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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12305
------------------------
FIRSTFED AMERICA BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3331237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
ONE FIRSTFED PARK, SWANSEA, MASSACHUSETTS 02777
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 679-8181
(Former name, former address and former fiscal year, if changed since last
report)
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 [X] No [ ]
As of September 30, 1998, there were 7,858,204 shares of the Registrant's
Common Stock outstanding.
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FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and March 31, 1998.............................. 2
Consolidated Statements of Operations for the three months
and six months ended September 30, 1998 (unaudited) and 1997
(unaudited)................................................. 3
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended September 30, 1998 (unaudited)..... 4
Consolidated Statements of Cash Flows for the six months
ended September 30, 1998 (unaudited) and 1997 (unaudited)... 5
Notes to Unaudited Consolidated Financial Statements........ 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 7
Quantitative and Qualitative Disclosures about Market
Item 3. Risk........................................................ 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Default Upon Senior Securities.............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
SIGNATURES........................................................... 19
</TABLE>
1
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FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash on hand and due from banks............................. $ 16,128 $ 32,021
Short-term investments...................................... 17,870 --
Mortgage loans held for sale................................ 38,381 84,867
Investment in trading securities (amortized cost of $100)... 100 --
Investment securities available for sale (amortized cost of
$9,660 and $5,816)........................................ 9,967 7,712
Mortgage-backed securities available for sale (amortized
cost of $310,636
and $214,225)............................................. 312,324 215,143
Investment securities held to maturity (fair value of
$13,124 and $22,585)...................................... 12,995 22,491
Mortgage-backed securities held to maturity (fair value of
$9,521 and $12,688)....................................... 9,336 12,495
Stock in Federal Home Loan Bank of Boston, at cost.......... 24,857 17,945
Loans receivable, net of allowance for loan losses of
$11,435 and $10,937....................................... 807,468 848,552
Accrued interest receivable................................. 6,306 5,992
Mortgage servicing rights................................... 5,041 3,230
Office properties and equipment, net........................ 25,165 24,877
Real estate owned, net...................................... 383 595
Deferred income tax asset, net.............................. 3,586 3,278
Prepaid expenses and other assets........................... 2,823 2,634
---------- ----------
Total assets...................................... $1,292,730 $1,281,832
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................................................. $ 666,682 $ 708,488
FHLB advances and other borrowings........................ 489,373 403,865
Advance payments by borrowers for taxes and insurance..... 5,017 6,224
Accrued interest payable.................................. 2,785 2,613
Accrued income taxes...................................... -- 929
Other liabilities......................................... 17,679 32,727
---------- ----------
Total liabilities................................. 1,181,536 1,154,846
---------- ----------
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued................................ -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 8,707,152 shares issued and outstanding.... 87 87
Additional paid-in capital................................ 85,241 85,016
Retained earnings......................................... 53,366 50,422
Accumulated other comprehensive income.................... 1,104 1,616
Unearned 1997 stock-based incentive plan.................. (5,869) (4,734)
Unallocated ESOP shares................................... (5,421) (5,421)
Treasury stock............................................ (17,314) --
---------- ----------
Total stockholders' equity........................ 111,194 126,986
---------- ----------
Total liabilities and stockholders' equity........ $1,292,730 $1,281,832
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans..................................... $ 16,522 $ 17,003 $ 33,600 $ 33,322
Investment securities..................... 534 476 1,089 1,005
Mortgage-backed securities................ 4,245 1,028 7,535 2,028
Federal Home Loan Bank stock.............. 370 156 669 311
---------- ---------- ---------- ----------
Total interest and dividend
income.......................... 21,671 18,663 42,893 36,666
---------- ---------- ---------- ----------
Interest expense:
Deposit accounts.......................... 7,248 8,434 14,728 17,009
Borrowed funds............................ 7,155 2,720 13,085 4,746
---------- ---------- ---------- ----------
Total interest expense............ 14,403 11,154 27,813 21,755
---------- ---------- ---------- ----------
Net interest income before loan
loss provision.................. 7,268 7,509 15,080 14,911
Provision for loan losses................... 300 750 600 1,750
---------- ---------- ---------- ----------
Net interest income after loan
loss provision.................. 6,968 6,759 14,480 13,161
---------- ---------- ---------- ----------
Non-interest income:
Loan servicing income..................... 344 645 865 1,296
Gain on sale of mortgage loans, net....... 569 362 1,022 475
Gain on sale of investments, net.......... 8 30 8 30
Service charges on deposit accounts....... 230 182 486 390
Other income.............................. 166 359 676 689
---------- ---------- ---------- ----------
Total non-interest income......... 1,317 1,578 3,057 2,880
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits................. 3,440 3,318 7,343 5,997
Office occupancy and equipment............ 986 584 2,003 1,187
Advertising and business promotion........ 162 178 461 462
Data processing........................... 229 182 422 358
Federal deposit insurance................. 166 118 330 230
Other expense............................. 866 798 1,828 1,693
---------- ---------- ---------- ----------
Total non-interest expense........ 5,849 5,178 12,387 9,927
---------- ---------- ---------- ----------
Income before income tax
expense......................... 2,436 3,159 5,150 6,114
Income tax expense.......................... 773 1,377 1,793 2,685
---------- ---------- ---------- ----------
Net income........................ $ 1,663 $ 1,782 $ 3,357 $ 3,429
========== ========== ========== ==========
Basic earnings per share.................... $ 0.23 $ 0.22 $ 0.45 $ 0.42
========== ========== ========== ==========
Diluted earnings per share.................. $ 0.23 $ 0.22 $ 0.45 $ 0.42
========== ========== ========== ==========
Weighted average shares outstanding --
basic..................................... 7,166,794 8,129,282 7,403,204 8,119,628
========== ========== ========== ==========
Weighted average shares outstanding --
diluted................................... 7,166,794 8,129,282 7,421,726 8,119,628
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UNALLOCATED
1997
STOCK-
ACCUMULATED BASED
ADDITIONAL OTHER UNALLOCATED INCENTIVE TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE ESOP PLAN (SIP) TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME SHARES SHARES STOCK EQUITY
------ ---------- -------- ------------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1998.................... $87 85,016 50,422 1,616 (5,421) (4,734) -- $126,986
Net Income................ -- -- 3,357 -- -- -- -- 3,357
Change in net unrealized
gain on investments
available for sale,
net..................... -- -- -- (512)-- -- -- -- (512)
--- ------ ------ ----- ------ ------ ------- --------
Total
comprehensive
income.......... -- -- -- -- -- -- -- 2,845
Cash dividends declared
($.05/sh)............... -- -- (413) -- -- -- -- (413)
Common stock acquired for
SIP..................... -- -- -- -- -- (2,502) -- (2,502)
Payment- SIP stock
awards.................. -- (150) -- -- -- 1,367 -- 1,217
Earned ESOP shares charged
to expense.............. -- 375 -- -- -- -- -- 375
Common stock acquired
under repurchase program
-- (848,948
shares/$19.98 average
price).................. -- -- -- -- -- -- (16,965) (16,965)
Common stock acquired for
SERP -- (17,748
shares/$19.71 average
price).................. -- -- -- -- -- -- (349) (349)
--- ------ ------ ----- ------ ------ ------- --------
Balance at September 30,
1998.................... $87 85,241 53,366 1,104 (5,421) (5,869) (17,314) $111,194
=== ====== ====== ===== ====== ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 3,357 $ 3,429
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization (accretion) of:
Premium (discount) on investment and mortgage-backed
securities held to maturity.......................... 1 (4)
Premium on investment and mortgage-backed securities
available for sale................................... 309 14
Deferred loan origination fees........................ (50) 226
Mortgage servicing rights............................. 769 230
Provisions for:
Loan losses........................................... 600 1,750
Deferred income taxes................................. 10 590
(Gains) on sales of:
Investment securities available for sale.............. (8) (30)
Real estate owned..................................... (52) (29)
Mortgage loans........................................ (1,022) (475)
Net proceeds from sales of mortgage loans............... 317,684 108,962
Origination of mortgage loans held for sale............. (272,756) (103,918)
Real estate owned valuation write-downs................. -- 138
Depreciation of office properties and equipment......... 1,077 644
Appreciation in fair value of ESOP shares............... 375 271
Increase or decrease in:
Accrued interest receivable........................... (314) (596)
Income tax receivable................................. -- 263
Prepaid expenses and other assets..................... (189) (49)
Accrued interest payable.............................. 172 208
Accrued income taxes and other liabilities............ (15,977) (1,709)
--------- ---------
Net cash provided by operating activities........... 33,986 9,915
--------- ---------
Cash flows from investing activities:
Purchase of trading securities............................ $ (100) $ --
Purchase of investment securities available for sale...... (3,845) (1,473)
Sale of investment securities available for sale.......... -- 141
Purchase of mortgage-backed securities
available-for-sale...................................... (146,142) (15,190)
Sale of mortgage-backed securities available-for-sale..... 3,897 --
Payments received on mortgage-backed securities available
for sale................................................ 45,524 2,739
Purchases of investment securities held to maturity....... (120,788) (9,987)
Maturities of investment securities held to maturity...... 130,288 6,000
Payments received on mortgage-backed securities held to
maturity................................................ 3,154 1,133
Purchase of Federal Home Loan Bank stock.................. (6,912) --
Net decrease (increase) in loans.......................... 40,472 (77,289)
Proceeds from sales of real estate owned.................. 325 613
Purchases of office properties and equipment.............. (1,365) (7,238)
--------- ---------
Net cash used in investing activities............... (55,492) (100,551)
--------- ---------
Cash flows from financing activities:
Net decrease in deposits.................................. $ (41,806) $ (16,282)
Proceeds from FHLB advances and other borrowings.......... 685,094 290,065
Repayments on FHLB advances and other borrowings.......... (599,586) (219,594)
Net change in advance payments by borrowers for taxes and
insurance............................................... (1,207) (647)
Cash dividends paid....................................... (413) --
Payments to acquire stock-based incentive plan shares..... (2,502) --
Earned SIP shares......................................... 1,217 --
Payments to acquire common stock for treasury stock....... (17,314) --
--------- ---------
Net cash provided by financing activities........... $ 23,483 $ 53,542
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,977 (37,094)
Cash and cash equivalents at beginning of period............ 32,021 53,540
--------- ---------
Cash and cash equivalents at end of period.................. $ 33,998 $ 16,446
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 27,641 $ 21,547
========= =========
Income taxes............................................ $ 3,028 $ 1,322
========= =========
Supplemental disclosures of noncash investing activities:
Property acquired in settlement of loans................ $ 61 $ 737
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of FIRSTFED AMERICA BANCORP, INC. (the "Company"), and its wholly-owned
subsidiaries, First Federal Savings Bank of America (the "Bank") and FAB FUNDING
CORPORATION ("FAB FUNDING"). First Federal Savings Bank of America includes its
wholly-owned subsidiaries, FIRSTFED MORTGAGE CORPORATION, FIRSTFED INVESTMENT
CORPORATION, PREMIO INVESTMENT CORPORATION, and CELMAC INVESTMENT CORPORATION.
The interim consolidated financial statements reflect all normal and
recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the periods presented. The results of operations for the three
months and six months ended September 30, 1998 are not necessarily indicative of
the results of operations that may be expected for all of fiscal year 1999.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report to Stockholders on Form 10-K for the
fiscal year ended March 31, 1998.
NOTE 2. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in June, 1997, which established standards for
reporting information about operating segments. An operating segment is defined
as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is effective for 1999 annual financial statements.
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in June, 1998, which provides for matching the timing of
gain or loss recognition on the hedging instrument with the recognition of: a)
the changes in fair value of the hedged asset or liability that are attributable
to the hedged risk; or b) the earnings effect of the hedged forecasted
transaction. The statement is effective after June 15, 1999.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND MARCH 31, 1998
GENERAL
Total assets at September 30, 1998 were $1.293 billion, an increase of
$10.9 million, or 0.9%, compared to $1.282 billion at March 31, 1998. Asset
growth was primarily attributable to growth in mortgage-backed securities
available for sale which increased from $215.1 million at March 31, 1998 to
$312.3 million at September 31, 1998, an increase of $97.2 million or 45.2%, as
well as growth in short-term investments, which increased $17.9 million to $17.9
million at September 30, 1998. Partially offsetting this growth was a $87.6
million decline in loans receivable, net and mortgage loans held for sale which
decreased to $845.8 million at September 30, 1998 from $933.4 million at March
31, 1998.
Total liabilities increased $26.7 million, or 2.3%, to $1.182 billion at
September 30, 1998 as compared to $1.155 billion at March 31, 1998. Of this
increase, Federal Home Loan Bank advances and other borrowings increased $85.5
million, or 21.1%, to $489.4 million at September 30, 1998 from $403.9 million
at March 31, 1998, while total deposits at September 30, 1998 decreased $41.8
million to $666.7 million, or 5.9%, from $708.5 million at March 31, 1998, and
other liabilities decreased $15.0 million to $17.7 million on September 30, 1998
from $32.7 million on March 31, 1998.
Stockholders' equity at September 30, 1998 was $111.2 million compared to
$127.0 million at March 31, 1998. This $15.8 million decrease was primarily the
net effect of a $17.3 million reduction in equity due to the repurchase of
Company stock, the completion of the purchase of the 1997 Stock-based Incentive
Plan shares, and a $2.9 million increase in retained earnings from year-to-date
net income less dividends. The reduction in equity, coupled with balance sheet
growth, caused a 1.31% decline in the stockholders' equity to total assets
ratio, from 9.91% at March 31, 1998 to 8.60% at September 30, 1998.
LIQUIDITY AND CAPITAL
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, FHLB advances, investment
maturities, and proceeds from the sale of loans. While scheduled amortization of
loans and investment maturities are predictable sources of funds, deposit flows,
mortgage prepayments, and interest rate payments on adjustable-rate mortgage
loans and securities are influenced by general interest rates, economic
conditions and competition. The Company has other sources of liquidity if a need
for additional funds arises, including a $25 million overnight FHLB line of
credit and approximately $ 195 million of additional borrowing capacity at the
Federal Home Loan Bank and at securities dealers. The Bank has maintained liquid
assets in excess of the required minimum levels as defined by the Office of
Thrift Supervision (OTS) regulations. This requirement, which may be varied at
the direction of the OTS depending upon economic conditions and deposit flows,
is based upon a percentage of the Bank's deposits and short-term borrowings. The
Bank's required liquidity ratio is currently 4%. The Bank's actual liquidity
ratio was 22.7% and 11.70% at September 30, 1998 and March 31, 1998,
respectively.
The Company's most liquid assets are cash, short-term investments, mortgage
loans held for sale, investment in trading securities, investments available for
sale, and mortgage-backed securities available for sale. These asset levels are
dependent on the Company's operating, financing, lending, and investing
activities during any given period. At September 30, 1998, the Company's cash,
short-term investments, mortgage loans held for sale, investment in trading
securities, investment securities available for sale, and mortgage-backed
securities available for sale totaled $394.8 million or 30.5% of the Company's
total assets. Additional investments were available which qualified for the
Bank's regulatory liquidity requirements.
The Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances and dealer repurchase agreements. At September
30, 1998, the Bank had $489.4 million in advances and other borrowings
outstanding from the FHLB and securities dealers. The Company generally
maintains a competitive deposit rate strategy in its market and sources of funds
such as FHLB advances and repurchase agreements may be used for wholesale growth
as well as to supplement cash flow needs.
7
<PAGE> 9
At September 30, 1998, the Company had commitments to originate portfolio
loans and unused outstanding lines of credit totaling $125.6 million. The
Company anticipates that it will have sufficient funds available to meet its
current loan origination commitments. Certificate accounts which are scheduled
to mature in less than one year from September 30, 1998, totaled $344.2 million.
At September 30, 1998, the consolidated stockholders' equity to total
assets ratio was 8.60%. At September 30, 1998, the Bank exceeded all of its
regulatory capital requirements. The Bank's tangible capital of $103.2 million,
or 8.03%, of total adjusted assets, was above the required level of $25.7
million, or 2.0%; core capital of $103.2 million, or 8.03% of total adjusted
assets, was above the required level of $51.4 million, or 4.0%; risk-based
capital of $111.2 million, or 18.4% of risk-weighted assets, was above the
required level of $48.4 million or 8.0%, and Tier 1 risk-based capital of $103.2
million, or 17.0% of risk-weighted assets, was above the required level of $24.2
million, or 4.0%. The Bank is considered a "well capitalized" institution under
the OTS prompt corrective action regulations.
YEAR 2000 COMPLIANCE
Included in other non-interest expenses are charges incurred in connection
with the modification or replacement of software or hardware in order for the
Company's computer, communications, and other related non-technology systems to
properly recognize dates beyond December 31, 1999. The Company has completed its
assessment of Year 2000 issues, developed a plan, and arranged for the required
resources to complete the necessary remediation and testing efforts.
The Company will utilize both internal and external resources to reprogram,
or replace and test software and hardware (including non-technology systems) for
Year 2000 modifications. The Company is on schedule to complete changes and
testing for mission critical systems by March 31, 1999; a date prior to any
impact on its operating systems. Testing of non-critical applications will
continue throughout 1999 and will be completed prior to any impact on operating
systems.
The Company has had formal communications with all of its mission critical
vendors and service providers to determine the extent to which the Company is
vulnerable to any failure of those third parties to remedy their own Year 2000
issues, and has received written assurances of readiness. The Company's total
Year 2000 project costs and estimates to complete the project include the
estimated costs and time associated with the impact of third party Year 2000
issues, based on information currently available. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be remedied in a timely manner or that there will be no adverse effect
on the Company's systems. Therefore, to the extent that other entities not
affiliated with the Company are unsuccessful in properly addressing this issue,
the Company could possibly be negatively impacted. The Company is finalizing its
contingency plan to deal with unforeseen systemic failure beyond the Company's
control and/or a failure in the aforementioned remediation efforts. In addition,
the Company has performed a risk assessment of significant existing customers to
determine their exposure to Year 2000 related issues and on the customer's
ability to perform in accordance with contractual agreements. Management has
determined the Company's exposure to this risk is low. Furthermore, a Year 2000
risk assessment is performed on all new significant borrowers.
The total cost of the Year 2000 project is estimated at $300,000 to
$500,000. A significant portion of the costs associated with the Year 2000
project are not expected to be incremental to the Company, but rather represent
a reprioritization of existing internal systems technology resources. During the
three months and six months ended September 30, 1998, the Company incurred
$13,000 and $15,000, respectively, of Year 2000 related expenses. Since the Year
2000 Compliance project's inception, the Company has incurred total costs of
$65,000. In preparation for the Year 2000 Compliance project, the Company
underwent a February, 1998 conversion to a new processing system for all loan
and deposit applications at a cost of approximately $700,000.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based upon management's best estimates,
which are derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences
8
<PAGE> 10
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
ASSET QUALITY
At September 30, 1998, non-accrual loans totaled $3.1 million and REO
totaled $383,000. The Company ceases to accrue interest on loans 90 days or more
past due and charges off all accrued interest. Foregone interest on non-accrual
loans for the six months ended September 30, 1998 was $41,000. The following
table sets forth information regarding non-accrual loans and real estate owned
("REO").
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
1998 1998
---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family.................................. $ 956 $1,073
Multi-family......................................... 100 101
Commercial real estate............................... 1,554 1,199
Construction and land................................ 117 169
------ ------
Total mortgage loans.............................. 2,727 2,542
------ ------
Commercial loans....................................... 20 74
------ ------
Consumer loans:
Home equity lines.................................... 368 425
Second mortgages..................................... -- --
Other consumer loans................................. 27 7
------ ------
Total consumer loans.............................. 395 432
------ ------
Total nonaccrual loans............................ 3,142 3,048
------ ------
Real estate owned, net(1).............................. 383 595
------ ------
Total non-performing assets....................... $3,525 $3,643
====== ======
Allowance for loan losses as a percent percent of
loans(2).................................................. 1.40% 1.27%
Allowance for loan losses as percent of non-performing
loans(3).................................................. 363.94% 358.83%
Non-performing loans as a percent of loans(2)(3)............ 0.38% 0.35%
Non-performing assets as a percent of total assets(4)....... 0.27% 0.28%
</TABLE>
- ---------------
(1) REO balances are shown net of related valuation allowances.
(2) Loans includes loans receivable, net, excluding allowance for loan losses.
(3) Non-performing loans consist of all loans 90 days or more past due and other
loans which have been identified by the Company as presenting uncertainty
with respect to the collectibility of interest or principal.
(4) Non-performing assets consist of non-performing loans and REO.
CAUTIONARY STATEMENT
The preceding and following discussion in this Quarterly Report on Form
10-Q may contain certain forward-looking statements which are based on
management's current expectations regarding economic, legislative, and
regulatory issues that may impact the Company's earnings in future periods.
Factors that could cause future results to vary materially from current
management expectations include, but are not limited to: general economic
conditions, changes in interest rates, deposit flows, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations,
pricing, products and services. In particular, these issues may impact
management's estimates used in evaluating market risk and interest rate risk in
its GAP and NPV tables, loan loss provisions, classification of assets, Year
2000 issues, accounting estimates and other estimates used throughout this
discussion. Further description of the risks and uncertainties to the business
are included in detail in the "Business of the Company" section of the Company's
10-K.
9
<PAGE> 11
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is a function of both the relative amounts of interest earning
assets and interest-bearing liabilities, and the interest rates earned or paid
on them.
The following table sets forth certain information relating to the Company
for the three months ended September 30, 1998 and 1997. The average yields and
costs are derived by dividing income or expense by the average balance of
interest earning assets or interest bearing liabilities, respectively, for the
periods shown. Average balances are derived from average month-end balances.
Management does not believe that the use of average monthly balances instead of
average daily balances causes any material differences in the information
presented. The yields and the costs include fees, premiums and discounts which
are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and
mortgage loans held for
sale..................... $ 871,522 16,522 7.52% $ 882,676 17,003 7.64%
Investment securities...... 58,767 904 6.10% 39,147 632 6.41%
Mortgage-backed
securities............... 305,205 4,245 5.52% 60,485 1,028 6.74%
---------- ------ ---- ---------- ------ ----
Total interest-earning
assets.............. 1,235,494 21,671 6.96% 982,308 18,663 7.54%
------ ---- ------ ----
Non-interest earning assets... 66,555 48,171
---------- ----------
Total assets.......... 1,302,049 1,030,479
========== ==========
Liabilities and Retained
Earnings:
Interest-bearing liabilities:
Deposits................... 625,267 7,248 4.60% 675,078 8,434 4.96%
FHLB advances and other
borrow................... 482,246 7,155 5.89% 170,015 2,720 6.35%
---------- ------ ---- ---------- ------ ----
Total interest-bearing
liabilities......... 1,107,513 14,403 5.16% 845,093 11,154 5.24%
------ ---- ------ ----
Non-interest bearing
liabilities................ 82,870 60,019
---------- ----------
Total liabilities..... 1,190,383 905,112
---------- ----------
Retained earnings............. 111,666 125,367
---------- ----------
Total liabilities and
retained earnings... $1,302,049 $1,030,479
========== ==========
Net interest rate spread........ 7,268 1.80% 7,509 2.30%
====== ==== ====== ====
Net interest margin............. 2.33% 3.03%
==== ====
Ratio of interest-earning assets
to interest-bearing
liabilities................... 111.56% 116.24%
========== ==========
</TABLE>
10
<PAGE> 12
GENERAL
Net income was $1.7 million for the three months ended September 30, 1998,
compared to $1.8 million for the three months ended September 30, 1997. The
$119,000 decrease in net income for the three months ended September 30, 1998
was the result of a $671,000 increase in non-interest expense, a $261,000
decrease in non-interest income, and a $241,000 decrease in net interest income
before loan loss provision, all of which were partially offset by a $450,000
decrease in provision for loan losses and a $604,000 decrease in income tax
expense.
INTEREST INCOME
Interest and dividend income for the three months ended September 30, 1998
was $21.7 million, compared to $18.7 million for the three months ended
September 30, 1997, an increase of $3.0 million, or 16.1%. The increase in
interest and dividend income is primarily attributable to a $253.2 million
increase in average interest-earning assets which increased to $1.235 billion
for the three months ended September 30, 1998 from $982.3 million for the three
months ended September 30, 1997. The increase in average interest-earning assets
was mainly due to an increase in mortgage-backed securities available for sale
which were primarily funded by FHLB advances. The increase in average
interest-earning assets was accompanied by a 58 basis point decrease in the
average yield from 7.54% for the three months ended September 30, 1997 to 6.96%
for the three months ended September 30, 1998. This decline was primarily the
result of the addition of low initial coupon adjustable-rate mortgage-backed
securities and of lower yields on the Company's loan and mortgage-backed
securities portfolio due to lower market rates.
Interest income on loans receivable, net and mortgage loans held for sale
for the three months ended September 30, 1998 decreased by $481,000, or 2.8%, to
$16.5 million from $17.0 million for the same three months in 1997. This
decrease was attributable to a decrease of $11.2 million in the average loan
balance and a 12 basis point decrease in yield on loans receivable and mortgage
loans held for sale.
Interest and dividend income from investment securities was $904,000 for
the three months ended September 30, 1998, compared to $632,000 for the
comparable three months in 1997. The average yield on investment securities
decreased by 31 basis points during the three months ended September 30, 1998
versus the three months ended September 30, 1997, primarily due to increased
equity investments at the holding company and short-term investments in
commercial paper. Investment securities increased by $19.6 million to an average
of $58.8 million during the three months ending September 30, 1998 from $39.1
million during the three months ended September 30, 1997.
Interest on mortgage-backed securities for the three months ended September
30, 1998 increased by $3.2 million to $4.2 million, compared to $1.0 million for
the same three months in 1997. This increase in income is attributable to a
$244.7 million increase in the average mortgage-backed securities balance,
partially offset by a 122 basis point decrease in the average yield, from 6.74%
to 5.52%, during the three months ended September 30, 1998 versus the three
months ended September 30, 1997. This reduction in yield was the result of the
addition of low initial coupon adjustable rate mortgage-backed securities, and
of lower market rates of return for all mortgage-backed securities.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1998 was $14.4
million, compared to $11.2 million for the three months ended September 30,
1997, an increase of $3.2 million, or 29.1%. The increase in interest expense
during this time period was the net effect of an increase in average
interest-bearing liabilities and a decrease in their associated cost. Average
interest-bearing liabilities increased $262.4 million, or 31.1%, to $1.108
billion for the three months ended September 30, 1998, from $845.1 million for
the three months ended September 30, 1997, while the average cost of funds fell
8 basis points to 5.16% from 5.24% Of this amount, average deposits declined
$49.8 million, or 7.4%, from $675.1 during the three months ended September 30,
1997 to $625.3 million during the three months ended September 30, 1998. During
this time period the cost of deposits fell 36 basis points due to a decline in
the general level of interest rates and to the Company's less aggressive deposit
pricing strategy.
11
<PAGE> 13
Average Federal Home Loan Bank advances and other borrowings grew 184% to
$482.2 million during the three months ended September 30, 1998 versus $170.0
million during the same period in 1997. Because of a decline in market interest
rates, the cost of Federal Home Loan Bank advances and other borrowings fell 46
basis points during this time period, from 6.35% to 5.89%, even though the
Company actively extended liability maturities to reduce overall interest-rate
risk through longer-term advances.
NET INTEREST INCOME
Net interest income before provision for loan losses decreased $241,000, or
3.2%, to $7.3 million for the three months ended September 30, 1998 from $7.5
million for the three months ended September 30, 1997. Net interest income
decreased during this time period primarily because of the Company's stock
repurchase activity which removed $13.7 million of average stockholder's equity
from the funding mix. The Company's net interest margin decreased to 2.33% for
the three months ended September 30, 1998 from 3.03% for the three months ended
September 30, 1997.
PROVISION FOR LOAN LOSSES
For the three months ended September 30, 1998, the Company's provision for
loan losses was $300,000 compared to $750,000 for the same prior year period.
The quarterly provision was reduced based on management's current assessment of
the Bank's loan portfolio, trends in the credit quality of the loan portfolio,
and market conditions. The allowance for loan losses as a percentage of loans at
September 30, 1998 was 1.40% as compared to 1.27% at March 31, 1998, and was
363.94% and 358.83% of non-performing loans at the same time periods,
respectively.
NON-INTEREST INCOME
Non-interest income decreased to $1.3 million for the three months ended
September 30, 1998 compared to $1.6 million for the three months ended September
30, 1997, a decrease of $261,000, or 16.5%. During this time period, loan
servicing income decreased $301,000 to $344,000 from $645,000 for the three
months ended September 30, 1997. This difference was primarily attributable to a
$225,000 increase in the valuation allowance for mortgage servicing rights,
which was based on increased actual and projected mortgage refinance activity. A
$193,000 decrease in other income was caused by a decrease in the fair value of
investments held by certain employee benefit plans and was partially offset in
the non-interest income total by a $207,000 increase in the gain on sale of
mortgage loans, the result of increased loan origination volume and more
favorable secondary mortgage market conditions.
NON-INTEREST EXPENSE
Total non-interest expense increased $671,000 to $5.8 million for the three
months ended September 30, 1998 compared to $5.2 million for the comparable
three months in 1997. This increase was primarily caused by a $402,000 increase
in office occupancy and equipment expense to $986,000 and a $122,000 increase in
compensation and benefits to $3.4 million. The increase in office occupancy and
equipment was due to expenses related to the Company's new administrative and
operations facility in Swansea, Massachusetts and the renovation of two other
banking offices and the cost of equipment and software related to a major
computer system conversion. The increased compensation and benefits expense was
primarily due to increased staffing at the Bank and due to the recognition of
1997 Stock-based Incentive Plan expenses.
INCOME TAXES
Income tax expense was $773,000 for the three months ended September 30,
1998 compared to $1.4 million for the three months ended September 30, 1997, a
decrease of $604,000. This decrease was the result of the Company's recently
enacted tax management strategies. The effective income tax rates for the three
months ended September 30, 1998 and September 30, 1997 were 31.7% and 43.6%,
respectively, and is expected to stabilize at approximately 37% in coming
quarters.
12
<PAGE> 14
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1997
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is a function of both the relative amounts of interest earning
assets and interest-bearing liabilities, and the interest rates earned or paid
on them.
The following table sets forth certain information relating to the Company
for the six months ended September 30, 1998 and 1997. The average yields and
costs are derived by dividing income or expense by the average balance of
interest earning assets or interest bearing liabilities, respectively, for the
periods shown. Average balances are derived from average month-end balances.
Management does not believe that the use of average monthly balances instead of
average daily balances causes any material differences in the information
presented. The yields and the costs include fees, premiums and discounts which
are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and
Mortgage loans held for
sale....................... $ 890,057 33,600 7.53% $ 866,837 33,322 7.67%
Investment securities........ 59,728 1,758 5.87% 43,324 1,316 6.06%
Mortgage-backed securities... 266,814 7,535 5.63% 58,970 2,028 6.86%
---------- ------ ---- ---------- ------ ----
Total interest-earning
assets................ 1,216,599 42,893 7.03% 969,131 36,666 7.55%
------ ---- ------ ----
Non-interest earning assets..... 67,287 45,969
---------- ----------
Total assets............ 1,283,886 1,015,100
========== ==========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Deposits..................... 633,433 14,728 4.64% 679,241 17,009 4.99%
FHLB advances and other
borrow..................... 447,201 13,085 5.84% 150,052 4,746 6.31%
---------- ------ ---- ---------- ------ ----
Total interest-bearing
liabilities........... 1,080,634 27,813 5.13% 829,293 21,755 5.23%
------ ---- ------ ----
Non-interest bearing
liabilities.................. 86,679 61,518
---------- ----------
Total liabilities....... 1,167,313 890,811
---------- ----------
Retained earnings............... 116,573 124,289
---------- ----------
Total liabilities and
retained earnings..... $1,283,886 $1,015,100
========== ==========
Net interest rate spread.......... 15,080 1.90% 14,911 2.32%
====== ==== ====== ====
Net interest margin............... 2.47% 3.07%
==== ====
Ratio of interest-earning assets
to interest-bearing
liabilities..................... 112.58% 116.86%
========== ==========
</TABLE>
13
<PAGE> 15
GENERAL
Net income was unchanged at $3.4 million for the six months ended September
30, 1998 compared to the six months ended September 30, 1997. While the net
income figure itself was unchanged, several of its major components changed. A
$2.5 million increase in non-interest expense was offset by the combination of
$892,000 and $1.2 million decreases in income tax expense and provision for loan
losses, respectively, and $177,000 and $169,000 increases in non-interest income
and net interest income before loan loss provision, respectively.
INTEREST INCOME
Interest and dividend income for the six months ended September 30, 1998
was $42.9 million, compared to $36.7 million for the six months ended September
30, 1997, an increase of $6.2 million, or 17.0%. The increase in interest and
dividend income is primarily attributable to a $247.5 million increase in
average interest-earning assets which increased to $1.217 billion for the six
months ended September 30, 1998 from $969.1 million for the six months ended
September 30, 1997. The increase in average interest-earning assets was mainly
due to an increase in mortgage-backed securities available for sale which were
primarily funded by FHLB advances. The increase in average interest-earning
assets was accompanied by a 52 basis point decrease in the average yield from
7.55% for the six months ended September 30, 1997 to 7.03% for the six months
ended September 30, 1998. This decline was primarily the result of the addition
of low initial coupon adjustable-rate mortgage-backed securities and of lower
yields on the Company's loan and mortgage-backed securities portfolio due to
lower market rates.
Interest income on loans receivable, net and mortgage loans held for sale
for the six months ended September 30, 1998 increased by $278,000, or 0.8%, to
$33.6 million from $33.3 million for the same six months in 1997. This increase
was attributable to increased balances of mortgage loans held for sale during
the first half of the six months ended September 30, 1998.
Interest and dividend income from investment securities was $1.8 million
for the six months ended September 30, 1998, compared to $1.3 million for the
comparable six months in 1997. The average yield on investment securities
decreased by 19 basis points during the six months ended September 30, 1998
versus the six months ended September 30, 1997, primarily due to increased
equity investments at the holding company and short-term investments in
commercial paper. Investment securities increased by $16.4 million to an average
of $59.7 million during the six months ending September 30, 1998 from $43.3
million during the six months ended September 30, 1997.
Interest on mortgage-backed securities for the six months ended September
30, 1998 increased by $5.5 million to $7.5 million, compared to $2.0 million for
the same six months in 1997. This increase in income is attributable to a $207.8
million increase in the average mortgage-backed securities balance, partially
offset by a 123 basis point decrease in the average yield, from 6.86% to 5.63%,
during the six months ended September 30, 1998 versus the six months ended
September 30, 1997. This reduction in yield was the result of the addition of
low initial coupon adjustable rate mortgage-backed securities, and of lower
market rates of return for all mortgage-backed securities.
INTEREST EXPENSE
Interest expense for the six months ended September 30, 1998 was $27.8
million, compared to $21.8 million for the six months ended September 30, 1997,
an increase of $6.0 million, or 27.9%. The increase in interest expense during
this time period was the net effect of an increase in average interest-bearing
liabilities and a decrease in their associated cost. Average interest-bearing
liabilities increased $251.3 million, or 30.3%, to $1.081 billion for the six
months ended September 30, 1998, from $829.3 million for the six months ended
September 30, 1997, while the average cost of funds fell 10 basis points to
5.13% from 5.23%. Of this amount, average deposits declined $45.8 million, or
6.7%, from $679.2 during the six months ended September 30, 1997 to $633.4
million during the six months ended September 30, 1998. During this time period
the cost of deposits fell 35 basis points due to a decline in the general level
of interest rates and to the Company's less aggressive deposit pricing strategy.
14
<PAGE> 16
Average Federal Home Loan Bank advances and other borrowings grew 198% to
$447.2 million during the six months ended September 30, 1998 versus $150.1
million during the same period in 1997. Because of a decline in market interest
rates, the cost of Federal Home Loan Bank advances and other borrowings fell 47
basis points during this time period, from 6.31% to 5.84%, even though the
Company actively extended liability maturities to reduce overall interest-rate
risk through longer-term advances.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $169,000, or
1.1%, to $15.1 million for the six months ended September 30, 1998 from $14.9
million for the six months ended September 30, 1997. Net interest income
increased during this time period due to a $247.5 million increase in interest
earning assets which was partially offset by the effect of the Company's two
stock repurchase programs which removed $7.7 million of average stockholder's
equity from the funding mix. The Company's net interest margin decreased to
2.47% for the six months ended September 30, 1998 from 3.07% for the six months
ended September 30, 1997.
PROVISION FOR LOAN LOSSES
For the six months ended September 30, 1998, the Company's provision for
loan losses was $600,000 compared to $1.8 million for the same prior year
period. The quarterly provision was reduced based on management's current
assessment of the Bank's loan portfolio, trends in the credit quality of the
loan portfolio, and market conditions. The allowance for loan losses as a
percentage of loans at September 30, 1998 was 1.40% as compared to 1.27% at
March 31, 1998.
NON-INTEREST INCOME
Non-interest income increased to $3.1 million for the six months ended
September 30, 1998 compared to $2.9 million for the six months ended September
30, 1997, an increase of $177,000, or 6.2%. A $547,000 increase in the gain on
sale of mortgage loans was the result of increased loan origination volume and
more favorable secondary mortgage market conditions. This increase was partially
offset by a decrease in loan servicing income of $431,000, which declined to
$865,000 from $1.3 million for the six months ended September 30, 1997. This
decrease was primarily attributable to a $285,000 increase in the valuation
allowance for mortgage servicing rights, which was based on increased actual and
projected mortgage refinance activity.
NON-INTEREST EXPENSE
Total non-interest expense increased $2.5 million to $12.4 million for the
six months ended September 30, 1998 compared to $9.9 million for the comparable
six months in 1997. This increase was primarily caused by a $816,000 increase in
office occupancy and equipment expense to $2.0 million and a $1.3 million
increase in compensation and benefits to $7.3 million. The increase in office
occupancy and equipment was due to expenses related to the Company's new
administrative and operations facility in Swansea, Massachusetts and the
renovation of two other banking offices and the cost of equipment and software
related to a major computer system conversion. The increased compensation and
benefits expense was primarily due to increased staffing at the Bank, increased
ESOP expenses due to higher share prices, and to the recognition of 1997
Stock-based Incentive Plan expenses.
INCOME TAXES
Income tax expense was $1.8 million for the six months ended September 30,
1998 compared to $2.7 million for the six months ended September 30, 1997, a
decrease of $892,000. This decrease was the result of the Company's recently
enacted tax management strategies. The effective income tax rates for the six
months ended September 30, 1998 and September 30, 1997 were 34.8% and 43.9%,
respectively, and is expected to stabilize at approximately 37% in coming
quarters.
15
<PAGE> 17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest-rate risk. The
principal objective of the Company's interest rate risk management function is
to evaluate the interest rate risk included in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Directors' approved
guidelines. The Company seeks to manage the vulnerability of its operations to
changes in interest rates. The Company monitors its interest rate risk as such
risk relates to its operating strategies. The Company's Board of Directors has
established an Asset/Liability Committee, responsible for reviewing its
asset/liability policies and interest rate risk position, which meets on a
monthly basis and reports trends and interest rate risk position to the Board of
Directors on a quarterly basis. The extent of the movement of interest rates is
an uncertainty that could have a negative impact on the earnings of the Company.
In recent years, the Company has primarily utilized the following
strategies to manage interest rate risk: (1) emphasizing the origination and
retention of adjustable-rate and shorter-term (generally twelve years or less)
fixed-rate, one- to four-family mortgage loans; (2) selling in the secondary
market longer-term, fixed-rate mortgage loans originated while generally
retaining the servicing rights on such loans; (3) investing primarily in
adjustable rate mortgage-backed securities; and (4) reducing the overall
interest rate sensitivity of liabilities by emphasizing longer-term deposits and
longer-term FHLB advances to replace rate sensitive deposits and to fund asset
growth.
In addition, the Company has engaged in two interest rate swap agreements
to synthetically lengthen its liability maturities. At September 30, 1998, the
Company maintained two off-balance sheet interest rate swap positions ("swaps")
with notional principal balances totaling $50 million. These positions require
the Company to pay a long term fixed rate that was set at the time the position
was established, and requires the swap's counter party to pay the Company a
short-term rate that resets semi-annually based on the 6 month London Inter Bank
Offer Rate (LIBOR). This position is a hedge to the Company's natural source of
short-term funds. The net differential to be paid or received is treated as an
adjustment to deposit interest expense. The remaining terms of these swaps were
approximately 3 and 4 years at September 30, 1998.
The Company continues to follow its practice of selling certain fixed-rate
and adjustable-rate mortgage loans while generally retaining the servicing
rights. In conjunction with this mortgage banking activity, the Company uses
forward contracts in order to reduce exposure to interest-rate risk. The amount
of forward coverage of the "pipeline" of mortgages is managed on a day-to-day
basis by an operating officer, within Board approved policy guidelines, based on
the Company's assessment of the general direction of interest rates and levels
of mortgage origination activity.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring a bank's interest rate sensitivity "gap." An asset or liability is
said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that same time period.
At September 30, 1998, the Company's cumulative interest rate gap (which is
the difference between the amount of interest-earning assets maturing or
repricing within one year) as a percentage of total assets, was a positive 7.14%
versus a negative 3.19% at March 31, 1998. Accordingly, during a period of
rising interest rates, the Company's interest-earning assets would tend to
reprice upward at a faster rate than its interest-bearing liabilities, which,
consequently, could positively affect the Company's net interest income. During
a period of falling interest rates, the Company's interest-earning assets would
reprice downward at a faster rate than its interest-bearing liabilities which,
consequently, could negatively affect the Company's net interest income.
This shift from short-term (one year) liability-sensitivity to
asset-sensitivity is the consequence of several factors, including: the
Company's increased investment in one year reset adjustable rate mortgage-backed
securities; an increase in Prime rate loans; a redistribution of maturing FHLB
advances into longer term
16
<PAGE> 18
maturities during a recently heavy repricing period; and a further increase in
projected mortgage prepayment rates which accelerates mortgage maturities in the
Company's gap model. As is discussed in the following section, if rates were to
rise, prepayment rates could change and would likely slow, causing an extension
of mortgage maturities that could shift the gap profile back negative. The
Company's longer-term exposure to interest-rate risk, as measured by the three
year cumulative interest rate gap, remained relatively stable at a positive
0.79% on September 30, 1998 versus a negative 1.60% at March 31, 1998.
Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
adjustable-rate loans may decrease in the event of an interest rate increase.
The Company's interest rate sensitivity is also monitored by management
through the use of a model which generates estimates of the change in the
Company's net portfolio value ("NPV") over a range of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the estimated market value of
assets in the same scenario. The OTS produces a similar analysis using its own
model, based upon data submitted on the Bank's quarterly Thrift Financial
Report, the results of which may vary from the Company's internal model
primarily due to differences in assumptions utilized between the Company's
internal model and the OTS model, including estimated loan prepayment rates,
reinvestment rates and deposit renewal rates. The Company monitors the change in
estimated NPV versus limits imposed by the Company's Board of Directors, and as
of September 30, 1998, was in full compliance with those limits. See the
Company's Form 10-K for the year ended March 31, 1998 for detailed gap and NPV
tables.
As in the case with the Gap Table, certain short-comings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV model presented incorporates an assumption that
the composition of the Company's interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured, and that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV measurements and
net interest income models provide an indication of the Company's interest rate
risk exposure at a particular point in time, such measurements are not intended
to and do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net interest income and will differ from actual
results.
17
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings of a material nature at
the present time. From time to time, the Company is a party to routine legal
proceedings within the normal course of business. Such routine legal proceedings
in the aggregate are believed by management to be immaterial to the Company's
financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1 Certificates of Incorporation of FIRSTFED AMERICA BANCORP,
INC.(1)
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC.(1)
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP, INC.(1)
10.1 FIRSTFED AMERICA, INC. 1997 Stock-based Incentive Plan (As
Amended and Restated as of October 29, 1998) (filed
herewith)
10.2 Amendment to the FIRSTFED AMERICA, INC. 1998 Stock Option
Plan(2)
27 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K
None
- ---------------
(1) Incorporated into this document by reference from the Exhibits to Form S-1,
Registration Statement, filed on September 27, 1996, as amended,
Registration No. 333-12855.
(2) Incorporated into this document by reference from Appendices A and B,
respectively, of the proxy statement dated June 15, 1998 and filed with the
SEC on June 15, 1998 (SEC No. 1-12305).
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
FIRSTFED AMERICA BANCORP, INC.
Registrant
Date: November 13, 1998
/s/ ROBERT F. STOICO
--------------------------------------
President and Chief Executive Officer
and
Chairman of the Board
(Principal Executive Officer)
Date: November 13, 1998
/s/ EDWARD A. HJERPE III
--------------------------------------
Executive Vice President and
Chief Operating Officer and
Chief Financial Officer
(Principal Accounting and Financial
Officer)
19
<PAGE> 1
FIRSTFED AMERICA BANCORP, INC.
1997 STOCK-BASED INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF OCTOBER 29, 1998)
1. DEFINITIONS.
(a) "Affiliate" means any "subsidiary corporation" of the Holding Company,
as such term is defined in Section 424(f) of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-statutory Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Limited Rights and Stock Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award granted under the Plan, in such form as the Committee may,
from time to time, approve.
(d) "Bank" means First Federal Savings Bank of America, Fall River,
Massachusetts.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Bank or Holding
Company of a nature that (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Exchange Act; (ii) results in a "change
of control" or "acquisition of control" within the meaning of the regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency) found at 12 C.F.R. Part 574, as in effect on the date hereof; provided,
however, that in applying the definition of change in control as set forth under
such regulations the Board of Directors shall substitute its judgment for that
of the OTS; or (iii) without limitation Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company and any securities purchased by any
tax-qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a nominating committee serving under the Incumbent
Board, shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs in which the Bank or Holding
Company is not the resulting entity; or (D) a successful solicitation of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank or
similar transaction with one or more corporations, as a result of which the
outstanding shares of the class of securities then subject to the plan are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company; or (E) a tender offer is made for 20% or more of
the voting securities of the Bank or the Holding Company and such tender offer
is successful.
<PAGE> 2
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors
to administer the Plan pursuant to Section 2 of the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means the date the Plan is approved by stockholders,
as defined by applicable OTS regulation, or January 16, 1998, whichever is
earlier.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a share of Common Stock may
be purchased by a Participant pursuant to an Option.
(p) "Extraordinary Dividend" means a distribution to stockholders by the
Holding Company of earnings or stockholders' equity which: (i) exceeds net
earnings for the period for which the distribution is paid or (ii) such
distribution or any portion thereof will be treated by the stockholders
receiving such distribution as a return of capital for federal income tax
purposes.
(q) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal to
the last transaction price quoted for such date by The Nasdaq
Stock Market;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
<PAGE> 3
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in THE WALL STREET JOURNAL. Such
determination shall be conclusive and binding on all persons.
(r) "Holding Company" means FIRSTFED AMERICA BANCORP, INC.
(s) "Incentive Stock Option" means an Option granted to a Participant
pursuant to Section 7 of the Plan that is intended to meet the requirements of
Section 422 of the Code.
(t) "Limited Right" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(u) "Non-statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(v) "Option" means an Incentive Stock Option or Non-statutory Stock
Option.
(w) "Outside Director" means a member of the Board of Directors of the
Holding Company or an Affiliate, who is not also an Employee of the Holding
Company or an Affiliate.
(x) "Participant" means any person who holds an outstanding Award pursuant
to the Plan.
(y) "Performance Award" means an Award granted to a Participant pursuant
to Section 11 of the Plan.
(z) "Performance Goal" means an objective for the Holding Company or any
Affiliate or any unit thereof or any individual that may be established by the
Committee for a Performance Award to become vested, earned or exercisable.
Performance Goals applicable to Performance Awards are intended to constitute
"performance-based" compensation within the meaning of Section 162(m) of the
Code and shall be based on one or more of the following criteria:
(i) net income, as adjusted for non-recurring items
(ii) cash earnings
(iii) earnings per share
(iv) cash earnings per share
(v) return on equity
(vi) return on assets
(vii) assets
(viii) stock price
(ix) total shareholder return
(x) capital
(xi) net interest income
(xii) market share
(xiii) cost control or efficiency ratio
(xiv) asset growth
(aa) "Plan" means the FIRSTFED AMERICA BANCORP, INC. 1997 Stock-Based
Incentive Plan.
<PAGE> 4
(bb) "Retirement" means a termination of employment (i) from the Holding
Company or an Affiliate at an age and with employment service that would entitle
the individual to a pension under the Financial Institutions Retirement Fund as
adopted by First Federal Savings Bank of America ("Pension Plan") if the
individual were a participant in such Pension Plan or (ii) under circumstances
designated as a Retirement by the Committee. "Retirement" with respect to an
Outside Director means the termination of service from the Board of Directors of
the Holding Company and any Affiliate following written notice to the Board of
Directors of such Outside Director's intention to retire.
(cc) "Stock Appreciation Right" means an Award granted to a Participant,
alone or in connection with a related Option, pursuant to Section 10 of the
Plan.
(dd) "Stock Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
(ee) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors or, in the case of an Employee,
termination of employment, because of a material loss to the Holding Company or
an Affiliate caused by the Participant's intentional failure to perform stated
duties, personal dishonesty, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses) or final cease and desist
order, as determined by the Board of Directors. No act, or failure to act, on a
Participant's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or an Affiliate.
(ff) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Plan assets for the purposes set forth herein.
(gg) "Trustee" means any person or entity approved by the Board of
Directors to hold legal title to any of the Trust assets for the purposes set
forth under the Plan.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The Committee shall
consist of two or more disinterested directors of the Holding Company, who shall
be appointed by the Board of Directors. A member of the Board of Directors shall
be deemed to be "disinterested" only if he satisfies (i) such requirements as
the Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
<PAGE> 5
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include such additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular, the Committee shall set forth in each
Award Agreement (i) the type of Award granted (ii) the Exercise Price of an
Option or Stock Appreciation Right, (iii) the number of shares subject to the
Award; (iv) the expiration date of the Award, (v) the manner, time, and rate
(cumulative or otherwise) of exercise or vesting of such Award, and (vi) the
restrictions, if any, placed upon such Award, or upon shares which may be issued
upon exercise of such Award. The Chairman of the Committee and such other
directors and officers as shall be designated by the Committee are hereby
authorized to execute Award Agreements on behalf of the Company or an Affiliate
and to cause them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the attainment of Performance Goals. However, only the Committee
or a portion of the Committee may certify the attainment of a Performance Goal.
3. TYPES OF AWARDS AND RELATED RIGHTS.
The following Awards may be granted under the Plan:
(a) Non-statutory Stock Options
(b) Incentive Stock Options
(c) Limited Rights
(d) Stock Awards
(e) Stock Appreciation Rights
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 17 hereof, the maximum number
of shares reserved for Awards under the Plan is 1,218,983, which number shall
not exceed 14% of the outstanding shares of the Common Stock determined
immediately as of the Effective Date. Subject to adjustment as provided in
Section 17 hereof, the maximum number of shares reserved hereby for purchase
pursuant to the exercise of Options and Option-related Awards granted under the
Plan is 870,715, which number shall not exceed 10% of the outstanding shares of
Common Stock as of the Effective Date. The maximum number of the shares reserved
for Stock Awards is 348,268, which number shall not exceed 4% of the outstanding
shares of Common Stock as of the Effective Date. The shares of Common Stock
issued under the Plan may be either authorized but unissued shares or authorized
shares previously issued and acquired or reacquired by the Trust or the Holding
Company, respectively. To the extent that Options and Stock Awards are granted
under the Plan, the shares underlying such Awards will be unavailable for any
other use including future grants under the Plan except that, to the extent that
Stock Awards or Options terminate, expire, or are forfeited without having
vested or without having been exercised (in the case of Limited Rights,
exercised for cash), new Awards may be made with respect to these shares.
<PAGE> 6
5 ELIGIBILITY.
Subject to the terms of the Plan, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Holding Company or an
Affiliate.
6 NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Non-statutory Stock Options upon such terms and conditions as it may
determine. Non-statutory Stock Options granted under this Plan are subject to
the following terms and conditions:
(a) EXERCISE PRICE. The Exercise Price of each Non-statutory Stock Option
shall be determined by the Committee on the Date of Grant. Such Exercise Price
shall not be less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. Shares of Common Stock underlying a Non-statutory Stock Option
may be purchased only upon full payment of the Exercise Price in a manner
provided for in Section 14 of the Plan.
(b) TERMS OF NON-STATUTORY STOCK OPTIONS. The term during which each
Non-statutory Stock Option may be exercised shall be determined by the
Committee, but in no event shall a Non-statutory Stock Option be exercisable in
whole or in part more than ten (10) years from the Date of Grant. Subject to
Section 23 of the Plan, the Committee shall determine the date on which each
Non-statutory Stock Option shall become exercisable and any terms or conditions
which must be satisfied prior to each Non-statutory Stock Option becoming
exercisable. Any such terms or conditions shall be determined by the Committee
as of the Date of Grant. The shares of Common Stock underlying each
Non-statutory Stock Option installment may be purchased in whole or in part by
the Participant at any time during the term of such Non-statutory Stock Option
after such installment becomes exercisable.
(c) NON-TRANSFERABILITY. Unless otherwise determined by the Committee in
accordance with this Section 6(c), Non-statutory Stock Options shall not be
transferred, assigned, hypothecated, or disposed of in any manner by a
Participant other than by will or the laws of intestate succession. The
Committee may, however, in its sole discretion, permit transferability or
assignment of a Non-statutory Stock Option if such transfer or assignment is, in
its sole determination, for valid estate planning purposes and such transfer or
assignment is permitted under the Code and Rule 16b-3 under the Exchange Act.
For purposes of this Section 6(c), a transfer for valid estate planning purposes
includes, but is not limited to: (a) a transfer to a revocable intervivos trust
as to which the Participant is both the settlor and trustee, (b) a transfer for
no consideration to: (i) any member of the Participant's Immediate Family, (ii)
any trust solely for the benefit of members of the Participant's Immediate
Family, (iii) any partnership whose only partners are members of the
Participant's Immediate Family, and (iv) any limited liability corporation or
corporate entity whose only members or equity owners are members of the
Participant's Immediate Family, or (c) The FIRSTFED Charitable Foundation. For
purposes of this Section 6(c), "Immediate Family" includes, but is not
necessarily limited to, a Participant's parents, spouse, children, grandchildren
and great-grandchildren. Nothing contained in this Section 6(c) shall be
construed to require the Committee to give its approval to any transfer or
assignment of any Non-statutory Stock Option or portion thereof, and approval to
transfer or assign any Non-statutory Stock Option or portion thereof does not
mean that such approval will be given with respect to any other Non-statutory
Stock Option or portion thereof. The transferee or assignee of any Non-statutory
Stock Option shall be subject to all of the terms and conditions applicable to
such Non-statutory Stock Option immediately prior
<PAGE> 7
to the transfer or assignment and shall be subject to any conditions proscribed
by the Committee with respect to such Non-statutory Stock Option.
(d) TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise determined by
the Committee, upon the termination of a Participant's employment or service for
any reason other than Disability, death, Retirement, Change in Control, or
Termination for Cause, the Participant's Non-statutory Stock Options shall be
exercisable only as to those shares that were immediately exercisable by the
Participant at the date of termination and only for a period of three (3) months
following termination. Unless otherwise determined by the Committee, in the
event of a Participant's termination of employment or service due to Disability
or death, all Non-statutory Stock Options held by such Participant shall
immediately become exercisable and remain exercisable for a period of three (3)
years. Unless otherwise determined by the Committee, in the event of a
Participant's Retirement, all Non-statutory Stock Options held by such
Participant shall immediately become exercisable and remain exercisable for a
period of three (3) years. In the event of a Participant's termination of
employment or service within twenty-four (24) months of a Change in Control, all
Non-statutory Stock Options held by such Participant shall immediately become
exercisable as of the date of such termination and remain exercisable for a
period of three (3) years. Unless otherwise determined by the Committee, in the
event of a Participant's Termination for Cause, all rights under the
Participant's Non-statutory Stock Options shall expire immediately upon the
effective date of such Termination for Cause.
(e) MAXIMUM INDIVIDUAL AWARD. No individual Employee shall be granted an
amount of Non-statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60 month period and no individual
Outside Director shall be granted an amount of Non-statutory Stock Options which
exceeds 5% of all Options eligible to be granted under the Plan within any 60
month period.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) EXERCISE PRICE. The Exercise Price of each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant. Shares
of Common Stock may be purchased only upon payment of the full Exercise Price in
a manner provided for in Section 14 of the Plan.
(b) AMOUNTS OF INCENTIVE STOCK OPTIONS. To the extent the aggregate Fair
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) TERMS OF INCENTIVE STOCK OPTIONS. The term during which each Incentive
Stock Option may be exercised shall be determined by the Committee, but in no
event shall an Incentive Stock Option be exercisable in whole or in part more
than ten (10) years from the Date of Grant. If at the time an Incentive Stock
Option is granted
<PAGE> 8
to an Employee who is a 10% Owner, the Incentive Stock Option granted to such
Employee shall not be exercisable after the expiration of five (5) years from
the Date of Grant. Subject to Section 23 of the Plan, the Committee shall
determine the date on which each Incentive Stock Option shall become exercisable
and any terms or conditions which must be satisfied prior to the Incentive Stock
Option becoming exercisable. Any such terms or conditions shall be determined by
the Committee as of the Date of Grant. The shares of Common Stock underlying
each Incentive Stock Option installment may be purchased in whole or in part at
any time during the term of such Incentive Stock Option after such installment
becomes exercisable.
(d) TRANSFERABILITY. No Incentive Stock Option shall be transferable
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom it is granted. The designation
of a beneficiary does not constitute a transfer.
(e) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon the termination of an Employee's employment for any reason other
than Disability, death, Retirement, Change in Control, or Termination for Cause,
the Employee's Incentive Stock Options shall be exercisable only as to those
Incentive Stock Options that were immediately exercisable by the Employee at the
date of termination and only for a period of three (3) months following such
termination. Unless otherwise determined by the Committee, in the event of the
termination of an Employee's service due to Disability or death, all unvested
Incentive Stock Options held by such Employee shall immediately become
exercisable and shall remain exercisable for three (3) years. Unless otherwise
determined by the Committee, in the event of an Employee's Retirement, all
Incentive Stock Options held by such Employee shall immediately become
exercisable and shall remain exercisable for three (3) years. In the event of a
Participant's termination of employment or service within twenty-four (24)
months of a Change in Control, all Incentive Stock Options held by such
Participant shall immediately become exercisable as of the date of such
termination and remain exercisable for a period of three (3) years. Unless
otherwise determined by the Committee, in the event of an Employee's Termination
for Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause. Any Option
originally designated as an Incentive Stock Option shall be treated as a
Non-Statutory Stock Options to the extent the Participant exercises such Option
more than one (1) year following termination of employment as a result of death
or Disability or more than three (3) months following the Participant's
termination of employment for any other reason. Any Option which otherwise, by
operation of this provision, does not meet the requirements of Section 422 of
the Code, shall be considered a Non-statutory Stock Option.
(f) MAXIMUM INDIVIDUAL AWARD. No individual Employee shall be granted an
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60 month period.
8. LIMITED RIGHTS.
Simultaneously with the grant of any Option, the Committee may grant a
Limited Right with respect to all or some of the shares of Common Stock covered
by such Option. Limited Rights granted under this Plan are subject to the
following terms and conditions:
(a) TERMS OF RIGHTS. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six (6) months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control. The Limited Right may be exercised only when the underlying
Option is eligible to be exercised, and only when the Fair Market Value of the
underlying shares on the day of exercise is greater than the Exercise Price of
the underlying Option. Upon exercise of a Limited Right, the underlying Option
shall cease to be exercisable and shall be terminated. Upon exercise or
termination of an Option, any related
<PAGE> 9
Limited Rights shall terminate. The Limited Right is transferable only when the
underlying Option is transferable and under the same conditions.
(b) PAYMENT. Upon exercise of a Limited Right, the holder shall promptly
receive from the Holding Company or an Affiliate an amount of cash equal to the
difference between the Exercise Price of the underlying Option and the Fair
Market Value of the Common Stock
subject to such Option on the date the Limited Right is exercised, multiplied
by the number of shares with respect to which such Limited Right is being
exercised.
9. STOCK AWARDS.
The Committee may, subject to the limitations of the Plan, make Stock
Awards which shall consist of the grant of some number of shares of Common Stock
to a Participant. Stock Awards shall be made subject to the following terms and
conditions:
(a) PAYMENT OF THE STOCK AWARD. Stock Awards may only be made in whole
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) TERMS OF THE STOCK AWARDS. Subject to Section 23 of the Plan, the
Committee shall determine the dates on which Stock Awards granted to a
Participant shall vest and any terms or conditions which must be satisfied prior
to the vesting of any installment or portion of the Stock Award. Any such terms,
or conditions shall be determined by the Committee as of the Date of Grant.
(c) TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise determined by
the Committee, upon the termination of a Participant's employment or service for
any reason other than Disability, death, Retirement, Change in Control, or
Termination for Cause, the Participant's unvested Stock Awards as of the date of
termination shall be forfeited and any rights the Participant had to such
unvested Stock Awards shall become null and void. Unless otherwise determined by
the Committee, in the event of a termination of the Participant's service due to
Disability or death, all unvested Stock Awards held by such Participant shall
immediately vest. Unless otherwise determined by the Committee, in the event of
a Participant's Retirement, all unvested Stock Awards held by such Participant
at Retirement shall immediately vest. In the event of a Participant's
termination from employment or service within twenty-four (24) months of a
Change in Control, all unvested Stock Awards held by such Participant shall
immediately vest as of the date of such termination. Unless otherwise determined
by the Committee, in the event of the Participant's Termination for Cause, all
unvested Stock Awards held by such Participant as of the effective date of such
Termination for Cause shall be forfeited and any rights such Participant had to
such unvested Stock Awards shall become null and void.
(d) NON-TRANSFERABILITY. Except to the extent permitted by the Code, the
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award
until full vesting of such shares has occurred. For purposes of
this section, the separation of beneficial ownership and legal
title through the use of any "swap" transaction is deemed to be a
prohibited encumbrance.
<PAGE> 10
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution. The
designation of a beneficiary shall not constitute a transfer.
(iii) If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to
such Stock Award may not, without the written consent of the
Committee (which consent may be given in the Award Agreement), be
sold or otherwise disposed of within six (6) months following the
date of grant of the Stock Award.
(e) ACCRUAL OF DIVIDENDS. Whenever shares of Common Stock underlying a
Stock Award are distributed to a Participant or beneficiary thereof under the
Plan, such Participant or beneficiary shall also be entitled to receive, with
respect to each such share distributed, a payment equal to any cash dividends
and the number of shares of Common Stock equal to any stock dividends, declared
and paid with respect to a share of the Common Stock if the record date for
determining shareholders entitled to receive such dividends falls between the
date the relevant Stock Award was granted and the date the relevant Stock Award
or installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(f) VOTING OF STOCK AWARDS. After a Stock Award has been granted but for
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(g) MAXIMUM INDIVIDUAL AWARD. No individual Employee shall be granted an
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60 month period and no individual Outside
Director shall be granted an amount of Stock Awards which exceeds 5% of all
Stock Awards eligible to be granted under the Plan within any 60 month period.
10. STOCK APPRECIATION RIGHTS
The Committee may, subject to the limitation of the Plan, grant a Stock
Appreciation Right ("SAR") to any Participant. A Stock Appreciation Right shall
entitle the Participant to the right to receive a payment, equal in value to the
excess of the Fair Market Value of a specified number of shares of Common Stock
on the date the SAR is exercised over the grant price of such SAR, which shall
not be less than 100% of the Fair Market Value on the date of grant of such SAR,
as determined by the Committee, provided that, in the case of a SAR granted
retroactively in tandem with or as substitution for another award granted under
any plan of the Company or an Affiliate, the grant price may be the same as the
exercise or designated price of such other award.
(a) MAXIMUM INDIVIDUAL AWARD. No individual Employee or Outside Director
shall be granted a number of Stock Appreciation Rights which exceeds the maximum
number of Options such individual may be granted under the Plan, pursuant to
Section 6(e) hereof, within any 60 month period.
11. PERFORMANCE AWARDS
<PAGE> 11
(a) The Committee may determine to make any Award under the Plan
contingent upon the achievement of a Performance Goal or any combination of
Performance Goals. Each Performance Award shall be evidenced in the Award
Agreement, which shall set forth the Performance Goals applicable to the Award,
the maximum amounts payable and such other terms and conditions as are
applicable to the Performance Award. Each Performance Award shall be granted and
administered to comply with the requirements of Section 162(m) of the Code and
in a manner consistent with the provisions of Section 23 of the Plan.
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any Performance Goals will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon achievement of the Performance Goals but may
reduce or eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without cash
consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the attainment or
satisfaction of a condition or Performance Goal shall be distributed or
considered to be earned or vested until the Committee certifies in writing that
the conditions or Performance Goal to which the distribution, earning or vesting
of such Award is subject has been achieved.
12. DEFERRED PAYMENTS
Notwithstanding any other provision of this Plan, any Participant may
elect, with the concurrence of the Committee and consistent with any rules and
regulations established by the Committee, to defer the delivery of the proceeds
of the exercise of any Non-statutory Stock Option not transferred under the
provisions of Section 6(c), Stock Appreciation Rights, and Stock Awards.
(a) ELECTION TIMING. The election to defer the delivery of the proceeds
from any eligible Non-statutory Stock Option or Stock Appreciation Right must be
made at least six (6) months prior to the date such Award is exercised or at
such other time as the Committee may specify. The election to defer the delivery
of any Stock Award must be made no later than the last day of the calendar year
preceding the calendar year in which the Participant would otherwise have an
unrestricted right to receive such Award. Deferrals of eligible Awards shall
only be allowed for exercises of Options and lapses of restrictions on Stock
Awards that occur while the Participant is in active service with the Holding
Company or an Affiliate. Any election to defer the proceeds from an eligible
Award shall be irrevocable as long as the Participant remains an Employee or
Outside Director of the Holding Company or an Affiliate.
<PAGE> 12
(b) STOCK OPTION DEFERRAL. The deferral of the proceeds of Non-statutory
Stock Options may be elected by a Participant subject to the rules and
regulations established by the Committee. The proceeds from such an exercise
shall be credited to a deferred stock option account established for the
Participant. The proceeds shall be credited to the deferred stock option account
as a number of deferred shares or share units equivalent in value to those
proceeds. Deferred share units shall be valued at the Fair Market Value on the
date of exercise. Subsequent to exercise, the deferred shares or share units
shall be valued at the Fair Market Value of Common Stock; provided, however,
that at the discretion of the Committee, the Participant may elect to have the
value of his deferred stock option account valued on some other basis of
measurement approved by the Committee. Unless the Participant's deferred stock
option account is valued using a basis of measurement other than Common Stock,
deferred share units shall accrue dividends at the rate paid upon the Common
Stock credited in the form of additional deferred share units. Deferred shares
or share units shall be distributed in shares of Common Stock or cash, at the
discretion of the Committee, upon the termination of service of the Participant
or at such other date, as may be approved by the Committee, over a period of no
more than ten (10) years.
(c) STOCK APPRECIATION RIGHT DEFERRAL. The deferral of the proceeds of
Stock Appreciation Rights may be made by a Participant subject to the rules and
regulations established by the Committee. Upon exercise, the Committee will
credit the Participant's deferred stock option account with a number of deferred
shares or share units equivalent in value to the difference between the Fair
Market Value of a share of Common Stock on the exercise date and the Exercise
Price of the Stock Appreciation Right multiplied by the number of shares
exercised. Deferred shares or share units shall be valued at the Fair Market
Value on the date of exercise. Subsequent to exercise, the deferred shares or
share units shall be valued at the Fair Market Value of Common Stock; provided,
however, that at the discretion of the Committee, the Participant may elect to
have the value of his deferred stock option account valued on some other basis
of measurement approved by the Committee. Unless the Participant's deferred
stock option account is valued using a basis of measurement other than Common
Stock, deferred shares or share units shall accrue dividends at the rate paid
upon the Common Stock credited in the form of additional deferred shares or
share units. Deferred shares or share units shall be distributed in shares of
Common Stock or cash, at the discretion of the Committee, upon the Participant's
termination of service or at such other date, as may be approved by the
Committee, over a period of no more than ten (10) years.
(d) STOCK AWARD DEFERRALS. The deferral of Stock Awards may be elected by
a Participant subject to the rules and regulations established by the Committee.
Upon the lapsing of restrictions on such an Award, the Committee shall credit to
a deferred stock award account established for the Participant a number of
deferred shares or share units equivalent in value to the number of deferred
Stock Awards multiplied by the Fair Market Value of Common Stock. Deferred
shares or share units shall be valued at the Fair Market Value on the date all
restriction on the Stock Award lapse or are waived. Subsequent to the lapsing of
all restrictions, the deferred shares or share units shall be valued at the Fair
Market Value of Common Stock; provided, however, that at the discretion of the
Committee, the Participant may elect to have the value of his deferred stock
award account valued on some other basis of measurement approved by the
Committee. Unless the Participant's deferred stock award account is valued using
a basis of measurement other than Common Stock, deferred shares or share units
shall accrue dividends at the rate paid upon the Common Stock credited in the
form of additional deferred share units. Deferred share units shall be
distributed in shares of Common Stock or cash, at the discretion of the
Committee, upon the termination of service of the Participant or at such other
date, as may be approved by the Committee, over a period of no more than ten
(10) years.
(e) ACCELERATED DISTRIBUTIONS. The Committee may, at its sole discretion,
allow for the early payment of a Participant's deferred stock option account
and/or deferred stock award account in the event of an "unforeseeable emergency"
or in the event of the death or Disability of the Participant. An "unforeseeable
emergency" means an
<PAGE> 13
unanticipated emergency caused by an event beyond the control of the Participant
that would result in severe financial hardship if the distribution were not
permitted. Such distributions shall be limited to the amount necessary to
sufficiently address the financial hardship. Any distributions under this
provision, shall be consistent with the Code and the regulations promulgated
thereunder. Additionally, the Committee may use its discretion to cause stock
option deferral accounts and/or deferred stock award accounts to be distributed
when continuing the program is no longer in the best interest of the Holding
Company or any Affiliate.
(f) ASSIGNABILITY. No rights to deferred stock option accounts or deferred
stock award accounts may be assigned or subject to any encumbrance, pledge or
charge of any nature except that a Participant may designate a beneficiary
pursuant to any rules established by the Committee.
(g) UNFUNDED STATUS. No Participant or other person shall have any
interest in any fund or in any specific asset of the Holding Company or an
Affiliate by reason of any amount credited hereunder. Any amounts payable
hereunder shall be paid from the general assets of the Holding Company or its
Affiliates and no Participant or other person shall have any rights to such
assets beyond the rights afforded general creditors of the Holding Company and
its Affiliates. However, the Holding Company or any Affiliate shall have the
right to establish a reserve, trust or make any investment for the purpose of
satisfying the obligations created under this Section 12 of the Plan; provided,
however, that no Participant or other person shall have any interest in such
reserve, trust or investment.
13. PAYOUT ALTERNATIVES
(a) Payments due to a Participant upon the exercise or redemption of an
Option or Stock Award shall be made in the form of shares of Common Stock.
Payments due to a Participant upon the exercise or redemption of a Stock
Appreciation Right or Limited Right shall be made in the form of cash.
(b) Any shares of Common Stock tendered in satisfaction of an obligation
arising under this Plan shall be valued at the Fair Market Value of the Common
Stock on the day preceding the date of the issuance of such stock to the
Participant.
14. METHOD OF EXERCISE
Subject to any applicable Award Agreement, any Option may be exercised
by the Participant in whole or in part at such time or times, and the
Participant may make payment of the Exercise Price in such form or forms,
including, without limitation, payment by delivery of cash, Common Stock or
other consideration (including, where permitted by law and the Committee,
Awards) having a Fair Market Value on the exercise date equal to the total
Exercise Price, or by any combination of cash, shares of Common Stock and other
consideration, including exercise by means of a cashless exercise arrangement
with a qualifying broker-dealer, as the Committee may specify in the applicable
Award Agreement.
15. RIGHTS OF PARTICIPANTS.
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
<PAGE> 14
16. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
17. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution (including an Extraordinary Dividend) is made
and any necessary OTS approval is obtained, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 17 shall be subject to required
OTS approval.
18. TAX WITHHOLDING.
Notwithstanding any other provision of the Plan, Awards under this Plan
shall be subject to tax withholding to the extent required by any governmental
authority. Any withholding shall comply with Rule 16b-3 or any amendment or
successive rule. Shares of Common Stock withheld to pay for tax withholding
amounts shall be valued at their Fair Market Value on the date the Award is
deemed taxable to the Participant. Participants granted Non-statutory Stock
Options shall be responsible for any required withholding applicable to any
Non-statutory Stock Option which has been transferred pursuant to Section 6(c)
hereof, unless otherwise inconsistent with current tax law.
<PAGE> 15
19. AMENDMENT OF THE PLAN AND AWARDS.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, prospectively or retroactively; provided
however, that provisions governing grants of Incentive Stock Options, unless
permitted by the rules and regulations or staff pronouncements promulgated under
the Code shall be submitted for shareholder approval to the extent required by
such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders
shall be effective only as to the specific amendment or modification requiring
such ratification. Other provisions of this Plan will remain in full force and
effect.
No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) The Committee may amend any Award Agreement, prospectively or
retroactively; provided, however, that no such amendment shall adversely affect
the rights of any Participant under an outstanding Award without the written
consent of such Participant.
20. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the Holding Company's
shareholders in accordance with OTS and Internal Revenue Service ("IRS")
regulations or January 16, 1998, whichever is earlier. The failure to obtain
shareholder approval for such purposes will not effect the validity of the Plan
and any Awards made under the Plan; provided, however, that if the Plan is not
approved by stockholders in accordance with IRS regulations, the Plan shall
remain in full force and effect, and any Incentive Stock Options granted under
the Plan shall be deemed to be Non-statutory Stock Options and any Award
intended to comply with Section 162(m) of the Code shall not comply with Section
162(m) of the Code.
21. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which together with the exercise of Limited Rights
is equivalent to the maximum number of shares reserved under the Plan as set
forth in Section 4 hereof. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
22. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the state of
Delaware and applicable federal law.
23. COMPLIANCE WITH OTS CONVERSION REGULATIONS
Notwithstanding any other provision contained in this Plan:
(a) no Award under the Plan shall be made which would be prohibited by 12
CFR '563b.3(g)(4);
<PAGE> 16
(b) unless the Plan is approved by a majority vote of the outstanding
shares of the total votes eligible to be cast at a duty called meeting
of stockholders to consider the Plan, as required by 12 CFR sec.
563b.3(g)(4)(vii), the Plan shall not become effective or implemented
prior to one (1) year from the date of the Bank's mutual to stock
conversion;
(c) no Award granted prior to one (1) year from the date of the Bank's
mutual to stock conversion shall become vested or exercisable at a
rate in excess of 20% per year of the total number of Stock Awards or
Options (whichever may be the case) granted to such Participant,
provided, that Awards shall become fully vested or immediately
exercisable in the event of a Participant's termination of service due
to death or Disability;
(d) no Award granted to any individual Employee prior to one (1) year from
the date of the Bank's mutual to stock conversion may exceed 25% of
the total amount of Awards which may be granted under the Plan;
(e) no Award granted to any individual Outside Director prior to one (1)
year from the date of the Bank's mutual to stock conversion may exceed
5% of the total amount of Awards which may be granted under the Plan;
and
(f) the aggregate amount of Awards granted to all Outside Directors prior
to one (1) year from the date of the Bank's mutual to stock conversion
may not exceed 30% of the total amount of Awards which may be granted
under the Plan.
<PAGE> 17
24. DELEGATION OF AUTHORITY
The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the attainment of Performance Goals. However, only the Committee
or a portion of the Committee may certify the attainment of a Performance Goal.
IN WITNESS WHEREOF, the Holding Company has established this Plan, as
adopted by the Board of Directors of FIRSTFED AMERICA BANCORP, INC. on May 29,
1997.
ADOPTED BY FIRSTFED AMERICA BANCORP, INC
THE BOARD OF DIRECTORS:
May 29, 1997 By: /s/ Robert F. Stoico
- -------------------------------- ------------------------------
Date Robert F. Stoico for the
Entire Board of Directors
APPROVED BY SHAREHOLDERS:
June 20, 1997 By: /s/ Cecilia Viverios
- -------------------------------- ------------------------------
Date Cecilia R. Viveiros
Corporate Secretary
Amendments approved by Shareholders:
June 15, 1998
- --------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27.0
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,128
<INT-BEARING-DEPOSITS> 17,870
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 100
<INVESTMENTS-HELD-FOR-SALE> 322,291
<INVESTMENTS-CARRYING> 22,331
<INVESTMENTS-MARKET> 22,645
<LOANS> 807,468<F1>
<ALLOWANCE> 11,435
<TOTAL-ASSETS> 1,292,730
<DEPOSITS> 666,682
<SHORT-TERM> 211,041
<LIABILITIES-OTHER> 25,481
<LONG-TERM> 278,332
0
0
<COMMON> 87
<OTHER-SE> 111,107
<TOTAL-LIABILITIES-AND-EQUITY> 1,292,730
<INTEREST-LOAN> 33,600
<INTEREST-INVEST> 8,624
<INTEREST-OTHER> 669
<INTEREST-TOTAL> 42,893
<INTEREST-DEPOSIT> 14,728
<INTEREST-EXPENSE> 27,813
<INTEREST-INCOME-NET> 15,080
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 12,387
<INCOME-PRETAX> 5,150
<INCOME-PRE-EXTRAORDINARY> 5,150
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,357
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<YIELD-ACTUAL> 2.47
<LOANS-NON> 3,142
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,574
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,937
<CHARGE-OFFS> 108
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 11,435
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,089
<FN>
<F1>LOANS HELD TO MATURITY
</FN>
</TABLE>
