SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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- OR -
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ______________________
Commission file number: 0-27126
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First Colorado Bancorp, Inc.
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(Exact name of Registrant as specified in its charter)
Colorado 84-1320788
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(State or other jurisdiction of (I.R.S. employer
of incorporation or organization) identification no.)
215 S. Wadsworth Boulevard, Lakewood Colorado 80226
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 232-2121
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Registrant's voting stock trades on the Nasdaq National Market System
under the symbol "FFBA." The aggregate market value of the voting stock held by
non-affiliates of registrant, based upon the closing price of such stock as of
March 21, 1997 ($17.125 per share), was $283.5 million.
As of March 21, 1997, registrant had 16,555,197 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Parts II and IV -- Portions of registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1996.
2. Part III -- Portions of registrant's Proxy Statement for Annual Meeting of
Stockholders to be held on April 30, 1997.
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PART I
Item 1. Business
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Business of the Company
First Colorado Bancorp, Inc. (the "Company") is a Colorado corporation
organized in September 1995, at the direction of the Board of Directors of the
First Federal Bank of Colorado (the "Bank") to facilitate the conversion of
First Savings Capital, M.H.C. (the "Mutual Holding Company") from the mutual to
stock form of ownership and to acquire and hold all of the capital stock of the
Bank (collectively, the "Conversion and Reorganization"). Prior to the
consummation of the Conversion and Reorganization, the Mutual Holding Company
was the majority stockholder of the Bank and upon consummation of the Conversion
and Reorganization, the Mutual Holding Company was merged with and into the
Bank. The Company acquired the Bank as a wholly owned subsidiary upon the
consummation of the Conversion and Reorganization on December 29, 1995. In
connection with the Conversion and Reorganization, the Company sold 13,403,798
shares of its common stock to the public in an initial public offering (the
"Offering") and issued 6,619,539 shares in exchange for the outstanding shares
of the Bank held by persons other than the Mutual Holding Company. As of
December 31, 1996, the Company had total assets of $1.5 billion, total deposits
of $1.1 billion, and stockholders' equity of $216.6 million, or 14.3% of total
assets.
The primary activity of the Company is holding the common stock of the
Bank. The Company is therefore a unitary savings and loan holding company. The
Company has no significant assets other than all of the outstanding shares of
Bank Common Stock, the note evidencing the Company's loan to the Bank's Employee
Stock Ownership Plan ("ESOP") and the portion of the net proceeds from the
Offering retained by the Company, which have been invested in a $21.5 million
loan to the Bank and in deposits in the Bank and in a stock repurchase program
resulting in the repurchase of 2.0 million shares of Company common stock for
$29.0 million. The Company neither owns nor leases any property, but instead
uses the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than executive officers who
are also executive officers of the Bank, and the Company will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate to the extent the Company expands or changes its business in the
future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company is in a position, subject to regulatory limitations and the
Company's financial position, to take advantage of any such acquisition and
expansion opportunities that may arise.
Business of the Bank
The Bank is a federally-chartered stock savings bank, originally chartered
by the State of Colorado as the Cooperative Building and Loan Association on
April 25, 1885. In connection with the Conversion and Reorganization, the Bank
changed its name from First Federal Savings Bank of Colorado to its current name
and became a wholly owned subsidiary of the Company. The Bank is believed to be
the oldest savings institution headquartered in Colorado. A federal charter was
granted to the Bank in
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1934, the same year that deposit accounts became federally insured and the Bank
became a member of the Federal Home Loan Bank ("FHLB") System. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings Association Insurance Fund ("SAIF"), and the Bank is regulated by
the Office of Thrift Supervision ("OTS").
The principal business of the Bank is the acceptance of savings deposits
from the general public and the origination and purchase of mortgage loans for
the purpose of constructing, financing or refinancing one-to-four family
residences and other improved residential and commercial real estate. The Bank
is also active in the origination of home equity loans. The Bank's income is
derived largely from interest on interest-earning assets such as loans,
mortgage-backed securities and investments. Its principal expenses are interest
paid on deposits and borrowings, operating expenses and provisions for loan
losses.
Market Area and Competition
The Bank is authorized to make real estate loans throughout the United
States. The Bank's primary lending area is the Denver metropolitan area and the
Western Slope of Colorado communities served by the Bank's offices in Grand
Junction, Delta and Montrose. The Bank has no significant loan concentrations in
any one part of its primary lending area.
The Colorado real estate market was generally depressed in the mid-to-late
1980's. The market, however, has shown improvement in the 1990's, but whether
the recovery will continue is dependent upon general economic conditions, not
just in Colorado, but in the United States as a whole.
The Bank faces strong competition in its attraction of savings deposits,
which are its primary source of funds for lending, and in the origination of
real estate loans. The Bank's competition for savings deposits and loans
historically has come from other thrift institutions and commercial banks
located in the Bank's market area. The Bank also competes with mortgage banking
companies for real estate loans, and faces competition for investor funds from
short-term money market securities and corporate and government securities.
During recent periods the Bank has also experienced withdrawals of deposit funds
which it believes are being invested in the stock market.
The Bank considers its primary market area to consist of the following
Colorado counties: Denver, Adams, Arapahoe, Jefferson, Boulder, Douglas, Mesa,
Delta and Montrose.
The Bank competes for loans by charging competitive interest rates and
loan fees, remaining efficient and providing a wide range of services to its
customers. The Bank's goal is to be the best "consumer bank" in the area it
serves. The Bank offers all consumer banking services such as checking accounts,
certificates of deposit, retirement accounts, consumer and mortgage loans and
ancillary services such as safe deposit boxes, convenient offices and drive-up
facilities, automated teller machines, credit cards, check guarantee cards, and
overdraft protection. These services help the Bank compete for deposits. The
Bank offers competitive rates on deposits but does not attempt to pay the
highest rates in its market area.
Based upon total assets, the Bank was the largest thrift institution based
in the State of Colorado as of December 31, 1996. As of December 31, 1996, one
other thrift institution and 49 commercial banks were headquartered in the
Denver metropolitan area. The Bank also competes with several other larger
financial institutions, headquartered outside of Colorado, which maintain
offices in the Bank's market area. These competitors may be able to offer better
loan rates from time to time due to their size, financial resources, and
competitive strategy.
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Legislative and regulatory measures in the past two decades have
significantly expanded the range of services which thrift institutions can offer
the public, such as demand deposits, trust services and consumer and commercial
lending. These changes, combined with increasingly sophisticated depositors,
have dramatically increased competition for savings dollars among thrift
institutions and other types of investment entities, as well as with commercial
banks in regard to loans, checking accounts and other types of financial
services. In addition, large conglomerates and investment banking firms have
entered the market for financial services. Such legislation has increased the
competition between commercial banks and thrift institutions by allowing banks
to acquire healthy thrift institutions, imposing similar capital requirements on
banks and thrift institutions, and placing certain investment and other
regulatory restrictions on thrift institutions which are similar to those
imposed on banks. Thus, in the future, the Bank, like other thrift institutions,
will face increased competition to provide savings and lending services and, in
order to remain competitive, will have to be innovative and knowledgeable about
its market, as well as to continue to exert effective controls over its costs.
Investment Strategy
The Bank has adopted an investment strategy designed to help control the
Bank's interest rate risk, while maintaining profitability and reducing credit
risk. The Bank invests its funds primarily in mortgage loans receivable and
mortgage products, such as mortgage-backed securities and asset-backed
securities. The Bank's strategy is to first invest its funds in loans secured by
real estate located in its primary market area. The Bank's first priority is to
originate adjustable rate mortgage ("ARM") loans, predominately on residential
properties and to a lesser extent on commercial real estate, whenever possible
for its own portfolio. The Bank also originates for its own portfolio 15 year
fixed-rate residential mortgages on which interest is paid on a bi-weekly basis.
These mortgages have a relatively short average life of approximately 12 years,
and help reduce the Bank's long term interest rate risk. When interest rates are
rising, the demand for ARM loans increases. When the Bank is unable to originate
a sufficient amount of ARM loans or 15 year fixed-rate mortgage loans, the Bank
purchases ARM loans in the secondary market. When whole ARM loans are not
available in the secondary market, the Bank's third priority is to purchase
mortgage-backed securities backed by ARM loans or other acceptable mortgage
collateral. Pending such purchases, the Bank invests its funds in short-term
investments, such as U.S. government and agency securities, asset-backed
securities, non-government securities and corporate bonds rated AAA or higher,
and certificates of deposit.
The Bank's net interest income will vary, depending upon the difference
between the amount of income that it receives from its loan, mortgage-backed
securities and investment portfolios and its cost of funds. A significant
portion of the Bank's loan portfolio consists of long-term real estate loans and
mortgage-backed securities with interest rate features which, while variable to
some degree, do not vary as rapidly or to the same extent as the Bank's cost of
funds. Consequently, the Bank is vulnerable to future increases in interest
rates which, if significant, may have a material adverse affect on its financial
condition and results of operations.
In order to reduce the Bank's interest rate risk exposure, the Bank has
sold essentially all fixed-rate 30 year mortgage loans it originates into the
secondary market. The Bank has also developed its consumer lending,
concentrating in the area of home equity loans. This strategy is designed to
improve and stabilize its operational results to counter the volatile cost of
its funds and the mismatch between its relatively long-term, fixed-rate assets
and short-term, rate sensitive liabilities. The principal objective of this
strategy is to restructure assets to lessen the potential adverse effects of
interest rate volatility on earnings, while maintaining high quality (low credit
risk) assets and improving profits.
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For further information, see "Management's Discussion of 1996 Results" in
the Annual Report to Stockholders for the year ended December 31, 1996.
Lending Activities
Loan Portfolio Composition. The Bank's loan portfolio composition consists
primarily of conventional fixed-rate and adjustable-rate first mortgage loans
secured by one-to-four family residences and, to a lesser extent, multi-family
residences and commercial real estate. As of December 31, 1996, the Bank's total
net portfolio of loans and mortgage-backed and other asset-backed securities
outstanding (the "loan portfolio") was $1,342.8 million, of which $1,168.7
million, or 87.0% was secured by one-to-four family residential dwellings. At
that same date, $82.9 million, or 6.2% of the loan portfolio was secured by
multi-family dwellings, and $81.8 million, or 6.1% of the loan portfolio was
secured by non-residential commercial real estate.
The Bank is active in making second mortgage loans on one-to-four family
residential properties, which constituted $143.4 million, or 10.7% of the loan
portfolio at December 31, 1996. To a lesser extent, the Bank originates
construction loans, primarily for one-to-four family residential properties, and
at December 31, 1996, such loans constituted $27.9 million or 2.1% of the loan
portfolio. The Bank does not actively offer commercial business loans, and at
December 31, 1996, such loans constituted $283,000 or 0.02% of the loan
portfolio.
Mortgage loans in the Bank's portfolio generally include due-on-sale
clauses that provide the Bank with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers ownership
of the property without the Bank's consent.
The Bank also invests in mortgage and other asset-backed securities. As of
December 31, 1996, total mortgage/asset-backed securities aggregated $281.3
million, or 21.0% of the Bank's net loan portfolio. A portion of the
mortgage-backed securities portfolio as of December 31, 1996 was insured or
guaranteed as to principal by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") or the Government
National Mortgage Association ("GNMA").
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Analysis of Loan and Mortgage-Backed Securities Portfolio. Set forth below
is selected data relating to the composition of the Bank's loan and
mortgage-backed securities portfolios by type of loan and type of security on
the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
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1994 1995 1996
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Balance Percent Balance Percent Balance Percent
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Type of Loan:
Conventional real estate loans:
<S> <C> <C> <C> <C> <C> <C>
Construction................. $ 28,525 2.45% $ 30,731 2.47% $ 27,931 2.08%
One- to four-family.......... 567,621 48.78 736,240 59.28 855,992 63.75
Multi-family................. 76,217 6.55 71,965 5.79 73,543 5.48
Nonresidential............... 70,695 6.08 67,329 5.42 66,918 4.98
Commercial loans............... 271 0.02 491 0.04 283 0.02
Consumer loans:
Savings account.............. 3,731 0.32 4,657 0.37 5,252 0.39
Home improvement............. 19,053 1.64 23,356 1.88 30,403 2.27
Automobile................... 7,263 0.62 8,404 0.68 10.233 0.76
Unsecured open-end........... 1,744 0.15 4,415 0.36 5,099 0.38
Other........................ 937 0.08 1,090 0.09 1,498 0.11
Less:
Loans in process............. (9,056) (0.78) (11,440) (0.92) (9,758) (0.73)
Deferred loan origination fees
and costs................... (3,748) (0.32) (3,153) (0.25) (2,020) (0.15)
Allowance for loan losses.... (3,310) (0.28) (2,926) (0.24) (3,850) (0.29)
---------- ------ ---------- ------ ---------- ------
Total loans, net........... 759,943 65.31% 931,159 74.97% 1,061,524 79.05%
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Mortgage and asset-backed
securities................... 403,694 34.69% 310,886 25.03% 281,289 20.95%
---------- ------ ---------- ------ ---------- ------
Total loans and mortgage and
asset-backed securities, net $1,163,637 100.00% $1,242,045 100.00% $1,342,813 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
One-to-Four Family Mortgage Loans. The Bank offers first mortgage loans
secured by one-to-four family residences in the Bank's primary lending area.
Typically, such residences are single family homes that serve as the primary
residence of the owner. As of December 31, 1996, 87.0% of the Bank's loans and
mortgage-backed and other asset-backed securities receivable were secured by
one-to-four family residential real estate mortgages. The Bank currently offers
ARM loans with interest rates that adjust every six months with a maximum rate
increase cap of 1% per adjustment, and a lifetime cap of 4% to 6%. Some of these
ARM loans are fixed for three or five years with rates adjusting semi-annually
after the initial term. The interest rates on the Bank's ARM loans are based
primarily on the one-year U.S. Treasury CMT rate. As of December 31, 1996, six
month, one year and three year ARM loans originated by the Bank constituted
79.9%, 17.9%, and 2.2% of the originated ARM loan portfolio, respectively. ARM
loans are originated for a term of up to 30 years. The Bank generally originates
one-to-four family residential mortgage loans in amounts up to 85% of the
appraised value of the mortgaged property, but will consider loan-to-value
ratios of up to 97% if the loan amount exceeding the 85% loan-to-value ratio is
insured by a private mortgage insurance ("PMI") company. The Bank usually
charges an origination fee of 0.5% of the loan amount (1/2 point) on one to-four
family ARM loans. Due to the
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current economic environment which has caused an increase in the overall level
of interest rates, the Bank has seen a significant increase in customer interest
in ARM loans. The Bank retains the ARM loans it originates for its loan
portfolio.
The Bank also offers 10, 12, 15 and 30 year fixed rate mortgage loans.
Interest rates charged on fixed rate loans are competitively priced based on the
FNMA/FHLMC daily pricing of one-to-four family mortgages. Loan origination fees
on these loans are generally 0.75% to 1.0% of the loan amount. One type of fixed
rate 15 year mortgage loan offered by the Bank is the bi-weekly loan, which
features bi-weekly mortgage payments. These bi-weekly payments cause the
principal of the mortgage loan to be repaid more rapidly than traditional 15
year mortgage loans and therefore cause the borrower to pay less interest during
the lifetime of the bi-weekly loan than would be paid for a traditional 15 year
mortgage loan made at the same interest rate. The Bank currently retains all
loans with terms of less than 15 years to maturity, both regular amortized and
bi-weekly, for its loan portfolio and attempts to sell its fixed rate
non-biweekly loans of 15 years and more in the secondary market.
The Bank originates second mortgage loans and home equity loans secured by
one-to-four family residences. These loans generally are originated as fixed
rate loans with terms of from five to ten years. An origination fee is usually
charged. The loans are generally subject to an 80% combined loan-to-value
limitation, including any other outstanding mortgages or liens. The Bank's most
popular second mortgage loan is a ten year fixed rate loan which is originated
for retention in the Bank's loan portfolio. Based upon experience, these loans
have an average life of 6.6 years and as of December 31, 1996 constituted 10.7%
of the Bank's loan portfolio. The Bank also originates a revolving line of
credit secured by one-to-four family residences.
Multi-Family Mortgage Loans. The Bank originates, to a limited extent,
fixed rate and adjustable rate multi-family mortgage loans secured primarily by
apartment buildings located in its primary lending area. As of December 31,
1996, $82.9 million, or 6.2%, of the Bank's loan portfolio consisted of
multi-family residential loans. These loans are generally made in amounts up to
75% of the appraised value of the mortgaged property. In making such loans, the
Bank evaluates the mortgage primarily on the net operating income generated by
the real estate to support the debt service. The Bank also considers the
financial resources and income level of the borrower, the borrower's experience
in owning or managing similar property, the marketability of the property and
the Bank's lending experience, if any, with the borrower. An origination fee of
1% to 2% is usually charged on such loans. The largest multi-family loan as of
December 31, 1996, had an outstanding balance of $3.5 million and was secured by
a 182 unit retirement center located in the Denver metropolitan area.
Commercial Real Estate. To a lesser degree, the Bank originates commercial
real estate loans secured by properties located within its primary market area.
The Bank's commercial real estate loans are permanent loans secured by improved
property such as office buildings, retail stores, including shopping malls,
industrial facilities and other non-residential buildings. The Bank generally
originates commercial real estate loans with terms of 10 to 15 years and
balances generally under $2.0 million. As of December 31, 1996, the Bank had
loans secured by commercial real estate totalling $81.8 million, or 6.1% of the
Bank's net loan portfolio. Twenty of the commercial real estate loans had
principal balances outstanding of over $1.0 million as of December 31, 1996. The
largest commercial real estate loan was secured by a bank building in
Wheatridge, Colorado, with a loan balance of $3.8 million at December 31, 1996.
Commercial real estate loans are generally originated in amounts ranging from
65% to 75% of the appraised value of the mortgaged property. The Bank makes both
adjustable and fixed rate commercial real estate loans. The adjustable rate
loans have amortization terms of up to 20 years, and most have balloon payments
after 10 years. The rate of interest on these loans is tied to either the prime
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rate or the Constant Maturity Treasury Index. Fixed rate commercial real estate
loans generally have 10 to 15 year terms, and some are balloon loans.
Construction Loans. The Bank's construction loan portfolio consists
primarily of residential construction loans with initial terms of six months to
one year. Land acquisition and development loans are also made on a limited
basis. The construction loans made by the Bank have an adjustable rate tied to
the prime rate, adjusted monthly. Generally, such loans are repaid or refinanced
by permanent loans when the property is completed or sold. A majority of
construction loans are made on properties that are presold. Construction loans
constituted $27.9 million, or 2.1%, of the Bank's total net loan portfolio as of
December 31, 1996.
Consumer Loans. Federal savings associations are permitted to make secured
and unsecured consumer loans up to 35% of their assets. In addition, a savings
association has lending authority above the 35% category for certain consumer
loans, such as home equity loans, property improvement loans, mobile home loans
and loans secured by savings accounts. Consumer loans, including home
improvement loans, amounted to $52.5 million, or 3.9% of the Bank's loan
portfolio as of December 31, 1996.
The Bank has engaged in consumer lending for the past 17 years and had a
specialized consumer loan department for 11 years. The Bank's consumer lending
consists primarily of home equity loans secured by one-to-four family
residential properties. These loans are described above under "- One-to- Four
Family Mortgage Loans" and are included in the table describing the Bank's loan
portfolio as loans secured by one-to-four family residential property. The Bank
also offers unsecured consumer loans, unsecured lines of credit, savings account
loans, and automobile loans.
Commercial Business Loans. Regulations authorize the Bank to make secured
or unsecured loans for commercial, corporate, business and agricultural
purposes. The aggregate amount of such loans outstanding may not exceed 10% of
the Bank's assets. In addition, another 10% of total assets may be invested in
commercial equipment leasing. The Bank does not actively offer commercial
business loans. As of December 31, 1996, $283,000, or 0.02%, of the Bank's net
loan portfolio was classified as commercial business loans.
Loan Underwriting Risks. While commercial real estate, construction,
commercial business and consumer loans provide benefits to the Bank's
asset/liability management program and reduce exposure to interest rate changes,
such loans may entail significant additional credit and interest rate risks
compared to residential mortgage lending. Commercial real estate and
construction mortgage loans may involve large loan balances to single borrowers
or groups of related borrowers. In addition, the payment experience on loans
secured by income producing properties is typically dependent on the successful
operation of the properties and thus may be subject to a greater extent to
adverse conditions in the real estate market or in the general economy.
Construction lending is generally considered to involve a higher level of credit
risk than one-to-four family residential lending due to the concentration of
principal in a limited number of loans and borrowers and the effects of general
economic conditions on real estate developers and managers. Construction loans
may involve additional risks attributable to the fact that loan funds are
advanced upon the security of the project under construction. Moreover, because
of the uncertainties inherent in estimating construction costs, delays arising
from labor problems, material shortages, and other unpredictable contingencies,
it is relatively difficult to evaluate accurately the total loan funds required
to complete a project, and related loan-to-value ratios. Because of these
factors, the analysis of prospective construction loan projects requires an
expertise that is different in significant respects from the expertise required
for residential mortgage lending. The Bank seeks to minimize these
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risks by lending primarily to established customers and generally restricting
such loans to its primary market area. Consumer loans have historically tended
to have a higher rate of default than residential mortgage loans, although the
Bank's loan loss experience to date on consumer loans has been favorable in
comparison to industry averages.
There are, due to the unseasoned nature of ARM loans in the industry,
risks resulting from increased costs to the borrower as a result of periodic
repricing. Despite the benefits of ARM loans to the Bank's asset/liability
management program, ARMs pose potential additional credit risks, primarily
because as interest rates rise, the underlying payment by the borrower rises,
increasing the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates.
Mortgage-Backed and Other Asset-Backed Securities. The Bank's
mortgage-backed securities, or pass-through certificates, represent a
participation interest in a pool of single-family mortgages, the principal and
interest payments on which are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interest in the form of securities, to investors such as the
Bank. Such quasi-governmental agencies that guarantee the payment of principal
and interest to investors include the FHLMC, GNMA, or the FNMA. Pass- through
certificates typically are issued with stated principal amounts, and the
securities are backed by pools of mortgages that have loans with interest rates
and maturities that are within a specified range. The underlying pool of
mortgages can be composed of either fixed rate mortgage loans or ARM loans.
Mortgage-backed securities are generally referred to as mortgage participation
certificates or pass-through certificates. As a result, the interest rate risk
characteristics of the underlying pool of mortgages, (i.e., fixed rate or
adjustable rate) as well as prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Mortgage- backed securities issued by FHLMC, FNMA
and GNMA make up a majority of the pass-through market. Generally, the Bank
purchases mortgage-backed securities guaranteed by GNMA and FNMA and
participation certificates issued by the FHLMC. GNMA mortgage-backed securities
are certificates issued and backed by the GNMA and are secured by interests in
pools of mortgages which are fully insured by the Federal Housing Administration
("FHA") or partially guaranteed by the Veterans' Administration ("VA"). FHLMC
mortgage-backed securities are participation certificates issued and guaranteed
by the FHLMC and secured by interests in pools of conventional mortgages
originated by savings associations. See "- Investment Activities" regarding the
Bank's investment in structured notes.
Mortgage-backed securities provide for monthly payments of principal and
interest and generally have contractual maturities ranging from five to thirty
years. However, due to expected repayment terms being significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
The Bank also purchases mortgage-backed securities and collateralized
mortgage obligations ("CMOs") issued by government agencies, private issuers and
financial institutions, some of which are qualified under the Internal Revenue
Code of 1986, as amended (the "Code") as Real Estate Mortgage Investment
Conduits ("REMICs"). CMOs and REMICs (collectively CMOs) have been developed in
response to investor concerns regarding the uncertainty of cash flows associated
with the prepayment option of the underlying mortgagor and are typically issued
by governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. Some CMO instruments are most like
traditional debt instruments because they have stated principal amounts and
traditionally defined interest-rate terms. Purchasers of certain other CMO
instruments are entitled to the excess, if any, of the issuer's cash
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inflows, including reinvestment earnings, over the cash outflows for debt
service and administrative expenses. These mortgage related instruments may
include instruments designated as residual interests, which represent an equity
ownership interest in the underlying collateral, subject to the first lien of
the investors in the other classes of the CMO. Certain residual CMO interests
may be riskier than many regular CMO interests to the extent that they could
result in the loss of a portion of the original investment. Moreover, cash flows
from residual interests are very sensitive to prepayments and, thus, contain a
high degree of interest-rate risk.
At December 31, 1996, all of the Bank's investment in CMOs consisted of
regular interests. As of December 31, 1996, the Bank's CMOs did not include any
residual interests or interest-only or principal-only securities. As a matter of
policy, the Bank does not invest in residual interests of CMOs or interest-only
and principal-only securities. The CMOs held by the Bank at December 31, 1996
consisted of floating rate and fixed rate tranches. The interest rate of a
majority of the Bank's floating-rate securities adjusts monthly and provides the
institution with net interest margin protection in an increasing market interest
rate environment. The securities are backed by mortgages on one-to-four family
residential real estate and have contractual maturities up to 30 years. The
securities are primarily PACs and TACs (Planned and Targeted Amortization
Classes) are designed to provide a specific principal and interest cash-flow.
Private issued CMOs tend to have greater prepayment and credit risk than
those issued by government agencies or government sponsored enterprises (e.g.,
FHLMC, FNMA, and GNMA) generally because they often are secured by jumbo loans
(i.e., loans with aggregate outstanding balances above the limit for purchases
by FHLMC or FNMA). At December 31, 1996, the Bank had CMOs with an aggregate
carrying amount (including discounts and premiums) of $208.5 million, of which
$179.7 million, or 86.2%, were privately issued. To minimize the risk of private
issued CMOs, the Bank only purchases those CMOs rated AA or better by one of the
rating agencies.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed and
related securities are more liquid than individual mortgage loans and may be
used to collateralize borrowings of the Bank in the event that the Bank
determined to utilize borrowings as a source of funds. Mortgage-backed
securities issued or guaranteed by the GNMA, FNMA or the FHLMC (except
interest-only securities or the residual interests in CMOs) are weighted at no
more than 20.0% for risk-based capital purposes, compared to a weight of 50.0%
to 100.0% for residential loans. See "Regulation of the Bank - Regulatory
Capital Requirements."
During the most recent declining interest rate environment, the Bank
experienced significant prepayments of both fixed- and adjustable-rate
mortgage-backed securities. Such circumstances generally make it difficult for
the Bank to reinvest the cash flow from these securities into comparable
yielding investments, thereby decreasing its yield.
As of December 31, 1996, these mortgage-backed securities and CMOs
amounted to $72.8 million or 5.4% of the loan portfolio, and $208.5 million or
15.5% of the loan portfolio, respectively. The CMOs purchased by the Bank are
generally in the first or second tranche priorities with a two to five year
average life based upon prepayment schedules and carried a weighted average
coupon of 6.47% and a weighted average expected maturity of 66 months as of
December 31, 1996.
In addition, the Bank periodically purchases AAA-rated asset-backed
securities, generally secured by credit card receivables and automobile loans.
The Bank's investment policy limits the maturity of
9
<PAGE>
these securities to an average life of three years. No asset-backed securities
were included in the Bank's loan portfolio as of December 31, 1996.
The following table presents the Bank's mortgage-backed and asset-backed
securities at the dates indicated. Securities classified held-to-maturity and
available-for-sale are carried at amortized cost and market value, respectively.
As of December 31,
----------------------------------
1994 1995 1996
-------- --------- ---------
(In Thousands)
Federal Home Loan Mortgage
Corporation............................. $ 48,246 $ 39,168 $ 47,366
Federal National Mortgage Association...... 25,219 23,263 30,862
Government National Mortgage Association .. 1,509 520 419
Other government mortgage-backed
securities.............................. 901 -- --
Collateralized mortgage obligations and
other mortgage-backed securities........ 316,596 243,024 200,004
Asset-backed securities.................... 7,721 2,292 --
-------- -------- ----------
400,192 308,267 278,651
Allowance for losses....................... (43) (171) (181)
Unamortized premiums, net.................. 3,545 2,790 2,819
-------- -------- --------
Total................................. $403,694 $310,886 $281,289
======== ======== ========
During periods of rising mortgage interest rates, if the coupon rates of
the underlying mortgages are less than the prevailing market interest rates
offered for mortgage loans, refinancings generally decrease and slow the
prepayment of the underlying mortgages and the related securities. Conversely,
during periods of falling mortgage interest rates, if the coupon rates of the
underlying mortgages exceed the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related securities. Under such
circumstances, the Bank may be subject to reinvestment risk because to the
extent that the Bank's mortgage-related securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate. The declining yields earned
during recent periods is a direct response to falling interest rates in fiscal
1992 and 1993 and the first part of fiscal 1994 as well as to accelerated
prepayments. At December 31, 1996, of the $278.7 million of mortgage-backed
securities (including CMOs), an aggregate of $168.9 million were secured by
fixed-rate securities and an aggregate of $109.8 million were secured by
adjustable-rate securities.
Loans to One Borrower. Savings associations are subject to the same limits
as those applicable to national banks, which under current law have lending
limits in an amount equal to 15% of unimpaired capital and unimpaired surplus on
an unsecured basis and an additional amount equal to 10% of unimpaired capital
and unimpaired surplus if the loan is secured by readily marketable collateral.
However, the Bank's policy has been to limit loans to a single borrower to 10%
of capital and to require approval of the Board of Directors for aggregation of
loans to one borrower greater than $1 million. As of December 31, 1996, the
Bank's loan to one borrower limit was $21.6 million. The lending limits to one
borrower has not adversely affected the Bank's ability to conduct its
operations, particularly because
10
<PAGE>
it does not typically make real estate development and construction loans which
carry large balances. The largest aggregation of loans to one borrower at
December 31, 1996 was $8.0 million of loans secured by six apartment buildings
in the Denver metropolitan area. The second largest aggregation of loans to one
borrower was $7.7 million of loans secured by new housing developments in the
Denver metropolitan area and by an office building in Arapahoe County that is
owned and occupied by the developer. The third largest aggregation of loans to
one borrower was $6.9 million of loans secured by residential housing
developments in the Denver metropolitan area. The fourth largest aggregation of
loans to one borrower was a $6.8 million loan which is secured by five office
and retail properties located in the Denver metropolitan area. The fifth largest
aggregation of loans to one borrower was $6.1 million of loans secured by ten
apartment buildings in Boulder, Colorado. All of these loans were current and
were at market rates of interest at December 31, 1996.
Loan Maturity Schedule. The following table sets forth certain information
as of December 31, 1996, regarding the dollar amount of loans, including
mortgage-backed securities and asset-backed securities, in the Bank's portfolio
based on their maturity. The table does include scheduled principal payments and
estimated prepayments, which totalled $314.2 million, $250.9 million and $307.6
million for the years ended December 31, 1994, 1995, and 1996, respectively.
Demand loans, loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. Adjustable and
floating rate loans are included in the period in which they mature, and fixed
rate loans are included in the period in which the final contractual payment is
due.
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------------------------------------------------------------------
Over One Over Over Five
Through Three Through
One Year Three Through Ten Over Ten
or Less Years Five Years Years Years Total
----------- ------------ ------------ ------------ ------------- -------------
(In Thousands)
1-4 family first mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Adjustable rate ...................... $ 14,329 $ 44,931 $ 45,380 $ 119,777 $ 427,326 $ 651,743
Fixed rate ........................... 57,720 97,218 83,830 148,072 40,298 427,138
Other residential and all
nonresidential:
Adjustable rate ...................... 8,063 8,165 9,620 110,861 4,985 141,694
Fixed rate ........................... 1,097 2,477 2,908 16,528 -- 23,010
Second mortgage and home equity loans... 16,177 28,895 24,076 10,947 -- 80,095
Consumer loans ......................... 7,572 14,499 -- -- -- 22,071
Commercial business loans .............. -- 283 -- -- -- 283
Deferred loan origination
fees and costs ....................... -- -- -- -- -- 799
Allowance for loan loss ................ -- -- -- -- -- (4,020)
----------- ----------- ----------- ----------- ----------- -----------
Total loans and mortgage-backed
and other asset-backed
securities ........................... $ 104,958 $ 196,468 $ 165,814 $ 406,185 $ 472,609 $ 1,342,813
=========== =========== =========== =========== =========== ===========
</TABLE>
11
<PAGE>
The following table sets forth the dollar amount of all loans and
mortgage-backed and asset- backed securities due after December 31, 1996, that
have pre-determined (or fixed) interest rates and which have floating or
adjustable interest rates.
Fixed Adjustable
Rate Rate
-------- -----------
(In Thousands)
Real estate mortgage............ $391,331 $771,045
Second mortgage................. 63,918 --
Consumer........................ 14,499 --
Commercial...................... -- 283
-------- --------
Total.......................... $469,748 $771,328
======== ========
Loan Solicitation and Processing. The Bank actively solicits mortgage loan
applications from existing or past customers, customer referrals, real estate
brokers, contractors, and call-ins and walk-ins to its offices. The Bank has
loan officers who originate mortgage, consumer, commercial real estate and
construction loans. The Bank also advertises in local newspapers for first and
second mortgage loans, home equity and consumer loans. One-to-four family
residential mortgage loans are also originated in areas of Colorado where the
Bank does not have offices through loan originators who are independent
contractors and are compensated on a commission basis. Since 1994, the Bank has
used these independent contractors to originate a significant volume of
one-to-four family mortgage loans in the Denver metropolitan area. Loan
applications originated by independent loan originators are in compliance with
the Bank's underwriting policies and procedures. For the years ended December
31, 1994, 1995, and 1996, loans originated through independent loan originators
totalled $32.5 million, $152.7 million, and $135.6 million, respectively.
Upon receipt of any loan application from a prospective borrower, a credit
report and other documentation are ordered to confirm specific information
relating to the loan applicant's employment, income, and credit standing. An
appraisal or other evaluation of the real estate intended to secure the proposed
loan is obtained. In connection with the loan approval process, the Bank's loan
officers analyze the loan applications and the property involved. All
residential, multi-family, construction, and commercial real estate loans are
processed at the Bank's main office, while home equity and other types of
consumer loans may be processed at any of the Bank's offices. Residential first
mortgage loans of up to $400,000 may be approved (with varying dollar
limitations) by one of seven underwriters designated by the Board of Directors.
Residential first mortgage loans over $400,000 also require the approval of the
Bank's President or the Chief Executive Officer. Construction and commercial
real estate loans up to $400,000 may be approved by a specific senior vice
president; loans for over $400,000 up to $750,000 also require the approval of
the President. Construction and commercial real estate loans for over $750,000
require the approval of the Chief Executive Officer, and those for $1.0 million
or more require the approval of the entire Board of Directors or the Executive
Committee of the Board of Directors. All loans purchased by the Bank are
reviewed by senior lending officers. In connection with loans purchased by the
Bank, the Bank requires an appraisal, in addition to the information required
for all loans originated by the Bank.
Loan applicants are promptly notified of the decision of the Bank orally
or by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest
rate basis, amortization term, a brief description of real estate to be
mortgaged to the
12
<PAGE>
Bank, and the notice of requirement of insurance coverage to be maintained to
protect the Bank's interest. The Bank requires title, fire, casualty and flood
(if applicable) insurance on all properties securing loans, which insurance must
be maintained during the entire term of the loan. In certain instances where the
Bank is making a small second mortgage, and the Bank holds the performing first
mortgage, it may not require a title policy, but the Bank does require certain
informal assurances that there are no other liens superior to the second
mortgage.
Loan Purchases and Sales. The Bank originates adjustable rate and less
than 15 year fixed rate residential mortgage loans, commercial real estate
loans, and construction loans for retention in its loan portfolio and sells
fixed rate residential mortgage loans with terms of 15 years or longer in the
secondary market. These loans are sold without recourse by the Bank. The Bank
also purchases mortgage-backed securities and adjustable rate residential
mortgage loans in the secondary market.
The Bank's purchases in the secondary market are dependent upon the demand
for mortgage credit in the local market area and the inflow of funds from
traditional sources. Purchases of loans enable the Bank to utilize available
funds more quickly and to obtain a yield higher than could generally be obtained
in the alternative investment vehicles. The purchase of such loans is part of
the Bank's strategy to make its overall loan portfolio more sensitive to current
market conditions and interest rates.
The Bank purchases owner-occupied residential first mortgage ARM loans
that meet the Bank's underwriting standards, which generally follow FHLMC and
FNMA guidelines, except that the Bank will generally purchase loans up to
$500,000, which exceeds the limit up to which FHLMC and FNMA may purchase loans.
The majority of these loans purchased are sold by the seller without recourse.
It is the Bank's policy not to purchase loan packages secured by a concentration
of properties in a single subdivision or condominium project.
The Bank reviews each purchased loan as if it were originating the loan
according to its underwriting standards. All loans must be documented, including
an original appraisal that substantiates the value of the subject property at
the time of origination of the loan. The Bank obtains from the seller a
duplicate copy of each original loan file, which generally includes an executed
loan application and mortgage note, financial statements and credit reports of
the borrower, appraisal and title insurance. The Bank may purchase a qualifying
loan up to $500,000 with an exposure of up to 80% based on the original
appraisal of the property.
The Bank purchases only ARM loans with interest rates that adjust on a
monthly, semi-annual and annual basis. Most of the ARMs are indexed to interest
rates at a margin of 250 to 275 basis points above a recognized index, usually
the FHLB 11th District Cost of Funds or the One Year Constant Maturity Treasury.
This cost of funds index generally lags the current market interest rates. The
Bank does not purchase loans that provide for negative amortization.
Most of the loans purchased are secured by real estate located outside of
Colorado, including California, Wisconsin, Illinois and the East Coast. At
December 31, 1996, the Bank's purchased loan portfolio totaled $79.1 million, or
5.9% of the loan portfolio. Of the purchased loan portfolio at December 31,
1996, 6.0% are Colorado loans, while the majority, 83.9%, are California loans
(of which approximately 0.6% were nonperforming at December 31, 1996) and 9.3%
are loans in the Midwestern United States.
13
<PAGE>
The following table sets forth total loans and mortgage-backed and
asset-backed securities originated, purchased, sold, and repaid during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1995 1996
----------- ----------- ------------
(In Thousands)
Total loans receivable, net at beginning
<S> <C> <C> <C>
of period ........................................... $ 1,040,413 $ 1,163,637 $ 1,242,045
----------- ----------- -----------
Loans originated:
One-to-four family residential ...................... 159,542 232,136 235,352
Multi-family residential and commercial real
estate ......................................... 47,399 10,660 35,504
Construction loans .................................. 40,096 32,782 28,955
Consumer loans ...................................... 64,678 62,003 87,523
Commercial loans .................................... 1,116 1,604 1,549
----------- ----------- -----------
Total loans originated ............................ 312,831 339,185 388,883
----------- ----------- -----------
Loans purchased:
One-to-four family residential ...................... 45,137 17,932 --
Mortgage-backed securities .......................... 109,940 -- 34,149
----------- ----------- -----------
Total loans purchased ............................. 155,077 17,932 34,149
----------- ----------- -----------
Net addition to revolving loans receivable ............ 200 2,663 11,358
Loans sold:
Whole loans sold .................................... (23,820) (6,468) (25,258)
Mortgage-backed securities .......................... -- (24,469) --
----------- ----------- -----------
Total loans sold .................................. (23,820) (30,937) (25,258)
----------- ----------- -----------
Loan principal repayments(1) .......................... (314,235) (250,899) (307,554)
Other addition (reduction) to loans receivable(2) (6,829) 464 (810)
----------- ----------- -----------
Net loan activity ..................................... 123,224 78,408 100,768
----------- ----------- -----------
Total loans receivable, net, at end of period...... $ 1,163,637 $ 1,242,045 $ 1,342,813
=========== =========== ===========
</TABLE>
- -------------------------------
(1) Includes principal repayments on mortgage-backed and asset-backed
securities.
(2) Loans transferred to real estate owned or real estate in judgement, net of
amortization of any deferred fees, and net change in loan loss reserves.
14
<PAGE>
Loan Commitments. The Bank generally grants commitments to fund
fixed-rate, single-family mortgage loans for periods of up to 30 days at a
specified term and interest rate. The Bank also makes standby loan commitments
for up to six months for which it receives a non-refundable commitment, usually
equal to approximately 1% of the committed funds. These six month commitments do
not normally specify a loan rate. The Bank also provides standby letters of
credit, for which it charges fees based on 1% of the loan amount. The total
amount of the Bank's commitments to originate real estate loans, consumer loans,
and lines and letters of credit as of December 31, 1996 was $52.4 million. See
Note 5 of the Notes to Consolidated Financial Statements.
Loan Servicing and Servicing Fees. The Bank retains servicing on most of
the loans it sells to FHLMC and FNMA. The Bank also services all of its own
loans through a loan servicing department located at its main office. The loan
servicing department also oversees the adjustment process on adjustable rate
loans and performs clerical functions in regard to loan foreclosures. The loan
servicing department is also responsible for making disbursements on
construction loans made by the Bank. Site inspections are performed prior to
payment of such disbursements in order to ascertain that the construction
process has progressed in accordance with the loan agreement.
As of December 31, 1994, 1995, and 1996 the Bank serviced $156.5 million,
$144.1 million, and $145.6 million respectively, of loans serviced for others.
Loan servicing fees from the sold portfolio provided 0.36%, 0.34%, and 0.16% of
the Bank's net income for the fiscal years ended December 31, 1994, 1995, and
1996, respectively.
Loan Origination and Other Fees. In addition to interest earned on loans,
the Bank received loan origination and commitment fees for originating or
purchasing loans. Prior to January 1, 1988, fees for originating loans were
deferred for amounts in excess of the Bank's estimated cost of origination. Fees
deferred prior to 1988 are being amortized to income over the average lives of
the related loans using the level-interest-yield method. Any unamortized fees on
loans sold are credited to income in the year the transaction occurs. Loan fees
received and certain direct loan origination costs incurred on or after January
1, 1988 are deferred and recognized as an adjustment of yield using the
level-interest-yield method over the contractual life of the loans.
The Bank's loan origination fees generally are 1/2 point on
adjustable-rate residential mortgages, 3/4 to 1 point for fixed-rate residential
mortgage loans and 1 1/2 points for construction and commercial real estate
loans. The total amount of deferred loan fees and net discounts on loans
originated and purchased as of December 31, 1996 was $2.4 million.
The Bank also receives other fees and charges relating to existing loans,
which include prepayment penalties, late charges, and fees collected in
connection with a change in borrower or other loan modifications. These fees and
charges have not constituted a material source of income.
15
<PAGE>
The following table shows loan fees and service charges received by the
Bank expressed as a percentage of gross and pre-tax income, as well as the total
amount of loan fees and service charges received by the Bank.
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Loan fees and service charges as a percentage
of gross income .............................. 0.1% 0.1% 0.2%
Loan fees and service charges as a percentage of
pre-tax income ............................... 0.2% 0.4% 0.8%
Total loan fees and service charges ............ $ 49 $ 75 $ 167
Non-Performing Loans and Asset Classification. The Bank's collection
procedures provide that when a loan is 30 days or more delinquent, the borrower
is contacted by mail and telephone and payment is requested. If the delinquency
continues, subsequent efforts will be made to contact the delinquent borrower.
In certain instances, the Bank may modify the loan or grant a limited moratorium
on loan payments to enable the borrower to reorganize his financial affairs. If
the loan continues in a delinquent status for 60 days, the Bank will initiate
foreclosure proceedings. Any property acquired as the result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold or otherwise disposed of by the Bank. At December 31, 1996,
the Bank had transferred loans totalling $1.5 million to real estate owned. When
real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair market value. Any write-down
in the property is charged to the allowance for losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. Residential mortgage loans are placed on a non-accrual status when
either principal or interest is 90 days or more past due. Consumer loans
generally are charged off when the loan becomes over 90 days delinquent.
Commercial business and real estate loans are placed on non-accrual status when
the loan is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
16
<PAGE>
The following table sets forth information with respect to the Bank's non
performing assets for the periods indicated. At such dates, the Bank had no
nonperforming loans (i.e., loans delinquent 90 days or more) accounted for on an
accrual basis. During the periods indicated the Bank had certain restructured
loans within the meaning of Statement of Financial Accounting Standards ("SFAS")
No. 15. Under certain economic or legal circumstances, the Bank may grant
concessions to a borrower. These concessions may include restructuring loans in
order to change payment terms, reduce the stated interest rate, reduce the
amount of interest due, or extend the maturity date. The new or modified loan
constitutes a troubled debt restructuring under SFAS No. 15. The Bank has
adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan,and SFAS
No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures. Troubled debt restructurings involving a modification of terms
are accounted for in accordance with SFAS No. 114 and SFAS No. 118.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
<S> <C> <C> <C> <C> <C>
Permanent loans secured by one-to-four family dwelling units..... $ 856 $1,419 $ 992 $1,706 $1,372
Commercial real estate and multi-family ......................... -- -- 199 205 5
Non-mortgage loans:
Commercial ................................................... -- -- -- -- --
Consumer ...................................................... 19 60 49 49 80
------
Total non-accrual loans .......................................... 875 1,479 1,240 1,960 1,457
Real estate owned and in judgment ................................ 5,903 2,491 4,230 1,647 1,457
Non-accruing federal funds sold .................................. -- -- -- 382 --
------ ------ ------ ------ ------
Total nonperforming assets ....................................... $6,778 $3,970 $5,470 $3,989 $2,914
====== ====== ====== ====== ======
Troubled debt restructuring loans:
Mortgage loans:
Permanent loans secured by one-to-four family dwelling units.... $ -- $ -- $ -- $ -- $ --
Commercial real estate and multi-family ........................ 3,738 7,465 5,250 -- --
------ ------ ------ ------ ------
Total restructured loans, net .................................... $3,738 $7,465 $5,250 $ -- $ --
====== ====== ====== ====== ======
Total non-accrual loans to net loans ............................. 0.16% 0.24% 0.16% 0.21% 0.14%
Total non-accrual loans to total assets .......................... 0.09% 0.12% 0.10% 0.13% 0.10%
Total nonperforming assets to total assets ....................... 0.70% 0.32% 0.42% 0.27% 0.19%
Total restructured loans to
total assets ................................................... 0.38% 0.61% 0.40% --% --%
</TABLE>
17
<PAGE>
Management of the Bank regularly reviews the loan portfolio in order to
identify potential problem loans, and classifies any potential problem loan as a
special mention, substandard, doubtful, or loss asset according to the OTS
classification of asset regulations. Potential problem loans that had not been
classified or had not been recorded as non-accrual or troubled debt
restructuring as of December 31, 1996 were insignificant.
OTS regulations provide for savings associations to classify their loans
and other assets as substandard, doubtful or loss assets. Assets classified as
substandard are inadequately protected by the current net worth and paying
capacity of the obligor or the pledged collateral. They are characterized by the
distinct possibility that the association will sustain some loss if the
deficiencies are not corrected. Assets classified as doubtful have all the
weaknesses of those classified as substandard with the additional characteristic
that the weaknesses make collection or liquidation in full highly questionable
and improbable. Assets classified as loss are considered uncollectible and of
such little value that their continuance as assets without the establishment of
a specific reserve is not warranted. Assets that do not currently expose a
savings association to a sufficient degree of risk to warrant classification but
do possess credit deficiencies or potential weaknesses deserving management's
close attention are designated "special mention." Special mention assets have a
potential weakness or pose an unwarranted financial risk that, if not corrected,
could weaken the asset and increase risk in the future. All classified assets
are recorded at fair market value.
Classified Assets and Loss Allowances. The following table provides
further information on the Bank's classified and nonperforming assets and loan
loss allowances.
As of December 31,
---------------------------
1994 1995 1996
------ ------ -------
(In Thousands)
Substandard .......................................$10,993 $ 4,087 $ 8,603
Doubtful .......................................... -- -- --
Loss .............................................. 674 778 --
------- ------- -------
Total .........................................$11,667 $ 4,865 $ 8,603
======= ======= =======
Special Mention Assets ............................$ 2,309 $11,697 $ 6,138
======= ======= =======
Allowance for losses on loans .....................$ 3,310 $ 2,926 $ 3,850
Allowance for estimated losses on real estat owned. 1,105 912 691
------- ------- -------
Total loss allowance ..........................$ 4,415 $ 3,838 $ 4,541
======= ======= =======
As of December 31, 1996, the Bank's total classified assets with balances
in excess of $500,000 totalled $12.4 million. The following is a summary of the
Bank's classified assets with balances in excess of $500,000 as of December 31,
1996, or later, if such information was available. All of the classified assets
are either special mention, substandard or real estate owned. The net realizable
values or the fair values on these classified assets are determined at least
annually based on cash flow from the properties and the condition of the local
real estate market.
18
<PAGE>
Special Mention
---------------
Denver Apartment Complex. The property is a 78 unit apartment complex
located in Denver, Colorado. The original balance on this loan was $1.3 million,
and the origination date was May 4, 1982. The loan is special mention with an
interest rate of 7.6% and a remaining balance of $1.17 million as of December
31, 1996. The fair value as of February 2, 1996 was $1.38 million. The loan is
classified because the loan rate was previously modified to a below market rate.
At December 31, 1996, the loan was at a market rate and has been performing
since March 1992.
Office and Retail Building in Littleton. The property is an office and
retail building located in Littleton, Colorado. The original loan balance was
$1.6 million, and the origination date was June 4, 1986. The loan is special
mention with a current interest rate of 7.25% and a remaining balance of $1.16
million as of December 31, 1996. The fair value as of January 17, 1995 was $1.16
million. The loan is classified because the rate was below market and the status
was uncertain for a time following the death of one of the partners. Since the
modification went into effect, the loan has been performing according to the
terms of that modification, and at December 31, 1996, the loan was at a market
rate. The heirs of the deceased partner have assumed this loan.
Wheat Ridge Office Building. This is a four-story office building in Wheat
Ridge, Colorado. The original loan balance was $5.1 million and the origination
date was June, 1988. The loan balance was $3.75 million as of December 31, 1996.
It had been classified substandard because of problems within the partnership
that obtained the loan, including the bankruptcy of one partner. The loan was
reclassified as special mention during the second quarter of 1995. One of the
original partners has assumed the loan and is managing the property. There is a
large junior lien behind the Bank's investment, and this junior lienor could
possibly step in and take the property over in the event of a default. The loan
was current at December 31, 1996. The fair value of the property was $4.76
million at April 30, 1996. The loan has performed as agreed since its
assumption.
Guardian Savings and Loan Association Pass Through Mortgage-Backed
Security 1989-3A. This mortgage-backed security was issued by Guardian Savings
and Loan Association in 1989 and was reclassified as special mention during the
first quarter of 1996. The Bank bought a portion of the security with an
original face amount of $5.0 million in June 1989. The remaining balance of this
portion was 575,000 as of December 31, 1996. The security was classified special
mention because loans in foreclosure and real estate owned backing the security
reached an unacceptable level. In addition, Moody's has lowered the rating on
the security from an original rating of Aa2 to A3. Although credit support of
the security has diminished, at December 20, 1996 there apparently was still
enough support to protect the senior piece of the security, which the Bank owns.
At December 31, 1996, the Bank had received all payments due on a timely basis.
Substandard
-----------
Dime Bank, FSB Pass Through Mortgage-Backed Securities 1988 - 1A. This
mortgage-backed security was issued by Dime Bank, FSB, in 1988 and was
reclassified as special mention during the first quarter of 1995. The Bank
bought a portion of the security with an original face amount of $10.0 million
in November 1988 and a portion with an original face amount of $5.5 million in
January 1990. The remaining balances on these two portions of the security were
$3.1 million and $1.7 million, respectively, as of December 31, 1996. The
securities were classified substandard because loans in foreclosure and real
estate owned backing the securities reached an unacceptable level. In addition,
Moody's has lowered the rating on the security from an original rating of Aa2 to
Baa1. Although credit support for the security
19
<PAGE>
has diminished, at November 21, 1996 there apparently was still enough support
to protect the senior piece of the security, which the Bank owns. At December
31, 1996, the Bank had received all payments due on a timely basis.
Real Estate Owned
-----------------
Vacant Land in Littleton. The property is vacant land with a large parcel
located in Littleton, Colorado, and a small parcel located in Aurora, Colorado.
The original loan balance was $2.8 million, and the origination date was April
24, 1989. The property is now real estate owned with a carrying value of $1.18
million as of December 31, 1996. The fair value as of January 4, 1995 was $1.2
million.
Allowance for Losses on Loans. In making loans, the Bank recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan. The Bank's management evaluates the need
to establish reserves against losses on loans and other assets each month based
on estimated losses on specific loans and on any real estate held for sale or
investment when a finding is made that a loss is estimable and probable. Such
evaluation includes a review of all loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated market
value of the underlying collateral of problem loans, prior loss experience,
economic conditions, and overall portfolio quality. In addition, management
provides a general allowance for estimated loan losses that is not specifically
allocated to identified problem loans, based on several factors, including loss
experience and business and economic conditions. These provisions for losses are
charged against earnings in the year they are established. Based on past
experience and future expectations, management feels that loan loss reserves are
adequate. However, there can be no assurance that further additions will not be
made to the loss allowances or that such losses will not exceed the estimated
amounts.
As a result of the declines in real estate market values and the
significant losses experienced by many financial institutions, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolios of
financial institutions nationwide, undertaken as part of the examination of the
institution by the FDIC, OTS or other federal or state regulators. Results of
recent examinations indicate that these regulators may be applying more
conservative criteria in evaluating real estate values, requiring significantly
increased provisions for loan losses. While the Bank believes it has established
its existing allowance for loan losses in accordance with GAAP, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to significantly increase its allowance for loan losses,
therefore negatively affecting the Bank's financial condition and earnings.
20
<PAGE>
The following table sets forth certain information regarding the Bank's
allowances for loan losses for the periods indicated.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding(1) ...................... $ 545,382 $ 606,543 $ 759,943 $ 931,159 $ 1,061,524
=========== =========== =========== =========== ===========
Average loans outstanding ....................... $ 540,525 $ 578,284 $ 679,236 $ 868,948 $ 998,024
=========== =========== =========== =========== ===========
Allowance for loan losses - beginning ........... $ 3,187 $ 3,333 $ 3,575 $ 3,310 $ 2,926
Provision (credit) for loan losses(2) ........... 1,297 193 (411) (495) 1,143
Recoveries ...................................... 120 133 203 232 86
Charge-offs ..................................... (1,271) (84) (57) (121) (305)
----------- ----------- ----------- ----------- -----------
Allowance for loan losses - ending .............. $ 3,333 $ 3,575 $ 3,310 $ 2,926 $ 3,850
=========== =========== =========== =========== ===========
Allowance for loan losses as a
percentage of total loans outstanding ......... 0.61% 0.59% 0.44% 0.31% 0.36 %
Allowance for loan losses as a
percentage of non-performing loans ............ 381% 242% 267% 149% 264 %
Net loans recovered (charged-off) as a percentage
of average loans outstanding .................. (0.21)% 0.01% 0.02% 0.01% (0.02)%
</TABLE>
- ----------------
(1) Excludes mortgage and other asset-backed securities.
(2) The established allowance for loan losses is predominately related to real
estate mortgage loans. As a result, the activities of provision (credit)
for losses, charge-offs, and recoveries are also predominately related to
those same loans.
The following table sets forth certain information regarding the Bank's
allowance for possible real estate owned losses for the periods indicated.
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total real estate owned and in judgment, net $ 5,903 $ 2,491 $ 4,230 $ 1,647 $ 1,457
======= ======= ======= ======= =======
Allowance balances - beginning ............. $ 2,262 $ 1,907 $ 1,159 $ 1,105 $ 912
Provision for losses ....................... 797 172 448 (95) 3
Charge-offs ................................ (1,152) (920) (502) (98) (224)
------- ------- ------- ------- -------
Allowance balances - ending ................ $ 1,907 $ 1,159 $ 1,105 $ 912 $ 691
======= ======= ======= ======= =======
Allowance for losses on real estate owned
and in judgment to net real estate owned
and in judgment .......................... 32.31% 46.53% 26.12% 55.37% 47.43%
</TABLE>
21
<PAGE>
Investment Activities
Income from investment securities provides a significant source of income
for the Bank. The Bank maintains a portfolio of investment securities such as
U.S. government and agency securities, non-government securities, including
corporate bonds and certificates of deposit securities (in addition to the
Bank's mortgage-backed and asset-backed securities portfolio, which is discussed
above under " - Lending Activities - Mortgage-Backed and Asset-Backed
Securities".) The Bank is required by federal regulation to maintain a minimum
percentage of its liquidity base in the form of qualifying long and short-term
liquid assets. Currently, the liquidity requirement is 5%, of which at least 1%
must be held in the form of short-term liquid assets such as certificates of
deposit, federal funds, banker's acceptances, discount notes, commercial paper,
time deposits and short-term treasury and agency debt securities, all of which
are subject to certain creditworthiness and ratings criteria. In addition,
longer term corporate, agency and government debt securities may be held subject
to similar creditworthiness, ratings and maturity criteria. As of December 31,
1996, the Bank exceeded both the 5% liquidity requirement and the 1% short-term
liquidity requirement with a liquidity ratio of 9.7% and a short-term liquidity
ratio of 7.7%. The balance of short-term security investments in excess of
regulatory requirements reflects management's response to the significantly
increasing percentage of savings deposits with short maturities. It is the
intention of management to maintain shorter maturities in the Bank's investment
portfolio in order to better match the interest rate sensitivities of its assets
and liabilities. However, during periods of rapidly declining interest rates,
the yield on such investments also decline at a faster rate than does the yield
on long-term investments.
Investment decisions are made within policy guidelines established by the
Board of Directors and the Asset/Liability Committee. As of December 31, 1996,
the Bank's investment portfolio, including unamortized premiums, totalled $72.7
million.
At December 31, 1996, the Bank's investments included $9.5 million of
callable Federal Agency instruments. While the Bank projects that these
instruments will be called before their stated maturity date, the Bank does have
the ability to hold these instruments to maturity.
At December 31, 1996, the Bank held the following three step-up bonds
which are considered structured notes by the OTS:
FHLB Variable Rate Structured Note (one position) with total par, book and
market values of $1,500,000, $1,500,000, and $1,496,250, respectively at
December 31, 1996. The bond has a variable rate which adjusts quarterly at one
half the 10 year constant maturity treasury, plus 1.25%. The note carries a
coupon floor of 5.0% and a ceiling of 24.0%. The bond has a current coupon of
5.0% at December 31, 1996 and a stated maturity of April 2, 1998. The bond is
discretely callable every three months until maturity.
FHLB Variable Rate Structured Note (one position) with total par, book and
market values of $5,000,000, $4,999,408, and $5,000,000, respectively at
December 31, 1996. The bond has a variable rate which adjusts quarterly at one
half the 10 year constant maturity treasury, plus 1.50%. The note carries a
coupon floor of 4.50% and a ceiling of 24.0%. The bond has a current coupon of
4.59% at December 31, 1996 and a stated maturity of February 25, 1998. The bond
is discretely callable every three months until maturity.
22
<PAGE>
FHLB Step-up Structured Note (one position) with total par, book and
market values of $2,000,000, $2,013,306, and $2,009,560, respectively at
December 31, 1996. The bond has a current coupon of 6.375% until October 7,
1997, at which time the coupon steps-up to 7.25% until maturity. The bond has a
stated maturity of October 7, 1999. The bond is discretely callable on October
7, 1997.
Commencing in 1992, the Bank sold $1.0 million in Federal funds to
Nationar, a New York State-chartered trust company. On February 6, 1995, the
Superintendent of Banks of the State of New York took possession of the business
and property of Nationar. The Bank subsequently wrote down its investment in
Nationar to $382,500 and filed a proof of claim with the Superintendent for the
monies due, totalling $1.0 million. The claim was recovered in full in 1996.
The Bank prospectively adopted the provisions of SFAS No. 115, as of
January 1, 1994. Under SFAS No. 115, the Bank classifies its investment,
mortgage-backed, and other asset-backed securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Bank has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Held to maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Trading and
available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Transfers from
the held-to-maturity category are only appropriate in limited circumstances.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are recognized in earnings upon sale or redemption at
maturity. The specific identification method is used to determine the cost of
securities sold. Discounts or premiums are accredited or amortized using the
level-interest-yield method to the earlier of call date or maturity of the
related held-to-maturity security.
23
<PAGE>
The following table sets forth certain information regarding the Bank's
investments at the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- -------- -------- -------- ---------
(In Thousands)
Investment Securities:
<S> <C> <C> <C> <C> <C>
U.S. government obligations ......................... $ 15,012 $ 20,999 $ 10,725 $ 8,015 $ --
Federal agency obligations .......................... 34,164 30,135 45,194 70,078 71,629
Obligations of state and political subdivisions...... 3,037 1,004 -- -- --
Corporate notes ..................................... 21,021 25,188 5,016 -- --
Commercial paper .................................... -- -- -- -- --
Export/import notes ................................. 5,765 4,062 -- -- --
Foreign bank obligations ............................ 1,000 999 1,000 -- --
FHLMC stock ......................................... 372 372 249 418 552
FNMA stock .......................................... -- 153 157 268 326
Other equity investments ............................ -- -- -- -- 234
-------- -------- -------- -------- --------
Total investment securities ......................... 80,371 82,912 62,341 78,779 72,741
-------- -------- -------- -------- --------
Other Investments:
FHLB of Topeka stock ................................ 6,932 6,693 7,745 8,829 9,554
Federal funds sold .................................. 18,400 25,800 1,000 80,483 15,000
Other interest-earning assets ....................... 6,823 4,159 7,828 6,097 12,777
Investment in property tax certificates ............. 255 53 36 21 6
-------- -------- -------- -------- --------
Total other investments ............................. 32,410 36,705 16,609 95,430 37,337
-------- -------- -------- -------- --------
Total investments ................................... $112,781 $119,617 $ 78,950 $174,209 $110,078
======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
The following table sets forth certain information regarding the carrying
values, weighted average yields and expected maturities of the Bank's investment
securities portfolio as of December 31, 1996. Expected maturities may differ
from contractual maturities, because issuers may have the right to call some
obligations without penalty. Market Value adjustments recorded in compliance
with SFAS No. 115 are now considered when computing the yields and cost of
securities.
<TABLE>
<CAPTION>
As of December 31, 1996
-------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More Than Ten Years Securities
---------------- ------------------ ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
(Dollars in Thousands)
Investment securities held
to maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Obligations $ -- -- % $ -- --% $ -- --% $ -- --% $ -- --% $ --
Federal Agency Obligations. 49,091 6.02 12,551 6.27 -- -- -- -- 61,642 6.07 61,701
FHLMC Stock................ -- -- -- -- -- -- -- -- -- -- --
FNMA Stock................. -- -- -- -- -- -- -- -- -- -- --
Other Equity Investments... -- -- -- -- -- -- -- -- -- -- --
------- ---- ------- ---- ------ ---- ------ ---- ------- ----- -------
Total Held-To-Maturity
Securities........... $49,091 6.02% $12,551 6.27% $ -- --% $ -- --% $61,642 6.07% $61,701
======= ==== ======= ==== ====== ==== ====== ==== ======= ==== =======
Investment Securities
Available-for-Sale:
U.S. Government Obligations $ -- --% $ -- --% $ -- --% $ -- --% $ -- --% $ --
Federal Agency Obligations. 5,000 4.39 4,987 4.50 -- -- -- -- 9,987 4.44 9,987
FHLMC Stock................ 552 1.27 -- -- -- -- -- -- 552 1.27 552
FNMA Stock................. 326 2.02 -- -- -- -- -- -- 326 2.02 326
Other Equity Investments... 234 1.09 -- -- -- -- -- -- 234 1.09 234
------- ---- ------- ---- ------ ---- ------ ---- ------- ----- -------
Total Available-for-
Sale................. $ 6,112 3.85% $ 4,987 4.50% $ -- --% $ -- --% $11,099 4.14% $11,099
======= ==== ======= ==== ====== ==== ====== ==== ======= ==== =======
Total Investment
Securities........... $55,203 5.78% $17,538 5.77% $ -- -- % $ -- --% $72,741 5.78% $72,800
======= ==== ======= ==== ====== ==== ====== ==== ======= ==== =======
</TABLE>
25
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
loan and mortgage-backed securities principal repayments, and proceeds from the
sale of loans, mortgage-backed securities and investment securities. The Bank
has relied to an increasing extent on borrowings from the FHLB of Topeka and as
of December 31, 1996 had $122.5 million of such borrowings outstanding. The Bank
also has derived funds from the issue of mortgage-backed bonds in 1988 and as of
December 31, 1996 had $5.0 million of such bonds outstanding. See " -
Borrowings" and " - Subsidiaries and Joint Venture Activity." Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources. They
also may be used on a longer term basis for general business purposes.
Deposits. The Bank offers a wide variety of deposit accounts, although a
majority of such deposits are in fixed-term, market-rate certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit, and the applicable
interest rate.
Fixed-term certificates have been the primary sources of new deposits for
the Bank and as of December 31, 1996, such certificates represented 58.5% of the
Bank's deposit accounts. As of December 31, 1996, $221.8 million, or 19.5% of
the Bank's deposit portfolio consisted of money market rate deposit accounts.
Fixed-term, market-rate certificates with terms of 13 to 24 months are the
second largest individual source of deposit funds for the Bank and as of
December 31, 1996, represented $191.2 million, or 16.8% of the deposit
portfolio. The third largest category of deposits are 7 to 12 month fixed-term
market-rate certificates which constituted $178.5 million or 15.7% of the
portfolio.
The Bank also offers standardized individual retirement accounts ("IRAs"),
as well as qualified defined master plans for self employed individuals. IRAs
are marketed in the form of an 18-month variable interest rate account with a
minimum balance of $1,000 with the rate based on 90 day U.S. Treasury Bills and
three-year fixed-rate accounts with a minimum balance of $2,000, with the rate
based on three-year U.S. Treasury Note. The rates adjust quarterly.
The Bank intends to continue to emphasize retail deposits, including
checking, certificates of deposit, savings accounts and IRAs. The Bank had no
brokered certificates of deposit as of December 31, 1996. Institutional jumbo
certificates of deposit may be solicited on a limited basis. As of December 31,
1996, the Bank had $36.9 million of Colorado State Deferred Compensation Funds
in deposit accounts. State employees can open accounts at the Bank and deposit
deferred compensation funds.
The Bank pays interest rates on its certificate accounts that are
competitive in its market, but does not attempt to pay the highest rates in its
market area. Interest rates on deposits are set bi-weekly by the Bank's division
managers committee, which consists of the Bank's seven senior officers, based on
a combination of factors including: (i) the previous week's deposit flows by
product; (ii) a current survey of a selected group of competitors' products of
similar term and type; (iii) current yields on U.S. Treasury offerings with
terms similar to the Bank's products; (iv) new account activity during the
previous week; (v) overall cost of deposits; (vi) external data that may
influence interest rates, including securities markets trends, the policy of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
and federal government releases of statistics on national economic performance,
inflation, and money supply; (vii) investment opportunities and loan demand; and
(viii) schedule of maturities by term.
26
<PAGE>
Deposit Portfolio. Deposits in the Bank as of December 31, 1996, were
represented by various types of savings programs described below. % of Interest
Minimum Balance Total Category Term Rate Amount (In Thousands) Deposits
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NOW accounts None 1.97% $100 $ 110,294 9.71%
Regular savings None 2.71 100 92,945 8.18
Money market accounts None 4.17 100 221,824 19.53
Noninterest deposits None -- 100 46,544 4.10
Certificates of
deposit:
Fixed term, fixed rate 1 - 3 months 4.42 500 10,063 0.89
Fixed term, fixed rate 4 - 6 months 4.93 500 56,941 5.01
Fixed term, fixed rate 7 - 12 months 5.27 500 178,500 15.71
Fixed term, fixed rate 13 - 24 months 5.53 500 191,235 16.84
Fixed term, fixed rate 25 - 36 months 5.88 500 53,923 4.75
Fixed term, fixed rate 37 - 48 months 5.07 500 23,373 2.06
Fixed term, fixed rate 49 - 120 months 6.01 500 98,064 8.63
Fixed term, variable
rate 25 - 36 months 6.12 500 44,022 3.88
Jumbo certificates 5.24 100,000 8,095 0.71
---------- -------
Total $1,135,823 100.00%
========== ======
</TABLE>
Time Deposits by Rate and Time Maturity. The following table sets forth
the time deposits in the Bank classified by rates as of the dates indicated.
As of December 31,
----------------------------------------
1994 1995 1996
---------- ----------- ----------
(In Thousands)
Weighted Average Rate
2.01 - 3.00%............. $ 1,665 $ 4 $ 4
3.01 - 4.00%............. 122,603 12,942 --
4.01 - 5.00%............. 142,843 144,416 138,716
5.01 - 6.00%............. 171,346 327,268 401,190
6.01 - 7.00%............. 98,961 130,147 123,116
7.01 - 8.00%............. 18,829 11,911 248
8.01 - 9.00%............. 904 875 622
9.01 - 10.00%............. 809 665 314
10.01 - 11.00%............. 627 -- --
11.01 - 12.00%............. 419 -- --
12.01% or more............. 5 5 6
-------- --------- --------
Total.................... $559,011 $628,233 $664,216
======== ======== ========
27
<PAGE>
Time Deposit Maturity Schedule. The following table sets forth by various
rate categories the amount and the periods to maturity of the Bank's certificate
accounts outstanding as of December 31, 1996.
<TABLE>
<CAPTION>
As of December 31, 1996
Amount Due Within
-----------------------------------------------------------------
Less than Greater than
1 Year 1-2 Years 2-3 Years 3 Years Total
---------- --------- --------- ----------- -------
(In Thousands)
Weighted Average Rate
<S> <C> <C> <C> <C> <C>
2.01 - 3.00%....... $ -- $ -- $ -- $ 4 $ 4
3.01 - 4.00%....... -- -- -- -- --
4.01 - 5.00%....... 97,787 37,095 3,734 100 138,716
5.01 - 6.00%....... 234,247 128,400 17,114 21,429 401,190
6.01 - 7.00%....... 75,483 13,084 1,152 33,397 123,116
7.01 - 8.00%....... 91 60 14 83 248
8.01 - 9.00%....... 7 95 520 -- 622
9.01 - 10.00%...... -- -- 314 -- 314
10.01 or more...... -- -- -- 6 6
------- ------- ------ ------ -------
Total............ $ 407,615 $ 178,734 $ 22,848 $ 55,019 $ 664,216
======= ======= ====== ====== =======
</TABLE>
Jumbo Certificate Maturities. The following table indicates as of December
31, 1996, the amount of the Bank's certificates of deposit of $100,000 or more
by time remaining until maturity.
Maturity Period Balance
- --------------- -------
(In Thousands)
Three Months or Less......... $4,057
Three Through Six Months..... 2,050
Six Through Twelve Months.... 1,390
Over Twelve Months........... 598
-----
Total........................ $8,095
=====
28
<PAGE>
Deposit Flow. The following table sets forth the change in dollar amount
of savings deposits in the various types of savings accounts offered by the Bank
between the dates indicated.
<TABLE>
<CAPTION>
Balance at Percent Balance at Percent Increase Balance at Percent Increase
December 31, of December 31, of (Decrease) December 31 of (Decrease)
1994 Deposits 1995 Deposits 1994-1995 1996 Deposits 1995-1996
------------ -------- ----------- --------- --------- ----------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing deposits ................$ 40,286 3.95% $ 45,393 4.20% $ 5,107 $ 46,544 4.10% $ 1,151
NOW, Super NOW, and other transaction
accounts................................... 99,093 9.73 100,077 9.26 984 110,294 9.71 10,217
Money Market deposit accounts ............... 225,191 22.10 214,486 19.85 (10,705) 221,824 19.53 7,338
Regular savings accounts .................... 95,106 9.34 92,100 8.53 (3,006) 92,945 8.18 845
Less than 7 month fixed rate, fixed
maturity deposits.......................... 67,110 6.59 70,868 6.56 3,758 67,004 5.90 (3,864)
7 - 12 month fixed rate, fixed maturity
deposits................................... 165,136 16.21 98,139 9.08 (66,997) 178,500 15.72 80,361
13 - 36 month fixed rate, fixed maturity
deposits................................... 171,218 16.81 271,949 25.18 100,731 245,158 21.58 (26,791)
13 - 36 month variable rate, fixed maturity
deposits................................... 69,381 6.81 62,431 5.78 (6,950) 44,022 3.88 (18,409)
Greater than 36 month fixed rate, fixed
maturity deposits.......................... 80,017 7.86 119,491 11.06 39,474 121,437 10.69 1,946
Jumbo accounts and brokered deposits ........ 6,149 0.60 5,355 0.50 (794) 8,095 0.71 2,740
---------- ------ ---------- ------ -------- ---------- ------ --------
Total ..................................$1,018,687 100.00% $1,080,289 100.00% $ 61,602 $1,135,823 100.00% $ 55,534
========== ====== ========== ====== ======== ========== ====== ========
</TABLE>
29
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits and accrued interest purchased ............ $ -- $ 162,236 $ -- $ -- $ --
Deposits and accrued interest sold ................. -- -- (45,608) -- --
Net deposits received,
less deposits withdrawn ......................... (30,599) 1,104 (25) 18,236 11,533
Interest credited .................................. 33,752 30,975 32,537 43,366 $ 44,001
--------- --------- --------- --------- ---------
Net increase (decrease) in savings deposits......... $ 3,153 $ 194,315 $ (13,096) $ 61,602 $ 55,534
========= ========= ========= ========= =========
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings as an alternative or less costly
source of funds. The Bank obtains advances from the FHLB of Topeka. See
"Regulation of the Bank - Federal Home Loan Bank System." These advances are
collateralized by the capital of the FHLB of Topeka stock held by the Bank and
certain of the Bank's mortgage loans and mortgage-backed securities. Such
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the
FHLB of Topeka will advance to member institutions, including the Bank, for
purposes other than meeting withdrawals, fluctuates from time to time in
accordance with the policies of the OTS and the FHLB of Topeka. The maximum
amount of FHLB of Topeka advances to a member institution generally is reduced
by borrowings from any other source. As of December 31, 1996, the Bank's FHLB of
Topeka advances totalled $ 122.5 million, representing 9.4% of total
liabilities. Of these advances, at December 31, 1996, $50.1 million are at a
rate of 6.05% and mature in 1997, $36.4 million are at a rate of 6.17% and
mature in 1998, $4.0 million are at a rate of 7.96% and mature in 1999, and
$32.0 million are at a rate of 6.58% and mature in 2000. The Bank has a blanket
pledge with the FHLB of Topeka and has pledged all of its stock in the FHLB and
all otherwise unpledged or unencumbered federal funds sold, U.S. agency
securities, certain qualifying loans, and mortgage-backed securities to secure
these advances as of December 31, 1996.
In 1988, the Bank formed a finance subsidiary, First Savings Securities
Company ("FSSC"), for the sole purpose of borrowing funds through the
participation in a REMIC issued by Ryland Acceptance Corporation. REMICs are
bonds collateralized by mortgage-backed securities. See "- Lending Activities -
Mortgage-Backed and Asset-Backed Securities" for a more detailed discussion of
REMICs and the risks related thereto. The original amount borrowed through the
REMIC bond on March 1, 1988 and the amounts outstanding as of December 31, 1996
were $22.0 million and $5.0 million, respectively. The REMIC bonds, which have a
fixed rate of interest of 8.75%, were secured by mortgage-backed securities with
carrying and market values of $5.6 million and $5.8 million, respectively, as of
December 31, 1996. The original bonds were scheduled to retire as follows: $11.9
million in 2005, $2.4 million in 2007, $6.3 million in 2011 and $1.4 million in
2019; however, the actual timing of the retirement of the REMIC bonds is
dependent upon mortgage prepayments and reinvestment rates. The increased
retirement of the REMIC bonds is due to accelerated prepayments of the
underlying mortgage-backed securities collateral due to the decrease in market
interest rates. Unamortized bond issue costs amounted to $176,000 as of December
31, 1996. See Note 12 of Notes to Consolidated Financial Statements.
30
<PAGE>
As of December 31, 1996, the Bank had unsecured lines of credit in place
with two commercial banks located in Colorado through which the Bank may borrow
a total of $8.0 million. The Bank utilizes these lines of credit to buy federal
funds in order to meet its short term liquidity needs. Longer term arrangements
for funds can be made with these banks, if needed, on a secured basis.
The Bank has also borrowed funds in the past through the use of reverse
repurchase agreements, although it did not have any such borrowings outstanding
during the fiscal years ended December 31, 1994, 1995, and 1996.
The following tables set forth certain information regarding borrowings by
the Bank.
As of December 31,
---------------------------------------
1994 1995 1996
---- ---- ----
Weighted average rate paid on:
FHLB advances.................. 5.662% 6.549% 6.285%
REMIC issued................... 8.750 8.750 8.750
ESOP loan...................... 9.000 8.500 (1) 8.750 (1)
Loan from Company (1).......... -- 5.540 6.120
<TABLE>
<CAPTION>
During the Year Ended December 31,
----------------------------------
1994 1995 1996
-------- -------- ---------
(In Thousands)
Maximum amount of borrowings outstanding
at any month end during the period:
<S> <C> <C> <C>
FHLB advances ................................................................ $143,578 $171,726 $138,415
REMIC issued ................................................................. 9,959 6,743 5,543
ESOP loan .................................................................... 729 13,404(1) 13,404(1)
Loan from Company (1) ........................................................ -- 52,100 52,100
Maximum amount of short-term borrowings outstanding at any month end with
respect to:
FHLB advances ................................................................ 80,594 77,555 66,005
</TABLE>
- ---------------------
(1) Payable to the Company.
Subsidiaries and Joint Venture Activity
The Company has one wholly owned subsidiary, the Bank. The Bank has three
wholly owned subsidiary corporations, First Savings Insurance Corporation
("FSIC"), First Savings Insurance Services ("FSIS") and First Savings Securities
Corporation ("FSSC"). The Bank is permitted to invest up to 2% of its assets in
the capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1996, the Bank was authorized to invest up to approximately
$30.3 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1996, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $3.0 million.
31
<PAGE>
First Savings Investment Corporation. The Bank's largest service
corporation is FSIC, with total assets of $2.4 million as of December 31, 1996.
The principal activities of this service corporation are investing in delinquent
real estate tax certificates, land development, and equity ownership of real
property. The Bank is in the process of liquidating this service corporation in
an orderly manner, which will take place over several years. Assets that remain
are as follows:
(1) Approximately $6,000 in a real estate tax certificate. This real
estate tax certificate is issued by the County Treasurer of Denver
County in the State of Colorado acting under authority of the
statutes of Colorado and represents unpaid taxes on real estate
properties auctioned off by the County Treasurer. During the fiscal
years ended December 31, 1994, 1995, and 1996, net income from tax
certificates and the resulting deeds to the underlying property was
$453,000, $0, and $0, respectively. Because the Financial
Institutions Reform Recovery and Enforcement Act of 1989 ("FIRREA")
generally prohibits savings associations from making investments not
permitted to be made by national banks, the OTS prohibited any
further investment in these real estate tax certificates. FSIC has
purchased no additional tax certificates in the past four years, and
at present has no plans to make additional purchases.
(2) In the land development area, FSIC still owns nine single family
home sites in Brighton, Colorado, with a net investment as of
December 31, 1996 of $40,000. Due to the area's depressed real
estate market in the past, these sites had declined in value and
FSIC has reserved $78,000 to reflect market conditions.
(3) FSIC also owns 27 apartment units in Louisville, Colorado. These
units are all rented and the Bank will hold these units as
investment property.
(4) In March 1995, 80,000 square feet of land with a book value of $1.2
million, located adjacent to the main office of the Bank, was
transferred from the Bank to FSIC. This land is leased to General
Mills Restaurant Group for the operation of an Olive Garden
Restaurant, which opened in April 1995.
The Bank's net equity investment in FSIC as of December 31, 1996 was $2.2
million.
First Savings Insurance Services. FSIS is a Colorado corporation which in
the past has been a full-service insurance agency. FSIS sold its casualty
insurance business in 1989, and now specializes in health, life and credit life
insurance. Beginning in the second half of 1994, FSIS began offering mutual
funds and annuity products. The Bank's net equity investment in FSIS at December
31, 1996 was $171,000.
First Savings Securities Company. FSSC is a California corporation formed
expressly to participate in a REMIC issue by Ryland Acceptance Corporation (see
"- Borrowings"). As of December 31, 1996, the Bank had $5.0 million of
borrowings outstanding through the REMIC issue, which was secured by $5.6
million of mortgage-backed securities. As of December 31, 1996, the FSSC had
$5.7 million in assets and a deficit of $890,000. FSSC plans no other activities
in the immediate future.
Under the OTS risk-based capital regulations, a savings association's
investments in and extensions of credit to any subsidiary engaged in activities
not permissible for a national bank must be deducted from the institution's
capital. Because a national bank is not permitted to engage in real estate
acquisition and development, and the OTS has informed the Bank that investments
in tax certificates are not permissible for national banks, the Bank's
investment in and loans to FSIC must be deducted from
32
<PAGE>
the Bank's capital in calculating the minimum required capital ratios. As of
December 31, 1996, the Bank's investments in and loans to subsidiaries required
to be deducted from its regulatory capital pursuant to this rule were $2.0
million, all of which consisted of investments and loans to FSIC.
Personnel
As of December 31, 1996, the Bank had 289 full-time employees and 152
part-time employees, including 25 part-time security employees. The employees
are not represented by a collective bargaining unit. The Bank believes its
relationship with its employees to be satisfactory.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "-
Regulation of the Bank Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisitions of
control by such person.
Subject to appropriate regulatory approvals, a bank holding company can
acquire control of a savings association, and if it controls a savings
association, merge or consolidate the assets and liabilities of the savings
association with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the Bank Insurance Fund ("BIF") with the approval of the
appropriate federal banking agency
33
<PAGE>
and the Federal Reserve Board. Generally, federal savings associations can
acquire or be acquired by any insured depository institution.
Federal Securities Law. The Company is subject to filing and reporting
requirement by virtue of having its common stock registered under the Securities
Exchange Act of 1934. Furthermore, Common Stock held by persons who are
affiliates (generally officers, directors, and principal stockholders) of the
Company may not be resold without registration or unless sold in accordance with
certain resale restrictions. If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various state and federal
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves. Any change in such
regulations, whether by the OTS, the FDIC, or the Congress could have a material
adverse impact on the Company, the Bank, and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. Under
this system, a bank or thrift pays within a range of 23 cents to 31 cents per
$100 of domestic deposits, depending upon the institution's risk
34
<PAGE>
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates, on a semi-annual basis, if it
determines that such action is necessary to cause the balance in the SAIF to
reach the designated reserve ratio of 1.25% of SAIF-insured deposits within a
reasonable period of time. The FDIC also may impose special assessments on SAIF
members to repay amounts borrowed from the U.S. Treasury or for any other reason
deemed necessary by the FDIC. The Bank's federal deposit insurance premium
expense for the year ended December 31, 1996, amounted to approximately $9.4
million.
Included in that expense, the Bank recorded what it believes is a one-time
assessment of approximately 65.7 basis points on every $100 of deposits based on
the Bank's deposits at March 31, 1995 for a cost of approximately $4.3 million
(net of taxes). Future deposit insurance premiums are expected to be reduced
from 0.23% to approximately 0.065. Based upon the Bank's deposits as of December
31, 1996, the Bank's deposit insurance expense would decrease by approximately
$1.1 million per year after taxes. Management of the Bank is unable to predict
whether ongoing SAIF premiums will be reduced to a level comparable to that of
BIF premiums.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
Savings associations with a greater than "normal" level of interest rate
exposure will, in the future, be subject to a deduction for an interest rate
risk ("IRR") component may be from capital for purposes of calculating their
risk-based capital requirement. See "- Net Portfolio Value."
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1996:
Percent of
Adjusted
Amount Assets
------ ----------
(Dollars in Thousands)
Tangible Capital:
Regulatory requirement............ $ 22,625 1.50%
Actual capital.................... 178,976 11.87
------- -----
Excess...................... $156,351 10.37%
======= =====
Core Capital:
Regulatory requirement............ $ 45,333 3.00%
Actual capital.................... 181,733 12.03
------- -----
Excess...................... $136,400 9.03%
======= =====
Risk-Based Capital:
Regulatory requirement............ $ 61,643 8.00%
Actual capital.................... 183,728 23.84
------- -----
Excess...................... $122,085 15.84%
======= =====
35
<PAGE>
Net Portfolio Value. The OTS requires the computation of amounts by which
the net present value of an institution's cash flows from assets, liabilities,
and off balance sheet items (the institution's net portfolio value, or "NPV")
would change in the event of a range of assumed changes in market interest
rates. The OTS also requires the computation of estimated changes in net
interest income over a four-quarter period. These computations estimate the
effect of an institution's NPV and net interest income of instantaneous and
permanent 1% to 4% increases and decreases in market interest rates. In the
Bank's interest rate sensitive policy, the Board of Directors has established a
maximum decrease in net interest income and maximum decreases in NPV given these
instantaneous changes in interest rates.
An institution's interest rate risk is measured as the change to its NPV
as a result of a hypothetical 200 basis point change in market interest rates. A
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution.
The following table presents the Bank's NPV at December 31, 1996, as
calculated by the OTS and based on OTS assumptions utilizing raw data
voluntarily provided to the OTS by the Bank.
Change in Interest
Rates in Basis Points
(Rate Shock)(1) Net Portfolio Value NPV as % of Assets
--------------- -------------------------------- --------------------
$ Amount $ Change % Change NPV Ratio Change
------ ------ ------ --------- ------
(Dollars in Thousands)
+400 bp 113,259 -95,366 -46 % 7.97% -559 bp
+300 bp 139,840 -68,786 -33 9.62 -394 bp
+200 bp 165,802 -42,824 -21 11.17 -239 bp
+100 bp 189,634 -18,991 - 9 12.53 -103 bp
0 bp 208,626 -- -- 13.56 --
- -100 bp 223,349 14,724 + 7 14.32 + 76 bp
- -200 bp 233,519 24,893 +12 14.82 +126 bp
- -300 bp 242,213 33,587 +16 15.22 +166 bp
- -400 bp 253,713 45,088 +22 15.77 +221 bp
- ---------------
(1) Denotes rate shock used to compute interest rate risk capital component.
As of
December 31,
1996
------------
RISK MEASURES:
200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets..... 13.56%
Exposure Measure: Post-Shock NPV Ratio ...................... 11.17%
Sensitivity Measure: Change in NPV Ratio .................... -239 bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of Present Value of Assets................. -2.78%
Interest Rate Risk Capital Component ......................... $6.0 million
36
<PAGE>
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-offs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.
While the OTS has deferred for the present time the date on which the Bank
is subject to the interest rate risk component reduction discussed above, the
Bank remains subject to interest rate risk and, as can be seen above, rising
interest rates will reduce the Bank's NPV.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
December 31, 1996, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
In addition, the Bank may not declare or pay a cash dividend on its
capital stock if the effect thereof would be to reduce the regulatory capital of
the Bank below the amount required for the liquidation account to be established
pursuant to the Bank's Plan of Conversion. Finally, a savings association is
prohibited from making a capital distribution if, after making the distribution,
the savings association would be undercapitalized (not meet any one of its
minimum regulatory capital requirements).
Qualified Thrift Lender Test. Savings institutions must meet a QTL test.
If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Topeka. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. An association must be in compliance with the QTL test on a
monthly basis in nine out of every 12 months. As of December 31, 1996, the Bank
was in compliance with its QTL requirement with 97.1% of its assets invested in
QTIs.
A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any
37
<PAGE>
new activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the savings association shall be restricted to those of a national
bank; (iii) the savings association shall not be eligible to obtain any advances
from its FHLB; and (iv) payment of dividends by the savings association shall be
subject to the rules regarding payment of dividends by a national bank. Upon the
expiration of three years from the date the savings association ceases to be a
QTL, it must cease any activity and not retain any investment not permissible
for a national bank and immediately repay any outstanding FHLB advances (subject
to safety and soundness considerations).
Loans to One Borrower. See "Lending Activities - Loans to One Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation 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 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 its examination of a savings institution,
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
by such institution. Federal law requires public disclosure of an institution's
CRA rating and requires the OTS to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered system. The Bank received
an "outstanding" rating as a result of its last evaluation in June 1996.
Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and any
company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors, and 10%
shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the Bank may make
to such persons based, in part, on the Bank's capital position, and require
certain approval procedures to be followed. OTS regulations, with minor
variation, apply Regulation O to savings associations.
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At December 31, 1996, the Bank's required
liquid asset ratio is 5%.
38
<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB of Topeka,
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.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Topeka in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1996, the Bank had $9.6 million in
FHLB stock, which was in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 1996, the Bank was in compliance with the applicable reserve requirements.
Federal and State Taxation
The Company and the Bank report their income on a calendar year basis
using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including, particularly, the Bank's reserve for bad debts discussed below. The
Company and its subsidiaries, including the Bank, anticipate filing a
consolidated federal income tax return. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which such
distributions occur. However, based upon the best interests of the Company, the
Bank, stockholders, and other conditions, the Company may elect not to file
consolidated returns.
Prior to certain changes to the Internal Revenue Code ("Code") in 1996,
thrift institutions enjoyed a tax advantage over banks with respect to
determining additions to their bad debt reserves. All thrift institutions, prior
to 1996, were generally allowed a deduction for an addition to their reserve for
bad debts. In contrast, only "small banks" (defined as institutions where the
average adjusted bases of all assets of such institution equals $500 million or
less) were allowed a similar deduction for additions to their bad debt reserves.
In addition, while small banks were only allowed to use the experience method in
determining their annual addition to a bad debt reserve, all thrift institutions
generally enjoyed a choice between (i) the percentage of taxable income method
and, (ii) the experience method, for determining the annual addition to their
bad debt reserve.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after December 31,
1995. All thrift institutions are now subject to the same provisions as banks
with respect to deductions for bad debt. Now, only thrift institutions that are
treated as small banks may continue to account for bad debts under the reserve
method; however such institutions may only use the experience method for
determining additions to their bad debt reserve. Thrift institutions that are
not treated as small banks may no longer use the reserve method to account for
their bad debts but must alternatively use the specific charge-off method. Under
the Code, the Bank is not considered to be a small bank and therefore the Bank
must change its method of accounting for bad debts to the specific charge off
method.
39
<PAGE>
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
"residential loan requirement." Generally, a thrift institution's applicable
excess reserves equals the excess of (i) the balance of its bad debt reserves as
of the close of its taxable year beginning before January 1, 1996, over (ii) the
balance of such reserves as of the close of its last taxable year beginning
before January 1, 1988 ("pre-1988 reserves"). The Bank will be required to
recapture $7.5 million into its taxable income; however, the Bank expects to
meet the residential loan requirement to delay such recapture for the taxable
years ending December 31, 1996 and 1997.
In addition, all thrift institutions must continue to keep track of their
pre-1988 reserves because this amount remains subject to recapture in the future
under the Code. A thrift institution, such as the Bank, would generally be
required to recapture into its taxable income its pre-1988 reserves in the case
of certain excess distributions to, and redemptions of, shareholders (e.g.,
stock repurchases). The balance of the Bank's pre-1988 reserves approximates
$12.0 million.
In addition to their regular federal income tax liability, corporations
are also subject to an alternative minimum tax. The corporate alternative
minimum tax rate is 20%. The tax is applied on "alternative minimum taxable
income" ("AMTI") which includes: (1) 100% of the excess of a savings
association's bad debt deduction over the amount allowable under the experience
method; (2) 75% of the excess of the "adjusted current earnings" of the Company
over the AMTI; and (3) interest on certain tax-exempt bonds.
The Revenue Reconciliation Act of 1993 added a new Section 475 to the
Code. Section 475 is a new mark-to-market tax law, that is different from the
accounting mark-to-market SFAS No. 115. The term "securities" in the Code
includes not just traditional debt and equity securities, but mortgages as well.
For tax purposes, institutions were required to identify which securities
qualified for an exemption by October 31, 1993. A financial institution is
subject to a mark-to-market rule if its activities bring it within the
definition of a dealer in securities under Section 475(c)(1) of the Code.
Non-thrift members are not subject to the special federal tax provisions
for savings associations described above. The Department of Treasury issued a
regulation effective for taxable years ended after November 30, 1982 requiring
savings associations which file consolidated income tax returns to reduce
proportionately their bad debt deductions for tax losses incurred by
(functionally related) non-thrift members of the consolidated group.
The State of Colorado has a corporate income tax which subjected the
Bank's Colorado taxable income to tax at a 5.0% rate for the calendar year ended
December 31, 1995 and a 5.0% rate for the calendar year ended December 31, 1996.
Colorado taxable income is computed by applying certain modifications (e.g.,
state income tax deduction, interest on U.S. government securities, etc.) to
federal taxable income.
The IRS recently completed an examination of the Bank's Federal income tax
returns for tax years ending 1985 through 1990. The Bank had made an advance
payment of $1.755 million to the IRS against possible deficiencies arising from
this examination. In 1995, all examination issues were settled, resulting in a
tax assessment of $488,000. After application of the advance payment and related
interest thereon, the Bank received refunds amounting to approximately $1.4
million. The Bank has made all appropriate amendments to its prior Colorado
income tax returns related to this settlement. See Note 14 of Notes to
Consolidated Financial Statements.
40
<PAGE>
Item 2. Properties
- -------------------
The Bank's and the Company's executive offices are located at 215 S.
Wadsworth Boulevard in Lakewood, Colorado, a suburb of Denver. The Company does
not own any real property but uses the offices and facilities of the Bank from
time to time. The Bank conducts its business through 26 offices, 22 of which are
located in the Denver, Colorado area, and four of which are located on the
Western Slope of Colorado.
The following table sets forth the location of each of the Bank's offices,
the year the office was first acquired or rented, and the net book value and
square footage (excluding basement) of each office. All of the Bank's offices
are owned, with the exception of the Downtown branch, the Bonnie Brae branch and
the Montbello branch, all located in Denver, and the Grand Junction Mesa Mall
branch, located in Grand Junction, Colorado, as noted below.
Net Book
Year Facility Value as of
Opened or December 31, Square
Office Location Acquired 1996 Footage
- -------------------------------- ---------- ------ -------
Main Office and Lakewood Branch: 1973 1,107,950 38,420
215 S. Wadsworth Boulevard
Lakewood, Colorado
Arvada Branch: 1974 600,570 6,820
5805 Carr Street
Arvada, Colorado
Arvada West Branch: 1994 1,087,860 3,811
12880 W. 64th Avenue
Arvada, Colorado
Aurora Branch: 1972 410,640 6,820
1389 S. Havana
Aurora, Colorado
Bonnie Brae Branch(1): 1990 174,580 1,152
750 S. University Boulevard
Denver, Colorado
Brighton Branch: 1990 657,280 12,105
1795 Bridge Street
Brighton, Colorado
Cherry Creek Branch: 1979 447,680 3,494
3610 E. First Avenue
Denver, Colorado
Columbine Branch: 1976 468,950 3,494
6775 W. Ken Caryl
Littleton, Colorado
Commerce City Branch: 1990 388,400 5,200
7326 Magnolia Street
Commerce City, Colorado
41
<PAGE>
Net Book
Year Facility Value as of
Opened or December 31, Square
Office Location Acquired 1996 Footage
- -------------------------------- ---------- ------ -------
Delta Branch: 1993 266,750 4,427
564 Main Street
Delta, Colorado
Downtown Branch(2): 1983 -- 3,040
216 Sixteenth Street
Denver, Colorado
Englewood Branch: 1962 542,800 8,106
4301 S. Broadway
Englewood, Colorado
Golden Branch: 1983 496,360 5,854
701 13th Street
Golden, Colorado
Greenwood Village Branch: 1994 1,068,150 4,748
6050 S. Holly
Englewood, Colorado
Grand Junction Branch: 1993 524,730 6,999
130 N. Fourth Street
Grand Junction, Colorado
Grand Junction - Mesa Mall Branch(3): 1996 -- 2,473
2452 Patterson Road
Grand Junction, Colorado
Heather Gardens Branch: 1981 718,620 4,075
13781 E. Yale Avenue
Aurora, Colorado
Highlands Ranch Branch: 1987 1,728,360 11,108
7120 E. County Line Road
Highlands Ranch, Colorado
Louisville Branch: 1978 469,410 3,500
865 S. Boulder Road
Louisville, Colorado
Montbello Branch(4): 1995 55,570(5) 1,300
4850 Chambers Road
Denver, Colorado
Montrose Branch: 1995 1,329,440 3,811
1105 S. Townsend
Montrose, Colorado
North Denver Branch: 1954 290,640 6,800
3460 W. 38th Avenue
Denver, Colorado
42
<PAGE>
Net Book
Year Facility Value as of
Opened or December 31, Square
Office Location Acquired 1996 Footage
- -------------------------------- ---------- ------ -------
Smoky Hill Branch: 1994 1,148,360 3,811
16778 Smoky Hill Road
Aurora, Colorado
South Denver Branch: 1989 1,752,820 5,638
2050 S. Downing
Denver, Colorado
Thornton Branch: 1995 1,074,940 3,811
12080 Colorado Boulevard
Thornton, Colorado
Westminister Branch: 1991 905,540 3,656
9150 N. Sheridan
Westminister, Colorado
- ------------------------
(1) The Bank owns the building and improvements at this location but leases
the land. The land lease runs until April 1, 2000 for rent of $800 per
month. There are two five-year options to extend the term at a market rate
to be negotiated.
(2) Leased branch with original lease term to expire in March 1998, and 4
five-year options to extend term at market rate. Current rent on the
branch office is $6,856 per month.
(3) Leased branch with original term to expire in November 2000, and five
five-year options to extend the term at market rate. Current rent is
$2,567 per month.
(4) Leased Branch with original lease term to expire in December 1997, and
five three-year options to extend term at market rate. Current rent on the
branch office is $625 per month.
(5) Unamortized leasehold improvements.
The Bank opened three additional offices in the Denver market area during
the year ended December 31, 1994, two additional offices during the year ended
December 31, 1995, and one additional office in the year ended December 31,
1996.
The Bank owns several properties adjoining its existing facilities which
it is holding for possible future expansion. These are included in office
properties on the Bank's financial statements and, as of December 31, 1996,
amounted to $700,000. The Bank and its service corporation, FSIC, own several
properties on the corner of Alameda and Wadsworth, and Alameda and Yarrow,
adjoining the main office in Lakewood, Colorado. These consist principally of a
1.5 acre vacant site, known as 280 S. Yarrow, and a property to the east of this
and directly south of the main office, consisting of approximately 100,000
square feet of land. Eighty thousand square feet of this land was leased in 1994
to General Mills Restaurant Group for the operation of an Olive Garden
Restaurant, which opened in April 1995. To the east of the land are two smaller
properties on sites of about 10,000 square feet each. These lots and
improvements are leased. In February 1996, the Bank purchased a site in
Highlands Ranch for the purpose of constructing a new branch office. The Bank
also leases space to tenants at many of its office locations. Net rental income
from unaffiliated tenants, including tenants renting property held for
development of future branch offices, is immaterial.
43
<PAGE>
The Bank performs its own data processing through its data processing
department located in its main office and utilizes several hardware platforms
and a combination of internally developed and purchased software systems. The
net book value of this data processing equipment as of December 31, 1996 was
$628,000. The Bank expects to incur significant additional expenses for data
processing equipment during the next three years in order to expand capacity and
improve services. The cost of this equipment, which is expected to be
approximately $4.0 million, will significantly add to the Bank's non-interest
expense as the equipment is depreciated. As of December 31, 1996, the net book
value of land, buildings, furniture, and equipment owned by the Bank and the
Company, less accumulated depreciation and amortization totalled $22.9 million.
See Note 9 of Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
- --------------------------
In the normal course of business, the Company is involved in various legal
actions arising from its lending and collection activities. In the opinion of
management, the outcome of these legal actions will not significantly affect the
consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
- -------
The information contained under the sections captioned "Corporate
Information" and "Additional Stockholder Information" in the Company's Annual
Report to Stockholders for the Year ended December 31, 1996 ("Annual Report"),
is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Selected Consolidated
Financial and Other Data" in the Annual Report is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The information contained in the section captioned "Management's
Discussion of 1996 Results" in the Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements contained in the Annual Report which are listed
under Item 14 herein are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
44
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the section captioned "Proposal I -
Election of Directors" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held April 30, 1997 ("Proxy Statement") is
incorporated herein by reference. For information regarding the executive
officers of the Company, see "Part I - Item 1. Business - Executive Officers of
the Company."
Because the Common Stock of the Company is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), the executive
officers and directors of the Company and beneficial owners of greater than 10%
of the Bank's Common Stock ("10% beneficial owners") are required to file
reports on Forms 3, 4, and 5 with the Securities and Exchange Commission ("SEC")
disclosing changes in beneficial ownership of the Common Stock. SEC rules
require disclosure in the Company's Proxy Statement and Annual Report on Form
10-K of the failure of an executive officer, director, or 10% beneficial owner
of the Common Stock to file a Form 3, 4, or 5 on a timely basis. Based on the
Company's review of such ownership reports, one director of the Company failed
to file such ownership reports on a timely basis during the fiscal year ended
December 31, 1996.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this Item is incorporated herein by
reference to the section captioned "Voting Securities and Principal
Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this Item is incorporated herein by
reference to the sections captioned "Voting Securities and Principal
Holders Thereof" and "Proposal I -- Election of Directors" in the
Proxy Statement.
(c) Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this Item is incorporated herein by reference
to the section captioned "Certain Relationships and Related Transactions" in the
Proxy Statement.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
1. Independent Auditors' Report
2. Consolidated Financial Statements of First Colorado Bancorp, Inc.
(a) Consolidated Statements of Financial Condition -- December 31, 1995
and 1996
(b) Consolidated Statements of Operations -- Years ended December 31,
1994, 1995, and 1996
(c) Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1994, 1995, and 1996
(d) Consolidated Statements of Cash Flows -- Years ended December 31,
1994, 1995, and 1996
(e) Notes to Consolidated Financial Statements
All schedules have been omitted as the required information is either
inapplicable or included in the Notes to Consolidated Financial
Statements.
3. (a) Exhibits
3(i) Articles of Incorporation of First Colorado Bancorp, Inc.*
3(ii) Bylaws of First Colorado Bancorp, Inc.*
4.1 Stock Certificate of First Colorado Bancorp, Inc.*
4.2 Preferred Share Purchase Rights Agreement**
10.1 Severance Agreement with Malcolm E. Collier, Jr.***
10.2 Form of Severance Agreement with Key Officers
10.3 1992 Stock Option Plan
10.4 1992 Management Recognition Plan
10.5 1996 Stock Option Plan
10.6 1996 Management Stock Bonus Plan
11 Statement regarding computation of per share earnings (See
Note 1- "Earnings Per Share" of the Notes to Consolidated
Financial Statements in the Annual Report to Stockholders
included as Exhibit 13 hereto.)
46
<PAGE>
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1996
21 Subsidiaries of the Registrant (Incorporated by reference to
"Item I - Subsidiary Activities.")
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule ****
(b) Reports on Form 8-K
None
- ---------------
* Incorporated by reference to the Registration Statement on Form S-1 (file
no. 33-97228) declared effective by the SEC on November 13, 1995.
** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on July 25, 1996.
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
**** Filed electronically only.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST COLORADO BANCORP, INC.
Date: March 27, 1997 By:/s/Malcolm E. Collier, Jr.
--------------------------
Malcolm E. Collier, Jr.
President, Chairman of the Board,
and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/Brian L. Johnson By:/s/Malcolm E. Collier, Jr.
----------------------------------- ---------------------------------
Brian L. Johnson Malcolm E. Collier, Jr.
Vice President and Treasurer President, Chairman of the Board,
(Principal Financial and Accounting and Chief Executive Officer
Officer) (Principal Executive Officer)
Date: March 27, 1997 Date: March 27, 1997
By: /s/Robert W. Richards By:/s/Leeon E. Hayden
----------------------------------- --------------------------------
Robert W. Richards Leeon E. Hayden
Director Director
Date: March 27, 1997 Date: March 27, 1997
By: /s/John J. Nicholl By:/s/E. William Foerster, Jr.
----------------------------------- --------------------------------
John J. Nicholl E. William Foerster, Jr.
Director Director
Date: March 27, 1997 Date: March 27, 1997
<PAGE>
By: /s/Stephen Burkholder By:/s/Robert T. Person, Jr.
---------------------------------- --------------------------------
Stephen Burkholder Robert T. Person, Jr.
Director Director
Date: March 27, 1997 Date: March27, 1997
By: /s/James R. Wexels By:/s/Polly Baca
---------------------------------- --------------------------------
James R. Wexels Polly Baca
Director Director
Date: March 27, 1997 Date: March 27, 1997
EXHIBIT 10.2
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into this
___th day of ________________ 1995 ("Effective Date"), by and between First
Federal Savings Bank of Colorado (the "Savings Bank") and ____________________
(the "Employee").
WHEREAS, the Employee is currently employed by the Savings Bank as
______________________________ and is experienced in all phases of the business
of the Savings Bank; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Savings Bank and Employee if the Savings Bank should
undergo a change in control (as defined hereinafter in the Agreement) after the
Effective Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
________________________________________ of the Savings Bank. The Employee shall
render such administrative and management services to the Savings Bank and any
parent savings and loan holding company ("Parent") as are currently rendered and
as are customarily performed by persons situated in a similar executive
capacity. The Employee's other duties shall be such as the Board of Directors
for the Savings Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings Bank and
the Parent.
2. Term of Agreement. The term of this Agreement shall be for the period
commencing on the Effective Date and ending thirty-six (36) months thereafter.
Additionally, on, or before, each annual anniversary date from the Effective
Date, the term of this Agreement may be extended for an additional one year
period beyond the then effective expiration date upon a determination and
resolution of the Board of Directors that the performance of the Employee has
met the requirements and standards of the Board, and that the term of such
Agreement shall be extended.
3. Termination of Employment in Connection with or
Subsequent to a Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of
the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
Change in Control of the Savings Bank or Parent, Employee shall be paid an
amount equal to 2.99% times the 5 year average compensation paid to the Employee
by the Savings Bank (whether said amounts were received or deferred by the
Employee) and the costs associated with maintaining coverage under the Savings
Bank's medical and dental insurance reimbursement
1
<PAGE>
plans similar to that in effect on the date of termination of employment for a
period of one year thereafter. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
discounted to the present value of such payment using as the discount rate the
"prime rate" as published in the Wall Street Journal Eastern Edition as of the
date of such payment, or in periodic payments over the next 12 months, and such
payments shall be in lieu of any other future payments which the Employee would
be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable
hereunder shall be reduced in such manner and to such extent so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Savings Bank or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Internal Revenue Codes
of 1986, as amended (the "Code") and be subject to the excise tax provided at
Section 4999(a) of the Code. The term "Change in Control" shall mean: (i) the
execution of an agreement for the sale of all, or a material portion, of the
assets of the Savings Bank or the Parent; (ii) the execution of an agreement for
a merger or recapitalization of the Savings Bank or the Parent or any merger or
recapitalization whereby the Savings Bank or the Parent is not the surviving
entity; (iii) a change in control of the Savings Bank or the Parent, as
otherwise defined or determined by the Office of Thrift Supervision or
regulations promulgated by it; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder) of twenty-five percent (25%) or more of the
outstanding voting securities of the Savings Bank or the Parent by any person,
trust, entity or group. Notwithstanding the foregoing, a Change in Control shall
not include a transaction whereby First Savings Capital, MHC merges directly or
indirectly with and into the Savings Bank and 100% of the Common Stock of the
Savings Bank is simultaneously acquired by a newly established parent unitary
savings and loan holding company. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the contrary
except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee may
voluntary terminate his employment under this Agreement within twelve (12)
months following a Change in Control of the Savings Bank or Parent, and Employee
shall thereupon be entitled to receive the payment and benefits described in
Section 3(a) of this Agreement, upon the occurrence, or within ninety (90) days
thereafter, of any of the following events, which have not been consented to in
advance by the Employee in writing: (i) if Employee would be required to move
his personal residence or perform his principal executive functions more than
thirty-five
2
<PAGE>
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii) if in the organizational structure of the Savings Bank or
Parent, Employee would be required to report to a person or persons other than
the President of the Savings Bank or Parent; (iii) if the Savings Bank or Parent
should fail to maintain the Employee's base compensation in effect as of the
date of the Change in Control and the existing employee benefits plans,
including material fringe benefit, stock option and retirement plans, except to
the extent that such reduction in benefit programs is part of an overall
adjustment in benefits for all employees of the Savings Bank or Parent and does
not disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1, herein, for a period of more than six
months; (v) if Employee's responsibilities or authority have in any way been
materially diminished or reduced for a period of more than six months, or (vi)
if Employee would not be elected or reelected to the Board of Directors of the
Savings Bank [if applicable].
4. Other Changes in Employment Status.
----------------------------------
(a) Except as provided for at Section 3, herein, the Board of Directors
may terminate the Employee's employment at any time, but any termination by the
Board of Directors other than termination for Just Cause, shall not prejudice
the Employee's right to compensation or other benefits under the Agreement. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for Just Cause. Termination for "Just Cause" shall
include termination because of the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease- and-desist order, or material breach of any provision of the Agreement.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate, as of the effective date of the order, but the
vested rights of the parties shall not be affected.
(c) If the Savings Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement
3
<PAGE>
is necessary for the continued operation of the Savings Bank: (i) by the
Director of the Office of Thrift Supervision ("Director of OTS"), or his or her
designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") or
the Resolution Trust Corporation enters into an agreement to provide assistance
to or on behalf of the Savings Bank under the authority contained in Section
13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at
the time that the Director of the OTS, or his or her designee approves a
supervisory merger to resolve problems related to operation of the Savings Bank
or when the Savings Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made to
the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Savings Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall, (i) pay the Employee all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate any of its
obligations which were suspended.
6. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Savings Bank.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Savings Bank.
7. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
8. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Colorado, except to the extent that Federal law shall be
deemed to apply.
4
<PAGE>
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extend that the parties may otherwise reach
a mutual settlement of such issue. The Savings Bank shall incur the cost of all
fees and expenses associated with filing a request for arbitration with the AAA,
whether such filing is made on behalf of the Savings Bank or the Employee, and
the costs and administrative fees associated with employing the arbitrator and
related administrative expenses assessed by the AAA. The Savings Bank shall
reimburse Employee for all reasonable costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, following
the delivery of the decision of the arbitrator finding in favor of the Employee;
provided that if such finding of the Arbitrator is not in favor of the Employee
then such Employee shall reimburse the Savings Bank for the initial filing fee
paid by the Savings Bank to the AAA. A settlement to be approved by the Board of
the Savings Bank or the Parent may include a provision for the reimbursement by
the Savings Bank or Parent to the Employee for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Savings Bank or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action following a settlement of the dispute upon a written action and
determination of the Board. Such reimbursement shall be paid within ten (10)
days of Employee furnishing to the Savings Bank or Parent evidence, which may be
in the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Employee.
11. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
5
EXHIBIT 10.3
<PAGE>
FIRST COLORADO BANCORP, INC.
1992 STOCK OPTION PLAN
----------------------
1. Purpose of the Plan. The Plan shall be known as the First Colorado
Bancorp, Inc. 1992 Stock Option Plan (the "Plan"). The purpose of the Plan is to
attract and retain the best available personnel for positions of substantial
responsibility and to provide additional incentive to officers, directors and
key employees of First Colorado Bancorp, Inc. (the "Company"), and First Federal
Savings Bank of Colorado (the "Savings Bank"), or any present or future parent
or subsidiary of the Company to promote the success of the business. The Plan is
intended to provide for the grant of "Incentive Stock Options," within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and Non-Incentive Stock Options, options that do not so qualify. Each
and every one of the provisions of the Plan relating to Incentive Stock Options
shall be interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions shall apply.
(a) "Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option, or any combination thereof, as provided
in the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Stock Option Committee appointed by
the Board in accordance with paragraph 5(a) of the Plan.
(e) "Common Stock" shall mean common stock, par value $0.10 per
share, of the Company.
(f) "Company" shall mean First Colorado Bancorp, Inc.
(g) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment with the
Company or any present or future Parent or Subsidiary of the Company. Employment
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of transfers
between payroll locations, of the Company or between the Company, its
Subsidiaries, the Parent, or successors thereto.
(h) "Director" shall mean a member of the Board of the Company.
(i) "Effective Date" shall mean the date specified in Section 15
hereof.
(j) "Employee" shall mean any person employed by the Company or any
present or future Parent or Subsidiary of the Company.
(k) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify under Section 422 of the Code.
(l) "Non-Incentive Stock Option" or "Non-ISO" shall mean an option
to purchase Shares
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granted pursuant to Section 9 hereof, which option is not intended to qualify
under Section 422 of the Code.
(m) "Option" shall mean an Incentive or Non-Incentive Stock Option
granted pursuant to this Plan providing the holder of such Option with the right
to purchase Common Stock.
(n) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(o) "Optionee" shall mean any person who receives an Option or Award
pursuant to the Plan.
(p) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Subsections 424(e) and (g) of the
Code with respect to the Company.
(q) "Participant" means any director, officer or key employee of the
Company or any Parent or Subsidiary of the Company or any other person providing
a service to the Company who is selected by the Committee to receive an Award,
or who by the express terms of the Plan is granted an Award.
(r) "Plan" shall mean the First Colorado Bancorp, Inc. 1992 Stock
Option Plan.
(s) "Savings Bank" shall mean First Federal Savings Bank of
Colorado.
(t) "Share" shall mean one share of the Common Stock.
(u) "Subsidiary" shall mean any present or future corporation which
would be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of
the Code with respect to the Company.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed *324,704 Shares.
Such Shares may either be authorized but unissued shares or treasury shares.
An Award shall not be considered to be made under the Plan with respect to
any Option which terminates prior to its exercise, and new Awards may be granted
under the Plan with respect to the number of Shares as to which such termination
has occurred.
4. Six Month Holding Period.
------------------------
A total of six months must elapse between the date of the grant of
an Option and the date of the sale of Common Stock received through the exercise
of an Option.
5. Administration of the Plan.
--------------------------
(a) (i) Composition of the Committee. Except as indicated in
paragraph 5(a)(ii) below, the Plan shall be administered by the Committee
consisting of at least three non-employee Directors of the Company appointed by
the Board and serving at the pleasure of the Board. Officers, Directors, key
employees and other persons who are designated by the Committee shall be
eligible to receive Awards under the Plan, and all persons designated as members
of the Committee shall be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934.
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* Shares authorized as adjusted for prior stock dividend, the exercise of
options, and the share exchange resulting from the formation of the Company
effective December 29, 1995.
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(ii) For the purpose of granting Awards to directors, the
selection of any Director to whom Awards may be granted, as well as the number
of Shares subject to Awards, must be determined by a "disinterested committee",
as defined in Rule 16b-3 under the Securities Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The Chairman of the Company and such other officers as shall be
designated by the Committee are hereby authorized to execute instruments
evidencing Awards on behalf of the Company and to cause them to be delivered to
the Participants.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
6. Eligibility.
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(a) Awards may be granted to officers, Directors, key
employees and other persons. The Committee shall from time to time determine the
officers, Directors, key employees and other persons who shall be granted Awards
under the Plan, the number to be granted to each such officer, Director, key
employee and other persons under the Plan, and whether Awards granted to each
such Participant under the Plan shall be Incentive and/or Non-Incentive Stock
Options. In selecting Participants and in determining the number of Shares of
Common Stock to be granted to each such Participant pursuant to each Award
granted under the Plan, the Committee may consider the nature of the services
rendered by each such Participant, each such Participant's current and potential
contribution to the Company and such other factors as the Committee may, in its
sole discretion, deem relevant. Officers, Directors, key employees or other
persons who have been granted an Award may, if otherwise eligible, be granted
additional Awards.
(b) The aggregate fair market value (determined as of the date
the Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by each Employee during any calendar
year (under all Incentive Stock Option plans, as defined in Section 422 of the
Code, of the Company or any present or future Parent or Subsidiary of the
Company) shall not exceed $100,000. Notwithstanding the prior provisions of this
Section 6, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options, as defined in Section 422 of the Code.
7. Term of the Plan. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date, unless sooner terminated pursuant to Section
18 hereof. No Option shall be granted under the Plan after ten (10) years from
the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each and every
Incentive Stock Option granted pursuant to the Plan shall comply with, and be
subject to, the following terms and conditions:
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(a) Option Price.
(i) The price per Share at which each Incentive Stock Option
granted under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the Common Stock
at the time such Incentive Stock Option is granted. For such purposes, if the
Common Stock is traded otherwise than on a national securities exchange at the
time of the granting of an Option, then the price per Share of the Optioned
Stock shall be not less than the mean between the bid and asked price on the
date the Incentive Stock Option is granted or, if there is no bid and asked
price on said date, then on the next prior business day on which there was a bid
and asked price. If no such bid and asked price is available, then the price per
Share shall be determined by the Committee. If the Common Stock is listed on a
national securities exchange at the time of the granting of an Incentive Stock
Option, then the price per Share shall be not less than the average of the
highest and lowest selling price on such exchange on the date such Incentive
Stock Option is granted or, if there were no sales on said date, then the price
shall be not less than the mean between the bid and asked price on such date.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option price
shall not be less than one hundred and ten percent (110%) of the fair market
value of the Common Stock at the time the Incentive Stock Option is granted.
(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Incentive Stock Option and shall be
paid in cash (in United States Dollars), Common Stock or a combination of cash
and Common Stock. Common Stock utilized in full or partial payment of the
exercise price shall be valued at its fair market value at the date of exercise.
The Company shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No Shares of Common Stock shall be issued
until full payment therefor has been received by the Company, and no Optionee
shall have any of the rights of a stockholder of the Company until Shares of
Common Stock are issued to him.
(c) Term of Incentive Stock Option. The term of each Incentive Stock
Option granted pursuant to the Plan shall be not more ten (10) years from the
date each such Incentive Stock Option is granted, provided that in the case of
an Employee who owns stock representing more than ten percent (10%) of the
Common Stock outstanding at the time the Incentive Stock Option is granted, the
term of the Incentive Stock Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in Section 10
hereof, no Incentive Stock Option may be exercised unless the Optionee shall
have been in the employ of the Company at all times during the period beginning
with the date of grant of any such Incentive Stock Option and ending on the date
three (3) months prior to the date of exercise of any such Incentive Stock
Option. The Committee may impose additional conditions upon the right of an
Optionee to exercise any Incentive Stock Option granted hereunder which are not
inconsistent with the terms of the Plan or the requirements for qualification as
an Incentive Stock Option under Section 422 of the Code.
(e) Cashless Exercise. An Optionee who has held an Incentive Stock
Option for at least six months may engage in the "cashless exercise" of the
Option. In a cashless exercise, an Optionee gives the Company written notice of
the exercise of the Option together with an order to a registered broker-dealer
or equivalent third party, to sell part or all of the Optioned Stock and to
deliver enough of the proceeds to the Company to pay the Option price and any
applicable withholding taxes. If the Optionee does not sell the Optioned Stock
through a registered broker-dealer or equivalent third party, he can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option price plus any applicable
withholding taxes to the Company.
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(f) Transferability. Any Incentive Stock Option granted pursuant to
the Plan shall be exercised during an Optionee's lifetime only by the Optionee
to whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
and every Non-Incentive Stock Option granted pursuant to the Plan shall comply
with and be subject to the following terms and conditions.
(a) Option Price. The exercise price per Share of Common Stock for
each Non-Incentive Stock Option granted pursuant to the Plan, shall be at such
price as the Committee may determine in its sole discretion.
(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Non-Incentive Stock Option granted under the Plan shall
be made at the time of exercise of each such Non-Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. The Company shall accept full or partial payment in Common Stock only
to the extent permitted by applicable law. No Shares of Common Stock shall be
issued until full payment therefor has been received by the Company and no
Optionee shall have any of the rights of a stockholder of the Company until the
Shares of Common Stock are issued to him.
(c) Term. The term of each Non-Incentive Stock Option granted
pursuant to the Plan shall be not more than ten (10) years from the date each
such Non-Incentive Stock Option is granted.
(d) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
(e) Cashless Exercise. An Optionee who has held a Non-Incentive
Stock Option for at least six months may engage in the "cashless exercise" of
the Option. In a cashless exercise, an Optionee gives the Company written notice
of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Company to pay the Option
price and any applicable withholding taxes. If the Optionee does not sell the
Optioned Stock through a registered broker-dealer or equivalent third party, he
can give the Company written notice of the exercise of the Option and the third
party purchaser of the Optioned Stock shall pay the Option price plus any
applicable withholding taxes to the Company.
(f) Transferability. Any Non-Incentive Stock Option granted pursuant
to the Plan shall be exercised during an Optionee's lifetime only by the
Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on
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Incentive Stock Options.
-----------------------
(a) Termination of Employment. In the event that any Optionee's
employment with the Company shall terminate for any reason, other than Permanent
and Total Disability (as such term is defined in Section 22(e)(3) of the Code)
or death, all of any such Optionee's Incentive Stock Options, and all of any
such Optionee's rights to purchase or receive Shares of Common Stock pursuant
thereto, shall automatically terminate on the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the expiration of
not more than three (3) months after the date of such termination of employment,
but only if, and to the extent that, the Optionee was entitled to exercise any
such Incentive Stock Options at the date of such termination of
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<PAGE>
employment. In the event that a subsidiary ceases to be a subsidiary of the
Company, the employment of all of its employees who are not immediately
thereafter employees of the Company shall be deemed to terminate upon the date
such subsidiary so ceases to be a Subsidiary of the Company.
(b) Disability. In the event that any Optionee's employment with the
Company shall terminate as the result of the Permanent and Total Disability of
such Optionee, such Optionee may exercise any Incentive Stock Options granted to
him pursuant to the Plan at any time prior to the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the date which is
one (1) year after the date of such termination of employment, but only if, and
to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of an Optionee, any Incentive
Stock Options granted to such Optionee may be exercised by the person or persons
to whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's estate
during the period of administration) at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is two (2) years after the date of death of such Optionee but only if, and
to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of death. For purposes of this Section 10(c), any
Incentive Stock Option held by an Optionee shall be considered exercisable at
the date of his death if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at the date of death is the
passage of a specified period of time. At the discretion of the Committee, upon
exercise of such Options the Optionee may receive Shares or cash or combination
thereof. If cash shall be paid in lieu of Shares, such cash shall be equal to
the difference between the fair market value of such Shares and the exercise
price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes of
Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of his
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment.
(e) Termination of Incentive Stock Options. To the extent that any
Incentive Stock Option granted under the Plan to any Optionee whose employment
with the Company terminates shall not have been exercised within the applicable
period set forth in this Section 10, any such Incentive Stock Option, and all
rights to purchase or receive Shares of Common Stock pursuant thereto, as the
case may be, shall terminate on the last day of the applicable period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment,
disability of an Optionee or his death shall be such terms and conditions as the
Committee shall, in its sole discretion, determine at the time of termination,
unless specifically provided for by the terms of the Agreement at the time of
grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The Committee, in
its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Incentive Stock Option, the right (the "Repurchase Right"), but not the
obligation, to repurchase all or any amount of the Shares acquired by an
Optionee pursuant to the exercise of any such Options. The intent of the
Repurchase Right is to encourage the continued employment of the Optionee. The
Repurchase Right shall provide for, among other things, a specified duration of
the Repurchase Right, a specified price per Share to be paid upon the exercise
of the Repurchase Right and a restriction on the disposition of the Shares by
the Optionee during the period of the Repurchase Right. The Repurchase Right may
permit the Company to transfer or assign such right to another party. The
Company may exercise the Repurchase Right only to the extent permitted by
applicable law.
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13. Recapitalization, Merger, Consolidation, Change in Control and
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Similar Transactions.
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(a) Adjustment. Subject to any required action by the stockholders
of the Company, within the sole discretion of the Committee, the aggregate
number of Shares of Common Stock for which Options may be granted hereunder, the
number of Shares of Common Stock covered by each outstanding Option, and the
exercise price per Share of Common Stock of each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt of consideration by the Company (other than Shares
held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a change in control or imminent change
in control of the Company, as determined by the Committee. In the event of such
a change in control or imminent change in control, the Optionee shall, at the
discretion of the Committee, be entitled to receive cash in an amount equal to
the fair market value of the Common Stock subject to any Incentive or
Non-Incentive Stock Option over the Option Price of such Shares, in exchange for
the surrender of such Options by the Optionee on that date in the event of a
change in control or imminent change in control of the Company. For purposes of
this Section 13, "change in control" shall mean: (i) the execution of an
agreement for the sale of all, or a material portion, of the assets of the
Company; (ii) the execution of an agreement for a merger or recapitalization of
the Company or any merger or recapitalization whereby the Company is not the
surviving entity; (iii) a change of control of the Company, as otherwise defined
or determined by the Office of Thrift Supervision or regulations promulgated by
it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Company by any person, trust, entity or group. The term
"person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. For
purposes of this Section 13, "imminent change in control" shall refer to any
offer or announcement, oral or written, by any person or persons acting as a
group, to acquire control of the Company. The decision of the Committee as to
whether a change in control or imminent change in control has occurred shall be
conclusive and binding.
(c) Extraordinary Corporate Action. Subject to any required action
by the stockholders of the Company, in the event of any change in control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, liquidation or other extraordinary corporate
action or event, the Committee, in its sole discretion, shall have the power,
prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common Stock
subject to each Option, the exercise price per Share of Common Stock, and the
consideration to be given or received by the Company upon the exercise of any
outstanding Option;
(ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan
as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code.
Except as expressly provided in Sections 13(a) and 13(b) hereof, no
Optionee shall have any rights by reason of the occurrence of any of the events
described in this Section 13.
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(d) Acceleration. The Committee shall at all times have the power to
accelerate the exercise date of Options previously granted under the Plan.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Except, however, for purposes of
compliance with Section 16 of the Securities Exchange Act of 1934, the date of
grant of an Option shall be deemed the later of the date of grant or the date of
stockholder approval of the Plan. Notice of the determination of the grant of an
Option shall be given to each individual to whom an Option is so granted within
a reasonable time after the date of such grant in a form determined by the
Committee.
15. Effective Date. The Plan shall become effective upon the effective
date of the federal stock charter of the Savings Bank and simultaneous
reorganization of the Savings Bank to the mutual holding company corporate
structure (July 14, 1992). Options may be granted prior to ratification of the
Plan by the stockholders of the Savings Bank if the exercise of such Options is
subject to such stockholder ratification.
16. Approval by Stockholders. The Plan shall be approved by stockholders
of the Savings Bank within twelve (12) months before or after the date the Plan
becomes effective.
17. Modification of Options. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on him by the grant of a new Option at such
time, or shall not materially decrease the Optionee's benefits under the Option
without the consent of the holder of the Option, except as otherwise permitted
under Section 18 hereof. Notwithstanding anything herein to the contrary, the
Committee shall have the authority to cancel outstanding Options with the
consent of the Optionee and to reissue new Options at a lower exercise price
equal to the then fair market value per share of Common Stock in the event that
the fair market value per share of Common Stock at any time prior to the date of
exercise of outstanding Options falls below the exercise price of such Options.
18. Amendment and Termination of the Plan.
-------------------------------------
(a) Action by the Board. The Board may alter, suspend or discontinue
the Plan, except that no action of the Board may increase (other than as
provided in Section 13 hereof) the maximum number of Shares permitted to be
optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Company.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Incentive and/or Non-Incentive Stock Option unlawful or
subject the Company to any penalty, the Committee may restrict any such exercise
without the consent of the Optionee or other holder thereof in order to comply
with any such law, rule or regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
The inability of the Company to obtain from any regulatory body or
authority deemed by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of any
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<PAGE>
liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Company may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
20. Reservation of Shares. During the term of the Plan, the Company will
reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Incentive or Non-Incentive Stock Option under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-Incentive Stock Option hereunder and there shall be no required
funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Company shall have the right to deduct from all
amounts paid in cash with respect to the cashless exercise of Options under the
Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Company shall
have the right to require the Participant or such other person to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares, or, in lieu thereof, to retain, or sell without notice,
a number of such Shares sufficient to cover the amount required to be withheld.
23. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Colorado, except to the extent that
federal law shall be deemed to apply.
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EXHIBIT 10.4
<PAGE>
First Federal Savings Bank of Colorado
1992 Management Recognition
Plan and Trust Agreement
Article I
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ESTABLISHMENT OF THE PLAN AND TRUST
1.01 First Federal Savings Bank of Colorado ("Savings Bank") hereby
establishes the Management Recognition Plan (the "Plan") and Trust (the "Trust")
upon the terms and conditions hereinafter stated in this Management Recognition
Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
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PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such key employees of the Savings Bank and
its subsidiaries with an equity interest in the Savings Bank, as compensation
for their future professional contributions and service to the Savings Bank and
its subsidiaries.
Article III
-----------
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by the Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any
or if none, Recipient's estate.
3.02 "Board" means the Board of Directors of the Savings Bank.
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3.03 "Committee" means the Management Recognition Plan Committee
appointed by the Board pursuant to Article IV hereof.
3.04 "Common Stock" means shares of the common stock, $1.00 par
value per share, of the Savings Bank.
3.05 "Employee" means any person who is employed by the Savings
Bank or a Subsidiary.
3.06 "Parent" shall mean the parent corporation of the Savings
Bank.
3.07 "Plan Shares" means shares of Common Stock held in the Trust
which are awarded or issuable to a Recipient pursuant to the Plan.
3.08 "Plan Share Award" means a right granted to an Employee under
this Plan to receive Plan Shares.
3.09 "Plan Share Reserve" means the shares of Common Stock held by
the Trustee pursuant to Sections 5.03 and 5.04.
3.10 "Recipient" means an Employee who receives a Plan Share Award
under the Plan.
3.11 "Savings Bank" means the First Federal Savings Bank of
Colorado.
3.12 "Subsidiary" means those subsidiaries of the Savings Bank
which, with the consent of the Board, agree to participate in this Plan.
3.13 "Trustee" or "Trustee Committee" means that person(s) or
entity nominated by the Committee and approved by the Board pursuant to Sections
4.01 and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
----------
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three
non-employee members of the Board, which shall have all of the powers allocated
to it in this and other sections of the Plan. All persons designated as members
of the Committee shall be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and
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decisions with respect to the Plan to the Board at appropriate times, but in no
event less than one time per calendar year. The Committee shall recommend to the
Board one or more persons or entity to act as Trustee(s) in accordance with the
provision of this Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the
Trustee or Trustees shall be appointed or approved by, and will serve at the
pleasure of the Board. The Board may in its discretion from time to time remove
members from, or add members to, the Committee, and may remove, replace or add
Trustees. The Board shall have all of the powers allocated to it in this and
other sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan Share Award
already made except as provided in Section 7.01(b) herein. Members of the Board
who are eligible for or who have been granted Plan Share Awards may not vote on
any matters affecting the administration of the Plan or the grant of Plan Shares
or Plan Share Awards (although such members may be counted in determining the
existence of a quorum at any meeting of the Board during which actions taken).
Further, with respect to all actions taken by the Board in regard to the Plan,
such action shall be taken by a majority of the Board where such a majority of
the directors acting in the matter are "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the 1934 Act.
4.03 Limitation on Liability. No member of the Board or the
Committee or the Trustee(s) shall be liable for any determination made in good
faith with respect to the Plan or any Plan Share Awards granted under it. If a
member of the Board or Committee or any Trustee is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by any
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Savings Bank shall indemnify such member against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in the best interests of the Savings Bank
and its Subsidiaries and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
Article V
---------
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of
the Savings Bank shall determine the amounts (or the method of computing the
amounts) to be contributed by the Savings Bank to the Trust established under
this Plan. Such amounts shall be paid to the Trustee at the time of
contribution. No contributions to the Trust by Employees shall be permitted.
5.02 Initial Investment. Any funds held by the Trust prior to the
issuance of stock of the Savings Bank as part of the reorganization transaction
of the Savings Bank shall be
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invested by the Trustee in such interest-bearing account or accounts at the
Savings Bank as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets as part of Reorganization. Upon the
issuance of stock of the Savings Bank as part of the reorganization transaction
of the Savings Bank under a mutual holding company ("Reorganization"), the Trust
shall purchase Common Stock of the Savings Bank in an amount equal to up to 100%
of the Trust's assets, after providing for any required withholding as needed
for tax purposes, provided, however, that the Trust shall not purchase more than
3% of the aggregate shares of Common Stock to be issued at the time of the
Reorganization to parties other than the parent corporation of the Savings Bank.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
decision of the Committee to return Plan Shares to the Savings Bank, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which may not be earned
because of forfeiture by the Recipient pursuant to Section 7.01 shall be added
to the Plan Share Reserve.
Article VI
----------
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees of the Savings Bank and its
Subsidiaries are eligible to receive Plan Share Awards within the sole
discretion of the Committee.
6.02 Allocations. The Committee will determine which of the
Employees referenced in Section 6.01 above will be granted Plan Share Awards and
the number of Shares covered by each Award, effective upon the Reorganization,
provided, however, that the number of Shares covered by such Awards may not
exceed the number of Shares in the Plan Share Reserve immediately prior to the
grant of such Awards, and provided further, that in no event shall any Awards be
made which will violate the Charter, Bylaws or Plan of Reorganization of the
Savings Bank or its Subsidiaries or any applicable federal or state law or
regulation. In the event Shares are forfeited for any reason or additional
Shares are purchased by the Trustee, the Committee may, from time to time,
determine which of the Employees referenced in Section 6.01 above will be
granted additional Plan Share Awards to be awarded from forfeited Shares. In
selecting those Employees to whom Plan Share Awards will be granted and the
number of shares covered by such Awards, the Committee shall consider the
position duties and responsibilities of the eligible Employees, the value of
their services to the Savings Bank and its Subsidiaries, and any other factors
the Committee may deem relevant. All actions by the Committee shall be deemed
final, except to the extent that such actions are revoked by the Board.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award is to be
made, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered
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by the Award, and the terms upon which the Plan Shares subject to the award may
be earned. The date on which the Committee so notifies the Recipient shall be
considered the date of grant of the Plan Share Awards. The Committee shall
maintain records as to all grants of Plan Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the Employees as a group have such a
right. The Committee may, with the approval of the Board (or, if so directed by
the Board) return all Common Stock in the Plan Share Reserve to the Savings Bank
at any time, and cease issuing Plan Share Awards.
6.05 Awards to Directors. Notwithstanding anything herein to the contrary,
upon the Effective Date, a Plan Share Award consisting of 1,000 Plan Shares
shall be awarded to each director of the Savings Bank that is not otherwise an
Employee. Such Plan Share Award shall be earned and non-forfeitable at the rate
of one-fifth following one year after the Effective Date and an additional
one-fifth following each of the next four successive years, provided that such
director remains a member of the Board at such time. Further, such Plan Share
Award shall be immediately non-forfeitable in the event of the death or
disability of such director, or a change in control of the Savings Bank as
provided in Section 7.01(d) herein.
Article VII
-----------
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically state to the
contrary at the time a Plan Share Award is granted, Plan Shares subject to an
Award shall be earned and non- forfeitable by a Recipient at the rate of
one-fifth of such Award following one year after granting of such Award, and an
additional one-fifth following each of the next four successive years; provided
that such Recipient remains an Employee during such period.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether or not yet earned, in the case of an Employee who is
discharged from the employ of the Savings Bank or a Subsidiary for Cause (as
hereinafter defined), or who is discovered after termination of employment to
have engaged in conduct that would have justified termination for cause. "Cause"
is defined as personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profits, intentional failure to perform stated
duties, willful violation of a material provision of any law, rule or regulation
(other than traffic violations and similar offense), or a material violation of
a final cease-and-desist order or any other action which results in a
substantial financial loss to the Savings Bank or its Subsidiaries. A
determination of "Cause" shall be made by the Board within its sole discretion.
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(c) Exception for Terminations Due to Death or Disability. Notwithstanding
the general rule contained in Section 7.01(a) above, all Plan Shares subject to
a Plan Share Award held by a Recipient whose employment with the Savings Bank or
a Subsidiary terminates due to death or disability (as determined by the
Committee), shall be deemed earned as of the Recipient's last day of employment
with the Savings Bank or Subsidiary and shall be distributed as soon a
practicable thereafter.
(d) Exception for Termination after a Change in Control. Notwithstanding
the general rule contained in Section 7.01 above, all Plan Shares subject to a
Plan Share Award held by a recipient shall be deemed to be immediately 100%
earned and non-forfeitable in the event of a "change in control" or "imminent
change in control" of the Savings Bank and shall be distributed as soon as
practicable thereafter. For purposes of this Plan, "change in control" shall
mean: (i) the execution of an agreement for the sale of all, or a material
portion, of the assets of the Savings Bank; (ii) the execution of an agreement
for a merger or recapitalization of the Savings Bank or any merger or
recapitalization whereby the Savings Bank is not the surviving entity; (iii) a
change of control of the Savings Bank, as otherwise defined or determined by the
Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the 1934 Act and the
rules and regulations promulgated thereunder) of twenty-five percent (25%) or
more of the outstanding voting securities of the Savings Bank by any person,
trust, entity or group. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. For purposes of this section, "imminent change in
control" shall refer to any offer or announcement, oral or written, by any
person or persons acting as a group, to acquire control of the Savings Bank. The
decision of the Committee as to whether a change in control or imminent change
in control has occurred shall be conclusive and binding.
7.02 Payment of Dividends. A holder of a Plan Share Award, whether
or not non-forfeitable, shall also be entitled to receive an amount equal to any
cash dividends declared and paid with respect to shares of Common Stock
represented by such Plan Share Award between the date the relevant Plan Share
Award was initially granted to such Recipient and the date the Plan Shares are
distributed.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the Recipient
or his Beneficiary, as the case may be, as soon as practicable after they have
been earned. No fractional shares shall be distributed.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earning thereon) shall be made in cash.
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(c) Withholding. The Trustee may withhold from any cash payment made under
this Plan sufficient amounts to cover any applicable withholding and employment
taxes, and if the amount of such cash payment is not sufficient, the Trustee may
require the Recipient or Beneficiary to pay to the Trustee the amount required
to be withheld as a condition of delivering the Plan Shares. The Trustee shall
pay over to the Savings Bank or Subsidiary which employs or employed such
recipient any such amount withheld from or paid by the Recipient or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection (a)
above, no Plan Shares may be distributed prior to the date which is five (5)
years from the effective date of the Savings Bank's Reorganization under the
mutual holding company form to the extent the Recipient or Beneficiary, as the
case may be, would after receipt of such Shares own in excess of ten percent
(10%) of the issued and outstanding shares of Common Stock held by parties other
than Parent, unless such action is approved in advance by a majority vote of
disinterested directors of the Board. Any Plan Shares remaining undistributed
solely by reason of the operation of this Subsection (d) shall be distributed to
the Recipient or his Beneficiary on the date which is five years from the
effective date of the Savings Bank's Reorganization.
(e) Regulatory Exceptions. No Plan Shares shall be distributed, however,
unless and until all of the requirements of all applicable law and regulation
shall have been fully complied with, including the receipt of approval of the
Plan by the stockholders of the Savings Bank by such vote, if any, as may be
required by applicable law and regulations as determined by the Board.
7.04 Voting of Plan Shares. After a Plan Share Award has been
granted, the Recipient shall be entitled to direct the Trustee as to the voting
of the Plan Shares which are covered by the Plan Share Award and which have not
yet been earned and distributed pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common Stock
held by the Trust as to which Recipients are not entitled to direct, or have not
directed, the voting of, shall be voted by the Trustee as directed by the
Committee.
Article VIII
------------
TRUST
8.02 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust
that the Trustee shall have complete authority and discretion with respect to
the management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, and except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet
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the obligations of the Trust. In performing their duties, the Trustees shall
have the power to do all things and execute such instruments as may be deemed
necessary or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in the
Common Stock without regard to any law now or hereafter in force limiting
investments for Trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustees are authorized to purchase Common Stock from
Savings Bank or from any other source, and such Common Stock so purchased
may be outstanding, newly issued, or Treasury shares.
(b) To invest in any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Savings Bank), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the opinion
of the Trustee reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation
as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account or
held in common with other assets.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
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8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends
received with respect to shares of Common Stock shall be allocated to accounts
for Recipients, except to the extent that such cash dividends are distributed to
Recipients, if such shares are the subject of outstanding Plan Share Awards, or,
otherwise to the Plan Share Reserve.
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be paid by the Savings Bank.
8.06 Indemnification. The Savings Bank shall indemnify, defend and hold
the Trustee harmless against all claims, expenses and liabilities arising out of
or related to the exercise of the Trustee's powers and the discharge of their
duties hereunder, unless the same shall be due to their gross negligence or
willful misconduct.
Article IX
----------
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Savings Bank.
9.02 Amendment and Termination of the Plan. The Board may, by
resolution, at any time, amend or terminate the Plan. The power to amend or
terminate the Plan shall include the power to direct the Trustee to return to
the Savings Bank all or any part of the assets of the Trust, including shares of
Common Stock held in the Plan Share Reserve, as well as shares of Common Stock
and other assets subject to Plan Share Awards but not yet earned by the
Employees to whom they are allocated. However, the termination of the Trust
shall not affect a Recipients right to earn Plan Share Awards and to the
distribution of Common Stock relating thereto, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee or the
Board.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares
shall not be transferable by a Recipient, and during the lifetime of the
Recipient, Plan Shares may only be earned by and paid to the Recipient who was
notified in writing of the Award by the Committee pursuant to Section 6.03. No
Recipient or Beneficiary shall have any right in or claim to any assets of the
Plan or Trust, nor shall the Savings Bank, or any Subsidiary be subject to any
claim for benefits hereunder.
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9.04 Employment Rights. Neither the Plan nor any grant of a Plan
Share Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee to continue in the employ
of the Savings Bank, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting
or dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Law. The Plan and Trust shall be governed and
construed under the laws of the State of Colorado, except to the extent that
Federal Law shall be deemed applicable.
9.07 Effective Date. This Plan shall be as effective as of the
effective date of the Reorganization.
9.08 Term of Plan. This Plan shall remain in effect until the
earlier of (1) termination by the Board, (2) the distribution of all assets of
the Trust, or (3) 21 years from the Effective Date. Termination of the Plan
shall not effect any Plan Share Awards previously granted, and such Awards shall
remain valid and in effect until they have been earned and paid, or by their
terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established
hereby be treated as grantor trust of the Savings Bank under the provisions of
Section 671 et seq. of the Internal Revenue Code, as the same may be amended
from time to time.
EXHIBIT 10.5
<PAGE>
FIRST COLORADO BANCORP, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the First Colorado
Bancorp, Inc. ("Corporation") 1996 Stock Option Plan (the "Plan"). The purpose
of the Plan is to attract and to retain qualified personnel for positions of
substantial responsibility and to provide additional incentive to officers,
directors and key employees of the Corporation, or any present or future parent
or subsidiary of the Corporation to promote the success of the business. The
Plan is intended to provide for the grant of "Incentive Stock Options," within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and Non-Incentive Stock Options, options that do not so qualify. Each
and every one of the provisions of the Plan relating to Incentive Stock Options
shall be interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions shall apply.
(a) "Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option, or any combination thereof, as provided
in the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation, or
any successor or parent corporation thereto.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
(d) "Committee" shall mean the Stock Option Committee appointed by
the Board in accordance with Section 5(a) of the Plan.
(e) "Common Stock" shall mean common stock, par value $.10 per
share, of the Corporation, or any successor or parent corporation thereto.
(f) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment with the
Corporation or any present or future Parent or Subsidiary of the Corporation.
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Corporation or in
the case of transfers between payroll locations, of the Corporation or between
the Corporation, its Parent, its Subsidiaries or a successor.
(g) "Corporation" shall mean the First Colorado Bancorp, Inc., the
parent corporation of the Savings Bank, or any successor or Parent thereof.
(h) "Director" shall mean a member of the Board of the Corporation,
or any successor or parent corporation thereto.
(i) "Director Emeritus" shall mean a person serving as a director
emeritus, advisory director, consulting director or other similar position as
may be appointed by the Board of Directors of the Savings Bank or the
Corporation from time to time.
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(j) "Disability" means (a) with respect to Incentive Stock Options,
the "permanent and total disability" of the Employee as such term is defined at
Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive Stock
Options, any physical or mental impairment which renders the Participant
incapable of continuing in the employment or service of the Savings Bank or the
Parent in his then current capacity as determined by the Committee.
(k) "Effective Date" shall mean the date specified in Section 15
hereof.
(l) "Employee" shall mean any person employed by the Corporation or
any present or future Parent or Subsidiary of the Corporation.
(m) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify as an incentive stock option under Section 422 of the Code.
(n) "Non-Incentive Stock Option" or "Non-ISO" shall mean an option
to purchase Shares granted pursuant to Section 9 hereof, which option is not
intended to qualify under Section 422 of the Code.
(o) "Option" shall mean an Incentive Stock Option or Non-Incentive
Stock Option granted pursuant to this Plan providing the holder of such Option
with the right to purchase Common Stock.
(p) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(q) "Optionee" shall mean any person who receives an Option or Award
pursuant to the Plan.
(r) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Sections 424(e) and (g) of the
Code.
(s) "Participant" means any director, officer or key employee of the
Corporation or any Parent or Subsidiary of the Corporation or any other person
providing a service to the Corporation who is selected by the Committee to
receive an Award, or who by the express terms of the Plan is granted an Award.
(t) "Plan" shall mean the First Colorado Bancorp, Inc. 1996 Stock
Option Plan.
(u) "Savings Bank" shall mean First Federal Bank of Colorado, or any
successor corporation thereto.
(v) "Share" shall mean one share of the Common Stock.
(w) "Subsidiary" shall mean any present or future corporation which
constitutes a "subsidiary corporation" as defined in Sections 424(f) and (g) of
the Code.
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3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 1,340,379. Such
Shares may either be from authorized but unissued shares, treasury shares or
shares purchased in the market for Plan purposes.
If an award should expire, become unexercisable or be forfeited for any
reason prior to its exercise, new Awards may be granted under the Plan with
respect to the number of Shares as to which such expiration has occurred.
4. Six Month Holding Period.
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Subject to vesting requirements, if applicable, except in the event
of death or disability of the Optionee, a minimum of six months must elapse
between the date of the grant of an Option and the date of the sale of the
Common Stock received through the exercise of such Option.
5. Administration of the Plan.
--------------------------
(a) (i) Composition of the Committee. Except as indicated in Section
5(a)(ii) below, the Plan shall be administered by the Committee which shall
consist of at least three non-employee Directors of the Corporation appointed by
the Board and serving at the pleasure of the Board. All persons designated as
members of the Committee shall be "disinterested persons" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934.
(ii) For the purpose of granting Awards to directors, the
selection of any Director to whom Awards may be granted, as well as the number
of Shares subject to Awards, must be determined by a "disinterested committee",
as defined in Rule 16b-3 under the Securities Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The Chairman of the Corporation and such other officers as shall be
designated by the Committee are hereby authorized to execute written agreements
evidencing Awards on behalf of the Corporation and to cause them to be delivered
to the Participants. Such agreements shall set forth the Option exercise price,
the number of shares of Common Stock subject to such Option, the expiration date
of such Options, and such other terms and restrictions applicable to such Award
as are determined in accordance with the Plan or the actions of the Committee.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
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<PAGE>
6. Eligibility for Awards and Limitations.
--------------------------------------
(a) The Committee shall from time to time determine the
officers, Directors, key employees and other persons who shall be granted Awards
under the Plan, the number of Awards to be granted to each such officer,
Director, key employee and other persons under the Plan, and whether Awards
granted to each such Participant under the Plan shall be Incentive and/or
Non-Incentive Stock Options. In selecting Participants and in determining the
number of Shares of Common Stock to be granted to each such Participant, the
Committee may consider the nature of the services rendered by each such
Participant, each such Participant's current and potential contribution to the
Corporation and such other factors as the Committee may, in its sole discretion,
deem relevant. Participants who have been granted an Award may, if otherwise
eligible, be granted additional Awards.
(b) The aggregate fair market value (determined as of the date
the Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by each Employee during any calendar
year (under all Incentive Stock Option plans, as defined in Section 422 of the
Code, of the Corporation or any present or future Parent or Subsidiary of the
Corporation) shall not exceed $100,000. Notwithstanding the prior provisions of
this Section 6, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options.
(c) In no event shall Shares subject to Options granted to
non-employee Directors in the aggregate under this Plan exceed more than 30% of
the total number of Shares authorized for delivery under this Plan pursuant to
Section 3 herein or more than 5% to any individual non-employee Director. In no
event shall Shares subject to Options granted to any Employee exceed more than
25% of the total number of Shares authorized for delivery under the Plan.
7. Term of the Plan. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date, unless sooner terminated pursuant to Section
18 hereof. No Option shall be granted under the Plan after ten (10) years from
the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each Incentive Stock
Option granted pursuant to the Plan shall comply with, and be subject to, the
following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive Stock Option
granted under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the Common Stock
on the date that such Incentive Stock Option is granted. For such purposes, if
the Common Stock is traded otherwise than on a national securities exchange at
the time of the granting of an Option, then the exercise price per Share of the
Optioned Stock shall be not less than the mean between the last bid and ask
price on the date the Incentive Stock Option is granted or, if there is no bid
and ask price on said date, then on the immediately prior business day on which
there was a bid and ask price. If no such bid and ask price is available, then
the exercise price per Share shall be determined by the Committee in good faith.
If the Common Stock is listed on a national securities exchange at the time of
the granting of an Incentive Stock Option, then the exercise price per Share
shall be not less than the average of the highest and lowest selling price on
such exchange on the date such
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<PAGE>
Incentive Stock Option is granted or, if there were no sales on said date, then
the exercise price shall be not less than the mean between the last bid and ask
price on such date.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock on the
date that the Incentive Stock Option is granted, the Incentive Stock Option
exercise price shall not be less than one hundred and ten percent (110%) of the
fair market value of the Common Stock on the date that the Incentive Stock
Option is granted.
(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Incentive Stock Option and shall be
paid in cash (in United States Dollars), Common Stock or a combination of cash
and Common Stock. Common Stock utilized in full or partial payment of the
exercise price shall be valued at the fair market value at the date of exercise.
The Corporation shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No Shares of Common Stock shall be issued
until full payment has been received by the Corporation, and no Optionee shall
have any of the rights of a stockholder of the Corporation until Shares of
Common Stock are issued to the Optionee.
(c) Term of Incentive Stock Option. The term of exercisability of
each Incentive Stock Option granted pursuant to the Plan shall be not more than
ten (10) years from the date each such Incentive Stock Option is granted,
provided that in the case of an Employee who owns stock representing more than
ten percent (10%) of the Common Stock outstanding at the time the Incentive
Stock Option is granted, the term of exercisability of the Incentive Stock
Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in Section 10
hereof, no Incentive Stock Option may be exercised unless the Optionee shall
have been in the employ of the Corporation at all times during the period
beginning with the date of grant of any such Incentive Stock Option and ending
on the date three (3) months prior to the date of exercise of any such Incentive
Stock Option. The Committee may impose additional conditions upon the right of
an Optionee to exercise any Incentive Stock Option granted hereunder which are
not inconsistent with the terms of the Plan or the requirements for
qualification as an Incentive Stock Option. Except as otherwise provided by the
terms of the Plan or by action of the Committee at the time of the grant of the
Options, the Options will be first exercisable at the rate of 20% on the one
year anniversary of the date of grant and 20% annually thereafter during such
periods of service as an Employee, Director or Director Emeritus.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Incentive Stock Option for at least six
months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee gives the Corporation written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Corporation to pay the Option exercise price and any
applicable withholding taxes. If the Optionee does not sell the Optioned Stock
through a registered broker-dealer or equivalent third party, the Optionee can
give the Corporation written notice of the exercise of the Option and the third
party purchaser of the Optioned Stock shall pay the Option exercise price plus
any applicable withholding taxes to the Corporation.
(f) Transferability. Any Incentive Stock Option granted pursuant to
the Plan shall be exercised during an Optionee's lifetime only by the Optionee
to whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
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<PAGE>
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
Non-Incentive Stock Option granted pursuant to the Plan shall comply with and be
subject to the following terms and conditions.
(a) Options Granted to Directors. Subject to the limitations of
Section 6(c), Non- Incentive Stock Options to purchase 12,000 shares of Common
Stock will be granted to each Director who is not an Employee (excluding
Director Polly Baca) as of the Effective Date, at an exercise price equal to the
fair market value of the Common Stock on such date of grant. Options may be
granted to newly appointed or elected non-employee Directors within the sole
discretion of the Committee. The Options will be first exercisable at the rate
of 20% on the one year anniversary of the Effective Date and 20% annually
thereafter during such periods of service as a Director or Director Emeritus.
Upon the death or Disability of the Director or Director Emeritus, or upon a
change in control of the Savings Bank or the Corporation as provided at Section
13(b) herein, such Option shall be deemed immediately 100% exercisable. The
exercise price per Share of such Options granted shall be equal to the fair
market value of the Common Stock at the time such Options are granted. For such
purposes, if the Common Stock is traded otherwise than on a national securities
exchange at the time of the granting of the Options, then the exercise price per
Share of the Optioned Stock shall be not less than the mean between the last bid
and ask price on the date the Options are granted or, if there is no bid and ask
price on said date, then on the next prior business day on which there was a bid
and ask price. If no such bid and ask price is available, then the exercise
price per Share shall be determined by the Committee in good faith. If the
Common Stock is listed on a national securities exchange at the time of the
granting of an Options, then the exercise price per Share shall be not less than
the average of the highest and lowest selling price on such exchange on the date
such Options are granted or, if there were no sales on said date, then the
exercise price shall be not less than the mean between the last bid and ask
price on such date. Such Options shall continue to be exercisable for a period
of ten years following the date of grant without regard to the continued
services of such Directors as a Director or Director Emeritus. In the event of
the Optionee's death, such Options may be exercised by the personal
representative of his estate or person or persons to whom his rights under such
Option shall have passed by will or by the laws of descent and distribution.
Unless otherwise inapplicable, or inconsistent with the provisions of this
paragraph, the Options to be granted to Directors hereunder shall be subject to
all other provisions of this Plan.
(b) Option Price. The exercise price per Share of Common Stock for
each Non-Incentive Stock Option granted pursuant to the Plan, other than Options
granted pursuant to Section 9(a) herein, shall be at such price as the Committee
may determine in its sole discretion, but in no event less than the fair market
value of such Common Stock on the date of grant as determined by the Committee
in good faith.
(c) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Non-Incentive Stock Option granted under the Plan shall
be made at the time of exercise of each such Non-Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. The Corporation shall accept full or partial payment in Common Stock
only to the extent permitted by applicable law. No Shares of Common Stock shall
be issued until full payment has been received by the Corporation and no
Optionee shall have any of the rights of a stockholder of the Corporation until
the Shares of Common Stock are issued to the Optionee.
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<PAGE>
(d) Term. The term of exercisability of each Non-Incentive Stock
Option granted pursuant to the Plan shall be not more than ten (10) years from
the date each such Non-Incentive Stock Option is granted.
(e) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
Except as otherwise provided by the terms of the Plan or by action of the
Committee at the time of the grant of the Options, the Options will be first
exercisable at the rate of 20% on the one year anniversary of the date of grant
and 20% annually thereafter during such periods of service as an Employee,
Director or Director Emeritus.
(f) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held a Non-Incentive Stock Option for at least
six months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee gives the Corporation written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Corporation to pay the Option exercise price and any
applicable withholding taxes. If the Optionee does not sell the Optioned Stock
through a registered broker-dealer or equivalent third party, the Optionee can
give the Corporation written notice of the exercise of the Option and the third
party purchaser of the Optioned Stock shall pay the Option exercise price plus
any applicable withholding taxes to the Corporation.
(g) Transferability. Any Non-Incentive Stock Option granted pursuant
to the Plan shall be exercised during an Optionee's lifetime only by the
Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on Incentive
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Stock Options.
- -------------
(a) Termination of Employment. In the event that any Optionee's
employment with the Corporation shall terminate for any reason, other than
Permanent and Total Disability (as such term is defined in Section 22(e)(3) of
the Code) or death, all of any such Optionee's Incentive Stock Options, and all
of any such Optionee's rights to purchase or receive Shares of Common Stock
pursuant thereto, shall automatically terminate on (A) the earlier of (i) or
(ii): (i) the respective expiration dates of any such Incentive Stock Options,
or (ii) the expiration of not more than three (3) months after the date of such
termination of employment, or (B) at such later date as is determined by the
Committee at the time of the grant of such Award based upon the Optionee's
continuing status as a Director or Director Emeritus of the Savings Bank or the
Corporation, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment, and further that such Award shall thereafter be deemed a
Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a
subsidiary of the Corporation, the employment of all of its employees who are
not immediately thereafter employees of the Corporation shall be deemed to
terminate upon the date such subsidiary so ceases to be a Subsidiary.
(b) Disability. In the event that any Optionee's employment with the
Corporation shall terminate as the result of the Permanent and Total Disability
of such Optionee, such Optionee may exercise any Incentive Stock Options granted
to the Optionee pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is one (1) year after the date of such termination of employment, but only
if, and to the extent that, the Optionee was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment.
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<PAGE>
(c) Death. In the event of the death of an Optionee, any Incentive
Stock Options granted to such Optionee may be exercised by the person or persons
to whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's estate
during the period of administration) at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is two (2) years after the date of death of such Optionee but only if, and
to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of death. For purposes of this Section 10(c), any
Incentive Stock Option held by an Optionee shall be considered exercisable at
the date of his death if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at the date of death is the
passage of a specified period of time. At the discretion of the Committee, upon
exercise of such Options the Optionee may receive Shares or cash or a
combination thereof. If cash shall be paid in lieu of Shares, such cash shall be
equal to the difference between the fair market value of such Shares and the
exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes of
Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment without regard to the Permanent and Total
Disability or death of the Participant.
(e) Termination of Incentive Stock Options. Except as may be
specified by the Committee at the time of grant of an Option, to the extent that
any Incentive Stock Option granted under the Plan to any Optionee whose
employment with the Corporation terminates shall not have been exercised within
the applicable period set forth in this Section 10, any such Incentive Stock
Option, and all rights to purchase or receive Shares of Common Stock pursuant
thereto, as the case may be, shall terminate on the last day of the applicable
period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment or
service, disability of an Optionee or his death shall be such terms and
conditions as the Committee shall, in its sole discretion, determine at the time
of termination or service, unless specifically provided for by the terms of the
Agreement at the time of grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The Committee, in
its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Incentive Stock Option, the right, but not the obligation for the
Corporation, to repurchase all or any amount of the Shares acquired by an
Optionee pursuant to the exercise of any such Options (the "Repurchase Right").
The intent of the Repurchase Right is to encourage the continued employment of
the Optionee. The Repurchase Right shall provide for, among other things, a
specified duration of the Repurchase Right, a specified price per Share to be
paid upon the exercise of the Repurchase Right and a restriction on the
disposition of the Shares by the Optionee during the period of the Repurchase
Right. The Repurchase Right may permit the Corporation to transfer or assign
such Repurchase Right to another party. The Corporation may exercise the
Repurchase Right only to the extent permitted by applicable law.
13. Recapitalization, Merger, Consolidation, Change in Control and Other
--------------------------------------------------------------------
Transactions.
- ------------
(a) Adjustment. Subject to any required action by the stockholders
of the Corporation, within the sole discretion of the Committee, the aggregate
number of Shares of Common Stock for which Options may be granted hereunder, the
number of Shares of Common Stock covered by
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<PAGE>
each outstanding Option, and the exercise price per Share of Common Stock of
each such Option, shall all be proportionately adjusted for any increase or
decrease in the number of issued and outstanding Shares of Common Stock
resulting from a subdivision or consolidation of Shares (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, combination
of shares, or otherwise) or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such Shares of
Common Stock effected without the receipt or payment of consideration by the
Corporation (other than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a change in control of the Corporation,
as determined by the Committee, provided that such accelerated vesting is not
inconsistent with applicable regulations of the Office of Thrift Supervision or
other appropriate banking regulator at the time of such change in control. The
Optionee shall, at the discretion of the Committee, be entitled to receive cash
in an amount equal to the fair market value of the Common Stock subject to any
Option over the Option exercise price of such Option, in exchange for the
surrender of such Options by the Optionee on the date of such change in control
of the Corporation. For purposes of this Section 13, "change in control" shall
mean: (i) the execution of an agreement for the sale of all, or a material
portion, of the assets of the Corporation; (ii) the execution of an agreement
for a merger or recapitalization of the Corporation or any merger or
recapitalization whereby the Corporation is not the surviving entity; (iii) a
change in control of the Corporation, as otherwise defined or determined by the
Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Corporation by
any person, trust, entity or group. This limitation shall not apply to the
purchase of shares by underwriters in connection with a public offering of
Corporation stock, or the purchase of shares of up to 25% of any class of
securities of the Corporation by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements, set forth under 12 C.F.R.
ss.574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term
"person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. The
decision of the Committee as to whether a change in control has occurred shall
be conclusive and binding.
(c) Extraordinary Corporate Action. Notwithstanding any provisions
of the Plan to the contrary, subject to any required action by the stockholders
of the Corporation, in the event of any change in control, recapitalization,
merger, consolidation, exchange of Shares, spin-off, reorganization, tender
offer, partial or complete liquidation or other extraordinary corporate action
or event, the Committee, in its sole discretion, shall have the power, prior or
subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common Stock
subject to each Option, the Option exercise price per Share of Common Stock, and
the consideration to be given or received by the Corporation upon the exercise
of any outstanding Option;
(ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan
as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code without the
consent of the Optionee.
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<PAGE>
Except as expressly provided in Sections 13(a), 13(b) and 13(e)
hereof, no Optionee shall have any rights by reason of the occurrence of any of
the events described in this Section 13.
(d) Acceleration. The Committee shall at all times have the power to
accelerate the exercise date of Options previously granted under the Plan;
provided that such action is not contrary to regulations of the OTS or other
appropriate banking regulator then in effect.
(e) Non-recurring Dividends. Upon the payment of a special or
non-recurring cash dividend that has the effect of a return of capital to the
stockholders, the Option exercise price per share shall be adjusted
proportionately.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the grant of an Option shall be
given to each individual to whom an Option is so granted within a reasonable
time after the date of such grant in a form determined by the Committee.
15. Effective Date. The Plan shall become effective upon the date of
approval of the Plan by the stockholders of the Corporation, subject to approval
or non-objection by the Office of Thrift Supervision, if applicable. The
Committee may make a determination related to Awards prior to the Effective Date
with such Awards to be effective upon the date of stockholder approval of the
Plan.
16. Approval by Stockholders. The Plan shall be approved by stockholders
of the Corporation within twelve (12) months before or after the date the Plan
is approved by the Board.
17. Modification of Options. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on the Optionee by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 18 hereof.
18. Amendment and Termination of the Plan.
-------------------------------------
(a) Action by the Board. The Board may alter, suspend or discontinue
the Plan, except that no action of the Board may increase (other than as
provided in Section 13 hereof) the maximum number of Shares permitted to be
optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Corporation.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Option unlawful or subject the Corporation to any penalty,
the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.
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<PAGE>
19. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities laws and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) The inability of the Corporation to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Corporation's counsel to be necessary to the lawful
issuance and sale of any Shares issuable hereunder shall relieve the Corporation
of any liability with respect to the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Corporation may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the termination
of employment or service of an Optionee by the Corporation or its Subsidiaries
for "cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by the Board of
Directors, all Options held by such Participant shall cease to be exercisable as
of the date of such termination of employment or service.
(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Corporation under Section 16(b) of the Securities Exchange Act of 1934, as
amended, and regulations promulgated thereunder.
20. Reservation of Shares. During the term of the Plan, the Corporation
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Corporation by reason of the Plan
or the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options under
the Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, the Corporation shall have the right to
require the Participant or such other person to pay the Corporation the amount
of any taxes which the Corporation is required to withhold with respect to such
Shares, or, in lieu thereof, to retain, or to sell without notice, a number of
such Shares sufficient to cover the amount required to be withheld.
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<PAGE>
23. No Employment Rights. No Director, Employee, or other person shall
have a right to be selected as a Participant under the Plan. Neither the Plan
nor any action taken by the Board or the Committee in administration of the Plan
shall be construed as giving any person any rights of employment or retention as
an Employee, Director, or in any other capacity with the Corporation, the
Savings Bank or any other Subsidiary.
24. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Colorado, except to the extent that
federal law shall be deemed to apply.
12
EXHIBIT 10.6
<PAGE>
First Federal Bank of Colorado
1996 Management Stock Bonus Plan
and Trust Agreement
Article I
---------
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 First Federal Bank of Colorado ("Savings Bank") hereby establishes
the 1996 Management Stock Bonus Plan (the "Plan") and Trust (the "Trust") upon
the terms and conditions hereinafter stated in this Management Stock Bonus Plan
and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
----------
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and to retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such personnel of the Savings Bank and its
subsidiaries with an equity interest in the parent corporation of the Savings
Bank, First Colorado Bancorp, Inc. ("Parent"), as compensation for their future
professional contributions and service to the Savings Bank and its subsidiaries.
Article III
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DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by the Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, Recipient's estate.
3.02 "Board" means the Board of Directors of the Savings Bank, or any
successor corporation thereto.
3.03 "Committee" means the Management Stock Bonus Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.04 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Savings Bank or any successor corporation or Parent thereto.
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3.05 "Director" means a member of the Board of the Savings Bank.
3.06 "Director Emeritus" means a person serving as a director emeritus,
advisory director, consulting director, or other similar position as may be
appointed by the Board of Directors of the Savings Bank or the Corporation from
time to time.
3.07 "Disability" means any physical or mental impairment which renders
the Participant incapable of continuing in the employment or service of the
Savings Bank or the Parent in his current capacity as determined by the
Committee.
3.08 "Employee" means any person who is employed by the Savings Bank or a
Subsidiary.
3.09 "Effective Date" shall mean the date of stockholder approval of the
Plan by the Parent's stockholders.
3.10 "Parent" shall mean First Colorado Bancorp, Inc., the parent
corporation of the Savings Bank.
3.11 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Recipient pursuant to the Plan.
3.12 "Plan Share Award" or "Award" means a right granted to an Employee
under this Plan to receive Plan Shares.
3.13 "Plan Share Reserve" means the shares of Common Stock held by the
Trust pursuant to Sections 5.03 and 5.04.
3.14 "Recipient" means any person who receives a Plan Share Award under
the Plan.
3.15 "Savings Bank" means First Federal Bank of Colorado, and any
successor corporation thereto.
3.16 "Subsidiary" means those subsidiaries of the Savings Bank which, with
the consent of the Board, agree to participate in this Plan.
3.17 "Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
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ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall consist of not less than three non-employee
members of the Board, which shall have all of the powers allocated to it in this
and other sections of the Plan. All persons designated as members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by vote or written consent of a majority of its members.
Subject
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to the express provisions and limitations of the Plan, the Committee may adopt
such rules, regulations and procedures as it deems appropriate for the conduct
of its affairs. The Committee shall report its actions and decisions with
respect to the Plan to the Board at appropriate times, but in no event less than
one time per calendar year. The Committee shall recommend to the Board one or
more persons or entity to act as Trustee in accordance with the provision of
this Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of the Board. The
Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove, replace or add Trustees. The Board
shall have all of the powers allocated to it in this and other sections of the
Plan, may take any action under or with respect to the Plan which the Committee
is authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
the Board may not revoke any Plan Share Award already made except as provided in
Section 7.01(b) herein. Members of the Board who are eligible for or who have
been granted Plan Share Awards by the Committee may not vote on any matters
affecting the administration of the Plan or the grant of Plan Shares or Plan
Share Awards (although such members may be counted in determining the existence
of a quorum at any meeting of the Board during which actions are taken).
Further, with respect to all actions taken by the Board in regard to the Plan,
such action shall be taken by a majority of the Board where such a majority of
the Directors acting in the matter are "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the 1934 Act.
4.03 Limitation on Liability. No member of the Board, the Committee or the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Plan Share Awards granted in accordance with the Plan. If a
member of the Board, the Committee or any Trustee is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by any
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Parent and the Savings Bank shall indemnify such member
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in the best interests of the Parent and its
Subsidiaries and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Article V
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CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of the
Savings Bank shall determine the amounts (or the method of computing the
amounts) to be contributed by the Savings Bank to the Trust established under
this Plan. Such amounts shall be paid to the Trustee at the time of
contribution. No contributions to the Trust by Recipients shall be permitted
except with respect to amounts necessary to meet tax withholding obligations.
5.02 Initial Investment. Any funds held by the Trust prior to investment
in the Common Stock shall be invested by the Trustee in such interest-bearing
account or accounts at the Savings Bank as the Trustee shall determine to be
appropriate.
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5.03 Investment of Trust Assets. Following approval of the Plan by
stockholders of the Parent and receipt of any other necessary regulatory
approvals, the Trust shall purchase Common Stock of the Parent in an amount
equal to up to 100% of the Trust's assets, after providing for any required
withholding as needed for tax purposes, provided, however, that the Trust shall
not purchase more than 268,075 shares of Common Stock, representing 2% of the
aggregate shares of Common Stock sold by the Parent in the Holding Company
reorganization of the Savings Bank ("Conversion"). The Trustee may purchase
shares of Common Stock in the open market or, in the alternative, may purchase
authorized but unissued shares of the Common Stock or treasury shares from the
Parent sufficient to fund the Plan Share Reserve.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.05,
or the decision of the Committee to return Plan Shares to the Parent, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which are not be earned
because of forfeiture by the Recipient pursuant to Section 7.01 shall be added
to the Plan Share Reserve.
Article VI
----------
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees are eligible to receive Plan Share Awards
within the sole discretion of the Committee. Directors shall be awarded Plan
Share Awards in accordance with Section 6.05.
6.02 Allocations. The Committee will determine which of the Employees will
be granted Plan Share Awards and the number of Shares covered by each Award,
provided, however, that in no event shall any Awards be made which will violate
the Charter or Bylaws of the Savings Bank or its Parent or Subsidiaries or any
applicable federal or state law or regulation. In the event Shares are forfeited
for any reason or additional Shares are purchased by the Trustee, the Committee
may, from time to time, determine which of the Employees will be granted Plan
Share Awards to be awarded from forfeited Shares. In selecting those Employees
to whom Plan Share Awards will be granted and the number of shares covered by
such Awards, the Committee shall consider the position duties and
responsibilities of the Employees, the value of their services to the Savings
Bank and its Subsidiaries, and any other factors the Committee may deem
relevant. All actions by the Committee shall be deemed final, except to the
extent that such actions are revoked by the Board. Notwithstanding anything
herein to the contrary, in no event shall any Employee receive Plan Share Awards
in excess of 25% of the aggregate Plan Shares authorized under the Plan.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Sections 6.02 and 6.05 that a Plan Share Award is to be
made, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered by the Award, and the terms upon which
the Plan Shares subject to the award may be earned. The date on which the
Committee so notifies the Recipient shall be considered the date of grant of the
Plan Share Awards. The Committee shall maintain records as to all grants of Plan
Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01, 6.02, and 6.05, no Employee shall have any right or entitlement
to receive a Plan Share Award hereunder, such Awards being at the total
discretion of the Committee and the Board, nor shall the Employees as a group
have such a right. The Committee may, with the approval of the Board (or, if so
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directed by the Board) return all Common Stock in the Plan Share Reserve to the
Savings Bank at any time, and cease issuing Plan Share Awards.
6.05 Awards to Directors. Notwithstanding anything herein to the contrary,
upon the Effective Date, a Plan Share Award consisting of 1,000 Plan Shares
shall be awarded to each Director of the Savings Bank that is not otherwise an
Employee (excluding Director Polly Baca). Such Plan Share Award shall be earned
and non-forfeitable at the rate of one-fifth as of the one-year anniversary of
the Effective Date and an additional one-fifth following each of the next four
successive years during such periods of service as a Director or Director
Emeritus. Further, such Plan Share Award shall be immediately 100% earned and
non-forfeitable in the event of the death or Disability of such Director, or
upon a change in control of the Savings Bank or Parent as provided in Section
7.01(d); provided that such accelerated vesting is not inconsistent with
applicable regulations of the Office of Thrift Supervision ("OTS") or other
appropriate banking regulator at the time of such change in control. Subsequent
to the Effective Date, Plan Share Awards may be awarded to newly elected or
appointed Directors of the Savings Bank by the Committee, provided that total
Plan Share Awards granted to non-employee Directors of the Savings Bank shall
not exceed 30% of the total Plan Share Reserve in the aggregate under the Plan
or 5% of the total Plan Share Reserve to any individual non-employee Director.
Article VII
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EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically state to the
contrary at the time a Plan Share Award is granted, Plan Shares subject to an
Award shall be earned and non-forfeitable by a Recipient at the rate of
one-fifth of such Award following one year after the granting of such Award, and
an additional one-fifth following each of the next four successive years;
provided that such Recipient remains an Employee, Director or Director Emeritus
during such period. Notwithstanding anything herein to the contrary, in no event
shall a Plan Share Award granted hereunder be earned and non- forfeitable by a
Recipient more rapidly than at the rate of one-fifth of such Award as of the one
year anniversary of the date of grant and an additional one-fifth following each
of the next four successive years.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether or not yet earned, in the case of a Recipient who is
discharged from the employ or service of the Parent, Savings Bank or a
Subsidiary for Cause (as hereinafter defined), or who is discovered after
termination of employment or service to have engaged in conduct that would have
justified termination for cause. "Cause" is defined as personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profits, intentional failure to perform stated duties, willful violation of a
material provision of any law, rule or regulation (other than traffic violations
and similar offense), or a material violation of a final cease-and-desist order
or any other action which results in a substantial financial loss to the Parent,
Savings Bank or its Subsidiaries. A determination of "Cause" shall be made by
the Board within its sole discretion.
(c) Exception for Terminations Due to Death or Disability. Notwithstanding
the general rule contained in Section 7.01(a) above, all Plan Shares subject to
a Plan Share Award held by a Recipient whose employment or service with the
Parent, Savings Bank or a Subsidiary terminates due to
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death or Disability, shall be deemed earned and nonforfeitable as of the
Recipient's last date of employment or service with the Parent, Savings Bank or
Subsidiary and shall be distributed as soon as practicable thereafter.
(d) Exception for Termination after a Change in Control. Notwithstanding
the general rule contained in Section 7.01 above, all Plan Shares subject to a
Plan Share Award held by a Recipient shall be deemed to be immediately 100%
earned and non-forfeitable in the event of a "change in control" of the Parent
or Savings Bank and shall be distributed as soon as practicable thereafter;
provided that such accelerated vesting is not inconsistent with applicable
regulations of the OTS or other appropriate banking regulator at the time of
such change in control. For purposes of this Plan, "change in control" shall
mean: (i) the execution of an agreement for the sale of all, or a material
portion, of the assets of the Parent or Savings Bank; (ii) the execution of an
agreement for a merger or recapitalization of the Parent or Savings Bank or any
merger or recapitalization whereby the Parent or Savings Bank is not the
surviving entity; (iii) a change in control of the Parent or Savings Bank, as
otherwise defined or determined by the Office of Thrift Supervision or
regulations promulgated by it; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the 1934 Act and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Parent or Savings Bank by any person, trust, entity or group.
This limitation shall not apply to the purchase of shares of up to 25% of any
class of securities of the Parent or Savings Bank by a tax-qualified employee
stock benefit plan which is exempt from the approval requirements, set forth
under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be
amended. The term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding.
7.02 Accrual and Payment of Dividends. A holder of a Plan Share Award,
whether or not non-forfeitable, shall also be entitled to receive an amount
equal to any cash dividends declared and paid with respect to shares of Common
Stock represented by such Plan Share Award between the date the relevant Plan
Share Award was granted to such Recipient and the date the Plan Shares are
distributed. Such cash dividend amounts shall be held in arrears under the Trust
and distributed upon the earning of the applicable Plan Share Award. Such
payments shall also include an appropriate amount of earnings, if any, of the
Trust with respect to any cash dividends so distributed.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the Recipient
or his Beneficiary, as the case may be, as soon as practicable after they have
been earned. No fractional shares shall be distributed. Notwithstanding anything
herein to the contrary, at the discretion of the Committee, Plan Shares may be
distributed prior to such Shares being 100% earned, provided that such Plan
Shares shall contain a restrictive legend detailing the applicable limitations
of such shares with respect to transfer and forfeiture.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made in cash.
Notwithstanding anything within the Plan to the contrary, upon a Change in
Control whereby substantially all of the Common Stock of the Company shall be
acquired for cash, all Plan Shares associated with Plan Share Awards, together
with any shares representing stock dividends associated with Plan Share Awards,
shall be, at the sole discretion of the Committee, distributed as of
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the effective date of such Change in Control, or as soon as administratively
feasible thereafter, in the form of cash equal to the consideration received in
exchange for such Common Stock represented by such Plan Shares.
(c) Withholding. The Trustee may withhold from any payment or distribution
made under this Plan sufficient amounts of cash or shares of Common Stock
necessary to cover any applicable withholding and employment taxes, and if the
amount of such payment or distribution is not sufficient, the Trustee may
require the Recipient or Beneficiary to pay to the Trustee the amount required
to be withheld in taxes as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Parent, Savings Bank or Subsidiary which employs
or employed such recipient any such amount withheld from or paid by the
Recipient or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection (a)
above, no Plan Shares may be distributed prior to the date which is five (5)
years from the effective date of the Savings Bank's Conversion to the extent the
Recipient or Beneficiary, as the case may be, would after receipt of such Shares
own in excess of ten percent (10%) of the issued and outstanding shares of
Common Stock held by parties other than Parent, unless such action is approved
in advance by a majority vote of disinterested directors of the Board of the
Parent. Any Plan Shares remaining undistributed solely by reason of the
operation of this Subsection (d) shall be distributed to the Recipient or his
Beneficiary on the date which is five years from the effective date of the
Savings Bank's Conversion.
(e) Regulatory Exceptions. No Plan Shares shall be distributed, however,
unless and until all of the requirements of all applicable law and regulation
shall have been fully complied with, including the receipt of approval of the
Plan by the stockholders of the Parent by such vote, if any, as may be required
by applicable law and regulations as determined by the Board.
7.04 Voting of Plan Shares. After a Plan Share Award has become earned and
non- forfeitable, the Recipient shall be entitled to direct the Trustee as to
the voting of the Plan Shares which are associated with the Plan Share Award and
which have not yet been distributed pursuant to Section 7.03, subject to rules
and procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients are not entitled to direct, or
have not directed, the voting of such Shares, shall be voted by the Trustee as
directed by the Committee.
Article VIII
------------
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intention of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, and except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet the obligations of the Trust. In performing their duties, the Trustees
shall have the power to do all things and execute such instruments as may be
deemed necessary or proper, including the following powers:
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(a) To invest up to one hundred percent (100%) of all Trust assets in the
Common Stock without regard to any law now or hereafter in force limiting
investments for Trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustee is authorized to purchase Common Stock from the
Parent or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance with
(a) above in such deposit accounts, and certificates of deposit (including
those issued by the Savings Bank), obligations of the United States
government or its agencies or such other investments as shall be
considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the opinion
of the Trustee reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation
as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account or
held in common with other assets.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the exercise of any power
herein contained, or to maintain bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends
received with respect to shares of Common Stock shall be allocated to accounts
for Recipients, except to the extent that such cash dividends are distributed to
Recipients, if such shares are the subject of outstanding Plan Share Awards, or,
otherwise to the Plan Share Reserve.
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
paid by the Savings Bank.
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8.06 Indemnification. Subject to the requirements and limitations of
applicable laws and regulations, the Parent and the Savings Bank shall
indemnify, defend and hold the Trustee harmless against all claims, expenses and
liabilities arising out of or related to the exercise of the Trustee's powers
and the discharge of their duties hereunder, unless the same shall be due to
their gross negligence or willful misconduct.
Article IX
----------
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the effective date of the Plan resulting from any
split, subdivision or consolidation of the Common Stock or other capital
adjustment, change or exchange of the Common Stock or other increase or decrease
in the number or kind of shares effected without receipt or payment of
consideration by the Parent.
9.02 Amendment and Termination of the Plan. The Board may, by resolution,
at any time, amend or terminate the Plan. The power to amend or terminate the
Plan shall include the power to direct the Trustee to return to the Parent all
or any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards which have not yet been earned by the Recipients to
whom they have been awarded. However, the termination of the Trust shall not
affect a Recipient's right to earn Plan Share Awards and to the distribution of
Common Stock relating thereto, including earnings thereon, in accordance with
the terms of this Plan and the grant by the Committee or the Board.
Notwithstanding the foregoing, no action of the Board may increase (other than
as provided in Section 9.01 hereof) the maximum number of Plan Shares permitted
to be awarded under the Plan as specified at Section 5.03, materially increase
the benefits accruing to Recipients under the Plan or materially modify the
requirements for eligibility for participation in the Plan unless such action of
the Board shall be subject to ratification by the stockholders of the Parent.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Parent, Savings Bank, or any Subsidiary be subject to any claim
for benefits hereunder.
9.04 No Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Recipient to continue in the
employ or service of the Parent, Savings Bank, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to such Recipient.
9.06 Governing Law. The Plan and Trust shall be governed by and construed
under the laws of the State of Colorado, except to the extent that Federal Law
shall be deemed applicable.
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9.07 Effective Date. The Plan shall be effective as of the date of
approval of the Plan by stockholders of the Parent, subject to the receipt of
approval or non-objection by the OTS or other applicable banking regulator, if
applicable.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(i) termination by the Board, (ii) the distribution of all assets of the Trust,
or (iii) 21 years from the Effective Date. Termination of the Plan shall not
effect any Plan Share Awards previously granted, and such Awards shall remain
valid and in effect until they have been earned and paid, or by their terms
expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the Trust established hereby
shall be treated as a grantor trust of the Savings Bank under the provisions of
Section 671 et seq. of the Internal Revenue Code of 1986, as amended, as the
same may be amended from time to time.
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EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
Table of Contents
A Letter from the Chairman 2
Business of the Company 3
Selected Consolidated Financial and Other Data 4
Key Operating Ratios 5
Management's Discussion of 1996 Results 6
Common Stock and Related Matters 16
INDEPENDENT AUDITORS' REPORT 17
Consolidated Statements of Financial Condition 18
Consolidated Statements of Operations 19
Consolidated Statements of Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 24
Consolidating Schedule - Financial Condition 49
Consolidating Schedule - Operations and Retained
Earnings 50
Board of Directors 51
Corporate Information 52
Officers 53
Branch Locations 54
<PAGE>
Dear Stockholders:
First Colorado Bancorp and First Federal Bank had a very successful 1996.
Net earnings were $13.4 million, or $0.72 per share. When you factor out a $7
million special premium we had to pay as a one-time charge to recapitalize the
Savings Association Insurance Fund of the FDIC, net profit was a record $17.7
million.
Loans originated were very strong, at $389 million. Sixty percent of these were
single family mortgage loans, 22% were consumer loans, and the balance were
commercial real estate and construction loans.
Deposits grew by 5% to $1.14 billion.
The Colorado economy remains healthy, and population growth continues. Housing
construction is robust, but doesn't appear to be exceeding demand.
Technology is bringing rapid change to banking. First Federal is commiting
resources to this area. In 1996, we began moving our ATM processing to an
in-house, more efficient system. We have converted to a check imaging system
whereby images of checks are returned to our customers, reducing the amount of
paper generated. We began testing a new platform automation system that will
make our new account opening process more efficient and productive. We are
working on several other projects to take advantage of new technology.
Sadly, we lost two long term associates in 1996, John Newman and Kay McGuire,
who are remembered in this report.
Our mission is the same: to be the best consumer bank in the markets we serve.
We thank you for your support.
Yours truly,
/s/ Malcolm E. Collier
Malcolm E. Collier
Chairman/CEO
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Business of the Company
First Colorado Bancorp, Inc. (the "Company") is a Colorado corporation
organized in September 1995 to facilitate the conversion of First Savings
Capital, M.H.C. (the "Mutual Holding Company") from the mutual to stock form of
ownership and to acquire and hold all of the capital stock of First Federal Bank
of Colorado (the "Bank" or "First Federal Bank"), (collectively, the "Conversion
and Reorganization"). The Mutual Holding Company previously was the majority
stockholder of the Bank and upon consummation of the Conversion and
Reorganization on December 29, 1995, the Mutual Holding Company was merged with
and into the Bank and the Company acquired the Bank as a wholly owned
subsidiary. In connection with the Conversion and Reorganization, the Company
sold 13,403,798 shares of its common stock to the public in an initial public
offering and issued 6,619,539 shares in exchange for the outstanding shares of
the Bank held by persons other than the Mutual Holding Company. As of December
31, 1996, the Company had total assets of $1.5 billion, total deposits of $1.1
billion, and stockholders' equity of $216.6 million, or 14.3% of total assets.
The Company is a unitary savings and loan holding company and has no
significant assets or activities other than holding all of the outstanding
shares of the Bank and a note evidencing the Company's $12.1 million loan to the
Bank's Employee Stock Ownership Plan ("ESOP"), and investing the portion of the
net proceeds from the offering retained by the Company, which as of December 31,
1996, was invested in a loan to the Bank and in deposits in the Bank. During
fiscal 1996, the Company utilized $29.1 million of the net proceeds from the
offering to repurchase its common stock (2.0 million shares) in the open market.
The Company neither owns nor leases any property, but instead uses the premises,
equipment and furniture of the Bank. Currently, the Company does not intend to
employ any persons other than executive officers who are also executive officers
of the Bank, and the Company will utilize the support staff of the Bank from
time to time.
Business of the Bank
First Federal Bank is a federally-chartered stock savings bank, originally
chartered by the State of Colorado as the Cooperative Building and Loan
Association on April 26, 1885. A federal charter was granted to the Bank in
1934. In connection with the Conversion and Reorganization, the Bank changed its
name from First Federal Savings Bank of Colorado to its current name and became
a wholly owned subsidiary of the Company. It is believed to be the oldest
savings institution headquartered in Colorado. The Bank's deposits are now
insured by the Federal Deposit Insurance Corporation ("FDIC") under the Savings
Association Insurance Fund ("SAIF"), and the Bank is regulated by the Office of
Thrift Supervision ("OTS").
The principal business of the Bank is the acceptance of deposits from the
general public and the origination and purchase of mortgage loans for the
purpose of constructing, financing or refinancing one-to-four family residences
and other improved residential and commercial real estate. The Bank is also
active in the origination of home equity loans. Excess liquidity is invested in
investment securities and in mortgage-backed securities.
First Federal Bank primarily serves the Colorado counties of Denver, Adams,
Arapahoe, Jefferson, Douglas, Boulder, Mesa, Delta and Montrose through a
network of 26 offices, providing a full range of retail banking services.
<PAGE>
Selected Consolidated Financial and Other Data
<TABLE>
<CAPTION>
Selected financial condition data As of and for the years ended December 31,
1992 1993 1994 1995 1996*
------------------------ Restated-----------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets $ 974,879 $1,224,119 $1,302,879 $1,482,497 $1,514,088
Mortgage loans receivable, net 477,456 510,319 641,545 795,691 894,561
Non-mortgage loans receivable, net 67,926 96,224 118,398 135,468 166,963
Mortgage-backed and other
asset-backed securities, net:
Available-for-sale, net at market value N/A N/A 29,145 8,506 7,687
Held-to-maturity, at amortized cost 266,842 433,870 374,549 302,380 273,602
Investment securities/FHLB stock:
Available-for-sale, net at market value N/A N/A 39,068 33,246 20,653
Held-to-maturity, at amortized cost 87,303 89,605 31,018 54,362 61,642
Deposits 837,468 1,031,7831 1,018,6872 1,080,289 1,135,823
FHLB advances 15,000 59,450 141,948 125,670 122,515
Other borrowed money 15,183 10,688 6,929 5,543 5,009
Retained earnings/Stockholders' equity 84,7163 98,690 108,014 238,718 216,624
</TABLE>
1Deposits in the amount of $162.2 million were purchased in 1993.
2Deposits in the amount of $45.6 million were sold in 1994.
3Includes $11,429,000 from the net proceeds from the sale of common
stock in July, 1992, in connection with the MHC reorganization.
4Includes $117,620,000 from the net proceeds from the sale of common
stock in December, 1995, in connection with the conversion and
reorganization.
- ------------------------------
<TABLE>
<CAPTION>
Selected operating data
<S> <C> <C> <C> <C> <C>
Interest income $ 75,771 $ 73,841 $ 79,255 $94,263 $104,628
Interest expense 40,798 37,392 42,785 58,863 57,194
-------- -------- -------- -------- --------
Net interest income 34,973 36,449 36,470 35,400 47,434
Provision (credit)for losses on loans 1,297 193 (411) (495) 1,143
-------- -------- -------- -------- --------
Net interest income after provision (credit)
for losses on loans 33,676 36,256 36,881 35,895 46,291
-------- -------- -------- -------- --------
Noninterest income:
Fees and service charges 3,577 3,704 3,818 4,195 4,773
Gain (loss) on sale of loans, net 581 961 146 (1) 218
Gain (loss) on sale of securities, net (256) -- 317 (381) --
Net income from real estate operations 832 214 762 1,222 337
Rental income 174 159 169 171 170
-------- -------- -------- -------- --------
Total noninterest income 4,908 5,038 5,212 5,206 5,498
-------- -------- -------- -------- --------
Noninterest expense:
Compensation 7,279 8,651 10,025 10,666 12,215
Occupancy 2,839 2,977 3,411 3,703 3,805
Provision (credit) for losses on real estate owned 797 172 448 (95) 3
Provision (credit) for losses on Federal funds sold -- -- -- 618 (618)
Professional fees 536 692 642 667 779
Advertising 618 733 837 899 1,002
Printing, supplies and postage 923 1,022 1,038 1,095 1,093
FDIC premiums 1,878 1,820 2,291 2,391 9,392
Other, net 2,300 1,522 1,964 1,373 2,835
-------- -------- -------- -------- --------
Total noninterest expense 17,170 17,589 20,656 21,317 30,506
-------- -------- -------- -------- --------
Earnings before income taxes 21,414 23,705 21,437 19,784 21,283
Income tax expense 7,887 8,850 7,891 7,146 7,911
-------- -------- -------- -------- --------
NET EARNINGS $ 13,527 $ 14,855 $13,546 $12,638 $13,372
======== ======== ======== ======== ========
</TABLE>
- --------------------------------
*All information prior to 1995 relates to the Bank. Information for 1995
represents consolidated financial information for the Company and the Bank as a
result of the Conversion and Reorganization completed December 29, 1995.
Information for 1996 represents consolidated financial information for the
Company.
4
<PAGE>
Key Operating Ratios
<TABLE>
<CAPTION>
At or for the year ended December 31,
1992 1993 1994 1995 1996
Return on average assets (net earnings
<S> <C> <C> <C> <C> <C>
divided by average total assets) 1.40% 1.33% 1.08% 0.92% 0.89%
-- -- -- -- 1.18(1)
Return on average equity (net earnings
divided by average equity) 19.08 16.25 13.03 11.03 5.72
-- -- -- -- 7.57(1)
Average equity to average assets ratio
(average equity divided by average
total assets) 7.35 8.20 8.26 8.36 15.62
Equity to assets at year end 8.69 8.06 8.29 16.10 14.31
Net interest rate spread 3.62 3.21 2.82 2.41 2.68
Net interest margin (net interest income as a
percentage of average interest-earning assets) 3.83 3.43 3.04 2.71 3.33
Net interest income to average assets 3.62 3.27 2.90 2.58 3.17
Non-performing loans to total loans (2) 0.16 0.24 0.16 0.21 0.14
Non-performing assets to total assets 0.70 0.32 0.42 0.27 0.19
Allowance for loan losses to total loans (2) 0.61 0.59 0.44 0.31 0.36
Average interest-earning assets to
average interest-bearing liabilities 104.81 106.21 106.28 106.55 116.16
Noninterest expense/average assets 1.78 1.58 1.64 1.56 2.04
-- -- -- -- 1.57(1)
Net interest income after provision (credit)
for loan losses to noninterest expenses 196.13 206.13 178.55 168.39 151.74
-- -- -- -- 197.11(1)
Number of:
Mortgage loans serviced 9,369 8,991 9,001 9,753 10,285
Non-mortgage loans serviced 4,637 5,230 6,305 7,517 8,515
Deposit accounts 110,481 124,607 122,481 129,482 135,763
Offices (all full service) 20 23 23 25 26
Per Share Data:
Book value per share NM NM NM NM $ 11.91
Earnings per share NM NM NM NM 0.72
Dividends declared per share NM NM NM NM 0.325
Dividend payout ratio NM NM NM NM 46.94%
</TABLE>
- -------------------------------
(1) Excluding the one-time SAIF Special Assessment of $7.0 million before taxes.
(2) Total loans exclude mortgage-backed and other asset-backed securities.
NM -- Not meaningful as a result of the Conversion and Reorganization completed
December 29, 1995.
5
<PAGE>
Management's Discussion of 1996 Results
General
Since the Conversion and Reorganization were not completed until December
29, 1995, the consolidated results of operations of the Company for years ended
prior to December 31, 1996 essentially relate solely to the results of
operations for First Federal Bank. Since the Company is a unitary savings and
loan holding company and First Federal Bank is the primary asset of the Company,
in the discussion to follow the terms "Company" and "Bank" are used
interchangeably.
First Federal Bank's results of operations are primarily dependent on its
net interest income, which is the difference between interest income earned on
its loan, mortgage-backed and other asset-backed securities and investment
portfolios, and its cost of funds, consisting of interest paid on deposits and
borrowings. Operating results also are affected to a lesser extent by the type
of lending, each of which has a different rate and fee structure. The Bank's net
earnings are also affected by its provision for loan losses, as well as the
amount of non-interest income, including loan origination fees and service
charges, and non-interest expense. The Bank's operating expenses principally
consist of employee compensation, occupancy expenses, federal deposit insurance
premiums and other general and administrative expenses. Earnings of the Bank
also are affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Company and the Bank accessed the capital markets in December 1995 and
raised $117.6 million of equity through the initial public offering. These
additional funds were initially used to decrease borrowings and to increase
short-term investments, specifically Federal funds sold. Throughout 1996, those
short-term investments have been reallocated to other interest earning assets,
specifically loans receivable.
Management Strategy
First Federal Bank's management strategy has been to maintain profitability and
a strong capital position through growth at a rate that does not exceed its
ability to generate earnings. The Bank's lending strategy has historically
focused on the origination of traditional one-to-four family mortgages and, to a
lesser extent, multi-family residential and commercial real estate loans. This
focus and relatively conservative underwriting standards are designed to reduce
the risk of losses on its loan portfolio. This lack of diversification in its
asset structure does, however, make the portfolio more susceptible to declines
in real estate values in its market area. The risk has been mitigated in part
through increased purchases of mortgage-backed securities.
First Federal Bank, like most other financial institutions, is subject to
interest rate risk as a result of the difference in the maturity on
interest-bearing liabilities and interest-earning assets and the volatility of
interest rates. Due to their shorter terms to maturity, most deposit accounts
react more quickly to market interest rate movements than do traditional
mortgage loans. Therefore, sharp increases in interest rates, such as occurred
in 1994, will generally adversely affect the Bank's earnings. Conversely, the
Bank will generally benefit during periods of declining or stable interest rates
such as existed in 1995 and 1996.
Since the early 1980's, management has been working to increase the
interest rate sensitivity of the Bank's assets and decrease the sensitivity of
its liabilities, while maintaining asset quality. This strategy has been
accomplished primarily by (i) maintaining a high asset quality, (ii) maintaining
a higher level of interest-earning assets than interest-bearing liabilities,
(iii) originating and purchasing for its own portfolio adjustable rate
one-to-four family residential mortgage ("ARM") loans and mortgage-backed
securities, (iv) originating 30-year fixed-rate mortgages for sale in the
secondary market, (v) expanding the Bank's consumer loan and home equity loan
portfolio, (vi) investing in shorter term investment securities, (vii) managing
deposit rates and maintaining a strong deposit base by providing convenient and
quality services and locations, and (viii) controlling operating expenses.
Other aspects of management's current strategy include the following:
Loan diversification. First Federal Bank will continue to actively seek to
originate consumer loans at its branch offices, most of which have
historically consisted of home equity loans. Consumer loans generally have
shorter terms and higher rates than home mortgages. Consumer loans
originated by the Bank as of December 31, 1996 comprised 11.0% of total
assets, and the Bank will attempt to increase such loans to approximately
15% of assets. In this regard, First Federal has targeted its marketing
efforts toward consumer loan originations and provided branch office
personnel with specific goals for consumer loan origination. Furthermore,
the Bank is actively pursuing the origination, on a selective basis, of
loans secured by multi-family dwellings and commercial real estate located
in its primary market area. The Bank believes it has an opportunity to
selectively originate quality, low loan-to-value, commercial real estate
loans in its local market area, which generally yield a higher rate of
interest and are at adjustable rates. The success of such strategy will
depend on a number of factors, including, but not limited to, consumer
demand, pricing of the competition, and general economic conditions.
6
<PAGE>
Deposits. First Federal Bank will continue to monitor its deposit costs by
adjusting the interest rates offered on its deposit accounts in accordance
with market conditions. The Bank will continue to stress checking and money
market type accounts that are not as interest rate sensitive as
certificates of deposit.
Property. During the past several years, the Bank has invested significant
amounts in building new offices and in remodeling several of its existing
offices. After constructing two new branch offices in 1995 and opening one
new branch office in 1996, First Federal Bank currently has plans to open
one new branch office in 1997.
Profitability. For the year ended December 31, 1996, First Federal Bank had
a net interest rate spread of 2.68%. This increased spread over fiscal 1995
resulted in increased profits. Although the net interest rate spread may
decrease as the cost of funds rise for deposits and borrowings, the Bank
believes that its net interest rate spread will remain favorable as it
continues to implement its strategies. The Bank intends to further enhance
its profits by further reducing its operating expenses and maintaining
asset quality, thereby limiting the need for additional increases in the
allowance for loan losses.
The Bank's ratio of non-interest expenses to average assets was 1.57% for
the year ended December 31, 1996, excluding the one-time SAIF special
assessment of $7.0 million. An objective of the Bank for 1997 is to
maintain and, if possible, reduce this operating ratio. During the past
several years, however, the Bank has added additional employees as a result
of growth, expansion of services and increased regulatory reporting.
The Bank will seek to maintain asset quality through the continued
origination of single family mortgages, underwritten on the same
conservative basis as in the past. In connection with commercial real
estate loans, the Bank has implemented several changes in an effort to
improve asset quality, including: (i) reducing amortization terms while
increasing the frequency of requiring balloon payments on new loans, (ii)
reducing loan-to-value ratios to an average of approximately 70% and (iii)
increasing periodic inspections of collateral with the objective of
addressing and resolving any deterioration of the collateral with the
borrower as it arises. Profitability is also dependent upon a number of
factors beyond the control of the Bank, including general and local
economic conditions and governmental regulations.
Net Portfolio Value
OTS regulations require the Bank to measure its interest rate risk ("IRR")
by computing the net present value of its cash flows from assets, liabilities
and off-balance sheet items ("NPV") in the event of a range of assumed changes
in market interest rates. These computations estimate the effect on the Bank's
NPV of sudden and sustained 1% to 4% increases and decreases in market interest
rates. The regulations provide that the OTS will calculate the IRR component
quarterly for each institution from the institution's Thrift Financial Reports.
A resulting change in NPV of more than 2% of the estimated market of its assets
will require an institution to deduct from its capital 50% of the excess change.
The OTS has deferred for the present time the date on which savings institutions
must deduct the IRR component from capital.
The following table presents the Bank's NPV as of December 31, 1996, as
calculated by the OTS based on information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Net Portfolio Value
----------------------------------------------------------------
(Dollars in thousands)
Change in NPV
Changes in Interest Rates as a % of
in Basis Points Estimated Market
(Rate Shock) Amount $ Change % Change Value of Assets
- ---------------------- ------- ------ -------- -------------------
<S> <C> <C> <C> <C>
+400 $ 113,259 $ (95,366) (46)% (5.59)%
+300 139,840 (68,786) (33) (3.94)
+200 165,802 (42,824) (21) (2.39)
+100 189,634 (18,991) (9) (1.03)
Static 208,626 -- -- --
- -100 223,349 14,724 +7 +0.76
- -200 233,579 24,893 +12 +1.26
- -300 242,213 33,587 +16 +1.66
- -400 253,713 45,088 +22 +2.21
</TABLE>
7
<PAGE>
Net Portfolio Value
As the table shows, increases in interest rates would result in net
decreases in the Bank's NPV, while decreases in interest rates will result in
relatively smaller net increases in the Bank's NPV. Based upon the above
calculations as of December 31, 1996, the Bank would be required to deduct
approximately $6.0 million from total capital for purposes of calculating the
Bank's risk-based capital requirement. (Bank's NPV decreases by 2.39% if
interest rates increase by 200 basis points.) Certain shortcomings are inherent
in the methodology used in the table. Modeling changes in NPV requires the
making of certain assumptions that may tend to oversimplify the manner in which
actual yields and costs respond to changes in market interest rates. First, the
model assumes that the composition of the Bank's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. Second, the model assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration to maturity of repricing of specific assets and liabilities.
Accordingly, although the NPV measurements do provide an indication of the
Bank's interest rate risk exposure at a particular point in time, such
measurements are not intended to provide a precise forecast of the effect of
changes in market interest rates on the Bank's net interest income.
The Bank also measures interest rate risk by computing estimated changes in
its net interest income ("NII") over a four quarter period. These computations
estimate the effect on the Bank's NII of sudden and sustained 1% to 4% increases
and decreases in market interest rates.(The OTS does not provide estimated
changes in the Bank's NII.)
Computations of prospective effects of hypothetical interest rates changes
are based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit runoffs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
rates, while rates on other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result in the event of an interest
rate increase as the ability of many borrowers to service their debt may
deteriorate.
The Bank's Board of Directors is responsible for reviewing the Bank's asset
and liability policies. The Board meets quarterly to review interest rate risk
and trends, as well as liquidity and capital ratios and requirements. In
connection with NPV and NII calculations, the Bank's Board of Directors has
adopted an interest rate risk policy which establishes certain percentage
changes in the Bank's NPV and NII that the Board deems to be acceptable in the
event of increases or decreases in interest rates. The Bank's management is
responsible for administering the policies and determinations of the Board of
Directors with respect to the Bank's asset and liability goals and strategies.
Management expects that the Bank's asset and liability policies and strategies
will continue as described above so long as competitive and regulatory
conditions in the financial institution industry and market interest rates
continue as they have in recent years.
Analysis of Net Interest Income
General. First Federal Bank's earnings depend primarily on its net interest
income. Net interest income is affected by (i) the amount of interest-earning
assets and interest-bearing liabilities, and (ii) the difference ("interest rate
spread") between rates of interest earned on interest-earning assets and rates
paid on interest-bearing liabilities. When interest-earning assets approximate
or exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income.
Rate/Volume Analysis.
Changes in net interest income are attributable to three factors: a change
in volume of an interest-earning asset or interest -bearing liability, a change
in rates or a change caused by a combination of changes in volume and rate. The
table on page 9 sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in volume (changes in average
volume multiplied by old rate); (2) changes in rates (changes in rate multiplied
by old average volume); and (3) changes in rate-volume (changes in rate
multiplied by changes in average volume).
8
<PAGE>
Rate Volume Analysis
<TABLE>
<CAPTION>
Rate/Volume Analysis
Year Ended December 31,
1994 vs. 1995 1995 vs. 1996
Increase (Decrease) due to: Increase (Decrease) due to:
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ ---- ------ ---- ------ -----
(In thousands)
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loan portfolio $12,964 $ 759 $ 231 $13,954 $ 7,795 $ 1,124 $ 155 $ 9,074
Non-mortgage loan portfolio 1,394 18 3 1,415 2,222 352 75 2,649
Mortgage/Asset-backed
securities (3,917) 3,905 (661) (673) (2,939) 59 (3,332)
Investment securities/
FHLB Stock (13) 542 (2) 527 958 (26) (5) 927
Fed Funds sold and other
interest-earning assets (217) 4 (2) (215) 442 172 433 1,047
-------- -------- -------- -------- -------- -------- -------- --------
Total change in interest
income $ 10,211 $ 5,228 ($ 431) $15,008 $ 8,478 $ 1,170 $ 717 $ 10,365
======== ======== ======== ======== ======== ======== ======== ========
Interest expense:
Time Deposits $ 2,429 $ 6,585 $ 648 $ 9,662 $ 1,245 ($ 269) ($ 10) $ 966
Other Deposits (152) 1,956 (24) 1,780 356 (628) (16) (288)
Borrowings 2,615 1,401 620 4,636 (2,223) 33 (2,347)
-------- -------- -------- -------- -------- -------- -------- --------
Total change in interest
expense $ 4,892 $ 9,942 $ 1,244 $ 16,078 ($ 622) ($ 1,054) $ 7 ($ 1,669)
======== ======== ======== ======== ======== ======== ======== ========
NET CHANGE IN NET
INTEREST INCOME: $ 5,319 ($ 4,714) ($ 1,675) ($ 1,070) $ 9,100 $ 2,224 $ 710 $ 12,034
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Comparison of Financial Condition:
1996-1995
The total assets of the Company increased $31.6 million, or 2.1%, from
$1,482.5 million at December 31, 1995 to $1,514.1 million at December 31, 1996.
This increase is due primarily to an increase in loans receivable of $130.4
million, or 14.0%, much of it due to the production from the Bank's
correspondent lending program. Cash and cash equivalents decreased $64.5
million, or 56.7%, from $113.7 million at December 31, 1995 to $49.2 million at
December 31, 1996, primarily as the result of reallocating the net proceeds from
the initial public offering consummated December 29, 1995, into other interest
earning assets, primarily loans receivable. Investment securities also
decreased, from $78.8 million at December 31, 1995, to $72.8 million at December
31, 1996,a decrease of $6.0 million, or 7.7%, as did mortgage-backed and other
asset-backed securities, which decreased $29.6 million, or 9.5%, from $310.9
million at December 31, 1995 to $281.3 million at December 31, 1996 as the Bank
invested maturing mortgage-backed and other asset-backed securities in loans
receivable.
As of December 31, 1996, non-performing assets totalled $2.9 million, or
0.19% of total assets as compared to $4.0 million, or 0.27% of total assets, as
of December 31, 1995. The decrease was due primarily to the sale of real estate
property previously held as REO and to the total recovery of a non-performing
investment.
The increase in liabilities primarily occurred in the deposit portfolio,
which increased $55.5 million, or 5.1%, from $1,080.3 million at December 31,
1995, to $1,135.8 million at December 31, 1996, due primarily to reinvestment of
interest paid on existing deposits. Total advances from the Federal Home Loan
Bank ("FHLB") decreased by $3.2 million, or 2.5%, from $125.7 million as of
December 31, 1995, to $122.5 million as of December 31, 1996.
Stockholders' equity decreased $22.1 million, or 9.3%, due to net earnings
of $13.4 million for the year ended December 31, 1996, being offset by treasury
stock purchases totalling $29.1 million and by dividends declared of $6.3
million. The Company also purchased $3.8 million of stock for the 1996
Management Stock Bonus Plan, which reduced stockholders' equity.
9
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth for the periods indicated, information regarding
the total dollar amounts of interest income from interest-earning assets and the
resulting average yields, the total dollar amount of interest expense on
interest bearing liabilities and the resulting average costs, net interest
income, interest rate spread, the net yield earned on interest-earning assets,
and the ratio of total interest-earning assets to total interest-bearing
liabilities.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------------
1994 1995
------------------------------------------- ----------------------------------------
Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-------------------------(dollars in thousands)--------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loan portfolio, net (1) $ 568,665 $ 42,683 7.51% $ 741,381 $56,637 7.64%
Non-mortgage loan portfolio, net 110,571 9,067 8.20 127,567 10,482 8.22
Mortgage/asset backed
securities, net 423,941 23,128 5.46 352,148 22,455 6.38
Investment securities/
FHLB stock 80,606 3,986 4.95 80,343 4,513 5.62
Federal funds sold and other
interest-earning assets 15,811 391 2.47 7,051 176 2.50
Interest on property tax
certificates 46 0 0.00 27 0 0.00
---------- ---------- ---- ---------- ------- ----
Total interest-earning assets $1,199,640 $ 79,255 6.61% $1,308,517 $94,263 7.20%
========== ==== ======= ====
Noninterest-earning assets 58,905 61,376
---------- ----------
Total assets $1,258,545 $1,369,893
========== ==========
Interest-bearing liabilities:
Time deposits $ 562,631 $ 24,670 4.38% $ 618,034 $34,332 5.56%
Other deposits 453,879 12,202 2.69 448,234 13,982 3.12
Borrowings 112,194 5,913 5.27 161,808 10,549 6.52
---------- ---------- ---- ---------- ------- ----
Total interest-bearing
liabilities $1,128,704 $ 42,785 3.79% $1,228,076 $58,863 4.79%
========== ==== ======= ====
Noninterest-bearing liabilities 25,918 27,287
---------- ----------
Total liabilities $1,154,622 $1,255,363
Retained earnings 103,923 114,530
---------- ----------
Total liabilities and
retained earnings $1,258,545 $1,369,893
========== ==========
Net interest income $ 36,470 $35,400
========== =======
Net interest rate spread 2.82% 2.41%
==== ====
Net interest margin (2) 3.04% 2.71%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 106.28% 106.55%
====== ======
Ratio of interest-earning assets to interest
bearing liabilities
</TABLE>
<TABLE>
<CAPTION>
At
Yea Ended December 31, December 31,
--------------------------------------------
1996 1996
--------------------------------------------------------------------------
Average Average
Balance Interest Yield/Cost Balance Yield/Cost
-------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Mortgage loan portfolio, net (1) $ 843,414 $ 65,711 7.79% $ 894,561 7.69%
Non-mortgage loan portfolio, net 154,610 13,131 8.49 166,963 8.59
Mortgage/asset backed
securities, net 306,055 19,123 6.25 281,289 6.50
Investment securities/
FHLB stock 97,403 5,440 5.59 82,295 5.55
Federal funds sold and other
interest-earning assets 24,746 1,223 4.94 27,783 3.07
Interest on property tax
certificates 13 0 0.00 6 0.00
---------- ------ ---- ---------- ----
Total interest-earning assets $1,426,241 $ 104,628 7.34 $1,452,897 7.35
Noninterest-earning assets 69.015 61,191
---------- ------ ---- ---------- ----
Total assets $1,495,256 $1,514,088
========== ==========
Interest-bearing liabilities:
Time deposits $ 640,439 35,298 5.51 $ 664,216 5.66
Other deposits 459,633 13,694 2.98 471,607 3.02
Borrowings 127,710 8,202 6.42 127,524 6.42
---------- ------ ---- ---------- ----
Total interest-bearing
liabilities $1,227,782 $ 57,194 4.66 $1,263,347 4.75
=========== ==== ====
Noninterest-bearing liabilities 33,864 34,117
---------- ----------
Total liabilities $1,261,646 $1,297,464
Retained earnings 233,610 216,624
---------- ----------
Total liabilities and
retained earnings $1,495,256 $1,514,088
========== ==========
Net interest income $ 47,434
=============
Net interest rate spread 2.68% 2.60%
==== ====
Net interest margin (2) 3.33%
====
Ratio of average interest-earning assets
to average interest-bearing liabilities 116.16%
======
Ratio of interest-earning assets to interest-
bearing liabilities 115.00%
======
</TABLE>
(1)Excludes income earned on loan origination and commitment fees. Average
balances include non accrual loans.
(2)Net interest margin represents neet interest income as a percentage of
average interest-earning assets.
10
<PAGE>
Comparison of Financial Condition and Operating Results, 1996-1995
Comparison of Operating Results:
1996-1995
General
Net earnings for the year ended December 31, 1996, increased $734,000, or
5.8%, to $13.4 million from $12.6 million for the year ended December 31, 1995.
The increase was primarily due to an increase in net interest income being
significantly offset by an increase in net noninterest expense. The substantial
increase in net interest income can be attributed primarily to the increase in
capital, as the proceeds from the conversion and reorganization of the Company
increased the average balance of interest-earning assets. The increase in net
noninterest expense can be attributed primarily to the FDIC premium,
specifically a one-time SAIF special assessment. President Clinton signed
legislation on September 30, 1996 requiring all banks and savings associations
with accounts insured by SAIF (administered by the FDIC) to pay a special
assessment to recapitalize the fund. The Bank's assessment was $7.0 million
before taxes ($4.3 million after taxes), which was charged to earnings during
the third quarter of 1996. As a result of the recapitalization, the Bank
believes the SAIF premium it will pay in future years will be reduced
significantly from its current assessment, which will have a positive effect on
future earnings.
Net Interest Income
Net interest income increased $12.0 million, or 34.0%, from $35.4 million
during the year ended December 31, 1995 to $47.4 million during the year ended
December 31, 1996. This increase was primarily due to an increase in total
interest income of $10.4 million, or 11.0%, from $94.3 million for the year
ended December 31, 1995 to $104.6 million for the year ended December 31, 1996.
This increase was primarily the result of an increase in interest income on
loans receivable from $67.1 million in the year ended December 31, 1995 to $78.8
million in the year ended December 31, 1996, due to an 18 basis point increase
in the interest rate earned on loans receivable and to an increase in the
average balance of loans receivable of $129.1 million, or 14.9%, to $998.0
million for the year ended December 31, 1996, from $868.9 million for the year
ended December 31, 1995. The increase in the average balance of loans receivable
resulted primarily from a strong economy in the Company's market area coupled
with an aggressive program to attract new loan originations in both the mortgage
and nonmortgage portfolios. Interest income on investment securities (including
those available for sale) also increased, from $4.5 million in the year ended
December 31, 1995 to $5.4 million in the year ended December 31, 1996, due to
the increase in the average portfolio balance of $17.1 million, or 21.2%,to
$97.4 million for the year ended December 31, 1996, from $80.3 million for the
year ended December 31, 1995. The increase in the average investment portfolio
balance was primarily due to the investment of proceeds from the offering. These
increases in interest income were partially offset by a decrease in interest
income on mortgage-backed and other asset-backed securities (including those
available for sale) of $3.3 million, or 14.8%, to $19.1 million for the year
ended December 31, 1996, from $22.4 million for the year ended December 31,
1995, due to the decrease in the average balance of $46.1 million, or 13.1%, to
$306.1 million for the year ended December 31, 1996, from $352.2 million for the
year ended December 31, 1995. The decrease in the average balance of
mortgage-backed and other asset-backed securities is due to management's
decision to reinvest the cash flows from those securities in loans receivable.
The increase in interest income was combined with a decrease in total
interest expense of $1.7 million, or 2.8%, from $58.9 million for the year ended
December 31, 1995, to $57.2 million for the year ended December 31, 1996.
Interest paid on deposits increased $678,000, or 1.4%, to $49.0 million for the
year ended December 31, 1996, from $48.3 million for the year ended December 31,
1995. This increase was primarily due to the increase in the average balance of
the deposits of $33.8 million, or 3.2%, to $1,100.1 million for the year ended
December 31, 1996, from $1,066.3 million for the year ended December 31, 1995,
offset somewhat by a decrease of eight basis points in the cost of deposits.
This increase in interest paid on deposits was offset by a decrease in interest
paid on borrowed funds of $2.3 million, or 22.2%, to $8.2 million for the year
ended December 31, 1996, from $10.5 million for the year ended December 31,
1995, due to a decrease in the average balance of FHLB advances and other
borrowed money of $34.1 million, or 21.1%, to $127.7 million for the year ended
December 31, 1996, from $161.8 million for the year ended December 31, 1995.
This decrease reflects the use of a portion of the proceeds from the Conversion
and Reorganization to repay borrowings.
Provision (Credit) for Losses on Loans
In determining the provision for losses on loans, management analyzes,
among other things, the Bank's loan portfolio, market conditions and the Bank's
market area. The provision (credit) for losses on loans increased by $1.6
million in 1996 compared to 1995, from a credit of $495,000 for the year ended
December 31, 1995 to a provision of $1.1 million for the year ended December 31,
1996. The credit for the year ended December 31, 1995 was due primarily to the
favorable market conditions in the Colorado real estate market, resulting in the
historical loss factors used for the general loss provision being adjusted
downward and the excess reserve being recognized as a credit for losses on
loans. The provision for the year ended December 31, 1996 reflects management's
recognition of and desire to appropriately reserve for the Bank's loan growth.
Management believes that the allowance for loan losses is adequate at December
31, 1996. There can be no assurances that the allowance will be adequate to
cover losses which may in fact be realized in the future and that additional
provisions will not be required.
11
<PAGE>
Comparison of Financial Condition and Operating Reuslts, cont.
Noninterest Income
Noninterest income increased by $292,000, or 5.6%, from $5.2 million for
the year ended December 31, 1995 to $5.5 million for the year ended December 31,
1996. This increase was primarily the result of an absence of any losses on the
sale of mortgage-backed and other asset-backed securities in 1996. During the
first quarter of 1995, the Bank sold available-for-sale mortgage-backed
securities for a loss of $381,000. Furthermore, the Bank experienced an increase
in the gain on the sale of loans of $219,000 due to increased loan activity, and
an increase in fees and service charges of $578,000 due to increased transaction
account activity, offset by a decrease in net income from real estate operations
of $885,000, primarily due to a gain on the sale of real estate owned in the
first quarter of 1995. There were no comparable sales of mortgage-backed
securities or real estate owned during the year ended December 31, 1996.
Noninterest Expense
Noninterest expense increased by $9.2 million, or 43.1% for the year ended
December 31, 1996 as compared to the year ended December 31, 1995. The majority
of the increase related to the one-time special SAIF assessment expense of $7.0
million, as previously discussed. The other major increases occurred in the
other, net, noninterest expense category ($1.5 million) and in compensation
expense ($1.5 million). Additional increases in occupancy expense of $102,000
due to depreciation and other office expenses associated with the three new
offices opened in 1995 and 1996, in advertising expense of $103,000 due to
additional advertising programs in 1996, and in professional fees of $112,000
due primarily to stockholder related matters, were offset by the decrease of
$1.2 million in the provision for losses on federal funds sold. The Bank expects
additional occupancy expense due to the construction of one new branch office in
fiscal 1997.
During the year ended December 31, 1995, the Bank recognized income of
$809,000 in settlement of an IRS audit as an offset to other, net, noninterest
expense, which represents the majority of the $1.5 million total increase in
other, net, noninterest expense for the year periods ending December 31, 1996
and 1995. Additional items impacting other, net, noninterest expense included an
increase in income from a subsidiary, First Savings Insurance Services, of
$230,000 in 1996 and a gain on the sale of fixed assets of $180,000 in 1995,
which offset 1995 other, net, noninterest expense.
In addition, the Bank experienced increased compensation costs during the
year ended December 31, 1996, primarily due to an increase of $585,000 in
employee compensation, resulting from increased staffing due to the added
offices, and from an increase of $963,000 related to compensation expense
recognized on stock benefit plans due to the price appreciation of the fair
market value of common stock of the Company held by such plans. In 1995 the ESOP
purchased 1,340,379 shares with a 10 year loan from the Company. Shares are
expensed as they are released. In the third quarter of 1996, the Company began
experiencing additional compensation expense due to the adoption by shareholders
of a Management Stock Bonus Plan ("MSBP") whereby various officers and directors
of the Bank were granted restricted stock over a five-year period. The MSBP
purchased shares of common stock of the Company for the plan in open market
purchases. The MSBP shares are being expensed over a five year period beginning
July 24, 1996 based on the fair market value as of that date.
The provision for losses on federal funds sold booked in 1995 resulted when
the Superintendent of Banks of the State of New York took possession of the
business and property of Nationar, a New York-chartered trust company. The Bank
wrote down its $1.0 million federal funds sold to Nationar to $382,500 and filed
a proof of claim for the monies due. A partial payment on the claim totaling
$400,000 was received in June, 1996 and resulted in a recovery of $18,000 in the
second quarter of 1996. Final payment on the claim totaling $600,000 was
received in December, 1996 and resulted in a recovery of $600,000 in the fourth
quarter of 1996 and of $618,000 for the year ended December 31, 1996.
Income Tax Expense
Federal and state income taxes increased by $765,000, or 10.7%, for the
year ended December 31, 1996 compared to the year ended December 31, 1995, due
primarily to the increase in earnings before income taxes.
12
<PAGE>
Comparison of Financial Condition and Operating Results, cont.
Comparison of Operating Results:
1995-1994
General
Net earnings for the year ended December 31, 1995 decreased $0.9 million,
or 6.7%, to $12.6 million from $13.5 million for the year ended December 31,
1994. The decrease was primarily due to a decrease in net interest income
combined with an increase in noninterest expense.
Net Interest
Income Net interest income decreased $1.1 million, or 2.9%, from $36.5
million during the year ended December 31, 1994 to $35.4 million during the year
ended December 31, 1995. This decrease was due primarily to an increase in total
interest expense of $16.1 million, or 37.6%, from $42.8 million for the year
ended December 31, 1994 to $58.9 million for the year ended December 31, 1995.
This increase was the result of an increase in interest paid on deposits from
$36.9 million in the year ended December 31, 1994 to $48.3 million in the year
ended December 31, 1995, and an increase in other interest expense from $5.9
million in the year ended December 31, 1994 to $10.5 million for the year ended
December 31, 1995. These increases resulted from increased interest rates
throughout 1994, impacting 1995 interest expense, coupled with a $49.8 million,
or 4.9%, increase in the average balance of deposits during the year ended
December 31, 1995 compared to the year ended December 31,1994, and a $49.6
million, or 44.2% increase in the average balance of borrowings during the year
ended December 31, 1995 compared to the year ended December 31, 1994.
The increase in total interest expense was partially offset by an increase
in total interest income, which increased by $15.0 million, or 18.9%, from $79.3
million for the year ended December 31, 1994 to $94.3 million for the year ended
December 31, 1995. The major interest income category, interest on loans
receivable, increased by $15.4 million, or 29.7%, for the year ended December
31, 1995 compared to the year ended December 31, 1994 due to the increases in
the interest rate earned on loans receivable and in the average balance of loans
receivable, which increased $189.7 million, or 27.9%, to $868.9 million for the
year ended December 31, 1995, from $679.2 million for the year ended December
31, 1994. The Bank was able to increase loan originations during the year ended
December 31, 1995, primarily due to increased correspondent lending
relationships. Interest income on mortgage-backed and other asset-backed
securities decreased $673,000, or 2.9%, for the year ended December 31, 1995,
compared to the year ended December 31, 1994, due to a decrease of $71.8
million, or 16.9% in the average balance of mortgage-backed and other
asset-backed securities, from $423.9 million for the year ended December 31,
1994 to $352.1 million for the year ended December 31, 1995, which was partially
offset by the general increase in interest rates.
Provision (Credit) for Losses on Loans
The provision (credit) for losses on loans decreased by $84,000 from a
credit of $411,000 for the year ended December 31, 1994, to a credit of $495,000
for the year ended December 31, 1995. This decrease was due primarily to the
favorable market conditions in the Colorado real estate market, resulting in the
historical loss factors used for the general loss provision being adjusted
downward and the excess reserve being recognized as a credit for losses on
loans.
Noninterest Income
Noninterest income remained stable at $5.2 million for the years ended
December 31, 1994 and 1995. Increases in net income from real estate operations
of $460,000 and in income from fees and service charges of $377,000 were offset
by a $147,000 decrease in income from sales of loans and a $698,000 decrease in
income from sales of securities. Net income from real estate operations
increased due to the profit recognized on the sale of REO during the period,
while the decrease in gain (loss) on sales of securities, net, was due to a gain
of $317,000 in 1994 from the sale of FHLMC stock coupled with a loss of $381,000
in 1995 from the sale of mortgage-backed securities.
Noninterest Expense
Noninterest expense increased by $661,000, or 3.2% for the year ended
December 31, 1995 as compared to the year ended December 31, 1994. Increases in
compensation expense of $641,000, in occupancy expenses of $292,000, and in the
provision for losses on Federal funds sold of $618,000 were offset by decreases
in the provision (credit) for losses on REO or in judgement of $543,000 and in
other noninterest expense, net, of $591,000 to account for the majority of the
increase in noninterest expense. Minor increases in other noninterest expense
categories also contributed to the total increase.
The Bank experienced increased compensation costs during the year ended
December 31, 1995 due to an increase of $345,000 in the contributions to
employee benefit plans and of $361,000 in employee compensation. Occupancy cost
increased primarily due to the depreciation expense and other office expense
associated with the five new offices opened in 1994 and 1995.
13
<PAGE>
Comparison of Financial Condition and Operating Results, Cont.
The provision for losses of Federal funds sold resulted when the
Superintendent of Banks of the State of New York took possession of the business
and property of Nationar, a New York-chartered trust company. The Bank wrote
down its $1.0 million Federal funds sold to Nationar to $382,500 and filed a
proof of claim for the monies due. The claim subsequently settled in full. The
decrease in the provision (credit) for losses on REO resulted primarily from the
$2.6 million decrease in the balance of REO from December 31, 1994 to December
31, 1995.
Other noninterest expense, net, included the recognition during the year
ended December 31, 1995, of $809,000 income in settlement of an IRS audit,
representing interest due on an advance payment on taxes made in 1991. Also
included during the year ended December 31, 1995 was a profit of $169,000 from
the sale of a former branch office site in Montrose. The change in other
noninterest expense, net, was offset when compared to the year ended December
31, 1994, because $454,000 was recognized in 1994 as profit from the sale of
branch offices. This profit resulted from a sale in 1994 of three outlying
offices with a deposit base of $45.6 million, as the Bank consolidated its
office network in the Denver metropolitan area.
Income Tax Expense
Federal and state income taxes decreased by $745,000, or 9.4% for the year
ended December 31, 1995 compared to the year ended December 31, 1994, due
primarily to the decrease in earnings before income taxes.
Liquidity and Capital Resources
First Federal Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgaged-backed and other
asset-backed securities and, to a lesser extent, advances from the FHLB of
Topeka. While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by interest rates, economic conditions,
competition and, most recently, the restructuring of the thrift industry. In
1995 the Company and the Bank accessed the capital markets to raise $117.6
million in funds from an initial public offering.
The primary investment activity of the Bank is the origination of mortgage
loans. During the years ended December 31, 1994, 1995 and 1996, the Bank
originated mortgage loans in the amounts of $247 million, $275.6 million, and
$299.8 million, respectively. The Bank also purchases loans and mortgage-backed
and other asset-backed securities on occasion to reduce liquidity not otherwise
required for local loan demand. Purchases of mortgage loans and mortgage-backed
and other asset-backed securities in those same periods totalled $155.1 million,
$17.9 million, and $34.1 million respectively. Other investment activities
include investment in short term certificates of deposits of other financial
institutions, FHLB of Topeka stock, consumer loans and, to a lesser extent, U.S.
government and federal agency obligations.
First Federal Bank has other sources of liquidity if a need for additional
funds arises. Additional sources of funds include FHLB of Topeka advances which,
as of December 31, 1996, totalled $122.5 million. If needed, the Bank has
additional borrowing ability with the FHLB of Topeka. The Bank also has
borrowing authority with two Colorado commercial banks in an amount up to $8
million. First Federal also established a finance subsidiary in 1988 for the
purpose of borrowing funds through participation in a Real Estate Mortgage
Investment Conduit ("REMIC"). As of December 31, 1996, $5.2 million of the REMIC
bond was outstanding. Other sources of liquidity can be found in the Bank's
statement of financial condition, such as investment securities maturing within
one year and unencumbered mortgage-backed securities that are readily
marketable.
First Federal Bank is required to maintain minimum levels of liquid assets
as defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
minimum ratio is currently 5.0%. The Bank's liquidity ratios were 8.7%, 13.0%
and 9.7% as of December 31, 1994, 1995 and 1996, respectively.
The Bank had tangible, core and risk-based capital ratios of 11.87%, 12.03%
and 23.84%, respectively, at December 31, 1996, which greatly exceeded the OTS's
respective minimum requirements of 1.50%, 3.00% and 8.00%, respectively. The
Bank was classified as a "well capitalized" institution at December 31, 1996.
First Federal Bank's most liquid assets are cash and cash equivalents,
which include investments in highly liquid short-term investments. The level of
these assets are dependent on the Bank's operating, financing and investing
activities during any given period. At December 31, 1994, 1995 and 1996, cash
and cash equivalents totalled $30.2 million, $113.7 million and $49.2 million,
respectively.
First Federal Bank anticipates that it will have sufficient funds available
to meet its current commitments. As of December 31, 1996, the Bank had
commitments to fund loans and standby letters of credit of $52.4 million.
Certificates of deposit which are scheduled to mature in one year or less as of
December 31, 1996, totalled $407.6 million. Management believes that a
significant portion of such deposits will remain with the Bank.
14
<PAGE>
Impact of Inflation and Accounting Standards
Impact of Inflation
The Consolidated Financial Statements of the Company, presented elsewhere
herein, have been prepared in accordance with generally accepted accounting
principles, which, with the exception of market value accounting for
available-for-sale securities under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, generally 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 and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary in nature. As a result,
interest rates have a greater impact on the Company'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 prices of goods and services.
Impact of New Accounting Standards
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The FASB issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS No. 125) and SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125 (SFAS No. 127) in June and December 1996,
respectively. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
It requires entities to recognize servicing assets and liabilities for all
contracts to service financial assets,. unless the assets are securitized and
all servicing is retained. The servicing assets will be measured initially at
fair values, and will be amortized over the estimated useful lives of the
servicing assets. In addition, the impairment of servicing assets will be
recognized through a valuation allowance. SFAS No. 125 also addresses the
accounting and reporting standards for securities lending, dollar-rolls,
repurchase agreements and similar transactions. The Company will prospectively
adopt SFAS No. 125 on January 1, 1997. However, in accordance with SFAS No. 127,
the Company will defer adoption of the standard as it relates to securities
lending, dollar-rolls, repurchase agreements and similar transactions until
January 1, 1998. The Company does not expect the adoption of SFAS No. 125 to
have a material impact on its consolidated financial statements.
Earnings per Share.
On March 3, 1997, the FASB issued SFAS No. 128, Earnings per Share (SFAS
No. 128) which is effective for financial statements issued for periods ending
after December 15, 1997. SFAS No. 128 replaces APB Opinion 15, Earnings per
Share, and simplifies the computation of earnings per share (EPS) by replacing
the presentation of primary EPS with a presentation of basic EPS. In addition,
the Statement requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted EPS. The computation of EPS will be compatible with
international standards, as the International Accounting Standards Committee
recently issued a comparable standard.
15
<PAGE>
Common Stock and Related Matters
First Colorado Bancorp, Inc.,
Common Stock and Related Matters
The Company's offering of common stock closed on December 29, 1995. Shares
of common stock were issued and sold in that offering at $10.00 per share.
As of February 28, 1997, the Company had 4,128 stockholders of record and
16,576,197 outstanding shares of common stock. This does not reflect the number
of persons whose stock is in nominee or "street" name accounts through brokers.
Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions. No assurance can be given that
dividends will be declared or, if declared, what the amount of dividends will
be, or whether such dividends, once declared, will continue.
The Company is not subject to OTS regulatory restrictions on the payment of
dividends to its stockholders, although the source of such dividends will be, in
part, dependent upon the factors enumerated above. The Company is subject,
however, to the requirements of Colorado law, which generally limit dividends to
an amount equal to the excess of the net assets of the Company (the amount by
which total assets exceed total liabilities) over its stated capital, or if
there is no such excess, to its net profits for the current and/or immediately
preceding fiscal year. First Colorado Bancorp, Inc., completed the
reorganization from a federally chartered mutual holding company to a Colorado
stock holding company on December 29, 1995, and only four quarters of historical
data can be provided in regard to the common stock of the Company.
Table 1, First Colorado Bancorp, 1996
12/31/96 9/30/96 6/30/96 3/31/96
-------------- ---------- ---------- ----------
# shares 18,184,108 19,030,844 20,134,256 20,096,940
High $ 17.8750 15.6250 13.7500 12.5000
Low $ 14.9375 12.5000 11.7500 11.0000
Dividends
Declared $ 0.09 0.08 0.08 0.075
(per share)
On December 29, 1995, the Company issued 20,023,337 shares of its common
stock, 6,619,539 of which were issued in exchange for Bank common stock and
13,403,798 of which were sold in the conversion offering.
Prior to December 29, 1995, the common stock of the Bank was traded
over-the-counter on the Nasdaq National Market System under the symbol "FFBA."
On December 29, 1995, the Company succeeded to the Bank's symbol. Table 2 below
sets forth the high and low trading prices for the common stock of the Bank as a
capital stock savings bank, for the four quarters ending with and preceding
December 29, 1995, together with the cash dividends declared subsequent thereto.
First Savings Capital, M.H.C., which owned the majority of the Bank's common
stock, waived the receipt of all cash dividends paid by the Bank. The prices and
dividends stated below have not been adjusted to reflect the Share Exchange.
Table 2, First Federal Savings Bank of Colorado, 1995
12/29/95 9/30/95 6/30/95 3/30/95
---------- --------- -------- ---------
# shares 6,371,137 6,360,722 6,356,247 6,346,147
High 40.0000 35.7500 25.0000 24.5000
Low 30.7500 23.5000 22.0000 22.0000
Dividends
Declared 0.22 0.22 0.22 0.22
(per share)
16
<PAGE>
Independent Auditor's Report
Independent Auditors' Report
The Board of Directors and Stockholders of
First Colorado Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of First Colorado Bancorp, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Colorado
Bancorp, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information is
presented for purposes of additional analysis of the consolidated financial
statements rather than to present the financial position and results of
operations of the individual companies. The consolidating information has been
subjected to the auditing procedures applied in the audits of the consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements taken as a whole.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
March 7, 1997
17
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 1995 and 1996
(Amounts in Thousands, Except Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1995 1996
- ------ ---- ----
<S> <C> <C>
Cash and due from banks $ 27,090 21,449
Federal funds sold, net (note 11) 80,483 15,000
Other interest-earning assets 6,097 12,783
----------- -----------
Cash and cash equivalents 113,670 49,232
Investment securities (notes 3 and 11):
Held-to-maturity, at amortized cost (market value of $54,359 and $61,701 in
1995 and 1996, respectively) 54,362 61,642
and 1996, respectively)
Available-for-sale, at market value 24,417 11,099
----------- -----------
78,779 72,741
Mortgage-backed and other asset-backed securities (notes 4, 5, 11 and 12):
Held-to-maturity, at amortized cost (market value of $295,648 and
$268,043 in 1995 and 1996, respectively) 302,380 273,602
Available-for-sale, at market value 8,506 7,687
----------- -----------
310,886 281,289
Loans receivable, net (notes 5, 8 and 11) 931,159 1,061,524
Accrued interest receivable (note 6) 7,807 8,059
Federal Home Loan Bank stock, at cost (note 11) 8,829 9,554
Real estate owned, net (notes 7 and 8) 1,647 1,457
Office properties and equipment, net of accumulated depreciation and
amortization (note 9) 21,760 22,930
Real estate held for investment and development 2,393 2,025
Income taxes receivable (note 14) 204 589
Investment in property tax certificates, at cost 21 6
Other assets 5,342 4,682
----------- -----------
Total assets $ 1,482,497 1,514,088
=========== ===========
Liabilities and Stockholders' Equity
Deposits (note 10) $ 1,080,289 1,135,823
Advances from Federal Home Loan Bank (note 11) 125,670 122,515
Bonds payable (note 12) 5,543 5,009
Advances by borrowers for taxes and insurance 9,348 8,312
Deferred income taxes (note 14) 4,849 5,118
Deferred income 941 722
Other liabilities 17,139 19,965
----------- -----------
Total liabilities 1,243,779 1,297,464
Stockholders' equity (note 13):
Preferred stock, $0.10 par value. 25,000,000 shares authorized; none issu-d -- --
Common stock, $0.10 par value. 50,000,000 shares authorized; 20,023,337 and
20,134,256 shares issued at December 31, 1995 and 1996, respectively;
20,023,337 and 18,184,108 shares outstanding at December 31, 1995
and 1996, respectively 2,002 2,013
Additional paid-in capital 149,837 151,581
Treasury stock (1,950,148 shares at December 31, 1996, at cost) -- (28,957)
Unearned ESOP shares (13,404) (12,063)
Unearned MRP/MSBP shares (182) (3,929)
Net unrealized gain (loss) on securities available-for-sale (net of tax effect
of $(34) and $226 in 1995 and 1996, respectively) (54) 365
Retained earnings, partially restricted (note 14) 100,519 107,614
----------- -----------
Total stockholders' equity 238,718 216,624
Commitments and contingencies (notes 5, 13, 14 and 16) ----------- -----------
Total liabilities and stockholders' equity $ 1,482,497 1,514,088
=========== ===========
</TABLE>
18
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------
1994 1995 1996
------------- --------- -------------
Interest income:
<S> <C> <C> <C>
Interest on loans receivable $ 51,750 67,119 78,842
Interest on mortgage-backed and other asset-backed
securities 23,128 22,455 19,123
Interest and dividends on investment securities 3,986 4,513 5,440
Interest on federal funds sold and
other interest-earning assets 391 176 1,223
----------- ------ ------
Total interest income 79,255 94,263 104,628
----------- ------ ------
Interest expense:
Interest on deposits (note 10) 36,872 48,314 48,992
Interest on advances from Federal Home Loan Bank 5,114 9,927 7,702
Other interest expense 799 622 500
----------- ------ ------
Total interest expense 42,785 58,863 57,194
----------- ------ ------
Net interest income 36,470 35,400 47,434
Provision (credit) for losses on loans (note 8) (411) (495) 1,143
----------- ------ ------
Net interest income after provision (credit) for
losses on loans 36,881 35,895 46,291
----------- ------ ------
Noninterest income:
Fees and service charges 3,818 4,195 4,773
Gain (loss) on sale of loans, net 146 (1) 218
Gain (loss) on sale of
mortgage-backed and other
asset-backed securities, net 317 (381) --
Income from real estate operations, net 762 1,222 337
Rental income 169 171 170
----------- ------ ------
5,212 5,206 5,498
----------- ------ ------
Noninterest expense:
Compensation (note 13) 10,025 10,666 12,215
Occupancy 3,411 3,703 3,805
Provision (credit) for losses on real estate owned
(note 8) 448 (95) 3
Provision (credit) for losses on federal funds sold -- 618 (618)
Professional fees 642 667 779
Advertising 837 899 1,002
Printing, supplies and postage 1,038 1,095 1,093
FDIC premiums (note 2) 2,291 2,391 9,392
Other, net 1,964 1,373 2,835
----------- ------ ------
20,656 21,317 30,506
----------- ------ ------
Earnings before income taxes 21,437 19,784 21,283
Income tax expense (note 14):
Current 6,906 5,817 7,902
Deferred 985 1,329 9
----------- ------ ------
7,891 7,146 7,911
----------- ------ ------
Net earnings $ 13,546 12,638 13,372
=========== ====== ======
Earnings per common and common equivalent share (note 13) 2.11 1.96 0.72
=========== ====== ======
Weighted average common and common
shares outstanding 6,426,948 6,440,876 18,643,327
=========== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Three-Year Period Ended December 31, 1996
(Amounts in Thousands, Except Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock, Common stock, Common
$.100 par value $0.10 par value Additional stock Unearned
-------------------- --------------------- paid-in treasury ESOP
Shares Amount Shares Amount capital shares shares
--------- --------- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 6,269,972 $ 6,270 - - 10,024 - (729)
Exercise of employee
stock options (note 13) 61,650 62 - - 390 - -
Payment of ESOP liability
(note 13) - - - - - - 283
Employees' vesting in
MRP (note 13) - - - - 200 - -
Dividends ($1.80 per
share):
Declared for minority
interest - - - - - - -
Waived by Parent - - - - 7,537 - -
Net unrealized loss on
securities available-
for-sale - - - - - - -
Net earnings - - - - - - -
----------- --------- ---------- ------- -------- -------- --------
Balance, December 31,
1994 6,331,622 6,332 - - 18,151 - (446)
Exercise of employee
stock options (note 13) 39,515 40 - - 224 - -
Payment of ESOP liability
(note 13) - - - - - - 446
Contribution by First Savings
Capital, M.H.C - - - - 31 - -
Exchange of common stock
(note 13) (6,371,137) (6,372) 6,619,539 662 5,710 - -
Common stock issued for cash,
net of offering costs
(note 13) - - 12,063,419 1,206 116,414 - -
Common stock issued to ESOP
for note receivable (note
13) - - 1,340,379 134 13,270 - (13,404)
Employees' vesting in MRP
(note 13) - - - - 224 - -
Dividends declared ($0.88
per share) - - - - - - -
Reversal of dividends
previously waived by
First Savings Capital,
M.H.C. - - - - (4,187) - -
Change in net unrealized
gain/loss on securities
available-for-sale - - - - - - -
Net earnings - - - - - - -
----------- --------- ---------- ------- -------- -------- --------
Balance, December 31, 1995 - - 20,023,337 2,002 149,837 - (13,404)
Exercise of employee stock
options (note 13) - - 110,919 11 78 183 -
Additional offering costs
on common stock issued
for cash - - - - (175) - -
Payment of ESOP liability
(note 13) - - - - - - 1,341
Common stock purchased by
MSBP (note 13) - - - - - - -
Employees' vesting in
ESOP/MRP/MSBP (note 13) - - - - 1,841 - -
Purchase of treasury stock - - (1,950,148) - - (29,140) -
Dividends declared ($0.325
per share) - - - - - - -
Change in net unrealized
gain/loss on securities
available-for-sale - - - - - - -
Net earnings - - - - - -
Balance, December 31,
1996 - - 18,184,108 $ 2,013 $151,581 (28,957) (12,063)
=========== ========= ========== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Unearned Net unrealized
MRP/ gain (loss) on
MSBP securities Retained
shares available-for-sale earnings Total
------- ------------------ --------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1994 (328) - 83,453 98,690
Exercise of employee
stock options (note 13) - - - 452
Payment of ESOP liability
(note 13) - - - 283
Employees' vesting in
MRP (note 13) 70 - - 270
Dividends ($1.80 per
share):
Declared for minority
interest - - (3,857) (3,857)
Waived by Parent - - (7,537) -
Net unrealized loss on
securities available-
for-sale - (1,370) - (1,370)
Net earnings - - 13,546 13,546
--------- -------- -------- --------
Balance, December 31,
1994 (258) (1,370) 85,605 108,014
Exercise of employee
stock options (note 13) - - - 264
Payment of ESOP liability
(note 13) - - - 446
Contribution by First Savings
Capital, M.H.C - - - 31
Exchange of common stock
(note 13) - - - -
Common stock issued for cash,
net of offering costs
(note 13) - - - 117,620
Common stock issued to ESOP
for note receivable (note
13) - - - -
Employees' vesting in MRP
(note 13) 76 - - 300
Dividends declared ($0.88
per share) - - (1,911) (1,911)
Reversal of dividends
previously waived by
First Savings Capital,
M.H.C. - - 4,187 -
Change in net unrealized
gain/loss on securities
available-for-sale - 1,316 - 1,316
Net earnings - - 12,638 12,638
--------- -------- -------- --------
Balance, December 31, 1995 (182) (54) 100,519 238,718
Exercise of employee stock
options (note 13) - - - 272
Additional offering costs
on common stock issued
for cash - - - (175)
Payment of ESOP liability
(note 13) - - - 1,341
Common stock purchased by
MSBP (note 13) (3,848) - - (3,848)
Employees' vesting in
ESOP/MRP/MSBP (note 13) 101 - - 1,942
Purchase of treasury stock - - - (29,140)
Dividends declared ($0.325
per share) - - (6,277) (6,277)
Change in net unrealized
gain/loss on securities
available-for-sale - 419 - 419
Net earnings - - 13,372 13,372
--------- -------- -------- ---------
Balance, December 31, 1996 (3,929) 365 107,614 216,624
========= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
------------------------------
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Interest and dividends from loans receivable,
mortgage-backed, other-asset backed
<S> <C> <C> <C>
and investment securities $ 81,577 92,154 103,767
Fees and service charges received 6,118 5,519 6,457
Rental income received 169 171 171
Proceeds from sale of loans held for sale 23,820 6,468 25,258
Originations of loans held for sale (21,150) (7,493) (25,276)
Interest paid (10,236) (15,475) (13,175)
Cash paid to suppliers and employees (18,962) (20,270) (30,020)
Income taxes paid (7,223) (4,745) (8,286)
--------- --------- ---------
Net cash provided by operating activities 54,113 56,329 58,896
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of investment and mortgage-
backed securities available-for-sale 565 24,469 --
Proceeds from maturities of investment and
mortgage-backed securities available-for-sale 15,000 8,000 12,000
Proceeds from maturities of investment and
mortgage-backed securities held-to-maturity 44,890 38,500 84,450
Purchase of investment securities available-for-sale (15,982) (2,027) --
Purchase of investment securities held-to-maturity (25,040) (59,578) (90,023)
Principal repayments of mortgage-backed and
asset-backed securities 135,620 68,370 63,959
Purchase of mortgage-backed and other asset-backed
securities available-for-sale (10,032) -- --
Purchase of mortgage-backed and other asset-backed
securities held-to-maturity (99,908) -- (35,066)
Origination of loans receivable (291,681) (331,692) (358,245)
Net increases in customers' lines of credit (200) (2,663) (11,357)
Principal repayments of loans receivable 178,615 182,529 238,232
Purchase of loans receivable (45,137) (17,932) --
Purchase of Federal Home Loan Bank stock (1,052) (941) (136)
Proceeds from sales of real estate owned 712 3,875 906
Disbursements for real estate owned (21) -- (1)
Proceeds from sale of office properties
and equipment 4,126 274 4
Purchase of office properties and equipment (6,593) (3,725) (2,940)
Proceeds from sale of real estate held for investment
and development 478 622 344
Purchase of real estate held for investment and
development -- (11) --
Proceeds from redemption of property tax certificates 17 15 15
Other, net 237 335 280
--------- --------- ---------
Net cash used by investing activities (115,386) (91,580) (97,578)
--------- --------- ---------
</TABLE>
(Continued)
21
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1994 1995 1996
---- ---- ----
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase (decrease) in deposits $ (45,633) 18,236 11,533
Proceeds of advances from Federal Home Loan Bank 333,200 403,700 146,300
Repayment of advances from Federal Home Loan Bank (250,702) (419,978) (149,455)
Repayment of bonds payable (3,545) (1,005) (553)
Repayment of note payable (283) (446) --
Net increase (decrease) in advances by borrowers
for taxes and insurance 722 1,216 (1,036)
Proceeds from issuance of common stock -- 120,634 --
Purchase of treasury shares -- -- (29,140)
Cash paid for stock offering and conversion costs -- (3,014) (2,310)
Proceeds from exercised stock options 452 264 272
Cash paid for MRP/MSBP -- -- (1,906)
Proceeds from ESOP for repayment of debt 283 446 1,341
Dividends paid (3,428) (1,859) (5,121)
Other, net 3,202 488 4,319
--------- --------- ---------
Net cash provided (used) by financing
activities 34,268 118,682 (25,756)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents
(27,005) 83,431 (64,438)
Cash and cash equivalents at beginning of year 57,244 30,239 113,670
--------- --------- ---------
Cash and cash equivalents at end of year $ 30,329 113,670 49,232
========= ========= =========
</TABLE>
(Continued)
22
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Amounts in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1994 1995 1996
---- ---- ----
Reconciliation of net earnings to net cash
provided by operating activities:
<S> <C> <C> <C>
Net earnings $ 13,546 12,638 13,372
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization of premiums and discounts
on investment and mortgage-backed
securities, net 3,755 256 1,597
Loss (gain) on sale of loans, net (146) 1 (218)
Loss (gain) on sale of mortgage-backed and
other asset-backed securities (317) 381 --
Amortization of deferred loan origination
fee income (1,046) (896) (777)
Deferred loan origination fee income, net
of deferred costs 1,355 362 332
Provision for losses on loans receivable,
federal funds sold and real estate owned 37 28 528
Gain on sale of real estate owned, net (246) (976) (172)
Loss (gain) on sale of real estate held
for investment and development 44 (357) (24)
Stock dividends from Federal Home Loan
Bank -- (143) (589)
Depreciation and amortization 1,361 1,607 1,794
Loss (gain) on sale of office properties
and equipment (213) 6 --
Increase in deferred income taxes 985 1,329 9
Interest expense credited to deposit
accounts 32,537 43,366 44,001
Amortization of unearned discounts and
deferred income (462) (127) (225)
Decrease (increase) in loans held for sale 2,670 (907) (18)
Decrease (increase) in accrued interest
receivable 75 (1,232) (252)
Decrease (increase) in other assets 174 (182) 369
Increase in income taxes receivable (316) (128) (385)
Increase (decrease) in other liabilities 237 315 (516)
Other, net 83 988 70
-------- -------- --------
Net cash provided by operating activities $ 54,113 56,329 58,896
======== ====== ======
Noncash investing and financing transactions:
Foreclosure of collateral securing loans, net of 2,598 948 546
reserve ======= ====== ======
Dividends waived (reversed) by parent 7,537 (4,187) --
======== ======== ========
Change in net unrealized loss on securities
available-for-sale, net of tax effect (1,370) 1,316 419
======== ======== ========
Deferred tax effect of change in unrealized loss
on securities available-for-sale $ (849) 813 260
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 1995 and 1996
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Business and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
First Colorado Bancorp, Inc. (FCB) and its wholly owned subsidiary, First
Federal Bank of Colorado (FFB). The accounts of FFB include its three
wholly owned subsidiaries, First Savings Investment Corporation (FSIC),
First Savings Insurance Services (FSIS), and First Savings Securities
Corporation (FSSC) (collectively, the Bank). All entities together are
collectively referred to as the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
As discussed more fully in note 13, the Company is a Colorado stock
corporation organized in September 1995 to facilitate the conversion of
the Bank's holding company (formerly First Savings Capital, M.H.C.) from
the mutual to stock form of ownership and to acquire and hold all of the
capital stock of the Bank. In connection with the conversion, First
Savings Capital, M.H.C., which had owned 66% of the Bank's common stock,
was merged with and into the Bank, and its shares of the Bank were
canceled. On December 29, 1995, the Company issued 6,619,539 shares of its
common stock for all of the remaining outstanding shares of the Bank. In
1995 and 1996, the Company engaged in no significant business activity
other than its ownership of the Bank's common stock.
FFB provides a full range of banking and thrift-related services to
customers through its home office and branch facilities in Colorado. FFB
is subject to competition from other financial institutions and is subject
to regulations of certain federal agencies, including periodic
examinations by those regulatory agencies. FFB is also subject to minimum
regulatory capital requirements as described more fully in note 2 to the
consolidated financial statements.
FSIC develops, leases and sells real estate property. FSIS sells health,
life and credit life insurance products and also offers mutual funds and
annuity products to customers. FSSC was formed expressly to participate in
a real estate mortgage investment conduit issue.
In preparing the accompanying consolidated financial statements, the
Company is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, and expenses and
disclosure of contingent assets and liabilities. Actual results could
differ from those estimates. Those estimates and assumptions are described
in the following significant accounting policies.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
24
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Cash equivalents include uninsured deposits in other financial
institutions approximated $7,654,000 and $1,903,000 at December 31, 1995
and 1996, respectively, other than amounts on deposit at the Federal Home
Loan Bank of Topeka and the Federal Reserve Bank.
The Federal Reserve Board requires banks to maintain certain average
reserve balances composed of cash on hand and balances maintained at the
Federal Reserve Bank. These reserve balances are based primarily on
deposit level.
Investment, Mortgage-Backed, and Other Asset-Backed Securities
The Company classifies its investment, mortgage-backed, and other
asset-backed securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has
the ability and intent to hold the security until maturity. All other
securities not included in trading or held-to-maturity are classified as
available-for-sale. The Company has no securities classified as trading.
Held-to-maturity securities are recorded at cost, adjusted for
amortization or accretion of premiums or discounts. Trading and
available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are recognized in earnings upon sale or redemption at
maturity. The specific identification method is used to determine the cost
of securities sold. Discounts or premiums are accreted or amortized using
the level-interest-yield method to the earlier of call date or maturity of
the related held-to-maturity security.
Loans Receivable, Real Estate Owned, and Provisions for Losses
Effective January 1, 1995 the Company prospectively adopted Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures (collectively
referred to as Statement 114). Statement 114 addresses the accounting
treatment of certain impaired loans, excluding large groups of
smaller-balance, homogenous loans.
25
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Loans within the scope of Statement 114 (primarily multi-family
residential and commercial real estate loans) are considered impaired when
it is probable that the Company will not collect all amounts due in
accordance with the contractual terms of the loan. For these loans, the
Company measures the amount of impairment using discounted cash flows,
except when it is determined that the sole source of repayment for the
loan is operation or liquidation of the collateral. In such case, the
current fair value of the collateral, reduced by estimated selling costs,
is used in place of discounted cash flows. If the measurement of the
impaired loan is less than the recorded investment in the loan, impairment
is recognized by creating or adjusting an existing allocation of the
allowance for losses on loans.
The allowance for losses on impaired loans pursuant to Statement 114 is
one component of the methodology for determining the allowance for losses
on loans. The remaining components of the allowance for losses on loans
provide for estimated losses on problem mortgages and loans and a general
allowance for estimated losses on loans not specifically identified as
problem loans which is based on factors such as historical loss experience
and business and economic conditions.
Prior to the adoption of Statement 114, the Company measured its allowance
for losses on loans using methods similar to those prescribed by Statement
114. As a result of adopting Statement 114, no adjustment to the allowance
for losses on loans was required as of January 1, 1995.
Interest on loans is accrued only if deemed collectible and is credited to
income as earned. Interest payments received on impaired loans are
recorded as interest income unless collection of the remaining recorded
investment is doubtful, at which time payments received are recorded as
reductions of loan principal. The Company stops accruing interest on loans
for which payments are more than 90 days past due as well as any other
loans for which it is probable that the Company will not collect all of
its outstanding principal.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowances for losses on loans
and real estate. These agencies may require the Company to record
additional provisions for losses based upon their evaluation of
information available at the time of their examination.
The Company calculates gains or losses on sales of participating interests
in loans receivable by determining the difference between the weighted
average yield of the loans sold and the yield rate guaranteed to the
purchaser, adjusted for the estimated cost of servicing the loans
receivable. The resulting premium or discount is amortized or accreted to
interest income using the level-interest-yield method over the contractual
life of the loans. Loans held for sale are recorded at the lower of cost
or estimated market value.
Loan Origination Income and Costs
Loan fees and certain direct loan origination costs are deferred and
recognized as an adjustment of yield using the level-interest-yield method
over the contractual life of the loans.
26
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies (continued)
Effective January 1, 1996, the Company prospectively adopted SFAS No. 122,
Accounting for Mortgage Servicing Rights an amendment of FASB Statement
No. 65 (Statement 122). SFAS 65, Accounting for Certain Mortgage Banking
Activities, requires the capitalization and subsequent amortization of
mortgage servicing rights which are acquired through purchase
transactions. Statement 122 eliminates the accounting distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions.
Any costs of acquiring mortgage loans, either through origination or
purchase, are allocated between the loans and the related mortgage
servicing rights. Consistent with Statement 65, mortgage servicing rights
are amortized in proportion to and over the period of estimated net
servicing income. In addition, the rights are evaluated based on their
fair value. Implementation of SFAS 122 did not have a significant impact
on the Company's consolidated financial statements.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which is
effective as of January 1, 1997 and will supersede Statement 122.
Statement 125 requires entities to recognize servicing assets and
liabilities for all contracts to service financial assets, unless the
assets are securitized and all servicing is retained. The servicing assets
will be initially measured at fair value, and will be amortized consistent
with the method proscribed by Statement 122. In addition, the impairment
of the servicing assets and liabilities will be assessed by strata and
recognized through a valuation allowance. The Company does not expect
implementation of Statement 125 to have a significant impact on its
financial statements. Implementation of this statement for transactions
involving repurchase agreements, dollar rolls, securities lending or
similar transactions have been deferred to be effective as of January 1,
1998 in accordance with SFAS 127, Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125.
Real Estate Owned
Real estate owned is accounted for at the lower of cost (principal balance
of former mortgage loan) or estimated fair value. Fair value is determined
primarily by discounted cash flow calculations. Expenses of holding
foreclosed properties, net of rental income, are generally charged to
operations as incurred. Costs incurred in connection with improvements to
the properties are capitalized unless such costs result in an amount in
excess of net realizable value. Gains and losses on dispositions of these
properties are recognized in the year in which the sales occur.
Office Properties and Equipment
Land, buildings and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the remaining terms of
the leases.
Estimated useful lives are as follows: furniture and equipment - 4 to 12
years; automobiles - 4 years; buildings - 20 to 40 years.
27
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement 121), on January 1, 1996. Statement 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of Statement 121 did not have a significant impact on
the Company's financial position, results of operations, or liquidity.
Real Estate Held for Investment and Development
Real estate held for investment and development is recorded at the lower
of cost or estimated net realizable value.
Concentrations of Credit Risk
Concentrations of credit risk arise when a number of counterparties have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic of
other conditions. The Company's loan portfolio consists primarily of
residential mortgages located in Colorado, making the value of the
portfolio more susceptible to declines in real estate values and other
changes in economic conditions in Colorado and the Rocky Mountain region.
The Company does not have a significant exposure to any individual
customer.
Disclosures of Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments
(Statement 107), requires the Company to disclose estimated fair values of
its financial instruments. Fair value estimates are made at a specific
point in time, based on relevant market information. These estimates do
not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
28
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
Fair value estimates are based on financial instruments owned at December
31, 1996 without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments, including deferred tax assets and premises and
equipment. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in these estimates.
The Company uses derivative financial instruments to a limited extent to
meet the objectives of the investment policy and for management of
interest rate risk. As of December 31, 1995 and 1996, the Company held one
derivative security, a Federal National Mortgage Association Swap Trust
with an outstanding principal balance of $8,723,000 and $7,708,000,
respectively. The security, which is classified as available-for-sale, had
a market value of $8,506,000 and $7,687,000 as of December 31, 1995 and
1996, respectively (note 4). The structure of the instrument integrates a
fixed-rate bond with an amortizing rate swap. If principal repayments on
the fixed-rate bond equal those scheduled in the swap, then the Company
will earn interest of the one-month LIBOR rate plus 30 basis points. The
Company is exposed to interest rate risk if repayment of the bond precedes
the amortizing swap.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial 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 taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per common and common equivalent share are computed by dividing
net earnings by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. The number of common
shares was increased by the number of shares issuable on the exercise of
outstanding stock options. This increase was reduced by the number of
common shares that are assumed to have been purchased with the proceeds
from the exercise of the warrants, calculated based on the average price
of the common stock during the year. The weighted average number of shares
of common stock and common stock equivalents outstanding at December 31,
1995 have not been adjusted to reflect the December 29, 1995 stock
offering and exchange of the outstanding common shares of the Bank for
common shares of the Company because of the immaterial effect of
consummating the transaction at December 29, 1995 (see note 13).
Reclassifications
Certain previously reported amounts have been reclassified to conform to
the Company's 1996 presentation.
29
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(2) Regulatory Matters
The Company is subject to assessment by the Savings Association Insurance
Fund (SAIF). In 1996, the Federal Deposit Insurance Corporation (FDIC)
assessed a special premium on deposits insured by the SAIF. The Company's
assessment approximated $7 million and is included in FDIC premiums in the
accompanying consolidated statements of operations.
The Bank is subject to various regulatory capital requirements
administered by federal 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 Company's consolidated 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-statement of financial condition 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.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier
I capital to risk-weighted assets and of Tier I and tangible capital to
adjusted total assets. Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
At December 31, 1996, the most recent notification from the Office of
Thrift Supervision 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 capital (to risk
weighted assets), Tier I capital (to risk weighted assets), Tier I capital
(to adjusted total assets) and tangible capital (to adjusted total assets)
ratios as set forth in the table below. There are no conditions or events
since that notification that management believes have changed the Bank's
regulatory capital category.
The Bank's actual capital amounts and ratios are presented in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
To be well
capitalized
For capital under prompt
adequacy corrective
Actual purposes action provisions
-------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -------
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $183,728 23.84% $61,654 8.0% $ 77,067 10.0%
Tier I capital (to risk weighted assets) 181,733 23.58 30,827 4.0 46,240 6.0
Tier I capital (to adjusted total assets) 181,733 12.03 60,427 4.0 75,533 5.0
Tangible capital (to adjusted total assets) 178,976 11.87 22,625 1.5 22,625 1.5
</TABLE>
(Continued)
30
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To be well
capitalized
For capital under prompt
adequacy corrective
Actual purposes action provisions
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- -------- ------
As of December 31, 1995:
Total capital (to
<S> <C> <C> <C> <C> <C> <C>
risk weighted assets) $ 171,765 24.14% $56,923 8.0% $71,154 10.0%
Tier I capital (to
risk weighted assets) 171,132 24.05 28,462 4.0 42,692 6.0
Tier I capital (to
adjusted total assets) 171,132 11.56 59,215 4.0 74,019 5.0
total assets)
Tangible capital (to
adjusted total assets) 168,114 11.38 22,163 1.5 22,163 1.5
</TABLE>
(3) Investment Securities
Investment securities at December 31 consist of (amounts in thousands):
1995 1996
---- ----
Held-to-maturity, at amortized cost $ 54,362 61,642
Available-for-sale, at market value 24,417 11,099
------ ------
$ 78,779 72,741
====== ======
As of December 31, 1995 and 1996, gross unrealized gains and losses of
investment securities are as follows (amounts in thousands):
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
1995
----
Held-to-maturity
U.S. government and agency
securities $ 54,362 82 (85) 54,359
Available-for-sale
U.S. government and agency
securities 24,011 5 (285) 23,731
Equity securities 277 409 - 686
-------- --- ---- ------
$ 78,650 496 (370) 78,776
======== === ==== ======
1996
----
Held-to-maturity
U.S. government and agency
securities $ 61,642 88 (29) 61,701
Available-for-sale
U.S. government and agency
securities 9,999 1 (13) 9,987
Equity securities 488 624 - 1,112
-------- --- --- ------
$ 72,129 713 (42) 72,800
======== === === ======
31
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
Maturities of investment securities at December 31, 1996 are as follows
(amounts in thousands):
Amortized Market
cost value
---- -----
Held-to-maturity
Obligations of the U.S. government and its
agencies:
Due within one year $ 49,091 49,157
Due after one year to five years 12,551 12,544
------ ------
$ 61,642 61,701
====== ======
Available-for-sale
Obligations of the U.S. government and its
agencies:
Due within one year $ 4,999 5,000
Due after one year to five years 5,000 4,987
Equity securities 488 1,112
------ ------
$ 10,487 11,099
====== ======
(4) Mortgage-Backed and Other Asset-Backed Securities
Mortgage-backed and other asset-backed securities at December 31 consist
of (amounts in thousands):
1995 1996
---- ----
Held-to-maturity, at amortized cost $ 302,380 273,602
Available-for-sale, at market value 8,506 7,687
------- -------
$ 310,886 281,289
======= =======
As of December 31, 1995 and 1996, gross unrealized gains and losses of
mortgage-backed and other asset-backed securities are as follows (amounts
in thousands):
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
1995
Held-to-maturity
Federal Home Loan Mortgage
Corporation $ 40,130 333 (693) 39,770
Federal National Mortgage
Association 15,097 27 (137) 14,987
Government National
Mortgage Association 520 31 - 551
Collateralized mortgage
obligations and other
mortgage-backed securities 244,347 211 (6,520) 238,038
Asset-backed securities 2,286 16 - 2,302
------- ----- ------ -------
302,380 618 (7,350) 295,648
32
(Continued)
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(4) Mortgage-Backed and Other Asset-Backed Securities (continued)
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
Available-for-sale
Federal National Mortgage
Association $ 8,723 - (217) 8,506
------- ------ ----- -------
(note 1)
$ 311,103 618 (7,567) 304,154
======= ===== ===== =======
1996
----
Held-to-maturity
Federal Home Loan Mortgage
Corporation $ 48,584 953 (1,597) 47,940
Federal National Mortgage
Association 23,795 388 (249) 23,934
Government National
Mortgage Association 419 12 - 431
Collateralized mortgage
obligations and other
mortgage-backed securities 200,804 153 (5,219) 195,738
------- ------ ----- -------
273,602 1,506 (7,065) 268,043
Available-for-sale
Federal National Mortgage
Association 7,708 - (21) 7,687
------- ------ ----- -------
(note 1)
$ 281,310 1,506 (7,086) 275,730
======= ===== ===== =======
Expected maturities of mortgage-backed and other asset-backed securities
at December 31, 1996 are as follows (amounts in thousands):
Amortized Market
cost value
Held-to-maturity
Federal Home Loan Mortgage Corporation:
Due after five years to ten years $ 979 970
Due after ten years 47,605 46,970
Federal National Mortgage Association:
Due after ten years 23,795 23,934
Government National Mortgage Association:
Due after ten years 419 431
Collateralized mortgage obligations and other
mortgage-backed securities:
Due after one year to five years 15,677 15,368
Due after five years to ten years 134,761 131,971
Due after ten years 50,366 48,399
------- -------
$ 273,602 268,043
======= =======
Available-for-sale
Federal National Mortgage Association:
Due after five to ten years $ 7,708 7,687
======= =======
33
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 1996, the Company held collateralized mortgage obligations
(CMOs) with an aggregate carrying amount of $208,491,000 which consisted
of $28,821,000 federal agency CMOs and $179,670,000 private issue CMOs.
(5) Loans Receivable
Loans receivable consist of (amounts in thousands):
December 31
----------------
1995 1996
---- ----
First mortgage loans:
Conventional $ 682,826 798,608
Partially guaranteed by the Veterans
Administration or insured by the
Federal Housing
Administration 4,560 3,706
Real estate construction loans 30,731 27,931
Purchased loans and equity in participation
loans 94,487 79,087
------ ------
Total first mortgage loans, net 812,604 909,332
Home improvement, home equity, commercial,
and consumer loans 136,074 167,820
------- ---------
948,678 1,077,152
Less:
Undisbursed proceeds of loans in process 11,440 9,758
Unearned discounts, net 584 10
Deferred loan origination fees, net 2,569 2,010
Allowance for losses on loans (see note 8) 2,926 3,850
------- ---------
$ 931,159 1,061,524
======= =========
First mortgage loans secured by one-to-four family residences approximated
$736,240,000 and $855,992,000 at December 31, 1995 and 1996, respectively.
Under certain economic or legal circumstances, the Company may grant
concessions to a borrower. These concessions may include restructuring
loans to change payment terms, reduce the stated interest rate, reduce the
amount of interest due, or extend the maturity date. The new or modified
loan constitutes a troubled debt restructuring under SFAS No. 15. The Bank
had no troubled debt restructurings at December 31, 1995 and 1996,
respectively. Loans, net of allowances for losses, on nonaccrual status
approximated $1,960,000 and $1,457,000 at December 31, 1995 and 1996,
respectively.
Interest income that would have been recorded for nonaccrual loans and
troubled debt restructurings had they been performing in accordance with
their contractual requirements approximated $862,000, $858,000 and
$883,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Actual interest income recorded for these loans totaled
$469,000, $576,000 and $617,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
34
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -----------------------------------------------------
Loans receivable and mortgage-backed securities with combined carrying
values of $14,173,000 and $18,341,000 at December 31, 1995 and 1996,
respectively, are pledged to secure uninsured public deposits
approximating $10,031,000 and $7,878,000 at December 31, 1995 and 1996,
respectively.
Loans serviced by the Company for the benefit of others at December 31,
1994, 1995 and 1996 approximated $156,533,000, $144,105,000 and
$145,563,000, respectively.
At December 31, 1995 and 1996, the Company had outstanding commitments to
fund loans and standby letters of credit approximating $33,127,000 and
$52,355,000, respectively. Of the total outstanding commitments, fixed
rate commitments at December 31, 1995 and 1996 approximated $2,761,000 and
$3,179,000, respectively, having weighted average interest rates of 7.1%
and 7.3%, respectively. These commitments are generally at the market rate
of interest at the time of closing. The Company's policy is to require
customers to provide collateral prior to the disbursement of approved
loans.
At December 31, 1995 and 1996, loans held for sale approximated $907,000
and $925,000, respectively.
(6) Accrued Interest Receivable
Accrued interest receivable is summarized as follows (amounts in
thousands):
December 31
--------------------
1995 1996
-------- --------
Loans receivable $ 4,805 5,166
Investment securities 1,023 1,065
Mortgage-backed and other
asset-backed securities 1,979 1,828
----- -----
$ 7,807 8,059
===== =====
(7) Real Estate Owned
Real estate owned consists of (amounts in thousands):
December 31
--------------------
1995 1996
-------- --------
Real estate acquired by foreclosure $ 2,559 2,148
Less allowance for estimated losses
see note 8) 912 691
----- -----
$ 1,647 1,457
===== =====
35
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
Prior to the adoption of Statement 114 effective January 1, 1995,
in-substance foreclosure was an accounting classification of certain loans
that were accounted for as if they had been foreclosed, because in
management's judgment they represented substantive repossessions of the
underlying collateral. In addition, the borrower was considered to have
little or no equity in the collateral considering its current fair value.
Proceeds for the repayment of the loan was expected to come only from the
operation or sale of the collateral and the borrower had either formally
or effectively abandoned control of the property, or retained control but
had little or no opportunity to rebuild equity in the collateral.
In accordance with Statement 114, a loan is classified as an in-substance
foreclosure only when the Company has taken possession of the collateral.
Loans classified as in-substance foreclosure prior to adoption of
Statement 114 but for which the Company had not taken possession of the
collateral were immaterial to the consolidated financial statements taken
as a whole and, therefore, were not reclassified to loans receivable upon
adoption.
(8) Allowances for Losses on Loans Receivable and Real Estate Owned
The Company provides allowances for potential losses associated with its
lending and real estate activities. Changes in these allowances are
summarized as follows (amounts in thousands):
Loans Real estate
receivable owned
----------- ------------
Balance, January 1, 1994 $ 3,575 1,159
Provision (credit) for losses (411) 448
Charge-offs (57) (502)
Recoveries 203 -
------- -----
Balance, December 31, 1994 3,310 1,105
Credit for losses (495) (95)
Charge-offs (121) (98)
Recoveries 232 -
------- -----
Balance, December 31, 1995 2,926 912
Provision for losses 1,143 3
Charge-offs (305) (224)
Recoveries 86 -
------- -----
Balance, December 31, 1996 $ 3,850 691
======= =====
36
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
The recorded investment in impaired loans and the related impairment
allowance determined under Statement 114 (included within the allowance
for losses on loans receivable) at December 31 are summarized as follows
(amounts in thousands):
Statement
114
Recorded impairment
1995 investment allowance
---- ---------- ----------
Impaired loans:
Statement 114 allowance required $ 3,126 728
Statement 114 allowance not required 811 -
------- ---
Total impaired loans $ 3,937 728
======= ===
1996
Impaired loans:
Statement 114 allowance required $ 1,906 529
Statement 114 allowance not required 1,815 -
------- ---
Total impaired loans $ 3,721 529
======= ===
The majority of impaired loans requiring a Statement 114 allowance are
measured using the fair value of the underlying collateral since these
loans are considered collateral dependent.
The average recorded investment in impaired loans for the years ended
December 31, 1995 and 1996 was $6,440,000 and $3,160,000, respectively.
Interest recorded on impaired loans for the years ended December 31, 1995
and 1996 was $98,000 and $102,000, respectively.
(9) Office Properties and Equipment
Office properties and equipment and related accumulated depreciation and
amortization are summarized as follows (amounts in thousands):
December 31
--------------
1995 1996
---- ----
Land $ 6,015 7,068
Buildings 18,070 18,483
Furniture, equipment, leasehold improvements and
automobiles 9,437 10,790
Construction-in-progress 36 115
------ ------
33,558 36,456
Less accumulated depreciation and amortization 11,798 13,526
------ ------
$ 21,760 22,930
====== ======
Depreciation and amortization expense approximated $1,361,000, $1,607,000
and $1,794,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
37
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(10) Deposits
Deposits are summarized as follows (amounts in thousands):
December 31
---------------------------------------
1995 1996
------------------- ------------------
Weighted Weighted
average average
Amount rate Amount rate
------ ---- ------ ----
NOW Accounts and Money
Market Demand Deposits
Money fund savings $ 136,042 3.50% $ 139,990 3.50%
Checking with interest 89,819 1.99 100,306 1.99
Commercial demand deposits 23,683 0.76 23,124 0.74
Retirement accounts 78,444 5.33 81,834 5.31
Non-interest-bearing
checking accounts 31,968 - 33,408 -
Savings Accounts
Regular savings accounts 92,100 2.71 92,945 2.71
Time Deposits
Fixed rate and fixed
term certificates 532,435 5.48 572,626 5.43
Retirement accounts 90,443 6.20 83,495 6.08
Jumbo certificates 5,355 5.37 8,095 5.24
--------- ---------
Total deposits $ 1,080,289 4.49% $ 1,135,823 4.58%
========= ==== ========= ====
Time deposits of $100,000 and over approximated $54,290,000 and
$47,245,000 at December 31, 1995 and 1996, respectively. Deposit balances
in excess of $100,000 are not federally insured.
At December 31, 1996, scheduled maturities of time deposits are as follows
(amounts in thousands):
Year ending December 31
-------------------------------------------------
1997 1998 1999 2000 2001 Total
---- ---- ---- ---- ---- -----
Fixed rate and
fixed term
certificates $ 354,072 169,986 19,410 16,454 12,704 572,626
Retirement
accounts 46,046 8,448 3,438 14,739 10,824 83,495
Jumbo certificates 7,497 300 - 200 98 8,095
------- ------- ------- ------ ------ -------
$ 407,615 178,734 22,848 31,393 23,626 664,216
======= ======= ====== ====== ====== =======
38
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
Interest expense on deposits consists of the following (amounts in
thousands):
Year ended December 31
----------------------------
1994 1995 1996
-------- ------ ------
Time deposits $ 28,368 39,029 39,573
NOW accounts and money market demand
deposits 6,234 6,709 6,878
Savings accounts 2,270 2,576 2,541
------ ------ ------
$ 36,872 48,314 48,992
====== ====== ======
(11) Advances from Federal Home Loan Bank
Advances from the FHLB are secured by the Company's FHLB stock and by
qualifying loans receivable, investment securities and mortgage-backed
securities.
Advances from the FHLB at December 31, 1996 are as follows (amounts in
thousands):
Weighted average
Maturity interest rate Amount
-------- ------------- ------
1997 6.05% $ 50,105
1998 6.17 36,410
1999 7.96 4,000
2000 6.58 32,000
---------
$ 122,515
=========
As a member of the FHLB system, the Bank is required to maintain an
investment in stock of the FHLB equal to the greater of 1% of certain
residential mortgages or 5% of FHLB advances. The Bank has a blanket
pledge with the FHLB and has pledged all of its stock in the FHLB, and all
otherwise unpledged or unencumbered federal funds sold, U.S. agency
securities, certain qualifying loans, and mortgage-backed securities.
(12) Bonds Payable
Bonds payable of $5,543,000 and $5,009,000 at December 31, 1995 and 1996,
respectively, consist of Ryland Acceptance Corporation Four's
Collateralized Mortgage Bonds, Series 63, issued in March 1988 with a
fixed interest rate of 8.75%. FSSC's original principal amount was
$22,009,000 with stated final maturities through 2019. Bond issue costs
with a remaining unamortized balance of $195,000 and $176,000 at December
31, 1995 and 1996, respectively, are netted against the bond principal
balance in the accompanying consolidated financial statements.
39
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
The bonds are secured by mortgage-backed securities with carrying values
and market values approximating $5,579,000 and $5,755,000, respectively,
at December 31, 1996. Scheduled final maturities of the remaining bonds
outstanding are as follows (amounts in thousands):
Maturity
2011 $ 2,263
2019 2,922
-------
5,185
Less unamortized debt issue costs 176
-------
$ 5,009
=======
(13) Stockholders' Equity
On December 29, 1995, the Company completed its conversion from a mutual
holding company to a savings institution holding company and acquired all
of the capital stock of the Bank by exchanging all outstanding shares of
the Bank for 6,619,539 shares of the Company. In connection with the
conversion, the Company issued and sold 13,403,798 shares of common stock
at a price of $10 per share. Net proceeds received from the conversion and
costs associated with the conversion approximated $117,620,000 and
$3,014,000, respectively. Included in the number of shares sold are
1,340,379 shares purchased by the employee stock ownership plan in
exchange for a note payable to the Company.
For the purpose of granting eligible members of the Bank a priority in the
event of future liquidation, the Bank established a liquidation account
equal to the aggregate amount of the dividends waived by First Savings
Capital, M.H.C. plus 67.08% of the Bank's total stockholders' equity as of
September 30, 1995. In the event (and only in such event) of future
liquidation of the converted Bank, an eligible savings account holder who
continues to maintain a savings account shall be entitled to receive a
distribution from the liquidation account, in the proportionate amount of
the then-current adjusted balance of the savings deposits then held,
before any distributions may be made with respect to capital stock.
Present regulations provide that the Bank may not declare or pay a cash
dividend on or repurchase any of its capital stock if the result thereof
would be to reduce the regulatory capital of the Bank below the amount
required for the liquidation account or the regulatory capital
requirement. Further, any dividend declared or paid on, or repurchase of
the Bank's capital stock shall be in compliance with the rules and
regulations of the Office of Thrift Supervision, or other applicable
regulations.
All references to options and option prices below have been adjusted to
reflect the December 29, 1995 exchange of the outstanding common shares of
the Bank for common shares of the Company.
40
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(13) Stockholders' Equity (continued)
(a)Stock Option Plans
In 1992, the Company established a stock option plan for certain
employees and reserved 631,325 shares of common stock for issuance
under the plan. As of December 31, 1996, all 631,325 options had been
granted at $2.20 per option which represented fair market value at the
date of grant. Of the options granted, 622,232 are considered incentive
stock options and 9,093 are nonincentive. All options became
exercisable on November 1, 1993 and expire ten years from the date of
grant. During 1994, 1995 and 1996, respectively, 186,851, 119,770 and
123,875 options were exercised. As of December 31, 1996, 200,829
options remain exercisable.
In 1996, the Company established an additional stock option plan for
certain employees and directors and reserved 1,340,379 shares of common
stock under the plan. At December 31, 1996, 1,304,000 options had been
granted at $13.563 per option and 30,000 options had been granted at
$17.188, which represented fair market value at the date of grant. Of
the options granted to date, 1,113,055 are considered incentive stock
options and 220,945 are nonincentive. Options vest at the rate of 20%
per year over five years, beginning July 24, 1997 and expire ten years
from grant date. Awards vest immediately upon death, disability, or
change in control of the Company. During 1996, no options were
exercised.
(b)Employee Stock Ownership Plan
In 1992, the Company established an employee stock ownership plan
(ESOP) covering all employees with more than one year of service with
the Company. Participant benefits become 30% vested after three years
of service, increasing to 40% vested after four years of service, and
by 20% annually thereafter until benefits are 100% vested after 7
years. Contributions to the plan are determined by the Company's Board
of Directors and approximated $72,000, $359,000 and $1,021,000 in 1994,
1995 and 1996, respectively.
The ESOP borrowed $972,000 to fund the purchase of the ESOP shares in
1992. This loan was repaid by the end of 1995. On December 29, 1995,
the ESOP purchased 10 percent of the common shares sold by the Company
in connection with its conversion with a $13,404,000 loan extended by
the Company. The principal balance of the note, which matures on
December 28, 2005, is payable in 10 equal installments of $1,340,379.
The note bears interest at the prime rate, payable quarterly. The
borrowing is to be repaid by contributions by the Bank and dividends on
common shares held by the ESOP. The shares are released to the ESOP as
the debt is repaid. ESOP shares that have been committed to be released
are considered outstanding for purposes of computing earnings per
common and common equivalent share.
During 1994, 1995 and 1996, the ESOP received dividends from the
Company approximating $261,000, $122,000 and $315,000, respectively,
which were used to fund debt repayments.
41
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(13) Stockholders' Equity (continued)
(c)Management Recognition Plan
Effective July 14, 1992, the Company established a Management
Recognition Plan (MRP) to reward certain key employees with an equity
interest in the Company as compensation for their future professional
service. The Company contributed 182,208 shares of common stock to the
Plan and, accordingly, recorded no proceeds for the issuance of the
common stock. Shares are granted at the discretion of a committee
appointed by the Board of Directors and vest at the rate of 20% per
year over 5 years. The Company records compensation expense and an
increase in equity as individual employees vest in allocated shares. At
December 31, 1996, the MRP has granted 168,045 shares to employees, of
which 133,633 shares have vested. Compensation expense recorded for
vesting of MRP shares approximated $270,000, $300,000 and $418,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
(d)Management Stock Bonus Plan
In 1996, the Company established a Management Stock Bonus Plan (MSBP)
to reward directors, officers, and key employees with an equity
interest in the Company as compensation for their future professional
service. The Company contributed 268,075 shares of common stock through
purchases in the open market. Shares are granted at the discretion of a
committee appointed by the Board of Directors and vest at a rate of 20%
per year over 5 years. All awards become immediately 100% vested upon
death, disability, or termination of service following a change in
control of the Company. The Company records compensation expense and an
increase in equity as individual employees vest in allocated shares. At
December 31, 1996 the MSBP has granted 189,000 shares, of which 1,000
shares have vested. Compensation expense recorded for vesting of MSBP
shares approximated $14,000 for the year ended December 31, 1996.
(e)Purchase Rights
On July 24, 1996, the Board of Directors of the Company declared a
dividend distribution of one Preferred Share Purchase Right on each
outstanding share of common stock. The rights will be exercisable only
if a person or group acquires 15% or more of the Company's common stock
or announces a tender offer, the consummation of which would result in
ownership by a person or group of 15% or more of the common stock.
47
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
During 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation (Statement 123), which provides an alternative to APB Opinion
No. 25, Accounting for Stock Issued to Employees (Opinion No. 25), in
accounting for stock-based compensation issued to employees. Statement 123
allows for a fair value-based method of accounting for employee stock
options and similar equity instruments. However, for companies that
continue to account for stock-based compensation arrangements under
Opinion No. 25, Statement 123 requires disclosure of the pro forma effect
on net income and earnings per share as if the fair value-based method of
accounting defined in Statement 123 had been applied. The Company will
continue to use the accounting prescribed by Opinion No. 25, and provide
the required disclosures of Statement 123.
The per share weighted-average fair value of stock options granted during
1996 was $5.11 on the dates of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: risk
free interest rate of 6.57% and an expected life of 7.1 years, and
expected volatility of 22%. No stock options were granted in 1995. It was
assumed that quarterly dividends of $0.10 per share and dividend growth
will be 10% per year.
As noted above, the Company applies the intrinsic value method in
accounting for its equity incentive plans and, accordingly, no
compensation cost has been recognized for such plans in the consolidated
financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options, the Company's
net earnings and earnings per common and common equivalent share would
have been reduced to the pro forma amounts indicated below:
1996
(In thousands,
except per
share amounts)
--------------
Net earnings As reported $ 13,372
Pro forma 12,493
Earnings per common
and common equivalent
share As reported 0.72
Pro forma 0.67
The effects of applying SFAS 123 for providing pro forma disclosures may
not be representative of the effects on reported net earnings for future
years.
(14) Income Taxes
The Company files consolidated federal and state income tax returns. Prior
to 1996, the Company computed its bad debt deduction for income tax
purposes pursuant to the thrift bad debt reserve method of Internal
Revenue Code Section 593. Effective for taxable years beginning after
December 31, 1995, the Section 593 reserve method was repealed by
Congress. The Company is now required to compute its bad debt deduction
for income tax purposes using the specific charge-off method. The change
in method will result in the
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(14) Income Taxes (continued)
Company recapturing approximately $7,491,000 into income for taxable years
1998 through 2001. Retained earnings at December 31, 1996 include
approximately $11,974,000 of accumulated tax bad debt deductions for which
no provision for federal income taxes has been made. If, in the future,
this portion of retained earnings is used for any purpose other than to
absorb bad debt losses, then federal income taxes may be imposed at the
then applicable tax rates.
Income tax expense for the years ended December 31, 1994, 1995 and 1996
consists of (amounts in thousands):
Current Deferred Total
------- -------- -----
Year ended December 31, 1994:
Federal $ 6,100 856 6,956
State and local 806 129 935
----- ----- -----
$ 6,906 985 7,891
===== ===== =====
Year ended December 31, 1995:
Federal $ 5,188 1,156 6,344
State and local 629 173 802
----- ----- -----
$ 5,817 1,329 7,146
===== ===== =====
Year ended December 31, 1996:
Federal $ 7,064 8 7,072
State and local 838 1 839
----- ----- -----
$ 7,902 9 7,911
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995
and 1996 are presented below (amounts in thousands):
1995 1996
---- ----
Deferred tax assets:
Net unrealized loss on securities available-
for-sale $ 34 -
Allowance for losses on federal funds sold 219 -
------ -----
Total gross deferred tax assets 253 -
------ -----
(Continued)
44
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(14) Income Taxes (continued)
1995 1996
---- ----
Deferred tax liabilities:
Loans receivable due primarily to
deferred loan fees $ 1,881 1,938
Allowance for losses on loans receivable 1,476 1,332
Net unrealized gain on securities - 226
available-for-sale
FHLB stock, due to stock dividends 1,137 1,362
Prepaid FDIC premiums 237 15
Deferred premiums on loan sales 147 112
Other, net 224 133
----- -----
Total gross deferred tax liabilities 5,102 5,118
----- -----
Net deferred tax liability $ 4,849 5,118
===== =====
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate to earnings before income taxes as a result of the
following (dollar amounts in thousands):
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------
1994 1995 1996
--------------------------------------------------------------
% of % of % of
pretax pretax pretax
Amount earnings Amount earnings Amount earnings
------ -------- ------ -------- ------- --------
Computed statutory
federal tax
<S> <C> <C> <C> <C> <C> <C>
expense $ 7,503 35.0% $ 6,924 35.0% $ 7,449 35.0%
Change in tax expense
resulting from:
State income taxes,
net of federal
income tax effect 608 2.8 521 2.6 553 2.6
Employee benefit
deductions not
expensed for
book purposes (91) (.4) (120) (.6) (193) (.9)
Tax-exempt interest
income (55) (.3) (42) (.2) (45) (.2)
Other, net (74) (.3) (137) (.7) 147 .7
------- ---- ------- ---- ------- ----
Total income tax
expense $ 7,891 36.8 % $ 7,146 36.1 % $ 7,911 37.2 %
======= ==== ======= ==== ======= ====
</TABLE>
45
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(15) Profit Sharing Plan
The Company had a profit sharing plan covering all employees after one
year of service. In 1996, the structure of the plan was changed to a
401(k) plan format. The Company made no contributions to the 401(k) plan
in 1996. The contributions to the profit sharing plan for the years ended
December 31, 1994 and 1995 approximated $756,000 and $817,000,
respectively.
(16) Contingencies
In the normal course of business, the Company is involved in various legal
actions arising from its lending and collection activities. In the opinion
of management, the outcome of these legal actions will not significantly
affect the consolidated financial position of the Company.
(17) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of financial instruments at December 31, 1995 and 1996. Statement
107 defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale (amounts in
thousands):
1995 1996
------------------------ ------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
------------ ---------- --------- -------
Financial assets:
Cash and cash $ 113,670 113,670 49,232 49,232
equivalents
Investment securities 78,779 78,776 72,741 72,800
Mortgage-backed and
other asset-backed
securities 293,874 295,648 265,915 268,043
Mortgage-backed
derivatives 8,506 8,506 7,687 7,687
Loans receivable, net 931,159 958,238 1,061,524 1,080,881
FHLB stock 8,829 8,829 9,554 9,554
Financial liabilities:
Deposits 1,080,289 1,085,085 1,135,823 1,165,576
Advances from Federal
Home Loan Bank 125,670 127,931 122,515 123,478
Bonds payable 5,543 5,211 5,009 5,582
Advances by borrowers
for taxes and insurance 9,348 9,348 8,312 8,312
The following summarizes the major methods and assumptions used in
estimating the fair values of financial instruments.
46
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- -------------------------------------------------------------------------------
(17) Fair Value of Financial Instruments (continued)
Cash and cash equivalents are valued at their carrying amounts, which are
reasonable estimates of fair value due to the relatively short period to
maturity of the instruments.
The carrying amounts for federal funds sold, Federal Home Loan Bank (FHLB)
overnight deposits, and other interest-earning assets approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The carrying amount for the Company's
investment in FHLB stock approximates fair value because excess stock held
can be sold for par value to the FHLB.
Investment, mortgage-backed and other asset-backed securities are valued
based on bid prices published in financial newspapers or bid quotations
received from securities dealers or brokers. Statement 107 specifies that
fair values should be calculated based on the value of one unit without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, or
estimated transaction costs.
Fair values of loans are estimated in accordance with Statement 107 for
portfolios of loans with similar financial characteristics. Loans are
segregated by type such as residential mortgages, nonresidential
mortgages, and other loans. Each loan category is further segmented into
fixed and adjustable rate interest terms and by performing and
nonperforming categories. Fair values of loans, except performing
residential mortgage loans, are calculated by discounting scheduled cash
flows through the estimated maturity, based on the Company's historical
experience with repayments for each loan classification, modified as
required, by an estimate of the effect of current economic and lending
conditions. For performing residential mortgage loans, fair value is
estimated by discounting contractual cash flows adjusted for prepayment
estimates based on industry averages. The estimated market discount rates
used in the calculations are the new loan rates offered by the Company on
similar types of loans.
Fair values of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings accounts and advances by
borrowers for taxes and insurance, are determined to be the amount payable
on demand. The fair values of certificates of deposit, advances from the
Federal Home Loan Bank, and bonds payable are based on the discounted
value of contractual cash flows. The discount rates are estimated using
the rates currently offered for similar instruments with similar remaining
maturities.
Unrecorded financial instruments consist of commitments to fund loans and
standby letters of credit. The fair value of these commitments, based on
fees currently charged for similar commitments, is not significant.
47
<PAGE>
FIRST COLORADO BANCORP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
-------------------------------------------------------------------------
(18) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data of the Company for the eight
quarters ended December 31, 1996 are as follows (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------ ------------------------------------------------
March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $22,273 23,367 24,035 24,588 25,525 26,111 26,320 26,672
Net interest income 8,673 8,432 8,854 9,441 11,517 12,188 11,803 11 ,926
Provision (credit) for losses
on loans 59 134 (140) (548) 230 77 218 618
Net interest income after
provision credit for losses
on loans 8,614 8,298 8,994 9,989 11,287 12,111 11,585 11,308
Earnings (loss) before
income taxes 5,081 4,603 5,054 5,046 6,854 7,711 (333) 7,051
Net earnings (loss) 2,982 3,030 3,356 3,270 4,337 4,927 (172) 4,280
Earnings (loss) per common and
common equivalent share .47 .48 .53 .48 .23 .26 (.01) .25
</TABLE>
48
<PAGE>
FIRST COLORADO BANCORP, INC. AND SUBSIDIARIES
Consolidating Schedule - Financial Condition
December 31, 1996
(Amounts in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Consolidated
Assets FFB FSIC FSIS FSSC Eliminations FFB FCB Eliminations FCB
------ --- ---- ---- ---- ------------ --- --- ------------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 21,446 278 187 27 (491) 21,447 44 (42) 21,449
Federal funds sold 15,000 -- -- -- -- 15,000 -- -- 15,000
Other interest-earning
assets 12,777 -- -- -- -- 12,777 6 -- 12,783
----------- ----- --- ----- ------ --------- ------- -------- ---------
Cash and cash
equivalents 49,223 278 187 27 (491) 49,224 50 (42) 49,232
Investment securities 72,506 -- -- -- -- 72,506 235 -- 72,741
Mortgage-backed and other
asset-backed securities 275,710 -- -- 5,579 -- 281,289 -- -- 281,289
Loans receivable, net 1,061,524 -- -- -- -- 1,061,524 33,593 (33,593) 1,061,524
Accrued interest receivable 7,985 -- -- 74 -- 8,059 -- -- 8,059
Federal Home Loan Bank stock,
at cost 9,554 -- -- -- -- 9,554 -- -- 9,554
Real estate owned, net 1,457 -- -- -- -- 1,457 -- -- 1,457
Office properties and
equipment, net of
accumulated depreciation
and amortization 22,907 -- 23 -- -- 22,930 -- -- 22,930
Real estate held for
investment and development -- 2,038 -- -- (13) 2,025 -- -- 2,025
Investment in subsidiaries 3,022 -- -- -- (3,022) -- 184,330 (184,330) --
Income taxes receivable 511 4 5 7 -- 527 62 -- 589
Investment in property tax
certificates, at cost -- 6 -- -- -- 6 -- -- 6
Other assets 4,627 53 2 -- -- 4,682 -- -- 4,682
----------- ----- --- ----- ------ --------- ------- -------- ---------
Total assets $ 1,509,026 2,379 217 5,687 (3,526) 1,513,783 218,270 (217,965) 1,514,088)
=========== ===== === ===== ====== ========= ======= ======== =========
Liabilities and Stockholders'
Equity
Deposits $ 1,136,356 -- -- -- (491) 1,135,865 -- (42) 1,135,823
Advances from Federal Home
Loan Bank 122,515 -- -- -- -- 122,515 -- -- 122,515
Bonds payable -- -- -- 5,009 -- 5,009 -- -- 5,009
Note payable to FCB 33,593 -- -- -- -- 33,593 -- (33,593) --
Advances by borrowers for
taxes and insurance 8,312 -- -- -- -- 8,312 -- -- 8,312
Advances from FCB -- -- -- 1,530 (1,530) -- -- -- --
Deferred income taxes
(receivable) 4,969 141 (1) -- -- 5,109 9 -- 5,118
Deferred income (loss) 735 -- -- -- (13) 722 -- -- 722
Other liabilities 18,217 30 47 38 (3) 18,329 1,636 -- 19,965
----------- ----- --- ----- ------ --------- ------- -------- ---------
1,324,697 171 46 6,577 (2,037) 1,329,454 1,645 (33,635) 1,297,464
Common stock 100 3,821 50 10 (3,881) 100 2,013 (100) 2,013
Additional paid-in-capital 87,951 -- -- -- -- 87,951 236,460 (172,830) 151,581
Treasury stock -- -- -- -- -- -- (28,957) -- (28,957)
Unearned ESOP shares (12,063) -- -- -- -- (12,063) -- -- (12,063)
Unearned MRP/MSBP shares (3,929) -- -- -- -- (3,929) -- -- (3,929)
Net unrealized gain on
securities available-for-
sale 351 -- -- -- -- 351 14 -- 365
Retained earnings (deficit),
partially restricted 111,919 (1,613) 121 (900) 2,392 111,919 7,095 (11,400) 107,614
----------- ----- --- ----- ------ --------- ------- -------- ---------
Total liabilities and
stockholders' equity 184,329 2,208 171 (890) (1,489) 184,329 216,625 (184,330) 216,624
----------- ----- --- ----- ------ --------- ------- -------- ---------
$ 1,509,026 2,379 217 5,687 (3,526) 1,513,783 218,270 (217,965) 1,514,088
=========== ===== === ===== ====== ========= ======= ======== ========
</TABLE>
See accompanying independent auditors' report.
49
<PAGE>
FIRST COLORADO BANCORP, INC. AND SUBSIDIARIES
Consolidating Schedule-Operations and Retained Earnings
Year Ended December 31, 1996
(Amounts in thousands)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Consolidated
FFB FSIC FSIS FSSC Eliminations FFB FCB Eliminations FCB
--- ---- ---- ---- ------------ --- --- ------------ ----
Interest income:
<S> <C> <C> <C> <C> <C>
Interest on loans receivable $ 78,842 -- -- -- -- 78,842 3,574 (3,574) 78,842
Interest on mortgage-backed and
other asset-backed securities 18,656 -- -- 467 -- 19,123 -- -- 19,123
Interest and dividends on investment
securities 5,435 2 -- 6 (3) 5,440 1 (1) 5,440
Interest on federal funds sold and
other interest-earning assets -- -- -- -- -- -- -- -- --
interest-earning assets 1,222 -- -- -- -- 1,222 1 -- 1,223
--------- ------ --- ---- ----- ------- ----- ------ -------
Total interest income 104,155 2 -- 473 (3) 104,627 3,576 (3,575) 104,628
Interest expense:
Interest on deposits 48,996 -- -- -- (3) 48,993 -- (1) 48,992
Interest on advances from Federal
Home Loan Bank 10,110 -- -- -- -- 10,110 -- (2,408) 7,702
Other interest expense -- -- -- 501 -- 501 -- (1) 500
--------- ------ --- ---- ----- ------- ----- ------ -------
Total interest expense 59,106 -- -- 501 (3) 59,604 -- (2,410) 57,194
--------- ------ --- ---- ----- ------- ----- ------ -------
Net interest income (expense) 45,049 2 -- (28) -- 45,023 3,576 (1,165) 47,434
Provision for losses on loans 1,143 -- -- -- -- 1,143 -- -- 1,143
--------- ------ --- ---- ----- ------- ----- ------ -------
Net interest income (expense)
after provision for losses on
loans 43,906 2 -- (28) -- 43,880 3,576 (1,165) 46,291
Noninterest income:
Fees and service charges 4,773 -- -- -- -- 4,773 -- -- 4,773
Gain on sale of loans, net 218 -- -- -- -- 218 -- -- 218
Equity in income of subsidiaries 180 -- -- -- (180) -- 11,400 11,400) --
Income from real estate operations,
net 137 200 -- -- -- 337 -- -- 337
Rental income 181 -- -- -- (11) 170 -- -- 170
--------- ------ --- ---- ----- ------- ----- ------ -------
5,489 200 -- -- (191) 5,498 11,400 11,400) 5,498
Noninterest expense:
Compensation 13,131 1 247 1 -- 13,380 -- (1,165) 12,215
Occupancy 3,799 -- 11 -- (5) 3,805 -- -- 3,805
Provision for losses on real
estate owned 3 -- -- -- -- 3 -- -- 3
Credit for losses on federal
funds sold (618) -- -- -- -- (618) -- -- (618)
Professional fees 655 3 -- 36 -- 694 85 -- 779
Advertising 996 -- 6 -- -- 1,002 -- -- 1,002
Printing, supplies and postage 1,068 -- 10 -- -- 1,078 15 -- 1,093
FDIC premiums 9,392 -- -- -- -- 9,392 -- -- 9,392
Other, net 3,026 18 (469) 2 (4) 2,573 262 -- 2,835
--------- ------ --- ---- ----- ------- ----- ------ -------
31,452 22 (195) 39 (9) 31,309 362 (1,165) 30,506
--------- ------ --- ---- ----- ------- ----- ------ -------
Earnings (loss) before income
taxes 17,943 180 195 (67) (182) 18,069 14,614 11,400) 21,283
Income tax expense (benefit):
Current 6,545 43 79 (7) -- 6,660 1,242 -- 7,902
Deferred (2) 26 (5) (10) -- 9 -- -- 9
--------- ------ --- ---- ----- ------- ----- ------ -------
Total income tax expense
(benefit) 6,543 69 74 (17) -- 6,669 1,242 -- 7,911
--------- ------ --- ---- ----- ------- ----- ------ -------
Net earnings (loss) 11,400 111 121 (50) (182) 11,400 13,372 11,400) 13,372
Retained earnings (deficit), beginning
of year 100,519 (1,724) 43 (850) 2,531 100,519 -- -- 100,519
--------- ------ --- ---- ----- ------- ----- ------ -------
Dividends declared -- -- (43) -- 43 -- (6,277) -- (6,277)
--------- ------ --- ---- ----- ------- ----- ------ -------
Retained earnings (deficit), end of
year $ 111,919 (1,613) 121 (900) 2,392 111,919 7,095 11,400) 107,614
========= ====== === ==== ===== ======= ===== ====== =======
</TABLE>
See accompanying independent auditors' report.
50
<PAGE>
Board of Directors
Malcolm E. Collier, Jr., has been a director of the Bank since 1966 and has been
Chief Executive Officer and Chairman of First Federal Bank since 1972 and 1989
respectively, and President, Chairman, and C.E.O. of First Colorado Bancorp
since its formation in September, 1995. He has served in various officer
capacities with the Bank since 1962.
Robert W. Richards began his service on the Board of Directors shortly after his
appointment as President and Chief Operating Officer of First Federal Bank in
1996. A First Federal Bank employee since 1976, Mr. Richards has served as a
branch office manager, manager of commercial loans and, as Executive Vice
President, headed the lending operations of the bank.
Leeon E. Hayden has been a director of the Bank since 1956 and of the Company
since its formation in September, 1995. Mr. Hayden is a retired attorney from
the firm of Leeon E. Hayden, P.C.
John J. Nicholl has been a director of the Bank since 1969 and of the Company
since its formation in September, 1995. Mr. Nicholl served as a Commissioner of
Arapahoe County from 1989 until his retirement in January of 1997. He also
served in that position from 1965 to 1980. He was self-employed (semi-retired)
from 1981 to 1988. Prior to that time, he owned and operated Arapahoe Surveys, a
land survey company.
E. William Foerster, Jr., has been a director of the Bank since 1973 and of the
Company since its formation in September, 1995. Mr. Foerster is the President
and majority stockholder of EZT Fastener Co, Inc., Englewood, Colorado, and
three other companies, all of which engage in manufacturing and distributing.
Robert T. Person, Jr., has been a director of the Bank since 1975 and of the
Company since its formation in September, 1995. Mr. Person has been the sole
owner of Robert Person Communications, a management consulting practice in
Denver, Colorado, commencing in 1991. He was Vice President of the Public
Service Company of Colorado, a gas and electric utility in Denver, Colorado,
from 1978 to 1991.
Stephen A. Burkholder has been a director of the Bank since 1987 and of the
Company since its formation in September, 1995. Mr. Burkholder has been the sole
owner of the A&S Group, a marketing and distribution firm in Lakewood, Colorado
since April of 1994. He was a long term care specialist with AMEX Life Assurance
Company since August, 1993. Prior to that time, he served as Western Regional
Manager for Hirsch USA, a watch company, commencing in 1991, Western Regional
Sales Manager for CSC Time Corporation commencing in 1990, and Sales
Representative for Seiko Time Corporation from 1973 to 1990.
Polly Baca has been a director of the Bank since 1990 and of the Company since
its formation in September, 1995. Ms. Baca is presently the Regional
Administrator of the United States General Services Administration Rocky
Mountain Region. In 1994 she served as a Special Assistant to President Clinton
and Director of the United States Office of Consumer Affairs. She was Executive
Director of the Colorado Institute for Hispanic Education from 1989 to 1993,
President and Sole Proprietor of the consulting firm Sierra Baca Systems from
1985 to 1989, and served as Colorado State Senator from 1979 to 1986.
James R. Wexels has been a director of the Bank since 1993 and of the Company
since its formation in September, 1995. Mr. Wexels has been employed by Public
Service Company of Colorado, a gas and electric utility, since 1966 and
currently serves as Manager, Governmental Affairs.
In memoriam...
In 1996 all of us at First Colorado Bancorp and First Federal Bank were saddened
by the sudden death of John R. Newman at the age of 63. Mr. Newman retired in
June of 1995 as President and Chief Operating Officer of First Federal, having
been an active employee of the Bank for 36 years. He continued as a member of
the Board of Directors, and was Vice-Chairman at the time of his death. During
his three-plus decades at First Federal, he served in many capacities. He was
elected to the Board in 1980, and became President of the Bank in 1989. Mr.
Newman volunteered his time and talents in the Jeffco school system, service
related projects at his church, and elsewhere. He was a nationally recognized
triathlete in his age group, and frequently competed in national and world
competitions, most notably the Boston Marathon.
We were also saddened this past year at the death of Kay McGuire. Kay was a
senior programmer/analyst and programming coordinator in the Information Systems
department at First Federal Bank. She designed many of First Federals accounting
programs, federal reporting and lending systems, and had been a part of First
Federals family of employees since 1979.
51
<PAGE>
Corporate Information and Officers
Corporate Information
EXECUTIVE OFFICES
First Colorado Bancorp, Inc.
215 S. Wadsworth Blvd.
Lakewood, Colorado 80226
(303) 232-2121 FAX: (303) 237-2494
STOCK TRANSFER AGENT
American Securities Transfer
938 Quail Street, Suite 101
Lakewood, Colorado 80215-5513
(303) 234-5300
NATIONAL MARKET SYSTEM
NASDAQ
STOCK SYMBOL
FFBA
FINANCIAL PAPER LISTING
FtColoBcp
LEGAL COUNSEL
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, NW
Washington, D.C. 20005
AUDITORS
KPMG Peat Marwick LLP
707 17th St.
Denver, Colorado 80202
ANNUAL MEETING
The annual meeting of stockholders of First Colorado Bancorp will be held on
Wednesday, April 30, 1997, at 3:00 p.m. at the Arvada Center for the Arts and
Humanities, 6901 Wadsworth Blvd., Arvada, Colorado.
FORM 10-K
A copy of the 1996 Form 10-K, as filed with the Securities and Exchange
Commission, will be furnished without charge to stockholders as of the record
date upon written request to the Secretary, First Colorado Bancorp, Inc., 215 S.
Wadsworth Blvd., Lakewood, Colorado 80226.
Officers of the Company
Malcolm E. Collier, Chairman, President /C.E.O.
Brian L. Johnson, Vice President/Treasurer
Elaine M. Samuelson, Secretary
Officers of the Bank
Malcolm E. Collier, Chairman/C.E.O.
Robert W. Richards, President/C.O.O.
Brian L. Johnson, Executive Vice President/C.F.O.
James M. Rooney, Executive Vice President
Robert P. Easterly, Senior Vice President
Robert A. Francis, Senior Vice President
Elaine M. Samuelson, Senior Vice President/Secretary
Ken Boggs, Vice President
Cecil L. Cooksey, Vice President
Linda Erickson, Vice President/Controller
George E. Hamblin, Jr., Vice President
John H. Johnson, Vice President
William Marcoux, Vice President/Treasurer
Patricia McMillan, Vice President
Annette Spreier, Vice President
Jim Burkey, Vice President/Regional Manager
Lew deSpain, Vice President/Regional Manager
Jennifer L. Swanson, Vice President/Regional Manager
Barbara D. Timson, Vice President/Regional Manager
Linda Chavez, Vice President/Branch Manager
J.W. Edwards, Vice President/Branch Manager
Leroy Binder, Assistant Vice President
Jackie Brown, Assistant Vice President
Tom Deitemeyer, Assistant Vice President
David Esmoer, Assistant Vice President
Julie Haynes, Assistant Vice President
Jill Kennedy, Assistant Vice President
Tracy Law, Assistant Vice President
Jeanne Nelson, Assistant Vice President
Jean Orr, Assistant Vice President
Lori Siegling, Assistant Vice President
Veronica Ware, Assistant Vice President
52
<PAGE>
ARVADA
5805 Carr St., 80004 202-5478
Virginia Hoskins, Asst. Vice President/Manager
12880 W. 64th Avenue, 80004 202-5529
Jennifer Swanson, Vice President/Regional Manager
AURORA
1389 S. Havana, 80012 202-5306
Tracy Wich, Asst. Vice President/Manager
13781 E. Yale Avenue, 80014 202-5539
Kay Pugh, Asst. Vice President/Manager
16778 Smoky Hill Road, 80015 202-5480
Lew deSpain, Vice President/Regional Manager
BRIGHTON
1795 E. Bridge St., 80601 202-5330
J.W. Edwards, Vice President/Manager
COMMERCE CITY
7326 Magnolia St., 80022 202-5333
Kathleen Tipton, Asst. Vice President/Manager
DELTA
564 Main St., 81416 874-8636
Bob Calloway, Asst. Vice President/Manager
DENVER
216 16th St., Denver, 80202 202-5535
Barbara Timson, Vice President/Regional Manager
750 S. University, 80209 202-5452
Vivienne Alvarez, Asst. Vice President/Manager
3610 E. 1st Ave., Denver, 80206 202-5445
Steve Kessler, Asst. Vice President/Manager
3460 W. 38th Ave., 80211 202-5307
Lawrence L. Lucero, Asst. Vice President/Manager
2050 S. Downing, 80210 202-5521
Melinda Anderson, Asst. Vice President/Manager
4850 Chambers Rd., 80239 202-5537
Dennis Young, Asst. Vice President/Manager
ENGLEWOOD
4301 S. Broadway, 80110 202-5479
Linda Chavez, Vice President/Manager
GOLDEN
701 13th St., 80401 202-5533
Brenda Kottke, Asst. Vice President/Manager
GRAND JUNCTION
130 N. 4th St., 81502 242-6642
Terri Stang, Asst. Vice President/Manager
2452 Patterson Rd., 81502 245-5234
Jim Burkey, Vice President/Regional Manager
HIGHLANDS RANCH
7120 E. County Line Road, 80126 202-5412
Kathy Buck, Asst. Vice President/Manager
LAKEWOOD
215 S. Wadsworth, 80226 202-5536
Bill Christopher, Asst. Vice President/Manager
LITTLETON
6775 W. Ken Caryl, 80123 (Columbine) 202-5534
Wally Sackett, Asst. Vice President/Manager
LOUISVILLE
865 S. Boulder Rd., 80027 202-5455
Joe Dawson, Asst. Vice President/Manager
GREENWOOD VILLAGE
6050 S. Holly St., 80121 202-5472
Barry Hill, Asst. Vice President/Manager
MONTROSE
1105 S. Townsend Ave., 81401 249-9667
Bill Clanton, Asst. Vice President/Manager
THORNTON
12080 Colorado Blvd., 80241 202-5303
Tanya Rudman, Asst. Vice President/Manager
WESTMINSTER
9150 N. Sheridan, 80030 202-5545
Cindy Lauffenberger, Asst. Vice President/Manager
OPENING SUMMER OF 97...
Highlands Ranch West
9285 S. Broadway, 80126 202-5420
Terry Miller, Asst. Vice President/Manager
53
EXHIBIT 23
CONSENT OF KPMG PEAT MARWICK LLP
<PAGE>
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders of
First Colorado Bancorp, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 of First Colorado Bancorp, Inc. related to the First Colorado Bancorp, Inc.
1992 Stock Option Plan and First Colorado Bancorp, Inc. 1996 Stock Option Plan
of our report dated March 7, 1997, relating to the consolidated statements of
financial condition of First Colorado Bancorp, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the December
31, 1996 annual report on Form 10-K of First Colorado Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1997
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