management
analyzes the effects of interest rate changes on net portfolio value and net
interest income over specified periods of time by evaluating FFY Financial's
mix of interest-earning assets and interest-bearing liabilities in varied
interest rate environments. FFY Financial manages this risk on a continuing
basis through the use of a number of strategies as an ongoing part of its
business plan. The objective of asset/liability management is to maintain
consistent growth in net interest income within FFY Financial's policy
guidelines. Management considers interest rate risk to be FFY Financial's most
significant market risk.
Income simulation techniques and net portfolio value analysis are used to
determine FFY Financial's sensitivity to changes in interest rates. The models
are based on actual cash flows and repricing characteristics for on and off
balance sheet instruments, and incorporate market-based assumptions regarding
the impact of changing interest rates on certain assets and liabilities. Actual
results will differ from simulated results due to timing, magnitude and
frequency of interest rate changes. Actual results may also differ due to
changes in market conditions and management strategies.
95
The income simulation modeling employed by FFY Financial measures changes in
net interest income over the next 12- and 24-month periods resulting from
hypothetical rising and declining interest rates. Key assumptions used in this
model include (i) reinvestment of security and mortgage cash flows, (ii) loan
prepayment speeds, (iii) reinvestment of certificate of deposit maturities and
(iv) deposit pricing strategies. As of June 30, 2000, simulation modeling
indicated that with a 200 basis point (bp) increase in interest rates, FFY
Financial's net interest income would be 2.96 percent and 6.76 percent less
than if rates remained constant over the next 12- and 24-month periods,
respectively. As of the same date and a 200bp decrease in interest rates, FFY
Financial's net interest income would be 1.44 percent more and 1.62 percent
less than if rates remained constant over the next 12- and 24-month periods,
respectively. The percentage changes in net interest income are within the
acceptable range established by FFY Financial's board of directors in both a
rising and falling rate environment.
FFY Bank measures the effect of interest rate changes on its net portfolio
value (NPV), which is the difference between the market value of FFY Bank's
assets and liabilities, under different interest rate scenarios. Changes in NPV
are measured using interest rate shocks rather than changes in interest rates
over a period of time as are assumed with the income simulation model. At June
30, 2000, FFY Bank's NPV ratio, using interest rate shocks ranging from a 300bp
rise in rates to a 300bp decline in rates are shown in the following table. All
values are within the acceptable range established by FFY Financial's board of
directors.
Net Portfolio Value
(Bank only)
Basis
Point
Change
in 6/30/00
Rates NPV Ratio
------ ---------
+ 300 6.05%
+ 200 7.40%
+ 100 8.73%
Base 9.86%
- 100 10.50%
- 200 10.65%
- 300 10.88%
A significant part of FFY Bank's asset/liability management focuses on
originating adjustable-rate home equity credit lines. This product is tied to
the prime rate and adjusts monthly depending on fluctuations in the prime
lending rate. Adjustable-rate home equity credit lines totaled $21.2 million at
June 30, 2000, an increase of $14.6 million from $6.6 million at June 30, 1999.
At June 30, 2000, loans with an adjustable rate feature totaled $259.2 million,
or 51.8% of the gross loan portfolio compared to $197.0 million, or 42.2% of
the gross loan portfolio at June 30, 1999. FFY Bank's sale of predominantly
fixed-rate mortgage loans to Fannie Mae decreases FFY Bank's exposure to
interest rate risk and providing income from sales and servicing. Additionally,
the servicing asset hedges FFY Bank against rising rates, as it becomes more
valuable in a rising rate environment, offsetting the decline in the value of
other longer term assets in a rising rate environment.
In order to consolidate its customer base and reduce interest rate risk
while maintaining adequate returns, FFY Bank has increased its investment in
consumer loans over the past several years. While consumer loans are believed
to have a greater risk of default than mortgage loans, consumer loans are
typically much shorter in duration than mortgage loans which serves to reduce
interest rate risk. Management intends to continue to expand FFY Bank's
consumer loan portfolio over the next several years.
Since June 30, 1996, FFY Financial increased its investments in adjustable-
rate securities in an attempt to reduce interest rate risk. At June 30, 2000,
the market value of adjustable-rate securities totaled $42.4 million, or 26.8%
of the total securities portfolio compared to a market value of $694,000, or
0.6% of the total securities portfolio four years earlier.
96
FFY Financial's management may, at times, place greater emphasis on
maximizing net interest margin rather than merely concentrating on interest
rate risk depending on the relationship between short- and long-term interest
rates, market conditions and consumer preference. Management believes that
increased net income resulting from a moderate contrast between the maturity of
its assets and liabilities can provide high enough returns to justify the
increased risk exposure during periods of stable interest rates. Management has
established limits on the amount of its interest rate risk exposure. There can
be no assurance, however, that management's efforts to limit interest rate risk
will be successful.
Liquidity and Cash Flows
In general terms, liquidity is a measurement of FFY Financial's ability to
meet its cash needs. FFY Financial's objective in liquidity management is to
maintain the ability to meet loan commitments, purchase securities or to repay
deposits and other liabilities in accordance with their terms without an
adverse impact on current or future earnings. FFY Financial's principal sources
of funds are deposits, amortization and prepayments of loans, maturities, sales
and principal receipts of securities, borrowings, repurchase agreements and
operations.
Federal regulations require FFY Bank to maintain minimum levels of liquid
assets in each calendar quarter of not less than 4% of either (i) its liquidity
base at the end of the preceding quarter, or (ii) the average daily balance of
its liquidity base during the preceding quarter. FFY Bank's liquidity exceeded
the applicable liquidity requirement at June 30, 2000 and 1999. Simply meeting
the liquidity requirement does not automatically mean FFY Bank has sufficient
liquidity for a safe and sound operation. Regulations also include a separate
requirement that each thrift must maintain sufficient liquidity to ensure its
safe and sound operation. Thus, adequate liquidity may vary depending on FFY
Bank's overall asset/liability structure, market conditions, the activities of
competitors, and the requirements of its own deposit and loan customers.
Management believes FFY Bank's liquidity is sufficient.
Liquidity management is both a daily and long-term responsibility of
management. FFY Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and securities and
(iv) the objective of its asset/liability management program. Along with its
liquid assets, FFY Bank has additional sources of liquidity available
including, but not limited to, the ability to obtain deposits by offering
above-market interest rates and access to advances from the Federal Home Loan
Bank.
The primary investing activities of FFY Financial are originating loans and
purchasing securities. Growth in loans receivable during fiscal year 2000 used
$30.6 million, the decline in loans receivable during fiscal year 1999 provided
$29.2 million and growth in loans receivable during fiscal year 1998 used $21.6
million. A decrease in FFY Financial's securities portfolio during fiscal year
2000 provided $26.5 million, whereas growth in the securities portfolio during
fiscal years 1999 and 1998 used $72.0 million and $11.5 million, respectively.
Generally, during periods of declining interest rates, FFY Bank would be
expected to experience increased loan prepayments, which would likely be
reinvested at lower interest rates. During periods of increasing interest
rates, loan prepayments would be expected to decline, reducing funds available
for investment at higher interest rates.
The primary financing activities of FFY Financial are deposits, repurchase
agreements and borrowings. The decline in deposit accounts during fiscal year
2000 used $11.3 million, the increase in deposit accounts during fiscal year
1999 provided $13.4 million and the decline in deposit accounts during fiscal
year 1998 used $6.1 million. The increase in repurchase agreements during
fiscal year 2000 provided $320,000, the decline in repurchase agreements during
fiscal year 1999 used $6.5 million and the increase in repurchase agreements
during fiscal year 1998 provided $32.1 million. The increase in borrowed funds
during fiscal years 2000, 1999 and 1998 provided $14.0 million, $48.8 million
and $6.5 million, respectively.
97
Capital Resources
Office of Thrift Supervision (OTS) regulations require savings institutions
to maintain certain minimum levels of regulatory capital. An institution that
fails to comply with its regulatory capital requirements must obtain OTS
approval of a capital plan and can be subject to a capital directive and
certain restrictions on its operations. At June 30, 2000, the minimum capital
regulations require savings institutions to have tangible capital to total
tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1) capital to
total adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk weighted assets of 8.0%, of
which 4.0% must be core capital.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on an institution's financial statements. The
regulations establish a framework for the classification of savings
institutions into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Generally, an institution is considered well capitalized if
it has a core (Tier 1) capital ratio of at least 5.0% (based on average total
assets); a core (Tier 1) risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
At June 30, 2000, FFY Bank met all capital adequacy requirements to which it
is subject. Further, the most recent OTS notification categorized FFY Bank as a
well-capitalized institution under the prompt corrective action regulations.
There have been no conditions or events since that notification that management
believes have changed FFY Bank's capital classification.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of FFY Bank's operations. Unlike most
industrial companies, nearly all the assets and liabilities of FFY Financial
are monetary. As a result, interest rates have a greater impact on FFY
Financial's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Year 2000
On January 1, 2000, it was reported that FFY Bank had successfully completed
its processing for 1999 and had tested all mission critical systems for proper
operation due to the change to the Year 2000. Based on operations since January
1, 2000, FFY Financial does not expect any significant impact to its ongoing
business as a result of the Year 2000.
FFY Financial spent nearly $1 million in its Year 2000 readiness efforts,
including $429,000 for a new comprehensive software system in 1998. In addition
to the new software system, monies were spent to replace outdated, noncompliant
hardware and software as well as identifying and remediating Year 2000
problems.
98
Market Prices and Dividends Declared
The common stock of FFY Financial trades on The Nasdaq Stock Market under
the symbol "FFYF". As of August 16, 2000, there were 6,719,115 shares
outstanding held by approximately stockholders of record (not including
the number of persons or entities holding stock in nominee or street name
through various brokerage firms). The table below shows the quarterly reported
high and low trade prices of the common stock and cash dividends per share
declared during the years ended June 30, 2000 and 1999.
High Low Dividends
------ ------ ---------
June 30, 2000:
First quarter........................................ $19.00 $18.38 $ 0.125
Second quarter....................................... 19.00 11.88 0.125
Third quarter........................................ 13.13 10.50 0.125
Fourth quarter....................................... 11.44 9.38 0.125
June 30, 1999:
First quarter........................................ $18.69 $13.13 $0.1125
Second quarter....................................... 17.75 13.25 0.1125
Third quarter........................................ 18.88 16.75 0.1125
Fourth quarter....................................... 19.00 16.88 0.1125
99
Quarterly Earnings Summary
FFY Financial Corp. and Subsidiaries
(Dollars in Thousands Except Per Share Data)
Quarter ended fiscal 2000 September 30 December 31 March 31 June 30
- ------------------------- ------------ ----------- -------- -------
Total interest income................ $12,405 12,279 12,488 12,624
Total interest expense............... 6,813 6,835 7,091 7,385
------- ------ ------ ------
Net interest income................ 5,592 5,444 5,397 5,239
Provision for loan losses............ 101 105 135 135
------- ------ ------ ------
Net interest income after provision
for loan losses................... 5,491 5,339 5,262 5,104
Service charges...................... 255 288 264 299
Gain on sale of securities available
for sale............................ 1 28 17 --
Gain on sale of loans................ 60 59 45 71
Other non-interest income............ 150 173 149 166
Non-interest expense................. (3,335) (3,099) (2,906) (3,494)
------- ------ ------ ------
Income before income taxes and
minority interest................. 2,622 2,788 2,831 2,146
Income tax expense................... 781 836 830 601
Minority interest in loss of
consolidated subsidiaries........... (2) (2) (5) (12)
------- ------ ------ ------
Net income......................... $ 1,843 1,954 2,006 1,557
======= ====== ====== ======
Basic earnings per share........... $ 0.28 0.31 0.32 0.25
======= ====== ====== ======
Diluted earnings per share......... $ 0.27 0.30 0.31 0.24
======= ====== ====== ======
Quarter ended fiscal 1999 September 30 December 31 March 31 June 30
- ------------------------- ------------ ----------- -------- -------
Total interest income................ $12,161 12,384 12,241 12,297
Total interest expense............... 6,711 6,742 6,522 6,539
------- ------ ------ ------
Net interest income................ 5,450 5,642 5,719 5,758
Provision for loan losses............ 125 124 131 114
------- ------ ------ ------
Net interest income after provision
for loan losses................... 5,325 5,518 5,588 5,644
Service charges...................... 198 218 217 264
Gain (loss) on sale of securities
available for sale.................. 64 (7) 54 91
Gain on sale of loans................ 112 277 202 129
Other non-interest income............ 243 194 113 179
Non-interest expense................. (3,126) (3,138) (3,048) (3,182)
------- ------ ------ ------
Income before income taxes and
minority interest................. 2,816 3,062 3,126 3,125
Income tax expense................... 931 1,029 1,086 1,037
Minority interest in gain (loss) of
consolidated subsidiaries........... -- -- (106) 12
------- ------ ------ ------
Net income......................... $ 1,885 2,033 2,146 2,076
======= ====== ====== ======
Basic earnings per share........... $ 0.26 0.28 0.31 0.31
======= ====== ====== ======
Diluted earnings per share......... $ 0.25 0.27 0.30 0.30
======= ====== ====== ======
100
BUSINESS OF FFY FINANCIAL
General. FFY Financial is a holding company incorporated under the laws of
the State of Delaware and is engaged in the financial services business through
its wholly-owned subsidiaries, FFY Bank, a federally-chartered stock savings
bank, and FFY Holdings, Inc. In June 1993, FFY Bank converted from a federally-
chartered mutual savings institution to a stock savings institution and, as
part of the conversion, FFY Financial acquired all of the outstanding common
stock of FFY Bank. FFY Bank operates 11 full service banking facilities and 3
limited banking facilities in Mahoning and Trumbull Counties, Ohio. At June 30,
2000, FFY Financial had total consolidated assets of $674.5 million.
The business of FFY Financial consists primarily of the business of FFY
Bank. The holding company structure, however, provides FFY Financial with
greater flexibility than FFY Bank has to diversify its business activities,
through existing or newly formed subsidiaries, or through acquisitions or
mergers of both mutual and stock thrift institutions as well as other
companies. In August 1997, FFY Holdings, Inc. was formed, as a wholly-owned
subsidiary of FFY Financial, for the purpose of investing in entities that
offer expanded financial services to customers. In September 1997 and April
1998, FFY Financial announced real estate and insurance affiliations through
investments of FFY Holdings, Inc. In May 2000, FFY Holdings, Inc. acquired the
minority interest in its insurance affiliate, FFY Insurance Agency, Ltd. Also
in May 2000, FFY Insurance Agency, Ltd. acquired Moreman-Yerian Insurance
Agency, which had an over 100-year history of providing insurance products to
consumers in FFY Financial's market area. FFY Bank provides a variety of
banking services to its customers other than its primary business activities of
making loans and accepting deposits.
On May 23, 2000, FFY Financial and First Place, the holding company for
First Federal Savings and Loan Association of Warren, entered into a definitive
agreement to combine in a merger of equals. The merger agreement calls for a
tax-free exchange of each outstanding share of FFY Financial common stock for
1.075 shares of First Place common stock, with cash paid in lieu of fractional
shares. In addition, pursuant to the merger agreement, FFY Bank will merge with
First Federal Savings and Loan Association of Warren to become First Place
Bank. The Merger will be accounted for as a purchase and is expected to close
in the fourth quarter of calendar year 2000. The merger agreement has been
approved by the boards of directors of both companies. However, it is subject
to certain other conditions, including the approvals of the stockholders of
both companies and the approvals of regulatory authorities. Currently, there
are no other arrangements, understandings or agreements regarding any
acquisitions or mergers, however, FFY Financial is in a position, subject to
regulatory restrictions, to take advantage of any favorable acquisition or
merger opportunity that may arise.
Market Area. FFY Bank conducts operations through its main office in
Youngstown, Ohio, which is located approximately 75 miles northwest of
Pittsburgh, PA and 75 miles southeast of Cleveland, OH, and through its 13
other banking offices in Ohio. Eleven of FFY Bank's office locations, including
the main office, are in Mahoning County and three office locations are in
Trumbull County. The Youngstown-Warren area (Mahoning and Trumbull Counties)
makes up the 7th largest metropolitan statistical area in the State of Ohio.
Mahoning County was once a leading steel producing area, however this
industry experienced significant declines in the total number of persons
employed. Major industries in Mahoning County include light manufacturing,
transportation, health care, as well as retail and wholesale trade and
services. Major industries in Trumbull County and Columbiana County include
manufacturing, trade and services. Major employers in Mahoning County include
Western Reserve Care System, St. Elizabeth Health Center, U.S. Postal Service,
Youngstown City Schools and Youngstown State University. The largest employers
in the area include General Motors Corporation in Lordstown, Ohio and Delphi
Packard Electric Systems in Warren, Ohio, both located in Trumbull County. FFY
Financial's business and operating results could be significantly affected by
changes in general economic conditions, as well as changes in population
levels, unemployment rates, strikes and layoffs.
101
Lending Activities
General. FFY Bank's largest component of its gross loan portfolio has
historically been first mortgage loans secured by one- to four-family
residences. FFY Bank originates adjustable-rate mortgage (ARM) loans or
shorter-term fixed rate loans for its own portfolio. FFY Bank also offers 15
and 30 year fixed-rate loans which, if they qualify, are sold on the secondary
market to Federal National Mortgage Corporation (Fannie Mae). To a lesser
extent, FFY Bank sells adjustable-rate loans to Fannie Mae. Multi-family,
commercial, construction and consumer loans with higher yields than traditional
one- to four-family loans are also offered by FFY Bank.
Certain officers of FFY Bank have individual loan approval authority for
amounts up to $240,000. Loans that are greater than $240,000 and up to $500,000
must be approved by either the Vice President in charge of lending or a
committee comprised of officers of FFY Bank. Loans greater than $500,000 must
be approved by the Executive Committee of the Board of Directors and loans
greater than $1 million must be approved by the Board of Directors. All loans,
once approved, are reviewed by the Board of Directors.
FFY Bank's loans-to-one-borrower limit is generally 15% of unimpaired
capital and surplus. At June 30, 2000, the maximum amount which FFY Bank could
have lent under this limit to any one borrower and the borrower's related
entities was approximately $7.4 million. The largest lending relationship at
June 30, 2000 totaled $4.1 million which is primarily secured by a commercial
building and rental units. There are 24 other lending relationships ranging
from $1.0 million to $3.1 million with an aggregate total of $40.4 million. At
June 30, 2000, all such loans were performing in accordance with their terms
except for one lending relationship of three loans with an aggregate
outstanding balance of $1.8 million as of the balance sheet date. Refer to
"Troubled Debt Restructurings and Other Loans of Concern" contained herein.
Loan Portfolio Composition. The following table sets forth information
concerning the composition of FFY Bank's loan portfolio in dollar amounts and
in percentages (before deductions for loans in process, deferred fees and
discounts and allowances for losses) as of the dates indicated.
June 30,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Mortgage Loans:
One- to four-family.... $351,425 70.24% $335,064 71.70% $354,202 71.65% $349,053 73.59% $334,307 73.64%
Multi-family........... 14,367 2.87% 15,579 3.33% 15,659 3.17% 16,294 3.44% 15,934 3.51%
Commercial............. 44,629 8.92% 35,117 7.51% 28,606 5.79% 30,997 6.53% 29,024 6.39%
Construction and
development........... 32,480 6.49% 28,085 6.01% 23,999 4.85% 23,179 4.88% 22,636 4.99%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans... 442,901 88.52% 413,845 88.55% 422,466 85.46% 419,523 88.44% 401,901 88.53%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer Loans:
Deposit account........ 863 0.17% 1,195 0.26% 1,341 0.27% 1,240 0.26% 1,115 0.25%
Automobile............. 5,812 1.16% 7,789 1.67% 12,161 2.46% 16,349 3.45% 17,245 3.80%
Home equity............ 44,437 8.89% 36,470 7.80% 37,912 7.67% 33,269 7.01% 29,783 6.56%
90-day notes........... 1,816 0.36% 3,416 0.73% 17,677 3.58% 1,323 0.28% 1,441 0.32%
Other.................. 4,501 0.90% 4,635 0.99% 2,791 0.56% 2,646 0.56% 2,479 0.54%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans... 57,429 11.48% 53,505 11.45% 71,882 14.54% 54,827 11.56% 52,063 11.47%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans............ 500,330 100.00% 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00%
====== ====== ====== ====== ======
Less:
Loans in process....... (10,349) (7,969) (6,557) (7,861) (8,830)
Deferred fees and
discount.............. (2,634) (2,455) (2,588) (2,815) (2,905)
Allowance for losses... (2,659) (2,645) (2,740) (2,962) (3,439)
Loans available for
sale.................. (171) (442) -- -- --
-------- -------- -------- -------- --------
Total loans receivable,
net................... $484,517 $453,839 $482,463 $460,712 $438,790
======== ======== ======== ======== ========
102
The following table shows the composition of FFY Bank's loan portfolio by
fixed and adjustable rates at the dates indicated.
June 30,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
One- to four-family.... $149,343 29.85% $165,891 35.50% $217,075 43.91% $260,128 54.84% $268,816 59.21%
Multi-family........... 2,865 0.57% 3,622 0.78% 3,965 0.80% 3,969 0.84% 3,624 0.79%
Commercial............. 24,465 4.89% 29,162 6.24% 24,533 4.96% 24,498 5.16% 23,784 5.24%
Construction and
development........... 28,486 5.69% 25,135 5.38% 21,087 4.27% 23,179 4.88% 22,636 4.99%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total fixed-rate real
estate loans.......... 205,159 41.00% 223,810 47.90% 266,660 53.94% 311,774 65.72% 318,860 70.23%
Consumer-fixed-rate..... 35,942 7.18% 46,549 9.96% 67,243 13.60% 52,013 10.97% 50,081 11.03%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total fixed-rate
loans................. 241,101 48.18% 270,359 57.86% 333,903 67.54% 363,787 76.69% 368,941 81.26%
Adjustable-Rate Loans:
Real estate:
One- to four-family.... 202,082 40.39% 169,173 36.20% 137,127 27.74% 88,925 18.75% 65,491 14.43%
Multi-family........... 11,502 2.30% 11,957 2.56% 11,694 2.37% 12,325 2.60% 12,310 2.71%
Commercial............. 20,164 4.03% 5,955 1.27% 4,073 0.82% 6,499 1.37% 5,240 1.16%
Construction and
development........... 3,994 0.80% 2,950 0.63% 2,912 0.59% -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total adjustable-rate
real estate loans..... 237,742 47.52% 190,035 40.66% 155,806 31.52% 107,749 22.72% 83,041 18.30%
Consumer-adjustable-
rate................... 21,487 4.30% 6,956 1.48% 4,639 0.94% 2,814 0.59% 1,982 0.44%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total adjustable-rate
loans................. 259,229 51.82% 196,991 42.14% 160,445 32.46% 110,563 23.31% 85,023 18.74%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans............ 500,330 100.00% 467,350 100.00% 494,348 100.00% 474,350 100.00% 453,964 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Less:
Loans in process....... (10,349) (7,969) (6,557) (7,861) (8,830)
Deferred fees and
discounts............. (2,634) (2,455) (2,588) (2,815) (2,905)
Allowance for losses... (2,659) (2,645) (2,740) (2,962) (3,439)
Loans available for
sale.................. (171) (442) -- -- --
-------- -------- -------- -------- --------
Total loans receivable,
net................... $484,517 $453,839 $482,463 $460,712 $438,790
======== ======== ======== ======== ========
103
The following schedule illustrates the interest rate sensitivity of FFY
Bank's loan portfolio at June 30, 2000. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which
the contract matures. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
Real Estate
--------------------------------------------------------------------
One- to four- Construction and
family Multi-family Commercial Development Consumer Total
----------------- ---------------- ---------------- ---------------- ---------------- -----------------
Due During Weighted Weighted Weighted Weighted Weighted Weighted
Periods Ending Average Average Average Average Average Average
June 30, Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------------- -------- -------- ------- -------- ------- -------- ------- -------- ------- -------- -------- --------
(Dollars in Thousands)
2001(1)......... $ 315 8.41% $ 675 9.95% $ 1,706 9.68% $12,547 8.55% $ 3,586 11.22% $ 18,829 9.21%
2002 to 2005.... 10,155 7.92% 3,794 8.67% 7,050 9.59% 18,207 8.57% 19,160 9.70% 58,366 8.96%
2006 and
following....... 340,955 7.62% 9,898 8.75% 35,873 8.92% 1,726 8.51% 34,683 10.27% 423,135 7.98%
-------- ------- ------- ------- ------- --------
$351,425 $14,367 $44,629 $32,480 $57,429 $500,330
======== ======= ======= ======= ======= ========
- ----
(1) Includes overdraft loans.
The total amount of loans due after June 30, 2001 which have predetermined
interest rates is $284.6 million, while the total amount of loans due after
such dates which have floating or adjustable interest rates is $196.9 million.
104
One- to four-Family Residential Real Estate Lending
The cornerstone of FFY Bank's lending program has been the origination of
loans secured by mortgages on owner-occupied, one- to four-family residences.
FFY Bank has generally limited its real estate loan originations to properties
within its market area. As of June 30, 2000, all one- to four-family
residential loans were located in FFY Bank's market area. FFY Bank originates
both fixed and ARM loans with terms up to 30 years. Fixed-rate originations are
generally affected by market rates, customer preference and competition. FFY
Bank has experienced growth in 7/1-year ARMs which are fixed for seven years
and convert to a one-year ARM in the eighth year. From an interest-rate risk
standpoint, 7/1-year ARMs provide FFY Bank with better protection against
rising rates than 15- and 30-year fixed rate loans, but less protection than 1-
year ARMS. Origination of ARMs is dependent on market interest rates and
customer preferences. At June 30, 2000, $128.7 million, or 25.7% of FFY Bank's
gross loan portfolio consisted of 7/1-year ARMs compared to $90.8 million, or
19.4% at June 30, 1999 and $52.0 million, or 10.5% at June 30, 1998.
Additionally, a significant portion of FFY Bank's other ARM products are
subject to interest adjustments at three-year intervals. FFY Bank's ARM
products generally carry interest rates which are reset to a stated margin over
an independent index. Increases and decreases in the interest rate of FFY
Bank's ARMs are generally limited to 2% at any adjustment date and 5% over the
life of the loan. FFY Bank's ARMs are not convertible into fixed-rate loans,
are not assumable, do not contain prepayment penalties and do not produce
negative amortization.
FFY Bank evaluates both the borrower's ability to make principal and
interest payments and the value of the property that will secure the loan. In
order to comply with standard secondary market underwriting requirements, FFY
Bank established procedures in 1998 to verify employment history and down
payment sources since FFY Bank sells certain qualifying loans to Fannie Mae.
Underwriting standards required by Fannie Mae and other secondary market
investors are generally followed for new loan originations that FFY Bank
retains in its portfolio. During 1999 and 2000, FFY Bank increased its loan
origination team in order to meet the increased competition in FFY Financial's
market area. To remain competitive in obtaining loans, FFY Bank's personnel
streamlined the process for standard home loan requests from application to
closing to less than ten days. FFY Financial's management also expects to fully
implement 24-hour approvals on certain loan originations in the future. During
fiscal year 2000, management implemented a timely loan pre-approval process in
response to competition. Pre-approvals generally range between 24 and 72 hours.
FFY Bank originates residential mortgage loans with loan-to-value ratios up
to 97%. On mortgage loans exceeding an 85% loan-to-value ratio at the time of
origination, however, FFY Bank generally requires private mortgage insurance in
an amount intended to reduce FFY Bank's exposure to 72% of the appraised value
of the underlying collateral. Property securing real estate loans made by FFY
Bank is appraised by staff appraisers of FFY Bank. FFY Bank requires evidence
of marketable title and lien position on all loans secured by real property and
requires fire and extended coverage casualty insurance in amounts at least
equal to the principal amount of the loan or the value of improvements on the
property, depending on the type of loan. FFY Bank may also require flood
insurance to protect the property securing its interest.
Residential mortgage loan originations derive from a number of sources,
including real estate broker referrals, existing borrowers and depositors,
builders and walk-in customers. Loan applications are accepted at all of FFY
Bank's offices.
Multi-Family Lending
FFY Bank originates multi-family loans, which it holds in its portfolio,
which are primarily secured by apartment buildings. Multi-family loans
generally have shorter maturities than one- to four-family mortgage loans,
although FFY Bank may originate such loans with terms up to 30 years. The rates
charged on multi-family loans are both fixed and adjustable, in which the
adjustable-rate loans reset to a stated margin over an independent index.
Multi-family lending rates are typically higher than rates charged on one- to
four-family residential properties. Multi-family loans are generally written in
amounts up to 80% of the lesser of the appraised value or purchase price of the
underlying property.
105
Appraisals on properties securing multi-family loans originated by FFY Bank
are performed by either an independent appraiser designated by FFY Bank or by
FFY Bank's staff appraisers at the time the loan is made. All appraisals on
multi-family loans are reviewed by FFY Bank's management. In addition, FFY
Bank's current underwriting procedures generally require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property.
At June 30, 2000, FFY Bank had three multi-family loans with a net book
value in excess of $1.0 million but less than $2.0 million, of which one of
these loans, totaling $1.5 million, was past due. This loan is considered by
management to be a potential problem loan. See "Troubled Debt Restructurings
and Other Loans of Concern" for additional information regarding this loan.
Multi-family loans generally present a higher level of risk than loans
secured by one- to four-family residences. This greater risk is due to several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties and the increased complexity of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family
properties is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired. In some instances, the
risk level is mitigated by obtaining individual guarantees which may increase
the level of collateral supporting the loan. Despite the risks inherent in
multi-family lending, FFY Financial's history of delinquencies in this
portfolio has been minimal.
Commercial Real Estate Lending
FFY Bank originates commercial real estate loans, which it holds in its
portfolio, and primarily includes loans secured by strip shopping centers,
small office buildings, warehouses, churches and other business properties.
Commercial real estate loans have a maximum term of 30 years; however, they
generally have terms ranging from 10-20 years. Rates on commercial real estate
loans are both fixed and adjustable. Adjustable-rate commercial real estate
loans are reset to a stated margin over an independent index. Current year
commercial real estate loan originations totaled $12.6 million, of which 69%
had an adjustable rate. Commercial loans are generally written in amounts up to
80% of the lesser of the appraised value or purchase price of the underlying
property.
Appraisals on properties securing commercial real estate loans originated by
FFY Bank are performed by either an independent appraiser designated by FFY
Bank or by FFY Bank's staff appraisers at the time the loan is made. All
appraisals on commercial real estate loans are reviewed by FFY Bank's
management. In addition, FFY Bank's current underwriting procedures generally
require verification of the borrower's credit history, income and financial
statements, banking relationships, references and income projections for the
property.
At June 30, 2000, FFY Bank had eight commercial real estate loans with a net
book value in excess of $1.0 million but less than $2.0 million. All of these
loans were current at that date.
During fiscal 1999, commercial real estate lending was identified as a
growth area by FFY Financial's management. Consequently, FFY Financial hired an
experienced commercial lender to specialize in the origination of commercial
mortgage loans. FFY Bank also increased its commercial lending staff during
fiscal year 2000. At June 30, 2000, FFY Financial had $44.6 million in
commercial real estate loans comprising of 8.9% of the gross loan portfolio
compared to $35.1 million, or 7.5% at June 30, 1999 and $28.6 million, or 5.8%
at June 30, 1998.
Commercial real estate loans generally present a higher level of risk than
loans secured by one- to four-family residences. This greater risk is due to
several factors, including the concentration of principal in a limited number
of loans and borrowers, the effects of general economic conditions on income
producing properties and the increased complexity of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate properties is typically dependent upon the successful
106
operation of the related real estate project. If the cash flow from the project
is reduced, the borrower's ability to repay the loan may be impaired. In some
instances, the risk level is mitigated by obtaining individual guarantees which
may increase the level of collateral supporting the loan. FFY Financial will
continue its efforts to increase the amount of commercial real estate loans for
its portfolio as these loans generally offer a better interest rate than
typical one- to four-family loans, which management believes justifies the
increased credit risk.
Despite the risks inherent in commercial real estate lending, FFY
Financial's history of delinquencies in this portfolio has been minimal. The
performance of this portfolio, however, will be closely monitored as it grows.
Construction and Development Lending
FFY Bank makes loans to individuals for the construction of their
residences, as well as to builders and developers for the construction of one-
to four-family residences and commercial real estate and the development of
one- to four-family lots in Ohio. At June 30, 2000, all of these loans were
secured by property located within FFY Bank's market area.
Construction loans to individuals for their residences are structured to be
converted to permanent loans at the end of the construction phase, which
typically runs six months. These construction loans have rates and terms which
match any one- to four-family loans then offered by FFY Bank, except that
during the construction phase, the borrower pays interest only and the maximum
loan-to-value ratio is 90%. On construction loans exceeding an 85% loan-to-
value ratio, FFY Bank generally requires private mortgage insurance, thus
reducing FFY Bank's exposure. Residential construction loans are generally
underwritten pursuant to the same guidelines used for originating permanent
residential loans. At June 30, 2000, FFY Bank had $12.3 million of construction
loans to borrowers intending to live in the properties upon completion of
construction.
Construction loans to builders of one- to four-family residences require the
payment of interest only for up to 12 months and have terms of up to 12 months.
These loans may provide for the payment of interest and loan fees from loan
proceeds and carry fixed rates of interest. At June 30, 2000, FFY Bank had $8.7
million of construction loans to builders of one- to four-family residences.
FFY Bank also makes loans to builders for the purpose of developing one- to
four-family homesites. These loans typically have terms of from one to three
years and carry fixed interest rates. The maximum loan-to-value ratio is 80%
for such loans. These loans may provide for the payment of interest and loan
fees from loan proceeds. The principal in these loans is typically paid down as
homesites are sold. At June 30, 2000, FFY Bank had $8.8 million of development
loans to builders.
Construction loans on multi-family and commercial real estate projects may
be secured by apartments, strip shopping centers, small office buildings,
churches or other property and are structured to be converted to permanent
loans at the end of the construction phase, which generally runs up to 12
months. These construction loans have rates and terms which match any permanent
multi-family or commercial real estate loan then offered by FFY Bank, except
that during the construction phase, the borrower pays interest only. These
loans generally provide for the payment of interest and loan fees from loan
proceeds. At June 30, 2000, FFY Bank had $2.1 million of multi-family and
commercial real estate construction loans.
Construction and development loans are obtained principally through
continued business from developers and builders who have previously borrowed
from FFY Bank, as well as referrals from existing customers and walk-in
customers. The application process includes a submission to FFY Bank of
accurate plans, specifications and costs of the project to be
constructed/developed. These items are used as a basis to determine the
appraised value of the subject property. Loans are based on the lesser of
current appraised value and/or the cost of construction (land plus building).
107
Because of the uncertainties inherent in estimating development and
construction costs and the market for the project upon completion, it is
relatively difficult to evaluate accurately the total loan funds required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of the project. In addition, management requires pro forma
cash flow analysis and debt service coverage ratios and verification of
construction progress prior to authorizing a construction draw and requires
mechanics' lien waivers and other documents to protect and verify its lien
position. Construction and development loans to borrowers other than owner-
occupants also involve many of the same risks discussed above regarding multi-
family and commercial real estate loans and tend to be more sensitive to
general economic conditions than many other types of loans. Also, the funding
of loan fees and interest during the construction phase makes the monitoring of
the progress of the project particularly important, as customary early warning
signals of project difficulties may not be present.
At June 30, 2000, there were no construction or development loans in excess
of $1.0 million.
Consumer Lending
FFY Bank originates various types of consumer loans including, but not
limited to, home equity and automobile loans. FFY Bank places increasing
emphasis on consumer loans, particularly home equity loans and lines, because
of their attractive yields and shorter terms to maturity. During fiscal year
2000, home equity credit lines were identified as a growth area by FFY
Financial's management because of the attractive yield and adjustable-rate
feature. At June 30, 2000, adjustable-rate home equity credit lines totaled
$21.2 million compared to $6.6 million at June 30, 1999.
FFY Bank's home equity loans and lines are written so that the total
commitment amount, when combined with the balance of the first mortgage lien,
may not exceed 100% of the appraised value of the property where FFY Bank holds
the first lien and 80% if the first mortgage is held by a third party. At June
30, 2000, FFY Bank held a first lien on approximately 97% of the properties
securing home equity loans and lines. Closed-end home equity loans are written
with terms of up to ten years and carry fixed rates of interest. Open-end home
equity lines of credit are written for a draw period of 10 years at a variable
interest rate generally 1% above the prime rate adjusted monthly. After the
draw period, the lines of credit convert into fixed rate, closed-end loans with
terms of up to 10 years, or the lines of credit can be renewed. FFY Bank's home
equity loan portfolio grew from $29.8 million, or 57.2% of gross consumer loans
at June 30, 1996 to $44.4 million, or 77.7% of gross consumer loans at June 30,
2000.
The underwriting standards employed by FFY Bank for consumer loans include a
determination of the applicant's payment history on other debts and ability to
meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans other than home
equity loans generally involve a higher level of credit risk than one- to four-
family residential loans, consumer loans are typically made at higher interest
rates and for shorter terms. The shorter term of consumer loans reduces FFY
Bank's exposure to interest rate risk.
Sale of Mortgage Loans
During fiscal year 1998, FFY Bank began originating one- to four-family
fixed-rate mortgage loans for sale to Fannie Mae. Currently, FFY Bank sells
one- to four-family fixed-rate 15- and 30-year loans and, to a lesser extent,
7/1-year and 3/1-year ARMs to Fannie Mae. All mortgage loans, upon origination,
are categorized as either held for FFY Bank's portfolio or available-for-sale.
FFY Bank originated $14.9 million in available-for-sale loans during fiscal
year 2000 compared to $30.9 million during fiscal year 1999. Originations of
available-for-sale loans decreased during fiscal year 2000 due to rising market
interest rates. Pre-tax gains on sales of loans totaled $234,000 for fiscal
year 2000 compared to $720,000 for fiscal year 1999. During fiscal year 1998,
FFY Bank originated and sold loans totaling $5.0 million at a pretax gain of
$134,000. Depending
108
on factors such as interest rates, levels of refinancings and competitive
factors in FFY Financial's primary market area, the amount of mortgage loan
originations ultimately sold can vary significantly.
FFY Bank retains servicing on loans sold to Fannie Mae, typically receiving
a servicing fee of 25 basis points, which represents the difference between the
mortgage rate on the loans sold and the yield at which such loans are sold.
Mortgage loans serviced for others totaled $47.3 million at June 30, 2000
compared to $35.1 million at June 30, 1999.
Loan Origination and Repayment Activities
The following table sets forth FFY Bank's originations, sales and repayments
of loans for the periods indicated.
Year ended June 30,
-------------------------------
2000 1999 1998
--------- --------- ---------
(Dollars in Thousands)
Originations by type:
Adjustable rate:
Real estate--one-to four-family............... $ 49,239 $ 39,258 $ 45,473
--multi-family.......................... 136 8 586
--commercial............................ 8,645 682 3,413
--construction and development.......... 8,873 15,503 2,250
Non-real estate--consumer..................... 31,822 11,457 4,844
--------- --------- ---------
Total adjustable rate..................... 98,715 66,908 56,566
--------- --------- ---------
Fixed rate:
Real estate--one-to four-family............... 21,954 22,423 8,834
--multi-family.......................... -- 1,744 658
--commercial............................ 3,936 3,422 1,069
--construction and development.......... 17,074 20,210 27,997
Non-real estate--consumer..................... 27,650 35,063 48,728
--------- --------- ---------
Total fixed rate.......................... 70,614 82,862 87,286
--------- --------- ---------
Total loans originated.................... 169,329 149,770 143,852
Principal repayments.......................... (122,251) (121,902) (105,621)
Loan sales.................................... (14,904) (30,409) (4,988)
Principal write-offs and other items, net..... (1,580) (725) (795)
--------- --------- ---------
Net increase (decrease)................... $ 30,594 $ (3,266) $ 32,448
========= ========= =========
Asset Quality
When a borrower fails to make a required payment on a loan, FFY Bank
attempts to cure the delinquency by contacting the borrower. In the case of
residential loans, a late notice is generally sent after 15 days past the due
date and collection action is commenced. Written and verbal contacts are
attempted from this point until the account is brought to a current status. If
the delinquency continues, a default letter is generally sent between 60 and 75
days past due, and if the status does not improve, FFY Bank will begin
foreclosure action 30 days after the default letter is sent.
Delinquent consumer loans, including home equity loans, are handled in a
similar manner except that late notices are generated between 10 and 15 days
past due and collection action is commenced at that point. If the delinquency
continues and no arrangements are made with the borrower, FFY Bank will take
appropriate action to protect its interest generally by 60 days past due. This
may include repossession, foreclosure or law suit, if necessary. If
repossession of a vehicle occurs, the borrower has the opportunity to redeem
the vehicle prior to
109
sale at public auction by contacting FFY Bank and paying delinquencies and
other charges associated with the repossession. FFY Bank's repossession
guidelines comply with the requirements under the Ohio Revised Code.
FFY Bank has not experienced significant delinquencies with multi-family,
commercial real estate or commercial real estate construction loans.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 2000, in dollar amounts and as a percentage of
each category of FFY Bank's loan portfolio. The amounts presented represent the
total remaining principal balances of the related loans, rather than the actual
payment amounts which are overdue.
Loans Delinquent For:
--------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days and Over
---------------------- ---------------------- ----------------------
Percent Percent Percent
of Loan of Loan Of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Real Estate:
One-to four-family.... 14 $596 0.17% 42 $2,849 0.81% 56 $3,445 0.98%
Multi-family.......... -- -- -- -- -- -- -- -- --
Commercial............ 2 5 0.01% 2 97 0.22% 4 102 0.23%
Construction or
Development.......... -- -- -- -- -- -- -- -- --
Consumer.............. 22 149 0.26% 25 459 0.80% 47 608 1.06%
--- ---- --- ------ --- ------
Total............... 38 $750 0.15% 69 $3,405 0.68% 107 $4,155 0.83%
=== ==== === ====== === ======
110
Non-Performing Assets. The table below sets forth the amounts and categories
of non-performing assets in FFY Bank's loan portfolio. FFY Bank requires that
loans be reviewed periodically and any loan where collectibility of principal
is doubtful is placed on non-accrual status. Loans are also placed on non-
accrual status generally when a loan is more than 90 days delinquent. Payments
received on non-accruing loans are recorded as interest income, or are applied
to the principal balance, depending on an assessment of the collectibility of
the principal of the loan. Loans remain on non-accrual status until generally
less than 4 payments delinquent. Troubled debt restructurings are instances
where, due to the debtor's financial difficulties, modifications are made in
the original terms of the loans (e.g., principal or interest may be forgiven,
the term of the loan may be extended or the interest rate may be reduced below
market rates). A loan is removed as a troubled debt restructuring if it is
current after the 12th month it was restructured and the modifications
originally given are not inconsistent with terms currently provided. Foreclosed
assets include assets acquired in settlement of loans. The amounts shown do not
reflect reserves set up against such assets. See "--Allowance for Loan Losses."
June 30,
-----------------------------------
2000 1999 1998 1997 1996
------ ------ ----- ----- -----
(Dollars in Thousands)
Non-accruing loans:
One- to four-family.................... $2,718 1,421 2,168 2,359 3,617
Multi-family........................... -- -- -- -- --
Commercial real estate................. -- -- -- 110 --
Construction and development........... -- 567 -- 4 71
Consumer............................... 411 172 566 782 409
------ ------ ----- ----- -----
Total................................ 3,129 2,160 2,734 3,255 4,097
------ ------ ----- ----- -----
Troubled debt restructurings:
One- to four-family.................... -- 34 575 685 506
Consumer............................... 14 65 15 53 70
------ ------ ----- ----- -----
Total................................ 14 99 590 738 576
------ ------ ----- ----- -----
Total non-performing loans........... 3,143 2,259 3,324 3,993 4,673
------ ------ ----- ----- -----
Foreclosed assets:
One- to four-family.................... 249 97 -- -- --
------ ------ ----- ----- -----
Total non-performing assets.............. $3,392 2,356 3,324 3,993 4,673
====== ====== ===== ===== =====
Total non-performing assets as a
percentage of total assets.............. 0.50% 0.35% 0.51% 0.67% 0.81%
====== ====== ===== ===== =====
Total non-performing loans as a
percentage of total loans receivable,
net..................................... 0.70% 0.50% 0.69% 0.87% 1.06%
====== ====== ===== ===== =====
Allowance for loan losses as a percentage
of non-performing assets................ 78.39% 112.27% 82.43% 74.18% 73.59%
====== ====== ===== ===== =====
For the year ended June 30, 2000, gross interest income which would have
been recorded had the non-performing loans been current in accordance with
their original terms amounted to approximately $181,000. The amount that was
included in interest income on such loans was $175,000 for the year ended June
30, 2000.
For the year ended June 30, 2000, gross interest income which would have
been recorded had the troubled debt restructurings been current in accordance
with their original terms amounted to $4,000. The amount that was included in
interest income on such loans was $3,000 for the year ended June 30, 2000.
Troubled Debt Restructurings and Other Loans of Concern. As of June 30,
2000, FFY Bank had $14,000 in net book value of troubled debt restructurings
which were primarily indirect auto loans. The net book value
111
of troubled debt restructurings at June 30, 1999 totaled $99,000, which were
primarily one- to four-family and indirect auto loans.
FFY Bank has three loans to one borrower with an aggregate outstanding
balance of $1.8 million at June 30, 2000. The borrower has admitted to
defrauding several of his clients and was sentenced to prison in 1999. The
largest loan of the three, totaling $1.5 million at June 30, 2000, is secured
by an apartment building in FFY Financial's market area which was independently
appraised in May 1999 for $2.0 million. FFY Financial has a first lien on the
apartment building and additionally has the assignment of rents in the event of
default. This loan was 30 days past due at June 30, 2000, but only for a
partial payment. Management anticipates, however, this property will be sold in
October 2000 and the entire principal balance will be collected. This loan was
classified "substandard" at June 30, 2000.
FFY Bank has two loans to one borrower with an aggregate outstanding balance
of $640,000 at June 30, 2000. These loans are secured by a golf course that has
cash flow problems. This property was internally appraised in May 2000 for
$900,000. FFY Bank's management has been informed that the owner of this golf
course is looking to either sell this property or find a partner willing to
provide funds to renovate and improve the golf course. One loan is current and
the other is 30 days delinquent. These loans are classified "substandard" at
June 30, 2000.
Classified Assets. Federal regulations provide for 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."
"Substandard" assets have one or more defined weaknesses and are characterized
by the distinct possibility that the insured institution will sustain some
"loss" if the deficiencies are not corrected. "Doubtful" assets have the
weaknesses of "substandard" assets, 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. For assets classified as "loss",
institutions must either establish a specific allowance for loss equal to 100%
of that portion of the asset so classified or charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS and the
FDIC, either of which may order the establishment of additional general or
specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, FFY Bank regularly reviews
the problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. Classified assets at
June 30, 2000 consisted of 102 loans totaling $7.1 million, or 1.1% of total
assets compared to 100 loans totaling $4.2 million, or 0.6% of total assets
June 30, 1999. The increase in classified assets during fiscal year 2000 was
primarily in one- to four-family mortgage loans in addition to the $1.5 million
multi-family loan discussed above at "Troubled Debt Restructurings and Other
Loans of Concern", which was the largest classified asset at June 30, 2000.
Allowance for Loan Losses. Under federal regulations, when an insured
institution classifies problem assets as either "substandard" or "doubtful", it
is required to establish general allowances for loan losses in an amount deemed
prudent by management. In addition to general valuation allowances, FFY
Financial may establish specific loss reserves against specific assets in which
a loss may be realized. General allowances represent loss allowances that have
been established to recognize the inherent risks associated with lending
activities, but which, unlike specific allowances, have not been allocated to
recognize probable losses on particular problem assets. FFY Financial's
determination as to its classification of assets and the amount of its specific
and general valuation allowances are subject to review by FFY Financial's
regulators which can order the establishment of additional general or specific
loss allowances.
The allowance for loan losses is a material estimate that is particularly
susceptible to significant changes in the near term and 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
112
loans of which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate loan loss allowance. Although
management believes it uses the best information available to make such
determinations, future adjustments to reserves may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations.
The following table sets forth an analysis of FFY Bank's allowance for loan
losses at the dates indicated.
Year Ended June 30,
-----------------------------------
2000 1999 1998 1997 1996
------ ----- ----- ------ -----
(Dollars in Thousands)
Balance at beginning of period............ $2,645 2,740 2,962 3,439 3,159
Charge-offs:
One- to four-family..................... (221) (167) (97) (40) (18)
Multi-family............................ -- -- -- -- (1)
Construction or development............. (10) (30) -- -- --
Consumer................................ (366) (526) (743) (1,159) (58)
------ ----- ----- ------ -----
(597) (723) (840) (1,199) (77)
------ ----- ----- ------ -----
Recoveries:
One- to four-family..................... 13 9 3 1 18
Construction or development............. -- 30 -- -- 2
Commercial real estate.................. -- -- -- -- 2
Consumer................................ 122 95 50 33 10
------ ----- ----- ------ -----
135 134 53 34 32
------ ----- ----- ------ -----
Net charge-offs........................... (462) (589) (787) (1,165) (45)
Additions charged to operations........... 476 494 565 688 325
------ ----- ----- ------ -----
Balance at end of period.................. $2,659 2,645 2,740 2,962 3,439
====== ===== ===== ====== =====
Ratio of net charge-offs during the period
to average loans outstanding during the
period................................... 0.10% 0.13% 0.17% 0.26% 0.01%
====== ===== ===== ====== =====
Ratio of net charge-offs during the period
to average non-performing assets......... 16.12% 16.67% 20.74% 24.22% 0.94%
====== ===== ===== ====== =====
When FFY Bank repossesses mortgaged property it is thereafter classified as
real estate owned. Any gains or losses (realized or reserved for) thereafter
are treated as real estate owned activity, not mortgage loan activity. At June
30, 2000 and 1999, FFY Bank's real estate owned totaled $249,000 and $97,000,
respectively.
113
The distribution of FFY Bank's allowance for loan losses at the dates
indicated is summarized as follows:
June 30,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
One- to four-family..... $1,059 70.24% $ 829 71.70% $ 923 71.65% $1,283 73.59% $1,547 73.64%
Multi-family............ 258 2.87% 20 3.33% 19 3.17% 28 3.44% 88 3.51%
Commercial real estate.. 553 8.92% 676 7.21% 351 5.79% 444 6.53% 773 6.39%
Construction or
development............ 193 6.49% 82 6.01% 15 4.85% 45 4.88% 125 4.99%
Consumer................ 549 11.48% 739 11.75% 1,201 14.54% 787 11.56% 518 11.47%
Unallocated............. 47 -- 299 -- 231 -- 375 -- 388 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total.................. $2,659 100.00% $2,645 100.00% $2,740 100.00% $2,962 100.00% $3,439 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Investment Activities
FFY Bank's investment policy is designed to provide a required level of
liquidity and minimize potential losses due to interest rate fluctuations
without incurring undue credit risk. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. FFY Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and above
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset/Liability Management" and "--Liquidity and Cash Flows" on
page of this document.
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
savings institutions, 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.
Generally, the investment policy of FFY Financial is to invest funds among
various categories of investments and maturities based on asset/liability
management policies, concern for the highest investment quality, liquidity
needs and performance objectives. FFY Financial's investments generally
include federal agency obligations, including mortgage-backed securities,
municipal securities, trust preferred securities and asset-backed SLMA's,
which are student loan government-sponsored agency investments.
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments
on which are passed from the mortgage originators through intermediaries
(generally U.S. Government agencies and government sponsored enterprises) that
pool and repackage the participation interest in the form of securities to
investors such as FFY Financial. The underlying pool of mortgages can be
composed of either fixed-rate or ARM loans. As a result, the interest rate
risk characteristics of the underlying pool of mortgages, as well as
prepayment risk, are passed on to the certificate holder. Mortgage-backed
securities generally yield less than the loans that underlie such securities
due to the cost of payment guarantees or credit enhancements that reduce
credit risk to holders. Mortgage-backed securities are also more liquid than
individual mortgage loans and may be used to collateralize obligations of FFY
Financial. While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, these securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of the mortgage loans and thereby affect both the prepayment
speed, and value, of the securities. All of FFY Financial's
114
mortgage-backed securities are available for sale and consist of securities
issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. At June 30,
2000, $61.7 million, or 39% of the securities portfolio consisted of mortgage-
backed securities.
FFY Financial has invested a percentage of the securities portfolio in
Federal agency obligations in an attempt to obtain the highest yield possible
while maintaining the flexibility and low credit risk connected with such
investments. Since 1990, the Federal Home Loan Banks (FHLBs), Fannie Mae and
Freddie Mac have offered callable bonds, issued at a yield premium over U.S.
Treasury obligations of a comparable final maturity. The call risk is
considered acceptable to FFY Financial because it provides a higher yield. The
call option would typically be exercised during a declining interest rate
environment, during which time FFY Financial's cost of funds would also be
declining. At June 30, 2000, $18.2 million, or 12% of the securities portfolio
consisted of Federal agency obligations, including $16.3 million with a call
feature.
FFY Financial has invested a portion of its securities portfolio in
municipal securities in an attempt to obtain reasonable returns and reduce FFY
Financial's effective tax rate. At June 30, 2000, FFY Financial's tax
equivalent yield on the municipal securities portfolio was 6.73%. For the year
ended June 30, 2000, FFY Financial's effective tax rate was 29.29% compared to
33.17% for the year ended June 30, 1999, due in part to the increased
investment income from tax-exempt municipal securities which totaled $2.0
million and $1.3 million, respectively, for fiscal years 2000 and 1999. At June
30, 2000, municipal securities totaled $41.3 million, or 26% of FFY Financial's
securities portfolio.
The following table sets forth the composition of the consolidated debt,
equity and other securities, and FHLB stock portfolios at June 30, 2000, 1999
and 1998.
June 30,
-------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- ---------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
-------- ------ -------- ------ -------- ------
(Dollars in Thousands)
Debt securities:
Federal agency
obligations(1)........ $ 18,966 10.96% $ 33,957 17.03% $ 35,049 24.33%
Mortgage-backed
securities............ 65,298 37.73% 74,454 37.33% 81,580 56.63%
State, county and
municipal securities.. 44,928 25.97% 46,707 23.42% 20,778 14.42%
Trust preferred
securities............ 24,587 14.21% 24,581 12.33% -- --
Asset-backed SLMA's.... 11,568 6.68% 11,494 5.76% -- --
Equity securities....... 894 0.52% 1,799 0.90% 637 0.44%
Other securities........ 1,617 0.93% 1,602 0.80% 1,517 1.05%
FHLB stock.............. 5,193 3.00% 4,841 2.43% 4,512 3.13%
-------- ------ -------- ------ -------- ------
Total securities and
FHLB stock............ $173,051 100.00% $199,435 100.00% $144,073 100.00%
======== ====== ======== ====== ======== ======
Average remaining life
of debt securities..... 10.93 Years 10.57 years 4.66 years
Other interest-earning
assets:
Interest-bearing
deposits with banks... $ 6,490 100.00% 5,245 85.84% $ 5,713 100.00%
Short-term
investments........... -- -- 865 14.16% -- --
-------- ------ -------- ------ -------- ------
Total.................. $ 6,490 100.00% $ 6,110 100.00% $ 5,713 100.00%
======== ====== ======== ====== ======== ======
Average remaining life
or term to repricing of
debt securities and
other interest-earning
assets................. 10.52 years 10.24 years 4.47 years
- --------
(1) Excluding mortgage-backed securities which include Fannie Mae, Freddie Mac
and Ginnie Mae pass-through certificates.
115
The composition and contractual maturities of the consolidated debt and
other securities portfolios, excluding equity securities and FHLB of Cincinnati
stock, are indicated in the following table.
June 30, 2000
----------------------------------------------------
Over 5
Over 1 thru Total Debt
One Year thru 5 10 Over 10 and Other
or Less Years Years Years Securities
-------- ------ ------ ------- ----------
Book Book Book Book Book
Value Value Value Value Book Value Value
-------- ------ ------ ------- ---------- -------
(Dollars in Thousands)
Debt securities:
Federal agency
obligations............ $-- 14,969 1,997 2,000 18,966 18,242
Mortgage-backed
securities............. 290 4,504 3,980 56,524 65,298 61,689
State, county and
municipal securities... -- 904 16,933 27,091 44,928 41,329
Trust preferred
securities............. -- -- -- 24,587 24,587 23,196
Asset-backed SLMA's..... -- -- 4,973 6,595 11,568 11,370
Other..................... -- -- -- 1,617 1,617 1,438
---- ------ ------ ------- ------- -------
Total debt and other
securities............... $290 20,377 27,883 118,414 166,964 157,264
==== ====== ====== ======= ======= =======
Weighted average yield1... 5.92% 6.13% 6.16% 6.78% 6.59%
==== ====== ====== ======= =======
- --------
(1) Weighted average yield is presented for debt securities only on a fully
taxable equivalent basis using FFY Financial's federal statutory tax rate
of 34%.
Sources of Funds
General. FFY Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans, maturities, sales and principal
receipts of securities, borrowings, repurchase agreements and operations. FFY
Bank also has access to advances from the Federal Home Loan Bank (FHLB) of
Cincinnati. Contractual loan payments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general market interest rates and economic conditions. Borrowings
may be used on a short-term basis for liquidity purposes or on a long-term
basis to fund asset growth. FFY Financial utilizes advances from the FHLB of
Cincinnati as a source for borrowings. Refer to Note 7 of the Notes to
Consolidated Financial Statements for a detail of advances from the FHLB of
Cincinnati.
Deposits. FFY Bank offers a variety of deposit accounts having a range of
interest rates and terms. FFY Bank's deposits consist of passbook and statement
savings accounts, NOW and demand accounts (including business checking and non-
interest bearing checking accounts), money market and certificate accounts. FFY
Bank relies primarily on advertising, competitive pricing policies, promotions
and customer service to attract and retain these deposits. Management believes
FFY Bank is competitive in the types of accounts and interest rates it has
offered on its deposit products. Management regularly evaluates the internal
cost of funds, surveys rates offered by FFY Bank's competitors, reviews FFY
Financial's cash flow requirements for lending and liquidity and executes rate
changes when necessary as part of its asset/liability management, profitability
and growth objectives. FFY Bank generally solicits deposits from its market
area.
116
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by FFY Bank for the dates indicated
and the rates as of June 30, 2000. See Note 5 of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders included as Exhibit
13 herein for weighted average nominal rates.
June 30,
----------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
Transaction and Savings
Deposits:
Passbook and statement
savings accounts 2.25%... $ 82,610 18.52% $ 92,719 20.27% $ 93,276 21.01%
NOW and demand accounts
0.00% - 1.74%............ 38,732 8.68% 36,678 8.02% 34,382 7.74%
Money market accounts
0.00% - 5.27%............ 47,137 10.57% 39,448 8.63% 28,059 6.32%
-------- ------ -------- ------ -------- ------
Total non-certificates.. 168,479 37.77% 168,845 36.92% 155,717 35.07%
-------- ------ -------- ------ -------- ------
Total Certificates:
3.00% - 3.99%............. 121 0.03% 22,172 4.85% -- --
4.00% - 4.99%............. 51,125 11.46% 44,801 9.79% 29,484 6.64%
5.00% - 5.99%............. 106,361 23.85% 144,646 31.63% 141,125 31.78%
6.00% - 6.99%............. 95,383 21.38% 69,209 15.13% 109,895 24.75%
7.00% - 7.99%............. 24,580 5.51% 7,670 1.68% 7,796 1.76%
-------- ------ -------- ------ -------- ------
Total certificates.......... 277,570 62.23% 288,498 63.08% 288,300 64.93%
-------- ------ -------- ------ -------- ------
Total deposits.............. $446,049 100.00% $457,343 100.00% $444,017 100.00%
======== ====== ======== ====== ======== ======
The following table sets forth the savings flows at FFY Bank during the
periods indicated.
Year Ended June 30,
---------------------------
2000 1999 1998
-------- ------- -------
(Dollars in Thousands)
Opening balance................................... $457,343 444,017 450,224
Net withdrawals................................... (30,558) (5,859) (27,340)
Interest credited................................. 19,264 19,185 21,133
-------- ------- -------
Ending balance.................................... 446,049 457,343 444,017
======== ======= =======
Net increase (decrease)........................... $(11,294) 13,326 (6,207)
======== ======= =======
Percent increase (decrease)....................... (2.47)% 3.00% (1.38)%
======== ======= =======
117
The following table shows rate and maturity information for FFY Bank's
certificates of deposit as of June 30, 2000.
0.00%- 4.00%- 5.00%- 6.00%- 7.00%- Percent
3.99% 4.99% 5.99% 6.99% 7.99% Total of Total
------ ------ ------- ------ ------ ------- --------
(Dollars in Thousands)
Certificate accounts
maturing in quarter
ending:
September 30, 2000...... $ 2 20,444 24,816 7,839 -- 53,101 19.2%
December 31, 2000....... 117 10,666 8,743 18,995 -- 38,521 13.9%
March 31, 2001.......... -- 3,787 29,086 14,048 -- 46,921 16.9%
June 30, 2001........... -- 5,601 14,424 12,435 114 32,574 11.7%
September 30, 2001...... -- 2,332 4,517 8,620 9,000 24,469 8.8%
December 31, 2001....... -- 1,435 1,136 4,169 955 7,695 2.8%
March 31, 2002.......... 2 1,904 1,033 6,039 -- 8,978 3.2%
June 30, 2002........... -- 1,260 1,341 6,184 561 9,346 3.4%
September 30, 2002...... -- 767 2,213 3,948 125 7,053 2.5%
December 31, 2002....... -- -- 1,753 2,291 96 4,140 1.5%
March 31, 2003.......... -- 71 3,534 425 1,099 5,129 1.8%
June 30, 2003........... -- 2 2,301 504 356 3,163 1.1%
September 30, 2003...... -- 32 1,675 55 -- 1,762 0.6%
Thereafter.............. -- 2,824 9,789 9,831 12,274 34,718 12.6%
---- ------ ------- ------ ------ ------- -----
Total................. $121 51,125 106,361 95,383 24,580 277,570 100.0%
==== ====== ======= ====== ====== ======= =====
Percent of total........ 0.0% 18.4% 38.3% 34.4% 8.9% 100.0%
==== ====== ======= ====== ====== =======
The following table indicates the amount of FFY Bank's certificates of
deposit by time remaining until maturity as of June 30, 2000.
Maturity
---------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over 12
or Less Months Months months Total
-------- ------ ------- ------- -------
(Dollars in Thousands)
Certificates of deposit less than
$100,000............................. $39,998 20,581 63,906 85,640 210,125
Certificates of deposit greater than
or equal to $100,000................. 13,103 17,940 15,589 20,813 67,445
------- ------ ------ ------- -------
Total certificates of deposit....... $53,101 38,521 79,495 106,453 277,570
======= ====== ====== ======= =======
Subsidiary and Other Activities
FFY Bank and FFY Holdings, Inc. are wholly-owned subsidiaries of FFY
Financial. FFY Bank has one wholly-owned subsidiary--Ardent Service
Corporation, which was formed on July 16, 1997 for the purpose of being a 50%
owner of Hedgerows Development, Ltd., a limited liability company formed for
the purpose of constructing, marketing and selling residential condominium
units. FFY Holdings, Inc. has a one-third interest in Coldwell Banker FFY Real
Estate (CBFFY) and a 100% interest in FFY Insurance Agency, Ltd. FFY Holdings
acquired the minority interest in FFY Insurance in May 2000. CBFFY offers real
estate services and FFY Insurance offers property and casualty insurance.
Competition
FFY Financial's primary business, through FFY Bank, of originating loans and
attracting deposits is highly competitive. FFY Bank competes actively with
other savings and loan associations, national and state banks,
118
credit unions, mortgage bankers and other financial service entities. The
primary factors in competing for loans are interest rates, loan fees, timing
and quality of service. The primary factors in competing for deposits are
interest rates, customer service and convenience of office locations.
Employees
At July 31, 2000 FFY Bank had a total of 219 employees, including 65 part-
time employees. FFY Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Regulation
General. FFY Bank is a federally chartered savings bank, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, FFY Bank is subject to broad federal
regulation and oversight extending to all of its operations. FFY Bank is a
member of the Federal Home Loan Bank of Cincinnati and is subject to certain
limited regulation by the Board of Governors of the Federal Reserve System
(Federal Reserve Board). FFY Bank is a member of the Savings Association
Insurance Fund (SAIF) and the deposits of FFY Bank are insured by the FDIC. As
a result, the FDIC has certain regulatory and examination authority over FFY
Bank. Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
FFY Financial, as a savings and loan holding company within the meaning of
the Home Owners Loan Act (HOLA), is subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, FFY Bank is subject to certain restrictions in its dealings
with FFY Financial.
Insurance of Accounts and Regulation by the FDIC. FFY Bank is a member of
the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits under the SAIF of the FDIC. The FDIC regulations assign
institutions to a particular capital group based on the level of an
institution's capital--"well capitalized", "adequately capitalized" or
"undercapitalized". These three groups are then divided into three subgroups
reflecting varying levels of supervisory concern, from those institutions
considered to be healthy to those which are considered to be of substantial
supervisory concern. The result is nine assessment risk classifications, with
well capitalized, financially sound institutions paying lower rates than are
paid by undercapitalized institutions likely to pose a risk of loss to the
insurance fund absent corrective actions.
Regulatory Capital Requirements. Federally insured savings associations,
such as FFY Bank, are required to maintain a minimum level of regulatory
capital. Failure to meet minimum capital requirements can initiate certain
mandatory and possible discretionary actions by regulators, which could have a
direct material effect on FFY Bank's statement of condition and results of
operations.
FFY Bank's capital requirements include tangible capital, core capital and
total risk-based capital. Under the tangible capital requirement, a savings
association must maintain tangible capital in an amount equal to at least 1.5%
of adjusted total assets. At June 30, 2000, FFY Bank had tangible capital of
$49.3 million, or 7.4% of adjusted total assets. Under the core capital
requirement, a savings association must maintain core capital in an amount
equal to at least 3.0% of adjusted total assets. At June 30, 2000, FFY Bank had
core capital of $55.4 million, or 8.3% of adjusted total assets. Under the
total risk-based capital requirement, a savings association must maintain core
capital equal to at least 4.0% of risk-weighted assets and total capital equal
to at least 8.0% of risk-weighted assets. At June 30, 2000, FFY Bank had total
risk-based capital of $57.9 million, or 12.7% of risk-weighted assets. In
determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet items, are multiplied by a risk weight ranging from 0% to
100% based on the risk inherent in the type of asset. Refer to Note 8 of the
Notes to Consolidated Financial Statements regarding compliance with regulatory
capital requirements.
119
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled institutions.
At each successively lower defined capital category, an institution is subject
to more restrictive and numerous mandatory or discretionary regulatory actions
or limits, and the OTS has less flexibility in determining how to resolve the
problems of the institution. Under the regulations, an institution shall be
deemed to be (i) "well capitalized" if it has total risk-based capital ratio of
10.0% or more, a Tier-1 risk-based capital ratio of 6.0% or more, a Tier-1
leverage capital ratio of 5.0% or more and is not subject to any order or final
capital directive to meet and maintain a specific capital level for any capital
measure; (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, a Tier-1 risk-based capital ratio of 4.0% or more, a
Tier-1 leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized"; (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier-1 risk-based capital ratio that is less than 4.0% or a Tier-1
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a total risk-
based capital ratio that is less than 6.0%, a Tier-1 risk-based capital ratio
that is less than 3.0% or a Tier-1 leverage capital ratio that is less than
3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. Regulations also
specify circumstances under which a federal banking agency may reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply
with supervisory actions as if it were in the next lower category. An
institution that is significantly undercapitalized may not be reclassified as
critically undercapitalized. As of June 30, 2000, FFY Bank believes it
qualifies as a "well capitalized" institution under the prompt corrective
action rules.
Limitations on Dividends and Other Capital Distributions. OTS regulations
impose various restrictions on savings institutions with respect to their
ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital accounts.
Generally, savings institutions, such as FFY Bank, that before and after the
proposed distribution remain well-capitalized, may make capital distributions
during any calendar year equal to the greater of 100% of net income for the
year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision by the OTS may
have its dividend authority restricted by the OTS. FFY Bank may pay dividends
in accordance with this general authority.
Savings institutions proposing to make any capital distribution need not
submit written notice to the OTS prior to such distribution unless they are a
subsidiary of a holding company or would not remain well-capitalized following
the distribution. The OTS may object to the distribution during the 30-day
notice period based on safety and soundness concerns. Savings institutions that
do not, or would not meet their current minimum capital requirements following
a proposed capital distribution or propose to exceed these net income
limitations must obtain OTS approval prior to making such distribution.
Liquidity. Refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Cash Flows" contained on
page of this document.
Qualified Thrift Lender Test. In order for FFY Bank to exercise the powers
granted to SAIF-insured institutions and maintain full access to FHLB advances,
it must qualify as a qualified thrift lender (QTL). Under the HOLA and OTS
regulations, a savings institution is required to maintain a level of qualified
thrift investments equal to at least 65% of its portfolio assets (as defined by
statute) on a monthly basis for nine out of every 12 months per calendar year.
Qualified thrift investments for purposes of the QTL test consist primarily of
residential mortgages and related investments. As of June 30, 2000, FFY Bank
met the QTL test and has always met the test since its effectiveness. At June
30, 2000, FFY Bank's QTL percentage was 85.4%.
Community Reinvestment Act. Under the Community Reinvestment Act (CRA),
every FDIC-insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit needs
of its entire community, including low- and moderate-income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an
120
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with the examination of FFY Bank, to
assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications,
such as a merger or the establishment of a branch, by FFY Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS. FFY Bank was examined for CRA compliance in April 2000 and received
a rating of "satisfactory".
Holding Company Regulation. As a unitary savings and loan holding company,
FFY Financial generally is not subject to activity restrictions. If FFY
Financial acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company, and
the activities of FFY Financial and any of its subsidiaries (other than FFY
Bank or any other SAIF-insured savings association) would become subject to
such restrictions, which generally limit activities to those related to
controlling a savings association, unless such other associations each qualify
as a QTL and were acquired in a supervisory acquisition.
If FFY Bank fails the QTL test, FFY Financial must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure, FFY Financial must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
Federal Securities Law. The Common Stock of FFY Financial is registered with
the SEC under the Securities Exchange Act of 1934, as amended (Exchange Act).
FFY Financial is subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the Exchange Act and the rules
and regulations of the SEC thereunder.
Federal Home Loan Bank System. FFY Bank is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors
of the FHLB. These policies and procedures are subject to the regulation and
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the
FHLB.
As a member, FFY Bank is required to purchase and maintain stock in the FHLB
of Cincinnati. At June 30, 2000, FFY Bank had $5.2 million in FHLB stock which
was in compliance with this requirement. In past years, FFY Bank has received
substantial dividends on its FHLB stock. For the year ended June 30, 2000,
dividends paid by the FHLB of Cincinnati to FFY Bank totaled $363,000 which
represented a $29,000 increase from the amount of dividends received in fiscal
year 1999.
Under federal law the FHLBs are required to provide funds for the resolution
of troubled savings associations and to contribute to low- and moderately
priced housing programs through direct loans or interest subsidies on advances
targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of FFY Bank's FHLB stock may result in a corresponding
reduction in FFY Bank's capital.
Federal Taxation. The following discussion of tax matters is intended to be
a summary of the material tax rules applicable to FFY Financial and does not
purport to be a comprehensive description of all applicable tax rules.
121
Certain 1996 tax legislation significantly affected thrift institutions such
as FFY Bank regarding bad debt provisions. Large thrifts, such as FFY Bank,
were required to switch to the specific charge-off method of Section 166 while
small thrifts switched to the reserve method of Section 585 (the method used by
small commercial banks). For FFY Bank and other large thrifts, charge-offs are
deducted and recoveries are taken into taxable income as incurred. The
legislation eliminated the percentage of taxable income method for computing
additions to the thrift tax bad debt reserves for tax years beginning after
December 31, 1995 which affected FFY Bank beginning in fiscal year ended June
30, 1997. The legislation also required that thrift institutions such as FFY
Bank recapture all or a portion of their tax bad debt reserves added since the
base year. For FFY Bank, the base year is June 30, 1988 and the tax bad debt
reserves added since that date were $3.4 million. Beginning in fiscal year
1997, FFY Bank was required to recapture the $3.4 million ratably over a six
year period. However, FFY Bank qualified for a two year postponement due to
meeting a minimum mortgage lending requirement. Recapture began in fiscal year
1999. As FFY Bank has previously provided deferred taxes on the recapture
amounts, no additional financial statement tax expense will result from the
recapture.
The base year reserves and the supplemental reserve are not forgiven. These
reserves continue to be subject to the section 593(e) recapture penalty and are
treated as a section 381(c) attribute for purposes of certain corporate
acquisitions. There are other ancillary provisions affected by the repeal of
section 593, most notably the repeal of section 595 which provides thrifts with
special treatment on foreclosure of property securing loans. Section 595 is
repealed for property acquired in taxable years beginning after December 31,
1995.
Under section 593(e), earnings appropriated for bad debt reserves and
deducted for federal income tax purposes cannot be used by FFY Bank to pay cash
dividends or distributions to FFY Financial without FFY Bank including the
amount in taxable income, together with an amount deemed necessary to pay the
resulting income tax. Thus, any dividends to FFY Financial that would reduce
amounts appropriated to FFY Bank's bad debt reserves and deducted for federal
income tax purposes could create a tax liability for FFY Bank. FFY Bank does
not intend to pay dividends that would result in a recapture of its bad debt
reserves.
In addition to the regular income tax, corporations, including savings
associations such as FFY Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. Net operating losses can offset no more than 90% of alternative
minimum taxable income. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax.
FFY Financial files a consolidated federal income tax return on a fiscal
year basis using the accrual method. FFY Bank has been audited by the Internal
Revenue Service with respect to federal income tax returns through tax year
1991 and has federal income tax returns which are open and subject to audit for
the tax years 1997 through 1999. With respect to years examined by the IRS, all
deficiencies have been satisfied. In the opinion of management, any examination
of still open returns would not result in a deficiency which could have a
material adverse effect on the financial condition of FFY Financial.
For additional information regarding federal taxation, see Note 9 of the
Notes to the FFY Financial Consolidated Financial Statements.
Ohio Taxation. As a federally chartered savings bank, FFY Bank is subject to
an Ohio franchise tax based on its net worth plus certain reserve amounts.
Total net worth for this purpose is reduced by certain exempted assets. The
resultant net worth was taxed at a rate of 1.3% for the 2000 return, which was
based on net worth as of June 30, 1999. FFY Bank's state franchise tax returns
are open and subject to audit for the years 1997 through 2000.
122
FFY Financial is subject to the Ohio franchise tax on regular corporations.
For its 2000 Ohio franchise tax return, FFY Financial has elected to be taxed
as a qualifying holding company since it met certain requirements. A qualifying
holding company is exempt from the net worth basis of Ohio franchise tax and is
subject to tax on the net income basis. The rates imposed on FFY Financial's
2000 Ohio franchise tax return were 5.1% on the first $50,000 of Ohio taxable
income and 8.5% of Ohio taxable income in excess of $50,000. A special litter
tax is also applicable to corporations, such as FFY Financial, paying tax on
the net income basis. The litter tax is equal to 0.11% of the first $50,000 of
Ohio taxable income and 0.22% of Ohio taxable income in excess of $50,000. FFY
Financial's state franchise tax returns are open and subject to audit for the
years 1997 through 2000.
Delaware Taxation. As a Delaware holding company, FFY Financial is exempted
from Delaware corporate income tax but is required to file an annual report
with and pay an annual fee to the State of Delaware. FFY is also subject to an
annual franchise tax imposed by the State of Delaware.
123
LEGAL MATTERS
The validity of the shares of First Place common stock offered by this joint
proxy statement/prospectus will be passed upon for First Place by Patton Boggs
LLP, Washington, DC.
Patton Boggs LLP, Washington, D.C., will pass upon the federal income tax
consequences of the merger for First Place.
EXPERTS
The consolidated financial statements of First Place and subsidiary as of
June 30, 2000 and 1999 and for each of the three years in the period ended June
30, 2000, included in the registration statement of which this joint proxy
statement/prospectus is a part, have been audited by Crowe, Chizek and Company
LLP, independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of FFY Financial and subsidiaries as
of June 30, 2000, and 1999, and for each of the years in the three year period
ended June 30, 2000, included in the registration statement of which this joint
proxy statement/prospectus is a part, have been audited by KPMG LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Copies
of our reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning First Place and
FFY Financial may be inspected at:
National Association of Securities Dealer, Inc.
Reports Section
1735 K Street, N.W.
Washington, D.C. 20006
124
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy statements and other information regarding each of
us. The address of the SEC website is http://www.sec.gov.
First Place has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
First Place's stock to be issued in the merger. This joint proxy
statement/prospectus constitutes the prospectus of First Place filed as part of
the registration statement. This joint proxy statement/prospectus does not
contain all of the information set forth in the registration statement because
certain parts of the registration statement are omitted in accordance with the
rules and regulations of the SEC. The registration statement and its exhibits
are available for inspection and copying as set forth above.
If you have any questions about the merger, please call Georgeson
Shareholder Communications, Inc. at 1-800-223-2064.
This joint proxy statement/prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this joint
proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this joint proxy statement/prospectus nor any distribution of
securities pursuant to this joint proxy statement/prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth in this joint proxy statement/prospectus or in our
affairs since the date of this joint proxy statement/prospectus. The
information contained in this joint proxy statement/prospectus with respect to
First Place was provided by First Place and the information contained in this
joint proxy statement/prospectus with respect to FFY Financial was provided by
FFY Financial.
125
ELECTION OF FIRST PLACE DIRECTORS; RATIFICATION OF
FIRST PLACE INDEPENDENT AUDITORS
Principal Stockholders
Other than those persons listed below, First Place is not aware of any
person who may be considered to be the owner of more than 5% of the outstanding
shares of First Place common stock as of August 11, 2000. For the purposes of
the following table and the table set forth under "--What First Place's
Directors and Executive Officers Own," a person may be considered to own any
shares of First Place common stock (1) over which he or she has, directly or
indirectly, sole or shared voting or investing power, or (2) of which he or she
has the right to acquire ownership, including the right to acquire ownership by
the exercise of stock options, within 60 days after August 11, 2000.
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ------------------- ---------- --------
Common Stock................. First Federal Savings and 899,300(1) 9.1%
Loan Association of Warren
Employee Stock Ownership
Plan ("ESOP") 185 East
Market Street
Warren, Ohio 44482
Common Stock................. First Federal of Warren 697,625 7.1%
Community Foundation
185 East Market Street
Warren, Ohio 44482
- --------
(1) The ESOP Committee administers the ESOP. The ESOP Trustee must vote all
allocated shares held in the ESOP in accordance with the instructions of
the participants. At June 30, 2000, 98,079 shares had been allocated under
the ESOP. Each participant, however, will be deemed to have one share of
common stock in the ESOP allocated to such participant's account for the
purpose of providing voting instructions to the ESOP Trustee. Under the
ESOP, unallocated shares and allocated shares as to which voting
instructions are not given by participants are to be voted by the ESOP
Trustee in a manner calculated to most accurately reflect the instructions
received from participants regarding the allocated stock so long as such
vote is in accordance with the fiduciary provisions of the Employee
Retirement Income Security Act of 1974, as amended.
(2) First Federal of Warren Community Foundation is a private foundation that
was funded with 802,625 shares of First Place common stock in connection
with the conversion of First Federal. Pursuant to a regulatory condition
imposed by the Office of Thrift Supervision in approving the formation and
funding of the foundation, unless the condition is waived by the OTS, all
shares of common stock held by the foundation must be voted in the same
ratio as all other shares of common stock on all proposals considered by
stockholders of First Place.
126
What First Place's Directors and Executive Officers Own
The following table provides information, as of August 11, 2000, about the
shares of First Place common stock that are owned or may be deemed to be owned
by (1) each director of First Place, (2) First Place's Chief Executive Officer
and by the next most highly paid executive officer of First Place with salary
and bonus in the last fiscal year in excess of $100,000 and (3) all directors
and executive officers of First Place as a group. Except as otherwise
indicated, each person and each group shown in the table has sole voting and
investing power over their shares.
Percent of
Amount and Nature Common Stock
Name Title of Beneficial Ownership Outstanding (3)
---- ----- ----------------------- ---------------
Paul A. Watson.......... Chairman of the Board 79,460(1) *
Steven R. Lewis......... President, Chief Executive 120,273(1) 1.2
Officer and Director
George J. Gentithes..... Director 82,400(2) *
Robert P. Grace......... Director 47,400(2) *
Thomas M. Humphries..... Director 47,400(2) *
Earl T. Kissell......... Director 77,905 *
Robert S. McGeough...... Director 48,400(2) *
E. Jeffrey Rossi........ Director 61,918(2) *
All directors and 700,988 7.1%
executive officers as a
group (14 persons).....
- --------
* Represents less than 1% of outstanding First Place common stock.
(1) Including 26,960 and 71,880 shares awarded to Messrs. Watson and Lewis,
respectively, under the First Place stock incentive plan which have not yet
vested, but as to which they may provide voting recommendations.
(2) Includes 17,920 shares awarded to each outside director pursuant to the
First Place stock incentive plan which have not yet vested, but as to which
they may provide voting recommendations.
(3) Percentages have been calculated on the basis of 9,883,250 shares of First
Place common stock, the number of shares of First Place common stock
outstanding as of August 11, 2000.
Election of Directors
The board of directors of First Place currently consists of eight directors
and is divided into three classes. Each of the eight members of the board of
directors of First Place also presently serves as a director of First Federal.
Directors are elected for staggered terms of three years each, with the term of
office of only one of the three classes of directors expiring each year.
Directors serve until their successors are elected and qualified.
At the annual meeting, three directors will be elected for a three year term
expiring at the 2003 annual meeting and until their successors are elected and
qualified. The three nominees proposed for election at this annual meeting are
Robert P. Grace, Thomas M. Humphries and Robert S. McGeough. No person being
nominated as a director is being proposed for election pursuant to any
agreement or understandings between any such person and First Place.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
Vote Required. Directors must be elected by a plurality of the votes cast at
the meeting. This means that the nominees receiving the greatest number of
votes will be elected. Votes withheld for any director will not be counted.
127
In the event that any such nominee is unable to serve or declines to serve
for any reason, it is intended that the proxies will be voted for the election
of such other person as may be designated by the present board of directors.
The board of directors has no reason to believe that any of the persons named
will be unable or unwilling to serve. Unless authority to vote for the nominee
is withheld, it is intended that the shares represented by the enclosed proxy
card, if executed and returned, will be voted "For" the election of the
nominees proposed by the board of directors.
First Place Board after the Merger. Upon completion of the merger, the First
Place board will consist of 16 persons, divided into three classes. Please see
the section entitled "Board of Directors, Management and Operations of First
Place following the Merger--Board of Directors" for information regarding the
names and terms of the 16 persons proposed to comprise the First Place board
after the merger.
Information with Respect to the Nominees, Continuing Directors and Certain
Executive Officers. The following table presents, as of the record date, the
names of the nominees, continuing directors and named executive officers as
well as their ages, a brief description of their recent business experience,
including present occupations and employment, certain directorships held by
each, the year in which each director became a director of First Place, the
year in which their terms (or in the case of the nominees, their proposed
terms) as director of First Place expire.
Expiration
Name and Principal Occupation at Present and for Past Director of Term
Five Years Age Since(1) as Director
- ----------------------------------------------------- --- -------- -----------
NOMINEES
Robert P. Grace...................................... 61 1996 2000
Mr. Grace has been Vice President and Chief
Financial Officer of Salem Label Co., Salem, Ohio
since 1995. Prior to that date, Mr. Grace was a
principal in the accounting firm of Packer, Thomas &
Co.
Thomas M. Humphries.................................. 56 1990 2000
Mr. Humphries has been President of the Youngstown-
Warren Regional Chamber of Commerce since 1998.
Prior to that date, he was a General Manager with
Sprint Corp., a telecommunications company located
in Warren, Ohio.
Robert S. McGeough................................... 70 1973 2000
Mr. McGeough has been of counsel to the firm
Harrington, Hoppe & Mitchell since 1997. Prior to
that he was a partner with the law firm of Hoppe,
Frey, Hewitt & Milligan.
CONTINUING DIRECTORS
George J. Gentithes.................................. 67 1989 2001
Mr. Gentithes has been a consultant for T.F.
Industries, Warren, Ohio since 1994.
Earl T. Kissel....................................... 51 2000 2001
Mr. Kissell was President and Chief Executive
Officer of Ravenna Savings Bank from 1987 to 2000
Steven R. Lewis...................................... 42 1998 2002
President and chief executive officer of First Place
and First Federal since 1997. Served as Executive
Vice President from 1995 to 1997. Served as Vice
President and Treasurer from 1985 until 1995.
E. Jeffrey Rossi..................................... 47 1994 2001
Mr. Rossi is principal of E.J. Rossi & Company, a
life and health insurance brokerage, located in
Youngstown and Warren, Ohio.
Paul A. Watson....................................... 68 1983 2002
Chairman of the board of directors of First Place
and First Federal. Mr. Watson was President and
chief executive officer of First Federal from 1983
until his retirement in 1996.
- --------
(1) Includes years of service as a director of First Federal.
128
Meetings of the Board of Directors and Committees of the Board of Directors of
First Place
The board of directors of First Place conducts its business through meetings
of the board of directors and through activities of its committees. The board
of directors of First Place meets weekly and may have additional meetings as
needed. During the year ended June 30, 2000, the board of directors of First
Place held 26 meetings. All of the directors of First Place attended at least
75% of the total number of First Place's board meetings held and committee
meetings on which such directors served during fiscal 2000. The board of
directors of First Place maintains committees, the nature and composition of
which are described below:
Audit Committee. The audit committee of First Place and First Federal
consists of Messrs. Gentithes, Grace, Humphries and McGeough. The audit
committee is responsible for reporting to the board on the general financial
condition of First Federal and the results of the annual audit, and is
responsible for ensuring that First Federal's activities are being conducted in
accordance with applicable laws and regulations. The audit committees of First
Place and of First Federal both met four times in fiscal 2000.
Nominating Committee. The entire board of directors acts as a nominating
committee to consider and select the nominees for director to stand for
election at First Place's annual meeting of stockholders. First Place's
certificate of incorporation and bylaws provide for stockholder nominations of
directors. These provisions require such nominations to be made pursuant to
timely notice in writing to the secretary of First Place. The stockholder's
notice of nomination must contain all information relating to the nominee which
is required to be disclosed by First Place's bylaws and by the Securities
Exchange Act of 1934, as amended. The board of directors met one time during
fiscal 2000 in its capacity as nominating committee.
Compensation Committee. The compensation committee of First Place consists
of Messrs. Rossi, Gentithes and Humphries. The committee meets to establish
compensation and benefits for the executive officers and to review the
incentive compensation programs when necessary. The committee is also
responsible for all matters regarding compensation and benefits, hiring,
termination and affirmative action issues for other officers and employees of
First Place and First Federal. The compensation committee of First Place met
five times in fiscal 2000.
Directors' Compensation
Directors' Fees. Currently, all directors of First Federal, with exception
of Mr. Lewis, receive an annual retainer of $10,000. In addition, such
directors receive a fee of $450 ($500 for the chairman of the board) for each
regular and special board meeting which they attend. Such directors also
receive a fee of $200 for each committee meeting attended. Directors of First
Place receive no compensation for their services as such.
Executive Compensation
The report of the compensation committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this joint proxy statement/prospectus into any
filing under the Securities Act of 1933, as amended or the Securities Exchange
Act of 1934, as amended, except as to the extent that First Place specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
Compensation Committee Report on Executive Compensation. Under rules
established by the Securities and Exchange Commission, First Place is required
to provide certain data and information in regard to the compensation and
benefits provided to First Place's chief executive officer and other executive
officers of First Place or First Federal. The disclosure requirements for the
chief executive officer and other executive officers include the use of tables
and a report explaining the rationale and considerations that led to
fundamental compensation decisions affecting those individuals. In fulfillment
of this requirement, the compensation committee of the board of directors of
First Place, at the direction of the board of directors, has prepared the
following report for inclusion in this joint proxy/statement prospectus.
129
During the 2000 fiscal year, the compensation committee of the board of
directors of First Place was comprised of Messrs. Rossi, Gentithes and
Humphries (the "Committee"). The board of directors of First Place delegates to
the committee the responsibility for developing and administering policies
which govern the total compensation program for the executive officers of First
Place and First Federal. The committee also administers First Place's 1999
Incentive Plan.
The goal of First Place's executive compensation program is to retain,
motivate and reward management through the compensation policies and awards,
while aligning their interests more closely with those of First Place and its
stockholders. In furtherance of this goal, the program consists of three main
components: (i) base salary; (ii) bonuses, which are either discretionary or
based on First Place or First Federal's performance; and (iii) stock awards and
stock options to provide long-term incentives for performance and to align
executive officer and stockholder interests. First Place adopted its 1999
Incentive Plan, which provided for stock awards and stock options, in July
1999, and thus the considerations in making grants under that plan were
determinative in the committee's compensation decisions for the fiscal year
ended June 30, 2000.
Performance Evaluations. The committee met during the year to perform
evaluations for each of the executive officers of First Place and of First
Federal. An assessment of each executive officer's contributions, experience
and knowledge was made along with recommendations from Mr. Lewis. Based upon
those assessments, a review of progress towards goals established during the
previous year and comparisons to other regional executive officer compensation
levels, the committee made salary recommendations to the board of directors of
First Place. The board reviewed the recommendations in order to establish
salary levels for the upcoming year.
Chief Executive Officer Compensation. The compensation committee also met
during the year to discuss the compensation of Mr. Lewis. In addition to the
criteria outlined above for performance evaluations, the committee also
considered the following to establish the appropriate salary level for Mr.
Lewis: (i) published salary information for chief executive officers of
comparable institutions, both local and regional; (ii) information obtained
from proxy statements of publicly traded banks and thrifts; (iii) the stock
awards and stock options granted to Mr. Lewis under the 1999 Incentive Plan;
(iv) the overall performance of First Place; and (v) the increased duties,
responsibilities and obligations that have been taken on by Mr. Lewis as the
President and chief executive officer of a newly public company. Based upon the
compensation committee's recommendations, the board of directors determined
that an increase in his salary to a level more commensurate with his peers, as
well as with his new responsibility, was merited by his successful performance
in the position to date, and increased Mr. Lewis' annual salary from $150,000
per year to $180,000 per year. The goal of the above referenced compensation
policies, as implemented by the committee, is to be certain that all executives
are compensated consistent with the above guidelines and to assure that all
reasonable and possible efforts are being exerted to maximize shareholder
value. Compensation levels will be reviewed as frequently as necessary to
ensure this result.
The compensation committee
George J. Gentithes
Thomas M. Humphries
E. Jeffrey Rossi
130
Stock Performance Graph. The following graph shows a comparison of
cumulative total stockholder return on First Place's Common Stock based on the
market price of the Common Stock with the cumulative total return of companies
on the Nasdaq Stock Market (U.S.) Index and Nasdaq Bank Stocks for the period
beginning on January 4, 1999, the day First Place's Common Stock began trading,
through June 30, 2000. The graph was derived from a limited period of time,
and, as a result, may not be indicative of possible future performance of First
Place's Common Stock.
[GRAPH]
Comparison of Cumulative Total Returns
Among First Place, Nasdaq Stock Market (U.S.)
Index and the Nasdaq Bank Stock Index
01/04/99 01/29/99 02/26/99 03/31/99 04/30/99 5/31/99 6/30/00
-------- -------- -------- -------- -------- ------- -------
First Place Financial
Corp. 100.0 101.25 123.13 114.43 114.68 108.66 117.71
Nasdaq Stock Market
Index 100.0 111.43 122.02 124.98 184.72 207.38 180.25
Nasdaq Bank Stock Index 100.0 95.96 102.98 93.70 96.08 86.79 84.47
Notes:
A. The lines represent yearly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the interval is not a trading day, the preceding trading day is used.
D. The index level for all series was set to 100.00 on 1/4/99.
131
Summary Compensation Table. The following table shows, for the fiscal years
ended June 30, 2000, 1999 and 1998, the cash compensation paid by First
Federal, as well as certain other compensation paid or accrued for those years,
to the chief executive officer and the other executive officer of First Federal
who received salary and bonus in excess of $100,000 during the year ended June
30, 2000.
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
----------------------------- ----------------------- -------
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Stock Options/SARs Payouts Compensation
Position Year ($)(1) ($) ($)(2) Awards ($) (#)(3) ($)(4) ($)(5)
- ------------------ ---- -------- ------- ------------ ---------- ------------ ------- ------------
Steven R. Lewis, 2000 $156,126 $20,000 -- 1,106,278 224,000 -- $4,765
President and Chief 1999 131,731 30,000 -- -- -- -- 3,586
Executive Officer 1998 120,162 12,480 -- -- -- -- 2,603
- --------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred pursuant to First Federal's 401(k) Plan.
(2) There were no (a) perquisites over the lesser of $50,000 or 10% of the
individual's total salary and bonus for the last year, (b) payments of
above-market preferential earnings on deferred compensation, (c)payments of
earnings with respect to long-term incentive plans prior to settlement or
maturation, (d) tax payment reimbursements, or (e) preferential discounts
on stock.
(3) As of June 30, 2000, the value of the shares of restricted stock granted to
Mr. Lewis was $965,888, which was calculated by multiplying the total
number of shares of restricted stock granted by the closing market price of
First Place common stock on June 30, 2000. The shares of restricted stock
granted to Mr. Lewis will vest at a rate of 20% or 17,970 shares each year
over the next five years, beginning on July 2, 2000.
(4) For fiscal 2000, 1999 and 1998, First Federal had no long-term incentive
plans in existence. Accordingly, there were no payments or awards under any
long-term incentive plan.
(5) Other compensation includes First Federal's matching contribution under
First Federal's 401(k) Plan.
Option/SAR Grants Table. The following table presents for each of the named
executive officers certain information concerning stock options granted during
the fiscal year ended June 30, 2000.
Potential realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Number of Granted to Price Appreciation
Securities employees for Option Term (1)
Underlying in Fiscal Exercise Expiration ---------------------
Name Options(1) Year Price Date 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- ----------
Steven R. Lewis......... 224,000 22.2% $12.31 7/2/10 $1,733,760 $4,694,880
- --------
(1) The potential realizable value is calculated based on the term of the
option (10 years) and is calculated by assuming that the fair market value
of common stock on the date of grant as determined by the Board of
Directors appreciates at the indicated annual rate compounded annually for
the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated price. The 5% and 10% assumed
rates of appreciation are derived from the rules of the Securities and
Exchange Commission. The actual value realized may be greater than or less
than the potential realizable values set forth in the table.
Aggregated Option Exercises and Year-End Option Value Table. The following
table sets forth information concerning the number and value of stock options
held by the named executive officers at June 30, 2000.
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-
Acquired Options at Fiscal Year the-Money Options at
on Value End (#) Fiscal Year End ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
Steven R. Lewis......... -- -- -- 224,000 -- --
Employment and Change in Control Agreements
First Federal and First Place have entered into employment agreements with
Steven R. Lewis, the president and chief executive officer of First Place and
First Federal. These employment agreements are intended to ensure that First
Federal and First Place will be able to maintain a stable and competent
132
management base. The continued success of First Federal and First Place depends
to a significant degree on the skills and competence of Mr. Lewis.
The employment agreements provide for a three-year term. The employment
agreements provide that, on or before the third anniversary date and continuing
each third anniversary date thereafter, the board of directors will review the
agreement and Mr. Lewis' performance for purposes of determining whether to
extend the agreement for an additional three years so that the remaining term
shall be three years, unless written notice of non-renewal is given by the
board of directors after conducting a performance evaluation of the Executive.
The agreements provide that Mr. Lewis' base salary will be reviewed annually.
The current base salary under the employment agreements for Mr. Lewis is
$180,000. In addition to the base salary, the employment agreements provide
for, among other things, participation in stock benefit plans and other fringe
benefits applicable to executive personnel. The agreements provide for
termination by First Federal or First Place for cause as defined in the
employment agreements, at any time. In the event First Federal or First Place
chooses to terminate Mr. Lewis' employment for any reasons other than for
cause, or in the event of Mr. Lewis' resignation from First Federal and First
Place upon: (i) failure to re-elect Mr. Lewis to his current offices; (ii) a
material change in Mr. Lewis' functions, duties or responsibilities; (iii) a
relocation of Mr. Lewis' principal place of employment by more than 50 miles;
(iv) a material reduction in the benefits and perquisites to Mr. Lewis from
those being provided as of the effective date of the employment agreements,
unless consented to by the Executive; (v) liquidation or dissolution of First
Federal or First Place; or (vi) a breach of the agreement by First Federal or
First Place, Mr. Lewis or, in the event of death, Mr. Lewis' beneficiary, would
be entitled to receive an amount equal to the remaining base salary payments
due to Mr. Lewis and the contributions that would have been made on Mr. Lewis'
behalf to any employee benefit plans of First Federal or First Place during the
remaining term of the employment agreements. First Federal and First Place
would also continue and pay for Mr. Lewis' life, health and dental coverage for
the remaining term of the employment agreements. Upon any termination of Mr.
Lewis, Mr. Lewis is subject to a one-year non-competition agreement.
Under the employment agreements, if involuntary termination or under certain
circumstances, voluntary termination follows a change in control of First
Federal or First Place as defined in the employment agreements, the Executive,
or, in the event of Mr. Lewis' death, his beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining terms of the agreement; or (ii) three times the average of the five
preceding taxable years' annual compensation. First Federal and First Place
would also continue Mr. Lewis' life, health and dental coverage for 36 months.
Notwithstanding that both First Federal and First Place employment agreements
provide for a severance payment in the event of a change in control, Mr. Lewis
would only be entitled to receive a severance payment under one agreement. For
the purposes of determining the term of First Federal employment agreement and
the benefits to be paid as described in this paragraph, the board of directors
of First Federal shall annually review the agreement and Mr. Lewis' performance
for the purpose of determining whether to deem the employment agreement
extended for an additional year such that the remaining term for these purposes
shall be three years. First Place's employment agreement shall be deemed
extended for these purposes on a daily basis unless written notice of non-
renewal is given by the board of directors.
Payments to Mr. Lewis under First Federal's employment agreement will be
guaranteed by First Place in the event that payments or benefits are not paid
by First Federal. Payment under First Place's employment agreement would be
made by First Place. All reasonable costs and legal fees paid or incurred by
Mr. Lewis pursuant to any dispute or question of interpretation relating to the
employment agreements shall be paid by First Federal or First Place,
respectively, if Mr. Lewis is successful on the merits pursuant to a legal
judgment, arbitration or settlement. The employment agreements also provide
that First Federal and First Place shall indemnify Mr. Lewis to the fullest
extent allowable under federal and Delaware law, respectively. In the event of
a change in control of First Federal or First Place, the total amount of
payments due under the employment agreements, based solely on the current base
salary to be paid to Mr. Lewis excluding any benefits under any employee
benefit plan which may be payable, would be approximately $540,000.
133
First Federal and First Place have entered into two-year change in control
agreements with certain other executive officers of First Place and First
Federal, none of whom will be covered by employment contracts. The change in
control agreements provide that commencing on the first anniversary date and
continuing on each anniversary thereafter, First Federal's change in control
agreements may be renewed by the board of directors for an additional year.
First Place's change in control agreements are similar to First Federal's
change in control agreements except that the term of First Place's change in
control agreements shall be extended on a daily basis. The change in control
agreements provide that in the event involuntary termination or, in certain
circumstances, voluntary termination follows a change in control of First
Federal or First Place, executive officers would be entitled to receive a
severance payment equal to two times his or her average annual compensation for
the five years preceding the termination. First Federal would also continue,
and pay for, the executive officers' life and health insurance coverage for 24
months following termination. Payments to executive officers under First
Federal's change in control agreements are guaranteed by First Place in the
event that payments of benefits are not paid by First Federal.
In the event of a change in control, total payments to executive officers
under the change in control agreements, based solely on current base salary and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $750,000.
Employee Benefit Plans
All full-time employees of First Federal, upon completion of the applicable
introductory period, are covered as a group for comprehensive hospitalization,
including major medical and long-term disability insurance. Life insurance is
also provided to employees.
401(k) Plan. First Federal also sponsors the First Federal Savings and Loan
Association of Warren 401(k) Savings Plan, a tax-qualified profit sharing and
salary reduction plan under Sections 401(a) and 401(k) of the Code. Generally,
employees other than employees who are collective bargaining unit employees and
employees who are non-resident aliens become eligible to participate in the
401(k) Plan upon the attainment of age 21 and the completion of one year of
service. Under the 401(k) Plan, participants may make salary reduction
contributions equal to 2% to 12% of their compensation or the legally
permissible limit (currently $10,000). First Federal matches of the
compensation deferred by a participant with respect to amounts deferred up to
6% of annual compensation.
Participants are always 100% vested in their salary reduction contributions.
Participants become 100% vested in First Federal matching contributions after
the completion of five years of service with First Federal. A participant who
terminates employment due to death, disability, or retirement immediately
becomes fully vested in First Federal's matching contributions credited to his
or her account regardless of the participant's years of service. A
participant's vested portion of his or her 401(k) Plan account is distributable
from the 401(k) Plan upon the termination of the participant's employment,
death, disability or retirement. In addition, a participant may be eligible for
hardship withdrawals and loans under the 401(k) Plan. Any distribution made to
a participant prior to the participant's attainment of age 59 is subject to a
10% excise tax in addition to federal income taxes. The board of directors may
at any time discontinue First Federal's contributions to employee accounts.
The 401(k) Plan currently permits participants to invest their 401(k) Plan
account balances in several types of investment funds. Under the 401(k) Plan,
plan participants are permitted to invest their account balances in First Place
common stock through an employer stock fund. The employer stock fund will be
invested primarily in shares of common stock. The trustee may follow the voting
directions of 401(k) Plan participants investing in the employer stock fund;
provided that the trustee determines such voting is consistent with its
fiduciary duties.
Retirement Plan. In June, 1999, First Federal terminated its defined benefit
pension plan known as the First Federal Savings and Loan Association of Warren
Defined Benefit Pension Plan. Since the pension plan
134
was terminated, there has not been any accrual of funds held in pension plan
participant accounts. First Place has filed a determination letter with the
Internal Revenue Service to confirm compliance of the pension plan under the
provisions of the Internal Revenue Code, as amended, prior to the distribution
of funds to pension plan participants. To date, First Place has not received a
response from the Internal Revenue Service and, as a result, First Place has
not made any distribution of funds to pension plan participants.
ESOP. First Federal also has an employee stock ownership plan or ESOP. The
ESOP is a tax-qualified retirement plan designed to invest primarily in
employer securities. First Federal will make contributions to the ESOP on
behalf of all ESOP participants. The ESOP will provide eligible employees with
the opportunity to receive a First Federal funded retirement benefit based on
the value of the common stock. The eligibility requirements for the ESOP are
similar to those of the 401(k) Plan.
The ESOP purchased 8.0%, or 899,300 shares, of the common stock. The shares
of common stock purchased by the ESOP with funds borrowed from First Place are
pledged as collateral for the loan, and are held in a suspense account until
released for allocation among participants as the loan is repaid. The trustee
will release the pledged shares annually from the suspense account in an amount
proportional to the repayment of the ESOP loan for each plan year. The released
shares will then be allocated to the accounts of ESOP participants as follows:
First, for each eligible ESOP participant, a portion of the shares released for
the plan year will be allocated to a special "matching" account under the ESOP
equal in value to the amount of matching contribution, if any, and/or if
applicable, that such participant would be entitled to under the terms of the
401(k) Plan for the plan year. Second, the remaining shares which have been
released for the plan year will be allocated to each eligible participant's
general ESOP account based on the ratio of each such participant's base
compensation to the total base compensation of all eligible ESOP participants.
Participants will vest in their ESOP account at a rate of 20% annually
commencing after the completion of two years of service, with 100% vesting upon
the completion of six years of service. Participants will also become fully
vested in their accounts if their service terminates due to death, retirement,
disability, or upon the occurrence of a change in control. The ESOP may
reallocate forfeitures among remaining participants, in the same proportion as
contributions. Benefits under the ESOP will become payable upon death,
retirement, early retirement, or separation from service. The annual
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
Additional Information About Our Directors and Executive Officers
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires First Place's officers (as defined
in regulations promulgated by the Securities and Exchange Commission
thereunder) and directors, and persons who own more than ten percent of a
registered class of First Place's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent shareholders are required by
Securities and Exchange Commission regulations to furnish First Place with
copies of all Section 16(a) forms they file.
Based solely on a review of copies of all such reports of ownership
furnished to First Place, or written representations that no forms were
necessary, First Place believes that it complied with all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners during the last fiscal year.
Transactions with Certain Related Persons. Federal regulations 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. In addition, loans made to a director or executive
officer in excess of the greater of $25,000 or 5% of First Federal's capital
and surplus (up to a maximum of $500,000) must be approved in advance by a
majority of the disinterested members of the board of directors.
135
First Federal offers directors, officers and full-time employees of First
Federal who satisfy certain criteria and the general underwriting standards of
First Federal, mortgage loans with interest rates which may be up to 1% below
the rates offered to First Federal's other customers, the employee loan rate.
The program also offers a 3/4% interest rate discount on motor vehicle loans,
other than motorcycles. Loan application fees are waived for all employee loan
rate loans. The employee loan rate normally ceases upon termination of
employment. Upon termination of the employee loan rate, the interest rate
reverts to the contract rate in effect at the time that the loan was
originated. All other terms and conditions contained in the original mortgage
and note continue to remain in effect. With the exception of employee loan rate
loans, First Federal currently makes loans to its executive officers, directors
and employees on the same terms and conditions offered to the general public.
Loans made by First Federal to its directors and executive officers are made in
the ordinary course of business, on substantially the same terms, including
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of collectibility or
present other unfavorable features. As of June 30, 2000, eight of First
Federal's executive officers or directors had loans with outstanding balances
totaling $433,235 in the aggregate. All such loans were made by First Federal
in the ordinary course of business, with no favorable terms (except for
employee loan rate loans) and such loans do not involve more than the normal
risk of collectibility or present unfavorable features.
First Place intends that all transactions between First Place and its
executive officers, directors, holders of 10% or more of the shares of any
class of its common stock and affiliates thereof, will contain terms no less
favorable to First Place than could have been obtained by it in arms-length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of First Place not having any interest in the
transaction.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee is made up of four directors: Messrs. Gentithes,
Humphries and Rossi. No member of the Committee is, or was during 2000, an
executive officer of another company whose board of directors has a comparable
committee on which one of First Place's executive officers serves.
Ratification of First Place Independent Auditors
First Place's independent auditors for the fiscal year ended June 30, 2000
were Crowe, Chizek and Company LLP. First Place's board of directors has
reappointed Crowe, Chizek and Company LLP to continue as independent auditors
for First Federal and First Place for the year ending June 30, 2001, subject to
ratification of such appointment by the stockholders. The affirmative vote of a
majority of the number of votes entitled to be cast by the common stock
represented at the meeting is needed to ratify the appointment.
Representatives of Crowe, Chizek and Company LLP will be present at the
annual meeting. They will be given an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders present at the annual meeting.
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted for ratification of the appointment of Crowe, Chizek and
Company LLP as the independent auditors of First Place.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF CROWE, CHIZEK AND COMPANY LLP AS THE INDEPENDENT AUDITORS OF
FIRST PLACE.
136
ADDITIONAL INFORMATION FOR FIRST PLACE
Stockholder Proposals
To be considered for inclusion in First Place's proxy statement and form of
proxy relating to the 2001 annual meeting of stockholders, a stockholder
proposal must be received by the Secretary of First Place at the address set
forth on the Notice of Annual Meeting of Stockholders not later than [ ],
2001. Any such proposal will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules
and Regulations under the Exchange Act.
Notice of Business to be Conducted at an Annual Meeting
The bylaws of First Place provide an advance notice procedure for a
stockholder to properly bring business before an annual meeting. The
stockholder must give written advance notice to the secretary of First Place
not less than ninety (90) days before the date originally fixed for such
meeting; provided, however, that in the event that less than one hundred (100)
days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the date on
which First Place's notice to stockholders of the annual meeting date was
mailed or such public disclosure was made. The advance notice by stockholders
must include the shareholder's name and address, as they appear on First
Place's record of stockholders, a brief description of the proposed business,
the reason for conducting such business at the annual meeting, the class and
number of shares of First Place's capital stock that are beneficially owned by
such stockholder and any material interest of such stockholder in the proposed
business. In the case of nominations to the board of directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require First Place to include in its proxy statement or the
proxy relating to an annual meeting any stockholder proposal which does not
meet all of the requirements for inclusion established by the Securities and
Exchange Commission in effect at the time such proposal is received.
Other Matters Which May Properly Come Before the Meeting
The board of directors knows of no business which will be presented for
consideration at the annual meeting other than as stated in the Notice of
Annual Meeting of Stockholders. If, however, other matters are properly brought
before the annual meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Whether or not you intend to be present at the annual meeting, you are urged
to return your proxy card promptly. If you are then present at the annual
meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the annual 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 annual meeting.
A copy of the First Place Form 10-K (without exhibits) for the year ended
June 30, 2000, as filed with the Securities and Exchange Commission will be
furnished without charge to First Place stockholders of record upon written
request to First Place Financial Corp., 185 East Market Street, Warren, Ohio
44482.
137
ELECTION OF FFY FINANCIAL DIRECTORS;
RATIFICATION OF FFY FINANCIAL INDEPENDENT AUDITORS
Principal Stockholders
Other than those persons listed below, FFY Financial is not aware of any
person who may be considered to be the owner of more than 5% of the outstanding
shares of FFY Financial common stock as of June 30, 2000. For the purposes of
the following table and the table set forth under "--What FFY Financial's
Directors and Executive Officers Own," a person may be considered to own any
shares of FFY Financial common stock (1) over which he or she has, directly or
indirectly, sole or shared voting or investing power, or (2) of which he or she
has the right to acquire ownership, including the right to acquire ownership by
the exercise of stock options, within 60 days after June 30, 2000.
Nature of Percent
Title of Name & Address of Beneficial Beneficial of
Class Owner Ownership Class
-------- ---------------------------- ---------- -------
Common Stock FFY Financial Corp. Employee Stock Ownership 977,692(1) 14.5%
and 401(k) Plan (KSOP)
724 Boardman-Poland Road
Youngstown, Ohio 44512
- --------
(1) The amount reported represents shares of common stock held by the FFY
Financial Employee Stock Ownership and 401(k) Plan (KSOP). As of June 30,
2000, 522,757 shares of common stock held by the KSOP had been allocated to
accounts of participants. First Bankers Trust Company, as trustee of the
KSOP, may be deemed to beneficially own the shares held by the KSOP which
have not been allocated to the accounts of participants or which have been
allocated but have not been voted by participants. Pursuant to the terms of
the KSOP, participants in the KSOP have the right to direct the voting of
shares allocated to participants' accounts. The trustee votes unallocated
shares of common stock held by the KSOP in the manner directed by the
majority of the allocated shares for which it received instructions.
138
What FFY Financial's Directors and Executive Officers Own
The following table provides information about the shares of FFY Financial
common stock that are beneficially owned at September 29, 2000, (i) by FFY
Financial's Chief Executive Officer and officers who had salary and bonus in
the last fiscal year in excess of $100,000 and (ii) by each director and
nominee for director of FFY Financial. It also includes all directors, director
nominees and executive officers of FFY Financial as a group.
Amount & Percent of
Nature of Common
Beneficial Stock
Name Title Ownership Outstanding
---- ------------------------------------ ---------- -----------
Jeffrey L. Francis...... President, Chief Executive Officer & 157,343(1) 2.3%
Director of FFY Financial and FFY
Bank
Randy L. Shaffer........ Vice President and Director of FFY 224,642(1) 3.3%
Financial and FFY Bank
J. Craig Carr........... Vice President, General Counsel and 70,334(1) 1.0%
Secretary of FFY Financial and FFY
Bank
Marie Izzo Cartwright... Director Nominee 52,236(1) *
W. Terry Patrick........ Director Nominee 41,206(1) *
A. Gary Bitonte, MD..... Director 122,593(1) 1.8%
Samuel A. Roth.......... Director 10,630(1) *
William A. Russell...... Director 15,579(1) *
Ronald P. Volpe, Director 21,890(1) *
Ph.D. .................
Robert L. Wagmiller..... Director 17,260 *
All directors and
executive officers as a
group (13 persons)..... 843,309(2) 12.0%
- --------
* Represents less than 1% of outstanding FFY Financial common stock.
(1) Amounts include shares held directly and shares held in retirement
accounts, shares held by certain members of a named individual's or group
member's family, or held by trusts of which a named individual or group
member is a trustee or substantial beneficiary with respect to which the
named individual or group member may have sole or shared voting and/or
investment power. The amounts also include 93,430, 86,580, 33,628, 19,890,
6,630, 13,260, 19,890 and 13,260 shares subject to options granted under
FFY Financial's Stock Option and Incentive Plan (Stock Option Plan) to
Messrs. Francis, Shaffer, Carr, Patrick, Roth, Russell, Volpe and
Wagmiller, respectively, which are exercisable within 60 days of September
29, 2000. In addition, as of September 29, 2000, 23,609, 19,266 and 16,134
shares had been allocated to the FFY Financial Employee Stock Ownership and
401(k) Plan (KSOP) accounts of Messrs. Francis, Shaffer and Carr,
respectively.
(2) This amount includes 329,288 shares of FFY Financial common stock subject
to options granted under FFY Financial's Stock Option Plan, which are
exercisable within 60 days of September 29, 2000, and 103,725 shares of FFY
Financial common stock allocated to the KSOP accounts of all officers as a
group.
139
ELECTION OF DIRECTORS
General
FFY Financial's board of directors currently is comprised of nine directors
and is divided into three classes, each of which contains approximately one-
third of the board. Approximately one-third of the directors are elected
annually. Directors of FFY Financial are generally elected to serve for a
three-year period or until their respective successors are elected and
qualified. On July 18, 2000, FFY Financial's board adopted a resolution
reducing the number of directors to nine effective with the resignation of
Henry P. Nemenz as a director on March 15, 2000. The board of directors of FFY
Financial and FFY Bank appreciate the years of dedicated service provided by
Mr. Nemenz.
The following table sets forth certain information, as of June 30, 2000,
regarding the composition of the board, including their terms of office. It is
intended that the proxies solicited on behalf of the board (other than proxies
in which the vote is withheld as to a nominee) will be voted at the meeting FOR
the election of the nominees identified below. If any nominee is unable to
serve, the shares represented by all valid proxies will be voted for the
election of such substitute nominee as the board of directors may recommend.
Each nominee has consented to being named in this joint proxy
statement/prospectus and has agreed to serve if elected. At this time, the
board knows of no reason why any nominee may be unable to serve, if elected.
There are no arrangements or understandings between the nominees and any other
person pursuant to which the nominee was selected.
Position(s) Held in FFY Director Term to
Name Age(1) Financial Since(2) Expire
---- ------ --------------------------- -------- -------
Director Nominees
Marie Izzo Cartwright... 47 Director 1991 2003
W. Terry Patrick........ 50 Director 1992 2003
Directors Continuing in
Office
A. Gary Bitonte, MD..... 52 Director 1990 2001
Jeffrey L. Francis...... 49 President, CEO and Director 1992 2002
Samuel A. Roth.......... 57 Director 1999 2002
William A. Russell...... 52 Director 1998 2001
Randy L. Shaffer........ 49 Vice President and Director 1996 2001
Ronald P. Volpe, Ph.D... 57 Director 1996 2002
Robert L. Wagmiller..... 56 Director 1998 2001
- --------
(1) At June 30, 2000.
(2) Includes service as a director of FFY Bank.
The business experience of each director and nominee for director of FFY
Financial is set forth below. All directors have held their present positions
for at least five years, unless otherwise indicated.
Marie Izzo Cartwright--Ms. Cartwright has served as Vice President of
Corporate Communications and Marketing for Glimcher Properties Limited
Partnership since October 1996. Ms. Cartwright formerly served as Vice
President of Corporate Communications for DeBartolo Properties Management, Inc.
An honors graduate of Kent State University with a BA degree in journalism, Ms.
Cartwright has 25 years experience in both corporate and agency public
relations, marketing and advertising.
W. Terry Patrick--Mr. Patrick has been a partner in the law firm of Friedman
& Rummell Co., L.P.A. of Youngstown, Ohio since 1980, where his practice is
concentrated in the areas of Business, Estate and Succession Planning. Mr.
Patrick also serves as a consultant to numerous regional businesses. Mr.
Patrick is also a Director of FFY Holdings, Inc., a wholly-owned subsidiary of
FFY Financial.
140
A. Gary Bitonte, MD--After receiving a Bachelor of Science and Doctor of
Medicine degree from The Ohio State University, Dr. Bitonte's urologic surgery
practice spanned 21 years. Currently, he holds faculty-teaching appointments at
Northeastern Ohio and Ohio University Medical Schools. He is a consultant for
medical prosthetic manufacturers and manages private investments. Dr. Bitonte
is a trustee of the Youngstown State University Foundation. He is a Director of
FFY Insurance, a wholly-owned subsidiary of FFY Holdings, Inc.
Jeffrey L. Francis--Mr. Francis is President and Chief Executive Officer of
FFY Financial and FFY Bank. He began his career with FFY Bank in 1973 and has
served in his current capacity since March 1996. Mr. Francis was named
Executive Vice President and Treasurer of FFY Financial and Executive Vice
President and Chief Operating Officer of FFY Bank in October 1995. Mr. Francis
holds a BBA degree from Kent State University and a MBA from Youngstown State
University. Mr. Francis is also President of FFY Holdings, Inc., a wholly-owned
subsidiary of FFY Financial.
Samuel A. Roth--Mr. Roth is the President of FirstEnergy Facilities Services
Group, a FirstEnergy holding company for the mechanical construction,
contracting and energy management companies that FirstEnergy has acquired. Mr.
Roth previously served as President and Chief Executive Officer of Roth Bros.,
Inc., a diversified Engineering and Contracting Corporation. Mr. Roth graduated
from Ohio State University in 1966 with a Bachelor of Mechanical Engineering
Degree. A licensed professional engineer, Mr. Roth has been involved in the
engineering and contracting fields for over thirty years and is registered in
Ohio, Pennsylvania, and New Jersey. Mr. Roth has served as president of many
professional organizations and has done extensive volunteer work in community
organizations.
William A. Russell--Mr. Russell is the President of Canteen Service of Steel
Valley, Inc., a food and vending service company that employees 20 people and
has served the surrounding five county area for over 64 years. He has been
associated with Canteen Service of Steel Valley, Inc. for the past 26 years.
Mr. Russell graduated from Bowling Green State University in 1969 and served in
the United States Navy from 1970 through 1974.
Randy L. Shaffer--Mr. Shaffer is Vice President of FFY Financial and FFY
Bank, responsible for coordinating the activities of the lending departments
and development of lending policies and procedures. Mr. Shaffer has served in
various capacities since joining FFY Bank in 1973 and has served in his current
position since 1986. He earned a BA degree in economics from Hiram College,
served as a Director of the Youngstown Board of Realtors, and is a member of
the Home Builders Association of Mahoning Valley and the Mortgage Bankers of
Northeastern Ohio. Mr. Shaffer is also Vice President of FFY Holdings, Inc., a
wholly-owned subsidiary of FFY Financial.
Ronald P. Volpe, Ph.D.--Dr. Volpe is a Professor of Finance in the
Williamson College of Business Administration at Youngstown State University
where he teaches undergraduate and graduate--level courses in Investments,
Personal Financial Planning, and Financial Markets and Institutions. He is a
recipient of the Youngstown State University Distinguished Professorship For
Teaching Award and has published articles in Financial Services Review,
Financial Practice and Education, and The Ohio Business Teacher. A Certified
Financial Planner, Dr. Volpe received his BSBA degree from Youngstown State
University, MBA from Central Michigan University, and Ph.D. from the University
of Pittsburgh. Prior to his career in higher education, he was a member of the
accounting and finance staff of The Ford Motor Company in Dearborn, Michigan.
Robert L. Wagmiller--Mr. Wagmiller is a Senior Advisor at Hill, Barth and
King, Inc., a certified public accounting firm that employs 180 professionals.
He has been associated with Hill, Barth and King, Inc. for the past 36 years
and has served in his current capacity for the past 23 years. Mr. Wagmiller
received his degree in Wholesale Management from Ohio State University and his
Bachelor of Science degree in Business Administration from Youngstown State
University. He is also a Director of FFY Insurance, a wholly-owned subsidiary
of FFY Holdings, Inc.
141
Meetings and Committees of the FFY Financial Board
Meetings and Committees of FFY Financial. The board meets quarterly and may
have additional special meetings upon the written request of the President or
at least three directors. The board met 9 times during the year ended June 30,
2000. During fiscal year 2000, no incumbent director of FFY Financial attended
fewer than 75% of the aggregate total number of meetings of the board and
committees on which he or she served. The board of FFY Financial has standing
Stock Option, Merger and Acquisition, Audit and Executive Committees.
During fiscal year 2000, the members of the FFY Financial's Stock Option
Committee were Directors Bitonte (Chairman), Nemenz and Patrick. The Stock
Option Committee is responsible for administering FFY Financial's Stock Option
Plan. The Stock Option Committee met 3 times in fiscal year 2000.
The Merger and Acquisition Committee is responsible for the review of
strategic combinations, and, where appropriate, recommending certain
transactions to the full board. This review applies to combinations for FFY
Financial and all subsidiaries. During fiscal year 2000, the members of this
committee were Directors Francis (Chairman), Bitonte, Patrick, Roth, Volpe and
Wagmiller. The Merger and Acquisition Committee met 4 times during fiscal year
2000.
The Audit Committee is responsible for selecting the FFY Financial's
independent auditors and meeting with the independent auditors to outline the
scope and review the results of the annual audit. The Audit Committee also
meets with the FFY Financial's internal audit staff on a periodic basis. During
fiscal year 2000, the members of this committee were Directors Wagmiller
(Chairman), Cartwright, Nemenz, Russell and Volpe. The Audit Committee met five
times during fiscal year 2000.
During fiscal year 2000, the members of the Executive Committee were
Directors Francis (Chairman), Bitonte, Nemenz, Shaffer, Wagmiller and Patrick.
To the extent authorized by the board and by FFY Financial's bylaws, this
committee exercises all of the authority of the board between board meetings.
The Executive Committee did not meet during fiscal 2000.
The entire board acts as a nominating committee for selecting nominees for
election as directors. While the board of FFY Financial will consider nominees
recommended by stockholders, the board has not actively solicited such
nominations. The board met one time during fiscal 2000 in its capacity as a
nominating committee. Pursuant to FFY Financial's bylaws, nominations for
directors by stockholders must be made in writing and delivered to the
Secretary of FFY Financial at least 60 days prior to the meeting date. If,
however, less than 70 days' notice of the date of the meeting is first given or
made to stockholders by public announcement or mail, then nominations must be
received by FFY Financial not later than the close of business on the tenth day
following the earlier of the day on which notice of the date of the meeting was
mailed or the day on which public announcement of the date of the meeting was
first made. In addition to meeting the applicable deadline, nominations must be
accompanied by certain information specified in FFY Financial's bylaws.
Meetings and Committees of FFY Bank. FFY Bank's board meets monthly and may
hold additional special meetings upon the written request of the President or
at least three directors. The board met 14 times during the year ended June 30,
2000. During fiscal year 2000, no incumbent director of FFY Bank attended fewer
than 75% of the aggregate total number of meetings of the board and committees
on which he or she served. FFY Bank has standing Executive, Audit and
Compensation Committees. FFY Bank also has other committees which meet as
needed to review various other functions of FFY Bank.
FFY Bank's Executive Committee exercises the powers of the full board
between board meetings, except that this committee does not have the authority
of the board to amend the charter or bylaws, adopt a plan of merger,
consolidation, dissolution, or provide for the disposition of all or
substantially all of the property and assets of FFY Bank. During fiscal year
2000, the Executive Committee was composed of Directors Francis (Chairman),
Bitonte, Nemenz, Wagmiller, Patrick and Shaffer. The Executive Committee met 16
times during the fiscal year ended June 30, 2000.
142
The Audit Committee is responsible for selecting FFY Bank's independent
auditors and meeting with the independent auditors to outline the scope and
review the results of the annual audit. The Audit Committee also meets with FFY
Bank's internal audit staff on a periodic basis. During fiscal year 2000, the
members of this committee were Directors Wagmiller (Chairman), Cartwright,
Nemenz, Russell and Volpe. This Committee held five meetings during fiscal year
2000.
FFY Bank's Compensation Committee recommends employee compensation, benefits
and personnel policies to the board, as well as salaries and bonuses for
executive officers. The members of this committee during fiscal year 2000 were
Directors Patrick (Chairman), Bitonte, Nemenz, Roth and Russell. The
Compensation Committee held 5 meetings during the fiscal year ended June 30,
2000.
Director Compensation. Each director of FFY Financial is paid a fee of $100
per board meeting attended. Each non-employee member of a committee of FFY
Financial's board is paid $50 per committee meeting attended. Each director of
FFY Bank is paid a fee of $1,500 per quarter plus $500 per board meeting
attended. Each non-employee member of a committee of FFY Bank's board is paid
$150 per committee meeting attended, and the Chairman of each committee of FFY
Bank's board receives $200 per committee meeting attended. Bank directors who
are employed by FFY Bank do not receive a fee for attending committee meetings.
On October 20, 1999, Director Roth was granted an option to purchase 19,890
shares of FFY Financial common stock at an exercise price of $18.625, the
market value per share of the common stock on the grant date. One-third, or
6,630, of these shares vested on April 20, 2000, another 6,630 shares are
scheduled to vest on April 20, 2001, and the remaining 6,630 shares are
scheduled to vest on April 20, 2002.
On May 23, 2000, each of the non-employee directors was granted an option to
purchase 12,000 shares of FFY Financial common stock (except for Director
Patrick who was granted an option to purchase 11,878 shares) at an exercise
price of $10.25, the market value of the common stock on the grant date. These
options vest in their entirety only upon the closing of the proposed merger
with First Place.
On May 23, 2000, Mr. Francis was granted an option to purchase 50,000 shares
of FFY Financial common stock at an exercise price of $10.25, the market value
of the common stock on the grant date. These options vest in five equal annual
installments, with the first installment vesting on May 23, 2001.
143
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or granted to the named executive officers in fiscal 2000, 1999 and 1998 whose
salary and bonus for fiscal 2000 exceeded $100,000.
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
------------------------ -------------------------------
Restricted
Stock All Other
Name and Principal Fiscal Salary(1) Bonus Awards(2) Options Compensation
Position Year ($) ($) ($) (#) ($)
------------------ ------ --------- ------- ---------- ------- ------------
Jeffrey L. Francis....... 2000 $188,508 $40,000 $256,250 50,000 $35,859(3)
President and Chief 1999 186,908 40,000 -- -- 63,957(4)
Executive Officer 1998 160,750 40,000 -- -- 59,955(5)
Randy L. Shaffer......... 2000 108,200 18,000 51,250 10,000 27,030(3)
Vice President 1999 104,338 18,000 -- -- 45,829(4)
1998 102,010 18,000 -- -- 41,820(5)
J. Craig Carr............ 2000 87,492 18,000 51,250 10,000 24,350(3)
Vice President, General 1999 84,586 18,000 -- -- 41,754(4)
Counsel and Secretary 1998 82,236 18,000 -- -- 37,741(5)
- --------
(1) For Messrs. Francis and Shaffer, amounts include fees for services as
directors of FFY Financial and FFY Bank. Mr. Francis earned $13,500 in
2000; $11,900 in 1999; and $10,750 in 1998. Mr. Shaffer earned $13,400 in
2000; $11,750 in 1999; and $10,750 in 1998. For Mr. Carr amounts include
compensation for attending meetings of FFY Financial's board, $500 in 2000;
$250 in 1999; and $-0- in 1998.
(2) Restricted stock holdings granted under FFY Financial's Recognition and
Retention Plan were awarded to Messrs. Francis, Shaffer and Carr on May 23,
2000. Restricted stock holdings as of June 30, 2000, and their fair market
value based on the per share closing price of FFY Financial's common stock
on the Nasdaq Stock Market on June 30, 2000 ($11.00) were as follows:
Number of Value on
Restricted June 30,
Name Shares 2000
---- ---------- --------
Jeffrey L. Francis....................................... 25,000 $275,000
Randy L. Shaffer......................................... 5,000 $ 55,000
J. Craig Carr............................................ 5,000 $ 55,000
Dividends are payable on the restricted shares to the extent and on the
same date as dividends are paid on all other FFY Financial common stock.
The shares of restricted stock will vest on the closing of the merger with
First Place.
(3) Represent allocations under FFY Financial's KSOP and term life insurance
premiums. These amounts respectively include $34,813 and $1,046 paid for
Mr. Francis; $26,325 and $705 paid for Mr. Shaffer; and $23,713 and $637
paid for Mr. Carr.
(4) Represent allocations under FFY Financial's KSOP and term life insurance
premiums. These amounts respectively include $62,965 and $992 paid for Mr.
Francis; $45,159 and $670 paid for Mr. Shaffer; and $41,149 and $605 paid
for Mr. Carr.
(5) Represent allocations under FFY Financial's KSOP and term life insurance
premiums. These amounts respectively include $59,498 and $457 paid for Mr.
Francis; $41,522 and $298 paid for Mr. Shaffer; and $37,476 and $265 paid
for Mr. Carr.
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The following table sets forth information regarding grants of stock options
under our Stock Option and Incentive Plan made during the fiscal year ended
June 30, 2000 to the named executive officers.
Stock Option Grants in Last Fiscal Year (1)
Potential Realizable
Value a Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Terms
----------------------------------------- ---------------------
% of Total Options Exercise
Number of Securities Granted to Employees or
Underlying Options and Directors Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) (2) Date 5% ($) 10% ($)
- ---- -------------------- -------------------- ---------- ---------- ---------- ----------
Jeffrey L. Francis...... 50,000(3) 22.86% $10.25 5/23/2010 $ 25,625 $ 51,250
Randy L. Shaffer........ 10,000(4) 4.57% $11.00 2/15/2010 $ 5,500 $ 11.000
J. Craig Carr........... 10,000(4) 4.57% $11.00 2/15/2010 $ 5,500 $ 11,000
- --------
(1) The options may not be transferred other than by will or the laws of
descent and distribution or to family members and may be exercised during
the lifetime of the optionee only by the optionee or his legal
representative upon the optionee's death.
(2) The exercise price of the options was the fair market value of FFY
Financial's common stock at the date of grant.
(3) Mr. Francis' options vest in five equal annual installments beginning on
March 23, 2001.
(4) Messrs. Shaffer's and Carr's options vest in four equal semi-annual
installments beginning on August 15, 2000.
The table below provides information as to options exercised by each of the
named executive officers for the fiscal year ended June 30, 2000 and the value
of the options held by such named executive officers at year-end measured in
terms of the $11.00 closing price of FFY Financial's common stock on June 30,
2000.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
Value Realized from Exercise Number of Securities Value of Unexercised
of Options in the Current Underlying Unexercised In-the-Money Options at
Fiscal Year Options at June 30, 2000 June 30, 2000
---------------------------- ------------------------- -------------------------
Shares Acquired Value Exercisable Unexercisable Exercisable Unexercisable
Name on Exercise (#) Realized ($) (#) (#) ($) ($)
- ---- --------------- ------------ ----------- ------------- ----------- -------------
Jeffrey L. Francis...... -- -- 93,430 50,000 $560,850 $37,500
Randy L. Shaffer........ -- -- 84,080 10,000 504,480 -0-
J. Craig Carr........... 2,000 $27,000 31,128 10,000 186,768 -0-
Employment Agreements. FFY Financial has an employment agreement with Mr.
Francis, and FFY Bank has an employment agreement with Mr. Shaffer. Mr.
Francis' agreement is for a five year-term and Mr. Shaffer's for a three year
term. On the anniversary date of each agreement, the term of each employment
agreement is extended for a period of one year in addition to the then-
remaining term unless the officer receives an unsatisfactory performance review
from the board of directors or notice that the term of his agreement will not
be extended. The employment agreements provide for the following:
. an annual base salary in an amount not less than the executive's current
base salary, which may be increased, but not decreased, from time to time
as approved by the board of directors;
. participation in an equitable manner with all other executive officers in
performance-based and discretionary bonuses, if any, as are authorized
and declared by the board of directors;
. participation in other employee benefit, fringe benefit and welfare plans
and programs;
145
In the event Mr. Francis suffers an "involuntary termination" as defined
below, he will receive for the lesser of three years or the remaining term of
his agreement, as liquidated damages, (i) monthly payments equal to one-twelfth
of his annual base salary in effect immediately prior to the date of
termination; (ii) one-twelfth of his average annual cash bonus and cash
incentive compensation for the two full fiscal years preceding the date of
termination; and (iii) substantially the same health and other benefits
available to him in effect immediately prior to such involuntary termination.
These payments would be reduced by any cash compensation or health and other
benefits actually paid to, or receivable by, the executive from another
employer during the period he is receiving post-termination compensation
benefits from FFY Financial. "Involuntary termination" is generally defined as
the termination of the executive's employment by FFY Financial without his
express written consent or by the executive by reason of a material diminution
of or interference with his duties, responsibilities or benefits as defined in
the agreement unless consented to in writing by Mr. Francis.
In the event of Mr. Francis' involuntary termination within the 6 months
preceding, at the time of, or within 24 months following a change in control,
as that term is defined in the agreement, then in addition to the liquidated
damages payments described in the immediately preceding paragraph, he will
receive an amount equal to 299% of his "base amount" as determined under
Section 280G of the Internal Revenue Code of 1986. The employment agreements
also contain a "gross-up" provision pursuant to which FFY Financial will make
additional payments to Mr. Francis in the event that any payments or benefits
provided or to be provided to him under the agreement are subject to an excise
tax penalty under Section 4999 of the Internal Revenue Code. FFY Financial
would not be able to deduct as an expense the amount of the payments or
benefits subject to the excise tax penalty.
Mr. Shaffer's employment agreement provides for payment to him of his salary
for the remainder of the term of the agreement, plus up to 299% of his base
compensation, in the event there is a "change in control" of FFY Bank where
employment terminates involuntarily in connection with such change in control
or within twelve months thereafter. This termination payment is subject to
reduction by the amount of all other compensation to the employee deemed for
purposes of the Code, to be contingent on a "change in control" and may not
equal or exceed three times the employee's average annual compensation over the
most recent five year period or be non-deductible by FFY Bank for federal
income tax purposes.
Based on their current salaries and other cash bonus/incentive compensation,
if Messrs. Francis and Shaffer's employment had been terminated as of June 30,
2000, under circumstances entitling them to severance pay as described above,
they would have been entitled to receive lump sum cash payments of
approximately $778,380 and $598,288, respectively. In addition, Mr. Francis
would be entitled to monthly payments of approximately $17,917 for three years.
Report on Executive Compensation
The Committee. The responsibility for compensation matters for FFY Financial
rests with the Compensation Committee of the board. The members of the
Compensation Committee are independent directors of FFY Financial and FFY Bank.
Mr. Francis attends committee meetings to present recommendations and to
provide information. However, he does not participate in any deliberations
regarding his own compensation. The Compensation Committee met 5 times during
the year ended June 30, 2000. The most significant issues addressed each year
by the Compensation Committee are: (1) approval of salary adjustments for
officers of FFY Financial and FFY Bank; (2) approval of payments under FFY
Bank's executive bonus plan; and (3) completion of evaluations of the
performance of executive officers in accordance with the provisions of
employment contracts.
Salary Adjustments. Effective July 1, 1998, the base salary of Mr. Francis
was increased from $150,000 per year to $175,000 per year. No changes have been
made to this base salary since that time. Discussions of annual salary
adjustments for other executives were held in February 2000 for calendar year
2000. In determining Mr. Francis' compensation, the Compensation Committee
considered the following: (i) salary
146
information for the chief executive officers of comparable institutions
gathered from local, regional and national salary surveys; (ii) information
from proxy statements of publicly traded banks and thrifts; (iii) the financial
performance of FFY Financial during the preceding year as measured by return on
assets and equity, loan loss and delinquency levels, total general and
administrative expenses and earnings per share, with regard to both the
absolute level of such measures and as compared to peer institutions, including
similar publicly traded thrift holding companies; (iv) regional and national
statistics; (v) regulatory examination comments received during the preceding
year; and (vi) FFY Bank's progress toward completing a number of long-term
initiatives, as monitored by the board. FFY Bank's other executive officers
were also reviewed based upon the same criteria. Of the five highest paid
executives, other than Mr. Francis, two received increases in base salary for
calendar 2000, in each case less than 4% of base salary.
Bonus. FFY Bank has a long history of paying annual bonuses based on annual
net income. The Compensation Committee believes that these payments more
closely tie employee compensation to FFY Financial's annual performance and act
as an incentive for management to work toward increasing net income. A bonus,
with a target payout totaling 2% of pre-tax net income of FFY Bank, is
distributed annually following the completion of the fiscal year. Payments
under this plan are allocated on a discretionary basis to those individuals
who, in the opinion of the Compensation Committee and the board, most
contributed to the success of FFY Bank during the year. For the year ended June
30, 2000, select officers of FFY Financial and FFY Bank received payments under
FFY Bank's discretionary bonus plan. Mr. Francis' payment totaled $40,000, the
same amount that he received for fiscal 1998 and fiscal 1999. The five highest
paid executives of FFY Financial and FFY Bank (other than Mr. Francis) also
received bonuses in fiscal 2000 equal to that received in the past two fiscal
years. The Compensation Committee continues to evaluate FFY Financial's
compensation arrangements with a focus on return on equity, earnings per share
growth and individual performance.
Performance Evaluations. As noted above, during each year the Compensation
Committee completes performance evaluations of the executive officers of FFY
Financial as a group. Additionally, each executive officer is evaluated
individually by either the Compensation Committee or Mr. Francis. The
evaluation process includes a written evaluation by Mr. Francis and individual
interviews with the Compensation Committee. Among other items, the Compensation
Committee considered FFY Financial performance statistics as objective measures
of performance, as well as discussion of progress toward goals established the
previous year. The committee prepared and presented a written report of each
evaluation, which was reviewed by the entire board in March 2000.
Stock Options/Restricted Stock. During 1993, the stockholders of FFY
Financial ratified FFY Financial's Stock Option and Recognition and Retention
Plan. No awards of options or restricted stock had been made to any of the six
highest paid executives since 1993 until fiscal 2000. During fiscal 2000, Mr.
Francis was granted 25,000 shares under FFY Financial's recognition and
retention plan, which grant will vest on the closing of the merger with First
Place. Further, during fiscal 2000 Mr. Francis was granted 50,000 stock options
at current market value, vesting over five years commencing March 2001. The
five highest paid executive officers, other than Mr. Francis, were granted a
total of 25,000 shares under the recognition and retention plan to vest on the
closing of the merger with First Place and a total of 50,000 options vesting
over two years commencing August 2000.
The foregoing report on executive compensation was furnished by the
Compensation Committee of the board whose members are:
W. Terry Patrick, Chairman A. Gary Bitonte Samuel A. Roth William A.
Russell
147
Stock Performance Graph
The graph below compares the cumulative total stockholder return on FFY
Financial's common stock to the cumulative total return of the Nasdaq Stock
Market Index and the Nasdaq Banking Index for the period June 30, 1995 through
June 30, 2000. The graph assumes that $100 was invested on June 30, 1995 in FFY
Financial common stock and in each of the foregoing indices and that all
dividends were reinvested. The stock price performance shown on the graph below
is not necessarily indicative of future stock price performance.
[GRAPH]
Comparison of Cumulative Total Return
Among FFY Financial, NASDAQ Stock Market Index,
And NASDAQ Banking Index
6/30/95 6/28/96 6/30/97 6/30/98 6/30/99 6/30/00
------- ------- ------- ------- ------- -------
FFY Financial.................. $100 126.623 142.415 182.634 219.051 131.263
Nasdaq Stock Market Index...... $100 128.391 156.152 205.585 296.022 437.302
Nasdaq Banking Index........... $100 130.230 203.556 282.135 278.621 228.562
148
Transactions With Related Parties
FFY Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. All
loans by FFY Bank to its directors and executive officers are subject to OTS
regulations restricting loans and other transactions with affiliated persons of
FFY Bank.
All transactions between FFY Financial or FFY Bank and its officers,
directors and affiliates were made in the ordinary course of business with
substantially the same terms, including interest rates and collateral as those
prevailing at the time for comparable transactions with other persons, do not
involve more than the normal risk of collectibility or present other
unfavorable features and are approved by a majority of disinterested directors
of FFY Financial or FFY Bank, if any.
Largest Amount Interest Rate
Name and Date of Outstanding Since Balance as of as of
Position Loan June 30, 1999 June 30, 2000 June 30, 2000
-------- -------- ----------------- ------------- -------------
David S. 11/25/94 Residential(1) $125,328 $121,312 6.95%
Hinkle
Vice President
- --------
(1) This loan was made to an immediate family member of Mr. Hinkle who was also
a non-executive officer employee of FFY Bank entitled to receive a 1.0%
reduction on the interest rate as well as reduced closing costs consistent
with FFY Bank's policy and federal law.
RATIFICATION OF THE APPOINTMENT OF AUDITORS
The board has appointed KPMG LLP as FFY Financial's auditors for the 2001
fiscal year, subject to the ratification of such appointment by FFY Financial's
stockholders at the meeting. KPMG LLP has been FFY Financial's auditors since
February 1996. Representatives of KPMG LLP are expected to attend the meeting
to respond to appropriate questions and to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS FFY FINANCIAL'S AUDITORS FOR THE
FISCAL YEAR ENDING JUNE 30, 2001.
149
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires FFY
Financial's directors and executive officers, and persons who own more than 10%
of a registered class of FFY Financial's equity securities, to file with the
SEC initial reports of ownership and reports of changes in ownership of common
stock and other equity securities of FFY Financial. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish FFY
Financial with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such reports furnished to FFY
Financial, or written representations that no other reports were required, FFY
Financial believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied with
during the fiscal year ended June 30, 2000.
ADDITIONAL INFORMATION FOR FFY FINANCIAL
Stockholder Proposals
In order to be eligible for inclusion in FFY Financial's proxy materials for
next year's annual meeting of stockholders, any stockholder proposal must be
received at FFY Financial's executive offices at 724 Boardman-Poland Road,
Youngstown, Ohio 44512 no later than June 8, 2001. Any such proposal shall be
subject to the requirements of the proxy rules adopted under the Securities
Exchange Act of 1934. Otherwise, any stockholder proposal to take action at
such meeting must be received at FFY Financial's executive offices by September
17, 2001; provided, however, that in the event that the date of the annual
meeting is held before October 26, 2001, or after January 14, 2001, the
stockholder proposal must be received not later than the close of business on
the later of the 60th day prior to such annual meeting or the tenth day
following the day on which notice of the date of the annual meeting was mailed
or public announcement of the date of such meeting was first made. All
stockholder proposals must also comply with FFY Financial's bylaws and Delaware
law.
If the merger takes place, FFY Financial will have no more annual meetings.
Other Matters
The board is not aware of any business to come before the meeting other than
the matters described above in this proxy statement. However, if any other
matters should properly come before the meeting, it is intended that holders of
the proxies will act in accordance with their best judgment.
150
TABLE OF CONTENTS
Page
----
FFY Financial Corp. and Subsidiaries
Independent Auditors' Report............................................. F-2
Consolidated Statements of Financial Condition, June 30, 2000 and 1999... F-3
Consolidated Statements of Income, Years ended June 30, 2000, 1999 and
1998.................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity, Years ended
June 30, 2000, 1999 and 1998............................................ F-5
Consolidated Statements of Cash Flows, Years ended June 30, 2000, 1999
and 1998................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
First Place Financial Corp. and Subsidiary
Report of Independent Auditors........................................... F-27
Consolidated Statements of Financial Condition, June 30, 2000 and 1999... F-28
Consolidated Statements of Income, Years ended June 30, 2000, 1999 and
1998.................................................................... F-29
Consolidated Statements of Changes in Shareholders' Equity, Years ended
June 30, 2000, 1999 and 1998............................................ F-30
Consolidated Statements of Cash Flows, Years ended June 30, 2000, 1999
and 1998................................................................ F-31
Notes to Consolidated Financial Statements............................... F-33
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FFY Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of FFY Financial Corp. and subsidiaries as of June 30, 2000 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
June 30, 2000. 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 auditing standards generally
accepted in the United States of America. 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 FFY
Financial Corp. and subsidiaries as of June 30, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-
year period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Cleveland, Ohio
July 28, 2000
F-2
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and 1999
2000 1999
------------ -----------
Assets
Cash............................................... $ 4,543,181 5,362,745
Interest-bearing deposits.......................... 6,489,636 5,245,061
Short-term investments............................. -- 865,000
------------ -----------
Total cash and cash equivalents................ 11,032,817 11,472,806
------------ -----------
Securities available for sale...................... 158,136,350 190,325,599
Loans receivable, net of allowance for loan losses
of $2,658,784 and $2,645,132, respectively........ 484,516,963 453,839,111
Loans available for sale........................... 170,800 441,500
Interest and dividends receivable on securities.... 1,675,487 1,953,940
Interest receivable on loans....................... 2,920,810 2,707,846
Federal Home Loan Bank stock, at cost.............. 5,192,800 4,841,200
Office properties and equipment, net............... 7,172,439 7,218,640
Other assets....................................... 3,656,928 2,890,372
------------ -----------
Total assets................................... $674,475,394 675,691,014
============ ===========
Liabilities and Stockholders' Equity
Deposits........................................... $446,048,790 457,342,802
Securities sold under agreements to repurchase:
Short-term....................................... 6,937,905 6,617,747
Long-term........................................ 51,300,000 51,300,000
Borrowed funds:
Short-term....................................... 17,500,000 22,800,000
Long-term........................................ 79,280,000 60,000,000
Advance payments by borrowers for taxes and
insurance......................................... 2,347,744 2,221,976
Other payables and accrued expenses................ 5,865,465 5,291,964
------------ -----------
Total liabilities.............................. 609,279,904 605,574,489
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares,
none outstanding................................. -- --
Common stock, $.01 par value; authorized
15,000,000 shares,
issued 7,589,366 shares.......................... 75,894 75,894
Additional paid-in capital....................... 38,456,297 38,092,628
Retained earnings, substantially restricted...... 50,500,226 46,243,673
Treasury stock, at cost (869,251 and 467,987
shares, respectively)........................... (14,865,169) (8,551,484)
Accumulated other comprehensive loss............. (6,415,886) (2,816,864)
Common stock purchased by:
Employee Stock Ownership and 401(k) Plan........ (2,274,082) (2,645,532)
Recognition and Retention Plans................. (281,790) (281,790)
------------ -----------
Total stockholders' equity..................... 65,195,490 70,116,525
------------ -----------
Total liabilities and stockholders' equity..... $674,475,394 675,691,014
============ ===========
See accompanying notes to consolidated financial statements.
F-3
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 2000, 1999 and 1998
2000 1999 1998
----------- ---------- ----------
Interest income:
Loans.................................... $39,046,180 39,046,983 39,785,064
Securities available for sale............ 10,353,310 9,552,383 7,622,185
Federal Home Loan Bank stock............. 362,556 333,072 312,213
Other interest-earning assets............ 33,597 151,179 286,969
----------- ---------- ----------
Total interest income.................. 49,795,643 49,083,617 48,006,431
----------- ---------- ----------
Interest expense:
Deposits................................. 19,327,671 20,116,405 21,282,008
Securities sold under agreements to
repurchase:
Short-term.............................. 406,052 449,923 871,761
Long-term............................... 3,127,608 2,974,050 2,043,340
Borrowed funds:
Short-term.............................. 1,194,432 1,451,527 1,361,933
Long-term............................... 4,067,135 1,522,577 --
----------- ---------- ----------
Total interest expense................. 28,122,898 26,514,482 25,559,042
----------- ---------- ----------
Net interest income.................... 21,672,745 22,569,135 22,447,389
Provision for loan losses.................. 475,763 494,438 565,521
----------- ---------- ----------
Net interest income after provision for
loan losses........................... 21,196,982 22,074,697 21,881,868
----------- ---------- ----------
Noninterest income:
Service charges.......................... 1,106,266 897,011 700,445
Gain on sale of securities available for
sale.................................... 45,574 203,317 246,473
Gain on sale of loans.................... 234,162 720,153 134,211
Other.................................... 638,687 729,529 683,847
----------- ---------- ----------
Total noninterest income............... 2,024,689 2,550,010 1,764,976
----------- ---------- ----------
Noninterest expense:
Salaries and employee benefits........... 6,670,918 6,456,173 6,076,824
Net occupancy and equipment.............. 2,010,129 2,043,578 1,805,939
Insurance and bonding.................... 388,415 478,923 493,752
State and local taxes.................... 914,057 993,634 1,077,154
Other.................................... 2,850,978 2,522,740 2,316,964
----------- ---------- ----------
Total noninterest expense.............. 12,834,497 12,495,048 11,770,633
----------- ---------- ----------
Income before income taxes and minority
interest.............................. 10,387,174 12,129,659 11,876,211
Income tax expense:
Federal.................................. 3,048,000 4,040,000 4,147,000
State.................................... -- 43,000 --
Minority interest in loss of consolidated
subsidiaries.............................. (20,625) (93,446) --
----------- ---------- ----------
Net income............................. $ 7,359,799 8,140,105 7,729,211
=========== ========== ==========
Basic earnings per share................... $ 1.15 1.15 1.03
=========== ========== ==========
Diluted earnings per share................. $ 1.12 1.11 0.99
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 2000, 1999 and 1998
Common stock
-------------------- Additional
Shares paid-in
outstanding Amount capital
----------- ------- -----------
Balance at June 30, 1997.................... 4,144,840 $66,300 64,506,573
Comprehensive income:
Net income................................ -- -- --
Change in unrealized holding gain on
securities available for sale, net....... -- -- --
---------- ------- -----------
Comprehensive income.................... -- -- --
Dividends paid, $.775 per share............. -- -- --
Treasury stock purchased.................... (167,543) -- --
Stock options exercised..................... 33,693 -- (396,676)
Amortization of KSOP expense................ -- -- --
Tax benefit related to exercise of stock
options.................................... -- -- 152,987
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................... -- -- 855,257
---------- ------- -----------
Balance at June 30, 1998.................... 4,010,990 66,300 65,118,141
Comprehensive income:
Net income................................ -- -- --
Change in unrealized holding gain (loss)
on securities available for sale, net.... -- -- --
---------- ------- -----------
Comprehensive income.................... -- -- --
Distribution of 100% stock dividend......... 4,010,990 9,594 (27,525,112)
Dividends paid, $.438 per share............. -- -- --
Treasury stock purchased.................... (1,008,899) -- --
Stock options exercised..................... 108,298 -- (720,004)
Amortization of KSOP expense................ -- -- --
Tax benefit related to exercise of stock
options.................................... -- -- 295,643
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................... -- -- 923,960
---------- ------- -----------
Balance at June 30, 1999.................... 7,121,379 75,894 38,092,628
Comprehensive income:
Net income................................ -- -- --
Change in unrealized holding gain (loss)
on securities available for sale, net.... -- -- --
---------- ------- -----------
Comprehensive income.................... -- -- --
Dividends paid, $.488 per share............. -- -- --
Treasury stock purchased.................... (444,931) -- --
Treasury stock issued....................... 5,625 -- --
Stock options exercised..................... 38,042 -- (506,877)
Amortization of KSOP expense................ -- -- --
Tax benefit related to exercise of stock
options.................................... -- -- 188,174
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................... -- -- 682,372
---------- ------- -----------
Balance at June 30, 2000.................... 6,720,115 $75,894 38,456,297
========== ======= ===========
F-5
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY--(Continued)
Years ended June 30, 2000, 1999 and 1998
Accumulated
other
comprehen-
Retained Treasury sive income
earnings stock (loss)
----------- ----------- -----------
Balance at June 30, 1997................. 74,599,977 (53,387,258) 111,796
Comprehensive income:
Net income............................. 7,729,211 -- --
Change in unrealized holding gain on
securities available for sale, net.... -- -- 700,941
----------- ----------- ----------
Comprehensive income................. 7,729,211 -- 700,941
Dividends paid, $.775 per share.......... (2,900,750) -- --
Treasury stock purchased................. -- (5,239,911) --
Stock options exercised.................. -- 733,606 --
Amortization of KSOP expense............. -- -- --
Tax benefit related to exercise of stock
options................................. -- -- --
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................ -- -- --
----------- ----------- ----------
Balance at June 30, 1998................. 79,428,438 (57,893,563) 812,737
Comprehensive income:
Net income............................. 8,140,105 -- --
Change in unrealized holding gain
(loss) on securities available for
sale, net............................. -- -- (3,629,601)
----------- ----------- ----------
Comprehensive income................. 8,140,105 -- (3,629,601)
Distribution of 100% stock dividend...... (38,222,741) 65,738,259 --
Dividends paid, $.438 per share.......... (3,102,129) -- --
Treasury stock purchased................. -- (17,675,478) --
Stock options exercised.................. -- 1,279,298 --
Amortization of KSOP expense............. -- -- --
Tax benefit related to exercise of stock
options................................. -- -- --
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................ -- -- --
----------- ----------- ----------
Balance at June 30, 1999................. 46,243,673 (8,551,484) (2,816,864)
Comprehensive income:
Net income............................. 7,359,799 -- --
Change in unrealized holding gain
(loss) on securities available for
sale, net............................. -- -- (3,599,022)
----------- ----------- ----------
Comprehensive income................. 7,359,799 -- (3,599,022)
Dividends paid, $.488 per share.......... (3,103,246) -- --
Treasury stock purchased................. -- (7,072,998) --
Treasury stock issued.................... -- 62,227 --
Stock options exercised.................. -- 697,086 --
Amortization of KSOP expense............. -- -- --
Tax benefit related to exercise of stock
options................................. -- -- --
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................ -- -- --
----------- ----------- ----------
Balance at June 30, 2000................. 50,500,226 (14,865,169) (6,415,886)
=========== =========== ==========
F-6
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY--(Continued)
Years ended June 30, 2000, 1999 and 1998
Common stock
purchased by
-----------------------
Employee
stock own- Recognition
ership and and
401(k) retention
plan plans Total
---------- ----------- -----------
Balance at June 30, 1997.................. (3,441,382) (281,790) 82,174,216
Comprehensive income:
Net income.............................. -- -- 7,729,211
Change in unrealized holding gain on
securities available for sale, net..... -- -- 700,941
---------- -------- -----------
Comprehensive income.................. -- -- 8,430,152
Dividends paid, $.775 per share........... -- -- (2,900,750)
Treasury stock purchased.................. -- -- (5,239,911)
Stock options exercised................... -- -- 336,930
Amortization of KSOP expense.............. 406,820 -- 406,820
Tax benefit related to exercise of stock
options.................................. -- -- 152,987
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................. -- -- 855,257
---------- -------- -----------
Balance at June 30, 1998.................. (3,034,562) (281,790) 84,215,701
Comprehensive income:
Net income.............................. -- -- 8,140,105
Change in unrealized holding gain (loss)
on securities available for sale, net.. -- -- (3,629,601)
---------- -------- -----------
Comprehensive income.................. -- -- 4,510,504
Distribution of 100% stock dividend....... -- -- --
Dividends paid, $.438 per share........... -- -- (3,102,129)
Treasury stock purchased.................. -- -- (17,675,478)
Stock options exercised................... -- -- 559,294
Amortization of KSOP expense.............. 389,030 -- 389,030
Tax benefit related to exercise of stock
options.................................. -- -- 295,643
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................. -- -- 923,960
---------- -------- -----------
Balance at June 30, 1999.................. (2,645,532) (281,790) 70,116,525
Comprehensive income:
Net income.............................. -- -- 7,359,799
Change in unrealized holding gain (loss)
on securities available for sale, net.. -- -- (3,599,022)
---------- -------- -----------
Comprehensive income.................. -- -- 3,760,777
Dividends paid, $.488 per share........... -- -- (3,103,246)
Treasury stock purchased.................. -- -- (7,072,998)
Treasury stock issued..................... -- -- 62,227
Stock options exercised................... -- -- 190,209
Amortization of KSOP expense.............. 371,450 -- 371,450
Tax benefit related to exercise of stock
options.................................. -- -- 188,174
Difference between average fair value per
share and cost per share on KSOP shares
committed to be released................. -- -- 682,372
---------- -------- -----------
Balance at June 30, 2000.................. (2,274,082) (281,790) 65,195,490
========== ======== ===========
See accompanying notes to consolidated financial statements.
F-7
FFY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ -----------
Cash flows from operating activities:
Net income.......................... $ 7,359,799 8,140,105 7,729,211
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation...................... 1,047,013 1,135,772 969,042
Amortization and accretion........ 35,562 344,464 381,801
Increase (decrease) in accrued
federal income taxes............. 1,317,826 (1,323,643) (487,987)
Deferred federal income taxes..... 1,357,000 1,593,000 261,000
Net gain on sale of securities.... (45,574) (203,317) (246,473)
Gain on sale of loans............. (234,162) (720,153) (134,211)
Loans originated for sale......... (14,904,923) (30,855,271) (4,988,080)
Proceeds from sales of loans
originated for sale.............. 15,409,785 31,128,924 5,077,069
Provision for loan losses......... 475,763 494,438 565,521
Federal Home Loan Bank stock
dividend......................... (351,600) (329,700) (304,700)
(Increase) decrease in interest
receivable....................... 65,489 (542,095) (355,161)
Tax benefits related to employee
plans............................ 188,174 295,643 152,987
Other, net........................ 497,362 1,205,683 1,043,628
------------ ------------ -----------
Net cash provided by operating
activities..................... 12,217,514 10,363,850 9,663,647
------------ ------------ -----------
Cash flows from investing activities:
Proceeds from maturity of securities
available for sale................. 3,020,000 10,697,077 16,727,605
Proceeds from sales of securities
available for sale................. 15,451,261 35,698,278 41,929,782
Purchase of securities available for
sale............................... (742,661) (144,809,607) (99,324,173)
Purchase of Federal Home Loan Bank
stock.............................. -- -- (112,300)
Principal receipts on securities
available for sale................. 8,773,241 26,370,997 29,165,393
Net (increase) decrease in loans.... (30,559,564) 29,154,107 (21,563,866)
Purchase of office properties and
equipment.......................... (1,003,087) (554,064) (1,136,981)
(Increase) decrease in investment in
real estate development joint
venture............................ 364,084 (128,639) (766,241)
Purchase of insurance agency
intangible assets.................. (690,000) -- --
Other, net.......................... (278,611) (59,115) (6,017)
------------ ------------ -----------
Net cash used in investing
activities..................... (5,665,337) (43,630,966) (35,086,798)
------------ ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in
deposits........................... (11,264,389) 13,371,715 (6,138,251)
Net increase (decrease) in
securities sold under agreements to
repurchase:
Short-term........................ 320,158 (6,470,576) 5,781,075
Long-term......................... -- -- 26,300,000
Net increase (decrease) in short-
term borrowed funds................ (5,300,000) (11,185,000) 6,530,000
Proceeds from long-term borrowings.. 29,280,000 60,000,000 --
Repayments of long-term borrowed
funds.............................. (10,000,000) -- --
Treasury stock purchases............ (7,072,998) (17,675,478) (5,239,911)
Dividends paid...................... (3,103,246) (3,102,129) (2,900,750)
Proceeds from stock options
exercised.......................... 190,209 559,294 336,930
Increase (decrease) in amounts due
to bank............................ (154,055) (368,059) 695,939
Other, net.......................... 112,155 (465,027) 125,546
------------ ------------ -----------
Net cash provided by (used in)
financing activities........... (6,992,166) 34,664,740 25,490,578
Net increase (decrease) in cash
and cash equivalents............ $ (439,989) 1,397,624 67,427
Cash and cash equivalents at beginning
of year............................... 11,472,806 10,075,182 10,007,755
------------ ------------ -----------
Cash and cash equivalents at end of
year.................................. $ 11,032,817 11,472,806 10,075,182
============ ============ ===========
Supplemental disclosure of cash flow
information:
Cash payments of interest expense... $ 28,328,248 25,377,616 25,095,614
Cash payments of federal income
taxes............................... 185,000 3,475,000 4,150,000
============ ============ ===========
Supplemental schedule of non-cash
investing activities:
Real estate acquired through
foreclosure......................... $ 961,969 936,116 643,725
Real estate sales by loan issuance.. 730,392 742,543 543,500
============ ============ ===========
See accompanying notes to consolidated financial statements.
F-8
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
FFY Financial Corp. (FFY or Holding Company) and its wholly owned subsidiaries,
FFY Bank of Youngstown (Bank) and FFY Holdings, Inc. The consolidated financial
statements also include the accounts of FFY Insurance Agency, Ltd., the
insurance affiliate of FFY Holdings, Inc. The accounts of FFY Holdings real
estate affiliate, Coldwell Banker FFY Real Estate, are not consolidated since
the company owns a non-controlling one-third interest. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Basis of Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of the consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities at the date of the consolidated statement of
financial condition and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with maturities at
date of purchase of three months or less to be cash equivalents. Cash
equivalents also include interest-bearing deposits and short-term investments.
(d) Securities
Management determines the appropriate classification of securities at the
time of purchase. Debt and equity securities, including mortgage-backed
securities, are classified as available for sale and reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
component of accumulated other comprehensive income (loss), net of tax.
Available-for-sale securities are those which management may decide to sell, if
needed, for liquidity, asset/liability management, or other reasons. Gains or
losses on the sale of securities are recognized using the specific
identification method. A decline in the fair value of any security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security. Premiums and discounts are
amortized or accreted over the life of the related security as an adjustment to
yield using the interest method. Dividends and interest income are recognized
when earned.
(e) Loans and Related Fees and Costs
Loans receivable originated with the intent to hold to maturity are carried
at unpaid principal balances, less the allowance for loan losses and net
deferred loan origination fees. Interest on loans is accrued and credited to
income as earned. The accrual of interest is discontinued generally when a loan
is more than 90 days delinquent or otherwise doubtful of collection. Such
interest ultimately collected is credited to income in the period of recovery.
Loans are returned to accrual status when both principal and interest are
current, and the loan is determined to be performing in accordance with the
applicable loan terms.
Loan origination fees and certain direct loan origination costs are
deferred, and the net amounts are amortized as an adjustment of the related
loan's yield. The Bank amortizes these amounts using the interest method over
the contractual life of the related loans.
F-9
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company currently sells loans to Federal National Mortgage Association
(Fannie Mae) in the secondary market and delivers shortly after funding.
Mortgage loans held for sale are carried at the lower of cost or market value,
determined on a net aggregate basis.
Mortgage servicing rights associated with loans originated and sold, where
servicing is retained, are capitalized and included in other assets in the
statement of financial condition. The servicing rights capitalized are
amortized in proportion to and over the period of estimated servicing income.
Management measures impairment of servicing rights based on prepayment trends
and external market factors. Any impairment is recorded as a valuation
allowance.
(f) Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to absorb
probable losses inherent in the loan portfolio as of the balance sheet date.
The provision for loan losses charged to expense is based on management's
judgment taking into consideration past experience, current and estimated
future economic conditions, known and inherent risks in the loan portfolio, and
the estimated value of underlying collateral. While management uses the best
information available to make these evaluations, future adjustments to the
allowance may become necessary if economic conditions change substantially from
the assumptions used in making the evaluations. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require
the recognition of additions to the reserve based on their judgments of
information available to them at the time of their examination.
Management considers a loan impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
of principal and interest under the original terms of the loan agreement.
Significant factors impacting management's judgment in determining when a loan
is impaired include an evaluation of compliance with repayment program,
condition of collateral, deterioration in financial strength of borrower or any
case when the expected future cash payments may be less than the recorded
amount. Since the Bank's loans are primarily collateral dependent, measurement
of impairment is based on the fair value of the collateral. Management excludes
large groups of smaller balance homogeneous loans such as residential mortgages
and consumer loans which are collectively evaluated.
(g) Office Properties and Equipment
Land is carried at cost. Office properties and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets. Estimated lives are 10 to
40 years for office properties, including improvements, and 3 to 10 years for
equipment. Leasehold improvements are depreciated using the straight-line
method over the terms of the related leases.
(h) Repurchase Agreements
The Bank enters into sales of securities under agreements to repurchase
securities of the same agency bearing the identical contract rate and similar
remaining weighted average maturities as the original securities that result in
approximately the same market yield.
(i) Income Taxes
The Company files a consolidated federal income tax return.
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
F-10
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
as income or expense in the period that includes the enactment date.
(j) Earnings Per Share
Basic earnings per share of common stock for the years ended June 30, 2000,
1999 and 1998 have been determined by dividing net income for the year by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share of common stock for the years ended June 30, 2000,
1999 and 1998 have been determined by dividing net income for the year by the
weighted average number of shares of common stock outstanding during the year
adjusted for the dilutive effect of outstanding stock options. Total shares
outstanding for earnings per share calculation purposes have been reduced by
the KSOP shares that have not been committed to be released. In addition,
weighted average common and common equivalent shares have been restated to
reflect a 100% stock dividend, effected in the form of a two-for-one stock
split, declared on January 19, 1999. The computation of basic and diluted
earnings per share is shown in the table below.
Years ended June 30,
------------------------------
2000 1999 1998
---------- --------- ---------
Basic earnings per share computation:
Numerator--Net income......................... $7,359,799 8,140,105 7,729,211
Denominator--Weighted average common shares
outstanding.................................. 6,388,100 7,072,607 7,515,890
Basic earnings per share........................ $ 1.15 1.15 1.03
========== ========= =========
Diluted earnings per share computation:
Numerator--Net income......................... $7,359,799 8,140,105 7,729,211
Denominator--Weighted average common shares
outstanding.................................. 6,388,100 7,072,607 7,515,890
Dilutive effect of stock options.............. 187,602 234,046 278,162
---------- --------- ---------
Weighted average common shares and common
stock equivalents................. 6,575,702 7,306,653 7,794,052
Diluted earnings per share...................... $ 1.12 1.11 0.99
========== ========= =========
(k) Comprehensive Income
On July 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income.
This Statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income consists of net income and
other comprehensive income, which for the Company is comprised entirely of
unrealized holding gains and losses on securities available-for-sale, net of
the related tax effect. As permitted by SFAS No. 130, the Company has elected
to disclose the components of comprehensive income in the Consolidated
Statements of Changes in Stockholders' Equity. Other comprehensive income
(loss), before tax, for the years ended June 30, 2000, 1999 and 1998 was
$(5,453,022), ($5,500,601) and $1,062,941, respectively. The related tax
(expense) benefit for the years ended June 30, 2000, 1999 and 1998 was
$1,854,000, $1,871,000 and ($362,000), respectively.
(l) Effect of New Financial Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, that was subsequently amended by SFAS No.
137, which delayed the original effective date of SFAS
F-11
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No. 133. This statement standardizes the accounting for derivative contracts,
by requiring that an entity recognize those items as assets or liabilities in
the statement of financial condition and measure them at fair value. SFAS No.
137 was effective for the Company on July 1, 2000. Management determined that
the Company did not engage in any hedging activities or derivative instruments
and therefore, the adoption of SFAS No. 137 had no impact on financial
condition or results of operations.
(m) Reclassifications
Certain amounts in the prior year consolidated financial statements have
been reclassified to conform with the current year's presentation.
(2) Securities
A summary of securities available for sale is as follows:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------ ---------- ---------- -----------
June 30, 2000
Federal agency obligations.... $ 18,966,247 -- (724,553) 18,241,694
Mortgage-backed securities.... 65,298,064 -- (3,608,828) 61,689,236
Municipal securities.......... 44,928,441 42,285 (3,641,919) 41,328,807
Trust preferred securities.... 24,586,625 -- (1,390,429) 23,196,196
Asset-backed SLMA's........... 11,567,549 -- (197,549) 11,370,000
Equity securities............. 894,066 46,612 (68,609) 872,069
Other securities.............. 1,617,244 -- (178,896) 1,438,348
------------ ------- ---------- -----------
Totals...................... $167,858,236 88,897 (9,810,783) 158,136,350
============ ======= ========== ===========
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
------------ ---------- ---------- -----------
June 30, 1999
Federal agency obligations.... $ 33,957,204 37,454 (350,690) 33,643,968
Mortgage-backed securities.... 74,454,008 13,833 (2,268,422) 72,199,419
Municipal securities.......... 46,707,415 251,106 (1,982,949) 44,975,572
Trust preferred securities.... 24,581,418 9,339 (381,382) 24,209,375
Asset-backed SLMA's........... 11,493,465 -- (26,215) 11,467,250
Equity securities............. 1,798,791 509,914 (43,290) 2,265,415
Other securities.............. 1,602,162 -- (37,562) 1,564,600
------------ ------- ---------- -----------
Totals...................... $194,594,463 821,646 (5,090,510) 190,325,599
============ ======= ========== ===========
The amortized cost and fair values of debt securities available for sale at
June 30, 2000, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties. Equity
securities do not have a contractual maturity.
Amortized Fair
cost value
------------ -----------
Within one year..................................... $ 290,406 289,773
After one year through five years................... 20,376,635 19,805,298
After five years through ten years.................. 27,882,719 26,501,725
After ten years..................................... 118,414,410 110,667,485
------------ -----------
$166,964,170 157,264,281
============ ===========
F-12
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average tax-equivalent annual yield of securities available for
sale at June 30, 2000 and 1999 was 6.59% and 6.32%, respectively.
Gross proceeds from sales of securities available for sale during the years
ended June 30, 2000, 1999 and 1998 totaled $15,451,261, $35,698,278, and
$41,929,782, respectively. Gross realized gains and losses on sales of
securities available for sale totaled $131,868 and $86,294, respectively,
during the year ended June 30, 2000; $385,137 and $181,820, respectively,
during the year ended June 30, 1999; and $324,487 and $78,014, respectively,
during the year ended June 30, 1998.
(3) Loans Receivable
Following is a summary of loans receivable at June 30, 2000 and 1999:
2000 1999
------------ -----------
First mortgage loans:
Secured by one-to-four family residences.......... $351,425,171 335,064,165
Secured by other properties....................... 14,367,031 15,579,362
Commercial........................................ 44,628,822 35,117,294
Construction and development loans, primarily
residential...................................... 32,480,194 28,084,891
------------ -----------
442,901,218 413,845,712
Consumer and other loans:
Automobile........................................ 5,811,518 7,788,757
Home equity....................................... 44,436,874 36,469,834
90-day notes...................................... 1,816,299 3,416,013
Commercial........................................ 1,057,010 849,071
Other............................................. 4,307,435 4,981,141
------------ -----------
57,429,136 53,504,816
------------ -----------
500,330,354 467,350,528
Less:
Undisbursed loans in process...................... 10,349,503 7,969,623
Net deferred loan origination fees................ 2,634,304 2,455,162
Allowance for loan losses......................... 2,658,784 2,645,132
Loans available for sale.......................... 170,800 441,500
------------ -----------
15,813,391 13,511,417
------------ -----------
$484,516,963 453,839,111
============ ===========
Weighted average annual yield at year-end........... 8.20% 8.05%
============ ===========
Activity in the allowance for loan losses for the years ended June 30, 2000,
1999 and 1998 is summarized as follows:
2000 1999 1998
---------- --------- ---------
Balance at beginning of year............... $2,645,132 2,740,169 2,961,810
Provision charged to operations............ 475,763 494,438 565,521
Charge-offs................................ (597,907) (723,383) (839,704)
Recoveries................................. 135,796 133,908 52,542
---------- --------- ---------
Balance at end of year..................... $2,658,784 2,645,132 2,740,169
========== ========= =========
F-13
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Real estate owned, troubled debt restructurings, and nonaccrual loans, as
well as the related impact on income in the accompanying consolidated
statements of income, were immaterial for 2000, 1999 and 1998. At June 30, 2000
and 1999, non-accrual loans consisted primarily of one-to-four family
residences and totaled $3,128,827 and $2,160,290, respectively. At June 30,
2000 and 1999, the recorded investment in loans which have been identified as
being impaired totaled $1,565,705 and $1,591,754, respectively. No valuation
allowance has been recorded on impaired loans since the fair value of the
underlying collateral exceeds the recorded investment on an individual loan by
loan basis. Average impaired loans for the years ended June 30, 2000 and 1999
totaled $1,565,580 and $1,606,423, respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The outstanding principal
balance of loans serviced for others totaled $47,311,813 and $35,050,912 at
June 30, 2000 and 1999, respectively. Capitalized net mortgage servicing rights
totaled $418,687 and $329,602 at June 30, 2000 and 1999, respectively.
(4) Office Properties and Equipment
Following is a summary of office properties and equipment by major
classifications as of June 30, 2000 and 1999:
2000 1999
----------- ----------
Land.................................................. $ 1,617,581 1,617,581
Buildings............................................. 8,604,004 8,513,962
Furniture and equipment............................... 2,834,168 2,663,168
Computer equipment and software....................... 4,164,898 3,621,618
Automobiles........................................... 160,484 132,578
Leasehold improvements................................ 501,131 402,322
----------- ----------
17,882,266 16,951,229
Less accumulated depreciation and amortization........ 10,709,827 9,732,589
----------- ----------
$ 7,172,439 7,218,640
=========== ==========
(5) Deposits
Following is an analysis of interest-bearing deposits, which consist of
various savings and certificate accounts with varying interest rates, as of
June 30, 2000 and 1999:
2000 1999
------------------- -------------------
Account type and stated interest rate Amount % Amount %
- ------------------------------------- ------------ ------ ------------ ------
NOW accounts, up to 1.74%.............. $ 38,732,058 8.68 $ 36,677,860 8.02
Money market accounts, up to 5.27%..... 47,136,810 10.57 39,448,435 8.63
Passbook accounts, 2.25%............... 82,610,394 18.52 92,719,043 20.27
------------ ------ ------------ ------
168,479,262 37.77 168,845,338 36.92
Certificate accounts:
3.00% to 3.99%....................... 120,915 0.03 22,172,077 4.85
4.00% to 4.99%....................... 51,125,296 11.46 44,800,820 9.79
5.00% to 5.99%....................... 106,360,998 23.85 144,645,834 31.63
6.00% to 6.99%....................... 95,382,685 21.38 69,208,919 15.13
7.00% to 7.99%....................... 24,579,634 5.51 7,669,814 1.68
------------ ------ ------------ ------
277,569,528 62.23 288,497,464 63.08
------------ ------ ------------ ------
$446,048,790 100.00 $457,342,802 100.00
============ ====== ============ ======
F-14
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At June 30, 2000 and 1999, scheduled maturities of certificate accounts are
as follows:
2000 1999
------------------- -------------------
Amount % Amount %
------------ ------ ------------ ------
Less than 12 months................. $171,117,345 61.65 $189,811,007 65.79
13 to 24 months..................... 50,487,978 18.19 55,191,248 19.13
25 to 36 months..................... 19,484,670 7.02 23,196,762 8.04
37 to 48 months..................... 6,475,814 2.33 12,246,369 4.25
49 to 60 months..................... 28,076,233 10.12 6,517,036 2.26
Over 60 months...................... 1,927,488 0.69 1,535,042 0.53
------------ ------ ------------ ------
$277,569,528 100.00 $288,497,464 100.00
============ ====== ============ ======
The 1999 amounts above included callable certificate accounts totaling
$8,556,305 with a weighted average rate of 6.91%. Due to a decline in market
rates during fiscal year 1999, management exercised their call options during
fiscal year 2000. There were no callable certificate accounts at June 30, 2000.
Following is a summary of certificate accounts of $100,000 or more by
remaining maturities at June 30, 2000 and 1999:
2000 1999
----------- ----------
Three months or less.................................. $13,102,503 10,414,553
Over three to six months.............................. 17,940,423 8,007,383
Over six to twelve months............................. 15,588,919 11,495,888
Over twelve months.................................... 20,813,464 17,840,509
----------- ----------
$67,445,309 47,758,333
=========== ==========
At June 30, 2000 and 1999, certificate accounts included $1,215,105 and
$1,543,897, respectively, in customer deposits for which federal agency
obligations were pledged as collateral in an amount equal to the certificate
account balances. The weighted average rate of the certificate accounts was
6.43% and 5.51%, respectively, at June 30, 2000 and 1999. The certificates at
June 30, 2000 for which securities are pledged are scheduled to mature from
April 2002 to April 2005.
At June 30, 2000, certificate accounts included four deposits totaling
$13,300,000 from the State of Ohio with a weighted average rate of 6.60%. These
certificates have six-month terms which will mature from September 2000 to
December 2000. Federal Home Loan Bank letters of credit collateralize
$8,300,000 of these deposits and federal agency obligations collateralize the
remaining $5,000,000.
Interest expense on deposits for the years ended June 30, 2000, 1999 and
1998 is summarized below:
2000 1999 1998
----------- ---------- ----------
NOW accounts............................... $ 388,036 476,884 636,915
Money market accounts...................... 1,815,365 1,136,095 762,231
Passbook accounts.......................... 1,985,495 2,090,725 2,683,094
Certificate accounts....................... 15,138,775 16,412,701 17,199,768
----------- ---------- ----------
$19,327,671 20,116,405 21,282,008
=========== ========== ==========
The weighted average interest rate on deposits was 4.56% and 4.27% at June
30, 2000 and 1999, respectively.
F-15
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Securities Sold Under Agreements to Repurchase
At June 30, 2000 and 1999, securities sold under agreements to repurchase
were as follows:
2000 1999
---------- ----------
Short-term:
Repurchase agreements................................. $6,937,905 6,617,747
Federal agency obligations pledged as collateral:
Book value, including accrued interest.............. 10,218,236 10,236,120
Market value, including accrued interest............ 9,876,930 10,237,604
Average balance outstanding during the year............. 6,913,474 9,054,035
Maximum amount outstanding at any month-end............. 7,693,664 13,448,884
Weighted average interest rate.......................... 6.51% 5.02%
Long-term:
Repurchase agreements................................. 51,300,000 51,300,000
Mortgage-backed securities pledged as collateral:
Book value, including accrued interest.............. 61,902,083 61,469,494
Market value, including accrued interest............ 58,510,942 59,782,455
Average balance outstanding during the year............. 51,300,000 51,300,000
Maximum amount outstanding at any month-end............. 51,300,000 51,300,000
Weighted average interest rate.......................... 6.84% 5.76%
Short and long-term repurchase agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in the
consolidated statements of financial condition. The pledged securities,
although held in safekeeping outside the Bank, remain in the asset accounts. A
summary of individual long-term repurchase agreements at June 30, 2000 and 1999
with respect to maturity and call dates is summarized in the table below. The
call dates renew every three months and are at the option of the buyer.
Earliest
Maturity call 2000 1999
-------- ------------ ----------- ----------
5/20/02 Non-callable $25,000,000 --
12/20/02 12/20/01 16,300,000 --
1/16/03 1/16/01 10,000,000 10,000,000
2/19/02 called -- 25,000,000
3/19/01 called -- 16,300,000
F-16
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Borrowed Funds
Borrowed funds at June 30, 2000 and 1999 consist of advances from the
Federal Home Loan Bank (FHLB).
2000 1999
------------------------ ------------------------
Weighted Weighted
Amount average rate Amount average rate
----------- ------------ ----------- ------------
Advances from the FHLB of
Cincinnati with
maturities less than one
year:
Line of credit advances... $17,500,000 7.35% $ -- --
Repo-based advances....... -- -- 22,800,000 4.92%
----------- ---- ----------- ----
$17,500,000 7.35% $22,800,000 4.92%
=========== ==== =========== ====
2000 1999
-------------------- ------------------------
Weighted
Maturity average Weighted
date Amount rate Amount average rate
-------- ----------- -------- ----------- ------------
Advances from the FHLB
of Cincinnati with
maturities greater than
one year:
LIBOR-based advance... 8/26/00 $25,000,000 6.66% $25,000,000 4.89%
Convertible fixed-rate
advance.............. 12/3/03 -- -- 10,000,000 4.40%
Convertible fixed-rate
advance.............. 5/14/09 25,000,000 5.61% 25,000,000 5.61%
Fixed-rate advance.... 1/05/05 25,000,000 7.22% -- --
Fixed-rate advance.... 7/05/03 4,280,000 7.10% -- --
----------- ---- ----------- ----
$79,280,000 6.53% $60,000,000 5.11%
=========== ==== =========== ====
The FHLB line of credit advances have adjustable rates. The LIBOR-based
advance is tied to 3-month LIBOR minus 16 basis points and is adjusted
quarterly. The $25 million convertible fixed-rate advance can be converted, at
the option of the FHLB of Cincinnati, to a 3-month LIBOR-based advance on May
14, 2004. All outstanding advances at June 30, 2000 from the FHLB of Cincinnati
are secured by a blanked mortgage collateral agreement for 150% of outstanding
advances, amounting to $145.2 million.
At June 30, 2000, the Bank has two standby letters of credit with Federal
Home Loan Bank in the amounts of $5,000,000 and $3,300,000, which respectively
mature on October 4, 2000 and December 6, 2000. These letters were not drawn on
as of June 30, 2000 and are being used to collateralize certificates of
deposit. A fee of 12 1/2 basis points was charged for each letter of credit.
(8) Compliance with Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
F-17
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Office of Thrift Supervision (OTS) regulations require savings institutions
to maintain certain minimum levels of regulatory capital. An institution that
fails to comply with its regulatory capital requirements must obtain OTS
approval of a capital plan and can be subject to a capital directive and
certain restrictions on its operations. At June 30, 2000, the minimum
regulatory capital regulations require institutions to have equity capital to
total tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1)
capital to total adjusted tangible assets of 3.0%; and a minimum ratio of total
capital (core capital and supplementary capital) to risk weighted assets of
8.0%, of which 4.0% must be core capital.
The most recent notification from the OTS categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The following is a reconciliation of the Bank's GAAP and Regulatory capital,
and a summary of the Bank's actual capital ratios compared with the OTS minimum
bank capital adequacy requirements and their requirements for classification as
well capitalized at June 30, 2000 and 1999:
Tier-1 Tier-1 Total
Equity core risk-based risk-based
June 30, 2000 capital capital capital capital
- ------------- ----------- ----------- ----------- -----------
GAAP capital.............. $49,295,266 49,295,266 49,295,266 49,295,266
Accumulated losses on
certain securities
available for sale, net.. 6,150,228 6,150,228 6,150,228
General loan valuation
allowances............... -- -- 2,526,716
Other..................... (41,719) (41,719) (41,719)
----------- ----------- -----------
Regulatory capital........ 55,403,775 55,403,775 57,930,491
----------- ----------- -----------
Total assets.............. 664,283,748
-----------
Adjusted total assets..... 670,887,743
-----------
Risk-weighted assets...... 454,889,366 454,889,366
----------- -----------
Actual capital ratio...... 7.42% 8.26% 12.18% 12.73%
Minimum capital adequacy
requirements............. 1.50% 3.00% 8.00%
Regulatory capital
category:
Well capitalized--equal
to or greater than..... 5.00% 6.00% 10.00%
Tier-1 Tier-1 Total
Equity core risk-based risk-based
June 30, 1999 capital capital capital capital
- ------------- ----------- ----------- ----------- -----------
GAAP capital.............. $51,063,276 51,063,276 51,063,276 51,063,276
Accumulated losses on
certain securities
available for sale, net.. 3,140,221 3,140,221 3,140,221
General loan valuation
allowances............... -- -- 2,380,434
Other..................... (329,602) (329,602) (565,575)
----------- ----------- -----------
Regulatory capital........ 53,873,895 53,873,895 56,018,356
----------- ----------- -----------
Total assets.............. 661,204,894
-----------
Adjusted total assets..... 665,870,977
-----------
Risk-weighted assets...... 404,152,959 404,152,959
----------- -----------
Actual capital ratio...... 7.72% 8.09% 13.33% 13.86%
Minimum capital adequacy
requirements............. 1.50% 3.00% 8.00%
Regulatory capital
category:
Well capitalized--equal
to or greater than..... 5.00% 6.00% 10.00%
F-18
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Income Taxes
Federal income tax expenses include current and deferred amounts as follows:
2000 1999 1998
----------- ---------- ---------
Current..................................... $ 1,691,000 2,447,000 3,886,000
Deferred.................................... 1,357,000 1,593,000 261,000
----------- ---------- ---------
Federal income tax expense................ 3,048,000 4,040,000 4,147,000
Deferred federal tax expense (benefit) on
unrealized gains (losses) on securities
available for sale......................... (1,854,000) (1,871,000) 362,000
----------- ---------- ---------
$ 1,194,000 2,169,000 4,509,000
=========== ========== =========
Actual federal income tax expense differed from the amounts computed by
applying the federal income tax rate of 35% to income before federal income
taxes as a result of the following:
2000 1999 1998
----------------- ----------------- -----------------
Expected income tax
expense at
statutory rate......... $3,642,730 35.00% $4,263,037 35.00% $4,156,674 35.00%
Other................... (594,730) (5.71) (223,037) (1.83) (9,674) (0.08)
---------- ----- ---------- ----- ---------- -----
Actual federal tax
expense................ $3,048,000 29.29% $4,040,000 33.17% $4,147,000 34.92%
========== ===== ========== ===== ========== =====
The net tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2000 and 1999, is as follows:
2000 1999
---------- ----------
Deferred tax assets:
Deferred loan fees................................ $ 978,000 842,000
Employee benefits................................. 136,000 128,000
Bad debt reserves................................. 904,000 899,000
Interest on nonaccrual loans...................... 120,000 40,000
Unrealized depreciation on securities available
for sale......................................... 137,000 --
Other............................................. 53,000 54,000
---------- ----------
Total gross deferred tax assets................. 2,328,000 1,963,000
---------- ----------
Deferred tax liabilities:
FHLB stock dividends.............................. 1,070,000 950,000
Basis difference in fixed assets.................. 166,000 172,000
Excess of tax reserves over base year amounts..... 769,000 961,000
Unrealized appreciation on securities available
for sale......................................... -- 166,000
Other............................................. 297,000 185,000
---------- ----------
Total gross deferred tax liabilities............ 2,302,000 2,434,000
---------- ----------
Net deferred tax asset (liability).............. $ 26,000 (471,000)
========== ==========
A valuation allowance is established to reduce the deferred tax asset if it
is more likely than not that the related tax benefits will not be realized. In
management's opinion, it is more likely than not that the tax benefits will be
realized; consequently, no valuation allowance has been established as of June
30, 2000 and 1999.
F-19
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Retained earnings at June 30, 2000 includes approximately $17,254,000 for
which no provision for federal income tax has been made. These amounts
represent allocations of income to bad debt deductions for tax purposes only.
These qualifying and nonqualifying base year reserves and supplemental reserves
will be recaptured into income in the event of certain distributions and
redemptions. Such recapture would create income for tax purposes only, which
would be subject to the then current corporate income tax rate.
Recapture would not occur upon the reorganization, merger, or acquisition of
the Bank, nor if the Bank is merged or liquidated tax-free into a bank or
undergoes a charter change. If the Bank fails to qualify as a bank or merges
into a nonbank entity, these reserves will be recaptured into income.
The favorable reserve method previously afforded to thrifts was repealed for
tax years beginning after December 31, 1995. Large thrifts must switch to the
specific charge-off method of Section 166. In general, a thrift is required to
recapture its qualifying and nonqualifying reserves in excess of its qualifying
and nonqualifying base year reserves. As the Bank has previously provided
deferred taxes on the recapture amount, no additional financial statement tax
expense should result from this legislation.
(10) Commitments, Contingencies, and Credit Risk
In the normal course of business, the Bank is party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers and to
minimize exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit and unused lines of
credit. Currently the Bank does not enter into forward contracts for future
delivery of residential mortgage loans. These instruments involve elements of
credit risk and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the commitment is
represented by the contractual amount of the commitment. The Bank uses the same
credit policies in making commitments as it does for on-balance sheet
instruments. Interest rate risk on commitments to extend credit results from
the possibility that interest rates may have moved unfavorably from the
position of the Bank since the time the commitment was made.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates of 30 to 180 days or other termination
clauses and may require payment of a fee. Since some of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Following is a table of
financial instruments whose contract amounts represent credit risk:
2000 1999
----------- ----------
Fixed rate commitments to extend credit............... $11,400,906 11,902,729
Variable rate commitments to extend credit............ 7,747,985 7,398,242
Commercial lines and letters of credit................ 1,510,000 2,700,000
Undisbursed lines and letters of credit............... 14,292,215 8,195,471
----------- ----------
$34,951,106 30,196,442
=========== ==========
The Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained by the Bank upon extension of credit is based
on management's credit evaluation of the applicant. Collateral held is
generally single-family residential real estate.
The Bank's primary lending area is in Mahoning, Trumbull, and Columbiana
counties in the state of Ohio. Accordingly, the ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to changes in market
conditions in that area.
F-20
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial statements of the Company.
(11) Director and Employee Plans
(a) Stock Option and Incentive Plan
FFY sponsors a stock option and incentive plan for the benefit of directors
and employees of the Company. The number of shares of common stock authorized
under the plan is 1,326,000, equal to 10% of the total number of shares issued
in the conversion adjusted for the 100% stock dividend in 1999. The option
exercise price must be at least 100% of the fair value of the common stock on
the date of the grant, and the option term cannot exceed 10 years. Outstanding
options can be exercised over a 10-year period from the date of the grant.
Following is activity under the plan during the years ended June 30, 2000,
1999 and 1998:
2000 1999 1998
------- -------- -------
Options outstanding, beginning of year........... 395,186 463,704 531,090
Exercised........................................ (38,042) (108,298) (67,386)
Granted.......................................... 218,768 39,780 --
------- -------- -------
Options outstanding, end of year................. 575,912 395,186 463,704
======= ======== =======
Exercisable:
At $5.00 per share............................. 296,174 334,216 439,814
From $11.59 to $18.63 per share................ 54,340 34,450 23,890
Options available for grant, end of year......... -- 218,768 258,548
On May 23, 2000, 83,878 options were granted to the outside directors of the
Company pursuant to the merger with First Place Financial Corp. (refer to note
15). These options shall vest in their entirety only upon the closing of the
proposed merger.
The Company applies Accounting Principles Board (APB) No. 25 for its stock
option and incentive plan. Accordingly, no compensation cost has been
recognized. Had compensation cost for this plan been determined consistent with
SFAS No. 123, the Company's net income and earnings per share pro forma amounts
for the years ended June 30, 2000, 1999 and 1998 would be as follows (in
thousands, except per share amounts):
2000 1999 1998
-------------- -------------- --------------
As Pro As Pro As Pro
reported forma reported forma reported forma
-------- ----- -------- ----- -------- -----
Net income..................... $7,360 7,264 8,140 8,108 7,729 7,715
Basic earnings per share....... $ 1.15 1.14 1.15 1.15 1.03 1.03
Diluted earnings per share..... $ 1.12 1.10 1.11 1.11 0.99 0.99
The above results may not be representative of the effects of SFAS No. 123
on net income for future years.
F-21
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applied the Black-Scholes option pricing model to determine the
fair value of each option granted. Below is a summary of the assumptions used
in the calculation:
June 30,
---------------------------------------
2000 1999 1998
--------------- ------------ ----------
Dividend yield.......................... 2.68-4.88% 2.59-2.92% 2.59-2.92%
Expected volatility..................... 16.54% 12.53-14.39% 12.53%
Risk-free interest rate................. 6.36-6.83% 4.47-6.47% 6.36-6.47%
Expected option life.................... 5.25-5.36 years 5.25 years 5.25 years
(b) Employee Stock Ownership and 401(k) Plan
In June 1993, the Company established the FFY Financial Corp. Employee Stock
Ownership Plan (ESOP) for the benefit of its employees. The ESOP covers
substantially all employees with more than one year of employment and who have
attained the age of 21. The ESOP borrowed $5,304,000 from FFY and purchased
1,060,800 shares (adjusted for the 100% stock dividend in 1999) in conjunction
with the Bank's conversion. Effective January 1, 1997, the Company amended the
ESOP to include 401(k) provisions under Section 401(k) of the Internal Revenue
Code, thus forming the FFY Financial Corp. Employee Stock Ownership and 401(k)
Plan (KSOP). The eligibility requirements of the KSOP did not change pursuant
to the amendment. Under the 401(k) provisions of the KSOP, employees may elect
to make pretax contributions of up to 15% of compensation as defined in the
plan document. The Company matches up to 6% of employee compensation in the
form of stock from the shares that are committed to be released to participants
for that year. The remaining shares after the 401(k) match are released to
participants' accounts using the shares allocated method. Dividends on
allocated and unallocated shares are used for debt service.
The Company follows SOP 93-6, Employers' Accounting for Employee Stock
Ownership Plans which requires that (1) compensation cost be recognized based
on the fair value of the KSOP shares when committed to be released; (2)
dividends on unallocated shares used for debt service do not reduce
compensation expense and are not considered dividends for financial reporting
purposes; and (3) KSOP shares that have not been committed to be released are
not considered outstanding for purposes of computing earnings per share.
KSOP compensation expense for the years ended June 30, 2000, 1999 and 1998
totaled $827,641, $1,138,068 and $1,131,374, respectively. The fair value of
unearned KSOP shares at June 30, 2000 and 1999, totaled $5,002,976 and
$10,053,014, respectively. Following is a summary of KSOP shares at June 30,
2000 and 1999:
2000 1999
--------- ---------
Allocated.............................................. 605,984 531,694
Unallocated............................................ 454,816 529,106
--------- ---------
1,060,800 1,060,800
========= =========
(c) Recognition and Retention Plans (RRPs)
The Company and the Bank have a Recognition and Retention Plan (RRP), formed
in conjunction with the Bank's conversion in 1993. Pursuant to the RRP, 474,042
shares of common stock awarded to directors and certain officers were earned
over a 3 1/2 year period through December 1996. On May 23, 2000, 56,000 RRP
shares were awarded to certain officers of the Bank pursuant to the pending
merger with First Place Financial Corp. (refer to note 15). These shares shall
vest in their entirety only upon the closing of the proposed merger. Such
shares, if vesting occurs, will be accounted for as compensation expense. At
June 30, 2000, 358 shares in the RRP remain unawarded. The 56,358 shares that
remain in the RRP at June 30, 2000 are reflected as a reduction of
stockholders' equity.
F-22
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Stockholders' Equity
On January 19, 1999, the Company announced a 100% stock dividend, which is
equivalent to a two-for-one stock split, that was paid on March 5, 1999 to
shareholders of record on February 19, 1999. The Company used its then 2.8
million treasury shares and issued an additional 959,366 shares to pay for the
stock dividend. Proper accounting treatment to record these transactions
warranted the decline in additional paid in capital and retained earnings, but
did not affect total stockholders' equity. Additionally, all share and per
share data have been restated as a result of the stock dividend.
In accordance with federal regulations, at the time the Bank converted from
a federal mutual savings bank to a federal stock savings bank, the Bank
restricted a portion of retained earnings by establishing a liquidation
account. The liquidation account is maintained for the benefit of eligible
account holders who continue to maintain their accounts at the Bank. The
liquidation account is reduced annually to the extent that eligible account
holders have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder is entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held. Under current regulations, the Bank is not permitted to pay dividends on
its stock if the effect would reduce its regulatory capital below the
liquidation account.
OTS regulations also provide that an institution that before and after a
proposed distribution remains well-capitalized, may make capital distributions
during any calendar year equal to the greater of 100% of net income for the
year-to-date plus retained net income for the two preceding years. However, an
institution deemed to be in need of more than normal supervision by the OTS may
have its dividend authority restricted by the OTS. The Bank may pay dividends
in accordance with this general authority. Institutions proposing to make any
capital distribution need not submit written notice to the OTS prior to such
distribution unless they are a subsidiary of a holding company or would not
remain well-capitalized following the distribution. Savings institutions that
do not, or would not meet their current minimum capital requirements following
a proposed capital distribution or propose to exceed the net income limitations
must obtain OTS approval prior to making such distribution. During the years
ended June 30, 2000, 1999 and 1998, the Bank paid cash dividends to the Holding
Company as follows:
Date Amount
---- ----------
January 23, 1998............................................. $1,577,312
April 13, 1998............................................... 1,713,029
July 15, 1998................................................ 1,609,984
July 20, 1998................................................ 3,400,000
October 15, 1998............................................. 1,563,763
January 15, 1999............................................. 1,735,963
April 12, 1999............................................... 1,872,575
May 20, 1999................................................. 750,000
August 12, 1999.............................................. 1,818,329
October 15, 1999............................................. 1,644,903
January 14, 2000............................................. 1,817,284
April 14, 2000............................................... 1,907,304
At June 30, 2000, dividends payable from the Bank to the Holding Company
totaled $1,684,144.
After the dividends, the Bank's regulatory capital exceeds all of the fully
phased-in capital requirements imposed by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 as well as the aforementioned liquidation
account.
F-23
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unlike the Bank, the Holding Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders. However, the
source of future dividends may depend upon dividends from the Bank.
(13) Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
June 30, 2000 June 30, 1999
------------------------ -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------ ----------- ----------- -----------
Assets:
Cash and cash equivalents... $ 11,032,817 11,032,817 11,472,806 11,472,806
Securities available for
sale....................... 158,136,350 158,136,350 190,325,599 190,325,599
Loans receivable............ 484,516,963 479,147,000 453,839,111 460,997,000
Loans available for sale.... 170,800 171,965 441,500 441,500
Federal Home Loan Bank
stock...................... 5,192,800 5,192,800 4,841,200 4,841,200
Accrued interest
receivable................. 4,596,297 4,596,297 4,661,786 4,661,786
Liabilities:
Deposits:
Certificate accounts...... 277,569,528 278,353,000 288,497,464 290,809,000
Other deposit accounts.... 168,479,262 168,479,262 168,845,338 168,845,338
Securities sold under
agreements to repurchase:
Short-term................ 6,937,905 6,937,905 6,617,747 6,617,747
Long-term................. 51,300,000 50,780,000 51,300,000 51,213,000
Borrowed funds:
Short-term................ 17,500,000 17,500,000 22,800,000 22,800,000
Long-term................. 79,280,000 78,772,000 60,000,000 59,944,000
Accrued interest payable.... 2,063,865 2,063,865 2,248,219 2,248,219
The fair value estimates are based on the following methods and assumptions:
. Cash and cash equivalents. The carrying amounts of cash and cash
equivalents approximates fair value.
. Securities available for sale. Fair values for securities are based on
quoted market prices or dealer quotes; where such quotes are not
available, fair values are based on quoted market prices of comparable
instruments.
. Loans receivable. The fair values of loans receivable are estimated
using a discounted cash flow calculation that applies estimated discount
rates reflecting the credit and interest rate risk inherent in the loans
to homogeneous categories of loans with similar financial
characteristics. Loans are segregated by types, such as residential
mortgage, commercial, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms.
F-24
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Loans available for sale. The fair values of loans available for sale
are based on quoted market prices of similar loans sold. At June 30,
1999, the carrying amount of loans available for sale approximates fair
value.
. Federal Home Loan Bank stock. This item is valued at cost, which
represents redemption value and approximates fair value.
. Accrued interest receivable. The carrying amount of accrued interest
receivable approximates fair value.
. Deposits. The fair values of fixed maturity certificate accounts are
estimated using a discounted cash flow calculation that applies interest
rates currently offered for deposits of similar remaining maturities.
The fair values of other deposit accounts (passbook, NOW, and money
market accounts) equal their carrying values.
. Short-term securities sold under agreements to repurchase. The carrying
amount of short-term securities sold under agreements to repurchase
approximates fair value.
. Long-term securities sold under agreements to repurchase. Fair value is
estimated using a discounted cash flow calculation that applies interest
rates currently available to the Bank for debt with similar terms and
maturity.
. Short-term borrowed funds. Short-term borrowed funds reprice frequently;
therefore, the carrying amount approximates fair value.
. Long-term borrowed funds. Fair value is estimated using a discounted
cash flow calculation that applies interest rates currently available to
the Bank for debt with similar terms and maturity.
. Accrued interest payable. The carrying amount of accrued interest
payable approximates fair value.
. Off-balance sheet instruments. The fair value of commitments is
estimated using the fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing. For fixed-rate loan commitments, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair value of undisbursed lines of
credit is based on fees currently charged for similar agreements or on
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date. The carrying amount and
fair value of off-balance sheet instruments is not significant as of
June 30, 2000 and 1999.
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the Bank's long-term
relationships with depositors and the benefit that results from low-cost
funding provided by deposit liabilities. In addition, significant assets which
are not considered financial instruments and are, therefore, not a part of the
fair value estimates include office properties and equipment.
F-25
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) Condensed Parent-Company-Only Financial Statements
The following condensed statements of financial condition as of June 30,
2000 and 1999, and related condensed statements of income and cash flows for
the years ended June 30, 2000, 1999 and 1998 for FFY Financial Corp. should be
read in conjunction with the consolidated financial statements and the notes
thereto.
2000 1999
----------- ----------
Condensed Statements of Financial Position
Assets:
Cash................................................... $ 166,394 142,257
Short-term investments................................. 805,300 865,000
----------- ----------
Total cash and cash equivalents...................... 971,694 1,007,257
Securities available for sale.......................... 7,058,043 11,060,613
Loans receivable....................................... 1,913,733 1,900,000
Note receivable--KSOP.................................. 2,740,400 3,094,000
Equity in net assets of the Bank....................... 49,295,266 51,063,276
Interest receivable on investments..................... 78,488 98,905
Dividend receivable from Bank.......................... 1,684,144 1,818,329
Other assets........................................... 1,583,577 563,496
----------- ----------
Total assets......................................... $65,325,345 70,605,876
=========== ==========
Liabilities and stockholders' equity:
Other liabilities...................................... $ 129,855 489,351
Stockholders' equity................................... 65,195,490 70,116,525
----------- ----------
Total liabilities and stockholders' equity........... $65,325,345 70,605,876
=========== ==========
2000 1999 1998
---------- --------- ---------
Condensed Statements of Income
Income:
Equity in earnings of the Bank and
subsidiary.................................. $6,891,058 6,840,653 6,389,428
Interest income.............................. 816,984 1,302,593 1,587,602
Gain on sale of securities................... 126,654 331,433 266,002
---------- --------- ---------
Total income............................... 7,834,696 8,474,679 8,243,032
Expenses:
State and local taxes........................ 44,510 50,720 116,271
Other........................................ 551,387 199,854 181,550
---------- --------- ---------
Total expenses............................. 595,897 250,574 297,821
---------- --------- ---------
Income before income taxes................. 7,238,799 8,224,105 7,945,211
Income taxes (benefit)......................... (121,000) 84,000 216,000
---------- --------- ---------
Net income................................. $7,359,799 8,140,105 7,729,211
========== ========= =========
F-26
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000 1999 1998
----------- ----------- -----------
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income............................ $ 7,359,799 8,140,105 7,729,211
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in earnings of the Bank and
subsidiary......................... (6,891,058) (6,840,653) (6,389,428)
Amortization and accretion.......... 4,609 48,389 77,419
(Increase) decrease in interest
receivable......................... 20,445 71,435 (85,268)
Other, net.......................... (378,085) (235,261) (191,303)
----------- ----------- -----------
Net cash provided by operating
activities....................... 115,710 1,184,015 1,140,631
----------- ----------- -----------
Cash flows from investing activities:
Sales of securities available for
sale................................. 3,158,242 17,388,127 13,648,851
Purchase of securities available for
sale................................. -- (7,690,267) (14,101,273)
Principal receipts on securities
available for sale................... -- -- 595,851
Return of capital..................... 50,000 -- --
Net increase in loans receivable...... (13,733) (1,900,000) --
KSOP loan repayment................... 353,600 353,600 353,600
Dividends from the Bank............... 7,187,820 10,932,286 4,920,924
Additional investment in subsidiary... (925,000) (33,500) (686,500)
Other................................. -- -- (500)
----------- ----------- -----------
Net cash provided by investing
activities....................... 9,810,929 19,050,246 4,730,953
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock............ $(7,072,998) (17,675,478) (5,239,911)
Dividends paid........................ (3,103,246) (3,102,129) (2,900,750)
Proceeds from stock options
exercised............................ 190,209 559,294 336,930
Other................................. 23,833 (10,134) (19,866)
----------- ----------- -----------
Net cash used in financing
activities....................... (9,962,202) (20,228,447) (7,823,597)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents ............ (35,563) 5,814 (1,952,013)
Cash and cash equivalents at beginning
of year................................ 1,007,257 1,001,443 2,953,456
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 971,694 1,007,257 1,001,443
=========== =========== ===========
(15) Pending Merger
On May 23, 2000, the board of directors of FFY, and First Place Financial
Corp. (First Place), the holding company for First Federal Savings and Loan
Association of Warren, entered into a definitive agreement (the Merger
Agreement) to combine in a merger of equals (the Merger). The Merger Agreement
calls for a tax-free exchange of each outstanding share of FFY common stock for
1.075 shares of First Place common stock, with cash paid in lieu of fractional
shares. In addition, pursuant to the Merger Agreement, FFY Bank will merge with
First Federal Savings and Loan Association of Warren to become First Place
Bank.
In connection with the Merger Agreement, FFY and First Place entered into
option agreements pursuant to which each party granted the other party options,
exercisable under certain circumstances, to purchase shares of their respective
common stock in an amount equal to 19.9% of the total number of outstanding
shares of either FFY's or First Place's common stock.
F-27
FFY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Merger will be accounted for as a purchase by First Place and is
expected to close in the fourth quarter of calendar year 2000. The Merger
Agreement has been approved by the boards of directors of both companies.
However, it is subject to certain other conditions, including the approvals of
the shareholders of both companies and the approvals of regulatory authorities.
Included in the Company's results of operations for fiscal year 2000 were
$329,000 in pre-tax expenses for professional fees related to the pending
Merger with First Place.
F-28
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Place Financial Corp.
Warren, OH
We have audited the accompanying consolidated statements of financial
condition of First Place Financial Corp. as of June 30, 2000 and 1999, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 First Place
Financial Corp. as of June 30, 2000 and 1999, and the results of its operations
and cash flows for each of the three years in the period ended June 30, 2000,
in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Cleveland, Ohio
July 14, 2000
F-29
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and 1999
(Dollars in thousands, except share data)
2000 1999
---------- --------
ASSETS
Cash and cash equivalents............................... $ 13,421 $ 5,849
Federal funds sold...................................... 16,222 22,869
Securities available for sale........................... 261,051 249,159
Loans held for sale..................................... 13,071 945
Loans:
Total loans........................................... 711,216 457,414
Less allowance for loan............................... (6,150) (3,623)
---------- --------
Net loans............................................. 705,066 453,791
Premises and equipment, net............................. 10,390 6,181
Accrued interest receivable............................. 4,767 2,357
Intangibles............................................. 13,148
Other assets............................................ 14,441 6,181
---------- --------
Total assets........................................ $1,051,577 $747,332
========== ========
LIABILITIES
Deposits................................................ $ 586,748 $429,225
Securities sold under agreement to repurchase........... 75,000 54,430
Federal Home Loan Bank advances......................... 227,762 94,811
Advances by borrowers for taxes and insurance........... 3,163 2,348
Accrued interest payable................................ 1,930 1,131
Other liabilities....................................... 8,999 7,333
---------- --------
Total liabilities................................... 903,602 589,278
---------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 3,000,000 shares
authorized, no shares issued and outstanding
Common stock, $.01 par value, 33,000,000 shares
authorized, 11,241,250 shares issued................... 112 112
Additional paid-in capital.............................. 109,657 110,230
Retained earnings, substantially restricted............. 62,855 59,042
Unearned employee stock ownership plan shares........... (8,012) (8,693)
Unearned recognition and retention plan shares.......... (4,764)
Treasury stock, at cost, 552,800 shares................. (6,364)
Accumulated other comprehensive income (loss)........... (5,509) (2,637)
---------- --------
Total shareholders' equity............................ 147,975 158,054
---------- --------
Total liabilities and shareholders' equity.......... $1,051,577 $747,332
========== ========
See accompanying notes to consolidated financial statements.
F-30
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 2000, 1999 and 1998
(Dollars in thousands, except share data)
2000 1999 1998
------- ------- -------
Interest income
Loans............................................... $41,221 $32,087 $25,736
Securities.......................................... 3,271 2,126 3,165
Mortgage-backed and related securities.............. 14,014 13,913 13,581
------- ------- -------
Total interest income............................. 58,506 48,126 42,482
------- ------- -------
Interest expense
Deposits............................................ 20,661 18,886 19,860
FHLB advances....................................... 7,914 3,704 3,057
Repurchase agreements............................... 4,082 3,092 2,595
------- ------- -------
Total interest expense............................ 32,657 25,682 25,512
------- ------- -------
Net interest income................................... 25,849 22,444 16,970
Provision for loan losses............................. 2,294 1,062 1,779
------- ------- -------
Net interest income after provision for loan losses... 23,555 21,382 15,191
------- ------- -------
Noninterest income
Service charges..................................... 1,534 1,343 1,085
Security gains (losses), net........................ 25 (48) 135
Gain on sale of loans............................... 332 73
Other............................................... 556 613 531
------- ------- -------
Total noninterest income.......................... 2,447 1,981 1,751
------- ------- -------
Noninterest expense
Salaries and benefits............................... 8,584 6,571 5,471
Occupancy and equipment............................. 2,163 1,828 1,578
Franchise taxes..................................... 857 961 776
Integration and restructuring costs................. 689
FHLB advances termination charges................... 495
Contribution to foundation.......................... 8,026
Other............................................... 3,597 2,811 2,547
------- ------- -------
Total noninterest expense......................... 15,890 20,692 10,372
------- ------- -------
Income before income tax.............................. 10,112 2,671 6,570
Provision for income taxes.......................... 3,298 616 2,498
------- ------- -------
Net income.......................................... $ 6,814 $ 2,055 $ 4,072
======= ======= =======
Basic and diluted earnings (loss) per share since
conversion......................................... $ .75 $ (.02) N/A
======= =======
See accompanying notes to consolidated financial statements.
F-31
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 2000, 1999 and 1998
(Dollars in thousands, except per share data)
Recognition Accumulated
Additional Unearned and Other
Common Paid in Retained ESOP Retention Treasury Comprehensive
Stock Capital Earnings Shares Plan Stock Income Total
------ ---------- -------- -------- ----------- -------- ------------- --------
Balance at July 1,
1997.................... $53,691 $ 56 $ 53,747
Comprehensive income:
Net income.............. 4,072 4,072
Change in unrealized
gain (loss) on
securities available for
sale, net of tax........ 1,538 1,538
--------
Total comprehensive
income................. 5,610
------- ------- --------
Balance at June 30,
1998.................... 57,763 1,594 59,357
Comprehensive income:
Net income.............. 2,055 2,055
Cumulative effect of
securities transferred,
net of tax.............. 172 172
Change in unrealized
gain (loss) on
securities available for
sale, net of tax........ (4,403) (4,403)
--------
Total comprehensive
income................. (2,176)
Issuance of common
shares.................. $112 $110,200 110,312
Cash dividends declared
($.075 per share)....... (776) (776)
Employee stock ownership
plan shares purchased
(899,300 shares)........ $(8,993) (8,993)
Commitment to release
employee stock ownership
plan shares
(30,000 shares)......... 30 300 330
---- -------- ------- ------- ------- --------
Balance at June 30,
1999.................... 112 110,230 59,042 (8,693) (2,637) 158,054
Comprehensive income:
Net income.............. 6,814 6,814
Change in unrealized
gain (loss) on
securities available for
sale, net of tax........ (2,872) (2,872)
--------
Total comprehensive
income................. 3,942
Cash dividends declared
($.325 per share)....... (3,001) (3,001)
Commitment to release
employee stock ownership
plan shares
(68,079 shares)......... 72 681 753
Recognition and
retention plan shares
purchased (449,650
shares)................. $(5,955) (5,955)
Commitment to release
recognition and
retention plan shares
(89,928 shares)......... 1,191 1,191
Purchase of 2,630,300
shares of common stock.. $(30,900) (30,900)
Reissuance of 2,077,500
shares of common stock
for acquisition......... (645) 24,536 23,891
---- -------- ------- ------- ------- -------- ------- --------
Balance at June 30,
2000.................... $112 $109,657 $62,855 $(8,012) $(4,764) $ (6,364) $(5,509) $147,975
==== ======== ======= ======= ======= ======== ======= ========
See accompanying notes to consolidated financial statements.
F-32
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
--------- --------- --------
Cash flows from operating activities
Net income.................................... $ 6,814 $ 2,055 $ 4,072
Adjustments to reconcile net income to net
cash from operating activities
Depreciation................................ 1,033 865 738
Provision for loan losses................... 2,294 1,062 1,779
Net amortization............................ 146 649 282
Investment security (gains) losses.......... (25) 48 (135)
Loss on disposal of fixed assets............ 218 27
FHLB stock dividend......................... (547) (368) (352)
Contribution of common stock to foundation.. 8,026
ESOP expense................................ 753 330
RRP Expense................................. 1,191
Change in
Loans held for sale....................... (57) (945)
Interest receivable and other assets...... (4,011) (3,253) (80)
Interest payable and other liabilities.... (225) 2,522 884
Deferred loan fees........................ (380) 548 4
Deferred taxes............................ (726) (2,512) (420)
--------- --------- --------
Net cash from operating activities...... 6,478 9,054 6,772
--------- --------- --------
Cash flows from investing activities
Securities available for sale
Proceeds from sales......................... 54,438 34,421 37,052
Proceeds from maturities, calls and
principal paydowns......................... 31,390 67,302 41,985
Purchases................................... (63,168) (118,203) (85,698)
Securities held to maturity
Proceeds from maturities, calls and
principal paydowns......................... 1,226 16,438
Net cash received in acquisition.............. 1,764
Net decrease (increase) in fed funds sold..... 6,647 (21,304) (1,355)
Purchases of Federal Home Loan Bank Stock..... (1,497) (1,165)
Redemption of Federal Home Loan Bank Stock.... 830
Net increase in loans......................... (114,761) (102,389) (69,583)
Premises and equipment expenditures, net...... (1,436) (1,174) (191)
--------- --------- --------
Net cash from investing activities...... (86,623) (141,286) (60,522)
--------- --------- --------
See accompanying notes to consolidated financial statements.
F-33
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Years ended June 30, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
-------- -------- --------
Cash flows from financing activities
Net change in deposits........................... $ 39,201 $ (6,237) $ 22,528
Net change in advances by borrowers for taxes and
insurance....................................... 815 365 282
Net change in repurchase agreements.............. 20,570 (6,000) 44,430
Net proceeds from issuance of common stock....... 93,293
Cash dividends paid.............................. (2,791)
Purchase of treasury stock....................... (30,900)
Contribution to recognition and retention plan... (5,955)
Net change in overnight borrowings............... 87,987 51,525
Proceeds from FHLB borrowings.................... 43,000 14,000 57,075
Repayment of FHLB borrowings..................... (64,210) (15,534) (70,653)
-------- -------- --------
Net cash from financing activities............... 87,717 131,412 53,662
-------- -------- --------
Net change in cash and cash equivalents.......... 7,572 (820) (88)
Cash and cash equivalents at beginning of year... 5,849 6,669 6,757
-------- -------- --------
Cash and cash equivalents at end of year......... $ 13,421 $ 5,849 $ 6,669
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest..................................... $ 31,858 $ 25,641 $ 25,127
Income taxes................................. 4,305 3,408 2,745
Non-cash transfer of securities from held to
maturity to available for sale................ 27,039
Acquisition of Ravenna Savings through
reissuance of treasury stock.................. 23,891
See accompanying notes to consolidated financial statements.
F-34
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
(Dollar amounts are in thousands, except per share data)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated
financial statements include First Place Financial Corp. and its wholly-owned
subsidiary, First Federal Savings and Loan Association of Warren ("the
Association"), together referred to as "the Company". Intercompany transactions
and balances have been eliminated in consolidation.
The Company provides financial services through its main office in Warren,
Ohio, sixteen branch locations and six loan production offices. Its primary
deposit products are checking, savings, and term certificate accounts and its
primary lending products are residential mortgage, commercial, and installment
loans. Substantially all loans are secured by specific items of collateral
including real estate, consumer assets and business assets. Commercial loans
are expected to be repaid from cash flow from operations of businesses. Real
estate loans are secured by both residential and commercial real estate. The
majority of the Company's income is derived from one-to four-family residential
real estate loans and mortgage-backed securities.
Business Segments: While the Company's chief decision-makers monitor the
revenue streams of the various Company products and services, operations are
managed and financial performance is evaluated on a Company-wide basis.
Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. Areas involving the use of
management's estimates and assumptions include the allowance for loan losses,
fair values of financial instruments, the realization of deferred tax assets,
the carrying value of impaired loans, the carrying value and amortization of
intangibles, depreciation of premises and equipment, the amortization and value
of mortgage servicing rights, the actuarial present value of pension benefit
obligations and the net periodic pension expense and prepaid pension costs
recognized in the consolidated financial statements.
Cash and Cash Equivalents: Cash and cash equivalents includes cash and
deposits with other financial institutions under 90 days. Net cash flows are
reported for loan and deposit transactions.
Securities: Securities are classified into held-to-maturity and available-
for-sale categories. Held-to-maturity securities are those that the Company has
the positive intent and ability to hold to maturity, and are reported at
amortized cost. Available-for-sale securities are those that the Company may
decide to sell if needed for liquidity, asset-liability management, or other
reasons. Available-for-sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of equity, net of
tax.
Realized gains or losses on sales are determined based on the amortized cost
of the specific security sold. Interest income includes amortization of
purchase premium or discount. Securities are written down to fair value when a
decline in fair value is not temporary.
Loans: Interest income on loans is accrued over the term of the loans based
upon the principal outstanding. The accrual of interest on loans is suspended
when, in management's opinion, the collection of all or a portion of the loan
principal has become doubtful. When a loan is placed on nonaccrual status,
accrued and unpaid interest at risk is charged against income. Under Statement
of Financial Accounting Standards ("SFAS") No. 114, as amended by SFAS No. 118,
the carrying value of impaired loans is periodically adjusted
F-35
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to reflect cash payments, revised estimates of future cash flows and increases
in the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such and other cash
payments are reported as reductions in carrying value. Increases or decreases
in carrying value due to changes in estimates of future payments or the passage
of time are reported as reductions or increases in bad debt expense.
Loan fees, net of direct loan origination costs, are deferred and recognized
over the life of the loan as a yield adjustment.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover probable losses based on past loss experience, general
economic conditions, information about specific borrower situations including
their financial position and collateral values, and other factors and estimates
which are subject to change over time. While management may periodically
allocate portions of the allowance for specific problem-loan situations, the
whole allowance is available for any loan charge-offs that occur. A loan is
charged-off against the allowance by management when deemed uncollectible,
although collection efforts continue and future recoveries may occur.
A loan is impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans are carried at the present value of expected cash
flows discounted at the loan's effective interest rate or at the fair value of
the collateral if the loan is collateral dependent.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one- to four-
family residences, residential construction loans and automobile, home equity
and second mortgages. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment.
When analysis of borrower operating results and financial condition
indicates that underlying cash flows of the borrower's business are not
adequate to meet its debt service requirements, the loan is evaluated for
impairment. Often this is associated with a delay or shortfall in payments of
30 days or more. Loans are generally moved to nonaccrual status when 90 days or
more past due or when collection of principal or interest is in doubt. These
loans are often also considered impaired. Impaired loans, or portions thereof,
are charged off when deemed uncollectible.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure
are initially recorded at fair value when acquired, establishing a new cost
basis. If fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful lives
on an accelerated basis, except for buildings for which the straight-line basis
is used. Maintenance and repairs are expensed and major improvements are
capitalized.
Long-term Assets: Premises and equipment and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at discounted amounts.
Servicing Rights: Servicing rights are recognized as assets for purchased
rights and for the allocated value of retained servicing rights on loans sold.
Servicing rights are expensed in proportion to, and over the
F-36
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
period of, estimated net servicing revenues. Impairment is evaluated based on
the fair value of the rights, using groupings of the underlying loans as to
interest rates and then, secondarily, as to prepayment characteristics. Fair
value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Any impairment of a grouping is reported as a
valuation allowance.
Intangibles: Purchased intangibles, primarily goodwill, are recorded at cost
and amortized over their estimated lives. Goodwill amortization is straight-
line over 20 years. The purchase premium or discount for the fair value
adjustment of the assets acquired and liabilities assumed is being amortized
over the estimated life of the asset acquired or liability assumed. Goodwill
and identified intangibles are assessed for impairment and written down if
necessary.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but
not yet allocated to participants is shown as a reduction of shareholders'
equity. Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce shareholders' equity; dividends on unearned ESOP shares reduce
debt and accrued interest.
Financial Instruments: Financial instruments include off-balance sheet
credit instruments, such as commitments to make loans and standby letters of
credit, issued to meet customer financing needs. The face amount for these
items represents the exposure to loss, before considering customer collateral
or ability to repay. Such financial instruments are recorded when they are
funded.
Derivatives designated as hedges include interest rate swaps, which are
entered into primarily for asset-liability management. Gains and losses on
interest rate swaps are recognized as cash payments occur. The notional amount
is used to calculate amounts to be paid but typically does not represent loss
exposure.
Derivative Instruments and Hedging Activities: All derivative instruments
are recorded at their fair values. If derivative instruments are designated as
hedges of fair values, both the change in the fair value of the hedge and the
hedged item are included in current earnings. Fair value adjustments related to
cash flow hedges are recorded in other comprehensive income and reclassified to
earnings when the hedged transaction is reflected in earnings. Ineffective
portions of hedges are reflected in income currently.
Income Taxes: The Company records income tax expense based on the amount of
tax due on its tax return plus the change during the period in deferred taxes
computed based on the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, using
enacted tax rates.
Earnings Per Common Share: Basic earnings per common share is net income
divided by the weighted average number of common shares outstanding during the
period. ESOP shares are considered outstanding for this calculation unless
unearned. Recognition and Retention Plan ("RRP") shares are considered
outstanding as they become vested. Diluted earnings per common share include
the dilutive effect of RRP shares and the additional potential common shares
issuable under stock options. Basic and diluted earning (loss) per share for
the year ended June 30, 1999 were computed based on earnings from the period
December 31, 1998 (conversion date) to June 30, 1999, divided by the weighted
average number of common shares outstanding for the period. Earnings per share
information for the year ended June 30, 1998 is not meaningful since the mutual
to stock conversion was not consummated until December 31, 1998.
Stock Compensation: Employee compensation expense under stock option plans
is reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of Statement of Financial Accounting Standards ("SFAS") No. 123 to
measure expense for the options granted using an option pricing model to
estimate fair value.
F-37
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity.
Fair Value of Financial Instruments: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Financial Statement Presentation: Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 2000
presentation.
NOTE 2--ACQUISITION
On May 12, 2000, the Company acquired The Ravenna Savings Bank ("Ravenna
Savings") by reissuing from treasury stock 2,077,500 shares of stock. The
shares issued were valued at approximately $23.9 million on the date the
transaction was consummated. Ravenna Savings operated as a state chartered
savings bank with 5 offices located in Ravenna, Ohio and its surrounding areas.
Total assets prior to the merger were $201 million which included $152 million
of loans funded with $123 million of deposits and $67 million of FHLB advances.
The transaction was recorded as a purchase and, accordingly, the operating
results of Ravenna Savings have been included in the company's consolidated
financial statement since the date of acquisition. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $13.2 million is being amortized over 20 years.
The following summarized unaudited pro forma financial information for the
years ended June 30, 2000 and 1999 assume the Ravenna Savings acquisition
occurred as of July 1, 1998 (in thousands, except per share data):
2000 1999
------- -------
Net interest income after provision for loan losses...... $27,611 $24,405
Net income............................................... 6,085 2,455
Basic and diluted earnings per share..................... $ 0.55 $ 0.24
These amounts include Ravenna Savings actual results in 1999 and for the
first 10 1/2 months of 2000 prior to the acquisition and actual results for the
1 1/2 month in 2000 after the acquisition. The pro forma results do not
necessarily represent results which would have occurred if the acquisition had
taken place on the basis assumed above, nor are they indicative of the results
of future combined operations.
F-38
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses and estimated fair
values of securities available for sale at June 30, 2000 and 1999 are as
follows:
2000
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Debt securities
U.S. Government agencies.......... $ 26,996 $ (292) $ 26,704
Obligations of states and
political subdivisions........... 6,368 $ 23 (103) 6,288
-------- ------ ------- --------
33,364 23 (395) 32,992
-------- ------ ------- --------
Equity securities
Federal Home Loan Bank stock...... 11,413 11,413
FNMA and FHLMC preferred stock.... 17,732 (25) 17,707
-------- ------ ------- --------
29,145 (25) 29,120
-------- ------ ------- --------
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC............................. 86,419 197 (2,525) 84,091
FNMA.............................. 62,104 109 (3,387) 58,826
GNMA.............................. 57,901 34 (2,398) 55,537
Other............................. 483 2 485
-------- ------ ------- --------
206,907 342 (8,310) 198,939
-------- ------ ------- --------
$269,416 $ 365 $(8,730) $261,051
======== ====== ======= ========
1999
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Debt securities
U.S. Government agencies.......... $ 22,127 $ 33 $ (86) $ 22,074
Obligations of states and
political subdivisions........... 6,737 45 (88) 6,694
-------- ------ ------- --------
28,864 78 (174) 28,768
-------- ------ ------- --------
Equity Securities
Federal Home Loan Bank stock...... 5,947 5,947
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC............................. 95,644 718 (1,726) 94,636
FNMA.............................. 75,008 425 (1,678) 73,755
GNMA.............................. 47,033 161 (1,805) 45,389
Other............................. 658 6 664
-------- ------ ------- --------
218,343 1,310 (5,209) 214,444
-------- ------ ------- --------
$253,154 $1,388 $(5,383) $249,159
======== ====== ======= ========
F-39
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost and estimated fair value of debt securities at June 30,
2000, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
--------- ---------
Available for sale
Due in one year or less.............................. $ 12,182 $ 12,096
Due after one year through five years................ 5,756 5,682
Due after five years through ten years............... 15,426 15,214
-------- --------
$ 33,364 $ 32,992
======== ========
Mortgage-backed securities and collateralized
mortgage obligations................................ $206,907 $198,939
======== ========
$240,271 $231,931
======== ========
Proceeds from the sale of debt securities for the years ended June 30, 2000
and 1999 were $54,438 and $34,421. Gross gains of $67 and $103 and gross losses
of $42 and $151 were realized on sales of securities in 2000 and 1999.
Investment and mortgage-backed securities with a carrying value of $125,600
and $93,372 as of June 30, 2000 and 1999 were pledged to secure public
deposits, repurchase agreements and for other purposes as required or permitted
by law.
On October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities". SFAS No. 133 allows the
Company a one-time reclassification of securities held to maturity to
classification as available for sale or trading. The Company transferred
securities with an amortized cost of $27,039 previously classified as held to
maturity to available for sale upon adoption. The unrealized gain on the
securities transferred totaled $260. On October 1, 1998, the Bank's equity
increased $172 as a result of the transfer.
F-40
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at June 30:
2000 1999
-------- --------
Real estate mortgage loans
One- to four- family.................................. $527,543 $357,374
Multifamily........................................... 17,068 4,804
Commercial............................................ 27,787 10,192
Construction.......................................... 45,770 13,993
Home equity........................................... 17,768 8,944
-------- --------
635,936 395,307
Consumer and other loans
Automobile............................................ 62,694 53,243
Home equity lines of credit........................... 25,584 17,226
Other................................................. 2,679 1,991
-------- --------
90,957 72,460
Commercial loans........................................ 9,092 1,925
Less:
Loans in process...................................... 23,250 10,411
Net deferred loan origination fees.................... 1,519 1,867
Allowance for loan losses............................. 6,150 3,623
-------- --------
30,919 15,901
-------- --------
$705,066 $453,791
======== ========
A summary of the activity in the allowance for loan losses is as follows:
2000 1999 1998
------ ------ ------
Balance at beginning of period..................... $3,623 $3,027 $1,723
Provision for loan losses.......................... 2,294 1,062 1,779
Acquisition........................................ 822
Charge-offs........................................ (720) (542) (515)
Recoveries......................................... 131 76 40
------ ------ ------
Balance at end of period........................... $6,150 $3,623 $3,027
====== ====== ======
Impaired loans were as follows:
2000
--------
Year-end loans with no allocated allowance for loan losses....... $ --
Year-end loans with allocated allowance for loan losses.......... 881,000
--------
Total.......................................................... $881,000
========
Amount of the allowance for loan losses allocated................ $500,000
Average of impaired loans during the year........................ $110,000
Interest income recognized during impairment..................... $ --
Cash-basis interest income recognized............................ $ --
F-41
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There were no loans classified as impaired at or during the year ended June
30, 1999. Nonaccrual loans totaled $6,566 and $1,574 at June 30, 2000 and 1999.
Interest not recognized on nonaccrual loans totaled approximately $531, $90 and
$94 for the years then ended June 30, 2000, 1999 and 1998.
NOTE 5--SECONDARY MORTGAGE MARKET ACTIVITIES
Loans serviced for others, which are not reported as assets, total $208,381
at June 30, 2000.
Activity for capitalized mortgage servicing rights was as follows:
2000
------
Servicing rights:
Beginning of year.................................................. $ --
Acquired from Ravenna Savings...................................... 2,508
Amortized to expense............................................... (20)
------
End of year........................................................ $2,488
======
The Company had no servicing rights during 1999. In addition, the Company
did not have a valuation allowance associated with loan servicing rights at any
time during 2000.
NOTE 6--RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to
executive officers, directors, and their related business interests. A summary
of related party loan activity is as follows for the year ended June 30, 2000:
Balance at beginning of period..................................... $ 845
New loans.......................................................... 218
Repayments......................................................... (34)
------
Balance at end of period........................................... $1,029
======
NOTE 7--PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
2000 1999
------- -------
Land and improvements.................................... $ 2,406 $ 1,090
Buildings and improvements............................... 6,964 4,542
Leasehold improvements................................... 764 996
Furniture and equipment.................................. 7,066 5,261
Construction in process.................................. 300 438
------- -------
Total cost............................................. 17,500 12,327
Accumulated depreciation................................. (7,110) (6,146)
------- -------
$10,390 $ 6,181
======= =======
F-42
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At June 30, 2000, the Company is obligated for rental commitments under non-
cancelable operating leases on real estate and equipment as follows:
2001............................................................... $239
2002............................................................... 204
2003............................................................... 125
2004............................................................... 79
2005............................................................... 39
Thereafter......................................................... 31
----
$717
====
NOTE 8--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, is summarized as follows:
2000 1999
------ ------
Investment securities....................................... $ 741 $ 381
Mortgage-backed and related securities...................... 1,039 1,062
Loans receivable............................................ 2,987 914
------ ------
$4,767 $2,357
====== ======
NOTE 9--DEPOSITS
Deposits consist of the following:
2000 1999
-------- --------
Noninterest-bearing demand.............................. $ 11,088 $ 5,740
Savings................................................. 76,230 66,629
NOW..................................................... 44,757 36,082
Money Market............................................ 108,299 76,694
Certificates of deposit................................. 346,374 244,080
-------- --------
$586,748 $429,225
======== ========
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 is $75,980 and $50,854 at June 30, 2000 and 1999.
At June 30, 2000, scheduled maturities of certificates of deposit are as
follows:
2001........................................................... $216,587
2002........................................................... 67,635
2003........................................................... 35,575
2004........................................................... 8,076
2005........................................................... 10,860
Thereafter..................................................... 7,641
--------
$346,374
========
F-43
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest expense on deposits is summarized as follows:
2000 1999 1998
------- ------- -------
Savings............................................. $ 1,392 $ 1,465 $ 1,661
NOW................................................. 518 471 557
Money Market........................................ 4,045 3,234 2,744
Certificates of deposit............................. 14,706 13,716 14,898
------- ------- -------
$20,661 $18,886 $19,860
======= ======= =======
NOTE 10--SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by mortgage-
backed securities with a carrying value and fair value of approximately $83,997
at June 30, 2000 and $58,110 at June 30, 1999.
Securities sold under agreements to repurchase are financing arrangements
that mature within three years. At maturity, the securities underlying the
agreements are returned to the Company. Information concerning securities sold
under agreements to repurchase is summarized as follows:
2000 1999
------- -------
Average daily balance during the year...................... $70,632 $53,800
Average interest rate during the year...................... 5.78% 5.63%
Maximum month-end balance during the year.................. $75,000 $60,430
NOTE 11--FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank at year-end were as follows:
2000 1999
---------------------- ---------------------
Year of Maturity Interest Rate Amount Interest Rate Amount
---------------- ------------- -------- ------------- -------
2000.................... 5.178-6.00% $74,325
2001.................... 6.45% $157,146 4.95 6,000
2002.................... 6.17 21,350
2003.................... 6.05 9,340 5.20-5.59 9,763
2004.................... 5.20-5.30 1,923
2006.................... 6.42 5,800 6.20 2,800
2008.................... 6.20 2,000
2009.................... 5.07 3,500
2010.................... 6.18 28,000
2014.................... 5.00 626
-------- -------
$227,762 $94,811
======== =======
At June 30, 2000, scheduled principal payments on FHLB advances are as
follows:
Year ended June 30,
-------------------
2001......................................................... $157,950
2002......................................................... 22,196
2003......................................................... 7,733
2004......................................................... 16
2005......................................................... 17
Thereafter................................................... 39,850
--------
$227,762
========
F-44
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All advances are collateralized by a blanket collateral of the Company's
FHLB stock and certain residential mortgage loans. At June 30, 2000 and 1999,
securities and loans totaling $342,400 and $142,200 were pledged under the
blanket collateral agreement. Based on the Company investment in FHLB stock,
the maximum dollar amount of FHLB advance borrowings available at June 30, 2000
was $228,268.
NOTE 12--INCOME TAXES
The provision for income taxes consists of the following:
2000 1999 1998
------ ------- ------
Current provision................................... $4,024 $ 3,128 $2,918
Deferred provision (benefit)........................ (726) (2,512) (420)
------ ------- ------
$3,298 $ 616 $2,498
====== ======= ======
The differences between the financial statement provision and amounts
computed by applying the statutory federal income tax rate of 35% to income
before taxes are as follows:
2000 1999 1998
------ ----- ------
Income tax computed at the statutory federal rate... $3,539 $ 908 $2,302
Add (subtract) tax effect of miscellaneous items.... (241) (292) 196
------ ----- ------
$3,298 $ 616 $2,498
====== ===== ======
The tax effects of principal temporary differences and the resulting
deferred tax assets and liabilities that comprise the net deferred tax balance
are as follows at June 30:
2000 1999
------- -------
Items giving rise to deferred tax assets:
Deferred loan fees and costs............................. $ 590 $ 693
Charitable contribution carryforward..................... 1,971 2,358
Bad debts................................................ 1,416 352
Nonaccrual loan interest................................. 186 31
Accrued stock awards..................................... 417 --
Deferred compensation.................................... 89 69
Unrealized loss on securities available for sale......... 2,928 1,358
Other.................................................... 44 32
------- -------
7,641 4,893
Items giving rise to deferred tax liabilities:
FHLB stock dividend...................................... (1,297) (731)
Franchise taxes.......................................... (277) (139)
Depreciation............................................. (756) (624)
Purchase accounting adjustment........................... (1,047) --
Loan servicing........................................... (580) --
Other.................................................... -- (4)
------- -------
(3,957) (1,498)
------- -------
Net deferred asset..................................... $ 3,684 $ 3,395
======= =======
The Company has sufficient taxes paid in prior years and available for
recovery and expected future taxable income sufficient to warrant recording the
full deferred tax asset without a valuation allowance.
F-45
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Retained earnings at June 30, 2000, include approximately $11,590 for which
no provision for federal income taxes has been made. This amount represents the
tax bad debt reserve at June 30, 1988, which is the end of the Company's base
year for purposes of calculating the bad debt deduction for tax purposes. If
this portion of retained earnings is used in the future for any purpose other
than to absorb bad debts, the amount used will be added to future taxable
income. The unrecorded deferred tax liability on the above amount at June 30,
2000 was approximately $4,056.
Tax expense (benefit) attributable to securities gains (losses) approximated
$9, ($16) and $46 for the years ended June 30, 2000, 1999 and 1998.
NOTE 13--EMPLOYEE BENEFIT PLANS
The Company sponsors a defined benefit pension plan that covers
substantially all employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Company
and compensation rates near retirement. Contributions to the plan reflect
benefits attributed to employees' services to date, as well as services
expected to be earned in the future. Plan assets consist primarily of
certificates of deposits with the Company and insurance contracts.
Information about the pension plan was as follows.
2000 1999
------- -------
Change in benefit obligation:
Beginning benefit obligation............................ $ 5,013 $ 3,943
Service cost............................................ 97 300
Interest cost........................................... 176 232
Actuarial gain.......................................... (252) 679
Benefits paid........................................... (97) (141)
Plan curtailment........................................ (2,365)
------- -------
Ending benefit obligation............................... 2,572 5,013
Change in plan assets, at fair value:
Beginning plan assets................................... 1,784 1,416
Actual return........................................... 97 143
Employer contribution................................... 12 366
Benefits paid........................................... (97) (141)
------- -------
Ending plan assets...................................... 1,796 1,784
------- -------
Funded status............................................. (776) (3,229)
Unrecognized net actuarial loss........................... 0 2,262
Unrecognized prior service cost........................... 0 75
------- -------
Accrued benefit cost...................................... $ (776) $ (892)
======= =======
F-46
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of pension expense and related actuarial assumptions were as
follows.
2000 1999 1998
----- ---- ----
Service cost.............................................. $ 97 $300 $226
Interest cost............................................. 176 232 225
Expected return on plan assets............................ (127) (79) (35)
Amortization of prior service cost........................ 9 (42)
Recognized net actuarial (gain) loss...................... 27 37
----- ---- ----
Net..................................................... $ 173 $499 $374
===== ==== ====
Discount rate on benefit obligation....................... 5.37% 5.95% 6.93%
Long-term expected rate of return on plan assets.......... 7.00 7.00 7.00
Rate of compensation increase............................. n/a 5.00 5.00
In June 1999, the Company's Board of Directors approved a resolution
terminating the Company's defined benefit pension plan. In June 1999, the Board
of Directors approved ceasing the accumulation of future benefits to plan
participants. The settlement of vested plan benefits will occur upon receipt of
a determination letter from the Commissioner approving the plan termination.
Participants may choose a lump sum payment, the purchase of a nontransferable
deferred annuity contract or a transfer to the 401 (k) plan.
NOTE 14--EMPLOYEE STOCK OWNERSHIP PLAN
During 1999, the Company established an Employee Stock Ownership Plan
("ESOP") for the benefit of employees 21 and older and who have completed at
least one thousand hours of service. Contributions under the ESOP are
conditioned upon the ESOP being qualified under Sections 401 and 501 of the
Internal Revenue code of 1986, as amended (the "Code").
To fund the plan, the ESOP borrowed $8,993 from the Company for the purposes
of purchasing 899,300 shares of stock at $10 per share in the conversion.
Principal and interest payments on the loan are due in annual installments
which begin December 31, 1999 with the final payments of principal and interest
being due and payable at maturity on December 31, 2013. Interest is payable
during the term of the loan at a fixed rate of 7.75%. The loan is
collateralized by the shares of the Company's common stock purchased with the
proceeds. As the Bank periodically makes contributions to the ESOP to repay the
loan, shares will be allocated to participants on the basis of the ratio of
each year's principal and interest payments to the total of all principal and
interest payments. Dividends on allocated shares increase participant accounts.
ESOP compensation expense was $753 and $330 for 2000 and 1999.
Shares held by the ESOP at June 30 were as follows:
2000 1999
------- -------
Shares allocated to participants.......................... 68,079 30,000
Unearned shares........................................... 801,221 869,300
------- -------
Total ESOP shares....................................... 899,300 899,300
======= =======
Fair value of unearned shares........................... $ 8,613 $10,704
======= =======
F-47
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15--STOCK OPTION PLAN
On July 2, 1999 the Board of Directors granted options to purchase 1,007,600
common shares at an exercise price of $12.31 to certain officers and directors
of the Bank and Company; of these options granted, 587,000 were incentive stock
options and 420,600 were nonqualified options. The maximum number of Common
Shares that may be issued under the plan is 1,124,125. The Plan provides for
the grant of options, which may qualify as either incentive stock options or
nonqualified options. One-fifth of the options awarded become exercisable on
each of the first five anniversaries of the date of grant. The option period
expires 10 years from the date of grant. No options were exercisable during
2000. In addition 116,525 shares of authorized but unissued common stock are
reserved for which no options have been granted.
2000
-----
Weighted-average fair value of options granted during year:
Qualified......................................................... $3.38
Non-qualified..................................................... 2.24
Had compensation cost for stock options been measured using FASB Statement
No. 123, net income and earnings per share would have been the proforma amounts
indicated below. The proforma effect may increase in the future if more options
are granted.
Net income as reported............................................. $6,814
Pro forma net income............................................... 6,229
Basic and diluted earnings per share as reported................... $ .75
Pro forma basic and diluted earnings per share..................... .69
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
Qualified Non-Qualified
--------- -------------
Risk-free interest rate............................ 5.82% 5.70%
Expected option life............................... 9 years 4 years
Expected stock price volatility.................... 17.41% 17.41%
Dividend yield..................................... 2.40% 2.40%
NOTE 16--RETENTION RECOGNITION PLAN
The Company maintains a retention recognition plan for the benefits of
directors and certain key employees of the Company. The retention recognition
plan is used to provide such individuals ownership interest in the Company in a
manner designed to compensate such directors and key employees for services.
The Company contributed sufficient funds to enable the stock based incentive
plan to purchase a number of common shares in the open market equal to 4% of
the common shares sold in connection with the conversion.
On July 2, 2000 a Committee of the Board of Directors awarded 449,650 shares
to certain directors and officers of the Company. No shares had been previously
awarded. One-fifth of such shares will be earned and nonforfeitable on each of
the first five anniversaries of the date of the awards. In the event of the
death or disability of a participant or a change in control of the Company, the
participant's shares will be deemed to be entirely earned and nonforfeitable
upon such date. There were no shares at June 30, 2000 reserved for future
awards. Compensation expense is based on the cost of the shares, which
approximates fair value at the date of grant, and was $1,191 for 2000.
F-48
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 17--COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The Company's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Company follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of June 30, 2000, variable rate commitments to make loans or fund
outstanding lines of credit amounted to $41.4 million and fixed-rate
commitments amounted to $6.3 million. The interest rates on variable-rate
commitments ranged from 6.99% to 19.75% and interest rates on fixed-rate
commitments ranged from 7.88% to 9.88% at June 30, 2000. As of June 30, 1999,
commitments to extend credit totaled approximately $38.3 million. Since loan
commitments may expire without being used, the amounts do not necessarily
represent future cash commitments.
NOTE 18--HEDGING ACTIVITIES
The Company is involved in certain hedging strategies which are intended to
improve the predictability of future transactions. These activities include
protecting the cash flow of certain of its short-term variable rate borrowings
against interest rate movements and entering into long-term fixed rate
borrowings to fix the dollar amounts to be paid.
With respect to hedging activities to protect the predictability of future
cash flows as it pertains to its borrowings, the Company has entered into an
agreement to assume fixed interest payments in exchange for variable interest
payments. The Company has demonstrated this to be a cash flow hedge of its
borrowings and includes the change in the fair value in other comprehensive
income until such time as the impact of the hedged item is included in
earnings.
The Company entered into an agreement during 2000 to assume fixed interest
payments in exchange for variable interest payments (interest rate swaps). The
notional amount of the interest rate swap does not represent amounts exchanged
by the parties. The amount exchanged is determined by reference to the notional
amount and the other terms of the interest rate swap. The interest rate swap
was designated as a cash flow hedge. The following table summarizes the terms
of the swap at June 30, 2000.
Notional amount.......................................... $10,000
Final expiration......................................... January 11, 2005
Fixed rate............................................... 6.64%
Variable rate in effect at June 30, 2000................. 6.65%
Market value at June 30, 2000............................ $ 19
Variable interest payments received are based on the one month LIBOR rates
which is adjusted on a monthly basis. The expense from this agreement recorded
in 2000 was approximately $107.
NOTE 19--REGULATORY CAPITAL
The Association is subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts
F-49
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and classifications are also subject to qualitative judgments by regulators
about components, risk weightings, and other factors, and the regulators can
lower classifications in certain cases. Failure to meet various capital
requirements can initiate regulatory action that could have a direct material
effect on the financial statements.
Under Office of Thrift Supervision ("OTS") regulations, limitations have
been imposed on all capital distributions, including cash dividends. The
regulation establishes a three-tiered system of restrictions, with the
greatest flexibility afforded to thrifts which are both well-capitalized and
given favorable qualitative examination ratings by the OTS.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is asset
growth and expansion, and plans for capital restoration are required. The
minimum requirements are:
Capital to risk-
weighted assets
------------------ Tier 1 capital
Total Tier 1 to average assets
-------- -------- -----------------
Well capitalized.................... 10% 6% 5%
Adequately capitalized.............. 8% 4% 4%
Undercapitalized.................... 6% 3% 3%
At year end, actual capital levels of the Association (in thousands) and
minimum required levels were:
Minimum Required To
Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
-------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ---------- -------- ---------- --------
2000
Total capital (to risk
weighted assets)....... $ 92,539 15.3% $ 48,480 8.0% $ 60,600 10.0%
Tier 1 capital (to risk
weighted assets)....... $ 87,649 14.5% $ 24,240 4.0% $ 36,360 6.0%
Tier 1 capital (to
adjusted total
assets)................ $ 87,649 8.8% $ 40,063 4.0% $ 50,078 5.0%
Tangible capital (to
adjusted total
assets)................ $ 87,649 8.8% $ 15,023 1.5%
1999
Total capital (to risk
weighted assets)....... $101,358 30.1% $ 26,918 8.0% $ 33,648 10.0%
Tier 1 capital (to risk
weighted assets)....... $ 98,106 29.2% $ 13,459 4.0% $ 20,189 6.0%
Tier 1 capital (to
adjusted total
assets)................ $ 98,106 14.1% $ 27,871 4.0% $ 34,839 5.0%
Tangible capital (to
adjusted total
assets)................ $ 98,106 14.1% $ 10,452 1.5% N/A
F-50
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 20--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
value of the Company's financial instruments at June 30, 2000 and 1999:
2000 1999
-------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
Assets
Cash and cash equivalents......... $ 13,421 $ 13,421 $ 5,849 $ 5,849
Federal funds sold................ 16,222 16,222 22,869 22,869
Securities available for sale..... 261,051 261,051 249,159 249,159
Loans held for sale............... 13,071 13,071 945 945
Loans receivable, net............. 705,066 697,478 453,791 452,135
Accrued interest receivable....... 4,767 4,767 2,357 2,357
Liabilities
Demand and savings deposits....... $(240,374) $(240,374) $(185,145) $(185,145)
Time deposits..................... (346,374) (347,986) (244,080) (244,322)
Repurchase agreements............. (75,000) (74,233) (54,430) (54,780)
FHLB advances..................... (227,762) (234,526) (94,811) (94,652)
Advances by borrowers for taxes
and insurance.................... (3,163) (3,163) (2,348) (2,348)
Accrued interest payable.......... (1,930) (1,930) (1,131) (1,131)
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents
and federal funds sold is considered to approximate cost. The estimated fair
value of investment and mortgage-backed securities is based on quoted market
values for the individual securities or for equivalent securities. Carrying
value is considered to approximate fair value for loans that contractually
reprice at intervals of six months or less, for short-term borrowings, for
deposit liabilities subject to immediate withdrawal and accrued interest. The
fair values of fixed rate loans, loans that reprice less frequently than each
six months, time deposits and Federal Home Loan Bank borrowings have been
approximated by a discount rate value technique utilizing estimated market
interest rates as of June 30, 2000 and 1999. The fair values of unrecorded
commitments and the interest rate swap at June 30, 2000 and 1999 are not
material.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at June 30, 2000 and 1999, the estimated fair
values would necessarily have been achieved at these dates, since market values
may differ depending on various circumstances. The estimated fair values at
June 30, 2000 and 1999 should not necessarily be considered to apply at
subsequent dates.
Other assets and liabilities of the Company may have value but are not
included in the above disclosures, such as property and equipment. In addition,
nonfinancial instruments typically not recognized in these financial statements
nevertheless may have value, but are not included in the above disclosures.
These include, among other items, the estimated earnings power of core deposit
accounts, the value of a trained work force, customer goodwill, and similar
items.
F-51
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 21--PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEET
June 30, 2000 and 1999
2000 1999
-------- --------
ASSETS
Cash and cash equivalents.................................... $ 627 $ 410
Interest-bearing deposits.................................... 16,000 22,559
Securities available for sale................................ 24,536 27,653
Note receivable.............................................. 8,393 8,993
Investment in banking subsidiary............................. 96,773 96,094
Other assets................................................. 3,232 3,246
-------- --------
Total assets............................................... $149,561 $158,955
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities....................... $ 1,586 $ 901
Shareholders' equity......................................... 147,975 158,054
-------- --------
Total liabilities and shareholders' equity................. $149,561 $158,955
======== ========
CONDENSED STATEMENTS OF INCOME
Year ended June 30, 2000 and period December 31, 1998
(inception of Company) through June 30, 1999
2000 1999
-------- -------
INCOME
Interest income............................................ $ 2,248 $ 1,011
Dividend from subsidiary................................... 22,171 4,413
-------- -------
Total income............................................. 24,419 5,424
EXPENSES
Contribution to Foundation................................. 8,026
Other expenses............................................. 171 167
-------- -------
Total expense............................................ 171 8,193
Income (loss) before income taxes.......................... 24,248 (2,769)
Income tax (benefit) provision............................. 654 (2,459)
-------- -------
Income (loss) before undistributed net earnings of
subsidiary................................................ 23,594 (310)
Equity in undistributed net earnings of subsidiary
(distributions in excess of earnings)..................... (16,780) 140
-------- -------
Net income (loss).......................................... $ 6,814 $ (170)
======== =======
F-52
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Year ended June 30, 2000 and period December 31, 1998
(inception of Company) through June 30, 1999
2000 1999
-------- --------
Cash flows from operating activities
Net income (loss)........................................ $ 6,814 $ (170)
(Equity in undistributed earnings from subsidiary)
distributions in excess of earnings..................... 16,780 (140)
Net amortization......................................... 65 12
Contribution of common stock to foundation............... 8,026
Change in other assets................................... 14 (3,246)
Change in other liabilities.............................. 530 777
-------- --------
Net cash from operating activities..................... 24,203 5,259
Cash flows from investing activities
Purchases of mortgage-backed securities.................. (29,259)
Paydowns of mortgage-backed securities................... 2,889 648
Change in interest bearing accounts...................... 6,559 (22,559)
Change in loans to subsidiary association................ 600 (8,993)
Purchase of capital stock of subsidiary.................. (37,979)
-------- --------
Net cash from investing activities..................... 10,048 (98,142)
Cash flows from financing activities
Purchase of treasury stock............................... (30,900)
Cash dividends paid...................................... (2,791)
Dividends on unallocated ESOP shares..................... (343)
Proceeds from sale of stock.............................. 93,293
-------- --------
Net cash from financing activities..................... (34,034) 93,293
Net change in cash and cash equivalents.................... 217 410
Beginning cash and cash equivalents........................ 410 --
-------- --------
Ending cash and cash equivalents........................... $ 627 $ 410
======== ========
NOTE 22--CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN WITH THE
CONCURRENT FORMATION OF A HOLDING COMPANY
On June 15, 1998, the Board of Directors of the Company unanimously adopted
a plan of conversion to convert from a federally chartered mutual savings and
loan company to a federally chartered stock savings and loan with the
concurrent formation of a holding company, First Place Financial Corp. The
conversion was consummated on December 31, 1998 by amending the thrift's
federal charter and the sale of the Company's common shares in an amount equal
to the market value of the Company after giving effect to the conversion. A
total of 11,241,250 common shares of the Company were issued at $10.00 per
share and net proceeds from the sale were $93.3 million after deducting the
costs of conversion and the shares contributed to the foundation.
The Company retained 50% of the net proceeds from the sale of common shares.
The remainder of the net proceeds were invested in the capital stock issued by
the Company to the Company as a result of the conversion.
F-53
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the time of Conversion, the Company established a liquidation account
which was equal to its regulatory capital as of the latest practicable date
prior to the Conversion. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for the accounts then held.
In connection with the conversion, the Company established the First Federal
of Warren Community Foundation. The Foundation was funded with a contribution
of $8,026 of the Company's common stock at the date the conversion was
consummated. The Foundation is dedicated to the promotion of charitable
purposes within the communities in which the Company operates.
NOTE 23--EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
2000 1999
----------- -----------
Basic
Net income....................................... $ 6,814 $ (170)(1)
=========== ===========
Weighted average common shares outstanding....... 10,275,179 11,241,250
Less: Average unallocated ESOP shares............ 834,075 890,670
Less: Average unearned RRP shares................ 404,685
----------- -----------
Average shares................................... 9,036,419 10,350,580
=========== ===========
Basic earnings per common share.................. $ .75 $ (.02)
=========== ===========
Diluted
Net income....................................... $ 6,814 $ (170)(1)
=========== ===========
Weighted average common shares outstanding for
basic earnings per common share................. 9,036,419 10,350,580
Add: Dilutive effects of assumed exercises of
stock options...................................
----------- -----------
Average shares and dilutive potential common
shares.......................................... 9,036,419 10,350,580
=========== ===========
Diluted earnings per common share................ $ .75 $ (.02)
=========== ===========
- --------
(1) Net income since conversion.
Stock options for 1,007,600 shares of common stock were not considered in
computing diluted earnings per common share for 2000 because they were
antidilutive.
NOTE 24--MERGER OF EQUALS
On May 23, 2000, the Company signed a letter of intent to acquire FFY
Financial Corp. ("FFY"), headquartered in Youngstown, Ohio in a merger of
equals. The shareholders of FFY will receive 7.3 million shares of First Place
Financial Corp. common stock in exchange for all of the outstanding shares of
FFY stock. FFY shareholders will receive 1.075 shares of First Place Financial
Corp. for each share of FFY stock. The shares to be issued were valued at $71.0
million on May 23, 2000. The merger is subject to shareholder and regulatory
approval and is expected to be completed during December, 2000. The company has
entered into a stock option agreement with FFY which would grant stock options
equal to 19.9% of the shares outstanding to FFY in the event of certain
triggering conditions. The merger will be accounted for as a purchase.
F-54
FIRST PLACE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 25--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
2000
Total interest income............... $13,399 $13,999 $14,415 $16,693
Total interest expense.............. 6,790 7,443 8,058 10,366
------- ------- ------- -------
Net interest income............... 6,609 6,556 6,357 6,327
Provision for loan losses........... 169 214 222 1,689
------- ------- ------- -------
Net interest income after
provision for loan losses........ 6,440 6,342 6,135 4,638
Total noninterest income............ 559 573 592 723
Total noninterest expense........... 3,485 3,684 3,660 5,061
------- ------- ------- -------
Income before income taxes........ 3,514 3,231 3,067 300
Provision for incomes taxes......... 1,114 1,056 1,029 99
------- ------- ------- -------
Net income........................ $ 2,400 $ 2,175 $ 2,038 $ 201
======= ======= ======= =======
Basic and diluted earnings per
share.............................. $ 0.24 $ 0.23 $ 0.26 $ 0.02
1999
Total interest income............... $11,215 $11,851 $12,455 $12,605
Total interest expense.............. 6,700 6,921 5,990 6,071
------- ------- ------- -------
Net interest income............... 4,515 4,930 6,465 6,534
Provision for loan losses........... 183 475 166 238
------- ------- ------- -------
Net interest income after
provision for loan losses........ 4,332 4,455 6,299 6,296
Total noninterest income............ 458 453 460 610
Total noninterest expense........... 2,900 11,450 3,076 3,266
------- ------- ------- -------
Income before income taxes........ 1,890 (6,542) 3,683 3,640
Provision for incomes taxes......... 643 (2,224) 1,105 1,092
------- ------- ------- -------
Net income........................ $ 1,247 $(4,318) $ 2,578 $ 2,548
======= ======= ======= =======
Basic and diluted earnings per share
(since conversion)................. N/A $ (.51) $ 0.25 $ 0.25
F-55
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 23, 2000, by and between First
Place Financial Corp., a Delaware corporation ("First Place") and FFY Financial
Corp., a Delaware corporation ("FFY"). (First Place and FFY are herein
sometimes collectively referred to herein as the "Constituent Corporations.")
WHEREAS, the Boards of Directors of First Place and FFY have determined that
it is in the best interests of their respective companies and their
shareholders to consummate the business combination transaction, in the form of
a merger of equals, provided for herein in which FFY will, subject to the terms
and conditions set forth herein, merge (the "Merger") with and into First
Place; and
WHEREAS, as soon as practicable after the execution and delivery of this
Agreement and Plan of Merger ("Agreement"), First Federal Savings and Loan
Association of Warren, a federally-chartered stock savings and loan association
and a wholly owned subsidiary of First Place (the "Association," and sometimes
referred to herein as the "Surviving Institution"), and FFY Bank, a federally-
chartered stock savings bank and a wholly owned subsidiary of FFY ("FFY Bank"),
will enter into a Subsidiary Agreement and Plan of Merger (the "Bank Merger
Agreement") providing for the merger (the "Subsidiary Merger") of FFY Bank with
and into the Association, with the Surviving Institution to bear the corporate
name "First Place Bank," and it is intended that the Subsidiary Merger be
consummated immediately following the consummation of the Merger; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
The Merger
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as defined in Section 1.2 hereof), FFY shall merge with and
into First Place. First Place shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger, and shall continue
its corporate existence under the laws of the State of Delaware. The name of
the Surviving Corporation shall be First Place Financial Corp., or such other
name as may be determined by First Place and FFY. Upon consummation of the
Merger, the separate corporate existence of FFY shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth in the
certificate of merger (the "Certificate of Merger") which shall be filed with
appropriate authorities in the State of Delaware (the "Authorities") on the
Closing Date (as defined in Section 9.1 hereof). The term "Effective Time"
shall be the date and time when the Merger becomes effective, as set forth in
the Certificate of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger shall
have the effects set forth in the DGCL including Sections 259 and 261.
1.4 Conversion of FFY Common Stock.
(a) At the Effective Time, subject to Section 2.2 (e) hereof, each share of
the common stock, par value $0.01 per share, of FFY (the "FFY Common Stock")
issued and outstanding immediately prior to the Effective
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Time (other than shares of FFY Common Stock held (x) in FFY's treasury or (y)
directly or indirectly by First Place or FFY or any of their respective
Subsidiaries (as defined below) (except for Trust Account Shares and DPC
shares, as such terms are defined in Section 1.4 (b) hereof)) shall, by virtue
of this Agreement and without any action on the part of the holder thereof, be
converted into and exchangeable for 1.075 shares (the "Exchange Ratio") of the
common stock, par value $0.01 per share, of First Place ("First Place Common
Stock"). All of the shares of FFY Common Stock converted into First Place
Common Stock pursuant to this Article I shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each certificate
(each a "Certificate") previously representing any such shares of FFY Common
Stock shall thereafter only represent the right to receive (i) the number of
whole shares of First Place Common Stock and (ii) the cash in lieu of
fractional shares into which the shares of FFY Common Stock represented by such
Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of FFY Common Stock
shall be exchanged for certificates representing whole shares of First Place
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.2
hereof, without any interest thereon. If prior to the Effective Time First
Place or FFY should merge, reclassify its shares, recapitalize, declare a stock
dividend, stock split or other similar change in capitalization, or other
distribution in such common stock, then the Exchange Ratio shall be
appropriately adjusted to reflect such action.
(b) At the Effective Time, all shares of FFY Common Stock that are owned by
FFY as treasury stock and all shares of FFY Common Stock that are owned
directly or indirectly by First Place or FFY or any of their respective
Subsidiaries (other than shares of FFY Common Stock (x) held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held
in a fiduciary capacity that are beneficially owned by third parties (any such
shares, and shares of First Place Common Stock which are similarly held,
whether held directly or indirectly by First Place or FFY, as the case may be,
being referred to herein as "Trust Account Shares") and (y) shares of FFY
Common Stock held by First Place or FFY or any of their respective Subsidiaries
in respect of a debt previously contracted (any such shares of FFY Common
Stock, and shares of First Place Common Stock which are similarly held, whether
held directly or indirectly by First Place or FFY being referred to herein as
"DPC Shares")) shall be cancelled and shall cease to exist and no stock of
First Place or other consideration shall be delivered in exchange therefor. All
shares of First Place Common Stock that are owned by FFY or any of its
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of First Place.
1.5 Stock Options.
(a) At the Effective Time, all options granted by FFY ("FFY Options") to
purchase shares of FFY Common Stock which are outstanding and unexercised
immediately prior thereto shall be converted, in their entirety, automatically
into options to purchase shares of First Place Common Stock (the "Continuing
Options") in an amount and at an exercise price determined as provided below
(and otherwise subject to the terms of FFY's Amended and Restated Stock Option
and Incentive Plan (the "FFY Stock Plan")):
(1) The number of shares of First Place Common Stock to be subject to
the Continuing Options shall be equal to the product of the number of
shares of FFY Common Stock subject to the FFY Options and the Exchange
Ratio, provided that any fractional shares of First Place Common Stock
resulting from such multiplication shall be rounded down to the nearest
share; and
(2) The exercise price per share of First Place Common Stock under the
Continuing Options shall be equal to the exercise price per share of FFY
Common Stock under the FFY Options divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the Continuing Options shall be the same as the FFY Options, except
that all references to FFY shall be deemed to be references to First Place.
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(b) At all times after the Effective Time, First Place shall reserve for
issuance such number of shares of First Place Common Stock as necessary so as
to permit the exercise of Continuing Options in the manner contemplated by this
Agreement and in the instruments pursuant to which such options were granted.
Shares of First Place Common Stock issuable upon exercise of FFY Stock Options
shall be covered by an effective registration statement on Form S-8, and First
Place shall file a registration statement on Form S-8 covering such shares as
soon as practicable after the Effective Time, but in no event later than 30
days after the Effective Time.
(c) It is understood that the holders of an FFY Option may exercise such
options, in accordance with the terms of the option, and applicable
regulations, prior to the Effective Time.
1.6 First Place Common Stock. Except for shares of First Place Common Stock
owned by FFY or any of its Subsidiaries (other than Trust Account Shares and
DPC Shares), which shall be converted into treasury stock of First Place as
contemplated by Section 1.4 hereof, the shares of First Place Common Stock
issued and outstanding immediately prior to the Effective Time shall be
unaffected by the Merger and at the Effective Time, such shares shall remain
issued and outstanding.
1.7 Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of First Place, as in effect at the Effective Time, shall be
amended and restated as of the Effective Time so as to read in its entirety in
the form set forth as Exhibit 1.7 and, as so amended and restated, such
Certificate of Incorporation shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.
1.8 By-Laws. At the Effective Time, the By-Laws of First Place, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
1.9 Directors and Officers. The boards of directors and certain officers of
the Surviving Corporation and the Surviving Institution shall be as set forth
on and designated in accordance with Exhibit 1.9 hereto until the earlier of
the resignation, retirement or removal of any individual set forth on or
designated in accordance with Exhibit 1.9 or until their respective successors
are duly elected and qualified, as the case may be, it being agreed that if any
director shall be unable or unwilling to serve as director at the Effective
Time the party which designated such individual as indicated in Exhibit 1.9
shall designate another individual to serve in such individual's place. It is
further agreed that, immediately following the Effective Time, the Boards of
Directors shall consist of 16 persons, eight (8) of whom shall be designated by
FFY and eight (8) of whom shall be designated by First Place. Upon the first
resignation, removal or other termination of service of a director following
the Effective Time, such director, if initially designated by FFY, shall be
replaced by a person designated by the remaining FFY directors, or such
director, if initially designated by First Place, shall be replaced by a
director designated by the remaining First Place directors. Thereafter, upon
the second resignation, removal or other termination of service of a director,
if such director is an FFY designated director, a First Place designated
director shall resign and immediately be appointed by the board as a director
emeritus for a term of five (5) years or, if such director is a First Place
designated director, an FFY designated director shall resign and immediately be
appointed by the board as a director emeritus for a term of five (5) years,
whereupon the Boards shall be reduced to fourteen (14) members. If any officer
set forth on and designated in accordance with Exhibit 1.9 ceases to be an
employee of First Place, the Association, FFY or FFY Bank at or before the
Effective Time or shall be unable or unwilling to serve as an officer of the
Surviving Corporation or the Surviving Institution at the Effective Time, the
parties will agree upon another individual to serve in such individual's stead.
1.10 Tax Consequences. It is intended that the Merger and the Subsidiary
Merger each constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of reorganization"
for the purposes of Section 368 of the Code.
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1.11 Offices. After the Effective Time, the headquarters of the Surviving
Corporation shall be at 185 East Market Street, Warren, Ohio, and the staff for
headquarter operations shall be located at the current executive offices of
both First Place and FFY. The number of employees for headquarter operations
housed at each location will be approximately equal.
1.12 Staff Reductions. Any reductions in staff one year following the
Effective Time shall be shared approximately equally between FFY staff and
First Place staff.
ARTICLE II
Exchange of Shares
2.1 First Place to Make Shares Available. At or prior to the Effective Time,
First Place shall deposit, or shall cause to be deposited, with a bank or trust
company (the "Exchange Agent"), selected by First Place and reasonably
satisfactory to FFY, for the benefit of the holders of Certificates, for
exchange in accordance with this Article II, certificates representing the
shares of First Place Common Stock and the cash in lieu of fractional shares
(such cash and certificates for shares of First Place Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of FFY
Common Stock.
2.2 Exchange of Shares.
(a) As soon as practicable after the Effective Time, and in no event more
than five business days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing the shares of First
Place Common Stock and the cash in lieu of fractional shares into which the
shares of FFY Common Stock represented by such Certificate or Certificates
shall have been converted pursuant to this Agreement. FFY shall have the right
to review both the letter of transmittal and the instructions prior to the
Effective Time and provide reasonable comments thereon. Upon surrender of a
Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of First Place Common Stock to which such holder of FFY
Common Stock shall have become entitled pursuant to the provisions of Article I
hereof and (y) a check representing the amount of cash in lieu of fractional
shares, if any, which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to holders of Certificates.
(b) No dividends or other distributions declared after the Effective Time
with respect to First Place Common Stock and payable to the holders of record
thereof shall be paid to the holder of any unsurrendered Certificate until the
holder thereof shall surrender such Certificate in accordance with this Article
II. After the surrender of a Certificate in accordance with this Article II,
the record holder thereof shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become
payable with respect to shares of First Place Common Stock represented by such
Certificate. No holder of an unsurrendered Certificate shall be entitled, until
the surrender of such Certificate, to vote the shares of First Place Common
Stock into which his FFY Common Stock shall have been converted.
(c) If any certificate representing shares of First Place Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting
A-4
such exchange shall pay to the Exchange Agent in advance any transfer or other
taxes required by reason of the issuance of a certificate representing shares
of First Place Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of FFY of the shares of FFY Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of First Place Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of First Place Common
Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution with respect to First Place Common Stock shall be
payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a shareholder of First Place. In lieu of the issuance of any such fractional
share, First Place shall pay to each former stockholder of FFY who otherwise
would be entitled to receive a fractional share of First Place Common Stock
(after taking into account all certificates delivered by such holder) an amount
in cash determined by multiplying (i) the Average Closing Price by (ii) the
fraction of a share of First Place Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 1.4 hereof. As used
herein, the term "Average Closing Price" means the average of the last reported
daily sales price (or if no sale on such date, then the mean of the closing
bid/ask price) per share of First Place Common Stock on the Nasdaq Stock Market
("Nasdaq"), for the 10 consecutive trading days (the "Valuation Period") ending
on the fifth business day prior to the date of the Effective Time.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of FFY for six months after the Effective Time shall be paid to
First Place at the end of such time. Any stockholders of FFY who have not
theretofore complied with this Article II shall thereafter look only to First
Place for payment of their shares of First Place Common Stock, cash in lieu of
fractional shares and unpaid dividends and distributions on First Place Common
Stock deliverable in respect of each share of FFY Common Stock such stockholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of First Place, FFY, the
Exchange Agent or any other person shall be liable to any former holder of
shares of FFY Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such person of a
bond in such amount as First Place may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate the
shares of First Place Common Stock and cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
Representations and Warranties of FFY
Prior to the date hereof, First Place has delivered to FFY a schedule and
FFY has delivered to First Place a schedule (respectively, its "Disclosure
Schedule") setting forth, among other things, items the disclosure of which is
necessary or appropriate either in response to an express disclosure
requirement contained in a provision hereof or as an exception to one or more
representations or warranties contained in Article III or IV or to one or more
of its covenants contained in Article V; provided, that (a) no such item is
required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence would not be reasonably likely to
result in the representation or warranty being deemed materially untrue or
incorrect, and
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(b) the mere inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or fact, event or circumstance.
Subject to the foregoing, FFY hereby represents and warrants to First Place
as follows:
3.1 Corporate Organization.
(a) FFY is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. FFY has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect (as
defined in Section 8.1(e)) on FFY. FFY is duly registered as a unitary savings
and loan holding company under the Home Owners' Loan Act of 1933, as amended
(the "HOLA"). The Certificate of Incorporation and By-laws of FFY, copies of
which have previously been delivered to First Place, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
As used in this Agreement, the word "Subsidiary" when used with respect to any
party means any corporation, partnership or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes.
(b) FFY Bank is a savings bank duly organized and validly existing under the
laws of the United States of America and the rules and regulations (the "OTS
Regulations") of the Office of Thrift Supervision (the "OTS"). The deposit
accounts of FFY Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") through the Savings Association Insurance Fund to the fullest
extent permitted by law, and all premiums and assessments required to be paid
in connection therewith have been paid when due by FFY Bank. Each of FFY's
other Subsidiaries is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization. Each of
FFY's Subsidiaries has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or the
location of the properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on FFY. The
articles of incorporation, by-laws and similar governing documents of each
Subsidiary of FFY, copies of which have previously been delivered to First
Place, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
(c) The minute books of FFY and each of its Subsidiaries contain true,
complete and accurate records in all material respects of all meetings and
other corporate actions held or taken since June 30, 1995 of their respective
stockholders and Boards of Directors (including committees of their respective
Boards of Directors).
3.2 Capitalization.
(a) The authorized capital stock of FFY consists of 15,000,000 shares of FFY
Common Stock and 5,000,000 shares of preferred stock (the "FFY Preferred
Stock"). As of the date of this Agreement, there are (x) 6,778,498 shares of
FFY Common Stock issued and outstanding and 810,868 shares of FFY Common Stock
held in FFY's treasury, (y) no shares of FFY Common Stock reserved for issuance
upon exercise of outstanding stock options or otherwise except for (i) 578,564
shares of FFY Common Stock reserved for issuance pursuant to FFY's Stock Plan
and described in Section 3.2(a) of the Disclosure Schedule and (ii) 1,355,698
shares of FFY Common Stock reserved for issuance upon exercise of the option
issued to First Place pursuant to the Stock Option Agreement, dated May 23,
2000, between First Place and FFY (the "First Place Option Agreement" and,
together with the FFY Option Agreement (as defined herein), the "Option
Agreements") and (z) no shares of FFY Preferred Stock issued or outstanding,
held in FFY's treasury or reserved for issuance upon exercise of outstanding
stock options or otherwise. All of the issued and outstanding shares of FFY
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable
A-6
and free of preemptive rights. Except as referred to above or reflected in
Section 3.2(a) of the FFY Disclosure Schedule, and except for First Place
Option Agreement, FFY does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of FFY Common
Stock or FFY Preferred Stock or any other equity security of FFY or any
securities representing the right to purchase or otherwise receive any shares
of FFY Common Stock or any other equity security of FFY. The names of the
optionees, the date of each option to purchase FFY Common Stock granted, the
number of shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised under FFY's
Stock Plan are set forth in Section 3.2(a) of the FFY Disclosure Schedule.
(b) Section 3.2(b) of the FFY Disclosure Schedule sets forth a true and
correct list of all of the Subsidiaries of FFY as of the date of this
Agreement. Except as set forth in Section 3.2(b) of the FFY Disclosure
Schedule, FFY owns, directly or indirectly, all of the issued and outstanding
shares of the capital stock of each of such Subsidiaries, free and clear of all
liens, charges, encumbrances and security interests whatsoever, and all of such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights. No Subsidiary of FFY has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of capital
stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary. Assuming compliance by
First Place with Section 1.5 hereof, at the Effective Time, there will not be
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which FFY or any of its Subsidiaries will be
bound calling for the purchase or issuance of any shares of the capital stock
of FFY or any of its Subsidiaries.
3.3 Authority; No Violation.
(a) FFY has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of FFY. The Board of Directors of FFY has directed that this
Agreement be submitted to FFY's stockholders for adoption at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of FFY's stockholders, no other corporate proceedings (except for
regulatory approvals) on the part of FFY are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by FFY and (assuming
due authorization, execution and delivery by First Place) constitutes a valid
and binding obligation of FFY, enforceable against FFY in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) FFY Bank has full corporate power and authority to execute and deliver
the Bank Merger Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Bank Merger Agreement and the
consummation of the transactions contemplated thereby will be duly and validly
approved by the Board of Directors of FFY Bank. Upon the due and valid approval
of the Bank Merger Agreement by FFY as the sole stockholder of FFY Bank and by
the Board of Directors of FFY Bank, no other corporate proceedings on the part
of FFY Bank will be necessary to consummate the transactions contemplated
thereby. The Bank Merger Agreement, upon execution and delivery by FFY Bank,
will be duly and validly executed and delivered by FFY Bank and will (assuming
due authorization, execution and delivery by the Association) constitute a
valid and binding obligation of FFY Bank, enforceable against FFY Bank in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(c) Except as set forth in Section 3.3(c) of the FFY Disclosure Schedule,
neither the execution and delivery of this Agreement by FFY or the Bank Merger
Agreement by FFY Bank, nor the consummation by
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FFY or FFY Bank, as the case may be, of the transactions contemplated hereby or
thereby, nor compliance by FFY or FFY Bank, as the case may be, with any of the
terms or provisions hereof or thereof, will (i) violate any provision of the
Certificate of Incorporation or By-Laws of FFY or the certificate of
incorporation, by-laws or similar governing documents of any of its
Subsidiaries, or (ii) assuming that the consents and approvals referred to in
Section 3.4 hereof are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to FFY
or any of its Subsidiaries, or any of their respective properties or assets, or
(y) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, result in the obligation to sell or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the respective properties or assets of FFY or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which FFY or any of its Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound or
affected.
3.4 Consents and Approvals. Except for (a) the filing of applications with
the OTS, and approval of such applications, (b) the filing with the Securities
and Exchange Commission (the "SEC") of a joint proxy statement in definitive
form relating to the meetings of FFY's stockholders and First Place's
stockholders to be held in connection with this Agreement and the transactions
contemplated hereby (collectively, the "Proxy Statement"), (c) the adoption of
this Agreement by the requisite vote of the stockholders of FFY, (d) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware pursuant to the DGCL, (e) the filings required by the Bank Merger
Agreement, (f) the approval of the Bank Merger Agreement by FFY as the sole
stockholder of FFY Bank and (g) such filings, authorizations or approvals as
may be set forth in Section 3.4 of the FFY Disclosure Schedule, no consents or
approvals of or filings or registrations with any court, administrative agency
or commission or other governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are necessary in connection with
(1) the execution and delivery by FFY of this Agreement, (2) the consummation
by FFY of the Merger and the other transactions contemplated hereby, (3) the
execution and delivery by FFY Bank of the Bank Merger Agreement, and (4) the
consummation by FFY Bank of the Subsidiary Merger and the transactions
contemplated thereby.
3.5 Reports. FFY and each of its Subsidiaries have timely filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since June 30,
1995 with (i) the OTS, (ii) the FDIC, (iii) any other state regulatory
authority (each a "State Regulator") and (iv) any other self-regulatory
organization ("SRO") (collectively, the "Regulatory Agencies" and individually
a "Regulatory Agency"), and all other material reports and statements required
to be filed by them since June 30, 1995, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the OTS, the FDIC, any State Regulator or any
SRO, and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of FFY and its Subsidiaries and except as
set forth in Section 3.5 of the FFY Disclosure Schedule, no Regulatory Agency
has initiated any proceeding or, to the best knowledge of FFY, investigation
into the business or operations of FFY or any of its Subsidiaries since June
30, 1995. There is no unresolved material violation, criticism, or exception by
any Regulatory Agency with respect to any report or statement relating to any
examinations of FFY or any of its Subsidiaries.
3.6 Financial Statements. FFY has previously delivered to First Place copies
of (a) the consolidated balance sheets of FFY and its Subsidiaries as of June
30 for the fiscal years 1998 and 1999, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the fiscal years
1997 through 1999, inclusive, as reported in FFY's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999 filed with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in each case accompanied
by the audit report of KPMG LLP, independent public accountants with respect to
FFY, and (b) the unaudited consolidated balance sheets of FFY and its
Subsidiaries as of March 31, 2000 and March 31, 1999 and the related unaudited
consolidated statements of income, cash flows and changes in stockholders'
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equity for the three and nine month periods then ended as reported in FFY's
Quarterly Report on Form 10-Q for the period ended March 31, 2000 filed with
the SEC under the Exchange Act. The June 30, 1999 consolidated balance sheet of
FFY (including the related notes, where applicable) fairly presents the
consolidated financial position of FFY and its Subsidiaries as of the date
thereof, and the other financial statements referred to in this Section 3.6
(including the related notes, where applicable) fairly present, and the
financial statements referred to in Section 6.9 hereof will fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount and the absence of footnotes), the
results of the consolidated operations and consolidated financial position of
FFY and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply, and the financial statements referred
to in Section 6.9 hereof will comply, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related notes,
where applicable) has been, and the financial statements referred to in Section
6.9 hereof will be, prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of FFY and its Subsidiaries have
been, and are being, maintained in all material respects in accordance with
GAAP and any other applicable legal and accounting requirements and reflect
only actual transactions.
3.7 Broker's Fees. Neither FFY nor any Subsidiary of FFY nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement, the Bank Merger
Agreement or the Option Agreements, except that FFY has engaged, and will pay a
fee or commission to Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") in
accordance with the terms of a letter agreement between Sandler O'Neill and FFY
concerning the issuance of an opinion regarding the fairness of the Exchange
Ratio, a true, complete and correct copy of which has been previously delivered
by FFY to First Place.
3.8 Absence of Certain Changes or Events.
(a) Except as may be set forth in Section 3.8(a) of the FFY Disclosure
Schedule or as disclosed in FFY's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000 (a true, complete and correct copy of which has previously
been delivered to First Place), since June 30, 1999, (i) neither FFY nor any of
its Subsidiaries has incurred any material liability, except in the ordinary
course of their business consistent with their past practices, and (ii) no
event has occurred which has caused, or is reasonably likely to cause,
individually or in the aggregate, a Material Adverse Effect on FFY.
(b) Except as set forth in Section 3.8(b) of the FFY Disclosure Schedule,
since March 31, 2000, FFY and its Subsidiaries have carried on their respective
businesses in the ordinary course consistent with their past practices.
(c) Except as set forth in Section 3.8(c) of the FFY Disclosure Schedule,
since March 31, 2000, neither FFY nor any of its Subsidiaries has (i) increased
the wages, salaries, compensation, pension, or other fringe benefits or
perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of March 31, 2000 (which amounts have been
previously disclosed to First Place), granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus other than year-end bonuses for fiscal 1999 as listed in Section
3.8 of the FFY Disclosure Schedule or (ii) suffered any strike, work stoppage,
slow-down, or other labor disturbance.
3.9 Legal Proceedings.
(a) Except as set forth in Section 3.9 of the FFY Disclosure Schedule,
neither FFY nor any of its Subsidiaries is a party to any, and there are no
pending or, to the best of FFY's knowledge, threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against FFY or any of its Subsidiaries or
challenging the validity or propriety of the transactions
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contemplated by this Agreement, the Bank Merger Agreement or First Place Option
Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on
FFY.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon FFY, any of its Subsidiaries or the assets of FFY or
any of its Subsidiaries which has had, or could reasonably be expected to have,
a Material Adverse Effect on FFY.
3.10 Taxes. Except as set forth in Section 3.10 of the FFY Disclosure
Schedule, each of FFY and its Subsidiaries has (i) duly and timely filed or
will duly and timely file (including applicable extensions granted without
penalty) all Tax Returns (as hereinafter defined) required to be filed at or
prior to the Effective Time, and such Tax Returns which have heretofore been
filed are, and those to be hereinafter filed will be, complete and accurate in
all material respects, and (ii) paid in full or have made adequate provision
for on the financial statements of FFY (in accordance with GAAP) all Taxes (as
hereinafter defined) and will pay in full or make adequate provision for all
Taxes. There are no material liens for Taxes upon the assets of either FFY or
its Subsidiaries except for statutory liens for current Taxes not yet due.
Except as set forth in Section 3.10 of the FFY Disclosure Schedule, neither FFY
nor any of its Subsidiaries has requested any extension of time within which to
file any Tax Returns in respect of any fiscal year which have not since been
filed and no request for waivers of the time to assess any Taxes are pending or
outstanding. The federal and state income Tax Returns of FFY and its
Subsidiaries have been audited by the Internal Revenue Service or appropriate
state tax authorities with respect to those periods and jurisdictions set forth
on Section 3.10 of the FFY Disclosure Schedule. Except as set forth in Section
3.10 of the FFY Disclosure Schedule, neither FFY nor any of its Subsidiaries
(i) is a party to any agreement providing for the allocation or sharing of
Taxes (other than the allocation of federal income taxes as provided by
Regulation 1.1552-l(a)(l) under the Code; (ii) is required to include in income
any adjustment pursuant to Section 481(a) of the Code, by reason of the
voluntary change in accounting method (nor has any taxing authority proposed in
writing any such adjustment or change of accounting method); or (iii) has filed
a consent pursuant to Section 341(f) of the Code.
For the purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States
federal, state, local or foreign taxing authority, including, but not limited
to income, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other taxes, including any interest, penalties or additions
attributable thereto.
For purposes of this Agreement, "Tax Return" shall mean any return, report,
information return or other document (including any related or supporting
information) with respect to Taxes.
3.11 Employees.
(b) Section 3.11(a) of the FFY Disclosure Schedule sets forth a true and
complete list of each employee benefit plan, arrangement or agreement that is
maintained or contributed to or required to be contributed to as of the date of
this Agreement (the "Plans") by FFY, any of its Subsidiaries or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), all of which
together with FFY would be deemed a "single employer" within the meaning of
Section 4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of any employee or former employee of FFY, any
Subsidiary or any ERISA Affiliate.
(c) FFY has heretofore delivered to First Place true and complete copies of
each of the Plans and all related documents, including but not limited to (i)
the actuarial report for any Plan (if applicable) for each of the last two
years, and (ii) the most recent determination letter from the Internal Revenue
Service (if applicable) for any Plan.
(d) Except as set forth in Section 3.11(c) of the FFY Disclosure Schedule,
(i) each of the Plans has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of
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Section 401(a) of the Code either (1) has received a favorable determination
letter from the IRS, or (2) is or will be the subject of an application for a
favorable determination letter, and FFY is not aware of any circumstances
likely to result in the revocation or denial of any such favorable
determination letter, (iii) with respect to each Plan which is subject to Title
IV of ERISA, the present value of accrued benefits under such Plan, based upon
the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Plan's actuary with respect to such Plan, did
not, as of its latest valuation date, exceed the then current value of the
assets of such Plan allocable to such accrued benefits, (iv) no Plan provides
benefits, including without limitation death or medical benefits (whether or
not insured), with respect to current or former employees of FFY, its
Subsidiaries or any ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as
that term is defined in Section 3(2) of ERISA, (y) deferred compensation
benefits accrued as liabilities on the books of FFY, its Subsidiaries or the
ERISA Affiliates or (z) benefits the full cost of which is borne by the current
or former employee (or his beneficiary), (v) no liability under Title IV of
ERISA has been incurred by FFY, its Subsidiaries or any ERISA Affiliate that
has not been satisfied in full, and no condition exists that presents a
material risk to FFY, its Subsidiaries or an FFY ERISA Affiliate of incurring a
material liability thereunder, (vi) no Plan is a "multiemployer pension plan,"
as such term is defined in Section 3(37) of ERISA, (vii) all contributions or
other amounts payable by FFY, its Subsidiaries or any ERISA Affiliates as of
the Effective Time with respect to each Plan in respect of current or prior
plan years have been paid or accrued in accordance with GAAP and Section 412 of
the Code, (viii) neither FFY, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which FFY, its Subsidiaries or any
ERISA Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or
4976 of the Code, (ix) there are no pending, or, to the best knowledge of FFY,
threatened or anticipated claims (other than routine claims for benefits) by,
on behalf of or against any of the Plans or any trusts related thereto and (x)
the consummation of the transactions contemplated by this Agreement will not
(y) entitle any current or former employee or officer of FFY or any ERISA
Affiliate to severance pay, termination pay or any other payment, except as
expressly provided in this Agreement or (z) accelerate the time of payment or
vesting or increase the amount of compensation due any such employee or
officer.
3.12 SEC Reports. FFY has previously made available to First Place an
accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since June
30, 1999 by FFY with the SEC pursuant to the Securities Act of 1933, as amended
(the "Securities Act") or the Exchange Act (the "FFY Reports") and (b)
communication mailed by FFY to its stockholders since June 30, 1999, and no
such registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be
deemed to modify information as of an earlier date. FFY has timely filed all
FFY Reports and other documents required to be filed by it under the Securities
Act and the Exchange Act, and, as of their respective dates, all FFY Reports
complied in all material respects with the published rules and regulations of
the SEC with respect thereto.
3.13 FFY Information. The information provided by and relating to FFY and
its Subsidiaries to be contained in, or incorporated by reference in, the Proxy
Statement and the Registration Statement on Form S-4 (the "S-4"), or in any
other document filed with any other regulatory agency in connection herewith,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. The information provided
by FFY for inclusion in, or incorporated by reference in, the sections of the
Proxy Statement relating to FFY will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
3.14 Ownership of First Place Common Stock: Affiliates and
Associates. Except for the FFY Option Agreement and as set forth in Section
3.14 of the FFY Disclosure Schedule, none of FFY, any of its
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Subsidiaries, (i) beneficially own, directly or indirectly, or (ii) is a party
to any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, any shares of capital stock of
First Place (other than Trust Account Shares and DPC Shares).
3.15 Compliance with Applicable Law. FFY and each of its Subsidiaries hold
all material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
are in compliance with and are not, to its knowledge, in default in any respect
under any applicable law, statute, order, rule, regulation, policy and/or
guideline of any Governmental Entity relating to FFY or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have or be reasonably likely to have a Material Adverse Effect
on FFY, and neither FFY nor any of its Subsidiaries knows of, or has received
notice of, any material violations of any of the above since December 31, 1994.
3.16 Certain Contracts.
(a) Except as set forth in Section 3.16(a) of the FFY Disclosure Schedule,
neither FFY nor any of its Subsidiaries is a party to or bound by any contract,
arrangement, commitment or understanding (whether written or oral) (i) with
respect to the employment of any directors, officers, employees or consultants,
(ii) which, upon the consummation of the transactions contemplated by this
Agreement or the Bank Merger Agreement will (either alone or upon the
occurrence of any additional acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from First Place, FFY, the Surviving
Corporation, the Surviving Institution or any of their respective Subsidiaries
to any officer or employee thereof, (iii) which is a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after
the date of this Agreement that has not been filed or incorporated by reference
in FFY Reports, (iv) which is a consulting agreement (including data
processing, software programming and licensing contracts) not terminable on 60
days or less notice involving the payment of more than $50,000 per annum, in
the case of any such agreement with an individual, or $100,000 per annum, in
the case of any other such agreement, (v) which materially restricts the
conduct of any line of business by FFY or any of its Subsidiaries, (vi) with or
to a labor union or guild (including any collective bargaining agreement) or
(vii) (including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan) any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
Bank Merger Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the Bank Merger Agreement. Each contract, arrangement, commitment
or understanding of the type described in this Section 3.16(a), whether or not
set forth in Section 3.16(a) of the FFY Disclosure Schedule, is referred to
herein as a "FFY Contract." FFY has previously delivered to First Place true
and correct copies of each FFY Contract.
(b) Except as set forth in Section 3.16(b) of the FFY Disclosure Schedule,
(i) each FFY Contract is valid and binding and in full force and effect, (ii)
FFY and each of its Subsidiaries have in all material respects performed all
obligations required to be performed by it to date under each FFY Contract,
except where such noncompliance, individually or in the aggregate, would not
have or be reasonably likely to have a Material Adverse Effect on FFY, (iii) no
event or condition exists which constitutes or, after notice or lapse of time
or both, would constitute, a material default on the part of FFY or any of its
Subsidiaries under any such FFY Contract, except where such default,
individually or in the aggregate, would not have or be reasonably likely to
have a Material Adverse Effect on FFY and (iv) no other party to such FFY
Contract is, to the best knowledge of FFY, in default in any respect
thereunder.
3.17 Agreements with Regulatory Agencies. Except as set forth in Section
3.17 of the FFY Disclosure Schedule, neither FFY nor any of its Subsidiaries is
subject to any cease-and-desist or other order issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of (each,
whether
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or not set forth on Section 3.17 of the FFY Disclosure Schedule, a "Regulatory
Agreement"), any Regulatory Agency or other Governmental Entity that restricts
the conduct of its business or that in any manner relates to its capital
adequacy, its credit policies, its management or its business, nor has FFY or
any of its Subsidiaries been advised by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any Regulatory
Agreement.
3.18 Investment Securities. Section 3.18 of the FFY Disclosure Schedule sets
forth the book and market value as of March 31, 2000 of the investment
securities, mortgage backed securities and securities held for sale of FFY and
its Subsidiaries. Section 3.18 of the FFY Disclosure Schedule sets forth an
investment securities report which includes, security descriptions, CUSIP
numbers, pool face values, book values, coupon rates and current market values.
3.19 Intellectual Property. Except where there would be no Material Adverse
Effect on FFY, FFY and each of its Subsidiaries owns or possesses valid and
binding licenses and other rights to use without payment all material patents,
copyrights, trade secrets, trade names, servicemarks, trademarks and computer
software used in its businesses; and neither FFY nor any of its Subsidiaries
has received any notice of conflict with respect thereto that asserts the right
of others. FFY and each of its Subsidiaries have in all material respects
performed all the obligations required to be performed by them and are not in
default in any material respect under any contract, agreement, arrangement or
commitment relating to any of the foregoing, except where such non-performance
or default would not, individually or in the aggregate, have or be reasonably
likely to have a Material Adverse Effect on FFY.
3.20 Undisclosed Liabilities. Except (a) as set forth in Section 3.20 of the
FFY Disclosure Schedule, (b) for those liabilities that are fully reflected or
reserved against on the consolidated balance sheet of FFY as of March 31, 2000
included in its Form 10-Q for the period ended March 31, 2000 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 2000 that, either alone or when combined with all
similar liabilities, have not had, and could not reasonably be expected to
have, a Material Adverse Effect on FFY, neither FFY nor any of its Subsidiaries
has incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due).
3.21 State Takeover Laws. The provisions of Article Eight of FFY's
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 4.14 hereof, apply to the Agreement, the
Bank Merger Agreement or First Place Option Agreement or any of the
transactions contemplated hereby or thereby.
3.22 Administration of Fiduciary Accounts. FFY and each of its Subsidiaries
has properly administered in all material respects all accounts for which it
acts as a fiduciary, including but not limited to accounts for which it serves
as a trustee, agent, custodian, personal representative, guardian, conservator
or investment advisor, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither FFY
nor any of its Subsidiaries nor any of their respective directors, officers or
employees has committed any breach of trust with respect to any such fiduciary
account which has had or could reasonably be expected to have a Material
Adverse Effect on FFY, and the accountings for each such fiduciary account are
true and correct in all material respects and accurately reflect the assets of
such fiduciary account.
3.23 Environmental Matters. Except as set forth in Section 3.23 of the FFY
Disclosure Schedule:
(a) Each of FFY, its Subsidiaries, the Participation Facilities and the Loan
Properties (each as hereinafter defined) are, and have been, in compliance with
all applicable federal, state and local laws including common law, regulations
and ordinances and with all applicable decrees, orders and contractual
obligations relating to pollution, the discharge of, or exposure to materials
in the environment or workplace ("Environmental Laws"), except for violations
which, either individually or in the aggregate, have not had and cannot
reasonably be expected to have a Material Adverse Effect on FFY;
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(b) There is no suit, claim, action or proceeding, pending or threatened,
before any Governmental Entity or other forum in which FFY, any of its
Subsidiaries, any Participation Facility or any Loan Property, has been or,
with respect to threatened proceedings, may be, named as a defendant (x) for
alleged noncompliance (including by any predecessor), with any Environmental
Laws, or (y) relating to the release, threatened release or exposure to any
material whether or not occurring at or on a site owned, leased or operated by
FFY or any of its Subsidiaries, any Participation Facility or any Loan
Property, except where such noncompliance or release has not resulted, and
cannot be reasonably expected to result, either individually or in the
aggregate, in a Material Adverse Effect on FFY;
(c) During the period of (x) FFY's or any of its Subsidiaries' ownership or
operation of any of their respective current properties, (y) FFY's or any of
its Subsidiaries' participation in the management of any Participation
Facility, or (z) FFY's or any of its Subsidiaries' holding of a security
interest in a Loan Property, there has been no release of materials in, on,
under or affecting any such property, except where such release has not had and
cannot reasonably be expected to result in, either individually or in the
aggregate, a Material Adverse Effect on FFY. To the knowledge of FFY, prior to
the period of (x) FFY's or any of its Subsidiaries' ownership or operation of
any of their respective current properties, (y) FFY's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(z) FFY's or any of its Subsidiaries' holding of a security interest in a Loan
Property, there was no release or threatened release of materials in, on, under
or affecting any such property, Participation Facility or Loan Property, except
where such release has not had and cannot be reasonably expected to have,
either individually or in the aggregate, a Material Adverse Effect on FFY; and
(d) The following definitions apply for purposes of this Section 3.23: (x)
"Loan Property" means any property in which FFY or any of its Subsidiaries
holds a security interest, and, where required by the context, said term means
the owner or operator of such property; and (y) "Participation Facility" means
any facility in which FFY or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such property.
3.24 Derivative Transactions. Except as set forth in Section 3.24 of the FFY
Disclosure Schedule, since June 30, 1999, neither FFY nor any of its
Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent
on the order and for the account of others, or (ii) as principal for purposes
of hedging interest rate risk on U.S. dollar denominated securities and other
financial instruments. None of the counterparties to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan (as
defined below) held by FFY or any of its Subsidiaries, would be classified as
"Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets",
"Concerned Loans" or words of similar import. The financial position of FFY and
its Subsidiaries on a consolidated basis under or with respect to each such
instrument has been reflected in the books and records of FFY and such
Subsidiaries in accordance with GAAP consistently applied, and no open exposure
of FFY or any of its Subsidiaries which has not been previously disclosed in
the FFY Reports with respect to any such instrument (or with respect to
multiple instruments with respect to any single counterparty) exceeds $500,000.
3.25 Opinion. FFY has received a written opinion, dated the date hereof,
from Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") to the effect that,
subject to the terms, conditions and qualifications set forth therein, as of
the date thereof the Exchange Ratio is fair to such stockholders from a
financial point of view.
3.26 Assistance Agreements. Neither FFY nor any of its Subsidiaries is a
party to any agreement or arrangement entered into in connection with the
consummation of a federally assisted acquisition of a depository institution
pursuant to which FFY or any of its Subsidiaries is entitled to receive
financial assistance or indemnification from any governmental agency.
3.27 Approvals. As of the date of this Agreement, FFY knows of no reason why
all regulatory approvals required for the consummation of the transactions
contemplated hereby (including, without limitation,
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the Merger and the Subsidiary Merger) should not be obtained without the
imposition of a Burdensome Condition (as defined below).
3.28 Loan Portfolio.
(a) In FFY's reasonable judgment, the allowance for loan losses reflected in
FFY's audited statement of condition at June 30, 1999 was, and the allowance
for loan losses shown on the balance sheets in its Reports for periods ending
after June 30, 1999 have been and will be, adequate in all material respects,
as of the dates thereof, under GAAP, and no Regulatory Agencies have required
or requested FFY to increase the allowance for loan losses for such periods.
(b) Except as set forth in Section 3.28 of the FFY Disclosure Schedule,
neither FFY nor any of its Subsidiaries is a party to any written or oral (i)
loan agreement, note or borrowing arrangement (including, without limitation,
leases, credit enhancements, commitments, guarantees and interest-bearing
assets) (collectively, "Loans"), other than Loans the unpaid principal balance
of which does not exceed $175,000, under the terms of which the obligor is, as
of the date of this Agreement, over 90 days delinquent in payment of principal
or interest or in default of any other provision, or (ii) Loans with any
director, executive officer or ten percent stockholder of FFY or any of its
Subsidiaries, or to the best knowledge of FFY, any person, corporation or
enterprise controlling, controlled by or under common control with any of the
foregoing. Section 3.28 of FFY Disclosure Schedule sets forth (i) all of the
Loans in original principal amount in excess of $175,000 of FFY or any of its
Subsidiaries that as of the date of this Agreement are classified by any bank
examiner (whether regulatory or internal) as "Other Loans Specially Mentioned,"
"Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans," "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, and
(ii) by category of Loan (i.e., commercial, consumer, etc.), all of the other
Loans of FFY and its Subsidiaries that as of the date of this Agreement are
classified as such, together with the aggregate principal amount of and accrued
and unpaid interest on such Loans by category. FFY shall promptly inform First
Place in writing of any Loan that becomes classified in the manner described in
the previous sentence, or any Loan the classification of which is changed, at
any time after the date of this Agreement.
(c) Each loan reflected as an asset in the FFY Reports (i) is evidenced by
notes, agreements or other evidences of indebtedness which are true, genuine
and correct in all material respects, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing standards
would not have a Material Adverse Effect on FFY.
3.29 [Reserved]
3.30 Labor Matters. Except as set forth in Section 3.30 of the FFY
Disclosure Schedule, neither FFY nor its Subsidiaries is or has ever been a
party to, or is or has ever been bound by, any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or labor
organization with respect to its employees, nor is FFY or its Subsidiaries the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it or any such Subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is the
management of FFY aware of any strike, other labor dispute, organizational
effort or other activity taken with a view toward unionization involving FFY or
its Subsidiaries pending or threatened. FFY and its Subsidiaries are in
compliance with applicable laws regarding employment or employees and retention
of independent contractors and are in material compliance with all applicable
employment tax laws.
3.31 Termination Benefits. Section 3.31 of the FFY Disclosure Schedule
contains a complete and accurate schedule showing as of the date of this
Agreement the monetary amounts payable, subject to a
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determination of the Market Value, and identifying the in-kind benefits due
under the Specified Compensation and Benefit Programs (as defined herein) for
each Named Individual (as defined herein) individually. For purposes hereof,
"Specified Compensation and Benefit Programs" shall include all employment
agreements, change in control agreements, severance or special termination
agreements, severance plans, pension, retirement or deferred compensation plans
for non-employee directors, supplemental executive retirement programs, tax
indemnification agreements, outplacement programs, cash bonus programs, stock
appreciation right, phantom stock or stock unit plan, and health, life,
disability and other insurance or welfare plans, but shall not include any tax-
qualified pension, profit-sharing or employee stock ownership plan. For
purposes hereof, "Named Individual" shall include each non-employee director of
FFY or its Subsidiaries and each executive officer of FFY or its Subsidiaries.
3.32 Deposits. Except as set forth in Section 3.32 of the FFY Disclosure
Schedule, none of the deposits of FFY Bank is a "brokered" deposit.
3.33 Antitakeover Provisions Inapplicable. FFY and its Subsidiaries have
taken all actions required to exempt FFY and the Agreement from any provisions
of an antitakeover nature in their Certificate of Incorporation and Bylaws and
any other governing documents and the provisions of any federal or state
"antitakeover," "fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
3.34 Insurance. Except as set forth in Section 3.34 of the FFY Disclosure
Schedule, FFY and its Subsidiaries are presently insured, and since June 30,
1997, have been insured, for reasonable amounts with financially sound and
reputable insurance companies, against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured, All of the insurance policies and bonds maintained by FFY and its
Subsidiaries are in full force and effect, FFY and its Subsidiaries are not in
default thereunder and all material claims thereunder have been filed in due
and timely fashion.
3.35 Indemnification. Except as provided in FFY's employment agreements, its
indemnification agreement with Sandler O'Neill, or the Certificate of
Incorporation or Bylaws of FFY, neither FFY nor its Subsidiaries is a party to
any indemnification agreement with any of its present or future directors,
officers, employees, agents or other persons who serve or served in any other
capacity with any other enterprise at the request of FFY (a "Covered Person"),
and, except as set forth in Section 3.35 of the FFY Disclosure Schedule, there
are no claims for which any Covered Person would be entitled to indemnification
under the Certificate of Incorporation or Bylaws of FFY or any Subsidiary of
FFY, applicable law, regulation or any indemnification agreement.
3.36 Disclosure. The representations and warranties contained in this
Article III do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article III not misleading.
ARTICLE IV
Representations and Warranties of First Place
Subject to the first paragraph under Article III, First Place hereby
represents and warrants to FFY as follows:
4.1 Corporate Organization.
(a) First Place is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. First Place has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on First Place. First Place is
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duly registered as a savings and loan holding company under the HOLA. The
Certificate of Incorporation and By-laws of First Place, copies of which have
previously been made available to FFY, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement.
(b) The Association is a savings and loan association duly organized,
validly existing and in good standing under the laws of the United States of
America and the OTS Regulations. The deposit accounts of the Association are
insured by the FDIC through the SAIF Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required in connection
therewith have been paid by the Association. Each of First Place's other
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each Subsidiary of First Place
has the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on First Place. The Certificate of Incorporation
and Bylaws of each subsidiary of First Place, copies of which have previously
been made available to FFY, are true, complete and correct copies of such
documents as in effect as of the date of this Agreement.
(c) The minute books of First Place and each of its Subsidiaries contain
true, complete and accurate records in all material respects of all meetings
and other corporate actions held or taken since June 30, 1995 of their
respective stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of First
Place consists of 33,000,000 shares of First Place Common Stock and 3,000,000
shares of preferred stock, par value $.01 per share ("First Place Preferred
Stock"). As of the date of this Agreement, there were 11,241,250 shares of
First Place Common Stock and no shares of First Place Preferred Stock issued
and outstanding, and 333,490 shares of First Place Common Stock held in First
Place's treasury. As of the date of this Agreement, no shares of First Place
Common Stock or First Place Preferred Stock were reserved for issuance, except
that (i) 1,124,125 shares of First Place Common Stock were reserved for
issuance upon the exercise of stock options pursuant to First Place Financial
Corp. 1999 Incentive Plan (the "First Place Stock Plan") and (ii) 2,248,249
shares of First Place Common Stock reserved for issuance upon the exercise of
the option issued to FFY pursuant to the Stock Option Agreement, dated May 23,
2000, between FFY and First Place (the "FFY Option Agreement"). All of the
issued and outstanding shares of First Place Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except as referred to above or
reflected in Section 4.2(a) of the First Place Disclosure Schedule and except
for FFY Option Agreement, First Place does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of First
Place Common Stock or First Place Preferred Stock or any other equity
securities of First Place or any securities representing the right to purchase
or otherwise receive any shares of First Place Common Stock or First Place
Preferred Stock. The shares of First Place Common Stock to be issued pursuant
to the Merger will be duly authorized and validly issued and, at the Effective
Time, all such shares will be fully paid, nonassessable and free of preemptive
rights.
(b) Section 4.2(b) of the First Place Disclosure Schedule sets forth a true
and correct list of all of First Place Subsidiaries as of the date of this
Agreement. Except as set forth in Section 4.2(b) of the First Place Disclosure
Schedule, First Place owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Subsidiaries of First Place,
free and clear of all liens, charges, encumbrances and security interests
whatsoever, and all of such shares are duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. No Subsidiary of
First Place has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character with any party that
is not a
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direct or indirect Subsidiary of First Place calling for the purchase or
issuance of any shares of capital stock or any other equity security of such
Subsidiary or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of such
Subsidiary.
4.3 Authority. No Violation.
(a) First Place has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of First Place. The Board of Directors of First Place has
directed that this Agreement be submitted to First Place's stockholders for
adoption at a meeting of such stockholders and, except for the adoption of this
Agreement by the requisite vote of First Place's stockholders, no other
corporate proceedings on the part of First Place are necessary to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by First Place and (assuming due authorization,
execution and delivery by FFY) constitutes a valid and binding obligation of
First Place, enforceable against First Place in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency
and similar laws affecting creditors' rights and remedies generally.
(b) The Association has full corporate power and authority to execute and
deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Association. Upon the due and
valid approval of the Bank Merger Agreement by First Place as the sole
stockholder of the Association, and by the Board of Directors of the
Association, no other corporate proceedings on the part of the Association will
be necessary to consummate the transactions contemplated thereby. The Bank
Merger Agreement, upon execution and delivery by the Association, will be duly
and validly executed and delivered by the Association and will (assuming due
authorization, execution and delivery by FFY Bank) constitute a valid and
binding obligation of the Association, enforceable against the Association in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(c) Except as set forth in Section 4.3(c) of the First Place Disclosure
Schedule, neither the execution and delivery of this Agreement by First Place
or the Bank Merger Agreement by the Association, nor the consummation by First
Place or the Association, as the case may be, of the transactions contemplated
hereby or thereby, nor compliance by First Place or the Association, as the
case may be, with any of the terms or provisions hereof or thereof, will (i)
violate any provision of the Certificate of Incorporation or By-Laws of First
Place, or the articles of incorporation or by-laws or similar governing
documents of any of its Subsidiaries or (ii) assuming that the consents and
approvals referred to in Section 4.4 are duly obtained, (x) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to First Place or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of First Place or
any of its Subsidiaries under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which First Place or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected.
4.4 Consents and Approvals. Except for (a) the filing of applications with
the OTS and approval of such applications, (b) the filing with the SEC of the
Proxy Statement and the S-4, (c) the approval of this Agreement by the
requisite vote of the stockholders of First Place, (d) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, (e)
such filings and approvals as are required to be made
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or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of First Place Common Stock pursuant
to this Agreement, (f) filings required by the Bank Merger Agreement, (g) the
approval of the Bank Merger Agreement by the stockholder of the Association,
and (h) such filings, authorizations or approvals as may be set forth in
Section 4.4 of the First Place Disclosure Schedule, no consents or approvals of
or filings or registrations with any Governmental Entity or with any third
party are necessary in connection with (1) the execution and delivery by First
Place of this Agreement, (2) the consummation by First Place of the Merger and
the other transactions contemplated hereby, (3) the execution and delivery by
the Association of the Bank Merger Agreement, and (4) the consummation of the
Association of the transactions contemplated by the Bank Merger Agreement.
4.5 Reports. First Place and each of its Subsidiaries have timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
June 30, 1995 with any Regulatory Agency, and all other material reports and
statements required to be filed by them since June 30, 1995, including, without
limitation, any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, the OTS, the FDIC, any State
Regulator or any SRO, and have paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a Regulatory
Agency in the regular course of the business of First Place and its
Subsidiaries, and, except as set forth in Section 4.20 of the First Place
Disclosure Schedule, no Regulatory Agency has initiated any proceeding or, to
the best knowledge of First Place, investigation into the business or
operations of First Place or any of its Subsidiaries since June 30, 1995. There
is no unresolved material violation, criticism, or exception by any Regulatory
Agency with respect to any report or statement relating to any examinations of
First Place or any of its Subsidiaries.
4.6 Financial Statements.
(a) First Place has previously delivered to FFY copies of (i) the
consolidated balance sheets of First Place as of June 30, 1999 and of the
Association as of June 30, 1998 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for First Place for the
fiscal year ended June 30, 1999 and for the Association for the fiscal years
ended June 30, 1997 and 1998, in each case accompanied by the audit report of
Crowe, Chizek and Packer, Thomas & Co., independent public accountants with
respect to First Place and the Association, and (ii) the unaudited consolidated
balance sheet of First Place and its Subsidiaries as of March 31, 2000 and
March 31, 1999 and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for the three and nine month
periods then ended as reported in First Place's Quarterly Report on Form 10-Q
for the period ended March 31, 2000 filed with the SEC under the Exchange Act.
The June 30, 1999 consolidated balance sheet of First Place (including the
related notes, where applicable) fairly presents the consolidated financial
position of First Place and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 4.6 (including the
related notes, where applicable) fairly present and the financial statements
referred to in Section 6.9 hereof will fairly present (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount and the absence of footnotes), the results of the consolidated
operations and changes in shareholders' equity and consolidated financial
position of First Place and its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.9 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.9 hereof will be, prepared in accordance
with GAAP consistently applied during the periods involved, except as indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of First Place and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
(b) First Place has previously delivered to FFY copies of (i) the
consolidated balance sheets of Ravenna Savings Bank ("Ravenna") and its
Subsidiary as of June 30 for the fiscal years 1996, 1997, 1998 and 1999,
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and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the fiscal years 1995 through 1999, inclusive, in
each case accompanied by the audit report of KPMG Peat Marwick LLP, independent
public accountants with respect to Ravenna, and (ii) the unaudited consolidated
balance sheets of Ravenna and its Subsidiary as of March 31, 2000 and March 31,
1999 and the related unaudited consolidated statements of income, cash flows
and changes in stockholders' equity for the three and nine month periods then
ended.
4.7 Broker's Fees. Neither First Place nor any Subsidiary of First Place,
nor any of their respective officers or directors, has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this Agreement,
the Bank Merger Agreement or the Option Agreements, except that First Place has
engaged, and will pay a fee or commission to, Keefe, Bruyette and Woods, Inc.
("KBW") in accordance with the terms of a letter agreement between KBW and
First Place concerning the issuance of an opinion regarding the fairness of the
Exchange Ratio, a true, complete and correct copy of which has been previously
delivered by First Place to FFY.
4.8 Absence of Certain Changes or Events.
(a) Except as may be set forth in Section 4.8(a) of the First Place
Disclosure Schedule, or as disclosed in First Place's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000 (a true, complete and correct copy of
which has previously been delivered to FFY), since June 30, 1999, (i) neither
First Place nor any of its Subsidiaries has incurred any material liability,
except in the ordinary course of their business consistent with their past
practices, and (ii) no event has occurred which has caused, or is reasonably
likely to cause, individually or in the aggregate, a Material Adverse Effect on
First Place.
(b) Except as set forth in Section 4.8(b) of the First Place Disclosure
Schedule, since March 31, 2000, First Place and its Subsidiaries have carried
on their respective businesses in the ordinary course consistent with their
past practices.
(c) Except as set forth in Section 4.8(c) of the First Place Disclosure
Schedule, since March 31, 2000, neither First Place nor any of its Subsidiaries
has (i) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
from the amount thereof in effect as of March 31, 2000 (which amounts have been
previously disclosed to FFY), granted any severance or termination pay, entered
into any contract to make or grant any severance or termination pay, or paid
any bonus other than year-end bonuses for fiscal 1999 as listed in Section 4.8
of the First Place Disclosure Schedule or (ii) suffered any strike, work
stoppage, slowdown or other labor disturbance.
4.9 Legal Proceedings.
(a) Except as set forth in Section 4.9 of the First Place Disclosure
Schedule, neither First Place nor any of its Subsidiaries is a party to any and
there are no pending or to the best of First Place's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against First Place or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement, the Bank Merger Agreement or FFY
Option Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on
First Place.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon First Place, any of its Subsidiaries or the assets of
First Place or any of its Subsidiaries which has had, or could reasonably be
expected to have, a Material Adverse Effect on First Place.
4.10 Taxes. Except as set forth in Section 4.10 of the First Place
Disclosure Schedule, each of First Place and its Subsidiaries has (i) duly and
timely filed or will duly and timely file (including applicable extensions
granted without penalty) all Tax Returns required to be filed at or prior to
the Effective Time, and such Tax Returns which have heretofore been filed are,
and those to be hereinafter filed will be, complete and
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accurate in all material respects, and (ii) paid in full or have made adequate
provision for on the financial statements of First Place (in accordance with
GAAP) all Taxes and will pay in full or make adequate provision for all Taxes.
There are no material liens for Taxes upon the assets of either First Place or
its Subsidiaries except for statutory liens for current Taxes not yet due.
Except as set forth in Section 4.10 of the First Place Disclosure Schedule,
neither First Place nor any of its Subsidiaries has requested any extension of
time within which to file any Tax Returns in respect of any fiscal year which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding. The federal and state income Tax Returns of
First Place and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities with respect to those periods and
jurisdictions set forth on Section 4.10 of the First Place Disclosure Schedule.
Except as set forth in Section 4.10 of First Place Disclosure Schedule, neither
First Place nor any of its Subsidiaries (i) is a party to any agreement
providing for the allocation or sharing of Taxes (other than the allocation of
federal income taxes as provided by Regulation 1.1552 l(a)(1) under the Code);
(ii) is required to include in income any adjustment pursuant to Section 481(a)
of the Code, by reason of the voluntary change in accounting method (nor has
any taxing authority proposed in writing any such adjustment or change of
accounting method); or (iii) has filed a consent pursuant to Section 341(f) of
the Code.
4.11 Employees.
(a) Section 4.11(a) of the First Place Disclosure Schedule sets forth a true
and complete list of each employee benefit plan, arrangement or agreement that
is maintained or contributed to or required to be contributed to as of the date
of this Agreement (the "First Place Plans") by First Place, any of its
Subsidiaries or by any trade or business, whether or not incorporated (a "First
Place ERISA Affiliate"), all of which together with First Place would be deemed
a "single employer" within the meaning of Section 4001 of ERISA, for the
benefit of any employee or former employee of First Place, any Subsidiary or
any First Place ERISA Affiliate.
(b) First Place has heretofore delivered to FFY true and complete copies of
each of the Plans and all related documents, including but not limited to (i)
the actuarial report for any Plan (if applicable) for each of the last two
years, and (ii) the most recent determination letter from the Internal Revenue
Service (if applicable) for any Plan.
(c) Except as set forth in Section 4.11(c) of the First Place Disclosure
Schedule, (i) each of First Place Plans has been operated and administered in
all material respects in accordance with its terms and applicable law,
including but not limited to ERISA and the Code, (ii) each of First Place Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
either (1) received a favorable determination letter from the IRS, or (2) is or
will be the subject of an application for a favorable determination letter, and
First Place is not aware of any circumstances likely to result in the
revocation or denial of any such favorable determination letter, (iii) with
respect to each First Place Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such First Place Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such First Place Plan's actuary with respect to such First
Place Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such First Place Plan allocable to such accrued
benefits, (iv) no Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of First Place, its Subsidiaries or any First Place ERISA Affiliate
beyond their retirement or other termination of service, other than (w)
coverage mandated by applicable law, (x) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2) of
ERISA, (y) deferred compensation benefits accrued as liabilities on the books
of First Place, its Subsidiaries or the First Place ERISA Affiliates or (z)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary), (v) no liability under Title IV of ERISA has been incurred by
First Place, its Subsidiaries or any First Place ERISA Affiliate that has not
been satisfied in full, and no condition exists that presents a material risk
to First Place, its Subsidiaries or any First Place ERISA Affiliate of
incurring a material liability thereunder, (vi) no First Place Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of
ERISA, (vii) all contributions or other amounts payable by First Place, its
Subsidiaries or any First Place ERISA Affiliate as of the Effective Time with
respect to each Plan in
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respect of current or prior plan years have been paid or accrued in accordance
with GAAP and Section 412 of the Code, (viii) neither First Place, its
Subsidiaries nor any First Place ERISA Affiliate has engaged in a transaction
in connection with which First Place, its Subsidiaries or any First Place ERISA
Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or
4976 of the Code, (ix) there are no pending, or, to the best knowledge of First
Place, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of First Place Plans or any trusts
related thereto and (x) the consummation of the transactions contemplated by
this Agreement will not (y) entitle any current or former employee or officer
of First Place or any First Place ERISA Affiliate to severance pay, termination
pay or any other payment, except as expressly provided in this Agreement or (z)
accelerate the time of payment or vesting or increase the amount of
compensation due any such employee or officer.
4.12 SEC Reports. First Place has previously made available to FFY an
accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
September 1, 1999 by First Place with the SEC pursuant to the Securities Act or
the Exchange Act (the "First Place Reports") and (b) communication mailed by
First Place to its shareholders since September 1, 1999, and no such
registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be
deemed to modify information as of an earlier date. First Place has timely
filed all First Place Reports and other documents required to be filed by it
under the Securities Act and the Exchange Act, and, as of their respective
dates, all First Place Reports complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
4.13 First Place Information. The information relating to First Place and
its Subsidiaries to be contained in, or incorporated by reference in, the Proxy
Statement and the S-4, or in any other document filed with any other regulatory
agency in connection herewith, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
The S-4 (except for such portions thereof that relate only to FFY or any of its
Subsidiaries) will comply in all material respects with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder and the
Exchange Act and the rules and regulations thereunder.
4.14 Ownership of FFY Common Stock: Affiliates and Associates.
(a) Except for the First Place Stock Option Agreement and as set forth in
Section 4.14 of the First Place Disclosure Schedule, none of First Place, any
of its Subsidiaries, (i) beneficially own, directly or indirectly, or (ii) is a
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, any shares of capital
stock of FFY (other than Trust Account Shares and DPC Shares); and
(b) Neither First Place nor any of its Subsidiaries is an "affiliate" (as
such term is defined in DGCL 203(c)(1)), an "associate" (as such term is
defined in DGCL 203(c)(2)) of FFY or an "Interested Stockholder" (as such term
is defined in Section 8 of FFY's Certificate of Incorporation).
4.15 Compliance with Applicable Law. First Place and each of its
Subsidiaries holds all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and are in compliance with and are not, to its
knowledge, in default in any respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating
to First Place or any of its Subsidiaries, except where the failure to hold
such license, franchise, permit or authorization or such non-compliance or
default would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on First Place, and neither First
Place nor any of its Subsidiaries knows of, or has received notice of, any
material violations of any of the above since December 31, 1994.
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4.16 Certain Contracts.
(a) Except as set forth in Section 4.16(a) of the First Place Disclosure
Schedule, neither First Place nor any of its Subsidiaries is a party to or
bound by any contract, arrangement, commitment or understanding (whether
written or oral) (i) with respect to the employment of any directors, officers,
employees or consultants, (ii) which, upon the consummation of the transactions
contemplated by this Agreement or the Bank Merger Agreement will (either alone
or upon the occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from FFY, First Place, the
Surviving Corporation, the Surviving Institution or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in First Place Reports, (iv) which is a consulting
agreement (including data processing, software programming and licensing
contracts) not terminable on 60 days or less notice involving the payment of
more than $50,000 per annum, in the case of any such agreement with an
individual, or $100,000 per annum, in the case of any other such agreement, (v)
which materially restricts the conduct of any line of business by First Place
or any of its Subsidiaries, (vi) with or to a labor union or guild (including
any collective bargaining agreement) or (vii) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the Bank Merger Agreement, or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Bank Merger Agreement. Each
contract, arrangement, commitment or understanding of the type described in
this Section 4.16(a), whether or not set forth in Section 4.16(a) of the First
Place Disclosure Schedule, is referred to herein as a "First Place Contract."
The First Place has previously delivered to FFY true and correct copies of each
First Place Contract.
(b) Except as set forth in Section 4.16(b) of the First Place Disclosure
Schedule, (i) each First Place Contract is valid and binding and in full force
and effect, (ii) First Place and each of its Subsidiaries have in all material
respects performed all obligations required to be performed by it to date under
each First Place Contract, except where such noncompliance, individually or in
the aggregate, would not have or be reasonably likely to have a Material
Adverse Effect on First Place, (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would constitute, a
material default on the part of First Place or any of its Subsidiaries under
any such First Place Contract, except where such default, individually or in
the aggregate, would not have or be reasonably likely to have a Material
Adverse Effect on First Place and (iv) no other party to such First Place
Contract is, to the best knowledge of First Place, in default in any respect
thereunder.
4.17 Agreements with Regulatory Agencies. Except as set forth in Section
4.17 of the First Place Disclosure Schedule, neither First Place nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient
of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, whether or not set forth in Section 4.17
of First Place Disclosure Schedule, a "First Place Regulatory Agreement"), any
Regulatory Agency or other Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has First Place or any of its
Subsidiaries been advised by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any Regulatory Agreement.
4.18 Investment Securities. Section 4.18 of the First Place Disclosure
Schedule sets forth the book and market value as of March 31, 2000 of the
investment securities, mortgage backed securities and securities held for sale
of First Place and its Subsidiaries. Section 4.18 of First Place Disclosure
Schedule sets forth an investment securities report which includes security
descriptions, CUSIP numbers, pool face values, book values, coupon rates and
current market values.
4.19 Intellectual Property. Except where there would be no Material Adverse
Effect on First Place, First Place and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use
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without payment all material patents, copyrights, trade secrets, trade names,
servicemarks, trademarks and computer software used in its businesses; and
neither First Place nor any of its Subsidiaries has received any notice of
conflict with respect thereto that asserts the right of others. First Place
and each of its Subsidiaries have in all material respects performed all the
obligations required to be performed by them and are not in default in any
material respect under any contract, agreement, arrangement or commitment
relating to any of the foregoing, except where such non-performance or default
would not, individually or in the aggregate, have or be reasonably likely to
have a Material Adverse Effect on First Place.
4.20 Undisclosed Liabilities. Except (a) as set forth in Section 4.20 of
the First Place Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of First Place
included in its Form 10-Q for the period ended March 31, 2000 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 2000 that, either alone or when combined with all
similar liabilities, have not had, and could not reasonably be expected to
have, a Material Adverse Effect on First Place, neither First Place nor any of
its Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due).
4.21 State Takeover Laws. The provisions of Article VIII of First Place's
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 3.14 hereof, apply to the Agreement, the
Bank Merger Agreement or the FFY Stock Option Agreement or any of the
transactions contemplated hereby or thereby.
4.22 Administration of Fiduciary Accounts. First Place and each of its
Subsidiaries has properly administered in all material respects all accounts
for which it acts as a fiduciary, including but not limited to accounts for
which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of
the governing documents and applicable state and federal law and regulation
and common law. Neither First Place nor any of its Subsidiaries nor any of
their respective directors, officers or employees has committed any breach of
trust with respect to any such fiduciary account which has or could reasonably
be expected to have a Material Adverse Effect on First Place, and the
accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
4.23 Environmental Matters. Except as set forth in Section 4.23 of the
First Place Disclosure Schedule:
(a) Each of First Place, its Subsidiaries, the Participation Facilities and
the Loan Properties (each as hereinafter defined) are, and have been, in
compliance with Environmental Laws, except for violations which, either
individually or in the aggregate, have not had and cannot reasonably be
expected to have a Material Adverse Effect on First Place;
(b) There is no suit, claim, action or proceeding, pending or threatened,
before any Governmental Entity or other forum in which First Place, any of its
Subsidiaries, any Participation Facility or any Loan Property, has been or,
with respect to threatened proceedings, may be, named as a defendant (x) for
alleged noncompliance (including by any predecessor), with any Environmental
Laws, or (y) relating to the release, threatened release or exposure to any
material whether or not occurring at or on a site owned, leased or operated by
First Place or any of its Subsidiaries, any Participation Facility or any Loan
Property, except where such noncompliance or release has not resulted, and
cannot be reasonably expected to result, either individually or in the
aggregate, in a Material Adverse Effect on First Place;
(c) During the period of (x) First Place's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y)
First Place's or any of its Subsidiaries' participation in the management of
any Participation Facility, or (z) First Place's or any of its Subsidiaries'
holding of a security interest in a Loan Property, there has been no release
of materials in, on, under or affecting any such property, except where such
release has not had and cannot reasonably be expected to result in, either
individually or in the aggregate, a Material Adverse Effect on First Place. To
the knowledge of First Place, prior to the period of (x) First Place's or any
of its Subsidiaries' ownership or operation of any of their respective current
properties, (y) First Place's
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or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) First Place's or any of its Subsidiaries'
holding of a security interest in a Loan Property, there was no release or
threatened release of materials in, on, under or affecting any such property,
Participation Facility or Loan Property, except where such release has not had
and cannot be reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect on First Place; and
(d) The following definitions apply for purposes of this Section 4.23: (x)
"Loan Property" means any property in which First Place or any of its
Subsidiaries holds a security interest, and, where required by the context,
said term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which First Place or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
4.24 Derivative Transactions. Except as set forth in Section 4.24 of the
First Place Disclosure Schedule, since June 30, 1999, neither First Place nor
any of its Subsidiaries has engaged in transactions in or involving forwards,
futures, options on futures, swaps or other derivative instruments except (i)
as agent on the order and for the account of others, or (ii) as principal for
purposes of hedging interest rate risk on U.S. dollar denominated securities
and other financial instruments. None of the counterparties to any contract or
agreement with respect to any such instrument is in default with respect to
such contract or agreement and no such contract or agreement, were it to be a
Loan held by First Place or any of its Subsidiaries, would be classified as
"Other Loans Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss," "Classified," "Criticized," "Credit Risk Assets,"
"Concerned Loans" or words of similar import. The financial position of First
Place and its Subsidiaries on a consolidated basis under or with respect to
each such instrument has been reflected in the books and records of First Place
and such Subsidiaries in accordance with GAAP consistently applied, and no open
exposure of First Place or any of its Subsidiaries which has not been
previously disclosed in the First Place Reports with respect to any such
instrument (or with respect to multiple instruments with respect to any single
counterparty) exceeds $500,000.
4.25 Opinion. The First Place has received a written opinion, dated the date
hereof, from KBW to the effect that, subject to the terms, conditions and
qualifications set forth therein, as of the date thereof the Exchange Ratio is
fair to such stockholders from a financial point of view.
4.26 Assistance Agreements. Neither First Place nor any of its Subsidiaries
is a party to any agreement or arrangement entered into in connection with the
consummation of a federally assisted acquisition of a depository institution
pursuant to which First Place or any of its Subsidiaries is entitled to receive
financial assistance or indemnification from any governmental agency.
4.27 Approvals. As of the date of this Agreement, First Place knows of no
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained without the imposition of a
Burdensome Condition.
4.28 Loan Portfolio.
(a) In First Place's reasonable judgment, the allowance for loan losses
reflected in First Place's audited statement of condition at June 30, 1999 was,
and the allowance for loan losses shown on the balance sheets in its Reports
for periods ending after June 30, 1999 have been and will be, adequate in all
material respects, as of the dates thereof, under GAAP, and no Regulatory
Agencies have required or requested First Place to increase the allowance for
loan losses for such periods.
(b) Except as set forth in Section 4.28 of the First Place Disclosure
Schedule, neither First Place nor any of its Subsidiaries is a party to any
written or oral (i) Loan, other than Loans the unpaid principal balance of
which does not exceed $175,000, under the terms of which the obligor is, as of
the date of this Agreement, over 90 days delinquent in payment of principal or
interest or in default of any other provision, or (ii) Loans as of the date of
this Agreement with any director, executive officer or ten percent stockholder
of First Place or
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any of its Subsidiaries, or to the best knowledge of First Place, any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. Section 4.28 of the First Place Disclosure Schedule
sets forth (i) all of the Loans in original principal amount in excess of
$175,000 of First Place or any of its Subsidiaries that as of the date of this
Agreement are classified by any bank examiner (whether regulatory or internal)
as "Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Credit Risk Assets",
"Concerned Loans", "Watch List" or words of similar import, together with the
principal amount of and accrued and unpaid interest on each such Loan and the
identity of the borrower thereunder, and (ii) by category of Loan (i.e.,
commercial, consumer, etc.), all of the other Loans of First Place and its
Subsidiaries that as of the date of this Agreement are classified as such,
together with the aggregate principal amount of and accrued and unpaid interest
on such Loans by category. First Place shall promptly inform FFY in writing of
any loan that becomes classified in the manner described in the previous
sentence, or any Loan the classification of which is changed, at any time after
the date of this Agreement.
(c) Each loan reflected as an asset in the First Place Reports (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct in all material respects, (ii) to the extent secured,
has been secured by valid liens and security interests which have been
perfected, and (iii) is the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on First Place.
4.29 [Reserved]
4.30 Labor Matters. Except as set forth in Section 4.30 of the First Place
Disclosure Schedule, neither First Place nor its Subsidiaries is or has ever
been a party to, or is or has ever been bound by, any collective bargaining
agreement, contract, or other agreement or understanding with a labor union or
labor organization with respect to its employees, nor is First Place or its
Subsidiaries the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel it or any such Subsidiary to bargain
with any labor organization as to wages and conditions of employment, nor is
the management of First Place aware of any strike, other labor dispute,
organizational effort or other activity taken with a view toward unionization
involving First Place or its Subsidiaries pending or threatened. First Place
and its Subsidiaries are in compliance with applicable laws regarding
employment or employees and retention of independent contractors and are in
material compliance with all applicable employment tax laws.
4.31 Termination Benefits. Section 4.31 of the First Place Disclosure
Schedule contains a complete and accurate schedule showing as of the date of
this Agreement the monetary amounts payable, subject to a determination of the
Market Value, and identifying the in-kind benefits due under the Specified
Compensation and Benefit Programs (as defined herein) for each Named Individual
(as defined herein) individually. For purposes hereof, "Specified Compensation
and Benefit Programs" shall include all employment agreements, change in
control agreements, severance or special termination agreements, severance
plans, pension, retirement or deferred compensation plans for non-employee
directors, supplemental executive retirement programs, tax indemnification
agreements, outplacement programs, cash bonus programs, stock appreciation
right, phantom stock or stock unit plan, and health, life, disability and other
insurance or welfare plans, but shall not include any tax-qualified pension,
profit-sharing or employee stock ownership plan. For purposes hereof, "Named
Individual" shall include each non-employee director of First Place or its
Subsidiaries and each executive officer of First Place or its Subsidiaries.
4.32 Deposits. None of the deposits of the Association is a "brokered"
deposit.
4.33 Antitakeover Provisions Inapplicable. First Place and its Subsidiaries
have taken all actions required to exempt First Place and the Agreement from
any provisions of an antitakeover nature in their Certificate of Incorporation,
Bylaws and any other governing documents and the provisions of any federal or
state "antitakeover," "fair price," "moratorium," "control share acquisition"
or similar laws or regulations.
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4.34 Insurance. First Place and its Subsidiaries are presently insured, and
since June 30, 1997, have been insured, for reasonable amounts with financially
sound and reputable insurance companies, against such risks as companies
engaged in a similar business would, in accordance with good business practice,
customarily be insured. All of the insurance policies and bonds maintained by
First Place and its Subsidiaries are in full force and effect, First Place and
its Subsidiaries are not in default thereunder and all material claims
thereunder have been filed in due and timely fashion.
4.35 Indemnification. Except as provided in First Place's employment
agreements, its indemnification agreement with KBW, or the Certificate of
Incorporation or Bylaws of First Place, neither First Place nor its
Subsidiaries is a party to any indemnification agreement with any of its
present or future directors, officers, employees, agents or other persons who
serve or served in any other capacity with any other enterprise at the request
of First Place (a "Covered Person"), and, except as set forth in Section 4.35
of the First Place Disclosure Schedule, there are no claims for which any
Covered Person would be entitled to indemnification under the Certificate of
Incorporation, or Bylaws of First Place or any Subsidiary of First Place,
applicable law, regulation or any indemnification agreement.
4.36 Disclosure. The representations and warranties contained in this
Article IV do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article IV not misleading.
ARTICLE V
Covenants Relating to Conduct of Business
5.1 Covenants. During the period from the date of this Agreement and
continuing until the Effective Time, except as expressly contemplated or
permitted by this Agreement, the Bank Merger Agreement or the Option Agreements
or with the prior written consent of the other party, each of FFY and First
Place, and their respective Subsidiaries, shall carry on their respective
businesses in the ordinary course consistent with past practice and consistent
with prudent banking practice. Each of FFY and First Place will use its best
efforts to (x) preserve its business organization and that of its Subsidiaries
intact, (y) keep available to itself and the other party hereto the present
services of its employees of and (z) preserve for itself and the other parties
hereto its goodwill of its customers and others with whom business
relationships exist. Without limiting the generality of the foregoing, and
except as set forth in Section 5.1 of the FFY Disclosure Schedule, Section 5.1
of the First Place Disclosure Schedule or as otherwise contemplated by this
Agreement or consented to in writing by the other party hereto, each of FFY and
First Place shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of FFY or First Place, as the case may be, declare or
pay any dividends on, or make other distributions in respect of, any of its
capital stock, other than normal quarterly dividends in an amount of no more
than $0.125 per share with respect to shares of FFY Common Stock and no more
than $0.10 per share with respect to shares of First Place Common Stock;
(b) split, combine or reclassify any shares of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock except upon the
exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement and in accordance with their
present terms, and except pursuant to the Option Agreements;
(c) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or any securities convertible into
or exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing, other
than (i) the issuance of FFY Common Stock or First Place Common Stock pursuant
to stock options or similar rights to acquire FFY Common Stock or First Place
Common Stock granted pursuant to FFY Stock Plan or First Place Stock Plan and
outstanding prior to the date of this Agreement, in each case in accordance
with their present terms and (ii) pursuant to the Option Agreements;
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(d) amend its Certificate of Incorporation, By-laws or other similar
governing documents;
(e) with the exception of matters set forth in Section 5.1(e) of the FFY
Disclosure Schedule or the First Place Disclosure Schedule, authorize or permit
any of its officers, directors, employees or agents to directly or indirectly
solicit, initiate or encourage any inquiries relating to, or the making of any
proposal which constitutes, a "takeover proposal" (as defined below), or,
except to the extent legally required for the discharge of the fiduciary duties
of its Board of Directors, recommend or endorse any takeover proposal, or
participate in any discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal or
otherwise facilitate any effort or attempt to make or implement a takeover
proposal. Each of FFY and First Place will immediately cease and cause to be
terminated any existing activities, discussions or negotiations previously
conducted with any other parties with respect to any of the foregoing with the
exception of matters set forth in Section 5.1(e) of the FFY Disclosure Schedule
or the First Place Disclosure Schedule. The parties hereto will take all
actions necessary or advisable to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 5.1(e). Each party will notify the other immediately if any
such inquiries or takeover proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, a party, and that party will promptly inform the
other in writing of all of the relevant details with respect to the foregoing.
As used in this Agreement, "takeover proposal" shall mean any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving FFY or First Place or any Subsidiary of FFY or First
Place or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of FFY or First Place or
any Subsidiary of FFY or First Place other than the transactions contemplated
or permitted by this Agreement, the Bank Merger Agreement and the Option
Agreements;
(f) make any capital expenditures other than the expenses which are set
forth in Section 5.1(f) of the FFY or First Place Disclosure Schedules and
expenses which (i) are made in the ordinary course of business or are necessary
to maintain existing assets in good repair, or (ii) in an amount of no more
than $100,000 individually and $150,000 in the aggregate;
(g) except as disclosed in Section 5.1(g) of the FFY Disclosure Schedules,
enter into any new line of business;
(h) except as disclosed in Section 5.1(h) of the FFY or the First Place
Disclosure Schedules, acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets, which would be material,
individually or in the aggregate, to that party, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with prudent
banking practices;
(i) take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue in any material respect, or in any of the conditions to the
Merger set forth in Article VII not being satisfied, or in a violation of any
provision of this Agreement or the Bank Merger Agreement, except, in every
case, as may be required by applicable law;
(j) change its methods of accounting in effect at June 30, 1999, except as
required by changes in GAAP or regulatory accounting principles as concurred to
by its independent auditors;
(k) (i) except as set forth in Section 5.1(k) of the FFY or First Place
Disclosure Schedule, as required by applicable law, or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any Plan
or any agreement, arrangement, plan or policy between FFY or First Place or any
Subsidiary of FFY or First Place and one or more of their current or former
directors, officers or employees or (ii) except for normal increases in the
ordinary course of business consistent (including, in the case of First Place,
any adjustment to
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salaries and bonuses to be made by the First Place Board of Directors based on
the study prepared by First Place's compensation consultants) with past
practice, or except as required by applicable law, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan or agreement as in effect as of the date
hereof (including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares);
(l) take or cause to be taken any action which would disqualify the Merger
as a tax free reorganization under Section 368 of the Code;
(m) except as set forth in Section 5.1(m) of FFY or First Place Disclosure
Schedule, other than activities in the ordinary course of business consistent
with past practice, sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(o) except as set forth in Section 5.1(o) of the FFY or First Place
Disclosure Schedule, file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
(p) commit any act or omission which constitutes a material breach or
default by FFY or First Place or any of their Subsidiaries under any
Regulatory Agreement or under any material contract or material license to
which FFY or First Place or any of its Subsidiaries is a party or by which any
of them or their respective properties is bound;
(q) except as set forth in Section 3.28 of the FFY Disclosure Schedule or
Section 4.28 of the First Place Disclosure Schedule, compromise, extend or
restructure any real estate loan, construction loan or commercial loan with an
unpaid principal balance except in the ordinary course of business consistent
with past practices;
(r) except as set forth in Section 5.1(r) of the FFY or First Place
Disclosure Schedule, make or commit to any commercial business loan
(including, without limitation, lines of credit and letters of credit) or any
commercial real estate or construction loan (including, without limitation,
lines of credit and letters of credit) secured by any non-1-4 family
residential properties, except in the ordinary course of business consistent
with past practices;
(s) purchase or commit to purchase any bulk loan portfolio;
(t) engage in or enter into any structured transactions, derivative
securities, arbitrage or hedging activity;
(u) except as set forth in Section 5.1(u) of the FFY and First Place
Disclosure Schedule make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other
than in connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with prudent banking practices, or for goods, services or other
items necessary in the ordinary course of business relating to foreclosures,
settlements in lieu of foreclosure or troubled loan or debt restructurings;
(v) create, renew, amend or terminate or give notice of a proposed renewal,
amendment or termination of, any material contract, agreement or lease for
goods, services or office space to which FFY or First Place or any of its
Subsidiaries is a party or by which FFY or First Place or any of its
Subsidiaries or their respective properties is bound;
(w) take any action which would cause the termination or cancellation by
the FDIC of insurance in respect of FFY Bank's deposits or the Association's
deposits;
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(x) settle any claim, action or proceeding involving any liability of it or
its Subsidiaries for money damages in excess of $50,000 or material
restrictions upon its operation or its Subsidiaries operation;
(y) elect to the Board of Directors of itself or its Subsidiaries or to any
office any person who is not a member of the Board of Directors or an officer
of FFY or First Place or their Subsidiaries as of the date of this Agreement,
except to replace a director or officer who has terminated service with FFY or
First Place or either of their Subsidiaries; or
(z) agree to do any of the foregoing.
ARTICLE VI
Additional Agreements
6.1 Regulatory Matters.
(a) FFY and First Place shall promptly prepare and file with the SEC the
Proxy Statement and First Place shall promptly prepare and file with the SEC
the S-4, in which the Proxy Statement will be included as a prospectus. Each of
FFY and First Place shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such
filing, and each of FFY and First Place shall thereafter mail the Proxy
Statement to each of its respective stockholders. First Place shall also use
all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement and the Bank Merger Agreement, and FFY shall furnish all
information concerning FFY and the holders of FFY Common Stock as may be
reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger and the Subsidiary Merger) (it being understood that any
amendments to the S-4 or a resolicitation of proxies as a consequence of a
subsequent proposed merger, stock purchase or similar acquisition by First
Place or any of its Subsidiaries shall not violate this covenant). FFY and
First Place shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
FFY or First Place, as the case may be, and any of their respective
Subsidiaries, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to consummate
the transactions contemplated by this Agreement and each party will keep the
other apprised of the status of matters relating to completion of the
transactions contemplated herein.
(c) First Place and FFY shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Proxy Statement, the S-4 or any other statement, filing,
notice or application made by or on behalf of First Place, FFY or any of their
respective Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
(d) First Place and FFY shall promptly furnish each other with copies of
written communications received by First Place or FFY, as the case may be, or
any of their respective Subsidiaries, Affiliates or Associates (as such terms
are defined in Rule 12b-2 under the Exchange Act as in effect on the date of
this Agreement) from, or delivered by any of the foregoing to, any Governmental
Entity in respect of the transactions contemplated hereby.
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6.2 Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, FFY shall, and shall cause each of its Subsidiaries
to, afford to the officers, employees, accountants, counsel and other
representatives of First Place, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, FFY shall, and shall cause its
Subsidiaries to, make available to First Place (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws or
Federal or state banking laws (other than reports or documents which FFY is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as First Place may reasonably
request. Neither FFY nor any of its Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of FFY's customers, jeopardize any attorney-
client privilege or contravene any law, rule, regulation, order, judgment,
decree, fiduciary duty or binding agreement entered into prior to the date of
this Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. First Place will hold all such information in confidence to the
extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated May 8, 2000, between First Place and FFY (the
"First Place Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, First Place shall, and shall cause its Subsidiaries
to, afford to the officers, employees, accountants, counsel and other
representatives of FFY, access, during normal business hours during the period
prior to the Effective Time, to such information regarding First Place and its
Subsidiaries as shall be reasonably necessary for FFY to fulfill its
obligations pursuant to this Agreement to prepare the Proxy Statement or which
may be reasonably necessary for FFY to confirm that the representations and
warranties of First Place contained herein are true and correct and that the
covenants of First Place contained herein have been performed in all material
respects. Neither First Place nor any of its Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of First Place's customers, jeopardize
any attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. FFY will hold all such information in confidence to
the extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated May 8, 2000, between FFY and First Place (the
"FFY Confidentiality Agreement").
(c) All information furnished by First Place to FFY or its representatives
pursuant hereto shall be treated as the sole property of First Place and, if
the Merger shall not occur, FFY and its representatives shall return to First
Place all of such written information and all documents, notes, summaries or
other materials containing, reflecting or referring to, or derived from, such
information. FFY shall, and shall use its best efforts to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in FFY's possession
prior to the disclosure thereof by First Place; (y) was then generally known to
the public; or (z) was disclosed to FFY by a third party not bound by an
obligation of confidentiality or (ii) disclosures made as required by law. It
is further agreed that, if in the absence of a protective order or the receipt
of a waiver hereunder FFY is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning First Place to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, FFY may disclose such information to such tribunal or
governmental body or agency without liability hereunder.
(d) All information furnished by FFY to First Place or its representatives
pursuant hereto shall be treated as the sole property of FFY and, if the Merger
shall not occur, First Place and its representatives shall return to
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FFY all of such written information and all documents, notes, summaries or
other materials containing, reflecting or referring to, or derived from, such
information. First Place shall, and shall use its best efforts to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in First Place's
possession prior to the disclosure thereof by FFY; (y) was then generally known
to the public; or (z) was disclosed to First Place by a third party not bound
by an obligation of confidentiality or (ii) disclosures made as required by
law. It is further agreed that, if in the absence of a protective order or the
receipt of a waiver hereunder First Place is nonetheless, in the opinion of its
counsel, compelled to disclose information concerning FFY to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, First Place may disclose such information to such tribunal
or governmental body or agency without liability hereunder.
(e) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
(f) Each of FFY and First Place shall give timely notice of and shall permit
a representative of the other to attend meetings of its Board of Directors or
the Executive Committee thereof, except to the extent that such meeting, or
portion thereof, relates to the Merger.
6.3 Stockholder Meetings.
(a) First Place and FFY agree to take, in accordance with applicable law or
Nasdaq rules and their certificates of incorporation and bylaws, all action
necessary to convene an appropriate meeting of their stockholders to consider
and vote upon the adoption of this Agreement, and in each case any other matter
required to be approved or adopted by such stockholders for consummation of the
Merger (including any adjournment or postponement, the "First Place Meeting" or
"FFY Meeting," whichever is applicable), in each case as promptly as
practicable after the S-4 is declared effective. The First Place Board of
Directors and the FFY Board of Directors shall each declare the Merger
advisable and recommend adoption of the Agreement and First Place and FFY shall
take all reasonable, lawful action to solicit such adoption by its
stockholders, unless either Board of Directors, after having received a
takeover proposal, as applicable, and after having consulted with and
considered the advice of outside counsel and its investment banking firm, has
determined in good faith that to do so would result in a failure by the
directors to discharge properly their fiduciary duties in accordance with the
applicable law. First Place and FFY shall coordinate and cooperate with respect
to the foregoing matters, with a view towards, among other things, holding the
respective meetings of each party's stockholders on the same day.
(b) Voting Agreements. Each of FFY's and First Place's directors and certain
officers, as set forth in Section 6.3(b) of the FFY and First Place Disclosure
Schedules, have entered into a Voting Agreement, forms of which are attached as
Exhibit 6.3(b), hereto.
6.4 Legal Conditions to Merger. Each of First Place and FFY shall, and shall
cause its Subsidiaries to, use their best efforts (a) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger or the Subsidiary Merger and, subject to the conditions
set forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by FFY or First Place or any of their respective Subsidiaries in
connection with the Merger and the Subsidiary Merger and the other transactions
contemplated by this Agreement, and to comply with the terms and conditions of
such consent, authorization, order or approval; provided, however, that neither
First Place nor FFY shall be obligated to take any action pursuant to the
foregoing if the taking of such action or such compliance or the obtaining of
such consent, authorization, order or approval is likely, in the good faith
reasonable opinion of First Place or FFY, to result in the imposition of a
Burdensome Condition.
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6.5 Affiliates. FFY shall use its best efforts to cause each director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act) of FFY to deliver to First Place, as soon as
practicable after the date of this Agreement, and in any event prior to the
date of the stockholders meeting called by FFY to adopt this Agreement, a
written agreement, in the form of Exhibit 6.5(a) hereto, providing that such
person will not sell, pledge, transfer or otherwise dispose of shares of First
Place Common Stock to be received by such "affiliate" in the Merger, except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder.
6.6 Stock Exchange Listing. First Place shall cause the shares of First
Place Common Stock to be issued in the Merger to be approved for listing on the
Nasdaq, subject to official notice of issuance, as of the Effective Time.
6.7 Benefit Plans; Existing Agreements.
(a) The employees of FFY (the "FFY Employees") shall be entitled to
participate in First Place's employee benefit plans in which similarly situated
employees of First Place participate, to the same extent as comparable
employees of First Place, except as outlined below. As of the Effective Time,
First Place shall permit FFY Employees to participate in First Place's group
health, life and disability insurance plans on the same terms and conditions as
applicable to comparable employees of First Place and its Subsidiaries;
provided, however, that all FFY employees and dependents will be eligible to
participate in medical insurance plans of the Association upon the merger
without regard to any pre-existing conditions or exclusions and with no
uninsured waiting periods, and the carry over of all current plan year
deductibles and annual out-of-pocket contribution. As of the next entry date
immediately following the Effective Time, First Place shall permit FFY
Employees to participate in First Place's 401(k) savings plan on the same terms
and conditions as employees of First Place and its Subsidiaries. First Place
shall give effect to years of service with First Place, FFY and its
Subsidiaries (to the extent FFY gave effect) as if such service were with First
Place, for purposes of eligibility and vesting. As of the next entry date which
occurs following the 1 year anniversary of the Effective Time, First Place
shall permit FFY Employees to participate in the Association's employee stock
ownership plan ("ESOP") on the same terms and conditions as employees of First
Place and its Subsidiaries. First Place shall give effect to years of service
with First Place, FFY and its Subsidiaries (to the extent FFY gave effect) as
if such service were with First Place, for purposes of eligibility and vesting.
Except as otherwise required by applicable law, it is the intent of the parties
to provide equitable treatment to employees of FFY or its subsidiaries who are
not qualified for membership in the FFY ESOP and/or are detrimentally impacted
by the aforementioned ESOP treatment. FFY employees may take cash for
accumulated sick leave per current FFY policy as long as FFY has fully accrued
such sick leave termination benefits. FFY employees may alternatively receive
full credit under the First Place plan for each day of sick leave accumulated
under the FFY plan as long as , FFY has accrued such benefits as if the
employee terminated service and received cash for his or her accumulated sick
leave under the First Place plan. With respect to First Place's welfare benefit
plans, (including by example, vacation, sick leave, severance), FFY employees
shall have prior service with FFY recognized for purposes of eligibility to
participate, vesting and benefits accrual purposes. Except as specifically set
forth herein, it is the intent of the parties that all non-contract employees
of both parties are to be treated comparably regardless whether such persons
were FFY or First Place employees prior to the Effective Time.
(b) Following the Effective Time, First Place shall honor and shall cause
the Surviving Entity to honor in accordance with their terms all employment,
severance and other compensation agreements and arrangements, including, but
not limited to, severance benefit plans listed in Section 6.7(b)(1) of the FFY
Disclosure Schedule, existing prior to the execution of this Agreement and the
agreements and arrangement, as set forth in Section 6.7(b)(2) of the FFY
Disclosure Schedule which are between FFY and any director, officer or employee
thereof and which have been disclosed in FFY Disclosure Schedule and previously
have been delivered to First Place and agrees to make the payments and provide
the benefits pursuant thereto described in Section 6.7(b) of the FFY Disclosure
Schedule.
(c) Prior to or at the Closing Date, Jeffrey L. Francis shall enter into a
waiver agreement in the form of Exhibit 6.7(c) hereto, waiving his rights to
any benefits under his contract that might otherwise be payable if
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this Merger were considered to be a Change in Control as defined in his amended
and restated employment contract unless he is involuntarily terminated within
12 months after the Effective Time.
(d) The FFY Financial Corp. combination 401(k) and Employee Stock Ownership
Plan (the "FFY ESOP") shall be terminated as of the Effective Time (all shares
held by the ESOP shall be converted into the right to receive First Place
Common Stock pursuant to Section 1.4 hereof), all outstanding FFY ESOP
indebtedness shall be repaid, and the balance shall be allocated to FFY
employees, as provided for in the FFY ESOP, subject to the Code and ERISA, and
rules and regulations promulgated thereunder. In connection with the
termination of the FFY ESOP, FFY shall promptly apply to the IRS for a
favorable determination letter on the tax-qualified status of the FFY ESOP on
termination and any amendments made to the FFY ESOP in connection with its
termination or otherwise, if such amendments have not previously received a
favorable determination letter from the IRS with respect to their qualification
under Code Section 401(a). Any and all distributions from the FFY ESOP after
the termination which are intended to be made as quickly as permissible shall
be made consistent with the aforementioned determination letter.
(e) As of the Effective Time, the FFY retirement policy for directors shall
terminate and all directors shall at that time become subject to the retirement
policy of First Place previously provided to FFY.
(f) Following the Effective Time, severed employees of First Place and FFY
shall be treated equally.
6.8 Indemnification.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of FFY or any of its Subsidiaries (the "Indemnified Parties") is, or
is threatened to be, made a party based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director, officer or employee of FFY, any of the Subsidiaries of FFY or any of
their respective predecessors or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after
the Effective Time, the parties hereto agree to cooperate and use their best
efforts to defend against and respond thereto. It is understood and agreed that
after the Effective Time, First Place shall indemnify and hold harmless, as and
to the extent permitted by Delaware law, each such Indemnified Party against
any losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by applicable
law), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action, suit, proceeding
or investigation (whether asserted or arising before or after the Effective
Time), the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with First Place; provided, however, that (1) First
Place shall have the right to assume the defense thereof and upon such
assumption First Place shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred by
any Indemnified Party in connection with the defense thereof, except that if
First Place elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises that there are issues which raise conflicts of
interest between First Place and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with First Place, and First Place shall pay the reasonable fees and expenses of
such counsel for the Indemnified Parties, (2) First Place shall in all cases be
obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties except in the event of conflicts of interest and (3)
First Place shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld). Any
Indemnified Party wishing to claim Indemnification under this Section 6.8, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify promptly First Place thereof, provided that the failure to so notify
shall not affect the obligations of First Place under this Section 6.8 except
to the extent such failure to notify materially prejudices First Place.
Notwithstanding anything to the contrary
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contained in this Section 6.8(a), in no event shall First Place's obligations
under this Section 6.8(a) with respect to indemnification or the advancement of
expenses be greater than the obligations of FFY and its Subsidiaries with
respect thereto set forth as of the date of this Agreement in the Certificate
of Incorporation, By-laws or similar governing documents of FFY and its
Subsidiaries.
(b) In the event First Place or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of First Place or
the Surviving Corporation, as the case may be, assume the obligations set forth
in this section.
(c) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives; and the provisions of this Section 6.8 will survive the
Effective Time.
(d) First Place shall cause the persons serving as officers and directors of
FFY immediately prior to the Effective Time to be covered for a period of three
years from the Effective Time by the directors' and officers' liability
insurance policy maintained by FFY (provided that First Place may substitute
therefor policies of at least the same coverage and amounts containing terms
and conditions which are not less advantageous than such policy) with respect
to acts or omissions occurring prior to the Effective Time which were committed
by such officers and directors in their capacity as such so long as the annual
premium therefore is not in excess of 150% of the aggregate premiums paid by
FFY in 2000 on an annualized basis for such purpose (which aggregate premiums
on an annualized basis are disclosed in Section 6.8(d) of the FFY Disclosure
Schedule), but if the annual premiums therefor so exceeds such amount, First
Place will obtain as much directors' and officers' liability insurance as can
be obtained for the remainder of such period for a premium not in excess of
150% of the aggregate premiums paid by FFY in 2000 on an annualized basis for
such purpose.
6.9 Subsequent Interim and Annual Financial Statements. As soon as
reasonably available, but in no event later than October 1, 2000, First Place
will deliver to FFY and FFY will deliver to First Place their respective Annual
Reports on Form 10-K for the year ending June 30, 2000, as filed with the SEC
under the Exchange Act. As soon as reasonably available, but in no event more
than 45 days after the end of each fiscal quarter ending after the date of this
Agreement, First Place will deliver to FFY and FFY will deliver to First Place
their respective Quarterly Reports on Form 10-Q, as filed with the SEC under
the Exchange Act.
6.10 Additional Agreements. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, or the Bank Merger Agreement, or to vest the Surviving Corporation
or the Surviving Institution with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger or the
Subsidiary Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by First Place.
6.11 Advice of Changes. First Place and FFY shall promptly advise the other
party of any change or event having a Material Adverse Effect on it or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
From time to time prior to the Effective Time (and on the date prior to the
Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 7.2(a) or
7.3(a) hereof, as the case may be, or the compliance by FFY or First Place, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
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6.12 Current Information. During the period from the date of this Agreement
to the Effective Time, each Party will cause one or more of its designated
representatives to notify on a regular and frequent basis (not less than
monthly) representatives of the other Party and to report (i) the general
status of the ongoing operations of FFY or First Place, and its Subsidiaries;
(ii) the status of, and the action proposed to be taken with respect to, those
Loans held by it or any Subsidiary which, individually or in combination with
one or more other Loans to the same borrower thereunder, have an original
principal amount of $250,000 or more and are non-performing assets; (iii) the
origination of all loans other than 1-4 family residential mortgage loans and
consumer loans; and (iv) any material changes in its pricing of deposits. Each
will promptly notify the other of any material change in the normal course of
business or in the operation of its properties or the properties of any of its
Subsidiaries and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
institution or the threat of significant litigation involving itself or any of
its Subsidiaries, and will keep the other Party fully informed of such events.
6.13 Execution and Authorization of Bank Merger Agreement. As soon as
reasonably practicable after the date of this Agreement, (a) First Place shall
(i) cause the Board of Directors of the Association to approve the Bank Merger
Agreement, (ii) cause the Association to execute and deliver the Bank Merger
Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder
of the Association, and (b) FFY shall (i) cause the Board of Directors of FFY
Bank to approve the Bank Merger Agreement, (ii) cause FFY Bank to execute and
deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement
as the sole stockholder of FFY Bank. The Bank Merger Agreement shall contain
terms that are normal and customary in light of the transactions contemplated
hereby and such additional terms as are necessary to carry out the purposes of
this Agreement.
6.14 Coordination of Dividends. Until the Effective Time, FFY and First
Place shall coordinate with the other the declaration of any dividend or other
distributions with respect to FFY Common Stock and First Place Common Stock and
the record dates and payment dates relating thereto, it being the intention of
the parties that holders of shares of FFY Common Stock or First Place Common
Stock shall not receive more than one dividend, or fail to receive one
dividend, for any single calendar quarter on their shares of FFY Common Stock
and First Place Common Stock (including any shares of Surviving Corporation
Common Stock received in the Merger), as the case may be.
6.15 First Dividend Subsequent to Closing. Subject to the directors'
fiduciary duties and statutory and regulatory restrictions, the Board of
Directors of the Surviving Corporation shall declare a cash dividend of no less
than $0.125 per share for the first quarter immediately following the Closing
Date.
ARTICLES VII
Conditions Precedent
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been adopted by the
affirmative vote of the holders of at least a majority of the outstanding
shares of FFY Common Stock entitled to vote thereon and by the affirmative vote
of the holders of at least a majority of the outstanding shares of First Place
Common Stock entitled to vote thereon.
(b) Nasdaq Stock Market Listing. The shares of First Place Common Stock
which shall be issued to the stockholders of FFY upon consummation of the
Merger shall have been authorized for listing on the Nasdaq Stock Market,
subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate the
transactions contemplated hereby (including the Merger and the Subsidiary
Merger) shall have been obtained and shall remain in full
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force and effect and all statutory waiting periods in respect thereof shall
have expired (all such approvals and the expiration of all such waiting periods
being referred to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act and no
stop order suspending the effectiveness of the S-4 shall have been issued and
no proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or decree
issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger, the Subsidiary Merger or any of the other transactions contemplated by
this Agreement or the Bank Merger Agreement shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restricts
or makes illegal consummation of the Merger or the Subsidiary Merger.
(f) No Burdensome Condition. None of the Requisite Regulatory Approvals
shall impose any term, condition or restriction upon First Place, FFY, FFY
Bank, the Surviving Corporation, the Surviving Institution or any of their
respective Subsidiaries that First Place, or FFY, in good faith, reasonably
determines would so materially adversely affect the economic or business
benefits of the transactions contemplated by this Agreement to First Place or
FFY as to render inadvisable in the reasonable good faith judgment of First
Place or FFY, the consummation of the Merger (a "Burdensome Condition").
7.2 Conditions to Obligations of First Place. The obligation of First Place
to effect the Merger is also subject to the satisfaction or waiver by First
Place at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
FFY set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. First Place shall have
received a certificate signed on behalf of FFY by the Chief Executive Officer
and the Chief Financial Officer of FFY to the foregoing effect.
(b) Performance of Obligations of FFY. FFY shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and First Place shall have received
a certificate signed on behalf of FFY by the Chief Executive Officer and the
Chief Financial Officer of FFY to such effect.
(c) [Reserved]
(d) Consents Under Agreements. The consent, approval or waiver of each
person (other than the Governmental Entities) whose consent or approval shall
be required in order to permit the succession by the Surviving Corporation or
the Surviving Institution pursuant to the Merger or the Subsidiary Merger, as
the case may be, to any obligation, right or interest of FFY or any Subsidiary
of FFY under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument shall have been obtained, except where
the failure to obtain such consent, approval or waiver would not so materially
adversely affect the economic or business benefits of the transactions
contemplated by this Agreement to First Place as to render inadvisable, in the
reasonable good faith judgment of First Place, the consummation of the Merger.
(e) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(f) Federal Tax Opinion. First Place shall have received an opinion of
Patton Boggs LLP, counsel to First Place ("First Place's Counsel"), in form and
substance reasonably satisfactory to First Place, substantially to the effect
that, on the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the Effective
Time, the Merger and Subsidiary Merger will be
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treated as reorganizations within the meaning of Section 368(a) of the Code and
that, accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by First Place as a result of the
Merger;
(ii) No gain or loss will be recognized by the Association as a result
of the Subsidiary Merger;
(iii) No gain or loss will be recognized by FFY as a result of the
Merger;
(iv) No gain or loss will be recognized by FFY Bank as a result of the
Subsidiary Merger;
(v) No gain or loss will be recognized by the shareholders of FFY who
exchange all of their FFY Common Stock solely for First Place Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in First Place Common Stock);
(vi) The aggregate tax basis of First Place Common Stock received by
shareholders who exchange all of their FFY Common Stock solely for Common
Stock pursuant to the Merger will be the same as the aggregate tax basis of
FFY Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
In rendering such opinion, First Place's Counsel may require and rely upon
representations and covenants contained in certificates of officers of First
Place, FFY, FFY Bank and others, including certain shareholders of FFY.
7.3 Conditions to Obligations of FFY. The obligation of FFY to effect the
Merger is also subject to the satisfaction or waiver by FFY at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
First Place set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. FFY shall have
received a certificate signed on behalf of First Place by the Chief Executive
Officer and the Chief Financial Officer of First Place to the foregoing effect.
(b) Performance of Obligations of First Place. First Place shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and FFY shall have
received a certificate signed on behalf of First Place by the Chief Executive
Officer and the Chief Financial Officer of First Place to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of each
person (other than the Governmental Entities) whose consent or approval shall
be required in order to permit the succession by the Surviving Corporation or
the Surviving Institution pursuant to the Merger or the Subsidiary Merger, as
the case may be, to any obligation, right or interest of First Place or any
Subsidiary of First Place under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument shall have been
obtained, except those where the failure to obtain such consent, approval or
waiver would not so materially adversely affect the economic or business
benefits of the transactions contemplated by this Agreement to FFY as to render
inadvisable, in the reasonable good faith judgment of FFY, the consummation of
the Merger.
(d) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an injunction shall be pending.
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ARTICLE VIII
Termination and Amendment
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of both FFY and First Place:
(a) by mutual consent of FFY and First Place in a written instrument, if the
Board of Directors of each so determines by a vote of a majority of the members
of its entire Board;
(b) by either First Place or FFY upon written notice to the other party (i)
60 days after the date on which any request or application for a Requisite
Regulatory Approval shall have been denied or withdrawn at the request or
recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 60-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
have the right to terminate this Agreement pursuant to this Section 8.1(b)(i)
if such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement;
(c) by either First Place or FFY if the Merger shall not have been
consummated on or before December 31, 2000, unless the failure of the Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein;
(d) by either First Place or FFY (provided that the terminating party shall
not be in material breach of any of its obligations under Section 6.3) if any
approval of the stockholders of either of FFY or First Place required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of such stockholders
or at any adjournment or postponement thereof;
(e) by either First Place or FFY (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any
of the representations or warranties set forth in this Agreement on the part of
the other party, which breach is not cured within thirty days following written
notice to the party committing such breach, or which breach, by its nature,
cannot be cured prior to the Closing. No representation or warranty of FFY or
First Place shall be deemed untrue or incorrect, and no party hereto shall be
deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, event or circumstance unless such fact, event or
circumstance, individually or taken together with all other facts, events or
circumstances inconsistent with any representation or warranty has had or is
reasonably likely to have a Material Adverse Effect. For purposes of this
Agreement, "knowledge" shall mean, with respect to a party hereto, actual
knowledge of any officer of that party with the title, if any, ranking not less
than senior vice president and that party's in-house counsel, if any. Material
Adverse Effect means any effect that (i) is material and adverse to the
financial position, results of operations or business of First Place and its
Subsidiaries taken as a whole or FFY and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of First Place or FFY
to perform its obligations under this Agreement or otherwise materially
threaten or materially impede the consummation of the Merger and the other
transactions contemplated by this Agreement; provided, however, that Material
Adverse Effect shall not be deemed to include the impact of (a) changes in
thrift, banking and similar laws of general applicability or interpretations
thereof by courts or governmental authorities, or other changes affecting
depository institutions generally, including changes in general economic
conditions and changes in prevailing interest and deposit rates, (b) changes in
GAAP or regulatory accounting requirements applicable to thrifts, banks and
their holding companies generally, (c) any modifications or changes to
valuation policies and practices in connection with the Merger or Subsidiary
Merger or restructuring charges taken in connection with the Merger or
Subsidiary Merger, in each case in accordance with GAAP, (d) changes resulting
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from expenses (such as legal, accounting and investment bankers' fees) incurred
in connection with this Agreement and (e) actions or omissions of First Place
or FFY taken with the prior written consent of FFY or First Place, as
applicable, in contemplation of the transactions contemplated hereby;
(f) by either First Place or FFY (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any
of the covenants or agreements set forth in this Agreement on the part of the
other party, which breach shall not have been cured within thirty days
following receipt by the breaching party of written notice of such breach from
the other party hereto; provided, however, that neither party shall have the
right to terminate this Agreement pursuant to this Section 8.1(f) unless such
breach shall have a Material Adverse Effect, as defined in Section 8.1(e)
above, on the other party; or
(g) by either First Place or FFY, if the Board of Directors of the other
Party does not recommend in the Proxy Statement that its stockholders adopt
this Agreement or if, after recommending in the Proxy Statement that
stockholders adopt this Agreement, the Board of Directors shall have withdrawn,
modified or qualified such recommendation in any respect adverse to the
terminating Party.
8.2 Effect of Termination; Expenses. In the event of termination of this
Agreement by either First Place or FFY as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except (i) the last
sentences of Sections 6.2(a) and (b), and Sections 6.2(c), 6.2(d), 8.2 and 9.4
shall survive any termination of this Agreement, (ii) that notwithstanding
anything to the contrary contained in this Agreement, no party shall be
relieved or released from any liabilities or damages arising out of its willful
breach of any provision of this Agreement, and (iii) in the event this
Agreement is terminated by either First Place or FFY pursuant to Section 8.1(e)
or (f), then the terminating party shall receive from the other party, in
addition to any other amounts payable by such party pursuant to the Agreement,
its reasonable costs and expenses incurred in connection with the transactions
contemplated by this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this Agreement may
be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after adoption of the
Agreement by the stockholders of either FFY or First Place; provided, however,
that after adoption of the Agreement by FFY's stockholders, there may not be,
without further approval of such stockholders, any amendment of this Agreement
which reduces the amount or changes the form of the consideration to be
delivered to FFY stockholders hereunder other than as contemplated by this
Agreement. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
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ARTICLE IX
General Provisions
9.1 Closing. Subject to the terms and conditions of this Agreement and the
Bank Merger Agreement, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be
the first day which is (a) the last business day of a month and (b) at least
two business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in Article VII hereof (the
"Closing Date"), at the offices of First Place's counsel unless another time,
date or place is agreed to in writing by the parties hereto.
9.2 Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, subject to FFY's consent, which consent shall not
be unreasonably withheld, prior to the Effective Time, First Place shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions provided that each of the transactions comprising such
revised structure shall (i) fully qualify as, or fully be treated as part of,
one or more tax-free reorganizations within the meaning of Section 368(a) of
the Code, and not subject any of the stockholders of FFY to adverse tax
consequences or change the amount of consideration to be received by such
stockholders, (ii) be capable of consummation in as timely a manner as the
structure contemplated herein and (iii) not otherwise be prejudicial to the
interests of the stockholders of FFY. This Agreement and any related documents
shall be appropriately amended in order to reflect any such revised structure.
9.3 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to the
Option Agreements, which shall terminate in accordance with their terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.4 Expenses. Except as costs and expenses may be payable pursuant to
Section 8.2 of this Agreement, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, provided, however, that the costs and
expenses of printing and mailing the Proxy Statement to the stockholders of FFY
and First Place shall be borne equally by First Place and FFY, provided,
however, that all filing and other fees paid to the SEC or any other
Governmental Entity in connection with the Merger, the Subsidiary Merger and
other transactions contemplated thereby shall be borne by First Place,
provided, further, however, that nothing contained herein shall limit either
party's rights to recover any liabilities or damages arising out of the other
party's willful breach of any provision of this Agreement.
9.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to First Place, to:
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
Attention: Steven R. Lewis
President and Chief Executive Officer
with a copy to:
Patton Boggs LLP
2550 M Street, N.W.
Washington, D.C. 20037
Attention: Joseph G. Passaic, Jr.
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(b) if to FFY, to:
FFY Financial Corp.
724 Boardman-Poland Road
Youngstown, Ohio 44512
Attention: Jeffrey L. Francis
President and Chief Executive Officer
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Suite 700
Washington, D.C. 20005
Attention: James S. Fleischer
9.6 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrases "the date
of this Agreement", "the date hereof" and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to May 23, 2000.
9.7 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.8 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreements, the Bank Merger Agreement and the Option
Agreements.
9.9 Governing Law. This Agreement shall be governed and construed in
accordance with the law of the State of Delaware, without regard to any
applicable conflicts of law.
9.10 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in the last
sentences of Sections 6.2(a) and (b) and in Sections 6.2(c) and (d) of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the last sentences of
Sections 6.2(a) and (b) and Sections 6.2(c) and (d) of this Agreement and to
enforce specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
9.11 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.12 Publicity. Except as otherwise required by law or the rules of the
Nasdaq Stock Market, so long as this Agreement is in effect, neither First
Place nor FFY shall, or shall permit any of its Subsidiaries to, issue or cause
the publication of any press release or other public announcement with respect
to, or otherwise make any
A-42
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld.
9.13 Assignment; No Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, First Place and FFY have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
First Place Financial Corp.
/s/ Steven R. Lewis
By:__________________________________
Name: Steven R. Lewis
Title: President and Chief Executive
Officer
Attest:
/s/ Dominique Stoeber
_____________________________________
Name: Dominique Stoeber
Corporate Secretary
FFY Financial Corp.
/s/ Jeffrey L. Francis
By:__________________________________
Name: Jeffrey L. Francis
Title: President and Chief Executive
Officer
Attest:
/s/ J. Craig Carr
_____________________________________
Name: J. Craig Carr
Vice President, General Counsel and
Secretary
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ANNEX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE SECURITIES
ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of May 23, 2000 (this "Agreement"), between
FFY Financial Corporation, a Delaware corporation ("Grantee"), and First Place
Financial Corp., a Delaware corporation ("Issuer").
RECITALS
A. Merger Agreement. Grantee and Issuer have entered into an Agreement and
Plan of Merger, dated as of May 23, 2000 (the "Merger Agreement"), which
agreement was executed and delivered on the date of this Stock Option
Agreement, pursuant to which Grantee is to merge with and into Issuer (the
"Merger"); and
B. Option. As a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option
(as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 2,158,602 fully paid and nonassessable shares of the common
stock, par value $0.01 per share, of Issuer ("Common Stock") at a price per
share equal to $9.75 (the "Option Price"); provided, however, that in no event
shall the number of shares for which this Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock. The number of shares of
Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5 hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed
to authorize Issuer to issue shares in breach of any provision of the Merger
Agreement.
2. Exercise. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within six (6) months following the first such Subsequent Triggering Event (or
such later period as provided in Section 10). Each of the following shall be an
Exercise Termination Event: (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event except a termination by Grantee
pursuant to Section 8.1(e) or (f) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional) (a "Listed
Termination"); or (iii) the passage of eighteen (18) months (or such longer
period as provided in Section 10) after termination of the Merger Agreement if
such termination follows the occurrence of an Initial Triggering
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Event or is a Listed Termination. The term "Holder" shall mean the holder or
holders of the Option. Notwithstanding anything to the contrary contained
herein, the Option may not be exercised at any time when Grantee shall be in
material breach of any of its covenants or agreements contained in the Merger
Agreement such that Issuer shall be entitled to terminate the Merger Agreement
pursuant to Sections 8.1(e) or 8.1(f) thereof.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Significant Subsidiaries (as defined in Rule 1-
02 of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")) (the "Issuer Subsidiaries"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder) other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") or
the Board of Directors of Issuer (the "Issuer Board") shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement.
For purposes of this Agreement, (a) "Acquisition Transaction" shall mean
(x) a merger or consolidation, or any similar transaction, involving Issuer
or any Issuer Subsidiary (other than mergers, consolidations or similar
transactions involving solely Issuer and/or one or more wholly-owned
Subsidiaries of the Issuer, provided, any such transaction is not entered
into in violation of the terms of the Merger Agreement), (y) a purchase,
lease or other acquisition of all or any substantial part of the assets or
deposits of Issuer or any Issuer Subsidiary, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of
Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall have the meaning
set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary, alone
or together with such person's affiliates and associates (as such terms are
defined in Rule 12b-2 under the 1934 Act) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more of
the outstanding shares of Common Stock (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act, and the rules and regulations thereunder);
(iii) The stockholders of Issuer shall have voted and failed to adopt
the Merger Agreement at a meeting which has been held for that purpose or
any adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Merger Agreement or shall have been canceled
prior to termination of the Merger Agreement if, prior to such meeting (or
if such meeting shall not have been held or shall have been canceled, prior
to such termination), it shall have been publicly announced that any person
(other than Grantee or any of its Subsidiaries) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) The Issuer Board shall have withdrawn, modified or qualified (or
publicly announced its intention to withdraw, modify or qualify) in any
manner adverse in any respect to Grantee its recommendation that the
stockholders of Issuer adopt the Merger Agreement, or Issuer or any Issuer
Subsidiary shall have authorized, recommended, proposed (or publicly
announced its intention to authorize, recommend or propose) an agreement to
engage in an Acquisition Transaction with any person other than Grantee or
a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
filed with the SEC a registration statement or tender offer materials with
respect to a potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the
SEC with respect to a potential vote by its stockholders to approve the
issuance of shares to be offered in such an exchange offer);
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(vi) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement after an overture is made by a third
party to Issuer or its stockholders to engage in an Acquisition
Transaction, and (a) following such breach Grantee would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both) and (b) such breach shall not have been
cured prior to the Notice Date (as defined in Section 2(e)); or
(vii) Any person other than Grantee or any Grantee Subsidiary, without
Grantee's prior written consent, shall have filed an application or notice
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), the Office of Thrift Supervision (the "OTS") or other
federal or state bank regulatory or antitrust authority, which application
or notice has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in clause
(i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place
and date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the Federal Reserve
Board or any other regulatory or antitrust agency is required in connection
with such purchase, the Holder shall promptly file the required notice or
application for approval, shall promptly notify Issuer of such filing and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer and
(ii) present and surrender this Agreement to Issuer at its principal executive
offices, provided that the failure or refusal of the Issuer to designate such a
bank account or accept surrender of this Agreement shall not preclude the
Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the
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Securities Act of 1933, as amended. A copy of such agreement is on file at
the principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the
opinion of counsel to the Holder, in form and substance reasonably satisfactory
to the Issuer; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of any necessary regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder
or its assignee, transferee or designee.
3. Covenants of Issuer. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), the Home Owners' Loan Act, as
amended (the "HOLA") or the Change in Bank Control Act of 1978, as amended, or
any state or other federal banking law, prior approval of or notice to the
Federal Reserve Board, the OTS or to any state or other federal regulatory
authority is necessary before the Option may be exercised, cooperating fully
with the Holder in preparing such applications or notices and providing such
information to the Federal Reserve Board, the OTS or such state or other
federal regulatory authority as they may require) in order to permit the Holder
to exercise the Option and Issuer duly and effectively to issue shares of
Common Stock pursuant hereto; and (iv) promptly to take all action provided
herein to protect the rights of the Holder against dilution.
4. Exchange. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory
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indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. Certain Adjustments. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement but not in duplication thereof, the
number of shares of Common Stock purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
provided in this Section 5. In the event of any change in Common Stock by
reason of a stock dividend, stock split, split-up, merger, recapitalization,
stock combination, exchange of shares or similar transaction, the type and
number of shares or securities subject to the Option, and the Option Price
therefor, shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction so that Holder shall receive, upon
exercise of the Option, at the aggregate exercise price calculated in
accordance with Section 1 of this Agreement, the number and class of shares or
other securities or property that Holder would have received in respect of
Common Stock if the Option had been exercised immediately prior to such event,
or the record date therefor, as applicable.
6. Registration Rights. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within six (6) months (or such later period as
provided in Section 10) of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof)
or any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and
remain current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of this Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee.
Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for such
period not in excess of 180 days from the day such registration statement first
becomes effective or such shorter time as may be reasonably necessary to effect
such sales or other dispositions. Grantee shall have the right to demand two
such registrations. The Issuer shall bear the costs of such registrations
(including, but not limited to, Issuer's attorneys' fees, printing costs and
filing fees, except for underwriting discounts or commissions, brokers' fees
and the fees and disbursements of Grantee's counsel related thereto). The
foregoing notwithstanding, if, at the time of any request by Grantee for
registration of Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the offer and sale of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the
number of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 33 1/3% of the total
number of shares to be sold by the Holder and Issuer in the aggregate; and
provided further, however, that if such reduction occurs, then Issuer shall
file a registration statement for the balance as promptly as practicable
thereafter as to which no reduction pursuant to this Section 6 shall be
permitted or occur and the Holder shall thereafter be entitled to one
additional registration and the six (6) month period referred to in the first
sentence of this section shall be increased to eighteen (18) months. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address
of record of the persons entitled to receive such copies. Notwithstanding
anything to the contrary contained
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herein, in no event shall the number of registrations that Issuer is obligated
to effect be increased by reason of the fact that there shall be more than one
Holder as a result of any assignment or division of this Agreement.
7. Repurchase. (a) At any time after the occurrence of a Repurchase Event
(as defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder
at a price (the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
a price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the event
of a sale of all or any substantial part of Issuer's assets or deposits, the
sum of the net price paid in such sale for such assets or deposits and the
current market value of the remaining net assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by the
number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking
firm selected by the Holder or Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office,
a copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the
Owner, as the case may be, elects to require Issuer to repurchase this Option
and/or the Option Shares in accordance with the provisions of this Section 7.
The Owner shall also represent and warrant that it has sole record and
beneficial ownership of such Option Shares and that such Option Shares are then
free and clear of all liens. As promptly as practicable, and in any event
within five (5) business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, Issuer shall deliver or cause to be delivered to the
Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, that it is no longer prohibited from delivering, within five (5)
business days after the date on which Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in full
(and Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option and/or the Option
Shares whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option Repurchase Price and/or the Option
Share Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a
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new Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred prior
to the date of the notice by Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the Holder
shall nonetheless have the right to exercise the Option until the expiration of
such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed to
have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 25%.
8. Substitute Option. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or a Grantee Subsidiary, or engage in a
plan of exchange with any person, other than Grantee or a Grantee Subsidiary
and Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer or be acquired by Issuer in a plan of exchange and Issuer shall be the
continuing or surviving or acquiring corporation, but, in connection with such
merger or plan of exchange, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger or plan of exchange represent less than 50% of the
outstanding shares and share equivalents of the merged or acquiring company, or
(iii) to sell or otherwise transfer all or a substantial part of its or any
Issuer Subsidiary's assets or deposits to any person, other than Grantee or a
Grantee Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as hereinafter defined) or (y) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer),
(ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer
is the continuing or surviving or acquiring person and (iv) the transferee
of all or a substantial part of Issuer's assets or deposits (or the assets
or deposits of any Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the shares of capital stock
(or similar equity interest) with the greatest voting power with respect to
the election of directors of the issuer of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for one (1) year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
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(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect
for such purpose to the provisions of Section 9), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to exercise
but for this clause (e), the issuer of the Substitute Option (the "Substitute
Option Issuer") shall make a cash payment to Holder equal to the excess of (i)
the value of the Substitute Option without giving effect to the limitation in
this clause (e) over (ii) the value of the Substitute Option after giving
effect to the limitation in this clause (e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by a
majority in interest of the Holders.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. Repurchase of Substitute Option. (a) At the request of the holder of the
Substitute Option (the "Substitute Option Holder"), the Substitute Option
Issuer shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to the amount by
which (i) the Highest Closing Price (as hereinafter defined) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be exercised,
and at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price multiplied by the number
of Substitute Shares so designated. The term "Highest Closing Price" shall mean
the highest closing price for shares of Substitute Common Stock within the six-
month period immediately preceding the date the Substitute Option Holder gives
notice of the required repurchase of the Substitute Option or the Substitute
Share Owner gives notice of the required repurchase of the Substitute Shares,
as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant
to this Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute Option (or,
in the absence of such an agreement, a copy of this Agreement) and/or
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the
provisions of this Section 9. As promptly as practicable and in any event
within five (5) business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
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notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from repurchasing the Substitute Option and/ or the Substitute Shares in part
or in full, the Substitute Option Issuer shall immediately so notify the
Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Option Repurchase Price and/or the Substitute Share Repurchase
Price, respectively, which it is no longer prohibited from delivering, within
five (5) business days after the date on which the Substitute Option Issuer is
no longer so prohibited; provided, however, that if the Substitute Option
Issuer is at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to
the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, in full (and the Substitute Option Issuer
shall use its reasonable best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Substitute
Option Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common Stock
obtained by multiplying the number of shares of the Substitute Common Stock
for which the surrendered Substitute Option was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which is the
Substitute Option Repurchase Price, and/or (B) to the Substitute Share Owner,
a certificate for the Substitute Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to
the date of the notice by the Substitute Option Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30-day period.
10. Extension of Periods Under Certain Circumstances. The periods for
exercise of certain rights under Sections 2, 6, 7, 9 and 14 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights (for so long as the Holder, Owner, Substitute Option
Holder or Substitute Share Owner, as the case may be, is using commercially
reasonable efforts to obtain such regulatory approvals), and for the
expiration of all statutory waiting periods; (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise; and (iii) when there exists an injunction, order or judgment that
prohibits or delays exercise of such right.
11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to any required regulatory notices
or approvals, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Issuer Board prior to the date hereof and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by Issuer.
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(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant thereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
(iii) The execution, delivery and subject to any required regulatory
notices or approvals, performance of this Agreement does not or will not,
and the consummation by Issuer of any of the transactions contemplated
hereby will not, constitute or result in (a) a breach or violation of, or a
default under, its certificate of incorporation or bylaws, or the
comparable governing instruments of any of its subsidiaries, or (b) a
breach or violation of, or a default under, any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation of it or any of
its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or nongovernmental permit or license
to which it or any of its subsidiaries is subject, that would, in any case
referred to in this clause (b), give any other person the ability to
prevent or enjoin Issuer's performance under this Agreement in any material
respect.
(b) Grantee hereby represents and warrants to Issuer as follows: Grantee has
the requisite corporate power and authority to execute and deliver this
Agreement and, subject to any required regulatory notices or approvals, to
perform its obligations hereunder. The execution and delivery of this Agreement
by the Grantee and the performance of its obligations hereunder by the Grantee
have been duly and validly authorized by the Board of Directors of Grantee and
no other corporate proceedings on the part of the Grantee are necessary to
authorize this Agreement or for Grantee to perform its obligations hereunder.
This Agreement has been duly and validly executed and delivered by Grantee.
(c) This Option is not being, and any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be, acquired with a
view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the 1933 Act.
12. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder; provided,
however, that until the date fifteen (15) days following the date on which the
OTS, as the case may be, has approved an application by Grantee to acquire the
shares of Common Stock subject to the Option, Grantee may not assign its rights
under the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Issuer, (iii) an assignment to a single
party (e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Grantee's behalf or (iv) any other
manner approved by the OTS.
13. Filings, Etc. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
OTS under the HOLA for approval to acquire the shares issuable hereunder.
14. Surrender of Option. (a) Grantee may, at any time following a Repurchase
Event and prior to the occurrence of an Exercise Termination Event (or such
later period as provided in Section 10), relinquish the Option (together with
any Option Shares issued to and then owned by Grantee) to Issuer in exchange
for a cash fee equal to the Surrender Price. The "Surrender Price" shall be
equal to $3.5 million (i) plus, if applicable, Grantee's purchase price with
respect to any Option Shares and (ii) minus, if applicable, the excess of (A)
the
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net price, if any, received by Grantee or a Grantee Subsidiary pursuant to the
sale of Option Shares (or any other securities into which such Option Shares
were converted or exchanged) to any unaffiliated party, over (B) Grantee's
purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 14 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 14 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second
business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five (5) business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 14 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall
(A) use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five (5) days of the submission or receipt of
any documents relating to any such regulatory and legal approvals, provide
Grantee with copies of the same and (C) keep Grantee advised of both the status
of any such request for regulatory and legal approvals, as well as any
discussions with any relevant regulatory or other third party reasonably
related to the same and (ii) Grantee may revoke such notice of surrender by
delivery of a notice of revocation to Issuer and, upon delivery of such notice
of revocation, the Exercise Termination Date shall be extended to a date six
(6) months from the date on which the Exercise Termination Date would have
occurred if not for the provisions of this Section 14(c) (during which period
Grantee may exercise any of its rights hereunder, including any and all rights
pursuant to this Section 14).
15. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief. In connection
therewith, both parties waive the posting of any bond or similar requirement.
16. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section l(a) hereof (as adjusted pursuant to Section
l(b) or Section 5 hereof), it is the express intention of Issuer to allow the
Holder to acquire or to require Issuer to repurchase such lesser number of
shares as may be permissible, without any amendment or modification hereof.
17. Notices. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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20. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Entire Agreement; Third-Party Rights. Except as otherwise expressly
provided herein or in the Merger Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assignees. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors except as assignees, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Capitalized Terms. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
First Place Financial Corp.
/s/ Steven R. Lewis
By: _________________________________
Name: Steven R. Lewis
Title: President and Chief
Executive Officer
FFY Financial Corp.
/s/ Jeffrey L. Francis
By: _________________________________
Name: Jeffrey L. Francis
Title: President and Chief
Executive Officer
B-12
ANNEX C
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE SECURITIES
ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of May 23, 2000 (this "Agreement"), between
First Place Financial Corp., a Delaware corporation ("Grantee"), and FFY
Financial Corporation, a Delaware corporation ("Issuer").
RECITALS
A. Merger Agreement. Grantee and Issuer have entered into an Agreement and
Plan of Merger, dated as of May 23, 2000 (the "Merger Agreement"), which
agreement was executed and delivered on the date of this Stock Option
Agreement, pursuant to which Grantee is to merge with and into Issuer (the
"Merger"); and
B. Option. As a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option
(as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 1,348,921 fully paid and nonassessable shares of the common
stock, par value $0.01 per share, of Issuer ("Common Stock") at a price per
share equal to $10.00 (the "Option Price"); provided, however, that in no event
shall the number of shares for which this Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock. The number of shares of
Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5 hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed
to authorize Issuer to issue shares in breach of any provision of the Merger
Agreement.
2. Exercise. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within six (6) months following the first such Subsequent Triggering Event (or
such later period as provided in Section 10). Each of the following shall be an
Exercise Termination Event: (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event except a termination by Grantee
pursuant to Section 8.1(e) or (f) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional) (a "Listed
Termination"); or (iii) the passage of eighteen (18) months (or such longer
period as provided in Section 10) after termination of the Merger Agreement if
such termination follows the occurrence of an Initial Triggering
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Event or is a Listed Termination. The term "Holder" shall mean the holder or
holders of the Option. Notwithstanding anything to the contrary contained
herein, the Option may not be exercised at any time when Grantee shall be in
material breach of any of its covenants or agreements contained in the Merger
Agreement such that Issuer shall be entitled to terminate the Merger Agreement
pursuant to Sections 8.1(e) or 8.1(f) thereof.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Significant Subsidiaries (as defined in Rule 1-
02 of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")) (the "Issuer Subsidiaries"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder) other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") or
the Board of Directors of Issuer (the "Issuer Board") shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement.
For purposes of this Agreement, (a)"Acquisition Transaction" shall mean (x)
a merger or consolidation, or any similar transaction, involving Issuer or
any Issuer Subsidiary (other than mergers, consolidations or similar
transactions involving solely Issuer and/or one or more wholly-owned
Subsidiaries of the Issuer, provided, any such transaction is not entered
into in violation of the terms of the Merger Agreement), (y) a purchase,
lease or other acquisition of all or any substantial part of the assets or
deposits of Issuer or any Issuer Subsidiary, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of
Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall have the meaning
set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary, alone
or together with such person's affiliates and associates (as such terms are
defined in Rule 12b-2 under the 1934 Act) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more of
the outstanding shares of Common Stock (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act, and the rules and regulations thereunder);
(iii) The stockholders of Issuer shall have voted and failed to adopt
the Merger Agreement at a meeting which has been held for that purpose or
any adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Merger Agreement or shall have been canceled
prior to termination of the Merger Agreement if, prior to such meeting (or
if such meeting shall not have been held or shall have been canceled, prior
to such termination), it shall have been publicly announced that any person
(other than Grantee or any of its Subsidiaries) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) The Issuer Board shall have withdrawn, modified or qualified (or
publicly announced its intention to withdraw, modify or qualify) in any
manner adverse in any respect to Grantee its recommendation that the
stockholders of Issuer adopt the Merger Agreement, or Issuer or any Issuer
Subsidiary shall have authorized, recommended, proposed (or publicly
announced its intention to authorize, recommend or propose) an agreement to
engage in an Acquisition Transaction with any person other than Grantee or
a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
filed with the SEC a registration statement or tender offer materials with
respect to a potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the
SEC with respect to a potential vote by its stockholders to approve the
issuance of shares to be offered in such an exchange offer);
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(vi) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement after an overture is made by a third
party to Issuer or its stockholders to engage in an Acquisition
Transaction, and (a) following such breach Grantee would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both) and (b) such breach shall not have been
cured prior to the Notice Date (as defined in Section 2(e)); or
(vii) Any person other than Grantee or any Grantee Subsidiary, without
Grantee's prior written consent, shall have filed an application or notice
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), the Office of Thrift Supervision (the "OTS") or other
federal or state bank regulatory or antitrust authority, which application
or notice has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in clause
(i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place
and date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the Federal Reserve
Board or any other regulatory or antitrust agency is required in connection
with such purchase, the Holder shall promptly file the required notice or
application for approval, shall promptly notify Issuer of such filing and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer and
(ii) present and surrender this Agreement to Issuer at its principal executive
offices, provided that the failure or refusal of the Issuer to designate such a
bank account or accept surrender of this Agreement shall not preclude the
Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the
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Securities Act of 1933, as amended. A copy of such agreement is on file at
the principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the
opinion of counsel to the Holder, in form and substance reasonably satisfactory
to the Issuer; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of any necessary regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder
or its assignee, transferee or designee.
3. Covenants of Issuer. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), the Home Owners' Loan Act, as
amended (the "HOLA") or the Change in Bank Control Act of 1978, as amended, or
any state or other federal banking law, prior approval of or notice to the
Federal Reserve Board, the OTS or to any state or other federal regulatory
authority is necessary before the Option may be exercised, cooperating fully
with the Holder in preparing such applications or notices and providing such
information to the Federal Reserve Board, the OTS or such state or other
federal regulatory authority as they may require) in order to permit the Holder
to exercise the Option and Issuer duly and effectively to issue shares of
Common Stock pursuant hereto; and (iv) promptly to take all action provided
herein to protect the rights of the Holder against dilution.
4. Exchange. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory
C-4
indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. Certain Adjustments. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement but not in duplication thereof, the
number of shares of Common Stock purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
provided in this Section 5. In the event of any change in Common Stock by
reason of a stock dividend, stock split, split-up, merger, recapitalization,
stock combination, exchange of shares or similar transaction, the type and
number of shares or securities subject to the Option, and the Option Price
therefor, shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction so that Holder shall receive, upon
exercise of the Option, at the aggregate exercise price calculated in
accordance with Section 1 of this Agreement, the number and class of shares or
other securities or property that Holder would have received in respect of
Common Stock if the Option had been exercised immediately prior to such event,
or the record date therefor, as applicable.
6. Registration Rights. Upon the occurrence of a Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within six (6) months (or such later period as
provided in Section 10) of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof)
or any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and
remain current in order to permit the sale or other disposition of any shares
of Common Stock issued upon total or partial exercise of this Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee.
Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for such
period not in excess of 180 days from the day such registration statement first
becomes effective or such shorter time as may be reasonably necessary to effect
such sales or other dispositions. Grantee shall have the right to demand two
such registrations. The Issuer shall bear the costs of such registrations
(including, but not limited to, Issuer's attorneys' fees, printing costs and
filing fees, except for underwriting discounts or commissions, brokers' fees
and the fees and disbursements of Grantee's counsel related thereto). The
foregoing notwithstanding, if, at the time of any request by Grantee for
registration of Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the offer and sale of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the
number of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 33 1/3% of the total
number of shares to be sold by the Holder and Issuer in the aggregate; and
provided further, however, that if such reduction occurs, then Issuer shall
file a registration statement for the balance as promptly as practicable
thereafter as to which no reduction pursuant to this Section 6 shall be
permitted or occur and the Holder shall thereafter be entitled to one
additional registration and the six (6) month period referred to in the first
sentence of this section shall be increased to eighteen (18) months. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address
of record of the persons entitled to receive such copies. Notwithstanding
anything to the contrary contained
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herein, in no event shall the number of registrations that Issuer is obligated
to effect be increased by reason of the fact that there shall be more than one
Holder as a result of any assignment or division of this Agreement.
7. Repurchase. (a) At any time after the occurrence of a Repurchase Event
(as defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder
at a price (the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
a price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the event
of a sale of all or any substantial part of Issuer's assets or deposits, the
sum of the net price paid in such sale for such assets or deposits and the
current market value of the remaining net assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by the
number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking
firm selected by the Holder or Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office,
a copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the
Owner, as the case may be, elects to require Issuer to repurchase this Option
and/or the Option Shares in accordance with the provisions of this Section 7.
The Owner shall also represent and warrant that it has sole record and
beneficial ownership of such Option Shares and that such Option Shares are then
free and clear of all liens. As promptly as practicable, and in any event
within five (5) business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, Issuer shall deliver or cause to be delivered to the
Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, that it is no longer prohibited from delivering, within five (5)
business days after the date on which Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in full
(and Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option and/or the Option
Shares whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option Repurchase Price and/or the Option
Share Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a
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new Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred prior
to the date of the notice by Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the Holder
shall nonetheless have the right to exercise the Option until the expiration of
such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed to
have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 25%.
8. Substitute Option. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or a Grantee Subsidiary, or engage in a
plan of exchange with any person, other than Grantee or a Grantee Subsidiary
and Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer or be acquired by Issuer in a plan of exchange and Issuer shall be the
continuing or surviving or acquiring corporation, but, in connection with such
merger or plan of exchange, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger or plan of exchange represent less than 50% of the
outstanding shares and share equivalents of the merged or acquiring company, or
(iii) to sell or otherwise transfer all or a substantial part of its or any
Issuer Subsidiary's assets or deposits to any person, other than Grantee or a
Grantee Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as hereinafter defined) or (y) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer),
(ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer
is the continuing or surviving or acquiring person and (iv) the transferee
of all or a substantial part of Issuer's assets or deposits (or the assets
or deposits of any Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the shares of capital stock
(or similar equity interest) with the greatest voting power with respect to
the election of directors of the issuer of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for one (1) year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
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(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect
for such purpose to the provisions of Section 9), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to exercise
but for this clause (e), the issuer of the Substitute Option (the "Substitute
Option Issuer") shall make a cash payment to Holder equal to the excess of (i)
the value of the Substitute Option without giving effect to the limitation in
this clause (e) over (ii) the value of the Substitute Option after giving
effect to the limitation in this clause (e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by a
majority in interest of the Holders.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. Repurchase of Substitute Option. (a) At the request of the holder of the
Substitute Option (the "Substitute Option Holder"), the Substitute Option
Issuer shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to the amount by
which (i) the Highest Closing Price (as hereinafter defined) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be exercised,
and at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price multiplied by the number
of Substitute Shares so designated. The term "Highest Closing Price" shall mean
the highest closing price for shares of Substitute Common Stock within the six-
month period immediately preceding the date the Substitute Option Holder gives
notice of the required repurchase of the Substitute Option or the Substitute
Share Owner gives notice of the required repurchase of the Substitute Shares,
as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant
to this Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute Option (or,
in the absence of such an agreement, a copy of this Agreement) and/or
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the
provisions of this Section 9. As promptly as practicable and in any event
within five (5) business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
C-8
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from repurchasing the Substitute Option and/ or the Substitute Shares in part
or in full, the Substitute Option Issuer shall immediately so notify the
Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Option Repurchase Price and/or the Substitute Share Repurchase
Price, respectively, which it is no longer prohibited from delivering, within
five (5) business days after the date on which the Substitute Option Issuer is
no longer so prohibited; provided, however, that if the Substitute Option
Issuer is at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to
the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, in full (and the Substitute Option Issuer
shall use its reasonable best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Substitute
Option Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common Stock
obtained by multiplying the number of shares of the Substitute Common Stock
for which the surrendered Substitute Option was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which is the
Substitute Option Repurchase Price, and/or (B) to the Substitute Share Owner,
a certificate for the Substitute Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to
the date of the notice by the Substitute Option Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30-day period.
10. Extension of Periods Under Certain Circumstances. The periods for
exercise of certain rights under Sections 2, 6, 7, 9 and 14 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights (for so long as the Holder, Owner, Substitute Option
Holder or Substitute Share Owner, as the case may be, is using commercially
reasonable efforts to obtain such regulatory approvals), and for the
expiration of all statutory waiting periods; (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise; and (iii) when there exists an injunction, order or judgment that
prohibits or delays exercise of such right.
11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to any required regulatory notices
or approvals, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Issuer Board prior to the date hereof and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by Issuer.
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(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant thereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
(iii) The execution, delivery and subject to any required regulatory
notices or approvals, performance of this Agreement does not or will not,
and the consummation by Issuer of any of the transactions contemplated
hereby will not, constitute or result in (a) a breach or violation of, or a
default under, its certificate of incorporation or bylaws, or the
comparable governing instruments of any of its subsidiaries, or (b) a
breach or violation of, or a default under, any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation of it or any of
its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or nongovernmental permit or license
to which it or any of its subsidiaries is subject, that would, in any case
referred to in this clause (b), give any other person the ability to
prevent or enjoin Issuer's performance under this Agreement in any material
respect.
(b) Grantee hereby represents and warrants to Issuer as follows: Grantee has
the requisite corporate power and authority to execute and deliver this
Agreement and, subject to any required regulatory notices or approvals, to
perform its obligations hereunder. The execution and delivery of this Agreement
by the Grantee and the performance of its obligations hereunder by the Grantee
have been duly and validly authorized by the Board of Directors of Grantee and
no other corporate proceedings on the part of the Grantee are necessary to
authorize this Agreement or for Grantee to perform its obligations hereunder.
This Agreement has been duly and validly executed and delivered by Grantee.
(c) This Option is not being, and any Option Shares or other securities
acquired by Grantee upon exercise of the Option will not be, acquired with a
view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the 1933 Act.
12. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder; provided,
however, that until the date fifteen (15) days following the date on which the
OTS, as the case may be, has approved an application by Grantee to acquire the
shares of Common Stock subject to the Option, Grantee may not assign its rights
under the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Issuer, (iii) an assignment to a single
party (e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Grantee's behalf or (iv) any other
manner approved by the OTS.
13. Filings, Etc. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
OTS under the HOLA for approval to acquire the shares issuable hereunder.
14. Surrender of Option. (a) Grantee may, at any time following a Repurchase
Event and prior to the occurrence of an Exercise Termination Event (or such
later period as provided in Section 10), relinquish the Option (together with
any Option Shares issued to and then owned by Grantee) to Issuer in exchange
for a cash fee equal to the Surrender Price. The "Surrender Price" shall be
equal to $3.5 million (i) plus, if applicable, Grantee's purchase price with
respect to any Option Shares and (ii) minus, if applicable, the excess of (A)
the
C-10
net price, if any, received by Grantee or a Grantee Subsidiary pursuant to the
sale of Option Shares (or any other securities into which such Option Shares
were converted or exchanged) to any unaffiliated party, over (B) Grantee's
purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 14 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 14 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second
business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five (5) business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 14 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall
(A) use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five (5) days of the submission or receipt of
any documents relating to any such regulatory and legal approvals, provide
Grantee with copies of the same and (C) keep Grantee advised of both the status
of any such request for regulatory and legal approvals, as well as any
discussions with any relevant regulatory or other third party reasonably
related to the same and (ii) Grantee may revoke such notice of surrender by
delivery of a notice of revocation to Issuer and, upon delivery of such notice
of revocation, the Exercise Termination Date shall be extended to a date six
(6) months from the date on which the Exercise Termination Date would have
occurred if not for the provisions of this Section 14(c) (during which period
Grantee may exercise any of its rights hereunder, including any and all rights
pursuant to this Section 14).
15. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief. In connection
therewith, both parties waive the posting of any bond or similar requirement.
16. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section l(a) hereof (as adjusted pursuant to Section
l(b) or Section 5 hereof), it is the express intention of Issuer to allow the
Holder to acquire or to require Issuer to repurchase such lesser number of
shares as may be permissible, without any amendment or modification hereof.
17. Notices. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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20. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Entire Agreement; Third-Party Rights. Except as otherwise expressly
provided herein or in the Merger Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assignees. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors except as assignees, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Capitalized Terms. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
First Place Financial Corp.
/s/ Steven R. Lewis
By: _________________________________
Name: Steven R. Lewis
Title: President and Chief
Executive Officer
FFY Financial Corp.
/s/ Jeffrey L. Francis
By: _________________________________
Name: Jeffrey L. Francis
Title: President and Chief
Executive Officer
C-12
ANNEX D
[Form of FFY Voting Agreement]
, 2000
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
Ladies and Gentlemen:
The undersigned is a director and/or executive officer of FFY Financial
Corp. ("FFY") or a director and/or executive officer of its principal
subsidiary bank, FFY Bank, and is the beneficial holder of shares of common
stock, par value $0.01 per share, of FFY ("FFY Common Stock") and may be the
beneficial holder of shares of common stock, par value $0.01 per share of
First Place Financial Corp. ("First Place Common Stock").
FFY and First Place Financial Corp. ("First Place") have executed an
Agreement and Plan of Merger and a related Plan of Merger (collectively, the
"Merger Agreement") contemplating a merger of First Place with FFY (the
"Merger"), with First Place as the corporation surviving the Merger (the
"Continuing Corporation"). In consideration of the substantial expenses that
First Place will incur in connection with the transactions contemplated by the
Merger Agreement and in order to induce First Place to execute the Merger
Agreement and to proceed to incur such expenses, the undersigned agrees,
undertakes and represents, in his capacity as a stockholder of FFY and, if
applicable, First Place, and not in his capacity as a director or officer of
FFY, as follows:
1. The undersigned will vote or cause to be voted for adoption of the
Merger Agreement all of the shares of FFY Common Stock and First Place
Common Stock the undersigned is entitled to vote with respect thereto.
2. The undersigned represents that he or she has the capacity to enter
into this Agreement and that it is a valid and binding obligation
enforceable against the undersigned in accordance with its terms, subject
to bankruptcy, insolvency and other laws affecting creditors' rights and
general equitable principles.
3. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in
addition to any other relief which may be available, First Place shall be
entitled to temporary and permanent injunctive relief without the necessity
of proving actual damages.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
_______________________________________
Accepted and Agreed to as of the date first above written:
FIRST PLACE FINANCIAL CORP.
By: ________________________________
Steven R. Lewis
President and Chief Executive
Officer
D-1
[Form of First Place Voting Agreement]
, 2000
FFY Financial Corp.
724 Boardman-Poland Road
Youngstown, Ohio 44512
Ladies and Gentlemen:
The undersigned is a director and/or executive officer of First Place
Financial Corp. ("First Place") or a director and/or executive officer of its
principal subsidiary, First Federal Savings and Loan Association of Warren,
and is the beneficial holder of shares of common stock, par value $0.01 per
share, of First Place ("First Place Common Stock") and may be the beneficial
holder of shares of common stock, par value $0.01 per share of FFY Financial
Corp. ("FFY Common Stock").
First Place and FFY Financial Corp. ("FFY") have executed an Agreement and
Plan of Merger and a related Plan of Merger (collectively, the "Merger
Agreement") contemplating a merger of First Place with FFY (the "Merger"),
with First Place as the corporation surviving the Merger (the "Continuing
Corporation"). In consideration of the substantial expenses that FFY will
incur in connection with the transactions contemplated by the Merger Agreement
and in order to induce FFY to execute the Merger Agreement and to proceed to
incur such expenses, the undersigned agrees, undertakes and represents, in his
capacity as a stockholder of First Place and, if applicable, FFY, and not in
his capacity as a director or officer of First Place, as follows:
1. The undersigned will vote or cause to be voted for adoption of the
Merger Agreement all of the shares of First Place Common Stock and FFY
Common Stock the undersigned is entitled to vote with respect thereto.
2. The undersigned represents that he or she has the capacity to enter
into this Agreement and that it is a valid and binding obligation
enforceable against the undersigned in accordance with its terms, subject
to bankruptcy, insolvency and other laws affecting creditors' rights and
general equitable principles.
3. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in
addition to any other relief which may be available, FFY shall be entitled
to temporary and permanent injunctive relief without the necessity of
proving actual damages.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
_______________________________________
Accepted and Agreed to as of the date first above written:
FFY FINANCIAL CORP.
By: ________________________________
Jeffrey L. Francis
President and Chief Executive
Officer
D-2
ANNEX E
May 23, 2000
Board of Directors
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
First Place Financial Corp. ("FPFC"), of the consideration to be paid by FPFC
in the merger (the "Merger") between FPFC and FFY Financial Corp. ("FFYF"). We
have not been requested to opine as to, and our opinion does not in any manner
address, FPFC's underlying business decision to proceed with or effect the
Merger.
Pursuant to the Agreement and Plan of Merger, dated May 23, 2000, by and
among FPFC and FFYF (the "Agreement"), at the effective time of the Merger,
FPFC will acquire all of FFYF's issued and outstanding shares of common stock.
FPFC will issue to the holders of FFYF's common stock 1.075 shares of FPFC for
each fully diluted share of FFYF common stock outstanding. The complete terms
of the proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, and
distributions of listed and unlisted securities. We are familiar with the
market for common stocks of publicly traded banks, savings institutions and
bank and savings institution holding companies.
In connection with this opinion we reviewed certain financial and other
business data supplied to us by FPFC including (i) the Agreement and Plan of
Merger by and among FPFC and FFYF, including each of the Stock Option
Agreements, dated May 23, 2000 between FFYF and FPFC (ii) Annual Report, Proxy
Statement and Form 10-K for the year ended June 30, 1999, (iii) Form 10-Q for
the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000 and
other information we deemed relevant. We discussed with senior management and
the boards of directors of FPFC and its wholly owned subsidiary, First Federal
Savings and Loan Association of Warren, the current position and prospective
outlook for FPFC. We considered historical quotations and the prices of
recorded transactions in FPFC's common stock since its initial public offering.
We reviewed financial and stock market data of other savings institutions,
particularly in the Midwestern region of the United States, and the financial
and structural terms of several other recent transactions involving mergers and
acquisitions of savings institutions or proposed changes of control of
comparably situated companies.
For FFYF, we reviewed the audited financial statements, 10-K's, and Proxy
Statements for the years ended June 30, 1997, 1998, and 1999, Form 10-Q for the
quarters ended September 30, 1999, December 31, 1999 and March 31, 2000 and
certain other information deemed relevant. We also discussed with senior
management of FFYF, the current position and prospective outlook for FFYF.
For purposes of this opinion we have relied, without independent
verification, on the accuracy and completeness of the material furnished to us
by FPFC and FFYF and the material otherwise made available to us, including
information from published sources, and we have not made any independent effort
to verify such data. With respect to the financial information, including
forecasts and asset valuations we received from FPFC, we assumed (with your
consent) that they had been reasonably prepared reflecting the best currently
available estimates and judgment of FPFC's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of FPFC or FFYF. We
have further relied on the assurances of management of FPFC and FFYF that they
are not aware of any
E-1
facts that would make such information inaccurate or misleading. We express no
opinion on matters of a legal, regulatory, tax or accounting nature or the
ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining
the necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to FPFC or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to FPFC in connection with the Merger and will receive a fee for such
services. In addition, FPFC has agreed to indemnify us for certain liabilities
arising out of our engagement by FPFC in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is our
opinion that as of the date hereof, the consideration to be paid by FPFC in the
Merger is fair, from a financial point of view, to the stockholders of FPFC.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of FPFC used to solicit
stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of FPFC in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
Keefe, Bruyette, & Woods, Inc.
E-2
ANNEX F
May 23, 2000
Board of Directors
FFY Financial Corp.
724 Boardman-Poland Road
Youngstown, Ohio 44512
Ladies and Gentlemen:
FFY Financial Corp. ("FFY Financial") and First Place Financial Corp.
("First Place") have entered into an Agreement and Plan of Merger, dated as of
May 23, 2000 (the "Agreement"), pursuant to which FFY Financial will be merged
with and into First Place (the "Merger"). Under the terms of the Agreement,
upon consummation of the Merger, each share of FFY Financial common stock, par
value $.01 per share, issued and outstanding immediately prior to the effective
time of the Merger (the "FFY Financial Shares"), other than certain shares
specified in the Agreement, will be converted into the right to receive 1.075
shares (the "Exchange Ratio") of First Place common stock, par value $.01 per
share. The terms and conditions of the Merger are more fully set forth in the
Agreement. You have requested our opinion as to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of shares of FFY Financial
Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement and exhibits thereto; (ii) the Stock
Option Agreements, dated as of May 23, 2000, by and between FFY Financial and
First Place; (iii) certain publicly available financial statements and other
historical financial information of FFY Financial that we deemed relevant; (iv)
certain publicly available financial statements and other historical financial
information of First Place that we deemed relevant; (v) certain financial
analyses and forecasts of FFY Financial prepared by and/or reviewed with
management of FFY Financial and the views of senior management of FFY
Financial, based on certain limited discussions with certain members of senior
management, regarding FFY Financial's business, financial condition, results of
operations and future prospects; (vi) certain financial analyses and forecasts
of First Place prepared by and/or reviewed with management of First Place and
the views of senior management of First Place, based on certain limited
discussions with certain members of senior management, regarding First Place's
business, financial condition, results of operations and future prospects;
(vii) the pro forma impact of the Merger, including the relative contributions
of FFY Financial and First Place to the resulting institution; (viii) the
publicly reported historical price and trading activity for FFY Financial's and
First Place's common stock, including a comparison of certain financial and
stock market information for FFY Financial and First Place with similar
publicly available information for certain other companies the securities of
which are publicly traded; (ix) the financial terms of other recent business
combinations in the savings institution industry, to the extent publicly
available, particularly with respect to business combinations structured as
"mergers of equals"; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as we considered relevant.
In performing our review, we have relied upon the accuracy and completeness
of all of the financial and other information that was available to us from
public sources, that was provided to us by FFY Financial or First Place or
their respective representatives or that was otherwise reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
We have not been asked to and have not undertaken an independent verification
of any of such information and we do not assume any responsibility or liability
for the accuracy or completeness thereof. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of FFY Financial or First Place or
any of their subsidiaries, or the collectibility of any such assets, nor have
we been furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the
F-1
allowance for loan losses of FFY Financial or First Place nor have we reviewed
any individual credit files relating to FFY Financial or First Place and, with
your permission, we have assumed that the respective allowances for loan losses
for both FFY Financial and First Place are adequate to cover such losses and
will be adequate on a pro forma basis for the combined entity. We are not
accountants and have relied upon the reports of independent accountants for the
accuracy and completeness of the financial statements made available to us.
With respect to the financial projections prepared by and/or reviewed with
management, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of those
preparing them of the respective future financial performances of FFY Financial
and First Place and that such performances will be achieved, and we express no
opinion as to such financial projections or estimates or the assumptions on
which they are based. We have also assumed that there has been no material
change in FFY Financial's or First Place's assets, financial condition, results
of operations, business or prospects since the date of the most recent
financial statements made available to us. We have assumed in all respects
material to our analysis that FFY Financial and First Place will remain as
going concerns for all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will
perform all of the covenants required to be performed by such party under such
agreements, that the conditions precedent in the Agreement are not waived and
that the Merger will be accounted for using the purchase method and will
qualify as a tax-free reorganization for federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise, reaffirm or withdraw
this opinion or otherwise comment upon events occurring after the date hereof.
We are expressing no opinion herein as to what the value of First Place's
common stock will be when issued to FFY Financial's shareholders pursuant to
the Agreement or the prices at which FFY Financial's or First Place's common
stock will trade at any time.
We have acted as FFY Financial's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for FFY Financial and have received compensation
for such services. In the ordinary course of our business as a broker-dealer,
we may purchase securities from and sell securities to FFY Financial and First
Place. We may also actively trade the debt and equity securities of FFY
Financial and First Place for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of FFY Financial in
connection with its consideration of the Merger and does not constitute a
recommendation to any shareholder of FFY Financial as to how such shareholder
should vote at any meeting of shareholders called to consider and vote upon the
Merger. Our opinion is not to be quoted or referred to, in whole or in part, in
a registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler
O'Neill's prior written consent.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of FFY Financial Shares.
Very truly yours,
F-2
ANNEX G
PROPOSED
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIRST PLACE FINANCIAL CORP.
FIRST: The name of the Corporation is First Place Financial Corp.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty-six million
(36,000,000) consisting of:
1. Three million (3,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Thirty-three million (33,000,000) shares of Common Stock, par value
one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights (including, without limitation, voting
rights) of the shares of each such series and any qualifications,
limitations or restrictions thereof. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of
a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such
holders is required pursuant to the terms of any Preferred Stock
Designation.
C.
1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by
a person who, as of any record date for the determination of
stockholders entitled to vote on any matter, beneficially owns in
excess of 10% of the then-outstanding shares of Common Stock (the
"Limit"), be entitled, or permitted to any vote in respect of the
shares beneficially owned by such person in excess of the Limit. The
number of votes which may be cast by any record owner by virtue of
the provisions hereof in respect of Common Stock beneficially owned
by such person beneficially owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single
record owner of all Common Stock beneficially owned by such person
would be entitled to cast, (subject to the provisions of this
Article FOURTH) multiplied by a fraction, the numerator of which is
the number of shares of such class or series which are both
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
Common Stock beneficially owned by such person owning shares in
excess of the Limit.
G-1
2. The following definitions shall apply to this Section C of this
Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as in effect on the date of
filing of this Certificate of Incorporation.
b. "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of
this Certificate of Incorporation; provided, however, that a
person shall, in any event, also be deemed the "beneficial owner"
of any Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not
be deemed to be the beneficial owner of any voting shares
solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction
which is described in any one or more of clauses 1 through 5
of Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power
with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to
shares of which neither such person nor any such Affiliate
is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any
of its Affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that: (1) no Director or Officer
of this Corporation (or any Affiliate of any such Director or
Officer) shall, solely by reason of any or all of such Directors
or Officers acting in their capacities as such, be deemed, for
any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or any
Affiliate thereof); and (2) neither any employee stock ownership
or similar plan of this Corporation or any subsidiary of this
Corporation, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to
beneficially own any Common Stock held under any such plan. For
purposes only of computing the percentage of beneficial
ownership of Common Stock of a person, the outstanding Common
Stock shall include shares deemed owned by such person through
application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant
to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock which may be
issuable by this Corporation pursuant to any agreement, or upon
the exercise of conversion rights, warrants or options, or
otherwise.
c. The "Limit" shall mean 10% of the then-outstanding shares of
Common Stock.
G-2
d. A "person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group if such other group was formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
3. The Board of Directors shall have the power to construe and apply
the provisions of this section and to make all determinations
necessary or desirable to implement such provisions, including but
not limited to matters with respect to: (i) the number of shares of
Common Stock beneficially owned by any person; (ii) whether a person
is an affiliate of another; (iii) whether a person has an agreement,
arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership; (iv) the
application of any other definition or operative provision of the
section to the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock
in excess of the Limit (or holds of record Common Stock beneficially
owned by any person in excess of the Limit) supply the Corporation
with complete information as to: (i) the record owner(s) of all
shares beneficially owned by such person who is reasonably believed
to own shares in excess of the Limit; and (ii) any other factual
matter relating to the applicability or effect of this section as
may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of
record of shares of capital stock of the Corporation entitling the
holders thereof to cast a majority of the votes (after giving
effect, if required, to the provisions of this Section C) entitled
to be cast by the holders of shares of capital stock of the
Corporation shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital stock (or
the holders thereof) for purposes of determining any quorum
requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the
votes (or the holders thereof) then entitled to be cast in respect
of such capital stock.
6. Any constructions, applications, or determinations made by the Board
of Directors pursuant to this section in good faith and on the basis
of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be
construed as if such invalid, prohibited or unenforceable provision
had been stricken herefrom or otherwise rendered inapplicable, it
being the intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this Section C
remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning an
amount of stock over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by
G-3
this Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent
in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
E. Where a separate vote by holders of a class or classes of stock is
required, a majority of the shares of such class or classes present in
person or by proxy (after giving effect to the provisions of Article
FOURTH) shall constitute a quorum entitled to take action with respect to
that vote on that matter.
SIXTH:
A. Until October 15, 2004, the Board of Directors shall consist of 16
persons, eight (8) of whom shall be designated by the former directors of
FFY Financial Corp. ("FFY Directors") and eight (8) of whom shall be
designated by the directors of the Corporation prior to its merger with FFY
Financial Corporation ("Prior Corporation Directors"). The 16 members of
the Board of Directors shall be divided into three classes, as nearly equal
in number as possible, with the first class consisting of six members
(three appointed by the Prior Corporation Directors and three appointed by
the FFY Directors ) with a term expiring at the 2001 annual meeting, the
second class consisting of six members (three appointed by the Prior
Corporation Directors and three appointed by the FFY Directors) with a term
expiring at the 2002 annual meeting and the third class consisting of four
members (two appointed by the Prior Corporation Directors and two appointed
by the FFY Directors ) with a term expiring at the 2003 annual meeting. The
Directors appointed to the Board of Directors by the FFY Directors shall
nominate those FFY Directors who are up for reelection at the 2001, 2002
and 2003 annual meetings, and the Directors appointed to the Board of
Directors by the Prior Corporation Directors shall nominate those Prior
Corporation Directors who are up for reelection at the 2001, 2002 and 2003
annual meetings. Nominations of Directors for each year after the 2003
annual meeting, shall be as set forth in the Bylaws of the Corporation.
B. Upon the first resignation, removal or other termination of service
of a Director following the consummation of the merger of FFY Financial
Corp. with and into the Corporation but prior to October 15, 2004, such
Director, if initially designated by the FFY Directors, shall be replaced
by a person designated by the remaining FFY Directors, or such Director, if
initially designated by the Prior Corporation Directors, shall be replaced
by a Director designated by the remaining Prior Corporation Directors and
any Director so chosen by FFY Directors or Prior Corporation Directors
shall hold office for a term expiring at the annual meeting of stockholders
at which the term of office of the class to which they have been chosen to
fill expires. Thereafter, upon the second resignation, removal or other
termination of service of a Director, if such Director was designated by
the FFY Directors, a Director designated by the Prior Corporation Directors
shall resign or, if such Director was designated by the Prior Corporation
Directors, a Director designated by the FFY Directors shall resign,
whereupon the Board shall be reduced to fourteen (14) members.
C. Sections A and B of this Article Sixth shall expire on October 15,
2004 and only Sections C, D, E, F and G will govern the Board of Directors
under this Article Sixth.
G-4
D. Notwithstanding Sections A, B and C of this Article Sixth, the number
of Directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by the majority of the Board of
Directors provided that the number of FFY Directors and Prior Corporation
Directors shall not be changed until after October 15, 2004, except as
provided above. Notwithstanding the previous sentence, however, if prior to
October 15, 2004, the Board of Directors desires to both reduce the total
number of board members below fourteen (14) and the number of FFY Directors
and Prior Corporation Directors would be unequal, then an 80% vote of the
Board of Directors would be required, and if prior to October 15, 2004, the
Board of Directors desires to reduce the total number of board members
below fourteen (14) and the number of FFY Directors and Prior Corporation
Directors would be equal, then a majority vote of the Board of Directors
would be required. The Directors shall be divided into three classes, as
nearly equal in numbers as the then total number of Directors constituting
the entire Board of Directors permits, with the term of office of three (3)
years for the Directors elected in each class or until their successors
shall have been duly elected and qualified. One class of the Board of
Directors shall stand for election at each annual meeting of stockholders.
E. Subject to Sections A, B, C and D of this Article Sixth and the
rights of holders of any series of Preferred Stock outstanding, the newly
created directorships resulting from any increase in the authorized number
of Directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or
other cause may be filled only by a majority vote of the Directors then in
office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which they have been chosen expires. No
decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
F. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
G. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of subsection C of Article FOURTH of this
Certificate of Incorporation ("Article FOURTH")), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with: (i) any Interested Stockholder (as
hereinafter defined); or (ii) any other corporation (whether or
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not itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate (as hereinafter defined) of
an Interested Stockholder; or
2. 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 the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% or more of the combined assets of the
Corporation and its Subsidiaries; or
3. 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 having an aggregate Fair Market Value
(as hereinafter defined) equaling or exceeding 25% of the combined
Fair Market Value of the outstanding common stock of the Corporation
and its Subsidiaries, to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) except for any issuance or
transfer pursuant to an employee benefit plan of the Corporation or
any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. 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 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 the
Corporation or any Subsidiary which is directly or indirectly owned
by any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH) (the "Voting Stock"), voting
together as a single class. 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 or by any other provisions of this
Certificate of Incorporation or any Preferred Stock Designation in any
agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such vote (if any) as is otherwise required
by law or this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. 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
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per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the
following:
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date"); or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
b. 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 class of outstanding Voting Stock other than
Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to
every such class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period immediately
prior to the Announcement Date; or (ii) in the transaction in
which it became an Interested Stockholder, whichever is
higher; or
(2) (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 of the Corporation; or
(3) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date,
whichever is higher.
c. The consideration to be received by holders of a particular class
of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of
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 the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of this
Article EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of shares
or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
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Disinterested Directors (as hereinafter defined), there shall
have been no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not cumulative)
on any outstanding stock having preference over the Common Stock
as to dividends or liquidation; (2) there shall have been: (i) no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Disinterested Directors; and (ii) 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 the Common Stock,
unless the failure to so increase such annual rate is approved by
a majority of the Disinterested Directors, and (3) neither such
Interested Stockholder or any of its Affiliates shall have become
the beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
f. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, and
the rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 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).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group if
such other group was formed for the purpose of acquiring, holding or
disposing of securities or any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
a. is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock; or
b. 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
c. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially
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owned by any Interested Stockholder, 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, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall be
determined in the manner provided in Section C of Article FOURTH
hereof.
4. "Affiliate" and "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, as in effect
on the date of filing of this Certificate of Incorporation.
5. "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 Stockholder set forth in Paragraph 2 of this
Section C, 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.
6. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or
who is elected and who, in either event, is unaffiliated with the
Interested Stockholder and in connection with his or her initial
assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then
in use, or, if such stock is admitted to trading on a principal
United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value shall be the
highest sale price reported during the 30-day period preceding
the date in question, 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 in good faith, in
each case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such stock
or any stock split or reclassification of outstanding shares of
such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock; and
b. in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by
the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received"
as used in Subparagraphs (a) and (b) of
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Paragraph 2 of Section B of this Article EIGHTH shall include the
shares of Common Stock and/or the shares of any other class of
outstanding Voting Stock retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (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 equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to: (A) make a tender
or exchange offer for any equity security of the Corporation; (B) merge or
consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its
judgment in determining what is in the best interest of the Corporation and
its stockholders, give due consideration to all relevant factors, including,
without limitation, those factors that Directors of any subsidiary of the
Corporation may consider in evaluating any action that may result in a change
or potential change in the control of the subsidiary, and the social and
economic effect of acceptance of such offer: on the Corporation's present and
future customers and employees and those of its Subsidiaries (as defined in
Article EIGHTH hereof); on the communities in which the Corporation and its
Subsidiaries operate or are located; on the ability of the Corporation to
fulfill its corporate objective as a savings and loan holding company under
applicable laws and regulations; and on the ability of its subsidiary savings
institution to fulfill the objectives of a stock form savings institution
under applicable statutes and regulations.
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including
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attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding against the Corporation (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to
be a Director, Officer, employee or agent and shall inure to the benefit of
the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses
of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such suit.
In any suit brought by the indemnitee to enforce a right to indemnification
or to an advancement of expenses hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking,
the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article TENTH
or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership,
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joint venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability: (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or
modification.
TWELFTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote
of the holders of at least 80 percent of the voting power of all of the then-
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions
of Article FOURTH), voting together as a single class, shall be required to
amend or repeal this Article TWELFTH, Section C of Article FOURTH, Sections C
or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or
Article TENTH.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of First
Place Financial Corp.'s Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent, or in any other capacity while serving as
a Director, Officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision from which there is
no further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be
a Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expenses of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the Corporation
to recover an advancement of
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expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary
or Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or
modification.
II-2
Item 21. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
2.1 Agreement and Plan of Merger, dated May 23, 2000, by and between First
Place Financial Corp. and FFY Financial Corp included as Annex A to the
Joint Proxy Statement/Prospectus
3.1 Certificate of Incorporation of First Place Financial Corp., previously
filed and incorporated by reference to First Place Financial Corp.'s
Registration Statement on Form S-1 (File No. 333-63099) dated September
9, 1998
3.3 Bylaws of First Place Financial Corp., previously filed and
incorporated by reference to First Place Financial Corp. Registration
Statement on Form S-1 (File No. 333-63099), dated September 9, 1998
5.0 Opinion of Patton Boggs LLP as to validity of the securities*
8.0 Opinion of Patton Boggs LLP as to certain Federal Income Tax matters
12.0 Statement regarding Computations of Ratios, is included in the Joint
Proxy Statement/Prospectus
23.1 Consent of Patton Boggs (included in Exhibits 5.0 and 8.0)*
23.2 Consent of Crowe Chizek & Company LLP
23.3 Consent of KPMG LLP
24.0 Power of Attorney (Located on the signature page hereto)
99.1 FFY Financial's Proxy Card*
99.2 First Place Financial Corp.'s Proxy Card*
99.3 Opinion of Sandler O'Neill & Partners, L.P., is included as Annex F to
the Joint Proxy Statement/Prospectus
99.4 Opinion of Keefe, Bruyette & Woods, Inc., is included as Annex E to the
Joint Proxy Statement/Prospectus
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* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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;
II-3
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(B) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(C) 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.
(D) 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.
(E)(1) 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 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 to be underwriters, in addition to the information
called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such security at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Warren,
State of Ohio, on August 17, 2000.
First Place Financial Corp.
/s/ Steven R. Lewis
By: _________________________________
Steven R. Lewis
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven R. Lewis and Richard K. Smith, jointly
and severally, each in his own capacity, as his true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for such
person and in such person's name, place and stead, in any and all capacities,
to sign any or all 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, granting unto said attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully or do cause to be done by virtue hereof.
Name Date
---- ----
/s/ Steven R. Lewis President, Chief Executive August 17 , 2000
______________________________________ Officer and Director
Steven R. Lewis (principal executive
officer)
/s/ Richard K. Smith Vice President and Chief August 17 , 2000
______________________________________ Financial Officer
Richard K. Smith (principal accounting and
financial officer)
/s/ Paul A. Watson Chairman of the Board August 17 , 2000
______________________________________
Paul A. Watson
/s/ George J. Gentithes Director August 17 , 2000
______________________________________
George J. Gentithes
/s/ Robert P. Grace Director August 17 , 2000
______________________________________
Robert P. Grace
/s/ Thomas M. Humphries Director August 17 , 2000
______________________________________
Thomas M. Humphries
II-5
Name Date
---- ----
/s/ Robert S. McGeough Director August 17 , 2000
______________________________________
Robert S. McGeough
/s/ E. Jeffrey Rossi Director August 17 , 2000
______________________________________
E. Jeffrey Rossi
/s/ Earl Kissell Director August 17 , 2000
______________________________________
Earl Kissell
II-6
TABLE OF CONTENTS
List of Exhibits (Filed herewith unless otherwise noted)
2.1 Agreement and Plan of Merger, dated May 23, 2000, by and between First
Place Financial Corp. and FFY Financial Corp. is included as Annex A to
the Joint Proxy Statement/Prospectus
3.1 Certificate of Incorporation of First Place Financial Corp., previously
filed and incorporated by reference to First Place Financial Corp.'s
Registration Statement on Form S-1 (File No. 333-63099) dated September
9, 1998
3.3 Bylaws of First Place Financial Corp., previously filed and incorporated
by reference to First Place Financial Corp. Registration Statement on
Form S-1 (File No. 333-63099), dated September 9, 1998
5.0 Opinion of Patton Boggs LLP as to validity of the securities*
8.0 Opinion of Patton Boggs LLP as to certain Federal Income Tax matters
12.0 Statement regarding Computations of Ratios, is included in the Joint
Proxy Statement/Prospectus
23.1 Consent of Patton Boggs (included in Exhibits 5.0 and 8.0)*
23.2 Consent of Crowe Chizek & Company LLP
23.3 Consent of KPMG LLP
24.0 Power of Attorney (Located on the signature page hereto)
99.1 FFY Financial's Proxy Card*
99.2 First Place Financial Corp.'s Proxy Card*
99.3 Opinion of Sandler O'Neill & Partners, L.P., is included as Annex F to
the Joint Proxy Statement/Prospectus
99.4 Opinion of Keefe, Bruyette & Woods, Inc., is included as Annex E to the
Joint Proxy Statement/Prospectus
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* To be filed by amendment.