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
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 000-20739
EAGLE BANCGROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 37-1353957
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
301 FAIRWAY DRIVE, BLOOMINGTON, IL 61701
(Address of Principal Executive Offices) (Zip Code)
(309) 663-6345
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the 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 the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES XX NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405) of this chapter) is not contained
herein, and will not be contained, to the best of the 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. XX
As of March 18, 1999, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $18,570,000 (825,320
shares at $22.50 per share). The per share price of $22.50 is based on the
last sale price of the common stock at March 17, 1999, as reported by The
Nasdaq Stock Market.
As of March 18, 1999, there were 1,067,456 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Annual Report to Stockholders for the Fiscal Year Ended December 31,
1998--Part I and II.
1999 Notice and Proxy Statement for the Annual Meeting of Stockholders to
be held on April 21, 1999--Part III
-Page 1-
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 41
Item 3. Legal Proceedings 41
Item 4. Submission of Matters to a Vote of
Security Holders 41
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Matters 42
Item 6. Selected Financial Data 42
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 42
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk 42
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners
and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 43
Signatures 44
Exhibit Index 45
-Page 2-
PART I
Item 1. BUSINESS
Eagle BancGroup, Inc. ('Eagle'), a non-diversified unitary savings and
loan holding company as defined in the Home Owners' Loan Act, as amended, was
incorporated as a Delaware corporation on January 24, 1996. Eagle owns all of
the common stock of First Federal Savings and Loan Association, Bloomington,
Illinois ('First Federal'). In June, 1996, First Federal converted from a
mutual savings association to a capital stock savings association at which
time Eagle acquired all of the common stock of First Federal. Eagle conducted
a subscription stock offering simultaneous to the charter conversion which
resulted in the issuance of 1,302,705 shares of Eagle's common stock. At
present, Eagle is engaged only in the business of managing its investments and
directing, planning and coordinating the business activities of First Federal.
In the future, Eagle may expand its current operations or acquire or
organize other first-tier subsidiaries, including other financial
institutions. At present, however, there are no agreements, plans or
understandings for such expansion. For the foreseeable future, Eagle expects
that First Federal will continue to be the major source of Eagle's assets,
revenues and net income. Eagle does not maintain separate offices from First
Federal and does not separately employ or compensate its officers.
At December 31, 1998, Eagle had consolidated total assets of $180,101,000
and stockholders' equity of $19,697,000. At December 31, 1998, Eagle was the
third largest financial institution holding company headquartered in McLean
county, Illinois, based on its consolidated assets as of that date.
First Federal
First Federal is a federally-chartered capital stock savings association
regulated by the Office of Thrift Supervision (the 'OTS') and its deposits are
insured by the Federal Deposit Insurance Corporation (the 'FDIC') through the
Savings Association Insurance Fund (the 'SAIF'). First Federal was originally
chartered in 1919. At December 31, 1998, First Federal had total assets of
$178,616,000, deposit accounts of $134,722,000 and stockholders' equity of
$17,031,000.
First Federal conducts business from its main office in Bloomington,
Illinois and three full service branch offices located in Bloomington, LeRoy
and Lexington, Illinois. All three cities are located in central Illinois in
McLean County, the largest county geographically in Illinois. From
Bloomington, LeRoy is approximately 20 miles southeast and Lexington is
approximately 20 miles northeast. Both Lexington and LeRoy are adjacent to
interstate highways that circle around Bloomington. The Lexington branch
opened in December, 1998, in an office building that the branch rents from and
shares with a local insurance agency. The branch is managed by one of the
insurance agents, who splits time between the two entities. There are no
other common employees between the branch and the insurance agency and the two
entities are not affiliated in any other way.
First Federal's primary market area is McLean and DeWitt Counties.
DeWitt County is directly southeast of McLean County. Bloomington and its
adjacent sister city, Normal, have a combined population of 100,000. Outside
of Bloomington-Normal, McLean and Dewitt Counties feature a mix of small
-Page 3-
communities and rural areas with a population of approximately 60,000. LeRoy
has the largest population of the twenty other communities in McLean County
while Lexington is the fourth largest. The local population is projected to
grow 4.5% in the next five years which is more than double the 2% projected
population increase in the state of Illinois. No other major downstate
Illinois metropolitan area population is projected to grow more than 2.4%.
The economy of the region is diversified in four major sectors-
agriculture, education, manufacturing and insurance. Bloomington-Normal is
home to two large insurance companies, two four-year universities and numerous
national manufacturers. McLean County annually ranks at or near the top
nationally in corn and soybean production per county. This diversification
has resulted in a strong, growing local economy that is expected to continue
to grow in the future.
The principal business of First Federal has been and continues to be
attracting retail deposits in its primary market area from the general public
and investing those deposits, along with funds generated from operations and
borrowings, in one-to-four family residential mortgage loans, commercial real
estate loans, commercial business loans, automobile and other consumer loans
and mortgage-backed and other investment securities. Residential mortgage
loans are originated primarily for sale in the secondary market, with
servicing rights retained by First Federal on approximately twenty percent of
the loans sold. Revenues are derived principally from interest on residential
mortgage, consumer loans, commercial loans, interest and dividends on
mortgage-backed and other investment securities and, to a lesser extent, loan
fees, loan servicing income and gains on sale of loans. Primary sources of
funds are deposits, principal and interest payments on loans, mortgage-backed
and other investment securities, FHLB advances and proceeds from the sale of
residential mortgage loans.
In August, 1997, David R. Wampler joined First Federal as President and
Director. Having worked at two local commercial banks for 15 years, the last
four years as President and Chief Executive Officer of his former employer,
Mr. Wampler brought extensive experience in the local commercial banking
market. First Federal had increased its activity in commercial real estate
and commercial business loans in 1997 prior to Mr. Wampler's addition. Since
then, First Federal has continued to diversify its lending portfolio by
selling at origination most residential mortgage loans and by actively
pursuing commercial loans, commercial real estate loans and direct consumer
loans more aggressively than in prior years. Mr. Wampler was also appointed
Director of Eagle. Donald L. Fernandes remains as Chief Executive Officer and
Chairman of First Federal.
In November, 1998, Donald L. Lambert joined First Federal as Vice-
President-Retail Banking Services. Mr. Lambert previously worked for another
local bank in a similar capacity.
First Federal competes with fourteen other savings institutions and banks
as well as numerous credit unions, finance companies and other financial
intermediaries in its primary market area. Competition has been and will
continue to be intense with respect to attracting deposits and making loans.
Interest rates and customer service are the primary factors affecting
competition for deposits and loans. In 1999, First Federal will celebrate its
80th year of serving the financial needs of Bloomington-Normal and McLean
-Page 4-
County. First Federal's history and a tradition of customer service are
advantages current and future customers have in addition to locally
competitive interest rates on deposits and loans. First Federal offers a
variety of demand, savings and time deposit products.
First Federal has one wholly-owned service corporation, FFS Investment
Services ('FFS'), which was incorporated in Illinois on March 25, 1994. FFS
sold investment products, including annuities, offered by PrimeVest Financial
Services, Inc., a specialty brokerage firm, through December 31, 1998. The
agreement between FFS and PrimeVest expired on December 31, 1998 and was not
renewed. As of January 1, 1999, FFS will sell investment products through
Mutual Service Corporation, under an agreement between FFS and Secord Asset
Management. Customers seeking alternatives to the deposit products at First
Federal have access to other financial products through the FFS staff.
Collectively, Eagle, First Federal and FFS are referred to herein as 'the
Company'.
-Page 5-
<TABLE>
Average Balance Sheets
The following table sets forth information with respect to average
balances of assets and liabilities, dollar amounts of interest income or
expense from average interest-earning assets and interest-bearing liabilities,
respectively, resultant yields and costs, interest rate spreads, net interest
margins and the ratio of interest-earning assets to interest-bearing
liabilities for the periods indicated. Average balances for each period have
been calculated using the average of month-end balances during such period,
the use of which management of the Company believes are not materially
different from averages calculated using the daily balances (amounts in
thousands):
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
Average Interest & Yield/
Balance Dividends Cost
<S> <C> <C> <C>
Interest-earning assets <F1>:
Mortgage loans <F2> $ 83,398 $ 6,252 7.50%
Indirect auto loans 18,266 1,598 8.75
Other consumer loans 11,432 1,075 9.40
Other loans 7,150 592 8.28
Total loans 120,246 9,517 7.91
Mortgage-backed securities:
Collateralized mortgage obligations 8,765 468 5.34
Other mortgage-backed securities 19,189 1,115 5.81
Investment securities 14,857 873 5.88
Overnight and short-term investments 7,729 403 5.21
Federal Home Loan Bank stock 1,305 86 6.59
Total interest-earning assets 172,091 12,462 7.24
Non-interest-earning assets:
Premises and equipment, net 2,789
Real estate, net 688
Other non-interest-earning assets 2,257
Total assets 177,825
Interest-bearing liabilities:
Passbook accounts 15,599 549 3.52
NOW accounts 11,129 272 2.44
Money market accounts 2,081 58 2.79
Certificates of deposit 104,045 6,103 5.87
Total deposits 132,854 6,982 5.26
FHLB advances and other borrowed funds 22,838 1,226 5.37
Total interest-bearing liabilities 155,692 8,208 5.27
Non-interest bearing liabilities:
Non-interest bearing deposits 552
Other liabilities 1,164
Total liabilities 157,408
Stockholders' equity 20,417
Total liabilities and
stockholders' equity $177,825
Net interest income $4,254
Interest rate spread 1.97
Net interest margin 2.47%
Average interest-earning assets to
average interest-bearing liabilities 1.11x
-Page 6-
FOR THE YEAR ENDED DECEMBER 31, 1997
Average Interest & Yield/
Balance Dividends Cost
Interest-earning assets <F1>:
Mortgage loans <F2> $ 86,619 $ 6,633 7.66%
Indirect auto loans 21,355 1,834 8.59
Other consumer loans 8,238 848 10.29
Other loans 1,828 157 8.59
Total loans 118,040 9,472 8.02
Mortgage-backed securities:
Collateralized mortgage obligations 15,448 881 5.70
Other mortgage-backed securities 14,045 857 6.10
Investment securities 14,667 897 6.12
Overnight and short-term investments 2,649 143 5.40
Federal Home Loan Bank stock 1,126 76 6.75
Total interest-earning assets 165,975 12,326 7.43
Non-interest-earning assets:
Premises and equipment, net 2,876
Real estate, net 651
Other non-interest-earning assets 2,451
Total assets 171,953
Interest-bearing liabilities:
Passbook accounts 15,832 579 3.66
NOW accounts 6,751 132 1.96
Money market accounts 2,438 70 2.87
Certificates of deposit 106,491 6,285 5.90
Total deposits 131,512 7,066 5.37
FHLB advances and other borrowed funds 17,905 1,055 5.89
Total interest-bearing liabilities 149,417 8,121 5.44
Non-interest bearing liabilities:
Non-interest bearing deposits 786
Other liabilities 1,045
Total liabilities 151,248
Stockholders' equity 20,705
Total liabilities and
stockholders' equity $171,953
Net interest income $4,205
Interest rate spread 1.99
Net interest margin 2.53%
Average interest-earning assets to
average interest-bearing liabilities 1.11x
-Page 7-
FOR THE YEAR ENDED DECEMBER 31, 1996
Average Interest & Yield/
Balance Dividends Cost
Interest-earning assets <F1>:
Mortgage loans <F2> $65,224 $4,862 7.45%
Indirect auto loans 22,962 1,985 8.64
Other consumer loans 8,346 754 9.03
Other loans 848 80 9.43
Total loans 97,380 7,681 7.89
Mortgage-backed securities:
Collateralized mortgage obligations 19,583 1,153 5.89
Other mortgage-backed securities 19,499 1,205 6.18
Investment securities 13,916 832 5.98
Overnight and short-term investments 3,106 172 5.54
Federal Home Loan Bank stock 760 51 6.71
Total interest-earning assets 154,244 11,094 7.19
Non-interest-earning assets:
Premises and equipment, net 2,997
Real estate, net 649
Other non-interest-earning assets 1,506
Total assets 159,396
Interest-bearing liabilities:
Passbook accounts 15,462 577 3.73
NOW accounts 5,338 96 1.80
Money market accounts 2,964 85 2.87
Certificates of deposit 111,859 6,673 5.97
Total deposits 135,623 7,431 5.48
FHLB advances and other borrowed funds 4,386 272 6.20
Total interest-bearing liabilities 140,009 7,703 5.50
Non-interest bearing liabilities:
Non-interest bearing deposits 549
Other liabilities 1,682
Total liabilities 142,240
Stockholders' equity 17,156
Total liabilities and
stockholders' equity $159,396
Net interest income $3,391
Interest rate spread 1.69
Net interest margin 2.20%
Average interest-earning assets to
average interest-bearing liabilities 1.10x
<FN>
<F1>
Does not include interest on loans 90 days or more past due.
<F2>
Includes one-to-four family, construction, multi-family and commercial
real estate loans and loans held for sale.
</FN>
</TABLE>
-Page 8-
<TABLE>
The following table sets forth the effects of changing interest rates
and volumes of interest-earning assets and interest-bearing liabilities on net
interest income. Information is provided with respect to (i) effects on
interest income attributable to changes in rate (changes in rate multiplied by
prior volume), (ii) effects on interest income attributable to changes in
volume (changes in volume multiplied by prior rate) and (iii) changes in
rate/volume (change in rate multiplied by change in volume) (amounts in
thousands):
<CAPTION>
1998 COMPARED TO 1997
Rate/
Rate Volume Volume Net
<S> <C> <C> <C> <C>
Interest earning-assets <F1>:
Mortgage loans <F2> $(139) $(247) $ 5 $(381)
Indirect auto loans 34 (265) (5) (236)
Other consumer loans (73) 329 (29) 227
Other loans (6) 457 (16) 435
Total loans (184) 274 (45) 45
Mortgage-backed securities:
Collateralized mortgage obligations (56) (381) 24 (413)
Other mortgage-backed securities (41) 314 (15) 258
Investment securities (35) 12 (1) (24)
Overnight and short-term investments (5) 274 (9) 260
Federal Home Loan Bank Stock (2) 12 - 10
Total net change in income on
interest-earning assets (323) 505 (46) 136
Interest-bearing liabilities:
Passbook accounts (22) (8) - (30)
NOW accounts 33 85 22 140
Money market accounts (2) (10) - (12)
Certificates of deposit (38) (145) 1 (182)
Total deposits (29) (78) 23 (84)
FHLB advances and other borrowed funds (94) 291 (26) 171
Total net change in expense on
interest-bearing liabilities (123) 213 (3) 87
Net change in net interest income $(200) $292 $(43) $ 49
-Page 9-
1997 COMPARED TO 1996
Increase (Decrease) Due To
Rate/
Rate Volume Volume Net
Interest earning-assets <F1>:
Mortgage loans <F2> $133 $1,595 $43 $1,771
Indirect auto loans (13) (139) 1 (151)
Other consumer loans 105 (10) (1) 94
Other loans (7) 92 (8) 77
Total loans 218 1,538 35 1,791
Mortgage-backed securities:
Collateralized mortgage obligations (36) (244) 8 (272)
Other mortgage-backed securities (15) (337) 4 (348)
Investment securities 19 45 1 65
Overnight and short-term investments (4) (25) - (29)
Federal Home Loan Bank Stock - 25 - 25
Total net change in income on
interest-earning assets 182 1,002 48 1,232
Interest-bearing liabilities:
Passbook accounts (12) 14 - 2
NOW accounts 9 25 2 36
Money market accounts - (15) - (15)
Certificates of deposit (71) (320) 3 (388)
Total deposits (74) (296) 5 (365)
FHLB advances and other borrowed funds (13) 838 (42) 783
Total net change in expense on
interest-bearing liabilities (87) 542 (37) 418
Net change in net interest income $269 $ 460 $85 $814
<FN>
<F1>
Does not include interest on loans 90 days or more past due
<F2>
Includes one-to-four family, construction, multi-family and commercial
real estate loans and loans held for sale.
</FN>
</TABLE>
-Page 10-
Lending Activities
In 1998, First Federal continued to follow the lending strategy adopted
in mid-1997 of selling at origination most residential mortgage loans,
emphasizing origination of commercial business, commercial real estate and
direct consumer loans and placing less emphasis on origination of indirect
automobile loans. This strategy was adopted to further diversify, increase
the average yield and improve the interest sensitivity of the loan portfolio
by replacing longer-term residential mortgage loans with shorter-term, higher-
yielding commercial and consumer loans. In addition, this strategy is
intended to increase non-interest income due to gains on sales of residential
mortgage loans and increased servicing income.
Prior to 1992, the loan portfolio consisted primarily of residential
mortgage loans that had been originated by First Federal. In 1992, for the
first time, First Federal sold selected residential mortgage loans, primarily
long-term, fixed-rate loans, in the secondary market. Fixed rate residential
mortgage loans with maturities of less than 15 years and adjustable rate
residential mortgage loans were generally retained in the portfolio. In 1993,
First Federal began originating indirect automobile loans through a network of
local automobile dealerships. This effort helped diversify and reduce the
interest sensitivity of the portfolio since indirect auto loans generally are
shorter term than residential mortgage loans. The balance of indirect
automobile loans increased each year through 1996.
The effects of the change in strategy in 1997 are evident in the
composition of the loan portfolio. One-to-four family residential mortgage
loans decreased over $20,800,000 while multi-family mortgage and commercial
real estate loans increased over $10,300,000, commercial business loans
increased over $6,200,000, other consumer loans increased over $2,400,000 and
indirect automobile loans decreased over $2,800,000 during 1998. At December
31, 1998, one-to-four family residential mortgage loans comprised 48% of gross
loans compared to 63% the previous two year-ends. Indirect auto loans
decreased to 14% of gross loans at December 31, 1998 from 16% at December 31,
1997 and 22% at December 31, 1996. Multi-family mortgage, commercial real
estate and commercial business loans comprised 25% of gross loans at December
31, 1998 compared to 11% at December 31, 1997.
-Page 11-
<TABLE>
The following table sets forth the composition of the loan portfolio as
of the dates indicated:
<CAPTION>
December 31,
1998 1997 1996
Amount Pct Amount Pct Amount Pct
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family <F1> $57,162 48.2% $77,994 62.7% $67,855 62.7%
Construction 1,947 1.6 3,009 2.4 1,183 1.1
Multi-family 11,514 9.7 5,080 4.1 1,562 1.4
Commercial real estate 10,729 9.1 6,791 5.5 3,827 3.5
Total mortgage 81,352 68.6 92,874 74.7 74,427 68.7
Indirect auto loans 16,755 14.1 19,593 15.7 23,640 21.8
Other consumer loans:
Direct auto 2,586 2.2 2,190 1.8 2,136 2.0
Home equity 8,313 7.0 5,810 4.7 4,904 4.5
Other consumer 1,170 1.0 1,643 1.3 1,479 1.4
Total other consumer 12,069 10.2 9,643 7.8 8,519 7.9
Commercial business loans 7,792 6.6 1,588 1.3 1,145 1.1
Accrued interest
receivable-all loans 638 .5 631 .5 523 .5
Gross loans 118,606 100 124,329 100 108,254 100
Less:
Due to borrowers on
construction loans (931) (871) (610)
Deferred loan fees (109) (114) (80)
Allowance for loan losses (1,015) (935) (923)
Net loans $116,551 $122,409 $106,641
<FN>
<F1>
Includes loans held for sale and construction loans converted to permanent
loans.
</FN>
</TABLE>
Other than the categories listed above, no other concentrations or categories
of loans exceeding 10% of total loans are known to exist.
One-to-Four Family Residential Lending. The primary lending activity of
First Federal has been the origination of first mortgage loans to enable
borrowers to purchase new or existing homes or to construct one-to-four family
homes located in First Federal's primary market area. Such lending includes
loans secured by detached single-family residences or condominiums and
individually owned residences in attached housing containing not more than
four separate dwelling units. Prior to 1998, one-to-four family residential
mortgage loans represented well over half of the loan portfolio and still
comprise 48% of the portfolio at December 31, 1998. Of the $162,709,000 in
loans originated in 1998, $102,583,000, or 63%, were one-to-four family
residential mortgage loans. The volume of loan originations in 1998 was due
to the declining rate environment during the year. The decrease in the amount
of residential mortgage loans in the portfolio was due primarily to customers
who refinanced portfolio loans that were then sold in the secondary market.
One-to-four family residential mortgage loans have contributed
significantly to interest income and have low delinquency and loss rates. The
-Page 12-
volume of residential mortgage loans sold in 1998 resulted in a substantial
increase in non-interest income in 1998 due to the gains on the loan sales.
To remain competitive, a variety of mortgage products are offered including
fixed or adjustable rate and term or balloon loans.
Fixed-rate, fixed-term residential mortgage loans are competitively
priced based primarily on the daily rate quotes received from the various
secondary market investors to whom loans are sold. Terms of 10, 15, 20 and 30
years are available. Prior to 1997, First Federal maintained a practice of
selling in the secondary market all new fixed-rate, fixed-term residential
mortgage loans with terms of over 15 years and some such loans with terms of
15 years or less depending on market conditions. The emphasis was changed in
the last six months of 1997 and now most new fixed-rate, fixed-term loans that
meet underwriting standards are sold in the secondary market. Loans are
primarily sold to either Federal National Mortgage Association ('FNMA'), a
government sponsored agency, or to other private corporate investors. At
December 31, 1998, fixed-rate, fixed-term loans represented about 45% of the
one-to-four family mortgage loans outstanding.
Adjustable-rate ('ARM') residential mortgage loans having initial
adjustment periods of one, three, five or seven years, with annual adjustments
thereafter and maturities of up to 30 years, are offered by First Federal.
ARM loans are adjusted at the beginning of each adjustment period based on a
fixed spread above the average yield on US Treasury securities as published by
the Federal Reserve Board. Generally, ARM loan rate adjustments are limited
to 2% per adjustment period and to 6% aggregate over the life of the loan. At
December 31, 1998, ARM loans represented about 40% of the one-to-four family
mortgage loans outstanding.
Prior to 1997, ARM loans were retained in First Federal's portfolio due
to the lower level of interest rate risk compared to fixed-rate, fixed-term
loans. Beginning in the last half of 1997, most new ARM loans that met
underwriting standards were sold in the secondary market. ARM loans do have
higher credit risk compared to fixed-rate loans due to the possibility of
borrower default when interest rates reset higher and monthly payment amounts
increase. ARM borrowers are normally qualified at the highest possible rate
to reduce credit risk.
Balloon loans are also offered by First Federal. These loans have fixed-
rates and fixed monthly payments (normally based on a 30 year amortization
schedule) but have a five or seven year term at which time the entire unpaid
principal balance is due. Borrowers have the option of renewing the loan at
then current rates. Balloon loans generally have lower interest rate risk
than fixed-rate, fixed-term loans but higher interest rate risk relative to
ARM loans since balloon loans usually are repriceable later than ARM loans but
sooner than fixed-term loans. As with new fixed-rate and ARM loans, new
balloon loans that meet underwriting standards are now sold in the secondary
market. About 15% of the one-to-four family mortgage loans outstanding at
December 31, 1998 were balloon loans.
Factors such as the general level of interest rates, competition, funds
availability and borrower preference all affect the amount and type of loans
originated. Generally, borrowers prefer ARM loans in periods of higher
interest rates and fixed-rate loans in periods of lower interest rates.
-Page 13-
One-to-four family mortgage loans are underwritten to FNMA guidelines to
allow for sale in the secondary market. If the loan to value ratio exceeds
80%, private mortgage insurance is required to cover the excess
above 80%. With private mortgage insurance, loan to value ratios cannot
exceed 95%. Title insurance or attorney's opinion to title is required as is
hazard insurance for any property securing mortgage loans.
Construction Loans. First Federal originates construction loans at the
request of borrowers but does not actively solicit such loans. Generally,
such loans are for construction of owner-occupied, single-family dwellings and
are usually converted to permanent mortgage financing upon completion. The
increase in construction loans in 1997 was due to one loan originated to a
group of qualified local developers to finance construction of a hotel in
McLean County. This project was completed in early 1998 and the loan was
converted to permanent financing and is included with commercial real estate
loans in the portfolio composition breakdown. Residential construction loans
usually have variable rates and have maturities of up to twelve months in
which time construction must be completed. Loan amounts usually do not exceed
80% of the estimated value of the completed property. Credit risk associated
with construction loans is higher than permanent loans due to uncertainty as
to the final value of the property, possible construction delays or
underestimation of construction costs. At December 31, 1998, construction
loans totaled $1,947,000, or 1.6% of gross loans. Other than the loan noted
above, no other commercial construction loans were outstanding during or at
the end of 1998.
Multi-Family Residential Lending. First Federal offers mortgage loans
secured by multi-family residential properties. Most such loan originations
feature balloon payments due in five years with amortization terms up to 20
years and loan to value ratios that usually do not exceed 80%. Interest rates
may be fixed or adjustable. Increased emphasis on these types of loans in
1998 resulted in a substantial increase in such loans to $11,514,000, or 9.7%
of gross loans, at December 31, 1998. The increase related primarily to the
financing of existing, multiple-building apartment complexes.
Commercial Real Estate Lending. Commercial real estate loans also
increased significantly in 1998 to $10,729,000, or 9.1% of gross loans, at
December 31, 1998 due to increased emphasis on such loans. The increase was
primarly due to the financing of an existing local hotel complex and the
conversion of the hotel construction loan to permanent financing. These loans
usually have variable rates, normally floating at prime or a fixed spread
above prime, and balloon payments due in five years with amortization terms up
to 20 years. Loans are underwritten based on analysis of the cash flow
generated by the business in which the real estate is used and the ability of
the borrower to meet payment obligations. In addition to securing the loan
with a first mortgage on the real estate, personal guarantees from the
business owners are usually sought. Loans are usually limited to 75% of the
value of the property.
Multi-family residential and commercial real estate loans have
significantly more risk than one-to-four family mortgage loans due to the
usually higher loan amounts and the credit risk, which arises from
concentration of principal in a smaller number of loans, the effects of
general economic conditions on income producing property and the difficulty of
evaluating and monitoring the loans. Events that affect the operations and
cash flow of the business which is on the secured property must be monitored
-Page 14-
to ensure the borrower has the ability to repay the loan.
Indirect Auto Loans. In 1993, First Federal began originating indirect
auto loans through a network that includes most local auto dealerships and
loan totals increased each year through 1996. The shift in lending strategy
in 1997 resulted in total indirect auto loans of $16,755,000, or 14.1% of
gross loans, at December 31, 1998, a decrease of almost $3,000,000 from year-
end, 1997 and almost $7,000,000 from year-end, 1996. The decrease is due to
less emphasis on indirect auto loan originations and to increased competition
from both national and local lenders. First Federal continues to originate
indirect auto loans but has tightened its guidelines preferring to originate
loans to buyers who qualify as higher grade credits. Current policy allows
for underwriting of loans on new or used automobiles with maturities between
three and five years. All indirect auto loans are secured by the new or used
automobile purchased with loan proceeds. Loan amounts on new automobiles are
limited to the manufacturer's suggested price while used automobile loan
amounts are limited to the retail price as listed in the National Automobile
Dealers Association used car guide.
Following a credit review of the dealer, First Federal enters into a
contractual relationship with the dealer. Short response times for credit
decisions, consistent application of underwriting standards and immediate
funding of indirect loans upon delivery of required documents allowed First
Federal to successfully compete for these loans in the past. The amount of
indirect loan originations is dependent on the volume of new and used
automobile sales and the financing choices of purchasers, factors over which
First Federal has no control. At December 31, 1998, loans originated from 29
local dealerships were outstanding with the highest amount from any one dealer
totaling 13% of the total indirect auto loans.
Underwriting standards are maintained to assess an applicant's ability to
repay amounts due and to verify the adequacy of the automobile financed as
collateral. Even with the underwriting standards, the risks inherent in
indirect auto lending indicate that some loans will default. Loans secured by
assets that depreciate rapidly, such as automobiles, are generally considered
to entail greater risks than residential mortgage loans. Through the efforts
of a full-time collections officer, loan delinquencies have been kept at or
below industry averages. At December 31, 1998, four loans totaling $31,000
were delinquent 90 days or more. No recourse is available from dealerships on
loan defaults. Net charge-offs related to indirect auto loans decreased to
$134,000 in 1998 from $187,000 in 1997.
Other Consumer Loans. First Federal also originates a variety of other
consumer loans including direct auto loans and home equity loans and lines of
credit. These types of direct loans totaled $12,069,000, or 10.2% of gross
loans, at December 31, 1998, an increase of over $2,400,000 during the year.
Originations of these types of loans have increased following the change in
lending strategy.
Direct auto loans are originated using the same underwriting standards as
indirect auto loans but are made directly with the borrower rather than
through a dealer. Direct auto loans have the same amount and term limits as
indirect auto loans and also require as collateral the vehicle purchased with
the loan. At December 31, 1998, direct auto loans outstanding totaled
$2,586,000 or 2.2% of gross loans outstanding. Direct auto loans are usually
made to customers with previous borrowings and or deposit accounts with First
Federal.
-Page 15-
Home equity loans and lines of credit are secured by second liens on
residential real estate. Home equity loans generally have fixed rates, fixed
monthly payments and maturities up to 15 years. Home equity lines of credit
have adjustable rates and flexible payment plans depending on the amount
actually borrowed. Loan amounts are made up to a maximum 90% loan to value
ratio taking into account all other liens on the property. Underwriting
standards are virtually the same as for first mortgage loans and originations
are not limited to borrowers for whom First Federal holds the first mortgage.
At December 31, 1998, home equity loans and lines of credit totaled $8,313,000
or 7.0% of gross loans. The amount of such loans has increased in each of the
last three years and First Federal intends to continue to actively solicit
such loans, especially home equity lines of credit, in the future.
First Federal makes a variety of other consumer loans that totaled
$1,170,000, or 1.0% of gross loans outstanding as of December 31, 1998.
Included in this total are loans to purchase consumer goods, loans secured by
deposit accounts and unsecured personal loans. Underwriting standards for
these loans vary based on the loan type but all consider the creditworthiness
of the borrower and the value of underlying collateral, with secured loans
limited to 90% of the value of the underlying collateral. Interest rates and
maturities vary depending on the loan type as well. As with direct auto loans
these types of loans are generally granted to customers with previous
borrowings and or existing deposit accounts with First Federal.
Commercial Business Lending. As previously noted, commercial business
loans are emphasized under the current lending strategy though originations of
these loans will be subject to strict guidelines. As of December 31, 1998,
commercial business loans equaled $7,792,000, or 6.6% of gross loans, an
increase of over $6,200,000 from year-end, 1997. The increase relates to a
number of business projects not concentrated in any industry, business type or
location to lessen the risk. Commercial business loans are secured by
accounts receivable, inventory, capital stock or real estate of the business
and are usually personally guaranteed by the business owners. Risks involved
are similar to commercial real estate loans with loan repayment often
dependent upon the business generating sufficient cash flow, but commercial
business loans carry even more credit risk than commercial real estate loans
due to the nature of the collateral underlying the loan. Commercial business
loans usually have variable interest rates and maturities of five years or
less.
Loan Originations, Purchases and Sales. Since 1997, First Federal has
originated most residential mortgage loans for sale in the secondary market.
Previously, long-term, fixed-rate residential mortgages were usually sold at
origination while fixed-rate, fixed-term residential mortgage loans with
maturities of 15 years or less, adjustable rate and balloon loans were usually
retained in the portfolio. Servicing rights are retained on loans sold to
FNMA, which was about 21% of loans sold in 1998, and are not retained on loans
sold to other investors. All loans are sold without recourse. In 1998,
proceeds from sales of residential mortgage loans totaled $93,164,000. All
sales in 1998 were on a loan-by-loan basis. In 1999, changes in underwriting
methods may allow for sales of groups of loans at more beneficial pricing. No
other changes in the origination and sale of residential mortgage loans are
anticipated.
-Page 16-
In recent years, First Federal has not made a practice of purchasing whole
loans or participations in loans originated by other financial institutions
and has not sold participations in loans it originated. In 1997 one
participation loan was purchased as First Federal joined with three other
Central Illinois thrifts to underwrite a multi-building apartment complex
mortgage loan. First Federal's original share of the loan was $2,800,000.
Due to monthly principal payments and repurchase of approximately 30% of the
original participation amount by the lead lending institution, the outstanding
balance at December 31, 1998 was $1,800,000. Similar purchases of
participations in loans originated by other financial institutions will be
considered in the future as one way to increase the amount of commercial real
estate and commercial business loans. First Federal will also look to
participate out portions of commercial real estate and commercial business
loans originated in house when the loan amount exceeds the lending limit.
<TABLE>
Contractual Principal Repayments. The following table sets forth
information with respect to scheduled contractual maturity of loans receivable
at December 31, 1998 (in thousands):
<CAPTION>
Due after
Due in One Year Due After
One Year Through Five
or Less Five Years Years Total
<S> <C> <C> <C> <C>
Mortgage Loans:
One-to-four family $10,454 $26,151 $20,557 $57,162
Construction 1,927 - - 1,947
Multi-family 419 6,976 4,119 11,514
Commercial real estate 1,772 8,241 716 10,729
Total mortgage 14,592 41,368 25,392 81,352
Indirect auto loans 5,679 10,550 526 16,755
Other consumer loans
Direct auto 843 1,653 90 2,586
Home equity 4,634 3,077 602 8,313
Other consumer 933 232 5 1,170
Total other consumer 6,410 4,962 697 12,069
Commercial business loans 3,368 4,348 76 7,792
Total loans $30,049 $61,228 $26,691 $117,968
</TABLE>
Demand loans, loans having no stated schedule of repayment and no stated
maturity and overdraft loans are reported as due in one year or less.
Scheduled repayments are reported in the maturity category in which the
payment is due.
<TABLE>
The amount of loans due after one year having predetermined interest
rates and floating or adjustable interest rates is as follows (in thousands):
<S> <C>
Fixed $70,166
Adjustable 17,753
</TABLE>
Loan Commitments. At December 31, 1998, outstanding loan commitments
totaled $479,000. Commitments are normally provided to prospective borrowers
following approval of a residential mortgage loan application and indicate
that at any time within a 30 day period from the date of approval, subject to
satisfaction of certain specified conditions, the approved loan will be
funded. Unused lines of credit totaled $8,826,000 at December 31, 1998. Of
-Page 17-
this amount, $4,249,000 relates to home equity lines of credit and the
remainder relates to various commercial business and commercial real estate
lines of credit. In management's opinion, these commitments represent no more
than normal lending risk and can be funded from normal sources.
Loan Origination, Servicing and Other Fees. Origination fees are not
collected on most loans but when such fees are collected, the amount is offset
against certain direct loan origination costs, then deferred and recognized as
an adjustment to interest income over the expected life of the loan. At
December 31, 1998, deferred loan fees equaled $109,000. Certain costs paid by
First Federal necessary for loan processing and closing, including credit
reports, an independent appraisal and title insurance, are reimbursed by
borrowers. Loans totaling $41,979,000 were serviced for others as of December
31, 1998. Servicing income of $157,000 was recorded in 1998. Fees may also
be collected in connection with loan modifications, late payments, prepayments
and for other miscellaneous loan related services. Such payments are
recognized as non-interest income upon receipt.
Loans to One Borrower. Under OTS regulations, First Federal is generally
subject to the same loans-to-one borrower limits that apply to national banks.
Generally, loans and extensions of credit at one time to one borrower (and
certain related entities of the borrower) may not exceed 15% of First
Federal's unimpaired capital and surplus, plus an additional 10% of unimpaired
capital and surplus for loans fully secured by certain readily marketable
collateral. First Federal's lending limit for loans to one borrower as of
December 31, 1998 was approximately $2,667,000. As of the same date, First
Federal had no single borrower with loans exceeding $2,487,000.
Delinquencies. Borrowers with loans 30 days past due are initially
notified by letter and then contacted by telephone by the collections officer
or other loan personnel. These reminders cure most delinquencies with no
legal action necessary. With respect to residential mortgage loans and
consumer loans other than indirect auto loans, if the delinquency exceeds 90
days, measures to enforce remedies resulting from the default, including
mailing a 30 day notice of the commencement of a foreclosure action or the
repossession of collateral, are instituted. With respect to indirect auto
loans, repossession of collateral is initiated if the loan is 60 days past
due. Delinquencies on multi-family and commercial real estate and business
loans are addressed on a case by case basis.
-Page 18-
<TABLE>
The following table sets forth information with respect to loans
past due 60-89 days and over 90 days at the dates indicated (in thousands):
<CAPTION>
December 31,
1998 1997 1996
60-89 Over 90 60-89 Over 90 60-89 Over 90
Days Days Days Days Days Days
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family $299 $223 $215 $103 $288 $310
Construction 85 - 100 112 - -
Multi-family - - - - - -
Commercial real estate - 129 - - - 333
Total mortgage 384 352 315 215 288 643
Indirect auto loans 44 31 28 - 49 44
Other consumer loans
Direct auto 7 - - - 22 7
Home equity - 14 - 11 13 -
Other consumer 21 - 36 - 6 11
Total other consumer 28 14 36 11 41 18
Commercial business loans - - - 69 81 -
Total $456 $397 $379 $295 $459 $705
Percent of Gross Loans 0.38% 0.33% 0.31% 0.24% 0.42% 0.65%
</TABLE>
Non-Performing Assets. All loans 90 days or more past due are placed on
non-accrual status unless such loans are adequately collateralized and in the
process of collection. At December 31, 1998, 1997 and 1996, all loans 90 days
or more past due were on non-accrual status. Interest income on such loans is
recognized only upon cash receipt and such loans are returned to accrual
status only after all contractually past due payments are brought current and
management believes collection of outstanding principal and interest is not in
doubt. Additional interest income that would have been recognized on non-
accrual loans, had each been current, totaled $12,000, $9,000, and $40,000,
respectively, in 1998, 1997 and 1996. In addition to non-accrual loans, other
assets classified as non-performing include troubled debt restructuring,
repossessed automobiles and certain real estate owned. Real estate owned
includes property acquired through foreclosure, property upon which a judgment
of foreclosure has been entered but for which no foreclosure sale has yet
taken place, property which is in substance foreclosed and property acquired
for investment purposes.
As of December 31, 1998 and 1997, real estate owned consisted entirely of
property acquired for investment purposes. At December 31, 1998, the largest
parcel of real estate owned was 30 acres of industrial property valued at
$580,000 acquired in 1992. In 1998, First Federal transferred the land to
Eagle via dividend. Eagle then entered into a joint venture agreement with a
local developer in which Eagle agreed to contribute the land to the
partnership and the developer will provide expertise in developing such
projects. Under terms of the agreement, as parcels are developed and sold,
Eagle will be repaid first until it has received 100% of the basis of the land
contributed and then the remaining proceeds will be split between the
partners. If any amounts are borrowed in the development process, such loans
will be repaid before the remaining proceeds are split after Eagle is repaid
for the land.
-Page 19-
Eagle also paid $25,000 in 1998 for a lot in LeRoy next to another lot
already owned by First Federal. The previously owned lot was adjacent to
First Federal's LeRoy office and was held for possible expansion of the
facility. Since no plans for expansion were being considered, First Federal
transferred the lot via dividend to Eagle, who combined the parcels and
contributed the land as part of a joint venture agreement with another local
developer. The developer constructed a three unit retail center on the
property and has leased two of the three units. Eagle and the developer will
share in the proceeds of the development.
<TABLE>
The following table sets forth information with respect to non-performing
assets (in thousands):
<CAPTION>
December 31,
1998 1997 1996
<S> <C> <C> <C>
Mortgage loans:
One-to-four family $223 $103 $310
Construction - 112 -
Multi-family - - -
Commercial real estate 129 - 333
Total mortgage 352 215 643
Indirect auto loans 31 - 44
Other consumer loans
Direct auto - - 7
Home equity 14 11 -
Other consumer - - 11
Total other consumer 14 11 18
Commercial business loans - 69 -
Total Non-Accrual Loans 397 295 705
Real estate owned 711 633 653
Troubled debt restructuring - - -
Repossessed automobiles 27 49 76
Total Non-Performing Assets $1,135 $977 $1,434
Percent of Total Assets 0.63% 0.57% 0.83%
</TABLE>
Classified Assets. OTS regulations and First Federal policy require the
review and classification of assets on a regular basis. First Federal
performs such a review quarterly. Regulatory examiners also have the
authority to review and, if appropriate, classify assets as part of their
regular examination procedures. Problem assets can be classified as either
substandard, doubtful or loss. Substandard assets have one or more defined
weaknesses and the distinct possibility exists that a loss will be sustained
if the weaknesses are not corrected. Doubtful assets have the weaknesses of
substandard assets and, based on current information, the weaknesses make
collection or liquidation in full questionable resulting in the high
probability of loss. Loss assets are considered uncollectable and of such
little value that continued treatment of the asset as an asset is not
warranted. Insured institutions such as First Federal are required to
establish a prudent general allowance for loan losses with respect to assets
classified as substandard or doubtful. Assets classified as loss are required
to either be charged-off or to be offset 100% with a specific allowance.
-Page 20-
<TABLE>
The following table sets forth information with respect to the
classification of assets as of December 31, 1998 (in thousands):
<CAPTION>
<S> <C>
Substandard assets $186
Doubtful assets 9
Loss -
Total Classified Assets $195
Percent of Total Assets 0.11%
</TABLE>
Allowance for Loan Losses. The allowance for loan losses was established
to recognize the risks inherent with lending activities and may consist of a
general allowance and a specific allowance. A specific allowance reserves
against specific assets with respect to which a loss may be realized. A
general allowance reserves against the entire loan portfolio. Allowances for
loan loss are determined through analysis of factors such as past loan loss
experience, current loan volume, growth and composition of the loan portfolio,
local and national economic conditions and other factors deemed appropriate by
management.
Evaluation of the allowance for loan losses is undertaken at least
quarterly. This evaluation includes a review of all loans for which full
collectability is not reasonably assured and includes an estimation of the
market value of collateral underlying problem loans, prior loss experience,
economic conditions, overall portfolio quality and other factors. The
allowance for loan losses, including general and specific reserves, are
subject to review by the OTS, which can require First Federal to establish
additional general or specific reserves. Provisions for loan losses are
charged against earnings in the year established. Loan losses are charged
against the allowance and recoveries of loans previously charged against the
allowance are added back to the allowance.
The provision for loan losses in 1998 was $240,000. This provision was
deemed appropriate due to the change in composition of the loan portfolio even
though the total loans outstanding and net charge-offs both decreased in 1998.
The increase in multi-family, commercial real estate and commercial loans,
which generally carry more risk than residential mortgage loans, to 25% of
gross loans outstanding at December 31, 1998 from 11% at December 31, 1997 was
the primary reason the provision for loan losses increased in 1998. Net
charge-offs decreased to $160,000 in 1998 from $228,000 in 1997 due primarily
to reduced charge-offs of indirect auto loans. Net charge-offs related to
indirect auto loans should continue to decrease as the amount of such loans
decreases. Management believes that the allowance for loan losses at December
31, 1998 is adequate though there can be no assurance as to the adequacy of
the allowance or the need for additional provisions for loan losses that may
adversely impact earnings of the Company.
-Page 21-
<TABLE>
The following table sets forth information with respect to activity in
the allowance for loan losses for the years indicated (in thousands):
<CAPTION>
For the Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Allowance for loan loss at
beginning of period $935 $923 $907
Provision for loan losses 240 240 183
Charge-offs:
Mortgage loans:
One to four family - 7 1
Construction - - -
Multi-family - - -
Commercial real estate - - -
Total mortgage - 7 7
Indirect auto loans 144 197 145
Other consumer loans
Direct auto 5 30 21
Home equity - - -
Other consumer 21 5 11
Total other consumer 26 35 32
Commercial business loans - - -
Total charge-offs 170 239 178
Recoveries:
Mortgage loans:
One to four family - - -
Construction - - -
Multi-family - - -
Commercial real estate - - -
Total mortgage - - -
Indirect auto loans 10 10 11
Other consumer loans
Direct auto - 1 -
Home equity - - -
Other consumer - - -
Total other consumer - 1 -
Commercial business loans - - -
Total recoveries 10 11 11
Net charge-offs (160) (228) (167)
Allowance for loan loss at
end of period $1,015 $935 $923
Allowance for loan losses to gross
loans outstanding at end of period 0.86% 0.76% .85%
Net charge-offs to average loans
outstanding during the period 0.13% 0.19% 0.17%
</TABLE>
-Page 22-
<TABLE>
The following table sets forth information with respect to the breakdown
of the allowance for loan losses by loan category at the dates indicated
(amounts in thousands):
<CAPTION>
December 31,
1998 1997 1996
Loan Percent Loan Percent Loan Percent
Loss of Loss of Loss of
Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One to four family $ 292 0.51% $382 0.49% $352 0.52%
Construction 19 1.00 21 0.70 6 0.51
Multi-family 115 1.00 51 1.00 16 1.02
Commercial real estate 89 0.83 123 1.81 127 3.32
Total mortgage 515 0.63 577 0.62 501 0.67
Indirect auto loans 177 1.06 201 1.03 244 1.03
Other consumer loans
Direct auto 26 1.00 23 1.05 23 1.08
Home equity 64 0.77 29 0.50 36 0.73
Other consumer 12 1.03 29 1.77 15 1.01
Total other consumer 102 0.85 81 0.84 74 0.87
Commercial business loans 31 0.40 8 0.50 6 0.52
Unallocated 190 - 68 - 98 -
Total Allowance for Loan Loss $1,015 0.86% $935 0.76% $923 0.85%
</TABLE>
Loan Loss Amount represents the portion of the allowance for loan loss
allocated to each loan category. Percent of Loans represents the ratio of the
allowance for loan loss for each category to the total amount of loans in the
same category.
Investment Activities
General. The Company is permitted under federal law to make investments
in securities issued by the U.S. government, various federal agencies and
state and municipal governments, in deposits at the Federal Home Loan Bank, in
certificates of deposit and federal funds at federally insured institutions
and in other earning assets within certain limitations. The Board of
Directors has established and periodically reviews the investment policy, the
objectives of which include holding investments that provide and maintain
liquidity and generate a favorable return without incurring undue interest
rate risk. At present, the investment securities portfolio includes mortgage-
backed and related securities and securities issued or guaranteed by the U.S.
government and various federal agencies. In recent years, no investment
products designed to hedge interest rate risk, such as futures, options, swaps
or other derivative securities, have been purchased or held. All investment
securities are designated as 'available-for-sale' and are reported at fair
value as of December 31, 1998. Investment securities can also be designated
as 'trading securities' or 'held-to-maturity' according to Generally Accepted
Accounting Principals and regulatory guidelines but no securities have been so
designated in recent years.
Mortgage-Backed and Related Securities. Mortgage-backed securities
represent a participation interest in a pool of mortgages, the principal and
interest payments of which are passed through intermediaries, who pooled and
-Page 23-
repackaged the participation interest as securities, to investors.
Intermediaries include quasi-governmental agencies such as Federal Home Loan
Mortgage Corp. ('FHLMC'), Federal National Mortgage Association ('FNMA') and
Government National Mortgage Association ('GNMA'), each of whom guarantees or
insures payment of principal and interest to investors. By virtue of the
guarantees, mortgage-backed securities generally increase the quality of the
Company's assets. In addition, mortgage-backed securities can be used to
collateralize borrowings or other obligations of the Company and are generally
more liquid than mortgage loans. Mortgage loans with similar interest rates
and maturities are normally pooled so that the characteristics of the
mortgage-backed security, which will mirror the underlying mortgage loans, can
be reasonably defined. Mortgage-backed securities can have fixed or
adjustable interest rates.
Mortgage-backed security holders assume the interest rate risk
characteristics of the underlying pool of mortgage loans. Prepayments made by
the mortgage loan holders are passed on to the security holders which can
adversely affect the yield to maturity and market value of the mortgage-backed
security. Prepayment assumptions, based on historical performance, are used
to determine anticipated maturity dates, which are then used to amortize
premium or discount on a level yield basis. When actual prepayments on a
mortgage-backed security differ from previous assumptions, adjustments to
anticipated maturity dates may be necessary.
At December 31, 1998, mortgage-backed securities with a book value of
$29,864,000 and a market value of $29,712,000 were held. Holdings of these
securities increased significantly in 1998 due to investment of residential
loan sale proceeds and reinvestment of funds received from U. S. government
and agency securities that matured, were called or were sold. In addition,
principal payments and sale proceeds of mortgage related securities were also
reinvested in mortgage-backed securities.
Mortgage related securities were created to reduce the prepayment risk
associated with mortgage-backed securities. Collateralized mortgage
obligations ('CMOs') and real estate mortgage investment conduits ('REMICs'),
issued in a variety of legal forms by both quasi-government agencies and
private entities, are aggregate pools of mortgage-backed securities or
mortgage loans. Once combined, separate classes or tranches of individual
securities are created each having designated priority to future cash flows.
As principal and interest payments are received on the underlying pools or
mortgage loans, the class or tranche with highest priority is first to receive
such payments. Once a class or tranche is fully paid out, the cash flows are
directed to the class or tranche with the next highest priority. Security
purchasers can buy certain classes or tranches with reasonable expectation as
to when principal will be repaid. Prepayment risk is reduced with CMOs and
REMICs compared to mortgage-backed securities but is not eliminated since
changes in the general level of interest rates can affect prepayment rates.
The market value of CMOs and REMICs, most of which have fixed interest rates,
can also be more affected by the general level of interest rates than
adjustable rate mortgage-backed securities. At December 31, 1998, CMOs with a
book value of $7,563,000 and a market value of $7,532,000 were held.
Regulatory policy requires at least an annual 'stress' test of mortgage
related securities to determine if price volatility under a 200 basis point
interest rate shock for each security exceeds a benchmark 30 year mortgage-
backed security. Securities that fail the stress test are considered high
-Page 24-
risk and may only be purchased to reduce interest rate risk. Regulators can
require institutions to dispose of such high risk securities. At December 31,
1998, First Federal held one mortgage-related security, with a book value of
$293,000 and a market value of $291,000, that was considered high risk by
virtue of failing the stress test. To date, the OTS has not required the
disposal of the security, which has been held over 5 years.
Other Investment Securities. First Federal also owns U.S. government and
federal agency securities, commercial paper and stock in the Federal Home Loan
Bank of Chicago. The commercial paper held was issued by U.S. corporations
and was rated A1/P1. At December 31, 1998, other investment securities held
had a book value of $12,613,000 and a market value $12,578,000.
<TABLE>
The table below sets forth information with respect to the amortized cost
of investment securities at the dates indicated (in thousands):
<CAPTION>
December 31,
1998 1997 1996
<S> <C> <C> <C>
Mortgage-backed securities:
Collateralized mortgage obligations $ 7,563 $12,467 $18,125
Other mortgage-backed 29,864 12,296 19,685
U.S. government and agencies 8,141 12,642 15,181
Other securities 3,222 395 447
FHLB stock 1,250 1,310 955
Total investments, at amortized cost $50,040 $39,110 $54,393
</TABLE>
-Page 25-
<TABLE>
The following table sets forth information with respect to the carrying
value, weighted average yields and scheduled maturities of investment
securities at December 31, 1998 (amounts in thousands):
<CAPTION>
Over One Over Five
One Year or Less to Five Years to Ten Years
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Collateralized mortgage
obligations $ 35 5.64% $ - - $ 2,939 5.97%
Other mortgage-backed 3,505 5.71 1,014 6.54 1,045 5.47
U.S. government and
agencies 1,643 5.62 - - 6,498 6.30
Other securities 2,983 5.78 - - - -
FHLB stock - - - - -
Total Investments $8,166 5.72% $1,014 6.54% $10,482 6.12%
</TABLE>
<TABLE>
Over Ten Years Total
Weighted Weighted
Carrying Average Carrying Average Market
Value Yield Value Yield Value
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Collateralized mortgage
obligations $ 4,589 5.43% $ 7,563 5.64% $ 7,532
Other mortgage-backed 24,300 6.32 29,864 6.23 29,712
U.S. government and
agencies - - 8,141 6.16 8,153
Other securities 239 2.00 3,222 5.50 3,175
FHLB stock 1,250 6.75 1,250 6.75 1,250
Total Investments $30,378 5.72% $50,040 6.09% $49,822
</TABLE>
With the exception of the U.S. government and federal agencies, as of
December 31, 1998, the Company did not hold securities of any one issuer the
aggregate total of which exceeded 10% of stockholder's equity.
Deposit Activities and Other Sources of Funds
General. Primary sources of funds for use in lending, investing and
other general purposes are deposits and proceeds from principal and interest
payments on loans, mortgage-backed and other securities and FHLB advances.
Contractual loan repayments are a relatively stable source of funds while loan
and mortgage-backed security prepayments and deposit inflows and outflows are
significantly influenced by general interest rate levels and money market
conditions. Borrowings can be used to increase liquidity on a short-term
basis and on a long-term basis for general operational purposes.
Deposit Accounts. First Federal offers a full line of demand account
products. Non-interest bearing accounts feature unlimited check writing, no
minimum balance and no service charge. NOW accounts earn interest and feature
unlimited check writing, a Visa check debit card (to qualifying customers) and
no service charge if the customer has a loan or other deposit account with
First Federal or a minimum balance. Money market accounts have the same
features as NOW accounts but earn higher interest with a tiered rate schedule
under which higher balance accounts earn the highest rate. ATM cards are
-Page 26-
available for qualifying customers on all accounts and First Federal operates
ATMs at all but its new Lexington branch. Commercial accounts are also
offered and in 1999, new commercial demand products will be available.
Passbook savings accounts are available under two plans with higher interest
earned on one plan with a minimum balance. Certificate of deposit accounts,
with maturities of up to six years, are also offered. Interest rates offered
on all accounts are reviewed by management and subject to change as deemed
necessary. The flow of deposits is greatly influenced by general economic
conditions, changes in money market and local interest rates and competition.
Brokered deposits are not solicited or accepted.
First Federal attracts and maintains deposit accounts, in part, because
of its tradition of customer service and seventy-nine years as a locally owned
and managed savings association. Locally competitive interest rates,
convenient locations with hours of service designed to meet customer needs and
membership in a nationwide ATM network are used by First Federal to attract
customers.
<TABLE>
The following table sets forth information with respect to the average
amount outstanding and the weighted average rate paid on the categories of
deposit accounts listed for the years indicated (amounts in thousands):
<CAPTION>
For the Year Ended December 31,
1998 1997 1996
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
<S> <C> <C> <C> <C> <C> <C>
Demand Accounts:
Non-interest bearing $ 552 0.00% $ 786 0.00% $ 549 0.00%
NOW 11,129 2.44 6,751 1.96 5,338 1.80
Money market 2,081 2.79 2,438 2.87 2,964 2.87
Passbook 15,599 3.52 15,832 3.66 15,462 3.73
Total Demand 29,361 3.05 25,807 3.12 24,313 3.13
Certificate of Deposit Accounts:
6 months or less 7,882 5.01 8,075 5.10 9,335 4.95
7 to 12 months 22,460 5.43 23,400 5.44 27,011 5.71
13 to 24 months 20,247 5.81 20,532 5.91 18,390 6.17
25 to 36 months 21,720 6.02 22,642 6.04 27,509 5.94
37 to 60 months 14,386 6.34 13,116 6.29 12,077 6.30
Over 60 months 10,373 6.52 10,236 6.63 10,117 6.61
Jumbo 6,977 5.99 8,490 6.16 7,420 6.31
Total Certificates 104,045 5.87 106,491 5.90 111,859 5.97
Total Deposits $133,406 5.26% $132,298 5.37% $136,172 5.48%
</TABLE>
Jumbo time certificates of deposit require minimum deposits of $100,000
with negotiated interest rates and terms and are not automatically renewable.
Other certificates of deposit over $100,000 are not classified as Jumbo
certificates of deposit if the interest rates and terms were the same as
offered on certificates of deposit of less than $100,000. Such certificates
of deposit can also be automatically renewed. The total of these certificates
of deposit at December 31, 1998 was $5,804,000.
-Page 27-
<TABLE>
The following table sets forth information with respect to the maturity of
Jumbo time certificates of deposit as of December 31, 1998 (in thousands):
<CAPTION>
Amount
<S> <C>
Due in three months or less $1,750
Due in over three through six months 603
Due in over six through twelve months 750
Due in over twelve months 3,347
</TABLE>
In July, 1995, First Federal ended a time deposit attraction marketing
program that ran for seven months and attracted over $15,000,000 in new time
deposits. The higher rates paid on the new certificates resulted in an
increase in the cost of funds as the average rate paid on certificates
increased to 5.81% in 1995 from 4.64% in 1994. Since then, efforts to reduce
the cost of funds, including the use of FHLB advances as a funding source, not
offering special rates at maturity on the certificates attracted as part of
the marketing program and increasing balances of lower cost demand and savings
deposits, have been made.
<TABLE>
The following table sets forth information with respect to the amounts
and remaining maturities of certificates of deposit at December 31, 1998
(in thousands):
<CAPTION>
Amount due in
Under 3 4-6 7-12 1-2 2-3 Over 3
Months months months years years years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Under 5% $ 2,769 $ 2,429 $ 4,196 $ 26 $ - $ - $ 9,420
5.01% to 6% 17,527 8,665 18,744 13,272 4,618 3,751 66,577
6.01% to 7% 1,770 1,393 610 4,803 1,570 2,891 13,037
Over 7.01% 3,385 3,303 - 6,559 - 166 13,413
TOTAL $25,451 $15,790 $23,550 $24,660 $6,188 $6,808 $102,447
</TABLE>
Borrowings. Prior to 1996, First Federal relied on Federal Home Loan
Bank ('FHLB') advances only in the event of a reduction in available funds
from other sources. In 1996, FHLB advances were used to fund loan
originations rather than more traditional sources of funds due to the lower
cost of the advances relative to similar term certificates of deposit. Since
then, First Federal has continued to use FHLB advances as a source of funds.
In the first quarter of 1998, new advances were obtained to prefund repayment
of advances that matured in the second quarter in an effort to reduce the
average cost of borrowed funds. The new advances had an average cost 140
basis less than the maturing advances. The average cost of all advances
decreased to 5.37% in 1998 from 5.89% in 1997 and the average rate at year-
end, 1998 was 5.05% compared to 5.74% at year-end, 1997.
The change in lending strategy in 1997, namely the decision of sell most
residential mortgage originations, has reduced the dependence on advances as a
source of funds. Advances are available with a variety of terms including
fixed or variable rate and open line or fixed maturity. Some fixed maturity
advances allow prepayments under certain conditions or are subject to periodic
call. At December 31, 1998, all FHLB advances were fixed rate and totaling
$25,000,000. All advances had fixed maturity dates and were subject to
periodic call at various dates. All advances are secured by stock in the FHLB
and a blanket floating lien on First Federal's one-to-four family residential
mortgage loans. The FHLB determines the creditworthiness of and sets a credit
limit for each institution.
-Page 28-
<TABLE>
The following table sets forth information with respect to FHLB advances
at the end of and during the periods indicated (amounts in thousands):
<CAPTION>
At and For the Year Ended December 31,
1998 1997
<S> <C> <C>
Balance on December 31 $25,000 $18,000
Highest month-end balance 27,000 21,050
Average balance during the year 22,917 17,905
Average rate during the year 5.37% 5.89%
Average rate at year-end 5.05% 5.74%
</TABLE>
During 1996, First Federal entered into repurchase agreements under which
funds were borrowed in exchange for investment securities pledged to and held
by counterparties. No such agreements were in effect at any time in 1997 or
1998. In certain circumstances, repurchase agreements may be used as a source
of funds in the future but there are no plans to make frequent use of this
source of funds.
At December 31, 1998, the Company had 48 full-time and 19 part-time
employees none of whom were represented by a union or collective bargaining
group. The Company considers its relations with employees to be satisfactory.
REGULATION AND SUPERVISION
General
First Federal is chartered under federal law by the OTS. It is a member
of the FHLB System, and its deposit accounts are insured up to legal limits by
the FDIC under the SAIF. The OTS is charged with overseeing and regulating
First Federal's activities and monitoring its financial condition.
This regulatory framework sets parameters for First Federal's activities
and operations and grants the OTS extensive discretion with regard to its
supervisory and enforcement powers and examination policies. First Federal
files periodic reports with the OTS concerning its activities and financial
condition, must obtain OTS approval prior to entering into certain
transactions or initiating new activities, and is subject to periodic
examination by the OTS to evaluate First Federal's compliance with various
regulatory requirements.
Eagle is a savings and loan holding company and, like First Federal, is
subject to regulation by the OTS. As part of this regulation, Eagle is
required to file certain reports with, and is subject to periodic examination
by, the OTS.
Recent Legislative and Regulatory Developments
Deposit Insurance Reform Legislation. On September 30, 1996, President
Clinton signed the Deposit Insurance Funds Act of 1996 ('DIFA') that was part
of the omnibus spending bill enacted by Congress at the end of its 1996
session. DIFA mandated that the FDIC impose a special assessment on the SAIF-
assessable deposits of each insured depository institution at a rate
applicable to all such institutions that the FDIC determined would cause the
SAIF to achieve its designated reserve ratio of 1.25 percent as of October 1,
1996. The assessment was based on the amount of SAIF-insured deposits owned
by each institution as of March 31, 1995, the record date established in the
original drafts of the legislation.
-Page 29-
On October 10, 1996, the FDIC adopted a final rule governing the payment
of the SAIF special assessment. The FDIC imposed a special assessment in the
amount of 65.7 basis points. The SAIF special assessment was due by November
27, 1996. First Federal's portion of this special assessment amounted to
$875,000 on a pre-tax basis. First Federal paid this amount to the FDIC
during its fiscal third quarter ended September 30, 1996, as mandated by the
Financial Accounting Standards Board that ruled that the SAIF special
assessment should be recorded as an ordinary non-interest expense for the
quarter ended September 30, 1996 for calendar year reporting institutions.
DIFA also confirmed that the special assessment is tax deductible.
In response to the recapitalization of the SAIF, the FDIC announced on
December 11, 1996 that deposit insurance rates for most savings associations
insured under the SAIF would be lowered to zero effective January 1, 1997.
BIF-insured institutions would also no longer have to pay the $2,000 minimum
for deposit insurance, thereby equalizing deposit premiums for savings
associations and banks.
FICO Bond Payments. Before DIFA, federal regulators and thrift industry
trade groups were predicting that a default would occur on the FICO Bonds
(bonds issued in the late 1980s to recapitalize the Federal Savings and Loan
Insurance Corporation) as SAIF-assessable deposits continued to decline. DIFA
amends The Federal Home Loan Bank Act to impose the FICO assessment against
both SAIF and BIF deposits beginning after December 31, 1996. But the
assessment imposed on insured depository institutions with respect to any BIF-
assessable deposit is assessed at a rate equal to one-fifth of the rate
(approximately 1.3 basis points) of the assessments imposed on insured
depository institutions with respect to any SAIF-assessable deposit
(approximately 6.7 basis points). The FICO assessment for 1996 was paid
entirely by SAIF-insured institutions. BIF-insured banks will pay the same
FICO assessment as SAIF-insured institutions beginning as of the earlier of
December 31, 1999 or the date as of which the last savings association ceases
to exist.
Deposit Shifting. DIFA provides that until the earlier of December 31,
1999 or the date as of which the last savings association ceases to exist, the
Office of the Comptroller of the Currency (the 'OCC'), the FDIC, the Board of
Governors of the Federal Reserve System, and the OTS will take appropriate
actions, including enforcement actions and denial of applications, to prevent
insured depository institutions from facilitating or encouraging the shifting
of deposits from SAIF-assessable deposits to BIF-assessable deposits for the
purpose of evading the assessments imposed on insured depository institutions
with respect to SAIF-assessable deposits.
Relaxation of the Qualified Thrift Lender Test. In September 1996, the
Economic Growth and Regulatory Paperwork Reduction Act of 1996 became law (the
'Economic Growth Act of 1996'). In the past, savings associations were
required to satisfy a qualified thrift lender test ('QTL' test) by maintaining
65 percent of their portfolio assets (defined as all assets minus intangible
assets, property used by the association in conducting its business and liquid
assets equal to 20% of total assets) in certain 'qualified thrift investments'
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) on a monthly basis in nine out of every twelve
months.
-Page 30-
The Economic Growth Act of 1996 liberalized the QTL test for savings
associations by permitting them to satisfy a similar-but-different 60 percent
asset test under the Internal Revenue Code. Alternatively, savings
associations may meet the QTL test by satisfying a more liberal 65 percent
asset test that allows an institution to include small business, credit card
and education loans as qualified investments for purposes of the test.
Furthermore, consumer loans now count as qualified thrift investments up to 20
percent of portfolio assets. On November 27, 1996, OTS issued an interim
final rule that implements provisions of the Economic Growth Act of 1996,
including the amended QTL test.
Increased Commercial and Consumer Lending Authority. Before the Economic
Growth Act of 1996, federal savings associations were able to lend up to 10
percent of their assets in commercial business loans (i.e., secured or
unsecured loans for commercial, corporate, business, or agricultural purposes)
and, subject to OTS approval for a higher amount, up to 400 percent of their
capital in commercial real estate loans. In addition, federal savings
associations were permitted to make consumer loans (i.e., loans for personal,
family or household purposes) in an amount not to exceed 35 percent of their
assets.
The Economic Growth Act of 1996 amended the commercial-lending-asset
limit by increasing the ceiling from 10 percent to 20 percent, but provides
that amounts in excess of 10 percent may be used only for small business
loans. Moreover, the new law exempts credit card and educational loans from
any percentage of asset limitations applicable to consumer loans. The interim
final rule issued by the OTS on November 27, 1996, defines a 'small business
loan' as one which meets the Small Business Administration size eligibility
standards. This definition also applies for purposes of the new QTL test.
Effective October 30, 1996, the OTS (as part of its regulatory
streamlining project) amended its lending regulations for federal savings
associations to remove the requirement that commercial loans made at the
service corporation level be aggregated with the 10 percent of assets limit on
commercial lending.
Capital Distribution. Effective April 1, 1999 the OTS revised its capital
distribution regulation. Under the revised regulation, institutions that are
not subsidiaries of a savings and loan holding company can qualify for a
capital distribution without a notice or application to OTS, if they meet
certain conditions, including retaining a well capitalized designation
following the distribution and having CAMELS and compliance ratings of 1 or 2.
Other institutions either have to notify OTS or obtain the OTS's approval,
depending on the condition of the institution and the amount and nature of the
capital distribution, but such institutions may now file a schedule of
proposed capital distributions for a year at a time, rather than filing
separate notices.
TB 13a. On December 1, 1998, the OTS adopted comprehensive guidance, in
the form of Thrift Bulletin 13a (TB 13a), covering interest rate risk,
investment securities and the use of financial derivatives. TB 13a replaces
seven prior OTS thrift bulletins covering these and related topics. The OTS
also updated its regulations with a new rule (effective January 1, 1999) on
forward commitments, futures transactions and financial options transactions.
The new rule, which is designed to work with TB 13a, establishes general
requirements applicable to all derivative instruments, sets forth
-Page 31-
responsibilities of the board of directors and management with respect to
financial derivatives and makes clear that reducing risk exposure should be
the primary reason for entering into a derivative transaction. TB 13a
provides guidelines for evaluating an institution's risk management,
identifies a set of 'sound practices' for consideration of management and
describes the qualitative and quantitative guidelines the OTS will use in
assessing an institution's current exposure to interest rate changes and its
ability to manage that exposure effectively. The OTS will use the results of
its NPV model to measure an institution's current exposure. Under TB 13a, an
institution's board of directors should establish interest rate risk limits in
terms of its capital position (its economic capital-to-assets ratio).
Investment securities and derivatives, especially those with the potential to
alter significantly an institution's risk profile, should be evaluated on the
basis of their impact on the institution's economic capital. Institutions
with greater capacity to absorb potential losses will have greater latitude in
using derivatives and other complex financial instruments.
Federal-Savings-Association Regulation
Business Activities. The activities of savings associations are governed
by the Home Owners' Loan Act, as amended (the 'HOLA'), and, in certain
respects, the Federal Deposit Insurance Act (the 'FDI Act'). The OTS and the
FDIC promulgate regulations implementing other provisions of HOLA and the FDI
Act.
Branching. A federally-chartered savings association, like First
Federal, can establish branches in any state or states in the United States
and its territories, subject to a few exceptions. The exercise by the OTS of
its authority to permit interstate branching by federal savings associations
is preemptive of any state law purporting to address the subject of branching
by a federal savings association.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the national bank limits regarding loans to one borrower.
Generally, savings associations may not make a loan or extend credit to a
single or related group of borrowers in excess of 15 percent of the
association's unimpaired capital and surplus, where the borrowing is not fully
secured by readily-marketable collateral. An additional amount may be lent,
equal to 10 percent of the association's unimpaired capital and surplus, if
such additional borrowing is secured by readily-marketable collateral at least
equal to the amount of such additional funds. At December 31, 1998, First
Federal had not originated loans and had no outstanding commitments that
exceeded the loans to one borrower limit at the time made or committed.
Brokered Deposits. Well-capitalized savings associations that are not
troubled are not subject to brokered deposit limitations. Adequately-
capitalized associations are able to accept, renew or roll over brokered
deposits but only (i) with a waiver from the FDIC and (ii) subject to the
limitation that they do not pay an effective yield on any such deposit that
exceeds by more than (a) 75 basis points the effective yield paid on deposits
of comparable size and maturity in such association's normal market area for
deposits accepted in its normal market area or (b) 120 basis points of the
current yield on similar maturity U.S. Treasury obligations or, in the case of
any deposit at least half of which is uninsured, 130 percent of such Treasury
yield. Undercapitalized associations are not permitted to accept brokered
deposits and may not solicit deposits by offering an effective yield that
-Page 32-
exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in the association's normal market
area or in the market area in which such deposits are being solicited. First
Federal is not presently soliciting brokered deposits.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings associations and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on
an insured association. Civil penalties cover a wide range of violations and
actions. Criminal penalties for most financial association crimes include
fines and imprisonment. In addition, regulators have substantial discretion
to impose enforcement action on an association that fails to comply with its
regulatory requirements, particularly with respect to amounts of capital.
Possible enforcement action ranges from requiring the preparation of a capital
plan or imposition of a capital directive to receivership, conservatorship or
the termination of deposit insurance. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS enforcement action be taken with
respect to a particular savings association. If action is not taken by the
Director, the FDIC has authority to take enforcement action under certain
circumstances.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment paid on a semi-annual basis is computed based upon the savings
association's total assets, including consolidated subsidiaries, as reported
in the association's latest quarterly thrift financial report.
Federal Home Loan Bank System. First Federal is a member of the FHLB
System, which consists of 12 regional FHLB's. The FHLB provides a central
credit facility primarily for member associations. First Federal, as a member
of the FHLB-Chicago, is required to acquire and hold shares of capital stock
in that FHLB in an amount at least equal to 1 percent of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB-Chicago, whichever is greater. First Federal is in
compliance with this requirement, with an investment in FHLB-Chicago stock at
December 31, 1998, of $1,250,000. FHLB advances must be secured by specified
types of collateral and may be obtained only for the purpose of purchasing or
funding new residential housing finance assets.
OTS Capital Requirements. The OTS capital regulations require savings
associations to meet three capital standards: a 1.5 percent tangible capital
standard, a 3 percent leverage ratio (or core capital ratio) and an 8 percent
risk-based capital standard.
Tangible capital is defined as common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related
earnings, certain nonwithdrawable accounts and pledged deposits of mutual
savings associations, and minority interests in equity accounts of fully
consolidated subsidiaries, less intangible assets (other than certain mortgage
servicing rights) and certain equity and debt investments in nonqualifying
subsidiaries (as hereinafter defined).
-Page 33-
Core capital is defined as common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and
related surplus, minority interests in equity accounts of consolidated
subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual
savings associations, certain amounts of goodwill resulting from prior
regulatory accounting practices, less intangible assets (other than mortgage
servicing rights) and certain equity and debt investments in nonqualifying
subsidiaries.
The OTS capital regulation requires that in meeting the leverage ratio,
tangible and risk-based capital standards, savings associations must deduct
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank (a "nonqualifying subsidiary"). At December 31, 1998,
First Federal did not own a nonqualifying subsidiary.
In April 1991, the OTS issued a proposal to amend its regulatory capital
regulation to establish a 3 percent leverage ratio (defined as the ratio of
core capital to adjusted total assets) for associations in the strongest
financial and managerial condition, with a 1 CAMEL Rating (the highest rating
of the OTS for savings associations). For all other associations, the minimum
core capital leverage ratio would be 3 percent plus at least an additional 100
to 200 basis points. In determining the amount of additional capital under
the proposal, the OTS would assess both the quality of risk management systems
and the level of overall risk in each individual association through the
supervisory process on a case-by-case basis. Associations that failed the new
leverage ratio would be required to file with the OTS a capital plan that
details the steps they would take to reach compliance. If enacted in final
form as proposed, management does not believe that the proposed regulation
would have a material effect on First Federal.
Although the OTS has not adopted this regulation in final form, generally
a savings association that has a leverage capital ratio of less than 4 percent
will be deemed to be "undercapitalized" under the OTS prompt corrective action
regulations and consequently can be subject to various limitations on
activities.
The OTS' risk-based capital standard requires that savings associations
maintain a ratio of total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of 8 percent. In calculating
total capital, a savings association must deduct reciprocal holdings of
depository institution capital instruments, all equity investments and that
portion of land loans and nonresidential construction loans in excess of 80
percent loan-to-value ratio and its interest rate risk component (as discussed
below), in addition to the assets that must be deducted in calculating core
capital. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0 percent to 100 percent, as assigned by the OTS capital regulation based on
the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed above
under the 3 percent leverage standard. The components of supplementary
capital include cumulative preferred stock, long-term perpetual preferred
stock, mutual capital certificates, certain nonwithdrawable accounts and
pledged deposits, certain net worth certificates, income capital certificates,
certain perpetual subordinated debt, mandatory convertible subordinated debt,
certain intermediate-term preferred stock, certain mandatorily redeemable
-Page 34-
preferred stock, allowance for loan and lease losses (up to 1.25 percent of
risk-weighted assets) and certain unrealized gains on equity investments.
Allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25 percent. Overall, the amount of capital counted
toward supplementary capital cannot exceed 100 percent of core capital. At
December 31, 1998, First Federal met each of its capital requirements.
The OTS' interest rate risk component of the risk-based capital standards
became effective on January 1, 1994. Under the rule, savings associations
with "above normal" interest rate risk exposure would be subject to a
deduction from total capital for purposes of calculating their risk-based
capital requirements. A savings association's interest rate risk is measured
by the decline in the net portfolio value of its assets (i.e., the difference
between incoming and outgoing discounted cash flows from assets, liabilities
and off-balance sheet contracts) that would result from a hypothetical 200-
basis point increase or decrease in market interest rates (except when the
three-month Treasury bond equivalent yield falls below 4%, then the decrease
would be equal to one-half of that Treasury rate) divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. A savings association whose measured
interest rate risk exposure exceeds 2% must deduct an interest rate component
in calculating its total capital under the risk-based capital rule. The
interest rate risk component is an amount equal to one-half of the difference
between the association's measured interest rate risk and 2%, multiplied by
the estimated economic value of the association's assets. That dollar amount
is deducted from an association's total capital in calculating compliance with
its risk-based capital requirement. Savings associations with assets of less
than $300 million and risk-based capital ratios in excess of 12% are not
subject to the interest rate risk component. The rule also provides that the
Director of the OTS may waive or defer an association's interest rate risk
component. The OTS has postponed the date that the risk component will first
be deducted from an institution's total capital to allow, among other things,
the OTS to evaluate the interest rate risk proposals issued by the other
banking agencies.
Liquidity. First Federal is required to maintain an average daily
balance of liquid assets (e.g., cash, accrued interest on liquid assets,
certain time deposits, savings accounts, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to not less than a specified percentage of the average daily
balance of its net withdrawal deposit accounts plus short-term borrowings.
This liquidity requirement may be changed from time to time by the OTS. The
OTS may initiate enforcement actions for failure to meet these liquidity
requirements. First Federal has never been subject to monetary penalties for
failure to meet its liquidity requirements.
Insurance of Deposit Accounts. The FDIC has established a risk-based
assessment system for insured depository associations that takes into account
the risks attributable to different categories and concentrations of assets
and liabilities. Under the rule, the FDIC assigns an association to one of
three capital categories consisting of (i) well capitalized, (ii) adequately
capitalized or (iii) undercapitalized, and one of three supervisory
subcategories. The supervisory subgroup to which an association is assigned
is based on a supervisory evaluation provided to the FDIC by the association's
primary federal regulator and information which the FDIC determines to be
-Page 35-
relevant to the association's financial condition and the risk posed to the
deposit insurance funds (which may include, if applicable, information
provided by the association's state supervisor). An association's assessment
rate depends on the capital category and supervisory category to which it is
assigned. There are nine assessment risk classifications (i.e., combinations
of capital groups and supervisory subgroups) to which different assessment
rates are applied. Assessment rates range from 23 basis points for an
association in the highest category (i.e., well-capitalized and healthy) to 31
basis points for an association in the lowest category (i.e., undercapitalized
and of substantial supervisory concern).
Limitation on Capital Distributions. The OTS regulations impose
limitations upon all capital distributions by savings associations, such as
cash dividends, payments to repurchase or otherwise acquire its shares,
payments to shareholders of another association in a cash-out merger and other
distributions charged against capital. The regulations establish three tiers
of associations. An association that exceeds all fully phased-in capital
requirements before and after the proposed capital distribution ("Tier 1
Association") and has not been advised by the OTS that it is in need of more
than normal supervision, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the higher of
(a) 100 percent 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 (b) 75 percent of its net reserve over the most recent four-
quarter period. Any additional capital distributions would require prior
regulatory approval. In computing the association's permissible percentage of
capital distributions, previous distributions made during the prior four
quarter period must be included. As of December 31, 1998, First Federal met
the requirements of a Tier 1 Association. In the event First Federal'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 First Federal's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any association, which would
otherwise be permitted by regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. Moreover, under
the OTS prompt corrective action regulations, First Federal would be
prohibited from making any capital distribution if, after the distribution,
First Federal would have, (i) total risk-based capital ratio of less than 8
percent, (ii) Tier 1 risk-based capital ratio of less than 4 percent, or (iii)
a leverage ratio of less than 4 percent or has a leverage ratio that is less
than 3 percent if the association is rated composite 1 under the CAMEL rating
system in the most recent examination of the association and is not
experiencing or anticipating significant growth.
Community Reinvestment. The OTS, the FDIC, the Federal Reserve Board and
the OCC have jointly issued a final rule (the "Final Rule") under the
Community Reinvestment Act (the "CRA"). The Final Rule eliminates the
existing CRA regulation's twelve assessment factors and substitutes a
performance based evaluation system. The Final Rule became effective by July
1, 1997. Under the Final Rule, an institution's performance in meeting the
credit needs of its entire community, including low- and moderate-income
areas, as required by the CRA, will generally be evaluated under three tests:
the "lending test," the "investment test," and the "service test."
-Page 36-
The lending test analyzes lending performance using five criteria: (i)
the number and amount of loans in the institution's assessment area, (ii) the
geographic distribution of lending, including the proportion of lending in the
assessment area, the dispersion of lending in the assessment area, and the
number and amount of loans in low-, moderate-, middle-, and upper-income areas
in the assessment area, (iii) borrower characteristics, such as the income
level of individual borrowers and the size of businesses or farms, (iv) the
number and amount, as well as the complexity and innovativeness of an
institution's community development lending and (v) the use of innovative or
flexible lending practices in a safe and sound manner to address the credit
needs of low- or moderate-income individuals or areas. The investment test
analyzes investment performance using four criteria: (i) the dollar amount of
qualified investments, (ii) the innovativeness or complexity of qualified
investments, (iii) the responsiveness of qualified investments to credit and
community development needs, and (iv) the degree to which the qualified
investments made by the institution are not routinely provided by private
investors. The service test analyzes service performance using six criteria:
(i) the institution's branch distribution among low-, moderate-, middle-, and
upper-income areas, (ii) its record of opening and closing branches,
particularly in low- and moderate-income areas, (iii) the availability and
effectiveness of alternative systems for delivering retail banking services,
(iv) the range of services provided in low-, moderate-, middle- and upper-
income areas and extent to which those services are tailored to meet the needs
of those areas, (v) the extent to which the institution provides community
development services, and (vi) the innovativeness and responsiveness of
community development services provided.
An independent financial institution with assets of less than $250
million, or a financial institution with assets of less than $250 million that
is a subsidiary of a holding company with assets of less than $1 billion, will
be evaluated under a streamlined assessment method based primarily on its
lending record. The streamlined test considers an institution's loan-to-
deposit ratio adjusted for seasonal variation and special lending activities,
its percentage of loans and other lending related activities in the assessment
area, its record of lending to borrowers of different income levels and
businesses and farms of different sizes, the geographic distribution of its
loans, and its record of taking action, if warranted, in response to written
complaints. In lieu of being evaluated under the three assessment tests or
the streamlined test, a financial institution can adopt a "strategic plan" and
elect to be evaluated on the basis of achieving the goals and benchmarks
outlined in the strategic plan.
Transactions with Related Parties. First Federal's authority to engage
in transactions with related parties or "affiliates," (i.e., any company that
controls or is under common control with an association) including the
Corporation and its non-savings-association subsidiaries or to make loans to
certain insiders, is limited by Sections 23A and 23B of the
Federal Reserve Act ("FRA"). Subsidiaries of a savings association are
generally exempted from the definition of "affiliate." Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10 percent
of the capital and surplus of the savings association and also limits the
aggregate amount of transactions with all affiliates to 20 percent of the
savings association's capital and surplus. Certain transactions with
-Page 37-
affiliates are required to be secured by collateral in an amount and of a type
described in the FRA and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the association as those prevailing at the time for
comparable transactions with non-affiliated companies. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies. Notwithstanding Sections 23A
and 23B, no savings association may lend to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the Bank Holding Company Act ("BHC Act"). Further, no savings
association may purchase the securities of any affiliate other than a
subsidiary.
First Federal's authority to extend credit to executive officers,
directors and 10 percent shareholders, as well as such entities such persons
control are currently governed by Section 22(g) and 22(h) of the FRA 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 Savings Bank may make to such persons based, in part, on the Savings
Bank's capital position, and require certain approval procedures to be
followed. OTS regulations, with the exception of minor variations, apply
Regulation O to savings associations.
Prompt Corrective Regulatory Action. FDICIA establishes a system of
prompt corrective action to resolve the problems of undercapitalized
associations. Under this system, the OTS is required to take certain
supervisory actions against undercapitalized associations, the severity of
which depends upon the association's degree of undercapitalization.
Real Estate Lending Standards. The OTS and the other federal banking
agencies have uniform regulations prescribing real estate lending standards.
The OTS regulation requires each savings association to establish and maintain
written internal real estate lending standards consistent with safe and sound
banking practices and appropriate to the size of the institution and the
nature and scope of its real estate lending activities. The policy must also
be consistent with accompanying OTS guidelines, which include maximum loan-to-
value ratios for the following types of real estate loans: raw land (65
percent), land development (75 percent), nonresidential construction (80
percent), improved property (85 percent) and one- to four-family residential
construction (85 percent). Owner-occupied one- to four-family mortgage loans
and home equity loans do not have maximum loan-to-value ratio limits, but
those with a loan-to-value ratio at origination of 90 percent or greater are
to be backed by private mortgage insurance or readily marketable collateral.
Institutions are also permitted to make a limited amount of loans that do not
conform to the proposed loan-to-value limitations so long as such exceptions
are appropriately reviewed and justified. The guidelines also list a number
of lending situations in which exceptions to the loan-to-value standard are
justified.
Standards for Safety and Soundness. The federal banking regulators
adopted interagency guidelines establishing standards for safety and soundness
for depository institutions on matters such as internal controls, loan
documentation, credit underwriting, interest-rate risk exposure, asset growth,
compensation and other benefits and asset quality and earnings. The agencies
expect to request a compliance plan from an institution whose failure to meet
-Page 38-
one or more of the standards is of such severity that it could threaten the
safe and sound operation of the institution.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts), non-personal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than one and one-half years and certain
money market accounts. The Federal Reserve Board regulations generally
require that reserves of 3% must be maintained against aggregate transaction
accounts of $52 million or less (subject to adjustment by the Federal Reserve
Board) and an initial reserve of $1.6 million plus 10 percent (subject to
adjustment by the Federal Reserve Board between 8 percent and 14 percent)
against that portion of total transaction accounts in excess of $52 million.
The first $4.3 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. First Federal is in compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy liquidity requirements by the
OTS. Because required reserves must be maintained in the form of either vault
cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-
through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce the Savings Bank's interest-earning assets.
FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal
Reserve Bank.
Holding Company Regulation
Eagle is considered a non-diversified, savings and loan holding company
within the meaning of the HOLA, has registered as a savings and loan holding
company with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Corporation and its non-savings association subsidiaries.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from (i) acquiring control
of, or acquiring by merger or purchase of assets, another savings association
or holding company thereof, without prior written approval of the OTS; (ii)
acquiring or retaining, with certain exceptions, more than 5 percent of a non-
subsidiary savings association, a non-subsidiary holding company, or a non-
subsidiary company engaged in activities other than those permitted by the
HOLA; or (iii) acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings associations, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.
-Page 39-
As a unitary savings and loan holding company, Eagle generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that its savings association subsidiary continues to
satisfy the QTL test. Upon any acquisition by Eagle of another SAIF-insured
institution (other than the Corporation), a federal savings bank insured by
the BIF, or a state-chartered BIF-insured savings bank meeting the QTL test
that is deemed to be a savings institution by OTS, except for a supervisory
acquisition, Eagle would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would be
subject to extensive limitations on the types of business activities in which
it could engage. The HOLA, as amended by the FIRREA, limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the
OTS, and activities in which multiple savings and loan holding companies were
authorized by regulation to engage in on March 5, 1987. Such activities
include mortgage banking, consumer finance, operation of a trust company, and
certain types of securities brokerage. The services and activities in which
multiple holding companies were authorized to engage in on March 5, 1987
generally correspond to the activities which are permitted for service
corporations of federally-chartered savings institutions.
Executive Officers of the Registrant
<TABLE>
The following are the executive officers of the Company, each of whom is
elected annually, and there are no arrangements or understandings between any
of the persons so named and any other person pursuant to which such person was
elected as an executive officer.
<CAPTION>
Name Age Positions with Registrant
<S> <C> <C>
Donald L. Fernandes 41 President, Chief Executive Officer and Director
of Eagle since formation of the Company in 1996.
Chairman of the Board and Chief Executive Officer
Of First Federal since August, 1997. From
August, 1995 to August, 1997, President and Chief
Executive Officer of First Federal. Senior Vice
President and Chief Financial Officer of First
Federal prior thereto.
David R. Wampler 38 Vice President and Director of Eagle since
August, 1997. President and Director of First
Federal since August, 1997. From July, 1993
through July, 1997, President of Central Illinois
Bank of McLean County. Commercial Lending
Officer for Bank One, Bloomington, prior thereto.
Larry C. McClellan 44 Vice President - Operations of First Federal
since August, 1995. Controller of First Federal
prior thereto.
Gary L. Richardson 46 Vice President - Lending of First Federal since
February, 1993. Senior Consumer Lending Officer
for First of America Bank-Illinois, NA,
Bloomington prior thereto.
-Page 40-
James E. Lyons 39 Vice President - Finance of First Federal since
March, 1998. From October, 1995 to March, 1998,
Assistant Vice President of First Federal.
Assistant Vice President of Commerce Bank prior
thereto.
Donald L. Lambert 38 Vice President - Retail Banking Services of First
Federal since November, 1998. Vice President -
Business Development of Pontiac National Bank
From January, 1997 to November, 1998. Vice
President - Farm Manager of Pontiac National
Bank prior thereto.
</TABLE>
Item 2. PROPERTIES
The Company conducts its business through four full-service offices. The
main office is located at 301 Fairway Drive, Bloomington, Illinois. All
offices are owned in fee and are unencumbered with the exception of the
Lexington branch, which opened in December, 1998 in an office building shared
with an insurance agency. The owner of the insurance agency owns the
building, which First Federal paid to renovate. First Federal signed a three
year lease in August, 1998 and has an option to renew. The Company believes
that its current facilities are adequate to meet its present and foreseeable
needs.
<TABLE>
<CAPTION>
Date Net Book Value
Office Acquired December 31, 1998
(in thousands)
<S> <C> <C>
Main Office
301 Fairway Drive
Bloomington, Illinois 61701 1981 $1,213
Veterans Parkway Branch
1111 South Veterans Parkway
Bloomington, Illinois 61701 1994 1,272
LeRoy Branch
207 South East Street
LeRoy, Illinois 61752 1983 220
Lexington Branch
302 West Main Street
Lexington, Illinois 61753 1998 114
</TABLE>
Item 3. LEGAL PROCEEDINGS
The Company is, from time to time, party to legal proceedings arising in
the normal course of its business, including legal proceedings to enforce its
rights against borrowers. The Company is not currently party to any legal
proceedings which could reasonably be expected to have a material adverse
effect on the financial condition or operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through a
solicitation of proxies or otherwise in the quarter ended December 31, 1998.
-Page 41
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information called for by this item is incorporated by reference to
'Common Stock - Market Information' on page 37 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1998.
Item 6. SELECTED FINANCIAL DATA
The information called for by this item is incorporated by reference to
'Financial Highlights' on page 1 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1998.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is incorporated by reference to
'Management's Discussion and Analysis' on pages 2 through 9 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1998.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated by reference to
'Management's Discussion and Analysis' on pages 2 through 9 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1998.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
The following financial statements of the Corporation and its
subsidiaries included in the Corporation's Annual Report to Stockholders for
the year ended December 31, 1998 are incorporated herein by reference.
<CAPTION>
1998 Annual
Report Page(s)
<S> <C>
Report of Independent Auditors 10
Consolidated Statements of Condition as of
December 31, 1998 and 1997 11
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997 and 1996 12
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 14-15
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996 13
Notes to Consolidated Financial Statements 16-36
</TABLE>
-Page 42-
Note 13 of Notes to Consolidated Financial Statements titled 'Quarterly
Financial Data' on pages 33 and 34 of the Corporation's 1998 Annual Report to
Stockholders for the year ended December 31, 1998 is incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information called for by this item with respect to directors and
director nominees is presented in Eagle's Notice and Proxy Statement dated
March 22, 1999 on pages 4 and 5 under the caption 'Proposal 1 - Election of
Directors' and on page 13 under the caption 'Section 16(a) Beneficial
Ownership Reporting Compliance' and is incorporated herein by reference.
The information called for by this item with respect to executive
officers is included under the caption 'Executive Officers of the Registrant'
under Item 1 of this Form 10-K on page 40.
Item 11. EXECUTIVE COMPENSATION
The information called for by this item is presented in Eagle's Notice
and Proxy Statement dated March 22, 1999 on pages 6 through 10 under the
caption 'Executive Compensation' and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is presented in Eagle's Notice
and Proxy Statement dated March 22, 1999 on pages 2 through 4 under the
caption 'Voting Securities and Principal Holders Thereof' and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is presented in Eagle's Notice
and Proxy Statement dated March 22, 1999 on page 9 under the caption
'Compensation Committee Interlocks and Insider Participations' and is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements - The financial statements required by this
item are listed under Item 8 of Part II of this document.
2. Financial Statement Schedules - The financial statement schedules
required by this item are either not applicable or are included in the
financial statements.
-Page 43-
3. Exhibits - The exhibits listed on the Exhibit Index beginning on
page 45 of this Form 10-K are filed herewith or are incorporated herein
by reference to other Filings.
(b) Reports on Form 8-K:
No reports on Form 8-K filed during the quarter ended December 31,
1998.
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.
EAGLE BANCGROUP, INC
Date: March 26, 1999 By: /s/ Donald L. Fernandes
---------------------------
DONALD L. FERNANDES,
President and Chief
Executive Officer
-Page 44-
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.
Signature Title Date
President, Chief Executive
/s/ Donald L. Fernandes Officer, Director, Chief March 26, 1999
- ----------------------- Financial Officer and
DONALD L. FERNANDES Principal Accounting Officer
/s/ Gerald A. Bradley Chairman of the Board March 26, 1999
- ---------------------
GERALD A. BRADLEY
/s/ David R. Wampler Vice President and Director March 26, 1999
- --------------------
DAVID R. WAMPLER
/s/ Robert P. Dole Director March 26, 1999
- ------------------
ROBERT P. DOLE
/s/ William J. Hanfland Director March 26, 1999
- -----------------------
WILLIAM J. HANFLAND
/s/ Louis F. Ulbrich Director March 26, 1999
- --------------------
LOUIS F. ULBRICH
/s/ Steven J. Wannemacher Director March 26, 1999
- -------------------------
STEVEN J. WANNEMACHER
<TABLE>
EXHIBIT INDEX
<CAPTION>
Item Exhibit Page
<S> <C> <C>
3. Articles of 3.1 Certificate on Incorporation of
Incorporation and Registrant as filed in Delaware on
Bylaws January 24, 1996 (1)
3.2 Bylaws of Registrant as adopted by the
Board of Directors of Registrant on
January 25, 1996 (1)
4. Instruments defining 4.1 Specimen Stock Certificate of
the rights of holders, Registrant (1)
including indentures
4.2 Articles IV, V, VI, VII, XI, XII, XIII,
XIV, XVI, and XVII of the Registrant's
Certificate of Incorporation (See
Exhibit 3.1)
-Page 45-
4.3 Articles II, III, IV, VIII and XI of
the Registrant's Bylaws (See
Exhibit 3.2)
10. Material contracts 10.1 First Federal Savings and Loan
Association of Bloomington Employee
Stock Ownership Plan (1)
10.2 Credit Agreement between Registrant
and First Federal Savings and Loan
Association of Bloomington Employee
Stock Ownership Plan (1)
10.3 Eagle BancGroup, Inc. 1996 Stock
Option and Incentive Plan (2)
10.4 Eagle BancGroup, Inc. Management
Development and Recognition Plan
and Trust Agreement (2)
10.5 Deferred Compensation Agreement,
dated as of September 22, 1992,
between First Federal Savings and
Loan Association of Bloomington
and Donald L. Fernandes (1)
10.6 Employment Security Agreement, dated
as of July 1, 1996, between the
Registrant and Larry C. McClellan 48
10.7 Employment Security Agreement, dated
as of July 8, 1996, between the
Registrant and Gary L. Richardson 53
10.8 Employment Agreement, dated as of October
23, 1998, among Eagle BancGroup, Inc.,
First Federal Savings and Loan Association
of Bloomington and Donald L. Fernandes 58
10.9 Employment Agreement, dated as of October
23, 1998, among Eagle BancGroup, Inc.,
First Federal Savings and Loan Association
of Bloomington and David R. Wampler 68
10.10 Employment Security Agreement, dated as
of October 23, 1998, between the
Registrant and James E. Lyons 78
10.11 Employment Security Agreement, dated as
of November 30, 1998, between the
Registrant and Donald L. Lambert 82
13. Annual report to 13.1 1998 Annual Report to
security holders Stockholders 87
-Page 46-
21. Subsidiaries of 21.1 List of subsidiaries of the
the registrant Registrant 128
23. Consent of experts 23.1 Consent of McGladrey & Pullen, LLP 129
and counsel
23.2 Consent of Ernst & Young LLP 129
27. Financial Data 27.1 Financial Data Schedule as of
Schedule December 31, 1999
99. Additional exhibits 99.1 Report of Independent Auditors 129
<FN>
<F1>
Incorporated by reference to Exhibits filed with the Registration
Statement on Form S-1, Registration No. 333-2474.
<F2>
Incorporated by reference to Notice and Proxy Statement for Special
Meeting of Stockholders dated January 10, 1997, filed January 9, 1997.
-Page 47-
</FN>
</TABLE>
Exhibit 10.6
EMPLOYMENT SECURITY AGREEMENT
Dear Mr. McClellan:
The Board of Directors of Eagle BancGroup, Inc. (the "Company"
which reference, for purposes hereof, shall include subsidiaries of the
Company) has determined that it is advisable and in the best interests of the
Company and its stockholders to provide reasonable assurance to certain key
employees of the Company with respect to appropriate severance arrangements in
the event of a change of control of the Company. By this Agreement, the
Company is seeking to gain the benefit of your future services and avoid undue
concern about changes of control of the Company.
The following is offered as an inducement to you to remain in the
employ of the Company and to dedicate your efforts to its best interests:
SECTION 1. Subject to Section 3(c) below, payments and benefits herein
provided to be paid to you by the Company will be made without regard to and
in addition to any other payments or benefits required to be paid to you at
any time hereafter under the terms of any other agreement (if any) between you
and the Company and under any other policy of the Company relating to
compensation, severance pay or retirement or other benefits; in other words,
the payments and benefits provided herein shall be in addition to and not in
lieu of salary, consulting payments, bonus payments, incentive compensation,
retirement benefits or any other payments or benefits. No payments or
benefits provided to you hereunder shall be reduced by any amount you may earn
or receive from employment with the Company, with another employer, or from
any other source.
SECTION 2. You agree that without the consent of the Company you will
not terminate your employment without giving at least two weeks' prior notice
to the Company, which may become effective earlier than two weeks at the
discretion of the Board of Directors of the Company.
SECTION 3. If at any time after the date hereof a Change of Control (as
hereinafter defined) occurs and within one year thereafter (i) the Company
involuntarily terminates your employment for any reason other than for good
cause (as hereinafter defined), disability, death or retirement pursuant to
any retirement plan or policy of the Company of general application to key
employees, or (ii) you terminate your employment for good reason (as
hereinafter defined), then:
(a) The Company will pay to you in an immediate lump-sum cash
payment an amount equal to the product of 1.0 times your "Base Amount"
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended. Any payments made to you pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. section 1828(k) and any regulations promulgated thereunder.
(b) Medical, life and long-term disability insurance coverage
provided to you and your family by the Company, if any,
shall be continued by the Company at no cost to you as if
you continued to be an employee until the first to occur of
the following events: (i) you waive coverage by giving
written notice of waiver to the Company; (ii) 12 months
elapse from the effective date of your termination; or (iii)
you become a participant in group insurance benefit programs
of a new employer which does not contain any exclusion or
limitation for you or your dependents with respect to any
preexisting condition. If coverage is not permitted under
-Page 48-
applicable policy terms, the Company will provide equivalent
benefits (i.e., by reimbursing you for the full cost of COBRA
premiums). Upon termination of this benefit in accordance with
the terms hereof, you shall be entitled to exercise the policy
options normally available to employees upon termination of their
employment.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and you that
no portion of any payment under this Agreement, or payments to you
or for your benefit under any other agreement or plan, be deemed
to be an "Excess Parachute Payment" as defined in Section 280G of
the Code, or its successors. It is agreed that the present value
of and payments to you or for your benefit in the nature of
compensation, receipt of which is contingent on occurrence of a
Change of Control, and to which Section 280G of the Code applies
(in the aggregate "Total Payments") shall not exceed an amount
equal to one dollar less than the maximum amount that the Company
may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be
calculated in accordance with Section 280G(d)(4) of the Code.
Within sixty (60) days following the earlier of (i) the giving of
the notice of termination of employment or (ii) the giving of
notice by the Company to you of its belief that there is a payment
or benefit due you which will result in an excess parachute
payment as defined in Section 280G of the Code, you and the
Company, at the Company's expense, shall obtain the opinion of the
Company's public accounting firm (the "Accounting Firm"), which
opinion need not be unqualified, which sets forth: (i) the amount
of your Base Period Income (as defined in Code Section 280G), (ii)
the present value of Total Payments and (iii) the amount and
present value of any excess parachute payments. In the event that
such opinion determines that there would be an excess parachute
payment, the payment hereunder shall be modified, reduced or
eliminated as specified by you in writing delivered to the Company
within thirty (30) days of your receipt of such opinion or, if you
fail to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculation set
forth in such opinion there will be no excess parachute payment.
In the event that the provisions of Sections 280G and 4999 of the
Code are repealed without succession, this Section shall be of no
further force or effect.
(ii) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change or Control, you shall appoint another
nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm under this Section
3(c)(i)). All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and you.
It is understood that as a part or as a result of a Change of
Control, business operations of the Company may be transferred to
parties that are not affiliates of the Company that may continue
your employment as a successor employer and, in such event, your
employment shall not be deemed to have been terminated by the
Company and, instead, "employment by the Company" as used in this
-Page 49-
Section 3 shall be deemed to include employment by successor
employers. The obligation of the Company hereunder to provide
payments or benefits to you as set forth herein shall continue in
effect and apply to any subsequent termination of your employment
by a successor employer.
SECTION 4. For purposes of this Agreement, "Change of Control" shall be
deemed to have taken place if, subsequent to the date hereof,
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any class
of voting stock issued by the Company; or any person (other than
the Company) becomes the beneficial owner, directly or indirectly,
of 25% or more of the outstanding shares of any class of voting
stock issued by First Federal Savings and Loan Association of
Bloomington, the Company's wholly-owned subsidiary (the
"Association");
(ii) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued
by the Company, if such beneficial ownership
constitutes or will constitute control of the Company
for regulatory purposes; or any person (other than the
Company) becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued
by the Association, if such beneficial ownership constitutes or will
constitute control of the Association for regulatory purposes;
(iii) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the
Company) holds revocable or irrevocable proxies as to
the election or removal of a majority or more of the
directors of the Company, or for 25% or more of the
total number of voting shares of the Company;
(iv) The Office of Thrift Suptevision ("OTS") or other
appropriate regulatory authority has given the required approval
of non-objection to the acquisition of control of the Company by
any person; or the OTS or other appropriate regulatory authority
has given the required approval of non-objection to the
acquisition of control of the Association by any person (other
than the Company);
(iv) During any period of 24 consecutive months,
individuals who at the beginning of such period
constitute the Association's and the Company's Board
of Directors cease for any reason to constitute at
least a majority of the Board of the Association or
the Company, as the case may be, unless the election
of each director who was not a director at the
beginning of such period has been approved in advance
by directors of the Association or the Holding
Company, as the case may be, representing at least
two-thirds of the directors then in office who were
directors at the beginning of the period; or
(vi) Any person acquires substantially all of the assets and assumes
substantially all of the liabilities of the Company or First Federal.
A person shall be deemed a beneficial owner as that term is used
in Section 13(d)(3) under the Securities Exchange Act of 1934, as amended (as
in effect on the date hereof). No "Change of Control" shall be deemed to have
-Page 50-
taken place solely by reason of the Company owning stock in wholly-owned
subsidiaries.
SECTION 5. For purposes of this Agreement, "good cause" shall mean your
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform your stated
duties, willful violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense), final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Agreement, "good reason" shall exist if,
without your express written consent, (i) you are assigned new duties
involving a material amount of your time that are not of an executive or
supervisory nature or do not involve the level of responsibility generally
comparable to your responsibilities and duties prior to the Change of Control;
(ii) your duties and responsibilities are substantially reduced from your
present position, excluding reductions that are a normal consequence of the
Company ceasing to be widely or publicly owned; (iii) there occurs any
material reduction in your aggregate compensation, incentive and benefit
package in effect at the time of the Change of Control, excluding (in the case
of an incentive or benefit package whose benefits are proportionate to your
performance or the performance of the Association or the Company) reductions
in benefits resulting from your diminished performance, or the diminished
performance of the Association or the Company; or (iv) you are an officer of
the Association or the Company at the time of the Change of Control and
thereafter the Company shall require you to perform services outside of a
forty-mile radius of the Association's offices at which you are currently
based except for travel on the Association's or the Company's business that
the Association or the Company reasonably requires.
SECTION 6. Any payment not made when due in accordance with this
Agreement shall thereafter bear interest at the prime rate from time to time
as reported in The Wall Street Journal.
SECTION 7. This agreement may not be assigned by the Company except in
connection with a merger involving the Company or a sale of substantially all
of its assets, and the obligations of the Company provided for in this
Agreement shall be the binding legal obligations of any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may
not be assigned by you during your life, and upon your death will be binding
upon and inure to the benefit of your heirs, legatees and the legal
representatives of your estate.
SECTION 8. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you, approved by the Board of Directors and signed by an
appropriate officer of the Company empowered to sign the same by the Board of
Directors of the Company. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any
prior to or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provision of this Agreement.
SECTION 9. This Agreement does not constitute a contract for the
continued employment of you by the Company. Subject only to those rights of
yours that are specified herein following a Change of Control, the Company
reserves all of its rights to modify your compensation and other terms of your
employment and to terminate your employment to the same extent as before the
-Page 51-
execution of this Agreement.
SECTION 10. The Company shall pay your out-of-pocket expenses,
including attorney's fees, in connection with any judicial proceeding to
enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith unless the Company prevails in
such litigation.
SECTION 11. The initial term of this Agreement shall be for a 36 month
period commencing June 26, 1996 and ending June 28, 1999. The said 36-month
term may be extended for an additional 12 full calendar months by action of
the Board of Directors sixty (60) days prior to June 28, 1997, and on sixty
(60) days prior to each succeeding June 28 thereafter, respectively.
Very truly yours,
By: /s/ Donald L. Fernandes
Title: Chairman
Accepted and agreed to this 1st
day of July, 1996.
/s/ Larry C. McClellan
FIRST AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT
WHEREAS, Eagle BancGroup, Inc. (the 'Holding Company'), First Federal
Savings and Loan Association of Bloomington (the 'Association') and Larry
McClellan (the 'Employee') entered into an Employment Agreement ('Agreement')
effective as of June 29, 1998; and
WHEREAS, the parties are mutually desirous of amending the Agreement in
certain respects; and
WHEREAS, the Board of Directors of the Company and the Association have
approved and authorized their entry into this First Amendment to the
Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Agreement and set forth below, the Agreement is amended as
follows, effective October 23, 1998:
1. The first sentence of Section 1 is amended to read as follows:
'The Employee is employed as Vice-President of the Association.'
2. Section 5 of the Agreement is amended to read as follows:
'Term. The term of employment under this Agreement shall be for a 36
month period commencing on October 23, 1998 and ending October 31, 2001.
The said 36 month period of employment may be extended for an additional
12 full calendar months by action of the Board of Directors of the
Holding Company and the Association sixty (60) days prior to October 31,
1999 and sixty (60) days prior to each succeeding October 31 thereafter,
respectively.'
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment to the Employment Agreement as of this 23rd day of October 1998
-Page 52-
EMPLOYEE EAGLE BANCGROUP, INC.
/s/ Larry C. McClellan /s/ Gerald Bradley
Larry McClellan Gerald A. Bradley, Chairman
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF BLOOMINGTON
/s/ Gerald Bradley
Gerald A. Bradley, Director
Exhibit 10.7
EMPLOYMENT SECURITY AGREEMENT
Dear Mr. Richardson:
The Board of Directors of Eagle BancGroup, Inc. (the "Company"
which reference, for purposes hereof, shall include subsidiaries of the
Company) has determined that it is advisable and in the best interests of the
Company and its stockholders to provide reasonable assurance to certain key
employees of the Company with respect to appropriate severance arrangements in
the event of a change of control of the Company. By this Agreement, the
Company is seeking to gain the benefit of your future services and avoid undue
concern about changes of control of the Company.
The following is offered as an inducement to you to remain in the
employ of the Company and to dedicate your efforts to its best interests:
SECTION 1. Subject to Section 3(c) below, payments and benefits herein
provided to be paid to you by the Company will be made without regard to and
in addition to any other payments or benefits required to be paid to you at
any time hereafter under the terms of any other agreement (if any) between you
and the Company and under any other policy of the Company relating to
compensation, severance pay or retirement or other benefits; in other words,
the payments and benefits provided herein shall be in addition to and not in
lieu of salary, consulting payments, bonus payments, incentive compensation,
retirement benefits or any other payments or benefits. No payments or
benefits provided to you hereunder shall be reduced by any amount you may earn
or receive from employment with the Company, with another employer, or from
any other source.
SECTION 2. You agree that without the consent of the Company you will
not terminate your employment without giving at least two weeks' prior notice
to the Company, which may become effective earlier than two weeks at the
discretion of the Board of Directors of the Company.
SECTION 3. If at any time after the date hereof a Change of Control (as
hereinafter defined) occurs and within one year thereafter (i) the Company
involuntarily terminates your employment for any reason other than for good
cause (as hereinafter defined), disability, death or retirement pursuant to
any retirement plan or policy of the Company of general application to key
employees, or (ii) you terminate your employment for good reason (as
hereinafter defined), then:
(a) The Company will pay to you in an immediate lump-sum cash
payment an amount equal to the product of 1.0 times your "Base Amount"
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended. Any payments made to you pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(c) Medical, life and long-term disability insurance coverage
-Page 53-
provided to you and your family by the Company, if any, shall be
continued by the Company at no cost to you as if you continued to
be an employee until the first to occur of the following events:
(i) you waive coverage by giving written notice of waiver to the
Company; (ii) 12 months elapse from the effective date of your
termination; or (iii) you become a participant in group insurance
benefit programs of a new employer which does not contain any
exclusion or limitation for you or your dependents with respect to
any preexisting condition. If coverage is not permitted under
applicable policy terms, the Company will provide equivalent
benefits (i.e., by reimbursing you for the full cost of COBRA
premiums). Upon termination of this benefit in accordance with
the terms hereof, you shall be entitled to exercise the policy
options normally available to employees upon termination of their
employment.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and you that
no portion of any payment under this Agreement, or payments to you
or for your benefit under any other agreement or plan, be deemed
to be an "Excess Parachute Payment" as defined in Section 280G of
the Code, or its successors. It is agreed that the present value
of and payments to you or for your benefit in the nature of
compensation, receipt of which is contingent on occurrence of a
Change of Control, and to which Section 280G of the Code applies
(in the aggregate "Total Payments") shall not exceed an amount
equal to one dollar less than the maximum amount that the Company
may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be
calculated in accordance with Section 280G(d)(4) of the Code.
Within sixty (60) days following the earlier of (i) the giving of
the notice of termination of employment or (ii) the giving of
notice by the Company to you of its belief that there is a payment
or benefit due you which will result in an excess parachute
payment as defined in Section 280G of the Code, you and the
Company, at the Company's expense, shall obtain the opinion of the
Company's public accounting firm (the "Accounting Firm"), which
opinion need not be unqualified, which sets forth: (i) the amount
of your Base Period Income (as defined in Code Section 280G), (ii)
the present value of Total Payments and (iii) the amount and
present value of any excess parachute payments. In the event that
such opinion determines that there would be an excess parachute
payment, the payment hereunder shall be modified, reduced or
eliminated as specified by you in writing delivered to the Company
within thirty (30) days of your receipt of such opinion or, if you
fail to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculation set
forth in such opinion there will be no excess parachute payment.
In the event that the provisions of Sections 280G and 4999 of the
Code are repealed without succession, this Section shall be of no
further force or effect.
(ii) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or
group effecting the Change or Control, you shall
appoint another nationally recognized public
accounting firm to make the determinations required
-Page 54-
hereunder (which accounting firm shall then be referred to as the Accounting
Firm under this Section
(iii) 3(c)(i)). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding
upon the Company and you.
It is understood that as a part or as a result of a Change of
Control, business operations of the Company may be transferred to
parties that are not affiliates of the Company that may continue
your employment as a successor employer and, in such event, your
employment shall not be deemed to have been terminated by the
Company and, instead, "employment by the Company" as used in this
Section 3 shall be deemed to include employment by successor
employers. The obligation of the Company hereunder to provide
payments or benefits to you as set forth herein shall continue in
effect and apply to any subsequent termination of your employment
by a successor employer.
SECTION 4. For purposes of this Agreement, "Change of Control" shall be
deemed to have taken place if, subsequent to the date hereof,
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any class
of voting stock issued by the Company; or any person (other than
the Company) becomes the beneficial owner, directly or indirectly,
of 25% or more of the outstanding shares of any class of voting
stock issued by First Federal Savings and Loan Association of
Bloomington, the Company's wholly-owned subsidiary (the
"Association");
(v) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued
by the Company, if such beneficial ownership
constitutes or will constitute control of the Company
for regulatory purposes; or any person (other than the
Company) becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued
by the Association, if such beneficial ownership constitutes or will
constitute control of the Association for regulatory purposes;
(vi) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the
Company) holds revocable or irrevocable proxies as to
the election or removal of a majority or more of the
directors of the Company, or for 25% or more of the
total number of voting shares of the Company;
(iv) The Office of Thrift Suptevision ("OTS") or other
appropriate regulatory authority has given the required approval
of non-objection to the acquisition of control of the Company by
any person; or the OTS or other appropriate regulatory authority
has given the required approval of non-objection to the
acquisition of control of the Association by any person (other
than the Company);
(vii) During any period of 24 consecutive months,
individuals who at the beginning of such period
constitute the Association's and the Company's Board
of Directors cease for any reason to constitute at
least a majority of the Board of the Association or
-Page 55-
the Company, as the case may be, unless the election of each
director who was not a director at the beginning of such
period has been approved in advance by directors of the
Association or the Holding Company, as the case may be,
representing at least two-thirds of the directors then in
office who were
directors at the beginning of the period; or
(vi) Any person acquires substantially all of the assets and assumes
substantially all of the liabilities of the Company or First Federal.
A person shall be deemed a beneficial owner as that term is used
in Section 13(d)(3) under the Securities Exchange Act of 1934, as amended (as
in effect on the date hereof). No "Change of Control" shall be deemed to have
taken place solely by reason of the Company owning stock in wholly-owned
subsidiaries.
SECTION 5. For purposes of this Agreement, "good cause" shall mean your
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform your stated
duties, willful violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense), final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Agreement, "good reason" shall exist if,
without your express written consent, (i) you are assigned new duties
involving a material amount of your time that are not of an executive or
supervisory nature or do not involve the level of responsibility generally
comparable to your responsibilities and duties prior to the Change of Control;
(ii) your duties and responsibilities are substantially reduced from your
present position, excluding reductions that are a normal consequence of the
Company ceasing to be widely or publicly owned; (iii) there occurs any
material reduction in your aggregate compensation, incentive and benefit
package in effect at the time of the Change of Control, excluding (in the case
of an incentive or benefit package whose benefits are proportionate to your
performance or the performance of the Association or the Company) reductions
in benefits resulting from your diminished performance, or the diminished
performance of the Association or the Company; or (iv) you are an officer of
the Association or the Company at the time of the Change of Control and
thereafter the Company shall require you to perform services outside of a
forty-mile radius of the Association's offices at which you are currently
based except for travel on the Association's or the Company's business that
the Association or the Company reasonably requires.
SECTION 6. Any payment not made when due in accordance with this
Agreement shall thereafter bear interest at the prime rate from time to time
as reported in The Wall Street Journal.
SECTION 7. This agreement may not be assigned by the Company except in
connection with a merger involving the Company or a sale of substantially all
of its assets, and the obligations of the Company provided for in this
Agreement shall be the binding legal obligations of any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may
not be assigned by you during your life, and upon your death will be binding
upon and inure to the benefit of your heirs, legatees and the legal
representatives of your estate.
SECTION 8. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you, approved by the Board of Directors and signed by an
appropriate officer of the Company empowered to sign the same by the Board of
Directors of the Company. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
-Page 56-
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any
prior to or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provision of this Agreement.
SECTION 9. This Agreement does not constitute a contract for the
continued employment of you by the Company. Subject only to those rights of
yours that are specified herein following a Change of Control, the Company
reserves all of its rights to modify your compensation and other terms of your
employment and to terminate your employment to the same extent as before the
execution of this Agreement.
SECTION 10. The Company shall pay your out-of-pocket expenses,
including attorney's fees, in connection with any judicial proceeding to
enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith unless the Company prevails in
such litigation.
SECTION 11. The initial term of this Agreement shall be for a 36 month
period commencing June 29, 1996 and ending June 29, 1999. The said 36-month
term may be extended for an additional 12 full calendar months by action of
the Board of Directors sixty (60) days prior to June 28, 1997, and on sixty
(60) days prior to each succeeding June 28 thereafter, respectively.
Very truly yours,
By: /s/ Donald L. Fernandes
Title: President
Accepted and agreed to this 8th
Day of July, 1996
/s/ Gary L. Richardson
FIRST AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT
WHEREAS, Eagle BancGroup, Inc. (the 'Holding Company'), First Federal
Savings and Loan Association of Bloomington (the 'Association') and Gary
Richardson (the 'Employee') entered into an Employment Agreement ('Agreement')
effective as of June 29, 1998; and
WHEREAS, the parties are mutually desirous of amending the Agreement in
certain respects; and
WHEREAS, the Board of Directors of the Company and the Association have
approved and authorized their entry into this First Amendment to the
Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Agreement and set forth below, the Agreement is amended as
follows, effective October 23, 1998:
1. The first sentence of Section 1 is amended to read as follows:
'The Employee is employed as Vice-President of the Association.'
-Page 57-
2. Section 5 of the Agreement is amended to read as follows:
'Term. The term of employment under this Agreement shall be for a 36
month period commencing on October 23, 1998 and ending October 31, 2001.
The said 36 month period of employment may be extended for an additional
12 full calendar months by action of the Board of Directors of the
Holding Company and the Association sixty (60) days prior to October 31,
1999 and sixty (60) days prior to each succeeding October 31 thereafter,
respectively.'
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment to the Employment Agreement as of this 23rd day of October 1998
EMPLOYEE: EAGLE BANCGROUP, INC.
/s/ Gary Richardson /s/ Gerald Bradley
Gary Richardson Gerald A. Bradley, Chairman
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF BLOOMINGTON
/s/ Gerald Bradley
Gerald A. Bradley, Director
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 23rd day of October, 1998, among First
Federal Savings and Loan Association of Bloomington (the 'Association'), Eagle
BancGroup, Inc. (the 'Holding Company') and Donald L. Fernandes (the
'Employee').
WHEREAS, the Employee has heretofore been employed by the Association as
President and Chief Executive Officer and is experienced in all phases of the
business of the Association; and
WHEREAS, the parties desire by this writing to set forth the continued
employment relationship of the Employee;
NOW THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President and Chief
Executive Officer of the Association and the Holding Company. The
Employee shall render administrative and management services to
the Association and the Holding Company such as are customarily
performed by persons situated in a similar executive capacity. He
shall also promote, by entertainment or otherwise, as and to the
extent permitted by law, the business of the Association and the
Holding Company. The Employee's other duties shall be such as the
Board of Directors of the Association and the Holding Company may
from time to time reasonably direct, including normal duties as an
officer of the Association and the Holding Company.
2. Base Compensation. The Association and the Holding Company agree
to pay the Employee during the term of this Agreement a salary at
-Page 58-
the rate of $110,000 per annum, payable in cash not less frequently than twice
monthly. Such rate of salary, if any as the case may be, shall be reviewed by
the Board of Directors of the Association and the Holding Company no less
often than annually. Any increase in the Employee's rate of salary shall have
the effect of amending this Section 2 to provide that the Employee's Base
Compensation shall equal such increased rate of salary.
3. Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other key management
personnel of the Association and the Holding Company in
discretionary bonuses authorized and declared by the Board of
Directors of the Association and the Holding Company to its key
management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employees right to
participate in such discretionary bonuses when and as declared by
the Board of Directors of the Association and the Holding Company.
Any such bonus shall take into account the Association's and the
Holding Company's current financial condition, operations and the
Board of Directors' evaluation of the performance of the Employee.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Association
and the Holding Company relating to pension, profit-sharing, or
other retirement benefits and medical coverage or reimbursement
plans that the Association and the Holding Company may adopt for
the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible
to participate in any fringe benefits that may be or become
applicable to the Association's and the Holding Company's
executive employees, including participation in a stock
option or incentive plan adopted by the Board of Directors,
and any other benefits that are commensurate with the
responsibilities and functions to be performed by the
Employee under this Agreement. The Association and the
Holding Company shall reimburse Employee for all reasonable,
ordinary and necessary out-of-pocket expenses that Employee
shall incur in connection with his services for the
Association and the Holding Company.
5. Term. The term of employment under this Agreement shall be for a
36 month period commencing October 23, 1998 and ending October 31,
2001. The said 36 month period of employment may be extended for
an additional 12 full calendar months by action of the Board of
Directors of the Association and the Holding Company sixty (60)
days prior to October 31 2001, and 60 days prior to each
succeeding October 31 thereafter, respectively.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and best efforts to
the performance of his employment under this Agreement.
During the term of this Agreement, the Employee shall not,
at any time or place, either directly or indirectly, engage
in any business or activity in competition with the business
affairs or interests of the Association or the Holding
Company or be a director, officer or employee of or
-Page 59-
consultant to any bank, savings association, credit union or
similar financial institution in McLean County and all other
counties in which the Association has a full-service facility.
(b) Upon termination of this Agreement for any reason other than
the reasons set forth in paragraph 9 of this Agreement, for
a period of one year from the termination of this Agreement,
the Employee shall not at any time or place, either directly
or indirectly, engage in any business or activity in
competition with the business affairs or interests of the
Association or the Holding Company or be a director, officer
or employee of or consultant to any bank, savings
association, credit union or similar financial institution
in McLean County and all other counties in which the
Association has a full-service facility.
(c) Nothing in the foregoing subparagraphs in this paragraph 6
shall apply to subsidiaries and affiliates or shall be
determined to prevent or limit the right of Employee to
invest in the capital stock or other securities of any
business dissimilar from that of the Association and the
Holding Company or solely as a passive investor in any
business.
(d) Directly or indirectly engaging in any business or activity
in competition with the business affairs or interests of the
Association or the Holding Company shall include engaging in
business as owner partner, agent or employee of any person,
firm or corporation or other business entity or in being
interested directly or indirectly in any such business
conducted by any person, firm or corporation.
(e) In the event of violation by Employee of this Agreement for
loyalty and noncompetition, the Employee will be subject to
damages and because of the relationship of employer and
employee, it is hereby agreed injunctive relief is necessary
for the Association and the Holding Company to enforce these
provisions of the Agreement to protect their business and
good will.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations
and as may be established from time to time by the Boards of
Directors of the Association and the Holding Company. The
Employee shall be subject to an annual performance review on or
about each anniversary of this Agreement, to be performed by the
Board of Directors of the Association or the Holding Company, or a
committee appointed by such Board of Directors, to determine that
his performance is in compliance with these standards.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors of the Association and the Holding Company shall in
their discretion permit, the Employee shall be entitled, without
loss of pay, to absent himself voluntarily from the performance of
his employment under this Agreement, all such voluntary absences
-Page 60-
to count as vacation time; provided that:
(a) The Employee shall be entitled to any annual vacation in
accordance with the policies as periodically established by
the Board of Directors of the Association and the Holding
Company for senior management officials of the Association
and the Holding Company.
(b) The timing of vacations shall be scheduled in a reasonable
manner by the Employee. The Employee shall not be entitled
to receive any additional compensation from the Association
or the Holding Company on account of his failure to take a
vacation; nor shall he be entitled to accumulate unused
vacation from one fiscal year to the next except to the
extent authorized by the Board of Directors of the
Association and the Holding Company for senior management
officials of the Association and the Holding Company,
respectively.
(c) In addition to the aforesaid paid vacations, the Employee
shall be entitled without the loss of pay, to absent himself
voluntarily from the performance of his employment with the
Association and the Holding Company for such additional
period of time and for such valid and legitimate reasons as
the Board of Directors of the Association and the Holding
Company in their discretion may determine. Further, the
Board of Directors of the Association and the Holding
Company shall be entitled to grant to the Employee a leave
or leaves of absence with or without pay at such time or
times and upon such terms and conditions as such Boards in
their discretion may determine.
(d) In addition, the Employee shall be entitled to an annual
sick leave as established by the Board of Directors of the
Association and the Holding Company for senior management
officials of the Association and the Holding Company,
respectively. In the event any sick leave time shall not
have been used during any year, such leave shall accrue to
subsequent years only to the extent authorized by the Board
of Directors of the Association and the Holding Company.
Upon termination of his employment, the Employee shall not
be entitled to receive any additional compensation from the
Association or the Holding Company for unused sick leave.
9. Termination and Termination Pay.
This Agreement shall be terminated upon the following occurrences:
(a) The death of the Employee during the term of this Agreement,
in which event the Employee's estate shall be entitled to
receive the compensation due the Employee through the last
day of the calendar month in which his death shall have
occurred.
(b) This Agreement may be terminated at any time by a decision
of the Board of Directors of the Association or the Holding
-Page 61-
Company for conduct not constituting termination for 'Just Cause,' or by the
Employee upon sixty (60) days written notice to the Association or the Holding
Company, as the case may be. In the event this Agreement is terminated by the
Board of Directors of the Association or the Holding Company without Just
Cause, the Association and the Holding Company shall be obliged to continue to
pay the Employee a severance payment equal to the remaining amount due under
this Agreement. In the event this Agreement is terminated by the Employee,
the compensation and benefits will be terminated upon the effective date of
the employment termination or as may otherwise be determined by the Board of
Directors of the Association and the Holding Company.
(c) The Association and the Holding Company reserve the right to
terminate this Agreement at any time for Just Cause.
Termination for 'Just Cause' shall mean termination for
personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or
similar offense), final cease-and-desist order, termination
under the provisions of subparagraphs (d) and (e) below, or
material breach of any provision of this Agreement. If this
Agreement is terminated for Just Cause, the Association and
the Holding Company shall only be obligated to continue to
pay the Employee his salary up to the date of termination.
(d) (i) If the Employee is suspended and/or temporarily
prohibited from participating in the conduct of the
Association's affairs by notice served under Section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
('FDIA') (12 U.S.C. 1818(e)(3) and (g)(1), the
Association'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 Association may in its discretion
(a) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended
and (b) reinstate (in whole or in part) any of its
obligations that were suspended.
(ii) If the Employee is removed and/or permanently
prohibited from participating in the conduct of the
Association's affairs by an order issued under Section
8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or
(g)(1)), all obligations of the Association under the
Agreement shall terminate as of the effective date of
the order, but vested rights of the contracting
parties shall not be affected.
(e) If the Association is in default (as defined in Section
3(x)(1) of the 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 parties
hereto.
-Page 62-
(f) All obligations under this Agreement may be terminated,
except to the extent determined that continuation of the
Agreement is necessary for the continued operations of the
Association (i) by the Director of the Office of Thrift
Supervision (the 'Director') or his or her designee at the
time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA or (ii)
by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to
resolve problems related to operation of the Association or
when the Association is determined by the Director 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.
(g) If, at any time after the date hereof a 'Change of Control'
(as hereinafter defined) occurs and within one year
thereafter (i) the Holding Company or the Association, or
their successors or assigns, terminate the Employee's
employment for any reason other than for Just Cause (as
defined in Paragraph 9 (c)), or (ii) the Employee terminates
his employment for good reason (as defined in Paragraph 9
(h)), then the Association and the Holding Company shall pay
to the Employee the following:
(i) The Association shall promptly pay to the Employee an
amount equal to the product of 2.99 times the
Employee's 'Base Amount' as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as
amended, provided, however, that in no event shall
said sum be paid to the extent that payments under
this paragraph would cause the Association to fail to
meet its minimum capital requirements as established
by the Office of Thrift Supervision. Any payments
made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. Section 1828(k) and any
regulation promulgated thereunder.
(ii) During the period of 24 calendar months beginning with
the event of termination, the Employee, his
dependents, beneficiaries and estate shall continue to
be covered under all employee benefit plans of the
Association and the Holding Company, including, but
not limited to, any pension or retirement plan, stock
investment plan, life insurance and health insurance
as if the Employee was still employed during such
period under this Agreement.
(iii) If and to the extent that benefits or service credit
for benefits provided by paragraph 9(g)(ii) shall not
be payable or provided under any such plans covered by
paragraph 9(g)(ii) by reason of his no longer being an
-Page 63-
employee of the Association and the Holding Company as a result of termination
of employment, the Association and the Holding Company shall themselves pay or
provide for payment of such benefits and service credit for benefits to the
Employee, his dependents, beneficiaries or estate. Any such payment relating
to retirement shall commence on a date selected by the Employee which must be
a date on which payments under the Association's or the Holding Company's
qualified pension plan or successor plan may commence.
(iv) (a) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the
Association, the Holding Company and the Employee that
no portion of any payment under this Agreement, or
payments to or for the benefit of the Employee under
any other agreement or plan, be deemed to be an
'Excess Parachute Payment' as defined in Section 280G
of the Code, or its successors. It is agreed that the
present value of and payments to or for the benefit of
the Employee in the nature of compensation, receipt of
which is contingent on occurrence of a Change of
Control, and to which Section 280G of the Code applies
(in the aggregate 'Total Payments') shall not exceed
an amount equal to one dollar less than the maximum
amount that the Association and the Holding Company
may pay without loss of deduction under Section
280G(a) of the Code. Present value for purposes of
this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60)
days following the earlier of (i) the giving of notice
of termination of employment or (ii) the giving of
notice by the Association or the Holding Company to
the Employee of its belief that there is a payment or
benefit due the Employee which will result in an
excess parachute payment as defined in Section 280G of
the Code, the Employee, the Association and the
Holding Company, at the Association's or Holding
Company's expense, shall obtain the opinion of the
Association's and the Holding Company's public
accounting firm (the 'Accounting Firm'), which opinion
need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of the Employee (as
defined in Code Section 280G, (ii) the present value
of Total Payments and (iii) the amount and present
value of any excess parachute payments. In the event
that such opinion determines that there would be an
excess parachute payment, the payment hereunder shall
be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Association or
Holding Company within thirty (30) days of his receipt
of such opinion or, if the Employee fails to so notify
the Association or Holding Company, then as the
Association or Holding Company shall reasonably determine,
so that under the bases of calculation set forth in such
opinion there will be no excess parachute payment. In the
event that the provisions of Sections 280G and 4999 of the
Code are repealed without succession, this Section shall be
of no further force or effect.
-Page 64-
(b) In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control,
the Employee shall appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm under this Section 9(g)(iv)).
All fees and expenses of the Accounting Firm shall be borne solely by the
Association or Holding Company. Any determination by the Accounting Firm
shall be binding upon the Association, the Holding Company and the Employee.
(v) The Association and the Holding Company shall pay all
legal fees and expenses which the Employee may incur
as a result of the Association's or the Holding
Company's contesting the validity or enforceability of
this Agreement, provided that the Employee is the
prevailing party in such contest or that any dispute
may otherwise be settled in favor of the Employee.
The Employee shall be entitled to receive interest
thereon for the period of any delay in payment from
the date such payment was due at the rate determined
by adding two hundred basis points to the six month
Treasury Bill rate.
(vi) The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise nor shall any
amounts received from other employment or otherwise by
the Employee offset in any manner the obligations of
the Association or the Holding Company hereunder.
(h) For purposes of this Agreement, 'good reason' shall exist
if, without the Employee's express written consent, (i) the
Employee is assigned new duties involving a material amount
of the Employee's time that are not of an executive or
supervisory nature or do not involve the level of
responsibility generally comparable to responsibilities of
the Employee's duties prior to the Change of Control; (ii)
the Employee's duties and responsibilities are substantially
reduced from those of the Employee's present position,
excluding reductions that are a normal consequence of the
Holding Company ceasing to be widely or publicly owned;
(iii) there occurs any material reduction in the Employee's
aggregate compensation, incentive and benefit package in
effect at the time of the Change of Control, excluding (in
the case of an incentive or benefit package whose benefits
are proportionate to the performance of the Employee, the
Association or the Holding Company) reductions in benefits
resulting from diminished performance of the Employee, the
Association or the Holding Company; or (iv) the Employee is
an officer of the Association or the Holding Company at the
time of the Change of Control and thereafter the Holding
Company shall require the Employee to perform services outside of
a forty-mile radius of the Association's offices at which the
Employee is currently based except for travel on the Association's
or the Holding Company's business that the Association or the
Holding Company reasonably requires.
-Page 65-
10. Change of Control. Paragraph 9(g) shall become operative upon the
occurrence of a 'Change of Control' of the Holding Company (or the
Association). A 'Change of Control' shall be deemed to have
occurred if at any time during the period of employment of the
Employee set forth in paragraph 5 of this Agreement:
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any
class of voting stock issued by the Holding Company; or any
person (other than the Holding Company) becomes the
beneficial owner, directly or indirectly, of 25% or more of
the outstanding shares of any class of voting stock issued
by the Association;
(ii) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued by
the Holding Company, if such beneficial ownership
constitutes or will constitute control of the Holding
Company for regulatory purposes; or any person (other than
the Holding Company) becomes the beneficial owner, directly
or indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued by
the Association if such beneficial ownership constitutes or
will constitute control of the Association for regulatory
purposes;
(iii) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the Holding
Company) holds revocable or irrevocable proxies as to the
election or removal of a majority or more of the directors
of the Holding Company, or for 25% or more of the total
number of voting shares of the Holding Company;
(iv) The OTS or other appropriate regulatory authority has given
the required approval of non-objection to the acquisition of
control of the Holding Company by any person; or the OTS or
other appropriate regulatory authority has given the
required approval of non-objection to the acquisition of
control of the Association by any person (other than the
Holding Company);
(v) During any period of 24 consecutive months, individuals who
at the beginning of such period constitute the
Association's and the Holding Company's Board of Directors
cease for any reason to constitute at least a majority of
the Board of the Association or the Holding Company, as the
case may be, unless the election of each director who was
not a director at the beginning of such period has been
approved in advance by directors of the Association or the
Holding Company, as the case may be, representing at least
two-thirds of the directors then in office who were
directors at the beginning of the period; or
-Page 66-
(vi) Any person acquires substantially all of the assets and
assumes substantially all of the liabilities of the Company
or First Federal.
A person shall be deemed a beneficial owner as that term is used in
Section 13(d)(3) under the Securities Exchange Act of 1934, as amended
(as in effect on the date hereof). No 'Change of Control' shall be
deemed to have taken place solely by reason of the Holding Company
owning stock in its wholly-owned subsidiaries.
11. Expenses to Enforce Agreement. In the event any dispute shall
arise between the Employee and the Association or the Holding
Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or arbitration
proceedings, including any action taken by the Association or the
Holding Company, the prevailing party shall be reimbursed for all
costs and expenses, including reasonable attorney's fees, arising
from such dispute, proceedings or actions. Such reimbursement
shall be paid within 10 days of the furnishing to the non-
prevailing party of written evidence, which may be in the form of
a canceled check or receipt, among other things, of any costs or
expenses incurred by the prevailing party. Any such request for
reimbursement shall be made no more frequently than at 60-day
intervals.
12. Successor and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Association or the Holding
Company which shall acquire, directly or indirectly, by merger,
consolidation, purchase or otherwise, all or substantially all of
the assets of the Association or the Holding Company.
(b) Since the Association is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties hereunder without
first obtaining the written consent of the Association and the
Holding Company.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by the parties hereto, except
as herein otherwise provided.
14. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or
otherwise, by the laws of Illinois, except to the extent that
Federal law shall be deemed to apply. This Agreement is intended
to comply with the requirements of 12 C.F.R. Section 563.39 and to the
extent it conflicts with the provisions of that section, Section 563.39
shall control.
15. 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.
-Page 67-
IN WITNESS HEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF BLOOMINTON
By: /s/ Gerald Bradley
EAGLE BANCGROUP, INC.
By: /s/ Gerald Bradley
ATTEST: /s/ Marilyn Lockwood
WITNESS: /s/ Barbara L. Mosson
/s/ Donald L. Fernandes
Employee
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 23rd day of October, 1998, among First
Federal Savings and Loan Association of Bloomington (the 'Association'), Eagle
BancGroup, Inc. (the 'Holding Company') and David R. Wampler (the 'Employee').
WHEREAS, the Employee has heretofore been employed by the Association as
President and by the Holding Company as Vice President and is experienced in
all phases of the business of the Association; and
WHEREAS, the parties desire by this writing to set forth the
continued employment relationship of the Employee;
NOW THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President of the
Association and Vice President of the Holding Company. The
Employee shall render administrative and management services to
the Association and the Holding Company such as are customarily
performed by persons situated in a similar executive capacity. He
shall also promote, by entertainment or otherwise, as and to the
extent permitted by law, the business of the Association and the
Holding Company. The Employee's other duties shall be such as the
Board of Directors of the Association and the Holding Company may
from time to time reasonably direct, including normal duties as an
officer of the Association and the Holding Company.
2. Base Compensation. The Association and the Holding Company agree
to pay the Employee during the term of this Agreement a salary at
the rate of $100,000 per annum, payable in cash not less
frequently than twice monthly. Such rate of salary, if any as the
case may be, shall be reviewed by the Board of Directors of the
Association and the Holding Company no less often than annually.
Any increase in the Employee's rate of salary shall have the
-Page 68-
effect of amending this Section 2 to provide that the Employee's Base
Compensation shall equal such increased rate of salary.
3. Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other key management
personnel of the Association and the Holding Company in
discretionary bonuses authorized and declared by the Board of
Directors of the Association and the Holding Company to its key
management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employees right to
participate in such discretionary bonuses when and as declared by
the Board of Directors of the Association and the Holding Company.
Any such bonus shall take into account the Association's and the
Holding Company's current financial condition, operations and the
Board of Directors' evaluation of the performance of the Employee.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Association
and the Holding Company relating to pension, profit-sharing, or
other retirement benefits and medical coverage or reimbursement
plans that the Association and the Holding Company may adopt for
the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible
to participate in any fringe benefits that may be or become
applicable to the Association's and the Holding Company's
executive employees, including participation in a stock
option or incentive plan adopted by the Board of Directors,
and any other benefits that are commensurate with the
responsibilities and functions to be performed by the
Employee under this Agreement. The Association and the
Holding Company shall reimburse Employee for all reasonable,
ordinary and necessary out-of-pocket expenses that Employee
shall incur in connection with his services for the
Association and the Holding Company.
5. Term. The term of employment under this Agreement shall be for a
36 month period commencing October 23, 1998 and ending October 31,
2001. The said 36 month period of employment may be extended for
an additional 12 full calendar months by action of the Board of
Directors of the Association and the Holding Company sixty (60)
days prior to October 31, 2001, and 60 days prior to each
succeeding October 31 thereafter, respectively.
6. Loyalty; Noncompetition.
(f) The Employee shall devote his full time and best efforts to
the performance of his employment under this Agreement.
During the term of this Agreement, the Employee shall not,
at any time or place, either directly or indirectly, engage
in any business or activity in competition with the business
affairs or interests of the Association or the Holding
Company or be a director, officer or employee of or
consultant to any bank, savings association, credit union or
similar financial institution in McLean County and all other
counties in which the Association has a full-service
facility.
-Page 69-
(g) Upon termination of this Agreement for any reason other than
the reasons set forth in paragraph 9 of this Agreement, for
a period of one year from the termination of this Agreement,
the Employee shall not at any time or place, either directly
or indirectly, engage in any business or activity in
competition with the business affairs or interests of the
Association or the Holding Company or be a director, officer
or employee of or consultant to any bank, savings
association, credit union or similar financial institution
in McLean County and all other counties in which the
Association has a full-service facility.
(h) Nothing in the foregoing subparagraphs in this paragraph 6
shall apply to subsidiaries and affiliates or shall be
determined to prevent or limit the right of Employee to
invest in the capital stock or other securities of any
business dissimilar from that of the Association and the
Holding Company or solely as a passive investor in any
business.
(i) Directly or indirectly engaging in any business or activity
in competition with the business affairs or interests of the
Association or the Holding Company shall include engaging in
business as owner partner, agent or employee of any person,
firm or corporation or other business entity or in being
interested directly or indirectly in any such business
conducted by any person, firm or corporation.
(j) In the event of violation by Employee of this Agreement for
loyalty and noncompetition, the Employee will be subject to
damages and because of the relationship of employer and
employee, it is hereby agreed injunctive relief is necessary
for the Association and the Holding Company to enforce these
provisions of the Agreement to protect their business and
good will.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations
and as may be established from time to time by the Boards of
Directors of the Association and the Holding Company. The
Employee shall be subject to an annual performance review on or
about each anniversary of this Agreement, to be performed by the
Board of Directors of the Association or the Holding Company, or a
committee appointed by such Board of Directors, to determine that
his performance is in compliance with these standards.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors of the Association and the Holding Company shall in
their discretion permit, the Employee shall be entitled, without
loss of pay, to absent himself voluntarily from the performance of
his employment under this Agreement, all such voluntary absences
to count as vacation time; provided that:
(j) The Employee shall be entitled to any annual vacation in
accordance with the policies as periodically established by
-Page 70-
the Board of Directors of the Association and the Holding Company
for senior management officials of the Association and the Holding
Company.
(k) The timing of vacations shall be scheduled in a reasonable
manner by the Employee. The Employee shall not be entitled
to receive any additional compensation from the Association
or the Holding Company on account of his failure to take a
vacation; nor shall he be entitled to accumulate unused
vacation from one fiscal year to the next except to the
extent authorized by the Board of Directors of the
Association and the Holding Company for senior management
officials of the Association and the Holding Company,
respectively.
(l) In addition to the aforesaid paid vacations, the Employee
shall be entitled without the loss of pay, to absent himself
voluntarily from the performance of his employment with the
Association and the Holding Company for such additional
period of time and for such valid and legitimate reasons as
the Board of Directors of the Association and the Holding
Company in their discretion may determine. Further, the
Board of Directors of the Association and the Holding
Company shall be entitled to grant to the Employee a leave
or leaves of absence with or without pay at such time or
times and upon such terms and conditions as such Boards in
their discretion may determine.
(m) In addition, the Employee shall be entitled to an annual
sick leave as established by the Board of Directors of the
Association and the Holding Company for senior management
officials of the Association and the Holding Company,
respectively. In the event any sick leave time shall not
have been used during any year, such leave shall accrue to
subsequent years only to the extent authorized by the Board
of Directors of the Association and the Holding Company.
Upon termination of his employment, the Employee shall not
be entitled to receive any additional compensation from the
Association or the Holding Company for unused sick leave.
9. Termination and Termination Pay.
This Agreement shall be terminated upon the following occurrences:
(d) The death of the Employee during the term of this Agreement,
in which event the Employee's estate shall be entitled to
receive the compensation due the Employee through the last
day of the calendar month in which his death shall have
occurred.
(e) This Agreement may be terminated at any time by a decision
of the Board of Directors of the Association or the Holding
Company for conduct not constituting termination for 'Just
Cause,' or by the Employee upon sixty (60) days written
notice to the Association or the Holding Company, as the
case may be. In the event this Agreement is terminated by
the Board of Directors of the Association or the Holding
-Page 71-
Company without Just Cause, the Association and the Holding Company shall be
obliged to continue to pay the Employee a severance payment equal to the
remaining amount due under this Agreement. In the event this Agreement is
terminated by the Employee, the compensation and benefits will be terminated
upon the effective date of the employment termination or as may otherwise be
determined by the Board of Directors of the Association and the Holding
Company.
(f) The Association and the Holding Company reserve the right to
terminate this Agreement at any time for Just Cause.
Termination for 'Just Cause' shall mean termination for
personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or
similar offense), final cease-and-desist order, termination
under the provisions of subparagraphs (d) and (e) below, or
material breach of any provision of this Agreement. If this
Agreement is terminated for Just Cause, the Association and
the Holding Company shall only be obligated to continue to
pay the Employee his salary up to the date of termination.
(d) (i) If the Employee is suspended and/or temporarily
prohibited from participating in the conduct of the
Association's affairs by notice served under Section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
('FDIA') (12 U.S.C. 1818(e)(3) and (g)(1), the
Association'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 Association may in its discretion
(a) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended
and (b) reinstate (in whole or in part) any of its
obligations that were suspended.
(iii) If the Employee is removed and/or permanently
prohibited from participating in the conduct of the
Association's affairs by an order issued under Section
8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or
(g)(1)), all obligations of the Association under the
Agreement shall terminate as of the effective date of
the order, but vested rights of the contracting
parties shall not be affected.
(n) If the Association is in default (as defined in Section
3(x)(1) of the 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 parties
hereto.
(o) All obligations under this Agreement may be terminated,
except to the extent determined that continuation of the
Agreement is necessary for the continued operations of the
Association (i) by the Director of the Office of Thrift
-Page 72-
Supervision (the 'Director') or his or her designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into
an agreement to provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA or (ii) by the Director,
or his or her designee at the time the Director or such designee approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Director 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.
(p) If, at any time after the date hereof a 'Change of Control'
(as hereinafter defined) occurs and within one year
thereafter (i) the Holding Company or the Association, or
their successors or assigns, terminate the Employee's
employment for any reason other than for Just Cause (as
defined in Paragraph 9 (c)), or (ii) the Employee terminates
his employment for good reason (as defined in Paragraph 9
(h)), then the Association and the Holding Company shall pay
to the Employee the following:
(i) The Association shall promptly pay to the Employee an
amount equal to the product of 2.99 times the
Employee's 'Base Amount' as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as
amended, provided, however, that in no event shall
said sum be paid to the extent that payments under
this paragraph would cause the Association to fail to
meet its minimum capital requirements as established
by the Office of Thrift Supervision. Any payments
made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. Section 1828(k) and any
regulation promulgated thereunder.
(vii) During the period of 24 calendar months beginning with
the event of termination, the Employee, his
dependents, beneficiaries and estate shall continue to
be covered under all employee benefit plans of the
Association and the Holding Company, including, but
not limited to, any pension or retirement plan, stock
investment plan, life insurance and health insurance
as if the Employee was still employed during such
period under this Agreement.
(viii) If and to the extent that benefits or service
credit for benefits provided by paragraph 9(g)(ii)
shall not be payable or provided under any such plans
covered by paragraph 9(g)(ii) by reason of his no
longer being an employee of the Association and the
Holding Company as a result of termination of
employment, the Association and the Holding Company
shall themselves pay or provide for payment of such
benefits and service credit for benefits to the
-Page 73-
Employee, his dependents, beneficiaries or estate. Any such
payment relating to retirement shall commence on a date
selected by the Employee which must be a date on which
payments under the Association's or the Holding Company's
qualified pension plan or successor plan may commence.
(ix) (a) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the
Association, the Holding Company and the Employee that
no portion of any payment under this Agreement, or
payments to or for the benefit of the Employee under
any other agreement or plan, be deemed to be an
'Excess Parachute Payment' as defined in Section 280G
of the Code, or its successors. It is agreed that the
present value of and payments to or for the benefit of
the Employee in the nature of compensation, receipt of
which is contingent on occurrence of a Change of
Control, and to which Section 280G of the Code applies
(in the aggregate 'Total Payments') shall not exceed
an amount equal to one dollar less than the maximum
amount that the Association and the Holding Company
may pay without loss of deduction under Section
280G(a) of the Code. Present value for purposes of
this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60)
days following the earlier of (i) the giving of notice
of termination of employment or (ii) the giving of
notice by the Association or the Holding Company to
the Employee of its belief that there is a payment or
benefit due the Employee which will result in an
excess parachute payment as defined in Section 280G of
the Code, the Employee, the Association and the
Holding Company, at the Association's or Holding
Company's expense, shall obtain the opinion of the
Association's and the Holding Company's public
accounting firm (the 'Accounting Firm'), which opinion
need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of the Employee (as
defined in Code Section 280G, (ii) the present value
of Total Payments and (iii) the amount and present
value of any excess parachute payments. In the event
that such opinion determines that there would be an
excess parachute payment, the payment hereunder shall
be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Association or
Holding Company within thirty (30) days of his receipt
of such opinion or, if the Employee fails to so notify
the Association or Holding Company, then as the
Association or Holding Company shall reasonably
determine, so that under the bases of calculation set
forth in such opinion there will be no excess
parachute payment. In the event that the provisions
of Sections 280G and 4999 of the Code are repealed
without succession, this Section shall be of no
further force or effect.
-Page 74-
(b) In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control,
the Employee shall appoint another nationally recognized public accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm under this Section 9(g)(iv)).
All fees and expenses of the Accounting Firm shall be borne solely by the
Association or Holding Company. Any determination by the Accounting Firm
shall be binding upon the Association, the Holding Company and the Employee.
(x) The Association and the Holding Company shall pay all
legal fees and expenses which the Employee may incur
as a result of the Association's or the Holding
Company's contesting the validity or enforceability of
this Agreement, provided that the Employee is the
prevailing party in such contest or that any dispute
may otherwise be settled in favor of the Employee.
The Employee shall be entitled to receive interest
thereon for the period of any delay in payment from
the date such payment was due at the rate determined
by adding two hundred basis points to the six month
Treasury Bill rate.
(xi) The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise nor shall any
amounts received from other employment or otherwise by
the Employee offset in any manner the obligations of
the Association or the Holding Company hereunder.
(q) For purposes of this Agreement, 'good reason' shall exist
if, without the Employee's express written consent, (i) the
Employee is assigned new duties involving a material amount
of the Employee's time that are not of an executive or
supervisory nature or do not involve the level of
responsibility generally comparable to responsibilities of
the Employee's duties prior to the Change of Control; (ii)
the Employee's duties and responsibilities are substantially
reduced from those of the Employee's present position,
excluding reductions that are a normal consequence of the
Holding Company ceasing to be widely or publicly owned;
(iii) there occurs any material reduction in the Employee's
aggregate compensation, incentive and benefit package in
effect at the time of the Change of Control, excluding (in
the case of an incentive or benefit package whose benefits
are proportionate to the performance of the Employee, the
Association or the Holding Company) reductions in benefits
resulting from diminished performance of the Employee, the
Association or the Holding Company; or (iv) the Employee is
an officer of the Association or the Holding Company at the
time of the Change of Control and thereafter the Holding
Company shall require the Employee to perform services
outside of a forty-mile radius of the Association's offices
at which the Employee is currently based except for travel
on the Association's or the Holding Company's business that
the Association or the Holding Company reasonably requires.
-Page 75-
10. Change of Control. Paragraph 9(g) shall become operative upon the
occurrence of a 'Change of Control' of the Holding Company (or the
Association). A 'Change of Control' shall be deemed to have
occurred if at any time during the period of employment of the
Employee set forth in paragraph 5 of this Agreement:
(r) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any
class of voting stock issued by the Holding Company; or any
person (other than the Holding Company) becomes the
beneficial owner, directly or indirectly, of 25% or more of
the outstanding shares of any class of voting stock issued
by the Association;
(vii) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued by
the Holding Company, if such beneficial ownership
constitutes or will constitute control of the Holding
Company for regulatory purposes; or any person (other than
the Holding Company) becomes the beneficial owner, directly
or indirectly, of 10% or more, but less than 25%, of the
outstanding shares of any class of voting stock issued by
the Association if such beneficial ownership constitutes or
will constitute control of the Association for regulatory
purposes;
(viii) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the Holding
Company) holds revocable or irrevocable proxies as to the
election or removal of a majority or more of the directors
of the Holding Company, or for 25% or more of the total
number of voting shares of the Holding Company;
(ix) The OTS or other appropriate regulatory authority has given
the required approval of non-objection to the acquisition of
control of the Holding Company by any person; or the OTS or
other appropriate regulatory authority has given the
required approval of non-objection to the acquisition of
control of the Association by any person (other than the
Holding Company);
(x) During any period of 24 consecutive months, individuals who
at the beginning of such period constitute the
Association's and the Holding Company's Board of Directors
cease for any reason to constitute at least a majority of
the Board of the Association or the Holding Company, as the
case may be, unless the election of each director who was
not a director at the beginning of such period has been
approved in advance by directors of the Association or the
Holding Company, as the case may be, representing at least
two-thirds of the directors then in office who were
directors at the beginning of the period; or
(xi) Any person acquires substantially all of the assets and
assumes substantially all of the liabilities of the Company
-Page 76-
or First Federal.
A person shall be deemed a beneficial owner as that term is used in
Section 13(d)(3) under the Securities Exchange Act of 1934, as amended
(as in effect on the date hereof). No 'Change of Control' shall be
deemed to have taken place solely by reason of the Holding Company
owning stock in its wholly-owned subsidiaries.
11. Expenses to Enforce Agreement. In the event any dispute shall
arise between the Employee and the Association or the Holding
Company as to the terms or interpretation of this Agreement,
whether instituted by formal legal proceedings or arbitration
proceedings, including any action taken by the Association or the
Holding Company, the prevailing party shall be reimbursed for all
costs and expenses, including reasonable attorney's fees, arising
from such dispute, proceedings or actions. Such reimbursement
shall be paid within 10 days of the furnishing to the non-
prevailing party of written evidence, which may be in the form of
a canceled check or receipt, among other things, of any costs or
expenses incurred by the prevailing party. Any such request for
reimbursement shall be made no more frequently than at 60-day
intervals.
12. Successor and Assigns.
(c) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Association or the Holding
Company which shall acquire, directly or indirectly, by merger,
consolidation, purchase or otherwise, all or substantially all of
the assets of the Association or the Holding Company.
(d) Since the Association is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties hereunder without
first obtaining the written consent of the Association and the
Holding Company.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by the parties hereto, except
as herein otherwise provided.
14. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or
otherwise, by the laws of Illinois, except to the extent that
Federal law shall be deemed to apply. This Agreement is intended
to comply with the requirements of 12 C.F.R. Section 563.39 and to the
extent it conflicts with the provisions of that section, Section 563.39
shall control.
15. 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.
IN WITNESS HEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
-Page 77-
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF BLOOMINTON
By: /s/ Gerald Bradley
EAGLE BANCGROUP, INC.
By: /s/ Gerald Bradley
ATTEST: /s/ Marilyn Lockwood
WITNESS: /s/ Barbara L. Mosson
/s/David R. Wampler
Employee
Exhibit 10.10
EMPLOYMENT SECURITY AGREEMENT
Dear Mr. Lyons:
The Board of Directors of Eagle BancGroup, Inc. (the "Company"
which reference, for purposes hereof, shall include subsidiaries of the
Company) has determined that it is advisable and in the best interests of the
Company and its stockholders to provide reasonable assurance to certain key
employees of the Company with respect to appropriate severance arrangements in
the event of a change of control of the Company. By this Agreement, the
Company is seeking to gain the benefit of your future services and avoid undue
concern about changes of control of the Company.
The following is offered as an inducement to you to remain in the
employ of the Company and to dedicate your efforts to its best interests:
SECTION 1. Subject to Section 3(c) below, payments and benefits herein
provided to be paid to you by the Company will be made without regard to and
in addition to any other payments or benefits required to be paid to you at
any time hereafter under the terms of any other agreement (if any) between you
and the Company and under any other policy of the Company relating to
compensation, severance pay or retirement or other benefits; in other words,
the payments and benefits provided herein shall be in addition to and not in
lieu of salary, consulting payments, bonus payments, incentive compensation,
retirement benefits or any other payments or benefits. No payments or
benefits provided to you hereunder shall be reduced by any amount you may earn
or receive from employment with the Company, with another employer, or from
any other source.
SECTION 2. You agree that without the consent of the Company you will
not terminate your employment without giving at least two weeks' prior notice
to the Company, which may become effective earlier than two weeks at the
discretion of the Board of Directors of the Company.
SECTION 3. If at any time after the date hereof a Change of Control (as
hereinafter defined) occurs and within one year thereafter (i) the Company
involuntarily terminates your employment for any reason other than for good
cause (as hereinafter defined), disability, death or retirement pursuant to
any retirement plan or policy of the Company of general application to key
employees, or (ii) you terminate your employment for good reason (as
hereinafter defined), then:
(a) The Company will pay to you in an immediate lump-sum cash
-Page 78-
payment an amount equal to the product of 1.0 times your "Base
Amount" as defined in Section 280G(b)(3) of the Internal Revenue
Code of 1986, as amended. Any payments made to you pursuant to
this Agreement, or otherwise, are subject to and conditioned upon
their compliance with 12 U.S.C. Section 1828(k) and any regulations
promulgated thereunder.
(d) Medical, life and long-term disability insurance coverage
provided to you and your family by the Company, if any,
shall be continued by the Company at no cost to you as if
you continued to be an employee until the first to occur of
the following events: (i) you waive coverage by giving
written notice of waiver to the Company; (ii) 12 months
elapse from the effective date of your termination; or (iii)
you become a participant in group insurance benefit programs
of a new employer which does not contain any exclusion or
limitation for you or your dependents with respect to any
preexisting condition. If coverage is not permitted under
applicable policy terms, the Company will provide equivalent
benefits (i.e., by reimbursing you for the full cost of COBRA
premiums). Upon termination of this benefit in accordance with
the terms hereof, you shall be entitled to exercise the policy
options normally available to employees upon termination of their
employment.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and you that
no portion of any payment under this Agreement, or payments to you
or for your benefit under any other agreement or plan, be deemed
to be an "Excess Parachute Payment" as defined in Section 280G of
the Code, or its successors. It is agreed that the present value
of and payments to you or for your benefit in the nature of
compensation, receipt of which is contingent on occurrence of a
Change of Control, and to which Section 280G of the Code applies
(in the aggregate "Total Payments") shall not exceed an amount
equal to one dollar less than the maximum amount that the Company
may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be
calculated in accordance with Section 280G(d)(4) of the Code.
Within sixty (60) days following the earlier of (i) the giving of
the notice of termination of employment or (ii) the giving of
notice by the Company to you of its belief that there is a payment
or benefit due you which will result in an excess parachute
payment as defined in Section 280G of the Code, you and the
Company, at the Company's expense, shall obtain the opinion of the
Company's public accounting firm (the "Accounting Firm"), which
opinion need not be unqualified, which sets forth: (i) the amount
of your Base Period Income (as defined in Code Section 280G), (ii)
the present value of Total Payments and (iii) the amount and
present value of any excess parachute payments. In the event that
such opinion determines that there would be an excess parachute
payment, the payment hereunder shall be modified, reduced or
eliminated as specified by you in writing delivered to the Company
within thirty (30) days of your receipt of such opinion or, if you
fail to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculation set
forth in such opinion there will be no excess parachute payment.
In the event that the provisions of Sections 280G and 4999 of the
-Page 79-
Code are repealed without succession, this Section shall be of no
further force or effect.
(ii) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change or Control, you shall appoint another
nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm under this Section
3(c)(i)). All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and you.
It is understood that as a part or as a result of a Change of
Control, business operations of the Company may be transferred to
parties that are not affiliates of the Company that may continue
your employment as a successor employer and, in such event, your
employment shall not be deemed to have been terminated by the
Company and, instead, "employment by the Company" as used in this
Section 3 shall be deemed to include employment by successor
employers. The obligation of the Company hereunder to provide
payments or benefits to you as set forth herein shall continue in
effect and apply to any subsequent termination of your employment
by a successor employer.
SECTION 4. For purposes of this Agreement, "Change of Control" shall be
deemed to have taken place if, subsequent to the date hereof,
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any class
of voting stock issued by the Company; or any person (other than
the Company) becomes the beneficial owner, directly or indirectly,
of 25% or more of the outstanding shares of any class of voting
stock issued by First Federal Savings and Loan Association of
Bloomington, the Company's wholly-owned subsidiary (the
"Association");
(viii) Any person becomes the beneficial owner,
directly or indirectly, of 10% or more, but less than
25%, of the outstanding shares of any class of voting
stock issued by the Company, if such beneficial
ownership constitutes or will constitute control of
the Company for regulatory purposes; or any person
(other than the Company) becomes the beneficial owner,
directly or indirectly, of 10% or more, but less than
25%, of the
outstanding shares of any class of voting stock issued
by the Association, if such beneficial ownership constitutes or will
constitute control of the Association for regulatory purposes;
(ix) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the
Company) holds revocable or irrevocable proxies as to
the election or removal of a majority or more of the
directors of the Company, or for 25% or more of the
total number of voting shares of the Company;
(iv) The Office of Thrift Supervision ("OTS") or other
appropriate regulatory authority has given the
required approval of non-objection to the acquisition
of control of the Company by any person; or the OTS or
other appropriate regulatory authority has given the
required approval of non-objection to the acquisition
-Page 80-
of control of the Association by any person (other than the Company);
(v) During any period of 24 consecutive months, individuals
who at the beginning of such period constitute the
Association's and the Company's Board of Directors cease for
any reason to constitute at least a majority of the Board of
the Association or the Company, as the case may be, unless
the election of each director who was not a director at the
beginning of such period has been approved in advance by
directors of the Association or the Holding Company, as the
case may be, representing at least two-thirds of the
directors then in office who were
directors at the beginning of the period; or
(vi) Any person acquires substantially all of the assets and assumes
substantially all of the liabilities of the Company or First Federal.
A person shall be deemed a beneficial owner as that term is used
in Section 13(d)(3) under the Securities Exchange Act of 1934, as amended (as
in effect on the date hereof). No "Change of Control" shall be deemed to have
taken place solely by reason of the Company owning stock in wholly-owned
subsidiaries.
SECTION 5. For purposes of this Agreement, "good cause" shall mean your
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform your stated
duties, willful violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense), final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Agreement, "good reason" shall exist if,
without your express written consent, (i) you are assigned new duties
involving a material amount of your time that are not of an executive or
supervisory nature or do not involve the level of responsibility generally
comparable to your responsibilities and duties prior to the Change of Control;
(ii) your duties and responsibilities are substantially reduced from your
present position, excluding reductions that are a normal consequence of the
Company ceasing to be widely or publicly owned; (iii) there occurs any
material reduction in your aggregate compensation, incentive and benefit
package in effect at the time of the Change of Control, excluding (in the case
of an incentive or benefit package whose benefits are proportionate to your
performance or the performance of the Association or the Company) reductions
in benefits resulting from your diminished performance, or the diminished
performance of the Association or the Company; or (iv) you are an officer of
the Association or the Company at the time of the Change of Control and
thereafter the Company shall require you to perform services outside of a
forty-mile radius of the Association's offices at which you are currently
based except for travel on the Association's or the Company's business that
the Association or the Company reasonably requires.
SECTION 6. Any payment not made when due in accordance with this
Agreement shall thereafter bear interest at the prime rate from time to time
as reported in The Wall Street Journal.
SECTION 7. This agreement may not be assigned by the Company except in
connection with a merger involving the Company or a sale of substantially all
of its assets, and the obligations of the Company provided for in this
Agreement shall be the binding legal obligations of any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may
not be assigned by you during your life, and upon your death will be binding
upon and inure to the benefit of your heirs, legatees and the legal
representatives of your estate.
-Page 81-
SECTION 8. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you, approved by the Board of Directors and signed by an
appropriate officer of the Company empowered to sign the same by the Board of
Directors of the Company. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any
prior to or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provision of this Agreement.
SECTION 9. This Agreement does not constitute a contract for the
continued employment of you by the Company. Subject only to those rights of
yours that are specified herein following a Change of Control, the Company
reserves all of its rights to modify your compensation and other terms of your
employment and to terminate your employment to the same extent as before the
execution of this Agreement.
SECTION 10. The Company shall pay your out-of-pocket expenses,
including attorney's fees, in connection with any judicial proceeding to
enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith unless the Company prevails in
such litigation.
SECTION 11. The initial term of this Agreement shall be for a 36 month
period commencing October 23, 1998 and ending October 31, 2001. The said 36-
month term may be extended for an additional 12 full calendar months by action
of the Board of Directors sixty (60) days prior to October 31, 1998, and on
sixty (60) days prior to each succeeding October 31 thereafter, respectively.
Very truly yours,
By: /s/ Gerald Bradley
Title: Chairman
Accepted and agreed to this 23rd
day of October, 1998.
/s/ James E. Lyons
James E. Lyons
Exhibit 10.11
EMPLOYMENT SECURITY AGREEMENT
Dear Mr. Lambert:
The Board of Directors of Eagle BancGroup, Inc. (the "Company"
which reference, for purposes hereof, shall include subsidiaries of the
Company) has determined that it is advisable and in the best interests of the
Company and its stockholders to provide reasonable assurance to certain key
employees of the Company with respect to appropriate severance arrangements in
the event of a change of control of the Company. By this Agreement, the
Company is seeking to gain the benefit of your future services and avoid undue
concern about changes of control of the Company.
The following is offered as an inducement to you to remain in the
employ of the Company and to dedicate your efforts to its best interests:
-Page 82-
SECTION 1. Subject to Section 3(c) below, payments and benefits herein
provided to be paid to you by the Company will be made without regard to and
in addition to any other payments or benefits required to be paid to you at
any time hereafter under the terms of any other agreement (if any) between you
and the Company and under any other policy of the Company relating to
compensation, severance pay or retirement or other benefits; in other words,
the payments and benefits provided herein shall be in addition to and not in
lieu of salary, consulting payments, bonus payments, incentive compensation,
retirement benefits or any other payments or benefits. No payments or
benefits provided to you hereunder shall be reduced by any amount you may earn
or receive from employment with the Company, with another employer, or from
any other source.
SECTION 2. You agree that without the consent of the Company you will
not terminate your employment without giving at least two weeks' prior notice
to the Company, which may become effective earlier than two weeks at the
discretion of the Board of Directors of the Company.
SECTION 3. If at any time after the date hereof a Change of Control (as
hereinafter defined) occurs and within one year thereafter (i) the Company
involuntarily terminates your employment for any reason other than for good
cause (as hereinafter defined), disability, death or retirement pursuant to
any retirement plan or policy of the Company of general application to key
employees, or (ii) you terminate your employment for good reason (as
hereinafter defined), then:
(a) The Company will pay to you in an immediate lump-sum cash
payment an amount equal to the product of 1.0 times your "Base Amount"
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended. Any payments made to you pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(e) Medical, life and long-term disability insurance coverage
provided to you and your family by the Company, if any,
shall be continued by the Company at no cost to you as if
you continued to be an employee until the first to occur of
the following events: (i) you waive coverage by giving
written notice of waiver to the Company; (ii) 12 months
elapse from the effective date of your termination; or (iii)
you become a participant in group insurance benefit programs
of a new employer which does not contain any exclusion or
limitation for you or your dependents with respect to any
preexisting condition. If coverage is not permitted under
applicable policy terms, the Company will provide equivalent
benefits (i.e., by reimbursing you for the full cost of COBRA
premiums). Upon termination of this benefit in accordance with
the terms hereof, you shall be entitled to exercise the policy
options normally available to employees upon termination of their
employment.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, it is the intention of the Company and you that
no portion of any payment under this Agreement, or payments to you
or for your benefit under any other agreement or plan, be deemed
to be an "Excess Parachute Payment" as defined in Section 280G of
the Code, or its successors. It is agreed that the present value
of and payments to you or for your benefit in the nature of
compensation, receipt of which is contingent on occurrence of a
Change of Control, and to which Section 280G of the Code applies
(in the aggregate "Total Payments") shall not exceed an amount
-Page 83-
equal to one dollar less than the maximum amount that the Company
may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be
calculated in accordance with Section 280G(d)(4) of the Code.
Within sixty (60) days following the earlier of (i) the giving of
the notice of termination of employment or (ii) the giving of
notice by the Company to you of its belief that there is a payment
or benefit due you which will result in an excess parachute
payment as defined in Section 280G of the Code, you and the
Company, at the Company's expense, shall obtain the opinion of the
Company's public accounting firm (the "Accounting Firm"), which
opinion need not be unqualified, which sets forth: (i) the amount
of your Base Period Income (as defined in Code Section 280G), (ii)
the present value of Total Payments and (iii) the amount and
present value of any excess parachute payments. In the event that
such opinion determines that there would be an excess parachute
payment, the payment hereunder shall be modified, reduced or
eliminated as specified by you in writing delivered to the Company
within thirty (30) days of your receipt of such opinion or, if you
fail to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculation set
forth in such opinion there will be no excess parachute payment.
In the event that the provisions of Sections 280G and 4999 of the
Code are repealed without succession, this Section shall be of no
further force or effect.
(ii) In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change or Control, you shall appoint another
nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm under this Section
3(c)(i)). All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and you.
It is understood that as a part or as a result of a Change of
Control, business operations of the Company may be transferred to
parties that are not affiliates of the Company that may continue
your employment as a successor employer and, in such event, your
employment shall not be deemed to have been terminated by the
Company and, instead, "employment by the Company" as used in this
Section 3 shall be deemed to include employment by successor
employers. The obligation of the Company hereunder to provide
payments or benefits to you as set forth herein shall continue in
effect and apply to any subsequent termination of your employment
by a successor employer.
SECTION 4. For purposes of this Agreement, "Change of Control" shall be
deemed to have taken place if, subsequent to the date hereof,
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares
of any class of voting stock issued by the Company; or
any person (other than the Company) becomes the
beneficial owner, directly or indirectly, of 25% or
more of the outstanding shares of any class of voting
stock issued by First Federal Savings and Loan
Association of Bloomington, the Company's wholly-owned
subsidiary (the "Association");
-Page 84-
(ii) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the outstanding shares of
any class of voting stock issued by the Company, if such beneficial ownership
constitutes or will constitute control of the Company for regulatory purposes;
or any person (other than the Company) becomes the beneficial owner, directly
or indirectly, of 10% or more, but less than 25%, of the outstanding shares of
any class of voting stock issued by the Association, if such beneficial
ownership constitutes or will constitute control of the Association for
regulatory purposes;
(x) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the
Company) holds revocable or irrevocable proxies as to
the election or removal of a majority or more of the
directors of the Company, or for 25% or more of the
total number of voting shares of the Company;
(iv) The Office of Thrift Suptevision ("OTS") or other
appropriate regulatory authority has given the required approval
of non-objection to the acquisition of control of the Company by
any person; or the OTS or other appropriate regulatory authority
has given the required approval of non-objection to the
acquisition of control of the Association by any person (other
than the Company);
(xi) During any period of 24 consecutive months,
individuals who at the beginning of such period
constitute the Association's and the Company's Board
of Directors cease for any reason to constitute at
least a majority of the Board of the Association or
the Company, as the case may be, unless the election
of each director who was not a director at the
beginning of such period has been approved in advance
by directors of the Association or the Holding
Company, as the case may be, representing at least
two-thirds of the directors then in office who were
directors at the beginning of the period; or
(vi) Any person acquires substantially all of the assets and assumes
substantially all of the liabilities of the Company or First Federal.
A person shall be deemed a beneficial owner as that term is used
in Section 13(d)(3) under the Securities Exchange Act of 1934, as amended (as
in effect on the date hereof). No "Change of Control" shall be deemed to have
taken place solely by reason of the Company owning stock in wholly-owned
subsidiaries.
SECTION 5. For purposes of this Agreement, "good cause" shall mean your
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform your stated
duties, willful violation of any law, rule or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense), final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Agreement, "good reason" shall exist if,
without your express written consent, (i) you are assigned new duties
involving a material amount of your time that are not of an executive or
supervisory nature or do not involve the level of responsibility generally
comparable to your responsibilities and duties prior to the Change of Control;
(ii) your duties and responsibilities are substantially reduced from your
present position, excluding reductions that are a normal consequence of the
-Page 85-
Company ceasing to be widely or publicly owned; (iii) there occurs any
material reduction in your aggregate compensation, incentive and benefit
package in effect at the time of the Change of Control, excluding (in the case
of an incentive or benefit package whose benefits are proportionate to your
performance or the performance of the Association or the Company) reductions
in benefits resulting from your diminished performance, or the diminished
performance of the Association or the Company; or (iv) you are an officer of
the Association or the Company at the time of the Change of Control and
thereafter the Company shall require you to perform services outside of a
forty-mile radius of the Association's offices at which you are currently
based except for travel on the Association's or the Company's business that
the Association or the Company reasonably requires.
SECTION 6. Any payment not made when due in accordance with this
Agreement shall thereafter bear interest at the prime rate from time to time
as reported in The Wall Street Journal.
SECTION 7. This agreement may not be assigned by the Company except in
connection with a merger involving the Company or a sale of substantially all
of its assets, and the obligations of the Company provided for in this
Agreement shall be the binding legal obligations of any successor to the
Company by purchase, merger, consolidation, or otherwise. This Agreement may
not be assigned by you during your life, and upon your death will be binding
upon and inure to the benefit of your heirs, legatees and the legal
representatives of your estate.
SECTION 8. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you, approved by the Board of Directors and signed by an
appropriate officer of the Company empowered to sign the same by the Board of
Directors of the Company. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any
prior to or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provision of this Agreement.
SECTION 9. This Agreement does not constitute a contract for the
continued employment of you by the Company. Subject only to those rights of
yours that are specified herein following a Change of Control, the Company
reserves all of its rights to modify your compensation and other terms of your
employment and to terminate your employment to the same extent as before the
execution of this Agreement.
SECTION 10. The Company shall pay your out-of-pocket expenses,
including attorney's fees, in connection with any judicial proceeding to
enforce this Agreement or to construe or determine the validity of this
Agreement or otherwise in connection herewith unless the Company prevails in
such litigation.
SECTION 11. The initial term of this Agreement shall be for a 36 month
period commencing November 18, 1998 and ending November 30, 2001. The said
36-month term may be extended for an additional 12 full calendar months by
action of the Board of Directors sixty (60) days prior to November 30, 1998,
and on sixty (60) days prior to each succeeding November 30 thereafter,
respectively.
-Page 86-
Very truly yours,
By: /s/ Donald L. Fernandes
Title: President
Accepted and agreed to this 30th day of November, 1998.
/s/ Donald L. Lambert
Exhibit 13.1
Eagle BancGroup, Inc.
1998 Annual Report
Eagle BancGroup, Inc. is a Holding Company for First Federal Savings & Loan
Association Bloomington, Illinois
(Front Cover)
<TABLE>
Eagle BancGroup, Inc. and subsidiary
Table of Contents
<CAPTION>
<S> <C>
Financial Highlights 1
Management's Discussion and Analysis 2
Independent Auditor's Report 10
Consolidated Statements of Condition 11
Consolidated Statements of Income 12
Consolidated Statements of
Changes in Stockholders' Equity 13
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial Statements 16
Other Corporate Information 37
</TABLE>
To Our Stockholders:
We are pleased to present to our stockholders this annual report for 1998. We
have continued to build on the theme we used in last year's report, 'Opening
doors to new possibilities and Creating windows of opportunity.' The
architectural look this year is reflective of the building process mentality
we have adopted. We believe it captures the spirit and philosophy of the
Company and its employees. Our goal is to create a healthy banking franchise
by building strong personal relationships within the communities we serve.
Some examples of these relationships are featured within this year's report,
and we are pleased to share them with you.
We had an exciting year in 1998 that included the opening of our new branch
office in Lexington, Illinois, dramatic growth in loan originations and
continued improvement in our earnings. These results are further evidence
that we continue to work to grow and to improve our financial performance,
while enhancing the long-term investment value for our stockholders. The
positive and aggressive approach to our business we have employed, whereby we
seek out the new possibilities and create the opportunities that will have a
positive and lasting effect on our employees, our customers, the communities
we live in and our stockholders, continues to serve us well.
-Page 87-
The continued support we have received from our customers and our stockholders
is greatly appreciated and we look forward to an exciting and prosperous year
in 1999.
Sincerely,
/s/ Gerald A. Bradley /s/ Donald L. Fernandes
Gerald A. Bradley Donald L. Fernandes
Chairman of the Board President and Chief Executive Officer
(Inside Front Cover)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following table sets forth, on a historical basis, selected consolidated
financial data for the Company. Data prior to 1996 relates to First Federal
only.
As of and For the Year Ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data
Total assets $180,101 $171,137 $172,666 $150,974 $140,932
Cash and due from banks 1,084 1,628 1,487 1,072 1,092
Federal funds sold and
overnight deposits 7,653 3,386 5,573 2,828 1,611
Investments 49,822 38,943 53,883 53,186 42,680
Loans, net 116,551 122,409 106,641 88,786 83,589
Deposits 134,091 131,452 133,995 138,396 122,388
FHLB advances and other
borrowings 25,000 18,000 15,300 - 7,936
Total equity 19,697 20,305 22,141 11,515 9,501
Selected Operating Data
Interest income $12,462 $12,326 $11,094 $ 9,933 $ 8,595
Interest expense 8,208 8,121 7,703 7,376 5,396
Net interest income before
provision for loan losses 4,254 4,205 3,391 2,557 3,199
Provision for loan losses 240 240 183 100 (32)
Net interest income after
provision for loan losses 4,014 3,965 3,208 2,457 3,231
Non-interest income 1,711 576 418 395 261
Non-interest expense 4,305 3,768 4,373 2,955 2,840
Income (loss) before income
taxes 1,420 773 (747) (103) 652
Income taxes 514 264 (258) (30) 222
Net income (loss) 906 509 (489) (73) 430
Per Share Data
Book value per share $18.24 $17.24 $17.00 N/A N/A
Basic earnings (loss)
per share 0.85 0.44 (0.38) N/A N/A
Diluted earnings (loss)
per share 0.83 0.44 (0.38) N/A N/A
Cash dividends per share 0.10 - - N/A N/A
-Page 88-
Selected Financial Ratios and Other Data
Performance Ratios (based on balance sheet averages) <F1>
Return on assets 0.51% 0.30% -0.31% -0.05% 0.31%
Return on equity 4.44% 2.46% -2.85% -0.68% 4.15%
Interest rate spread
during period <F2> 1.97% 1.99% 1.69% 1.83% 2.54%
Net interest margin
during period <F3> 2.47% 2.53% 2.20% 1.85% 2.55%
Non-interest expense
to assets <F4> 2.42% 2.19% 2.74% 1.98% 2.06%
Non-interest income to
assets 0.96% 0.33% 0.26% 0.26% 0.19%
Interest-earning assets to
interest-bearing
liabilities 1.11x 1.11x 1.10x 1.01x 1.00x
Asset Quality Ratios
Non-performing assets to
total assets <F5> 0.62% 0.54% 0.79% 0.80% 4.86%
Allowance for loan losses to
non-performing loans 255.67% 316.95% 130.92% 176.80% 219.35%
Net charge-offs to
average gross loans 0.13% 0.19% 0.17% 0.08% 0.05%
Regulatory Capital and Capital Ratios <F6>
Tangible capital ratio 9.59% 9.99% 9.66% 7.73% 8.20%
Core capital ratio 9.59% 9.99% 9.66% 7.73% 8.20%
Risk-based capital ratio 16.04% 16.30% 18.29% 15.78% 15.80%
Average equity to
average assets 11.48% 12.04% 10.76% 7.21% 7.55%
Equity to assets at
end of period 10.94% 11.86% 12.82% 7.63% 6.74%
<FN>
<F1>
With the exception of end of period ratios, all ratios are based on
average month-end balances during the respective periods.
<F2>
Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
<F3>
Net interest margin represents net interest income as a percentage of
average interest-earning assets.
<F4>
The 1996 ratio reflects the effect of the SAIF special assessment.
<F5>
Non-performing assets consist of non-performing loans and foreclosed real
estate owned. The significant decline in this ratio between the 1994 to
1995 periods occurred as a result of the sale by First Federal of a
substantial real estate owned property during the fourth quarter of 1995.
<F6>
Tangible capital, Core capital and Risk-based capital ratios relate to
First Federal only.
</FN>
</TABLE>
(Page 1)
Eagle BancGroup, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis of the results of operations and
financial condition is intended to assist in understanding the financial
condition, changes in financial condition and results of operations of Eagle
BancGroup, Inc. This discussion should be read in conjunction with the
consolidated financial statements, accompanying notes to consolidated
financial statements and other information contained elsewhere in this report.
-Page 89-
Eagle BancGroup, Inc. ('Eagle') is a non-diversified unitary savings and loan
holding company engaged in the business of managing its investments and
directing, planning and coordinating the activities of its wholly-owned
subsidiary, First Federal Savings and Loan ('First Federal'), a federally
charted savings association, and First Federal's wholly-owned subsidiary, FFS
Investment Services Inc., a service corporation that sells investment products
(collectively, 'the Company').
Eagle was formed in January, 1996 and purchased all of the stock of First
Federal with the proceeds of a subscription stock offering completed in June,
1996. Simultaneous to the stock offering, First Federal converted from a
federally-chartered mutual savings association to a federally-chartered
capital stock savings association. Prior to June, 1996, Eagle had no assets
or liabilities.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. In 1998, the Company had net income of $906,000, or $.85 per share
(basic), compared to $509,000, or $.44 per share (basic), in 1997. The
increase in 1998 was primarily the result of significantly higher non-interest
income, primarily gains on sales of residential mortgage loans, partially
offset by higher non-interest expense.
Net Interest Income. Net interest income increased slightly to $4,254,000 in
1998 from $4,205,000 in 1997. Interest income increased to $12,462,000 in
1998 from $12,326,000 in 1997 while interest expense increased to $8,208,000
in 1998 from $8,121,000 in 1997. The interest rate spread, the difference
between the yield on average interest earning assets and the cost of average
interest bearing liabilities, was 1.97% in 1998 and 1.99% in 1997. The net
interest margin, net interest income divided by average interest earning
assets, was 2.47% in 1998 and 2.53% in 1997. The Company experienced
pressures on the spread and margin due to declining market interest rates
throughout 1998. The declining rate environment resulted in shifts in the
loan portfolio that decreased the yield on earning assets more quickly than
the benefits of the decreasing cost of funds.
Average interest earning assets and average interest bearing liabilities both
increased over $6,000,000 in 1998 from 1997 to result in the increases in
interest income and expense. Average commercial loans increased over
$13,200,000 and average direct consumer loans, primarily home equity loans,
increased over $3,200,000 as the Company emphasized higher yielding, shorter
term loans relative to traditional residential mortgage loans. Average
residential mortgage loans decreased $11,100,000 in 1998 as the low rate
environment spurred increased refinancing activity with most new residential
mortgage loans sold at origination. Overall, average loans increased over
$2,200,000 while the rate earned declined slightly to 7.91% in 1998 from 8.02%
in 1997 as the loan portfolio restructuring reduced the effects of the
declining rate environment.
Average investments increased $3,900,000 in 1998 due primarily to temporary
investment of residential mortgage loan sale proceeds. The rate earned on
average investments decreased to 5.68% in 1998 from 5.95% in 1997 due to the
rate environment and the increased holdings of lower yielding, short-term
investments. Overall, the rate earned on average interest earning assets
decreased to 7.24% in 1998 from 7.43% in 1997.
-Page 90-
The rate paid on average interest bearing liabilities also decreased in 1998
to 5.27% from 5.44% in 1997.
(page 2)
The decrease was due to both increases in demand deposit balances and a
restructuring of the Federal Home Loan Bank ('FHLB') advance portfolio.
Average deposits increased $1,300,000 as average demand deposits increased
$4,000,000 while average time deposits decreased $2,400,000 in 1998 compared
to 1997. The higher percentage of demand deposits in total deposits resulted
in a reduction in the cost of average deposits to 5.26% in 1998 from 5.37% in
1997.
Average borrowed funds, all FHLB advances, increased $4,900,000 in 1998 while
the cost of the borrowings decreased to 5.37% in 1998 from 5.89% in 1997. New
advances taken out in 1998 had an average cost of 4.69% while the advances
repaid in 1998 had an average cost of 6.11%. At year-end, 1998, the average
cost of all advances was 5.05%.
At December 31, 1998, loans totaling $397,000 were contractually past due 90
days or more and were classified as non-accrual. No interest income is
accrued on such loans. Income is recognized only upon receipt of cash
payments, which totaled $28,000 in 1998. Additional income of $12,000 would
have been accrued had the loans not been past due. No other loans were
contractually past 90 days or more at December 31, 1998.
Provision For Loan Losses. The provision for loan losses was $240,000 in both
1998 and 1997. The provision is determined each year through analysis of the
loan portfolio, the allowance for loan losses, loan charge-offs and recoveries
and industry practice and experience. At December 31, 1998, the allowance for
loan losses was $1,015,000, or .86% of total loans, compared to $935,000, or
.76% of total loans, at December 31, 1997. The increase in 1998 was deemed
necessary due to changes in the portfolio mix even though total loans at
December 31, 1998 were less than at December 31, 1997. From year-end 1997 to
year-end 1998, residential mortgage loans and loans held for sale declined
$15,500,000 while commercial and commercial real estate loans increased
$10,100,000. Net charge-offs declined to $160,000 in 1998 from $228,000 in
1997. In both years, the charge-off and recovery activity related to indirect
auto loans with the decline in net charge-offs in 1998 corresponding to a
decline in the indirect loan portfolio.
Non-Interest Income. Due to a significant increase in gains of sales of
residential mortgage loans, non-interest income increased to $1,711,000 in
1998 from $576,000 in 1997. Proceeds from sales of residential mortgage loans
were $93,164,000 in 1998 compared to $19,314,000 in 1997. Gains realized on
the sales were $1,218,000 in 1998 compared to $178,000 in 1997. Loan
servicing income increased $19,000 in 1998 due to the increased amount of
serviced loans. The increase in demand deposit accounts led to an increase in
deposit account service charges of $33,000 in 1998. Commission income earned
by the Company's service corporation brokerage subsidiary also increased
$13,000 in 1998.
As a percentage of average assets, non-interest income increased to .96% in
1998 from .33% in 1997. Net of the gains on loan sales, non-interest income
was .28% of average assets in 1998 compared to .23% in 1997.
Non-Interest Expense. Non-interest expense increased to $4,305,000 in 1998
-Page 91-
from $3,768,000 in 1997 due primarily to an increase in salaries and employee
benefits. Most of the $380,000 increase in salaries and employee benefits in
1998 was due to incentive payments related to the volume of residential
mortgage loans originated and sold. The remainder of the salary and employee
benefit increase was due to staff additions for the Company's new branch that
opened in December, 1998 in Lexington, Illinois. Advertising expense
increased $60,000 in 1998 due to promotional expenses related to the branch
opening and increased radio and television advertising. Equipment expense
increased $64,000 in 1998 related to hardware and software upgrades and the
new branch. Other non-interest expense increased $90,000 due to higher
supplies, phone, postage and other miscellaneous costs related to both the
volume of mortgage loans processed and the new branch opening.
As a percentage of average assets, non-interest expense was 2.42% in 1998
compared to 2.19% in 1997. When the loan origination incentive payments are
removed, non-interest expense was 2.23% of average assets in 1998.
Income Tax Expense. Income tax expense increased to $514,000 in 1998 from
$264,000 in 1997 due to the increase in income before tax. The effective tax
rate was 36% in 1998 and 34% in 1997.
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General. In 1997, the Company earned net income of $509,000, or $.44 per
share, compared to a net loss of $489,000, or $(.38) per share, in 1996. The
1996 results include the SAIF recapitalization special assessment
(page 3)
which reduced earnings $600,000, net of tax. Excluding the net effect of the
special assessment, 1996 net income was $111,000.
Net Interest Income. Net interest income increased to $4,205,000 in 1997 from
$3,391,000 in 1996. The 24% increase in net interest income was due to
improvement in the interest rate spread, which increased to 1.99% in 1997 from
1.69% in 1996. The interest rate spread is the difference between the yield
on average interest earning assets and the cost of average interest bearing
liabilities. The net interest margin, net interest income divided by average
interest earning assets, also improved to 2.53% in 1997 from 2.20% in 1996.
Interest income increased to $12,326,000 in 1997 from $11,094,000 in 1996 and
interest expense increased to $8,121,000 in 1997 from $7,703,000 in 1996.
In 1997, the Company benefited from a full year's effect of investment of the
$11,186,000 net proceeds received from the initial stock offering completed in
June, 1996. In addition, strong loan demand and efforts to restructure the
loan and investment portfolios in 1997 resulted in a $20,700,000 increase in
average loans outstanding, primarily related to residential mortgage loans.
During the second half of 1997, the Company began emphasizing originations of
commercial real estate and commercial loans. Total average interest earning
assets were $165,975,000 in 1997 and $154,244,000 in 1996. The increased
emphasis on loan originations resulted in higher yielding loans comprising a
greater share of earning assets in 1997 than 1996. As a percentage of average
interest earning assets, average loans outstanding was 71% in 1997 compared to
63% in 1996. The yield earned on average interest earning assets increased to
7.43% in 1997 from 7.19% in 1996. The yield on average loans outstanding was
8.02% in 1997 compared to 7.89% in 1996. The yield on other interest earning
assets was 5.95% in 1997 and 6.00% in 1996 and the average balance of these
assets decreased $8,900,000 in 1997.
-Page 92-
Average interest bearing liabilities increased to $149,417,000 in 1997
form$140,009,000 in 1996 while the rate paid on average interest bearing
liabilities decreased to 5.44% in 1997 from 5.50% in 1996. Average borrowed
funds, all FHLB advances, increased $13,500,000 while average deposits
decreased $4,100,000 in 1997 compared to 1996. The increase in loans
outstanding in 1997 was funded in part with FHLB advances. The rate paid on
average borrowed funds decreased to 5.89% in 1997 from 6.20% in 1996 and the
rate paid on average deposits decreased to 5.37% in 1997 from 5.48% in 1996.
At December 31, 1997, loans totaling $295,000 were contractually past due 90
days or more and were classified as non-accrual. Interest income is
recognized on such loans only upon cash receipt and no interest income is
accrued. In 1997, cash interest payments of $16,000 were included in interest
income on the non-accrual loans. Additional interest income of $9,000 would
have been recorded on the loans on an accrual basis. No other loans were
contractually past due 90 days or more at December 31, 1997.
Provision For Loan Loss. The provision for loan losses increased to $240,000
in 1997 from $183,000 in 1996 due mainly to the increased lending activity.
The amount of the provision is determined through analysis of the loan
portfolio and the allowance for loan losses, including a review of charge-offs
and delinquencies, as well as industry practice and experience. At December
31, 1997, the allowance for loan losses was $935,000, or .76% of total loans,
compared to $923,000, or .86% of total loans, at December 31, 1996. The
growth in the loan portfolio in 1997 related primarily to residential mortgage
loans, which historically have low loss rates that did not justify a more
significant increase in the allowance for loan losses. Net charge-offs were
$228,000 in 1997, up from $167,000 in 1996. The net charge-offs in 1997
related entirely to consumer loans. The total balance of consumer loans
decreased approximately $3,000,000 in 1997, due largely to the Company placing
less emphasis on the origination of indirect auto loans in 1997.
Non-Interest Income. Non-interest income increased to $576,000 in 1997 from
$418,000 in 1996 due primarily to gains on loans sold, which increased to
$178,000 in 1997 from $68,000 in 1996. Loans sold increased to $19,314,000 in
1997 from $10,844,000 in 1996. Net gains on securities sold increased to
$46,000 in 1997 from $15,000 in 1996. Proceeds from the sales of securities
of $25,000,000 in 1997 were used primarily to originate loans. Service
charges on deposit accounts increased to $80,000 in 1997 from $51,000 in 1996
due to an increased number of accounts and a revised account and fee schedule.
Non-interest income was .33% of average assets in 1997 compared to .26% in
1996.
Non-Interest Expense. Non-interest expense increased to $3,768,000 in 1997
compared to $3,498,000 in 1996, net of the SAIF special assessment. Total
non-interest expense in 1996 was $4,373,000
(page 4)
including the $875,000 SAIF recapitalization special assessment. Salaries and
employee benefits increased by $414,000 in 1997 due primarily to staff
additions and normal increases in employee costs as well as to expenses
related to benefit plans implemented following the stock conversion. Data
processing expense increased $73,000 in 1997 due to one-time expenses related
to converting to a new data provider and deconverting from the previous
provider. Audit and legal fees increased $120,000 in 1996 due primarily to
increased corporate meeting and reporting requirements following formation of
the holding company. The expense increases were partially offset by a
-Page 93-
decrease in regular FDIC premium expense of $289,000 in 1997 due to the
premium rate reduction following the payment of the recapitalization special
assessment in 1996.
As a percentage of average assets, non-interest expense was 2.19% in both 1997
and 1996, net of the recapitalization special assessment.
Income Tax Expense. Due to the increase in income before income tax, income
tax expense was $264,000 in 1997 compared to a benefit for income tax of
$258,000 in 1996. The effective tax rate was 34% in 1997 compared to an
effective benefit rate of 35% in 1996.
Financial Condition
Total assets increased 5% to $180,101,000 at December 31, 1998 from
$171,137,000 at December 31, 1997. Increases in deposits and FHLB advances
were initially used to fund commercial and consumer loan originations.
Refinancing activity throughout the last half of 1998 resulted in increased
loan repayments and the Company invested the funds in mortgage-backed and
other securities.
The decline in mortgage loan rates in 1998 caused an increase in refinancing
activity that resulted in a decrease in residential mortgage loans of
$15,500,000. The reduction was due to the fact that most new residential loan
originations were sold in the secondary market. In 1998, residential loan
originations totaled $105,700,000 while proceeds of residential mortgage loan
sales were $93,164,000. Commercial and commercial real estate loans increased
$10,100,000 to result in a net decrease of $5,900,000 in total loans during
1998. Consumer loans decreased $400,000 as a decrease in indirect automobile
loans of $2,800,000 was partially offset by increases in home equity loans and
lines of credit.
Total investments increased $10,900,000 in 1998 due to investment of loan sale
proceeds and funds received from new deposits and FHLB advances. Mortgage-
backed securities increased $12,600,000 and investment securities decreased
$1,700,000. Cash and cash equivalents increased $3,700,000 in 1998 due to
temporary investment of loan sale proceeds and in preparation for the first
quarter of 1999 when a larger than usual amount of certificates of deposit are
scheduled to mature.
Total deposits increased $2,600,000 in 1998 due to a $4,300,000 increase in
demand deposits and a $600,000 increase in savings deposits offset by a
$2,300,000 decrease in time deposits. The increase in demand deposits
reflects the Company's efforts to reduce the cost of funds and improve the
interest rate sensitivity of the deposit portfolio.
(MARKETING INSERT)
'THEIR COMMITMENT TO ME IS MORE THAN WINDOW DRESSING' - Jeff 'Mac' McElravy,
owner of Cornerstone Construction in Bloomington.
Every bank will call you 'friend,' but the key to a good financial
relationship is trust and commitment. To earn customer confidence, First
Federal Savings gets to know them first and then grows the relationship over
time.
'At First Federal Savings, I feel the respect that comes when people
-Page 94-
understand that I know my business,' says Mac McElravy, commercial customer.
'When I proposed a new business venture, they listened and gave the advice I
needed. Now I feel comfortable just stopping by anytime and kicking around a
few ideas. I know they won't go running when I mention something cutting-
edge.'
'When Mac comes in with a new business proposal, we do more than examine the
plan,' says Dave Wampler, First Federal Savings President. 'We look at the
person's philosophy and dedication. That's how we build trust and long-term
relationships with our customers.'
When First Federal talks about good working relationships, it's not just a
sales pitch... it's the way they do business. Every customer relationship is
built with trust and commitment... and that makes all the difference.
(page 5)
'WITH SOME BANKS, OPPORTUNITY KNOCKS ONCE. BUT FIRST FEDERAL SAVINGS LEANS ON
MY DOORBELL.' - Ron Brucker, owner of Brucker Farms Inc.
You don't deposit a check and then close the account. And you don't make an
investment without thinking of how it will affect your future. So why should
you choose a bank that does? First Federal Savings knows that financial
success means being available for customers every step of the way.
'Farming has its ups and downs, but I've found success by consistently giving
it my all. I need a bank that does the same. That's why I chose First
Federal,' says Ron Brucker, agri-business customer. 'They not only know me
and my business, but they are also in it for the long haul.'
'Ron is not just an application to us and I like to think we're more than
application takers to him,' says Randy Jacobs, First Federal Savings account
representative. 'We work hard to anticipate his financial needs and want to
be there whenever he needs us. It's long-term relationships like these that
lead to trust and a higher level of comfort.'
The old adage says, 'Success is not a goal, it's a journey.' The same holds
true for financial achievements and security. That's why First Federal
Savings is committed to building a lasting relationship with its customers.
(END MARKETING INSERT)
The borrowed funds portfolio, all FHLB advances, was restructured in 1998 to
reduce the average cost of borrowed funds. The Company repaid $7,000,000 in
advances that matured in 1998 with new advances that cost, on average, over
140 basis points less. The average cost of the advance portfolio decreased
from 5.74% at December 31, 1997 to 5.05% at December 31, 1998. In total,
borrowed funds increased $7,000,000 in 1998.
Stockholders' equity decreased to $19,697,000, or 10.9% of total assets, at
December 31, 1998 from $20,305,000, or 11.9% of total assets, at December 31,
1997. The decrease in equity in 1998 was due to the repurchase of additional
shares for the treasury at a cost of $1,762,000 offset by 1998 net income.
Book value per share increased to $18.24 per share at December 31, 1998 from
$17.24 per share at December 31, 1997.
Savings institutions are required to maintain minimum capital levels measured
by three ratios: Risk-based capital to risk weighted assets of 8%; core
capital to adjusted tangible assets of 4% and tangible core capital to
-Page 95-
tangible assets of 1.5%. At December 31, 1998, the Company's savings
institution subsidiary had ratios of 16.04%, 9.59% and 9.59%, respectively,
compared to ratios of 16.30%, 9.99% and 9.99%, respectively, at December 31,
1997.
Interest Rate Risk
Interest rate risk arises from the impact of changes in interest rates on the
Company's assets and liabilities. Successful management of interest rate risk
reduces the impact of such changes on the Company's operations. Interest rate
risk is managed through evaluation of the interest rate risk inherent in
certain assets and liabilities and determination of the appropriate risk level
given the Company's business plan, operating environment and capital and
liquidity requirements. Interest rate risk management guidelines are reviewed
and approved annually by the Board of Directors.
Specific strategies used to reduce interest rate risk include (i) diversifying
the loan portfolio by emphasizing origination of short-term direct consumer
loans, commercial and commercial real estate loans; (ii) selling at
origination all long-term, fixed rate and most adjustable rate residential
mortgage loans; (iii) classifying all investments as available for sale; (iv)
maintaining an investment portfolio of primarily adjustable rate and short-
term, fixed rate securities; (v) utilizing medium-term, fixed rate FHLB
advances as a funding source; and (vi) emphasizing deposit products that
reduce interest sensitivity (demand and savings deposits and long-term, fixed
rate certificates).
The effects of these strategies are evident in the Company's 1998 operations.
Commercial and commercial real estate loan originations in 1998, totaling
$20,700,000, primarily mature in five years or less. Proceeds of residential
real estate loan sales exceeded $93,000,000 and the amount of residential
mortgage loans in the portfolio declined $15,500,000. All investments remain
classified as available for sale. Of the over $48,000,000 in new investments
purchased in 1998, $13,400,000 were adjustable rate and $25,300,000 matured or
were subject to call within 5 years. The FHLB advance portfolio consists of
all medium-term, fixed rate advances that carry an average cost at year-end,
1998 that is 69 basis
(page 6)
points less than the average cost at year-end, 1997. Demand and savings
deposits grew $4,900,000 in 1998.
Interest rate sensitivity is measured quarterly by use of the Office of Thrift
Supervision ('OTS') net portfolio value ('NPV') model. Data provided by the
Company's thrift subsidiary in various regulatory reports is the primary basis
for the model, which generates estimates of the amount of and change in NPV
over a range of interest rate change scenarios. NPV is defined as the
difference between incoming and outgoing cash flows from assets, liabilities
and certain off-balance sheet contracts. The NPV ratio of each scenario is
the NPV in that scenario divided by the present value of assets in the same
scenario.
The benchmark measurements are the decline in NPV and the change in NPV ratio
given a 200 basis point shock (increase) in interest rates. The figures
below, provided by the OTS, show the changes under this scenario. The Board
of Directors has determined that the maximum allowable decline in NPV given a
-Page 96-
200 basis point shock is 45%. The OTS figures show a decline in NPV of 10%,
which is well within the board of directors guidelines.
<TABLE>
<S> <C>
RISK MEASURES: 200 BP Rate Shock
Pre-shock NPV ratio 10.14%
Exposure measure: Post-shock NPV Ratio 9.47%
Sensitivity measure: Change in NPV Ratio 68 basis points
</TABLE>
<TABLE>
NPV as Percent of Present
Net Portfolio Value Value of Assets
Change Dollar Dollar Percent NPV
in Rate Amount Change Change Ratio Change
<S> <C> <C> <C> <C> <C>
+400 bp $13,482 $-4,872 -27% 8.02% -212 bp
+300 bp 15,108 -3,246 -18% 8.81% -134 bp
+200 bp 16,651 -1,793 -10% 9.47% - 68 bp
+100 bp 17,706 - 648 - 4% 9.94% - 20 bp
0 18,354 - - 10.14% -
- -100 bp 18,703 349 2% 10.18% 4 bp
- -200 bp 18,849 495 3% 10.11% - 3 bp
- -300 bp 19,253 898 5% 10.16% 2 bp
- -400 bp 19,223 869 5% 10.00% - 15 bp
</TABLE>
All changes in NPV ratios at December 31, 1998 were within the limits approved
by the Board of Directors.
The OTS measurement of interest rate risk has inherent shortcomings due to the
assumptions utilized in the model. Actual changes in market interest rates
may result in different yield and cost changes than assumed in the model. The
model also assumes that holdings of interest sensitive assets and liabilities
would remain constant under each interest rate change scenario, which may be
different than actual circumstances. As such, the NPV measurements in the
table provide an indication of interest rate risk exposure at December 31,
1998 only and are not intended to and should not be used to forecast the
effect of changes in interest rates on the Company's net interest income.
Market Risk
Market risk arises primarily from interest rate risk inherent in the Company's
lending, investing, deposit taking and borrowing activities. The varying
levels of sensitivity to changes in market interest rates of the Company's
interest-earning assets, primarily loans and investments, and interest-bearing
liabilities, primarily deposits and borrowed funds, create market risk.
Evaluation of market risk is an integral component of interest rate risk
management.
The Company's exposure to market risk is lessened by not holding or using any
derivative instruments to manage interest rate risk. In addition, the Company
does not maintain a portfolio of trading account investments. At December 31,
1998, the Company did hold $3,701,000 as loans held for sale, the entire
amount of which was residential mortgage loans originated in December, 1998
that had been sold to various secondary market investors. The loans remained
on the Company's books at year-end due to the usual delay between a loan
closing and the funding by the investor. As such, the market risk exposure on
these loans was not significant.
-Page 97-
Liquidity
Primary sources of funds are deposits, FHLB advances and principal and
interest payments on loans and
(page 7)
mortgage-backed and investment securities. Scheduled maturities of loans and
mortgage-backed and investment securities are predictable sources of funds
while deposit inflows and loan and mortgage-backed securities prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
Funds are invested in loans, primarily residential mortgage, commercial,
commercial real estate and direct consumer loans, and mortgage-backed and
investment securities. Loan originations totaled $162,709,000, $72,203,000
and $63,005,000 in 1998, 1997 and 1996, respectively. Purchases of mortgage-
backed and investment securities were $48,142,000, $13,218,000 and $26,686,000
in 1998, 1997 and 1996, respectively. Net cash provided by financing
activities in 1998 was $7,765,000 while $1,498,000 net cash was used by
operating activities and $2,544,000 net cash was used by investing activities.
Adequate liquidity must be maintained to ensure that sufficient funds are
available to support loan originations, deposit withdrawal demands, satisfy
other financial commitments and take advantage of investment opportunities.
Approved loan commitments totaled $479,000 and unused lines of credit equaled
$8,826,000 at December 31, 1998. Scheduled maturities of certificates of
deposit in 1999 total $64,793,000. Scheduled loan maturities and principal
payments in 1999 total $30,049,000 and scheduled maturities of investment
securities in 1999 total $4,630,000. In addition, an unknown amount of
principal payments will be received on mortgage-backed securities in 1999. In
1998, principal payments totaling $9,944,000 were received on mortgage-backed
securities.
The OTS requires thrifts to maintain a 4% liquidity ratio measured as the
ratio of cash, cash equivalents, short-term investments and certain long-term
investments to deposits and certain borrowed funds. The Company's savings
institution subsidiary had liquidity ratios of 14.11% and 12.07% at December
31, 1998 and 1997, respectively.
Inflation
The Consolidated Financial Statements and notes thereto included in this
report have been prepared in accordance with generally accepted accounting
principles and reflect the results of operations and financial position
measured in historical dollars without regard for the changes in the relative
purchasing power of money over time due to inflation. Inflation impacts the
Company in the increased cost of operations and as an inherent factor in the
general level of interest rates. Changes in interest rates have a greater
impact on the Company's financial performance than the general level of
inflation due to the monetary nature of most of the Company's assets and
liabilities. Effective interest rate management can minimize the effects of
inflation on the Company's monetary assets and liabilities. Inflation has not
had a significant impact on the costs of operation or the non-monetary assets
of the Company.
Year 2000
The Year 2000 ('Y2K') computer problem has received considerable publicity as
January 1, 2000 nears. The ability of computers and computer systems to
successfully function on and after January 1, 2000 has been the subject of
-Page 98-
much concern and speculation. All companies face many challenges in their
efforts to be Y2K compliant.
As a financial institution, the Company relies heavily on both in house and
third party data processing systems to maintain accurate loan, deposit and
other financial and corporate information and records. The Company also
relies on public and private utilities for phone and data lines, electricity,
water and other such services over which it has little, if any, control. In
the event of a Y2K failure in house or by any other service provider, the
Company must be prepared to operate as normally as possible or risk a decline
in its financial performance.
The Company formulated its initial Y2K compliance plan in September, 1997.
This plan has been expanded, revised and updated continually since then. The
OTS has and continues to monitor the compliance effort including an on-site
inspection in early 1998 and by reviewing compliance plan updates. To date
the Company's compliance plan and efforts have been approved by the OTS. A
second on-site inspection and review is scheduled for February, 1999.
In the fourth quarter, the Company took the following actions related to its
Y2K compliance effort: Started the initial round of software compliance
testing on the Company's primary third party data provider (following the
provider's pre-determined testing schedule for all users); continued follow-up
contacts to monitor compliance status of third party software vendors; set up
testing procedures with third party software vendors as applicable; followed
up initial contact with significant loan and deposit
(page 8)
customers regarding their Y2K status; and began developing a comprehensive
contingency plan.
The initial round of software compliance testing on the primary third party
data provider is scheduled for completion in January, 1999. A second round of
testing is scheduled to begin in February, 1999 after review and analysis of
the initial testing by the provider and all users. The comprehensive
contingency plan will expand upon the plan briefly detailed in previous
versions of the Y2K compliance plan. Development of the contingency plan was
delayed pending completion and review of the initial round of testing.
Direct costs related to the Y2K compliance effort incurred by the Company in
1998 include $25,000 paid to the primary data provider related to the software
compliance testing and $5,000 paid to the Company's third party network
consultant for testing and certifying that in house hardware was Y2K
compliant. In 1999, additional costs related to the Y2K compliance effort
will be incurred. The third party network consultant may provide additional
services at a cost not expected to exceed $25,000. Compliance testing on
other software providers will be conducted at a cost not expected to exceed
$10,000. An informational mailing to all customers will be sent that is not
expected to cost more than $5,000.
The Company also incurred indirect costs related to the Y2K compliance effort
in 1998, primarily salaries and benefits for the employees involved with the
testing. In 1998, the Company estimates that approximately $40,000 of salary
and benefit expense could be allocated to the Y2K compliance effort. This
amount does not represent additional expense, rather a reallocation of expense
that would have been incurred even without the Y2K testing. In 1999, more
salary and benefit expense could be allocated to the Y2K compliance effort but
-Page 99-
total salary and benefit expense is not expected to increase due to the Y2K
compliance effort.
In addition to the direct and indirect costs noted, the Company has also spent
over $200,000 upgrading hardware since the third quarter of 1997 related to
conversion to the current data provider, which occurred in August, 1997. In
late 1998, the Company, as planned at the time of the conversion, migrated to
updated hardware to support teller operations and also converted to new teller
and platform software. These events have assisted in the Company's Y2K
compliance effort but since the data provider conversion was necessary without
regard to Y2K compliance, the costs associated with the conversion are not
considered directly related to Y2K compliance.
The Y2K problem is extremely complex and potentially impacts any computer
process. The Company believes its Y2K compliance effort will be effective.
However, since the Company relies on so many third parties for various
services, over which the Company has little or no control, no reasonable
assurance can be given that the Company will not suffer a Y2K related service
interruption or incur potentially significant unanticipated expenditures that
could impact the financial performance of the Company.
(MARKETING INSERT)
'FIRST FEDERAL SAVINGS IS PROUD TO SPONSOR THE OPPORTUNITY TO OPEN MANY
WINDOWS THROUGH SOARING EAGLES, A SPECIAL CLUB FOR CUSTOMERS AND FRIENDS 50
AND OVER.' - Roberta Leake, Coordinator (Lexington)
In April, First Federal Savings will launch Soaring Eagles, their new travel
club for customers and friends 50 and over. The group, which is coordinated
by Roberta Leake, offers a wide variety of trips, seminars and social events.
The Soaring Eagles will visit such places as Amish Acres (Nappanee, IN); the
Long Grove Village Strawberry Festival; Drury Lane Theatre (Oakbrook, IL); the
New England Countryside; and the Branson Christmas Extravaganza.
According to Roberta, 'Soaring Eagles offers worry-free travel because all the
arrangements are made for those who attend - from tipping to luggage and meals
to hotels - we take care of everything!' Roberta is assisted by Judy
Schlosser of the LeRoy branch and Mary Kay Kates, Bloomington.
This club is just another way First Federal consistently adds value to
customer relationships.
(END MARKETING INSERT)
(page 9)
Independent Auditor's Report
To the Stockholders and Board of Directors
Eagle BancGroup, Inc.
Bloomington, Illinois
We have audited the accompanying consolidated statements of
condition of Eagle BancGroup, Inc. and subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of income,
statements of changes in stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
-Page 100-
our audits. The consolidated statements of income, stockholders'
equity and cash flows of Eagle BancGroup, Inc. and subsidiary,
for the year ended December 31, 1996, were audited by other auditors
whose report dated January 17, 1997, expressed an unqualified
opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Eagle BancGroup, Inc. and
subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/S/ McGladrey & Pullen, LLP
Peoria, Illinois
January 29, 1999
(Page 10)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Condition
December 31, 1998 and 1997
1998 1997
(Dollars in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 1,084 $ 1,628
Federal funds sold and overnight deposits 7,653 3,386
Investment securities - available for sale 11,328 13,037
Mortgage-backed securities - available for sale 37,244 24,596
Federal Home Loan Bank ("FHLB") stock 1,250 1,310
Loans, net of allowance for loan losses:
$1,015 in 1998, $935 in 1997 112,850 121,652
Loans held for sale 3,701 757
Premises and equipment 2,819 2,834
Other assets 2,172 1,937
Total assets $180,101 $171,137
Liabilities
Deposits $134,091 $131,452
Federal Home Loan Bank advances 25,000 18,000
Other liabilities 1,313 1,380
Total liabilities 160,404 150,832
-Page 101-
Stockholders' Equity
Preferred stock, par value $.01 per share,
100,000 shares authorized, no shares issued - -
Common stock, par value $.01 per share,
5,000,000 shares authorized;
1,302,705 shares issued 13 13
Paid-in capital 12,456 12,323
Retained earnings - substantially restricted 12,495 11,697
Unrealized loss on investment securities
available for sale, net (144) (110)
Total stockholders' equity before treasury stock,
unearned ESOP shares and Management
Development and Recognition Plan 24,820 23,923
Treasury stock, at cost, 125,000 shares in 1997 (3,817) (2,055)
Unearned Employee Stock Ownership Plan
("ESOP") shares (730) (834)
Management Development and Recognition
Plan ("MDRP") (576) (729)
Total stockholders' equity 19,697 20,305
Total liabilities and stockholders' equity $180,101 $171,137
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 11)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Interest income:
Loans and fees on loans $ 9,517 $ 9,472 $ 7,681
Investment securities and
other interest earning assets 1,150 1,044 1,024
Mortgage-backed securities 1,583 1,738 2,358
Federal funds sold 212 72 31
Total interest income 12,462 12,326 11,094
Interest expense:
Deposits:
Passbook 549 579 577
MMDA and NOW 330 202 181
Certificates of deposit 6,103 6,285 6,673
6,982 7,066 7,431
Borrowings 1,226 1,055 272
Total interest expense 8,208 8,121 7,703
Net interest income before
provision for loan losses 4,254 4,205 3,391
Provision for loan losses 240 240 183
Net interest income after
provision for loan losses 4,014 3,965 3,208
-Page 102-
Non-interest income:
Loan servicing 157 138 146
Gains on loans sold, net 1,218 178 68
Gains on securities sold, net 49 46 15
Other 287 214 189
Total non-interest income 1,711 576 418
Noninterest expense:
Salaries and employee benefits 2,530 2,150 1,736
Net occupancy 590 537 544
Federal deposit insurance premium 80 67 1,231
Data processing 305 322 249
Other 800 692 613
Total noninterest expense 4,305 3,768 4,373
Income (loss) before income tax
expense (benefit) 1,420 773 (747)
Income tax expense (benefit) 514 264 (258)
Net income (loss) $ 906 $ 509 $ (489)
Basic earnings (loss) per share $ 0.85 $ 0.44 $ (0.38)
Diluted earnings (loss) per share $ 0.83 $ 0.44 (0.38)
</TABLE>
See Notes to Consolidated Financial Statements.
(page 12)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
Accumulated
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $ - $11,677 $ (162)
Comprehensive income:
Net loss - - (489) -
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $85 - - - (165)
Less: Reclassification
adjustment, net of tax
of $5 - - - (10)
Comprehensive income(loss)
Sale of capital stock 13 12,215 - -
Common stock acquired
by ESOP - - - -
Release of ESOP shares - - - -
Balance, December 31, 1996 13 12,215 11,188 (337)
Comprehensive income:
Net income - - 509 -
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $133 - - - 257
-Page 103-
Less: Reclassification
adjustment, net of tax
of $16 - - - (30)
Comprehensive income
Purchase of 125,000 shares
for the treasury
Release of ESOP shares - 96 - -
Purchase of 52,106 shares
for MDRP - - - -
Allocation of MDRP shares - 12 - -
Balance, December 31, 1997 13 12,323 11,697 (110)
Comprehensive income:
Net income - - 906 -
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $1 - - - (2)
Less: Reclassification
adjustment, net of tax
of $17 - - - (32)
Comprehensive income
Purchase of 97,597 shares
for the treasury - - - -
Release of ESOP shares - 94 - -
Allocation of MDRP shares - 39 - -
Cash dividend paid - - (108) -
Balance, December 31, 1998 $ 13 $12,456 $12,495 $ (144)
</TABLE>
<TABLE>
<CAPTION>
Management
Development
Unearned and
Treasury ESOP Recognition
Stock Shares Plan Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $ - $ - $11,515
Comprehensive income:
Net loss - - - (489)
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $85 - - - (165)
Less: Reclassification
adjustment, net of tax
of $5 - - - (10)
Comprehensive income(loss) (664)
Sale of capital stock - - - 12,228
Common stock acquired
by ESOP - (1,042) - (1,042)
Release of ESOP shares - 104 - 104
Balance, December 31, 1996 - (938) - 22,141
Comprehensive income:
Net income - - - 509
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $133 - - - 257
-Page 104-
Less: Reclassification
adjustment, net of tax
of $16 - - - (30)
Comprehensive income 736
Purchase of 125,000 shares
for the treasury (2,055) - - (2,055)
Release of ESOP shares - 104 - 200
Purchase of 52,106 shares
for MDRP - - (840) (840)
Allocation of MDRP shares - - 111 123
Balance, December 31, 1997 (2,055) (834) (729) 20,305
Comprehensive income:
Net income - - - 906
Unrealized loss on securities
available for sale arising
during the period, net taxes
of $1 - - - (2)
Less: Reclassification
adjustment, net of tax
of $17 - - - (32)
Comprehensive income 872
Purchase of 97,597 shares
for the treasury (1,762) - - (1,762)
Release of ESOP shares - 104 - 198
Allocation of MDRP shares - - 153 192
Cash dividend paid - - - (108)
Balance, December 31, 1998 $(3,817) $ (730) $ (576) $19,697
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 13)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 906 $ 509 $ (489)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Provision for loan losses 240 240 183
Provision for depreciation 315 284 288
Provision for deferred income taxes (36) (114) (4)
Amortization of premiums and accretion of
discounts on investment securities (106) (11) 74
Gains on securities sold, net (49) (46) (15)
Gains on loans sold, net (1,218) (178) (68)
Compensation expense related to ESOP shares 198 200 104
Compensation expense related to MDRP shares 192 123 -
Proceeds from sale of loans
originated for sale 93,164 19,314 10,844
Loans originated for sale (94,890) (19,009) (9,209)
-Page 105-
Decrease (increase) in accrued
interest receivable (47) 43 (130)
(Decrease) increase in accrued
interest payable 24 (5) 94
Decrease (increase) in other assets (140) 232 (65)
(Decrease) increase in other liabilities (51) 150 44
Net cash provided by (used in)
operating activities (1,498) 1,732 1,651
Cash Flows from Investing Activities
Investment securities
Purchases (23,274) (5,610) (15,109)
Proceeds from sales 25,149 8,173 10,602
Mortgage-backed securities
Purchases (24,868) (7,608) (11,667)
Proceeds from sales 2,268 16,790 9,749
Principal collected 9,944 3,799 5,625
Sale (purchase) of FHLB stock 60 (355) (261)
Principal collected on loans 76,374 37,167 34,270
Loans originated, net (67,819) (53,194) (53,796)
Purchases of premises and equipment (353) (229) (65)
Net sales (purchases) of other real estate (25) 20 (8)
Net cash used in investing activities (2,544) (1,047) (20,570)
</TABLE>
(Continued on page 15)
(Page 14)
Eagle BancGroup, Inc. and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows - Continued
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities
Increase in savings accounts, demand
deposits and NOW accounts, net $ 4,923 $ 1,801 $ 1,520
Increase (decrease) in certificate
accounts, net (2,288) (4,337) (5,927)
Proceeds from FHLB advances 14,000 29,750 36,311
Principal payments on FHLB advances (7,000) (27,050) (21,011)
Purchase of MDRP shares - (840) -
Purchase of treasury stock (1,762) (2,055) -
Dividends paid (108) - -
Proceeds from the sale of capital stock - - 11,186
Net cash (used in) provided by
financing activities 7,765 (2,731) 22,079
(Decrease) increase in cash and
cash equivalents 3,723 (2,046) 3,160
Cash and cash equivalents:
Beginning of year 5,014 7,060 3,900
End of year $ 8,737 $ 5,014 $ 7,060
-Page 106-
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits $ 6,978 $ 7,074 $ 7,425
Interest on borrowed funds 1,206 1,053 184
Income taxes 714 210 -
</TABLE>
See Notes to Consolidated Financial Statements.
(Page 15)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
Organization
Eagle BancGroup, Inc. ("Eagle") was formed in January, 1996 and purchased
all of the stock of First Federal Savings and Loan Association
("First Federal") with the proceeds of a subscription stock offering
completed in June, 1996. Simultaneous to the stock offering, First
Federal converted from a federally-chartered mutual savings association
to a federally-chartered capital stock savings association. Prior to
June, 1996, Eagle had no assets or liabilities.
Eagle issued 1,302,705 shares of common stock following the subscription
stock offering. Net proceeds to Eagle were $11,186,000 of which $6,200,000
was paid to First Federal in exchange for all of the common stock of First
Federal. Expenses related to the offering totaled $799,000 and $1,042,000
was loaned to First Federal to create an Employee Stock Ownership Plan.
The significant accounting and reporting policies for Eagle
BancGroup, Inc. and its subsidiary follow:
Principles of Presentation
The consolidated financial statements include the accounts of Eagle, its
wholly-owned subsidiary, First Federal and First Federal's wholly-owned
subsidiary, FFS Investment Services, Inc. (collectively "the Company").
Eagle is a unitary savings and loan holding company engaged in the business
of managing its investments and directing, planning and coordinating the
business activities of First Federal. First Federal operates as a
traditional thrift institution in McLean and surrounding counties of
Central Illinois. FFS Investment Services, Inc. sells investment products,
including annuities. All material intercompany accounts and transactions have
been eliminated in consolidation.
The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and conform to
predominant practice within the banking industry.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), which was issued in June 1997. SFAS
130 establishes new rules for the reporting and display of comprehensive
income and its components, but has no effect on the Company's net income or
total stockholders' equity. SFAS 130 requires unrealized gains and losses on
the Company's available-for-sale securities, which prior to adoption were
-Page 107-
reported separately in stockholder's equity, to be included in comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards 131, 'Disclosures about Segments of an Enterprise and
Related Information,' (SFAS 131). SFAS 131 requires a publicly held entity to
disclose financial and other descriptive information about all of its
reportable segments. The Statement requires disclosure of net income or loss,
certain specific revenue and expense items, and assets for each segment
presented and disclosure of a reconciliation of this information with the
corresponding amounts recognized in the financial statements of the entity.
This statement also requires disclosure of other pertinent segment
information, including the products and services provided by its operating
segments and the method by which the operating segments were determined.
Based on the Company's approach to decision making, it has decided that its
business is comprised of a single segment and that SFAS 131 therefore has no
impact on it consolidated financial statements.
(Page 16)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Use of Estimates
In preparing the consolidated financial statements, the Company's management
is required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements and accompanying
notes. Significant estimates which are particularly susceptible to change
in a short period of time include the determination of the allowance for
loan losses and valuation of real estate and other properties acquired in
connection with foreclosures or in satisfaction of amounts due from
borrowers on loans and fair value of investments and mortgage-backed
securities. Actual results could differ significantly from those
estimates.
Cash Equivalents
Cash equivalents include federal funds sold and overnight deposits.
Generally, federal funds are sold for one-day periods.
Investment Securities
Securities classified as available-for-sale are those securities that the
Company intends to hold for an indefinite period of time, but not necessarily
to maturity, and marketable equity securities. Any decision to sell a
security classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Company's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors. Securities available-for-
sale are carried at fair value. Accrued interest receivable on the related
securities is included in the amortized cost balance to agree with amounts
reported to the Company's regulatory authority. The difference between fair
value and cost, adjusted for amortization of premium and accretion of
discounts, results in an unrealized gain or loss. Unrealized gains or losses
are reported as accumulated comprehensive income net of the related deferred
tax effect in the statement of stockholders' equity. Gains or losses on the
-Page 108-
sale of securities are determined on the basis of the specific security sold
and are included in earnings. Premiums and discounts are recognized in
interest income using the interest method over their contractual lives.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is carried at cost and the amount of stock
First Federal is required to own is determined by regulation.
Loans
First Federal has a mortgage lien on all property on which mortgage,
participation or purchased loans are made. Loans secured by deposits are
secured by equal or greater deposit account balances. In general, First
Federal originates residential mortgage loans for sale in the secondary
market. Other loans are held for long-term investment unless designated
as held for sale at the time of origination. Loans designated as held for
sale are carried at the lower of cost or market value with changes in the
valuation allowance reflected in income. All loans are sold without recourse.
Interest income on loans is computed monthly based upon the principal amount
of the loans outstanding. A valuation allowance is established for
uncollected interest on loans on which any payments are more than ninety days
past due.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount is amortized as an adjustment to yield
over the contractual life of the related loans.
First Federal originates qualifying mortgage loans for sale in the secondary
market. The majority of these loans are sold with servicing released.
(Page 17)
Eagle BancGroup, Inc.
Notes to Consolidated Financial Statements
Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. The allowance for loan losses related to troubled
loans identified for evaluation in accordance with Statement of Financial
Accounting Standards No. 114 (SFAS 114) is based on estimated discounted cash
flows using the loan's initial effective interest rate or the fair value of
the collateral for certain collateral dependent loans. Consumer loans and
one-to-four family residential loans are collectively evaluated for impairment
as homogeneous loan groups which are outside the scope of SFAS 114. Under
SFAS 118, no interest income on loans determined to be impaired is accrued.
Interest income on such loans is recognized only upon cash receipt. SFAS 114
and SFAS 118 have not had a significant impact on results of operations
in 1998, 1997 or 1996.
The allowance for loan losses is maintained at a level management believes to
be adequate to absorb estimated future losses inherent in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio including consideration of past loan experience,
current economic conditions, volume, growth and composition of the loan
-Page 109-
portfolio, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic conditions. In
addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require First Federal to make additions to
the allowance for loan losses based on their judgments of collectibility based
on information available to them at the time of their examination.
Premises and Equipment
Premises and equipment is stated at cost less accumulated depreciation.
Provisions for depreciation of premises and equipment are computed using
straight-line and accelerated methods over the estimated useful lives of the
related assets.
Deferred Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are
also recognized for operating loss and tax credit carryforwards. Valuation
allowances are established when necessary to reduce deferred tax assets to an
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Earnings Per Share
Basic earnings per share is computed by dividing net income for the year by
the weighted average number of shares outstanding of 1,066,003, 1,146,538 and
1,302,705 for 1998, 1997 and 1996, respectively.
Diluted earnings per share is determined by dividing net income for the year
by the weighted average number of shares of common stock and dilutive
potential common shares outstanding. Dilutive potential common shares assume
exercise of stock instruments and use of proceeds to purchase treasury stock
at the average market price for the period. The weighted average shares of
common stock and dilutive potential common shares 1,088,654, 1,152,169 and
1,302,705 for 1998, 1997 and 1996, respectively.
(Page 18)
Eagle BancGroup, Inc and Subsidiary
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
required to be adopted for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Statement will require the bank to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income.
-Page 110-
Management does not anticipate that the adoption of the new Statement will
have a significant effect on the Bank's financial statement.
Note 2. Investments
<TABLE>
Investment securities and mortgage-backed securities available
for sale are summarized below:
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Investment securities:
U.S. Treasury and agencies $ 8,141 $ 18 $ 6 $ 8,153
Other securities 3,222 2 49 3,175
Total investment securities 11,363 20 55 11,328
Mortgage-backed securities:
Collateralized mortgage
obligations 7,563 1 32 7,532
Other mortgage-backed
securities 29,864 11 163 29,712
Total mortgage-backed
Securities 37,427 12 195 37,244
Total $48,790 $ 32 $ 250 $48,572
December 31, 1997
Investment securities:
U.S. Treasury and agencies $12,642 $ 13 $ 20 $12,635
Other securities 395 7 - 402
Total investment securities 13,037 20 20 13,037
Mortgage-backed securities:
Collateralized mortgage
obligations 12,467 - 152 12,315
Other mortgage-backed
securities 12,296 32 47 12,281
Total mortgage-backed
Securities 24,763 32 199 24,596
Total $37,800 $ 52 $ 219 $37,633
</TABLE>
(Page 19)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
The amortized cost and fair value of investment and mortgage-backed
securities at December 31, 1998, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because mortgage-
backed securities may be called or prepaid without penalty and therefore they
are not included in the maturity categories in the following summary. Equity
securities are not included in the maturity categories in the following
maturity summary, since they do not have maturity dates.
-Page 111-
<CAPTION>
Available for Sale
Amortized Fair
Cost Value
(Dollars in thousands)
<S> <C> <C>
Due within one year $ 4,626 $ 4,630
Due after one year through five years - -
Due after five through ten years 6,498 6,506
Due after ten years - -
Mortgage-backed securities 37,427 37,244
Equity securities 239 192
Total $48,790 $48,572
</TABLE>
<TABLE>
Realized gains and losses related to sales of investments were
as follows:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Realized gains $ 61 $102 $ 49
Realized losses (12) (56) (34)
Net gain $ 49 $ 46 $ 15
</TABLE>
Investments with a carrying value of approximately $5,049,000 and $6,450,000
as of December 31, 1998 and 1997, respectively, were pledged to secure public
deposits and for other purposes as required or permitted by law.
(Page 20)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 3. Loans
<TABLE>
Loans consist of the following :
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Residential mortgage loans $ 66,922 $ 85,326
Commercial real estate loans 10,729 6,791
Consumer loans 28,824 29,236
Commercial installment loans 7,792 1,588
Accrued interest receivable 638 631
Gross loans 114,905 123,572
Less:
Deferred loan fees 109 114
Allowance for loan losses 1,015 935
Undisbursed portion of loan proceeds 931 871
Loans, net $112,850 $121,652
</TABLE>
Advances from the Federal Home Loan Bank of Chicago are secured by a floating
lien on First Federal's one-to-four family residential mortgage loans.
-Page 112-
The Company's opinion as to the ultimate collectibility of these loans is
subject to estimates regarding the future cash flows from operations and the
value of the property, real and personal, pledged as collateral. These
estimates are affected by changing economic conditions and the economic
prospects of the borrowers.
The amount of loans serviced by the Company for the benefit of others is not
included in the accompanying consolidated financial statements. Loans serviced
at December 31, 1998 and 1997 totaled approximately $41,979,000 and
$38,370,000, respectively.
<TABLE>
Changes in the allowance for loan losses were as follows:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 935 $ 923 $ 907
Provision for losses 240 240 183
Charge-offs (170) (239) (178)
Recoveries 10 11 11
Balance, December 31 $1,015 $ 935 $ 923
</TABLE>
(Page 21)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
In the normal course of business, loans are made to directors, executive
officers and principal stockholders of the Company and of parties which the
Company or its directors, executive officers, and stockholders have the
ability to significantly influence its management or operating policies
(related parties). The terms of these loans, including interest rates and
collateral, are similar to those prevailing comparable transactions with other
customers and do not involve more than a normal risk of collectibilty.
<TABLE>
Activity associated with loans (in thousands) made to related parties during
1998 was as follows:
<S> <C>
Balance, January 1 $1,004
New loans 712
Repayments (862)
Balance, December 31 $ 854
</TABLE>
Note 4. Premises and Equipment
<TABLE>
Premises and equipment are summarized as follows:
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Land $ 721 $ 775
Buildings 3,048 2,935
Furniture and equipment 2,558 2,326
6,327 6,036
Less allowance for depreciation 3,508 3,202
$2,819 $2,834
</TABLE>
-Page 113-
Note 5. Deposits
<TABLE>
Deposits are summarized as follows:
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Passbook accounts $ 15,756 $ 15,130
NOW accounts 15,866 11,569
Certificate accounts 90,193 96,614
Time deposits over $100,000 12,254 8,121
134,069 131,434
Accrued interest payable 22 18
$134,091 $131,452
</TABLE>
<TABLE>
As of December 31, 1997, certificates of deposit have scheduled maturity
dates as follows (in thousands):
<CAPTION>
Year of Maturity Amount
<S> <C>
1999 $ 64,793
2000 24,660
2001 6,188
2002 4,204
2003 and thereafter 2,602
$102,447
</TABLE>
(Page 22)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 6. Federal Home Loan Bank Borrowings
Federal Home Loan Bank of Chicago (FHLB) provides advances with various terms
and conditions. Open line, variable rate advances are generally held for
short terms. Fixed amount advances can have fixed or variable rates with
short- or long-term maturities and allow prepayments under certain conditions.
At December 31, 1998, all FHLB advances were fixed amounts.
<TABLE>
Future payments at December 31, 1998 for all FHLB advances were as follows
(in thousands):
<CAPTION>
Year of Maturity Amount
<S> <C>
1999 $ -
2000 -
2001 -
2002 11,000
2003 -
Thereafter 14,000
$25,000
</TABLE>
-Page 114-
<TABLE>
A summary of FHLB advances follows:
<CAPTION>
Year Ended December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Balance on December 31 $25,000 $18,000
Highest month-end balance 27,000 21,050
Average balance during the year 22,917 17,905
Average rate during the year 5.37% 5.89%
Average rate at year-end 5.05% 5.74%
</TABLE>
Note 7. Income Taxes
Under provisions of the Internal Revenue Code and similar sections of the
Illinois income tax law for years beginning before January 1, 1996,
qualifying thrifts could claim bad debt deductions based on the greater of
(1) a specified percentage of taxable income, as defined, or (2) actual loss
experience.
The Small Business Job Protection Act became law on August 20, 1996. One of
the provisions in this law repealed the reserve method of accounting for bad
debts for thrift institutions so that the bad debt deduction described in the
preceding paragraph will no longer be effective for tax years beginning after
December 31, 1995. The change in the law requires that the tax bad debt
reserves accumulated after September 30, 1988 be recaptured into taxable
income over a six-year period. The Company has no deferred tax liability
related to this change.
(Page 23)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The Company qualified under provisions for the Internal Revenue Code which
permitted it to deduct from taxable income a provision for bad debts which
differs from the provision for such losses charged to income. Accordingly,
retained earnings at December 31, 1998 includes approximately $3,565,000 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
loan losses, federal income taxes may be imposed at the then applicable rates.
<TABLE>
The federal income tax expense (benefit) consists of the following:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Current $ 550 $ 378 $(254)
Deferred (36) (114) (4)
$ 514 $ 264 $(258)
</TABLE>
<TABLE>
A reconciliation of the statutory federal income tax rate to the
effective income tax rate follows:
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Statutory rates 35% 35% 35%
Other 1 (1) -
36% 34% 35%
</TABLE>
-Page 115-
<TABLE>
The components of the deferred tax asset (liability) are as follows:
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan and real estate losses $ 345 $ 318
State net operating loss carryforwards 290 345
Unrealized loss on securities available for sale 75 57
Deferred compensation 110 114
MDRP accrual 42 50
Other 35 54
Total deferred tax assets 897 938
Valuation allowance for deferred tax assets 154 225
Total deferred tax assets, net of valuation allowance 743 713
Deferred tax liabilities:
Premises and equipment (228) (250)
Other (90) (75)
Total deferred tax liabilities (318) (325)
Net deferred tax assets $ 425 $ 388
</TABLE>
(Page 24)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 8. Stockholders' Equity
Eagle has authorized the issuance of 100,000 shares of preferred stock with a
par value of $.01 per share. Preferred stock may be issued by the Board of
Directors from time to time on terms set by the Board without further
authorization from the stockholders.
First Federal is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on First Federal's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
First Federal must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. First Federal's capital
amounts and classifications 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 First Federal to maintain minimum amounts and ratios (set forth in the
table below) of Tangible and Core Capital (as defined by the regulations) to
Tangible Assets (as defined) and Total and Tier I capital (as defined) to
Risk-Weighted Assets (as defined). Management believes, as of December 31,
1998, that First Federal meets all capital adequacy requirements to which it
is subject.
As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized First Federal as well capitalized under the
-Page 116-
regulatory framework for prompt corrective action under FDICIA. To be
categorized as well capitalized, First Federal must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that notification
that management believes would change First Federal's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Tangible Capital to
Tangible Assets $17,135 9.59% $ 2,681 1.50% N/A N/A
Core Capital to
Tangible Assets $17,135 9.59% $ 7,150 4.00% $ 8,938 5.00%
Tier I Capital to
Risk Weighted Assets $17,135 15.15% N/A N/A $ 6,787 6.00%
Total Capital to
Risk Weighted Assets $18,150 16.04% $ 9,050 8.00% $11,312 10.00%
As of December 31, 1997:
Tangible Capital to
Tangible Assets $16,845 9.99% $ 2,530 1.50% N/A N/A
Core Capital to
Tangible Assets $16,845 9.99% $ 6,747 4.00% $ 8,434 5.00%
Tier I Capital to
Risk Weighted Assets $16,845 15.44% N/A N/A $ 6,545 6.00%
Total Capital to
Risk Weighted Assets $17,780 16.30% $ 8,726 8.00% $10,908 10.00%
</TABLE>
(Page 25)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
First Federal established a liquidation account at the time of conversion from
a mutual savings association to a capital stock savings association. The
account balance was equal to the amount of First Federal's net worth on June
29, 1996. The account will be maintained for the benefit of eligible deposit
account holders who continue to maintain deposit accounts following the
conversion. In the unlikely event of a complete liquidation, each eligible
deposit account holder will be entitled to receive a liquidation distribution
of any assets remaining after payment of all valid creditor's claims,
including the claims of all depositors to the withdrawal values of their
deposit accounts, but before any liquidation distribution may be made with
respect to Eagle's common stock. Eligible deposit account holders have a
subaccount in the liquidation account for each deposit account as of March 31,
1996. The liquidation account balance will gradually decrease as eligible
deposit account holders subaccount balances are reduced or cease to exist.
Dividends cannot be paid from the liquidation account
The Board of Directors may declare dividends to be paid on Eagle's common
stock. Such payments may depend on dividends paid by First Federal to Eagle.
The amount First Federal can pay in dividends is limited by Office of Thrift
-Page 117-
Supervision rules that generally allow for capital distributions in any
calendar year equal to the higher of net income for the calendar year to date
plus an amount that would reduce by one-half the surplus capital ratio at the
beginning of the calendar year or 75% of the net income over the previous four
quarters. As of January 1, 1999, First Federal's allowable capital
distribution amount was approximately $5,900,000.
Note 9. Employee and Director Benefit Plans
Pension Plan - First Federal has a defined benefit pension plan that was
frozen on March 31, 1996 as a result of the creation of the Employee Stock
Ownership Plan. Benefits, which were based on years of service and
compensation, ceased to accrue January 1, 1996. Annual contributions are made
to the plan as required by actuarial calculation and as allowed as a deduction
for federal income tax purposes. Contributions are intended to provide for
benefits attributed to service through December 31, 1995. Management
terminated the plan as of March 31, 1998. Subject to the IRS and Department
of Labor approvals, final distribution to plan participants will be made in
1999.
During the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 132, 'Employer's Disclosures about
Pensions and Other Postretirement Benefits - an amendment of SFAS 87, 88 and
106' (SFAS 132). SFAS 132 revises employer's disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis and eliminates certain
disclosures. Prior period disclosures have been restated.
(Page 26)
Eagle BancGroup Inc.
Notes to Consolidated Financial Statements
<TABLE>
Change in Benefit Obligation:
<CAPTION>
Year Ended December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Assumptions at beginning of year:
Discount rate 7.50% 7.50%
Average rate of compensation increase - -
Assumptions at end of year:
Discount rate 6.75% 7.50%
Average rate of compensation increase - -
Benefit obligation at beginning of year:
Service cost $ 631 $ 562
Interest cost - 19
Actuarial (gain)/loss including effect of
change in assumptions 23 32
Benefits paid (4) (25)
Benefit obligation at end of year 693 631
</TABLE>
-Page 118-
<TABLE>
Change in Plan Assets:
<CAPTION>
Year Ended December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Fair value of plan assets at beginning of year $ 543 $ 473
Actual return on plan assets (net of expenses) 41 43
Employer contributions 125 52
Benefits paid (4) (25)
Fair value of plan assets at end of year $ 705 $ 543
</TABLE>
<TABLE>
Information on Funded Status and Amounts Recognized
<CAPTION>
Year Ended December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Discount rate 6.75% 7.50%
Average rate of compensation increases - -
Accumulated benefit obligation $ 693 $ 613
Projected benefit obligation 693 631
Fair value of assets 705 543
Funded status 12 (87)
Unrecognized net actuarial (gain)/loss 116 86
Unrecognized prior service cost 2 3
Unrecognized transition (asset)/obligation (17) (18)
Net amount recognized $ 113 $ (16)
</TABLE>
(page 27)
Eagle BancGroup, Inc. and Subsidiary
Note to Consolidated Financial Statements
<TABLE>
Components of Net Periodic Benefit Cost:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 7.50%
Average rate of compensation increases - - -
Expected rate on assets 7.50% 7.50% 7.50%
Service cost $ - $ 19 $ 19
Interest cost 43 43 42
Expected return on plan assetrs (48) (37) (35)
Net amortization and deferral amounts:
Unrecognized transition obligation/(asset) (1) (1) (1)
Prior service cost 1 1 1
Amortization of (gains)/losses - 4 7
Total 0 4 7
Net periodic pension expense $ (5) $ 29 $ 33
</TABLE>
401(k) Plan - First Federal maintains a 401(k) plan that allows eligible
employees to establish a tax-favored savings plan. Matching contributions
were made by First Federal up to a maximum of $1,000 per employee annually
to all eligible employees on the last day of 1998, 1997 and 1996. Future
contributions may be made by First Federal at the discretion of the Board of
-Page 119-
Directors. Eligible employees fully vest in their share of employer
contributions after six years of qualified service. Matching expense for
1998, 1997 and 1996 totaled $29,000, $26,000 and $22,000, respectively.
Employee Stock Ownership Plan (ESOP) - In conjunction with Eagle's
subscription stock offering, an ESOP was created and 104,216 shares of Eagle's
stock were purchased for future allocation to employees. The purchase was
funded with a loan from Eagle. Shares will be allocated to all eligible
employees annually on the last day of the fiscal year based on a pro rata
share of total compensation for the year. Benefits vest in full upon
completion of six years of qualified service. Compensation expense for the
ESOP was $198,000, $200,000 and $104,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
<TABLE>
The following table reflects the shares held by the ESOP:
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Shares allocated to participants 31,266 20,844
Unallocated shares 72,950 83,372
Total 104,216 104,216
Fair value of unallocated shares $1,477,238 $1,573,646
</TABLE>
First Federal will make minimum contributions to the ESOP sufficient to meet
annual principal and interest obligations on the loan from Eagle.
Contributions in excess of this amount may be made at First Federal's
discretion. Cash dividends received with respect to unallocated shares, if
any, will be applied to principal and interest due on the loan.
(Page 28)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Management Development and Recognition Plan - The Management Development and
Recognition Plan (MDRP) was approved with an effective date of February 11,
1997. The MDRP purchased, with funds provided by the Company, 52,106 shares
in the open market during February, 1997. Directors and officers become
vested in the shares of common stock awarded to them under the MDRP at a rate
of 20 percent per year, commencing one year after the grant date, and 20
percent on each anniversary date thereof for the following four years. As of
December 31, 1998, 46,892 shares have been awarded to officers and directors.
MDRP compensation expense was $192,000 and $123,000 for the years ended
December 31, 1998 and 1997, respectively. First Federal accounts for its MDRP
in accordance with Accounting Principle Board Statement 25 (APB No. 25).
Compensation expense is recognized over the vesting period for shares awarded
under the plan.
Stock Option Plans - At a special stockholder's meeting on February 11, 1997,
the 1996 Stock Option Plan ("SOP") was approved. The Board has reserved an
amount of stock equal to 130,270 shares, or 10 percent of the common stock
sold in the conversion for issuance under the SOP. The options will be
granted by a Committee, comprised of directors, to key employees and directors
based on their services. The exercise price of options granted must be at
least equal to the fair market value of the common stock on the date the
-Page 120-
option is granted. The options granted under the plan become exercisable at a
rate of 20 percent per year commencing one year after the grant date and 20
percent on each anniversary date for the following four years. As of December
31, 1998, 117,243 options had been granted.
The SOP promotes stock ownership by directors and selected officers and
employees of Eagle and First Federal by granting stock options to
participants. Options granted will vest and become exercisable over a five
year period. Options granted are not expected to result in any compensation
and employee benefits expense for the Company either at the time of the grant
or at the time of exercise of the option.
<TABLE>
A summary of the status of the Company's stock option plan as of
December 31, 1998 and the changes during the year is as follows:
<CAPTION>
1998 1997
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 110,729 $15.48 - $ -
Granted 6,514 20.88 110,729 15.48
Exercised - - - -
Outstanding at end of year 117,243 $15.78 110,729 $15.48
Exercisable at end of year 22,146 -
Weighted-average fair value per option
of options granted during the year $ 8.03 $ 4.57
</TABLE>
(Page 29)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
The following table presents certain information with respect to stock options
granted:
<CAPTION>
Options Outstanding and Exercisable
Weighted-
Average Weighted-
Remaining Average
Number Contractual Exercise
Exercise Prices Outstanding Life Price
<S> <C> <C> <C>
$15.125 84,679 8.12 $15.125
$16.625 26,050 8.66 16.625
$20.875 6,514 9.22 20.875
</TABLE>
Grants under the above plan are accounted for following APB No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized for
grants under this plan. Had compensation cost for stock-based compensation
been determined based on the grant date fair values of awards (the method
described in SFAS 123), reported net income and earnings per common share
would have been reduced to the pro forma amounts shown below. There is no
difference for 1997 since no options were vested as of December 31, 1997.
-Page 121-
<TABLE>
<CAPTION>
1998
<S> <C>
Net income
As reported $ 906
Pro forma 856
Basic earnings per common share
As reported $0.85
Pro forma 0.80
Diluted earnings per common share
As reported $0.83
Pro forma 0.79
</TABLE>
The Black-Scholes option pricing model was used in estimating the fair value
of traded options which have no vesting restrictions. In addition, the model
requires the use of subjective assumptions, included expected stock price
volatility. In management's opinion, this valuation model may not necessarily
provide the best single measure of option value.
<TABLE>
The fair value of the stock
options granted has been estimated using the Black-Scholes option pricing
model with the following weighted average assumptions:
<CAPTION>
1998 1997
<S> <C> <C>
Number of options granted 6,514 110,729
Risk-free interest rate 4.65% 5.69%
Expected life, in years 10 10
Expected volatility 32.6% 16.6%
Expected dividend yield 2.0% 2.0%
Estimated fair value per option $8.03 $4.57
</TABLE>
(Page 30)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 10. Fair Value of Financial Instruments
Following are disclosures of the estimated fair value of the Company's
financial instruments. The estimated fair value amounts have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for cash and short-term investments approximate their
fair values.
Investment securities, mortgage-backed securities and FHLB stock: Fair
values for investment securities and mortgage-backed securities are
based on quoted market prices, where available. If quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments. Fair value of FHLB stock is estimated to equal
cost. The carrying amount of accrued interest receivable
approximates fair value.
-Page 122-
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for all other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits: The fair value disclosed for demand deposits, including
interest-bearing and noninterest bearing accounts, passbook savings and
certain types of money market accounts are, by definition, equal to the
amount payable on demand at the reporting date (i.e. their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits. The carrying amount of
accrued interest payable approximates fair value.
FHLB Advances: The fair value of the Company's borrowed funds are
estimated using discounted cash flow analysis based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
Off-balance-sheet instruments: Fair values of off-balance-sheet
instruments (loan commitments) are based on quoted rates and fees
currently charged to enter into similar agreements, taking into account
the counterparties' credit standing. The terms of loan commitments
outstanding at December 31, 1998 are comparable to terms available for
new commitments at that date.
(Page 31)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Instruments
<TABLE>
The estimated fair values of the Company's financial instruments
are as follows:
<CAPTION>
December 31,
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash on hand and in other
institutions $ 1,084 $ 1,084 $ 1,628 $ 1,628
Federal funds sold and
overnight deposits 7,653 7,653 3,386 3,386
Investment securities,
mortgage-backed securities
and FHLB stock 49,822 49,822 38,943 38,943
Loans, net 116,551 117,863 122,409 123,141
Liabilities:
Deposits $134,091 $135,072 $131,452 $131,744
Borrowed funds 25,000 24,938 18,000 17,811
</TABLE>
-Page 123-
Note 11. SAIF Recapitalization
The Economic Growth and Regulation Paperwork Reduction Act of 1996 (the "Act")
was signed into law on September 30, 1996. The Act included a provision to
bring the Savings Association Insurance Fund ("SAIF") reserve ratio to the
statutory minimum of 1.25% of insured deposits through a one-time special
assessment on SAIF members. In November, 1996, savings institutions paid an
assessment of $0.657 per $100 of deposits as of March 31, 1995. First
Federal's special assessment amounted to $875,000. Net of tax, 1996 earnings
were reduced $600,000. In 1997, deposit insurance premium rates were lower
than in previous years as only the amount necessary to maintain the statutory
minimum SAIF reserve ratio was paid.
Note 12. Commitments and Contingencies
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal actions, which are not reflected in the
consolidated financial statements. In the opinion of management, the ultimate
resolution of these matters is not expected to have a material effect on the
consolidated financial statements.
First Federal is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit, and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest rate risk. The contract or
notional amounts of those instruments reflect the extent of involvement First
Federal has in particular classes of financial instruments. First Federal's
exposure to credit loss, in the event of nonperformance by the other party to
the financial instruments for commitments to extend credit and standby letters
of credit, is represented by the contractual notional amount of those
instruments. First Federal uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
(page 32)
First Federal had outstanding commitments to originate new loans totaling
approximately $479,000 and $567,000 at December 31, 1998 and 1997,
respectively. In addition, First Federal committed to approximately
$8,826,000 and $2,841,000 of lines of credit, which were undrawn at December
31, 1998 and 1997, respectively. Such commitments are recorded in the
financial statements when they are funded or related fees are incurred or
received. These commitments are principally at variable interest rates.
The Company and First Federal do not engage in the use of interest rate
swaps, futures, forwards, or option contracts.
Note 13. Quarterly Financial Data (Unaudited)
<TABLE>
Summarized quarterly financial data for 1998 and 1997 follows:
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands except per share data)
<S> <C> <C> <C> <C>
1998
Operating summary:
Interest income $ 3,093 $ 3,104 $ 3,067 $ 3,198
Interest expense 2,057 2,052 2,045 2,054
Net interest income 1,036 1,052 1,022 1,144
Provision for loan losses 60 60 60 60
-Page 124-
Net interest income after
provision for loan losses 976 992 962 1,084
Non-interest income 319 333 396 664
Non-interest expense 984 1,000 1,048 1,274
(Loss) income before income tax 311 325 310 474
Income tax (benefit) expense 110 123 200 171
Net (loss) income $ 201 $ 202 $ 200 $ 303
Per share data:
Basic earnings per share $ 0.18 $ 0.19 $ 0.19 $ 0.29
Diluted earnings per share 0.18 0.18 0.19 0.28
Dividends paid 0.00 0.00 0.00 0.10
Book value 17.56 17.82 18.17 18.24
Selected balance sheet averages:
Assets $177,718 $177,867 $175,122 $180,591
Investment securities 49,225 54,180 52,416 51,527
Loans 122,423 118,059 117,380 123,145
Interest bearing deposits 131,517 132,028 133,237 134,596
Borrowed funds 23,623 22,967 20,000 24,782
Stockholders' equity 20,508 20,834 20,387 19,945
</TABLE>
(page 33)
Eagle BancGroup,Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands except per share data)
<S> <C> <C> <C> <C>
1997
Operating summary:
Interest income $ 2,974 $ 3,140 $ 3,134 $ 3,078
Interest expense 1,963 2,040 2,085 2,033
Net interest income 1,011 1,100 1,049 1,045
Provision for loan losses 60 60 60 60
Net interest income after
provision for loan losses 951 1,040 989 985
Non-interest income 99 161 156 160
Non-interest expense 859 944 988 977
Income before income tax 191 257 157 168
Income tax expense 65 87 53 59
Net income $ 126 $ 170 $ 104 $ 109
Per share data:
Basic earnings per share $ 0.10 $ 0.15 $ 0.09 $ 0.10
Diluted earnings per share 0.10 0.15 0.09 0.10
Book value 16.28 16.69 17.03 17.24
Selected balance sheet averages:
Assets $170,518 $172,839 $173,427 $172,748
Investment securities 54,066 49,938 46,773 42,107
Loans 109,913 117,431 121,948 122,684
Interest bearing deposits 132,474 131,221 131,660 130,711
Borrowed funds 13,897 18,406 21,220 18,015
Stockholders' equity 21,513 20,584 20,438 20,301
</TABLE>
(Page 34)
-Page 125-
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 14. Parent Company Information
<TABLE>
Consolidated financial information for Eagle BancGroup, Inc.
(parent company only) follows:
<CAPTION>
December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Condensed statements of condition
Assets:
Cash on deposit with bank subsidiary $ 607 $ 89
Investment securities available for sale
at fair value, cost, $738 in 1998;
$2,630 in 1997 690 2,649
Investment in subsidiary 17,024 16,722
Loans, net 2,214 -
First Federal ESOP loan 730 834
Real estate owned 667 -
Other assets 72 22
Total assets $22,004 $20,316
Liabilities and stockholders' equity:
Liabilities $ 2,307 $ 11
Stockholders' equity 19,697 20,305
Total liabilities and stockholders' equity $22,004 $20,316
</TABLE>
<TABLE>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Condensed statements of income
Interest income on loans $ 51 $ - $ -
Interest income on investments 111 204 154
Interest income on ESOP loan 69 77 43
Total interest income 231 281 197
Non-interest income 10 5 9
Non-interest expense 122 146 15
Total non-interest expense (112) (141) (6)
Income before income tax expense 119 140 191
Income tax expense 41 47 65
Income before equity in undistributed
net income (loss) of subsidiary 78 93 126
Equity in undistributed net income
(loss) of subsidiary 828 416 (615)
Net income (loss) $ 906 $ 509 $(489)
</TABLE>
(Page 35)
Eagle BancGroup, Inc. and Subsidiary
Notes to Consolidated Financial Statements
<TABLE>
Year Ended December 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
Condensed statements of cash flows
Operating activities:
Net income (loss) $ 906 $ 509 $ (489)
-Page 126-
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of investment premiums
and discounts, net (1) (2) -
Gains on securities sold, net (10) (5) -
Undistributed (earnings) loss of
Subsidiary (828) (416) 615
Release of ESOP shares 94 96 -
Allocation of MDRP shares 192 123 -
Decrease (increase) in interest receivable 15 34 (105)
(Decrease) in other assets (65) (33) -
(Decrease) increase in other liabilities 2,346 (7) 61
Net cash provided by operating activities 2,649 299 82
Investing activities:
Purchases of available for sale securities (638) (2,133) (6,030)
Proceeds from sale of available for sale
securities 2,510 3,536 2,036
Loan originations and purchases (2,225) - -
Principal collected on loans 11 - -
Loan to ESOP for stock purchase - - (1,042)
Loan repayment 104 208 -
Purchase of real estate held for investment (25) - -
Net cash provided by (used in)
investing activities (263) 1,611 (5,036)
Financing activities:
Purchase MDRP stock - (840) -
Purchase of treasury stock (1,762) (2,055) -
Proceeds from sale of common stock - - 12,228
Purchase of First Federal common stock - - (6,200)
Dividends paid (108) - -
Net cash (used in) provided by
financing activities (1,870) (2,895) 6,028
(Decrease) increase in cash and
cash equivalents 516 (985) 1,074
Cash and cash equivalents:
Beginning of year 89 1,074 -
End of year $ 605 $ 89 $1,074
</TABLE>
(Page 36)
Eagle BancGroup, Inc. and Subsidiary
Other Corporate Information
Directors - Senior Officers- Annual Meeting
Eagle BancGroup, Inc. First Federal Savings The annual meeting of
Gerald A. Bradley Donald L. Fernandes stockholders of Eagle Banc-
Chairman of the Board Chairman and Chief Group, Inc. will be held at
Owner, Bloomington Tent Executive Officer 10:00am (CDT) on Wednesday,
and Awning Company April 21, 1999 at The Best
Bloomington, Illinois David R. Wampler Western Eastland Suites
President Conference Center,
Bloomington, Il.
-Page 127-
Robert P. Dole
Retired President, Gary Richardson
National Union Vice President-Lending Form 10-K Report
Electric Corporation Single copies of Eagle
Normal, Illinois Larry C. McClellan BancGroup, Inc.'s 1998
Vice President- Annual Report on Form 10-K,
Louis F. Ulbrich Operations as filed with the
Attorney-at-law, Retired Securities and Exchange
Bloomington, Illinois Donald L. Lambert Commission, are available
Vice President- at no charge. Contact
William J. Hanfland Retail Banking Services Marilyn Lockwood, Asst.
Assistant Treasurer, Secretary,
Illinois Agricultural James E. Lyons Eagle BancGroup, Inc.
Association Vice President-Finance 301 Fairway Drive
Bloomington, Illinois Bloomington, IL 61701
Corporate Headquarters or phone (309)663-6345.
Steven J. Wannemacher Eagle BancGroup, Inc.
Executive Vice President 301 Fairway Drive Common Stock -
Heritage Enterprises,Inc. P.O. Box 429 Market Information
Bloomington, Illinois Bloomington, IL 61701 The Company's common stock
Telephone (309)663-6345 trades on The Nasdaq Stock
Donald L. Fernandes Facsimile (309)663-8763 Market under the symbol
President and EGLB. At December 31, 1998,
Chief Executive Officer, Corporate Attorneys there were 1,080,108 shares
Eagle BancGroup, Inc. Schiff Hardin & Waite of the Company's common
7200 Sears Tower stock issued and outstand-
David R. Wampler Chicago, Illinois 60606 ing and there were approxi-
Vice President mately 400 holders of rec-
Eagle BancGroup, Inc. Independent Auditors ord and beneficial holders.
Bloomington, Illinois McGladrey & Pullen, LLP The high and low sales
401 Main Street price of the Company's
Officers- Peoria, Illinois 61602 common stock for the four
Eagle BancGroup, Inc. quarters ended March 31,
Donald L. Fernandes Transfer Agent and June 30, September 30 and
President and Registrar December 31, 1998, as pro-
Chief Executive Officer Registrar and Transfer by Masdaq, are as follows:
Company Quarter Ended High Low
David R. Wampler 10 Commerce Drive Mar 31, 1998 21.125 19.250
Vice President Cranford, New Jersey Jun 30, 1998 21.125 19.125
07016 Sep 30, 1998 19.250 14.000
Louis F. Ulbrich (908)497-2300 Dec 30, 1998 21.000 13.000
Secretary The Company declared its
First dividend in December
1998. For information re-
garding restrictions on di-
vidend payments, see Note 8
of the Notes to Consolidat-
(page 37) ed Financial Statements.
Exhibit 21.1
Subsidiaries of the Registrant
Wholly-owned subsidiary of the Registrant:
First Federal Savings and Loan Association,
a federally-chartered savings association originally chartered in 1919
-Page 128-
Wholly owned subsidiary of First Federal Savings and Loan Association:
FFS Investments, Inc.,
Incorporated in Illinois in 1994
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-307355) pertaining to the First Federal Savings 401(k) Plan
of our report dated January 29, 1999, with respect to the consolidated
statements of condition of Eagle BancGroup, Inc. and Subsidiary as of December
31, 1998 and 1997 and its statements of income, stockholders' equity and cash
flows for the year then ended which are incorporated by reference in the
1998 Annual Report on Form 10-K of Eagle BancGroup, Inc.
/s/ McGladrey & Pullen, LLP
Peoria, Illinois
March 26, 1999
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-45763) pertaining to the 1996 Stock Option and Incentive
Plan and the Registration Statement (Form S-8 No. 333-45761) pertaining to the
Management Development and Recognition Plan and Trust Agreement of Eagle
BancGroup, Inc. (the 'Company') of our report dated January 17, 1997, with
respect to the consolidated financial statements of the Company included in
the Annual Report on Form 10-K for the year ended December 31, 1998, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 26, 1999
Exhibit 99.1
Report of Independent Auditors
Board of Directors
Eagle BancGroup, Inc.
We have audited the consolidated statement of condition of Eagle
BancGroup, Inc. and its subsidiaries as of December 31, 1996, not included
herein, and the related consolidated statements of income, and cash flows
and changes in stockholders' equity for year then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
-Page 129-
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Eagle BancGroup,
Inc. and subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for the year
then ended, in conformity with generally accepted
accounting principles.
/S/ Ernst & Young LLP
Indianapolis, Indiana
January 17, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,084
<INT-BEARING-DEPOSITS> 4,453
<FED-FUNDS-SOLD> 3,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,822
<INVESTMENTS-CARRYING> 49,822
<INVESTMENTS-MARKET> 49,822
<LOANS> 117,566
<ALLOWANCE> (1,105)
<TOTAL-ASSETS> 180,101
<DEPOSITS> 134,091
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,313
<LONG-TERM> 25,000
0
0
<COMMON> 13
<OTHER-SE> 19,684
<TOTAL-LIABILITIES-AND-EQUITY> 180,101
<INTEREST-LOAN> 2,489
<INTEREST-INVEST> 578
<INTEREST-OTHER> 131
<INTEREST-TOTAL> 3,198
<INTEREST-DEPOSIT> 1,734
<INTEREST-EXPENSE> 2,054
<INTEREST-INCOME-NET> 1,144
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 1,274
<INCOME-PRETAX> 474
<INCOME-PRE-EXTRAORDINARY> 474
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
<YIELD-ACTUAL> 2.60
<LOANS-NON> 397
<LOANS-PAST> 0
<LOANS-TROUBLED> 424
<LOANS-PROBLEM> 16
<ALLOWANCE-OPEN> 1,007
<CHARGE-OFFS> 53
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,015
<ALLOWANCE-DOMESTIC> 1,015
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
