<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1999
Commission File No.: 1-12305
FIRSTFED AMERICA BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 04-3331237
(IRS Employer Identification)
(State or other jurisdiction
of incorporation or organization)
ONE FIRSTFED PARK, Swansea, Massachusetts 02777
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 679-8181
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act: None
The American Stock Exchange
(Name of exchange on which registered)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the
registrant was $84.9 million and is based upon the last sales price as listed
on The American Stock Exchange for June 15, 1999.
The number of shares of Common Stock outstanding as of June 15, 1999 is
7,092,030.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
March 31, 1999 are incorporated by reference into Part II of this Form 10-K.
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders
are incorporated by reference into Part III of this Form 10-K.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I.................................................................... 1
Item 1. Business. ...................................................... 1
Additional Item. Executive Officers of the Registrant................... 33
Item 2. Properties...................................................... 33
Item 3. Legal Proceedings............................................... 34
Item 4. Submission of Matters to a Vote of Security Holders............. 34
PART II................................................................... 35
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 35
Item 6. Selected Financial Data......................................... 35
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 35
Item 8. Financial Statements and Supplementary Data..................... 35
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 35
PART III.................................................................. 36
Item 10. Directors and Executive Officers of the Registrant............. 36
Item 11. Executive Compensation......................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................... 36
Item 13. Certain Relationships and Related Transactions................. 36
PART IV................................................................... 36
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K.............................................................. 36
SIGNATURES................................................................ 39
</TABLE>
<PAGE>
PART I
Item 1. Business.
General
FIRSTFED AMERICA BANCORP, INC. (also referred to as the "Company" or
"Registrant") was organized by the Board of Directors of First Federal Savings
Bank of America (the "Bank") for the purpose of acquiring all of the capital
stock of the Bank issued in connection with the Bank's conversion from mutual
to stock form. The conversion was completed on January 15, 1997. At March 31,
1999, the Company had consolidated total assets of $1.393 billion and total
stockholders' equity of $103.0 million. The Company was incorporated under
Delaware law and is a savings and loan holding company subject to regulation
by the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance
Corporation ("FDIC") and the Securities and Exchange Commission ("SEC").
The Bank was originally organized in 1946 and operated as First Federal
Savings and Loan Association of Fall River. In 1982, the Bank merged with
First Federal Savings and Loan Association of Attleboro, which was originally
organized in 1854 and became a federally-chartered savings and loan
association in 1959. In 1983, the Bank became a federally-chartered savings
bank, changing its name to First Federal Savings Bank of America. In 1984, the
Bank added mortgage banking activities to its operations. The Company conducts
business from its administrative and operations offices located in Swansea,
Massachusetts and its 14 banking offices located in the municipalities of Fall
River, Attleboro, New Bedford, Seekonk, Somerset, Swansea and Taunton,
Massachusetts and Pawtucket, East Providence, Warwick, and Cranston, Rhode
Island, and its five loan origination centers located in Yarmouth, Auburn,
Agawam and Burlington, Massachusetts and East Greenwich, Rhode Island.
The Company's principal business has been and continues to be attracting
retail and business deposits in the areas surrounding its banking offices and
investing those deposits, together with funds generated from operations and
borrowings, primarily in residential, commercial, and consumer loans and
mortgage-backed securities ("MBS"). Through its 14 banking offices and five
loan origination offices, the Company originates loans for investment and
loans for sale in the secondary market, generally retaining the servicing
rights to loans sold. Loan sales are made from loans designated as being held
for sale or originated for sale during the period. The Company's revenues are
derived principally from interest on its loan portfolios, and interest and
dividends on its investment and mortgage-backed securities and loan servicing
income. The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, proceeds from the
sale of loans, Federal Home Loan Bank ("FHLB") advances and other borrowings.
In January, 1999 the Company formed the FIRSTFED INSURANCE AGENCY, LLC
("Agency"). The Agency offers a comprehensive insurance product line including
auto, home, life, accident and health insurance to consumers and businesses.
At the time of conversion, the Company's Board of Directors authorized
management to establish a trust services department to provide future trust
services to customers. To date, the trust services department has not been
established. The establishment of additional banking offices and trust
services by the Company would result in additional capital expenditures and
other costs associated with the establishment of such banking offices and
services which the Company has not yet currently estimated.
The Company's and Bank's executive offices are located at ONE FIRSTFED PARK,
Swansea Mall Drive, Swansea, Massachusetts 02777. The telephone number is
(508) 679-8181.
Information required by Guide 3 to be contained in the description of
business which is not contained in Item 1 is incorporated by referenced from
Item 7 herein.
Market Area and Competition
The Company is a community-oriented financial institution offering a variety
of financial products and services to meet the needs of the communities it
serves. The Company's deposit gathering is concentrated in the communities
surrounding its 14 full service banking offices located in the Southeastern
Massachusetts
1
<PAGE>
municipalities of Fall River, Attleboro, New Bedford, Seekonk, Somerset,
Swansea and Taunton, and the Rhode Island municipalities of Pawtucket, East
Providence, Warwick, and Cranston. The Company also maintains loan origination
centers in the municipalities of Yarmouth, Auburn, Agawam and Burlington,
Massachusetts and East Greenwich, Rhode Island. The Company primarily invests
in loans secured by first or second mortgages on properties located in
Southern New England and in AAA-rated mortgage-backed securities.
The Company's main banking office is located in Fall River, Massachusetts.
Fall River is located in the Southeastern region of Massachusetts and is
adjacent to Rhode Island. All of the Company's 14 banking offices are located
within 30 miles of Fall River. The Southeastern Massachusetts and Rhode Island
suburbs are generally low to middle income residential communities with
individuals employed primarily in Fall River and New Bedford, Massachusetts
and Providence, Rhode Island and areas along Interstates 195, 95 and 495 and
Route 24.
While the economy in Southeastern New England has generally been positive in
recent years, the area still lags behind the rest of New England and the rest
of the nation. Unemployment rates in the Providence-Fall River area and in New
Bedford are currently higher than the national and state averages but have
improved from the mid-1990s. Small businesses, service firms and tourism form
the backbone of the region's economy. Cuts to the defense industry, changes in
the costume jewelry industry and uncertainty in the technology industry have
resulted in decreased employment opportunities in the region. However, many
significant employers, such as The Acushnet Company, Fidelity Investments,
Textron, American Power Conversion, Globe Manufacturing, Cherry Semiconductor
and Hasbro are located in the region.
The Company faces significant competition both in generating loans and in
attracting deposits. The Company's primary market area is highly competitive
and the Company faces direct competition from a significant number of
financial institutions, many with a state-wide or regional presence and, in
some cases, a national presence. Some of these financial institutions are
significantly larger and have greater financial resources than the Company.
The Company's competition for loans comes principally from commercial banks,
savings banks, credit unions, mortgage brokers, mortgage banking companies and
insurance companies. Its most direct competition for deposits has historically
come from local savings, cooperative and commercial banks and credit unions.
In addition, the Company faces increasing competition for deposits from non-
bank institutions such as brokerage firms and insurance companies in such
instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Competition may also increase as
a result of the lifting of restrictions on the interstate operations of
financial institutions. In the areas of Fall River and Rhode Island, the
Company has experienced significant competition from credit unions which have
a competitive advantage because they do not pay state or federal income taxes.
Such competitive advantage has placed increased pressure on the Bank with
respect to its loan and deposit pricing.
From the mid-1980s through the early 1990s, the Bank's operating strategy
was to control growth while building its loan servicing portfolio and the
resultant fee income. As part of this strategy, the Bank increased market
share through its mortgage banking activities. Interest-rate risk was managed
by generally retaining all adjustable rate one- to four-family loans and
selling all longer term fixed-rate one- to four-family loans in the secondary
market on a servicing retained basis. Beginning in 1993, the Bank began to
focus more heavily on building its loan and deposit franchise and increasing
its level of interest-earning assets and retail deposits. At that time, the
Bank began to expand its franchise in its existing market area and other areas
in Southeastern Massachusetts and Rhode Island through the establishment of de
novo banking offices and new loan origination facilities. Since 1994, the Bank
has opened seven new banking offices in Seekonk, Swansea and New Bedford,
Massachusetts and East Providence, Pawtucket, Warwick and Cranston, Rhode
Island and one new loan origination office in Burlington, Massachusetts. In
addition, the Company opened a new centralized administrative and operations
center in October, 1997 in Swansea, Massachusetts. Pursuant to this expansion
strategy, the Company is currently seeking new banking offices within its
primary market areas as well as considering sites for loan production offices
within its existing market area and Connecticut.
2
<PAGE>
Lending Activities
Loan Portfolio Composition. The Company's loan portfolio consists primarily
of first mortgage loans secured by one- to four-family residences. At March
31, 1999, total loans receivable was $787.4 million, of which $583.7 million
were one- to four-family residential mortgage loans, or 74.1% of the Company's
total loans receivable. At such date, the remainder of the loan portfolio
consisted of: $3.1 million of multi-family residential loans, or .4% of total
loans receivable; $38.8 million of commercial real estate loans, or 4.9% of
total loans receivable; $31.7 million of construction and land loans, or 4.0%
of total loans receivable; $56.2 million of commercial loans, or 7.1% of total
loans receivable; and $74.0 million of consumer loans, or 9.4% of total loans
receivable, consisting of $25.5 million of home equity lines of credit, $40.6
million of second mortgages and $7.9 million of other consumer loans. After
including allowance for loan losses, undisbursed proceeds of construction
mortgages in process, and deferred loan origination fees, loans receivable,
net was $766.7 million at March 31, 1999. At that same date, 47.8% of the
Company's residential mortgage loans and construction and land loans,
excluding mortgage loans held for sale, had adjustable interest rates, most of
which are indexed to the one-year Constant Maturity Treasury ("CMT") Index.
The Company had $52.3 million of mortgage loans held for sale at March 31,
1999, consisting of one- to four-family fixed-rate mortgage loans.
The types of loans that the Company may originate are subject to federal and
state laws and regulations. Interest rates charged by the Company on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies
of the federal government, including the Federal Reserve Board, and
legislative tax policies.
3
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount Of Total
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
Residential:
One- to four-family.... $583,692 74.13% $691,675 79.68% $666,942 82.08% $531,849 81.63% $405,747 79.20%
Multi-family........... 3,082 .39 3,899 .45 4,416 .54 4,703 .72 5,157 1.00
Commercial real
estate................ 38,760 4.92 45,723 5.27 33,057 4.07 23,368 3.59 19,968 3.90
Construction and land.. 31,671 4.02 27,145 3.13 23,919 2.95 25,297 3.88 26,337 5.14
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans.. 657,205 83.46 768,442 88.53 728,334 89.64 585,217 89.82 457,209 89.24
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Commercial.............. 56,196 7.14 26,689 3.07 20,062 2.47 14,473 2.22 12,756 2.49
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer Loans:
Home equity lines...... 25,482 3.24 26,252 3.02 25,021 3.08 27,995 4.30 29,373 5.73
Second mortgages....... 40,630 5.16 38,862 4.48 32,122 3.95 18,064 2.77 9,111 1.78
Other consumer loans... 7,872 1.00 7,828 .90 6,985 .86 5,813 .89 3,874 .76
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans.. 73,984 9.40 72,942 8.40 64,128 7.89 51,872 7.96 42,358 8.27
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans
receivable........... 787,385 100.00% 868,073 100.00% 812,524 100.00% 651,562 100.00% 512,323 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan
losses................ (12,016) (10,937) (8,788) (5,607) (4,239)
Undisbursed proceeds of
construction mortgages
in process............ (7,903) (7,164) (5,274) (6,568) (5,511)
Deferred loan
origination fees,
net................... (779) (1,420) (2,107) (1,795) (2,596)
-------- -------- -------- -------- --------
Loans receivable, net.. 766,687 848,552 796,355 637,592 499,977
Mortgage loans held for
sale.................. 52,334 84,867 23,331 17,747 6,816
-------- -------- -------- -------- --------
Loans receivable, net
and mortgage loans
held for sale........ $819,021 $933,419 $819,686 $655,339 $506,793
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
Loan Maturity. The following table shows the remaining contractual maturity
of the Company's loans at March 31, 1999. The table does not include the
effect of future principal prepayments.
<TABLE>
<CAPTION>
At March 31, 1999
--------------------------------------------------------------------
One- to Commercial
Four- Multi- Real Construction Total
Family Family Estate and Land Commercial Consumer Loans
-------- ------ ---------- ------------ ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less....... $ 409 $ -- $ 6,221 $17,528 $16,987 $25,863 $ 67,008
-------- ------ ------- ------- ------- ------- --------
After one year:
More than one year to
three years........... 2,297 22 9,685 17 9,127 4,748 25,896
More than three years
to five years......... 13,209 110 12,931 25 21,978 10,999 59,252
More than five years
to 10 years........... 101,414 710 6,958 358 7,561 15,427 132,428
More than 10 years to
20 years.............. 182,347 1,283 2,489 8,765 543 13,803 209,230
More than 20 years..... 284,016 957 476 4,978 -- 3,144 293,571
-------- ------ ------- ------- ------- ------- --------
Total due after one
year.................. 583,283 3,082 32,539 14,143 39,209 48,121 720,377
-------- ------ ------- ------- ------- ------- --------
Total amount due....... $583,692 $3,082 $38,760 $31,671 $56,196 $73,984 787,385
======== ====== ======= ======= ======= =======
Less:
Allowance for loan
losses.............. (12,016)
Undisbursed proceeds
of construction mort-
gages in process.... (7,903)
Deferred loan origi-
nation fees, net.... (779)
--------
Loans receivable,
net................... $766,687
========
</TABLE>
The following table sets forth, at March 31, 1999, the dollar amount of
loans, excluding mortgage loans held for sale, contractually due after March
31, 2000, and whether such loans have fixed interest rates or adjustable
interest rates.
<TABLE>
<CAPTION>
Due After March 31, 2000
----------------------------
Fixed Adjustable Total
-------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family.............................. $311,760 $271,523 $583,283
Multi-family..................................... 189 2,893 3,082
Commercial real estate........................... 28,987 3,552 32,539
Construction and land............................ 1,616 12,527 14,143
-------- -------- --------
Total mortgage loans........................... 342,552 290,495 633,047
Commercial loans................................... 35,145 4,064 39,209
Consumer loans..................................... 48,121 -- 48,121
-------- -------- --------
Total loans.................................... $425,818 $294,559 $720,377
======== ======== ========
</TABLE>
Origination, Sale and Servicing of Loans. The Company's mortgage lending
activities are conducted primarily by its loan personnel operating at its 14
banking offices and five loan origination centers and through a network of
approximately 65 active loan correspondents, wholesale loan brokers and other
financial institutions approved by the Company. All loans originated by the
Company, either through internal sources or through loan correspondents are
underwritten by the Company pursuant to the Company's policies and procedures.
For the fiscal year ended March 31, 1999, the Company's loan correspondents
originated $371.5 million in loans. The Company originates both adjustable-
rate and fixed-rate loans. The Company's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which is affected by the current and expected future level of interest
rates.
5
<PAGE>
Generally, all loans originated by the Company are originated for investment
with the exception of longer-term fixed-rate one- to four-family mortgage
loans. While the Company has in the past, from time to time, retained fixed-
rate one- to four-family loans and sold adjustable-rate one-to four-family
loans, it is the general policy of the Company to sell substantially all of
the one- to four-family fixed-rate mortgage loans with maturities over 12
years that it originates and to retain substantially all fixed-rate loans with
maturities of up to 12 years and all adjustable-rate one- to four-family
mortgage loans which it originates. The one- to four-family loan products
currently originated for sale by the Company include a variety of mortgage
loans which conform to the underwriting standards specified by the Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") ("conforming loans") and, to a lesser extent, loans
which do not conform to FNMA or FHLMC standards due to loan amounts ("jumbo
loans"), or which otherwise vary from agency underwriting standards. The
Company also sells all mortgage loans insured by the Federal Housing
Administration ("FHA") and the Veterans' Administration ("VA"). All one- to
four-family loans sold by the Company are sold pursuant to master commitments
negotiated with FNMA, FHLMC and other investors to purchase loans meeting such
investors' defined criteria. Although the Company has entered into master
commitment contracts, such contracts generally do not require the purchasers
to buy or the Company to deliver a specific amount of mortgage loans.
The Company currently sells substantially all longer-term fixed-rate
conforming mortgage loans it originates to FNMA and FHLMC. Sales of loans are
made without recourse to the Company in the event of default by the borrower,
except, in the case of VA loans, which are subject to limitations on the VA's
loan guarantees. The Company generally retains the servicing rights on the
mortgage loans sold to FNMA and FHLMC but generally sells all VA, FHA, long-
term jumbo loans and non-conforming loans to institutional investors on a
servicing released basis.
Between the time the Company issues loan commitments and the time such loans
or the securities into which they are converted are sold, the Company is
exposed to movements in the market price due to changes in market interest
rates. The Company manages this risk by utilizing forward cash sales of loans
or mortgage-backed securities primarily to FNMA and FHLMC (such forward sales
of loans or mortgage-backed securities are collectively referred to as
"forward sale commitments"). Generally, the Company attempts to cover between
60% and 70% of the principal amount of the loans that it has committed to fund
at specified interest rates with forward sale commitments. However, the type,
amount and delivery date of forward sale commitments the Company will enter
into is based upon anticipated movements in market interest rates, bond market
conditions and management's estimates of closing volumes and the length of the
origination or purchase commitments. Differences between the volume and timing
of actual loan origination and purchases and management's estimates can expose
the Company to losses. If the Company is not able to deliver the mortgage
loans or mortgage-backed securities during the appropriate delivery period
called for by the forward sale commitment, the Company may be required to pay
a non-delivery fee, repurchase the delivery commitments at current market
prices or purchase whole loans at a premium for delivery. The above activity
is managed continually; however, there can be no assurances that the Company
will be successful in its effort to minimize interest-rate risk between the
time origination or purchase commitments are issued and the ultimate sale of
the loan. At March 31, 1999, the Company had $71.0 million of forward sales
commitments.
At March 31, 1999, the Company was servicing its portfolio of $819.0 million
of loans receivable, net and mortgage loans held for sale and $1.564 billion
of loans for others, primarily consisting of conforming fixed-rate loans sold
by the Company. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments on behalf of
the borrowers and generally administering the loans. All of the loans
currently being serviced for others are loans which have been sold by the
Company. The gross servicing fee income from loans originated and purchased is
generally .25 to .38% of the total balance of the loan serviced.
During the fiscal years ended March 31, 1999 and March 31, 1998, the Company
originated $664.0 million and $463.8 million of fixed-rate and adjustable-rate
one- to four-family loans, respectively, of which $63.8
6
<PAGE>
million and $136.2 million, respectively, were retained by the Company. The
fixed-rate loans retained by the Company consisted primarily of loans with
terms of 12 years or less. The Company recognizes, at the time of sale, the
cash gain or loss on the sale of the loans based on the difference between the
net cash proceeds received and the carrying value of the loans sold. On April
1, 1996, the Company implemented Statement of Financial Accounting Standards
("SFAS") No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122")
as amended by SFAS No. 125, pursuant to which the value of servicing rights
are recognized as an asset of the Company. The book value of this asset at
March 31, 1999, net of amortization, was $6.5 million.
The Company has, in the past, from time to time, purchased loans or
participations in loans, primarily one- to four-family mortgage loans, and had
$4.5 million of purchased loans at March 31, 1999. Purchases of loans from
correspondent financial institutions are underwritten pursuant to the
Company's policies and are closed in the name of the correspondent financial
institution but immediately purchased by the Company for its mortgage banking
activities. At March 31, 1999, the Company had $52.3 million in mortgage loans
held for sale consisting of fixed-rate one- to four-family loans.
The following table sets forth the Company's loan originations,
participations, sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance(1)...................... $ 933,419 $ 819,686 $ 655,339
Loans originated:
Mortgage loans:
One- to four-family................... 663,999 463,765 421,088
Multi-family.......................... -- 220 189
Commercial real estate................ 31,601 25,599 17,809
Construction and land................. 36,985 32,677 27,316
---------- ---------- ----------
Total mortgage loans................ 732,585 522,261 466,402
---------- ---------- ----------
Commercial.............................. 19,851 11,539 11,316
---------- ---------- ----------
Consumer loans:
Home equity lines..................... 17,185 13,537 5,516
Second mortgages...................... 20,869 19,224 21,636
Other consumer loans.................. 6,028 3,794 2,956
---------- ---------- ----------
Total consumer loans................ 44,082 36,555 30,108
---------- ---------- ----------
Total loans originated.................. 796,518 570,355 507,826
---------- ---------- ----------
Total............................... 1,729,937 1,390,041 1,163,165
Less:
Principal repayments and other, net..... (277,623) (188,899) (124,482)
Loan charge-offs, net................... (121) (201) (569)
Proceeds from sale of mortgage loans.... (632,737) (266,109) (217,591)
Transfer of mortgage loans to REO....... (435) (1,413) (837)
---------- ---------- ----------
Loans receivable, net and mortgage loans
held for sale............................ 819,021 933,419 819,686
Mortgage loans held for sale............ (52,334) (84,867) (23,331)
---------- ---------- ----------
Ending balance, loans receivable, net..... $ 766,687 $ 848,552 $ 796,355
========== ========== ==========
</TABLE>
- --------
(1) Includes mortgage loans held for sale.
7
<PAGE>
One- to Four-Family Mortgage Lending. The Company offers both fixed-rate and
adjustable-rate mortgage ("ARM") loans secured by one- to four-family
residences with maturities of up to 30 years. Substantially all of such loans
are secured by property located in Southern New England. Loan originations are
generally obtained from the Company's commissioned loan representatives,
correspondent banking relationships and wholesale brokers and their contacts
with the local real estate industry, existing or past customers, and members
of the local communities. At March 31, 1999, residential one- to four-family
mortgage loans totaled $583.7 million, or 74.1% of the Company's total loans
receivable. Of the Company's one-to-four family residential mortgage loans,
$312.2 million, or 53.5%, were fixed-rate loans and $271.5 million, or 46.5%,
were adjustable-rate loans.
The Company's fixed-rate mortgage loans currently are made for terms from
seven to 30 years. The Company sells substantially all fixed-rate residential
mortgage loans that it originates with a maturity greater than 12 years and
retains the servicing on all loans sold to FNMA and FHLMC. The Company
generally retains for its portfolio shorter-term, fixed-rate loans with a
maturity of 12 years or less and all adjustable-rate one- to four-family
loans.
The Company currently offers a number of ARM loan programs with interest
rates which are fixed for a period of one, three, four, five or seven years
and adjust annually thereafter. The Company's ARM loans generally provide for
periodic (not more than 2%) and overall (not more than 6%) caps on the
increase or decrease in the interest rate at any adjustment date and over the
life of the loan, respectively. The interest rate adjustment on these loans is
generally indexed to the one-year U.S. Treasury CMT Index.
The Company's policy is to originate one- to four-family residential first-
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained with the
exception of FHA and VA loans. Mortgage loans originated by the Company
include due-on-sale clauses which provide the Company with the contractual
right to deem the loan immediately due and payable in the event the borrower
transfers ownership of the property without the Company's consent. Due-on-sale
clauses are an important means of adjusting the rates on the Company's fixed-
rate mortgage loan portfolio and the Company has generally exercised its
rights under these clauses.
The origination of adjustable-rate residential mortgage loans, as opposed to
fixed-rate residential mortgage loans, helps reduce the Company's exposure to
increases in interest rates. However, adjustable-rate loans may pose credit
risks not inherent in fixed-rate loans, primarily because as interest rates
rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
reduce the credit risk associated with its adjustable-rate loans but also
limit the interest rate sensitivity of its adjustable-rate mortgage loans.
In an effort to provide financing for first-time and moderate income home
buyers, the Company offers FHA and VA loans and also has its own first-time
home buyer program. These programs offer single-family residential mortgage
loans to qualified individuals. These loans are offered with terms of up to 30
years. Such loans must be secured by a one- to four-family owner-occupied
unit. These loans are originated using modified underwriting guidelines with
reduced down payments and loan fees. Such loans are originated in amounts up
to 97% of the lower of the property's appraised value or the sale price.
Private mortgage insurance is normally required. The Company expects to
achieve a lower rate of return on loans originated under the first time home
buyer program when compared to other residential mortgage loans because the
Company typically charges: a lower rate of interest; a lower mortgage
origination fee or; lower closing costs on such loan programs.
Commercial Real Estate Lending. The Company originates commercial real
estate loans that are generally secured by properties used for business
purposes such as manufacturing, office buildings, retail facilities,
recreation facilities, or apartment buildings located in the Company's primary
market area. To a lesser extent, the Company originates construction,
acquisition and development loans to experienced developers known to the
8
<PAGE>
Company for the construction of residential or commercial developments. The
Company's commercial real estate underwriting policy provides that commercial
real estate loans may generally be made in amounts up to 80% of the appraised
value of the property. Commercial real estate lending is limited by the Bank's
regulatory loans-to-one borrower limit which at March 31, 1999 was $15.4
million. The Company currently originates commercial real estate loans,
generally with terms of up to 10 years and amortizations of up to 20 years
with the outstanding balance due and payable at the end of the loan term. The
Company's adjustable-rate loans generally have interest rates that adjust
daily and are indexed to the prime rate of interest. In reaching its decision
on whether to make a commercial real estate loan, the Company considers the
net operating income of the property, the borrower's expertise, credit history
and profitability and the value of the underlying property. The Company has
generally required that the properties securing commercial real estate loans
have debt service coverage ratios (the ratio of earnings before debt service
to debt service) of at least 1.20x. In addition, environmental assessments are
generally required for all commercial real estate loans in excess of $500,000.
Generally, all commercial real estate loans made to corporations, partnerships
and other business entities require personal guarantees by the principals. On
an exception basis, the Company may waive a personal guarantee on such loans
depending on the creditworthiness of the borrower, the amount of the down
payment, and other mitigating circumstances. The Company's commercial real
estate loan portfolio at March 31, 1999 was $38.8 million, or 4.9% of total
loans receivable. At March 31, 1999, the largest commercial real estate loan
in the Company's portfolio had an outstanding principal balance of $2.0
million.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than one- to four-family residential mortgage
loans. Because payments on loans secured by commercial real estate properties
are often dependent on successful operation or management of the properties,
repayment of such loans may be subject to a greater extent to prevailing
conditions in the real estate market or the economy. The Company seeks to
minimize these risks through its underwriting standards.
Commercial Lending. The Company also originates commercial loans to
businesses generally operating in the Company's primary market area. Such
loans are generally secured by equipment, inventory, accounts receivable, and
real estate, in the case of owner-occupied commercial property where repayment
is significantly dependent on the underlying business. The Company offers
commercial loans in the form of term loans and lines of credit. Term loans are
generally offered with either fixed or adjustable rates of interest and terms
of up to ten years. Most term loans fully amortize during the term of such
loan. Business lines of credit generally have terms of one-year and are
indexed to the Company's prime rate of interest or the prime rate as published
in The Wall Street Journal. These lines of credit are renewable annually.
In making commercial loans, the Company considers primarily the financial
resources of the borrower, the borrower's ability to repay the loan out of net
operating income, the Company's lending history with the borrower and the
value of the collateral. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principals
are required. However, on an exception basis, personal guarantees may be
waived on such loans depending on the creditworthiness of the borrower and
other mitigating circumstances. The Company's largest commercial loan at March
31, 1999 was a $2.0 million line of credit of which no funds were advanced at
March 31, 1999. At such date, the Company had $16.1 million of unadvanced
commercial lines of credit. At March 31, 1999, the Company had $56.2 million
of commercial loans which amounted to 7.1% of the Company's total loans
receivable.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial loans are of higher risk and typically are
made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the
success of the business itself. Further, any collateral securing such loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business.
9
<PAGE>
Multi-Family Lending. The Company originates adjustable-rate multi-family
mortgage loans generally secured by five to 12 unit residential apartment
buildings located in the Company's primary market area. Such loans adjust
annually, have a 25 year term and are indexed to the one year FHLB advance
rate. As a result of uncertain market conditions in its primary market area,
the Company currently originates multi-family loans on a limited and highly
selective basis. In reaching its decision on whether to make a multi-family
loan, the Company considers the value of the underlying property as well as
the qualifications of the borrower. Other factors relating to the property to
be considered are: the net operating income of the mortgaged premises before
debt service and depreciation; the debt service ratio; and the ratio of the
loan amount to appraised value. Pursuant to the Company's current underwriting
policies, a multi-family mortgage loan may only be made in an amount up to 60%
of the appraised value of the underlying property. The maximum amount of a
multi-family loan is limited by the Company's loans-to-one borrower limit
which, at March 31, 1999, was $15.4 million.
When evaluating the qualifications of the borrower for a multi-family loan,
the Company considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property,
and the Company's lending experience with the borrower. The Company's
underwriting guidelines require that the borrower be able to demonstrate
strong management skills and the ability to maintain the property from current
rental income. The borrower is required to present evidence of the ability to
repay the mortgage and a history of making mortgage payments on a timely
basis. In making its assessment of the creditworthiness of the borrower, the
Company generally reviews the financial statements, employment and credit
history of the borrower, as well as other related documentation. All multi-
family loans made to corporations, partnerships and other business entities
require personal guarantees by the principal borrowers. The Company's multi-
family loan portfolio at March 31, 1999, totaled $3.1 million, or .4% of total
loans receivable. At March 31, 1999, the Company had no multi-family loans
with an outstanding carrying balance in excess of $150,000.
Loans secured by apartment buildings and other multi-family residential
properties generally involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
properties are often dependent on successful operation or management of the
properties, repayment of such loans may be subject to a greater extent to
prevailing conditions in the real estate market or the economy. The Company
seeks to minimize these risks through its underwriting policies.
Construction and Land Lending. The Company originates construction and land
loans primarily for the development of single-family residences. Such loans
are made principally to individuals building their primary residence and, to a
lesser extent, to licensed and experienced developers known to the Company in
its primary market area for the construction of single-family developments.
The Company generally does not originate loans secured by raw land. In the
case of construction and land mortgage loans to individuals building their
primary residence, such loans are originated in amounts up to 90% of the
appraised value of the property, as improved. Construction and land loans to
commercial developers are originated in amounts up to 70% of the lesser of the
appraised value of the property, as improved, or the sales price. Proceeds of
construction and land loans are disbursed as phases of the construction are
completed. Generally, if the borrower is a corporation, partnership or other
business entity, personal guarantees by the principals are required. The
Company's largest construction and land loan at March 31, 1999 was a
performing loan with a $600,000 carrying balance secured by a single-family
home located in Shrewsbury, Massachusetts. At March 31, 1999, the Company had
$31.7 million of construction and land loans which amounted to 4.0% of the
Company's total loans receivable.
Construction and land financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied
real estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including
interest) of construction. If the estimate of value proves to be inaccurate,
the Company may be confronted with a project, when completed, having a value
which is insufficient to assure full repayment.
Consumer Lending. Consumer loans at March 31, 1999 amounted to $74.0
million, or 9.4% of the Company's total loans receivable, and consisted
primarily of home equity lines of credit and second mortgage
10
<PAGE>
loans, and, to a significantly lesser extent, secured and unsecured personal
loans and new and used automobile loans. Such loans are generally originated
in the Company's primary market area and generally are secured by real estate,
deposit accounts, personal property and automobiles. These loans are typically
shorter term and generally have higher interest rates than one- to four-family
mortgage loans.
The Company offers two types of home equity loans: a variable-rate "open-end
line of credit" and a fixed-rate "second mortgage". Substantially all of the
Company's home equity loans are secured by second liens on one- to four-family
residences located in the Company's primary market area. At March 31, 1999,
home equity loans totaled $66.1 million, or 8.4% of the Company's total loans
and 89.4% of total consumer loans. Home equity lines of credit have variable
rates of interest which can generally adjust on a monthly basis. The interest
rate on such loans is indexed to the prime rate as reported in The Wall Street
Journal and generally have an 18% lifetime limit on interest rates. Generally,
the maximum combined loans-to-value ratio ("LTV") on home equity loans is 80%;
however, fixed-rate second mortgage loans up to $50,000 and lines of credit up
to $25,000 can have an LTV of up to 100% on the property as long as other
underwriting criteria are satisfied. At March 31, 1999, the Company had $61.9
million of variable-rate home equity lines of credit with an outstanding
balance of $25.5 million, which was 3.2% of total loans receivable and 34.4%
of total consumer loans. Second mortgage loans are generally offered with
terms of up to 15 years and only with fixed-rates of interest which vary
depending on the amortization period chosen by the borrower. At March 31,
1999, fixed-rate second mortgage loans totaled $40.6 million, or 5.2% of the
Company's total loans receivable and 54.9% of total consumer loans. The
underwriting standards employed by the Company for home equity lines of credit
and second mortgage loans include a determination of the applicant's credit
history and an assessment of the applicant's ability to meet existing
obligations and payments on the proposed loan and the value of the collateral
securing the loan. The stability of the applicant's monthly income may be
determined by verification of gross monthly income from primary employment
and, additionally, from any verifiable secondary income. Creditworthiness of
the applicant is of primary consideration.
The Company also originates other types of consumer loans consisting of
secured and unsecured personal loans and new and used automobile loans.
Secured personal loans are generally secured by deposit accounts, stocks or
bonds. Unsecured personal loans generally have a maximum borrowing limitation
of $10,000 and generally allow a maximum debt ratio (the ratio of debt service
to net earnings) of 40%. Automobile loans have a maximum borrowing limitation
of 95% of the sale price of a new automobile and 80% of the lesser of the
purchase price or fair market value of a used automobile. At March 31, 1999,
personal loans totaled $4.4 million, or 0.6% of the Company's total loans
receivable and 5.9% of consumer loans; and automobile loans totaled $3.5
million, or 0.4% of total loans receivable and 4.8% of consumer loans.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family residential mortgage
loans. In such cases, repossessed collateral for a defaulted loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the
underlying collateral. Further, consumer loan collections on these loans are
dependent on the borrower's continuing financial stability and, therefore, are
more likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Finally, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans in the event of a default. At
March 31, 1999, consumer loans 90 days or more delinquent totaled $40,000.
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Company. In connection
with one- to four-family mortgage loans, the Board of Directors has authorized
the following persons and committees to approve loans up to the amounts
indicated: owner-occupied mortgages that meet the general underwriting
standards of FNMA and FHLMC, with an 80% or lower LTV ratio and which do not
exceed FNMA and FHLMC maximum limits, may be approved by the Company's
underwriters; all other mortgage loans in amounts up to $300,000 must be
approved by the Company's Director of Residential Loan Production. The Senior
Vice President of the Mortgage Banking Group or Senior Vice
11
<PAGE>
President of Banking Group must approve mortgage loans in excess of $300,000
and up to $500,000. The Company's Retail Loan Committee must approve loans in
excess of $500,000 and up to $750,000. Approval of the Board of Directors'
Executive Committee is required for any loan in excess of $750,000.
With respect to multi-family and construction and land loans, the Board of
Directors has authorized the following persons and committees to approve loans
up to the amounts indicated: mortgage loans in amounts up to $250,000 must be
approved by the Company's Director of Residential Loan Production; mortgage
loans in excess of $250,000 and up to $400,000 require the approval of either
the Company's Senior Vice President of Mortgage Banking Group or Senior Vice
President of Banking Group; mortgage loans in excess of $400,000 and up to
$500,000 require the approval of the Company's Retail Loan Committee; loans in
excess of $500,000 require the approval of the Board of Directors' Executive
Committee.
In connection with consumer loans, the Board of Directors has authorized the
following persons and committees to approve loans up to the amounts indicated:
consumer loans up to $100,000 and which meet certain lending criteria may be
approved by the Company's Consumer Loan Manager; any consumer loan up to
$250,000 may be approved by either the Company's Senior Vice President of
Mortgage Banking Group, Senior Vice President of Banking Group, Director of
Residential Loan Production or Director of Commercial Services; loans in
excess of $250,000 and up to $400,000 must be approved by the Company's Retail
Loan Committee; and loans in excess of $400,000 must be approved by the Board
of Directors' Executive Committee.
With respect to commercial and commercial real estate loans to borrowers
with total credit exposure of up to $600,000, the Board of Directors has
authorized the approval of these loans by commercial lending officers of the
Company with progressively higher levels of responsibility as the amount of
aggregate credit exposure increases. Loans to borrowers with total credit
exposure in excess of $600,000 and up to $3 million require the approval of
the Commercial Loan Committee and loans to borrowers with total credit
exposure in excess of $3 million require the approval of the Board of
Directors' Executive Committee. Additionally, the President and CEO has
lending authority up to $4 million.
Pursuant to OTS regulations, loans to one borrower cannot, subject to
certain exceptions, exceed 15% of the Bank's unimpaired capital and surplus.
At March 31, 1999, the loans to one borrower limit was $15.4 million.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies and Classified Assets. Reports listing all delinquent accounts
are generated and reviewed by management on a monthly basis and the Board of
Directors performs a monthly review of all loans or lending relationships
delinquent 90 days or more and all real estate owned ("REO"). The procedures
taken by the Company with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower
is habitually delinquent. When a borrower fails to make a required payment on
a loan, the Company takes a number of steps to have the borrower cure the
delinquency and restore the loan to current status. The Company generally
sends the borrower a written notice of non-payment after the loan is first
past due. The Company's guidelines provide that telephone, written
correspondence and/or face-to-face contact will be attempted to ascertain the
reasons for delinquency and the prospects of repayment. When contact is made
with the borrower at any time prior to foreclosure, the Company will attempt
to obtain full payment, offer to provide budget and finance counseling
services, work out a repayment schedule with the borrower to avoid foreclosure
or, in some instances, accept a deed in lieu of foreclosure. In the event
payment is not then received or the loan not otherwise satisfied, additional
letters and telephone calls generally are made. If the loan is still not
brought current or satisfied and it becomes necessary for the Company to take
legal action, which typically occurs after a loan is 90 days or more
delinquent, the Company will commence foreclosure proceedings against any real
property that secures the loan. If a foreclosure action is instituted and the
loan is not brought current, paid in full, or refinanced before the
foreclosure sale, the property securing the loan generally is sold at
foreclosure and, if purchased by the Company, becomes REO.
12
<PAGE>
Federal regulations and the Company's Credit Risk Review Policy require that
the Company utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Company has incorporated
the OTS internal asset classifications as a part of its credit monitoring
system. The Company currently classifies problem and potential problem assets
as "Substandard," "Doubtful" or "Loss" assets. An asset is considered
"Substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis
of currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss", it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.
A savings institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the OTS
which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
has adopted an interagency policy statement on the allowance for loan and
lease losses. The policy statement provides guidance for financial
institutions on both the responsibilities of management for the assessment and
establishment of adequate allowances and guidance for banking agency examiners
to use in determining the adequacy of general valuation guidelines. Generally,
the policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management has analyzed all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and that management has established
acceptable allowance evaluation processes that meet the objectives set forth
in the policy statement. Although management believes that, based on
information currently available to it at this time, its allowance for loan
losses is adequate, actual losses are dependent upon future events and, as
such, further additions to the level of allowances for loan losses may become
necessary.
The Company's Credit Risk Review Committee reviews and classifies the
Company's assets on a quarterly basis and the Board of Directors reviews the
results of the reports on a quarterly basis. The Company classifies assets in
accordance with the management guidelines described above. At March 31, 1999,
the Company had $3.9 million of loans designated as Substandard. As of March
31, 1999, the Company had 18 loans totaling $3.2 million designated as Special
Mention. These loans are designated as Special Mention because of inherent
weaknesses that currently exist but might be correctable in a twelve month
cycle. Accordingly, they require additional monitoring. At March 31, 1999, the
largest loan designated as Special Mention was a commercial loan with a
carrying balance of $723,000, and was secured by all business assets and a
mortgage lien.
13
<PAGE>
The following table sets forth delinquencies in the Company's loan portfolio
as of the dates indicated:
<TABLE>
<CAPTION>
At March 31, 1999 At March 31, 1998
------------------------------------- -------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------ ------------------ ------------------ ------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One- to four-
family.......... 6 $283 16 $ 971 11 $683 17 $1,073
Multi-family.... -- -- -- -- -- -- 1 101
Commercial real
estate.......... -- -- 3 1,142 2 176 3 1,199
Construction and
land............ -- -- 1 117 -- -- 2 169
--- ---- --- ------ --- ---- --- ------
Total mortgage
loans........... 6 283 20 2,230 13 859 23 2,542
--- ---- --- ------ --- ---- --- ------
Commercial
Loans............ 1 9 3 280 1 16 4 74
--- ---- --- ------ --- ---- --- ------
Consumer Loans:
Home equity
lines........... 1 162 2 36 1 15 5 425
Second
mortgages....... -- -- -- -- 5 59 -- --
Other consumer
loans........... 1 1 3 4 4 6 6 7
--- ---- --- ------ --- ---- --- ------
Total consumer
loans........... 2 163 5 40 10 80 11 432
--- ---- --- ------ --- ---- --- ------
Total loans
(1)............. 9 $455 28 $2,550 24 $955 38 $3,048
=== ==== === ====== === ==== === ======
Delinquent loans
to loans
receivable,
net............. 0.06% 0.33% 0.11% 0.36%
<CAPTION>
At March 31, 1997
-------------------------------------
60-89 Days 90 Days or More
------------------ ------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Mortgage Loans:
One- to four-
family.......... 12 $ 525 33 $1,908
Multi-family.... 1 202 2 268
Commercial real
estate.......... -- -- 1 976
Construction and
land............ -- -- 2 232
-------- --------- -------- ---------
Total mortgage
loans........... 13 727 38 3,384
-------- --------- -------- ---------
Commercial
Loans............ 1 23 -- --
-------- --------- -------- ---------
Consumer Loans:
Home equity
lines........... 6 180 4 114
Second
mortgages....... 3 34 3 95
Other consumer
loans........... 10 57 9 69
-------- --------- -------- ---------
Total consumer
loans........... 19 271 16 278
-------- --------- -------- ---------
Total loans
(1)............. 33 $1,021 54 $3,662
======== ========= ======== =========
Delinquent loans
to loans
receivable,
net............. 0.13% 0.46%
</TABLE>
- ----
(1) Loans in the 90 days or more column consist of those loans 90 days or more
past due and other loans which have been identified by the Company as
presenting uncertainty with respect to the collectability of interest or
principal.
14
<PAGE>
Non-Performing Assets. The following table sets forth information regarding
non-accrual loans and REO. At March 31, 1999, REO totaled $344,000 consisting
of 3 properties, 2 of which were secured by commercial real estate and 1 of
which was secured by a multi-family home. It is the policy of the Company to
cease accruing interest on loans 90 days or more past due and to reverse all
accrued interest.
<TABLE>
<CAPTION>
At March 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family............... $ 971 $1,073 $1,908 $2,469 $2,501
Multi-family...................... -- 101 268 334 51
Commercial real estate............ 1,142 1,199 976 -- 85
Construction and land............. 117 169 232 -- --
------ ------ ------ ------ ------
Total mortgage loans............ 2,230 2,542 3,384 2,803 2,637
------ ------ ------ ------ ------
Commercial loans.................... 280 74 -- 87 --
------ ------ ------ ------ ------
Consumer loans:
Home equity lines................. 36 425 114 956 386
Second mortgages.................. -- -- 95 196 --
Other consumer loans.............. 4 7 69 3 10
------ ------ ------ ------ ------
Total consumer loans............ 40 432 278 1,155 396
------ ------ ------ ------ ------
Total nonaccrual loans.......... 2,550 3,048 3,662 4,045 3,033
Real estate owned, net(1)............. 344 595 665 643 296
------ ------ ------ ------ ------
Total non-performing assets..... $2,894 $3,643 $4,327 $4,688 $3,329
====== ====== ====== ====== ======
Allowance for loan losses as a percent
of loans(2).......................... 1.54% 1.27% 1.09% 0.87% 0.84%
Allowance for loan losses as a percent
of non-performing loans(3)........... 471.22% 358.83% 239.98% 138.62% 139.76%
Non-performing loans as a percent of
loans(2)(3).......................... 0.33% 0.35% 0.45% 0.63% 0.60%
Non-performing assets as a percent of
total assets(4)...................... 0.21% 0.28% 0.44% 0.65% 0.59%
</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 those loans 90 days or more past due and
other loans which have been identified by the Company as presenting
uncertainty with respect to the collectability of interest or principal.
(4) Non-performing assets consist of non-performing loans and REO.
Impaired Loans. The Company adopted a new accounting method for measuring
loan impairment on April 1, 1995. Adoption of this accounting standard did not
have a material effect on the comparability of the above tables. Impaired
loans are commercial and commercial real estate loans for which it is probable
that the Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The definition of "impaired loans" is
not the same definition of "non-accrual loans," although the two categories
overlap. Non-accrual loans include impaired loans and are those on which the
accrual of interest is discontinued when collectibility of principal or
interest is uncertain or payments of principal or interest have been
contractually past due 90 days. The Company may choose to place a loan on non-
accrual status due to payment delinquency or uncertain collectibility, while
not classifying the loan as impaired, if (i) it is not probable that the
Company will collect all amounts due in accordance with the contractual terms
of the loan or (ii) the loan is not a commercial or a commercial real estate
loan. Factors considered by management in determining impairment include
payment status and collateral value. The amount of impairment for these types
of impaired loans is determined by the difference between the present value of
the expected cash flows related to the loan, using the original contractual
interest rate, and its recorded value, or, in the case of collateralized
loans, the difference between the fair value of the collateral and the
recorded amount of the loan. When foreclosure is
15
<PAGE>
probable, impairment is measured based on the fair value of the collateral.
Residential mortgage and consumer loans are measured for impairment
collectively. Loans that experience insignificant payment delays and
insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower's prior payment record and
the amount of the shortfall in relation to the principal and interest owed.
At March 31, 1999 and March 31, 1998, total impaired loans were $1.6 million
and $1.5 million, respectively. At March 31, 1999, impaired loans of $1.6
million required an impairment allowance of $919,000. All impaired loans have
been measured using the fair value of the collateral method. During the fiscal
year ended March 31, 1999, the average recorded value of impaired loans was
$1.5 million. For these loans, $122,000 of interest income was recognized
while $227,000 of interest income would have been recognized under the
original terms.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance
for loan losses is maintained at an amount management considers adequate to
cover estimated losses in loans receivable which are deemed probable and
estimable based on information currently known to management. The allowance is
based upon a number of factors, including current economic conditions, actual
loss experience and industry trends. In addition, the OTS and FDIC, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. The OTS and FDIC may require the Company to make
additional provisions for estimated loan losses based upon judgments different
from those of management. As of March 31, 1999, the Company's allowance for
loan losses was 1.54% of total loans receivable as compared to 1.27% as of
March 31, 1998. The increase in allowance for loan losses of $1.1 million
reflects management's assessment of the loan portfolio and its composition.
The Company had non-accrual loans of $2.6 million and $3.0 million at March
31, 1999 and March 31, 1998, respectively. The Company will continue to
monitor and modify its allowances for loan losses as conditions dictate. While
management believes the Company's allowance for loan losses is sufficient to
cover losses inherent in its loan portfolio at this time, no assurances can be
given that the Company's level of allowance for loan losses will be sufficient
to cover future loan losses incurred by the Company or that future adjustments
to the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from those assumed by management to determine
the current level of the allowance for loan losses.
16
<PAGE>
The following table sets forth activity in the Company's allowance for loan
losses for the years set forth in the following table.
<TABLE>
<CAPTION>
At or For the Year Ended March 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year......... $10,937 $ 8,788 $5,607 $4,239 $3,964
Provision for loan losses............ 1,200 2,350 3,750 2,626 653
Charge-offs:
Mortgage loans:
One- to four-family.............. 12 188 331 218 168
Multi-family..................... -- -- 82 -- --
Commercial real estate........... -- -- -- 967 25
Construction and land............ -- -- -- -- --
Commercial loans................... 74 -- 87 -- 15
Consumer loans:
Home equity lines................ 30 -- 116 68 113
Second mortgages................. 9 15 10 -- --
Other consumer loans............. 13 9 11 35 79
------- ------- ------ ------ ------
Total.......................... 138 212 637 1,288 400
Recoveries........................... 17 11 68 30 22
------- ------- ------ ------ ------
Balance at end of year............... $12,016 $10,937 $8,788 $5,607 $4,239
======= ======= ====== ====== ======
Ratio of net charge-offs during the
year to average loans outstanding
during the year..................... 0.01% 0.02% 0.07% 0.23% 0.08%
======= ======= ====== ====== ======
</TABLE>
17
<PAGE>
The following tables set forth the Company's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------------- --------------------------- -------------------------- --------------------------
Percent Percent Percent Percent
of Loans of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each Percent of in Each
Allowance Category Allowance Category Allowance Category Allowance Category
to Total to Total to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------- ---------- -------- ------- ---------- -------- ------ ---------- -------- ------ ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgages:
Residential..... $ 2,517 20.95% 78.54% $ 2,959 27.05% 83.26% $2,769 31.51% 85.57% $2,175 38.79% 86.23%
Commercial...... 2,725 22.68 4.92 3,023 27.64 5.27 2,239 25.48 4.07 1,195 21.31 3.59
------- ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total........... 5,242 43.63 83.46 5,982 54.69 88.53 5,008 56.99 89.64 3,370 60.10 89.82
Commercial...... 3,111 25.89 7.14 1,309 11.97 3.07 932 10.60 2.47 621 11.08 2.22
Consumer........ 1,320 10.99 9.40 1,358 12.42 8.40 1,151 13.10 7.89 829 14.79 7.96
Unallocated..... 2,343 19.49 -- 2,288 20.92 -- 1,697 19.31 -- 787 14.03 --
------- ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for loan
losses.......... $12,016 100.00% 100.00% $10,937 100.00% 100.00% $8,788 100.00% 100.00% $5,607 100.00% 100.00%
======= ====== ====== ======= ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
1995
--------------------------
Percent
of Loans
Percent of in Each
Allowance Category
to Total to Total
Amount Allowance Loans
------ ---------- --------
<S> <C> <C> <C>
Mortgages:
Residential..... $1,223 28.85% 85.34%
Commercial...... 1,265 29.84 3.90
------ ---------- --------
Total........... 2,488 58.69 89.24
Commercial...... 600 14.16 2.49
Consumer........ 473 11.16 8.27
Unallocated..... 678 15.99 --
------ ---------- --------
Total allowance
for loan
losses.......... $4,239 100.00% 100.00%
====== ========== ========
</TABLE>
18
<PAGE>
Investment Activities
Federally-chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured
banks and savings institutions, bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, federally-chartered
savings institutions may also invest their assets in commercial paper,
investment-grade corporate debt securities and mutual funds whose assets
conform to the investments that a federally-chartered savings institution is
otherwise authorized to make directly. Additionally, the Company must maintain
minimum levels of investments that qualify as liquid assets under OTS
regulations. Historically, the Company has maintained liquid assets above the
minimum OTS requirements and at a level considered to be adequate to meet its
normal daily activities.
The investment policy of the Company, as approved by the Board of Directors,
requires management to maintain adequate liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk
and to complement the Company's lending activities. Generally, the Company's
investment policy is more restrictive than the OTS regulations allow and,
accordingly, the Company has invested primarily in AAA-rated mortgage-related
securities (consisting of mortgage-backed pass-through securities and
collateralized mortgage obligations) and U.S. government and federal agency
securities, all of which qualify as liquid assets under the OTS liquidity
regulations. As required by SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities ("SFAS No. 115"), the Company designates
investment securities as held to maturity, available for sale, or held for
trading. The Company generally invests in securities as part of a wholesale
leverage strategy as well as to manage interest-rate risk and to maintain
liquidity levels deemed appropriate by management. At March 31, 1999, the
Company had short-term investments of $14.4 million, or 1.0% of assets,
consisting of short-term commercial paper and overnight deposits. As of the
same date, the Company also maintained investments in trading securities of
$94,000. At March 31, 1999, the Company's investment securities available for
sale portfolio totaled $5.6 million, or 0.4% of assets, consisting of
marketable equity securities with a fair value of $5.6 million. At March 31,
1999, the Company's investment securities held to maturity portfolio totaled
$10.0 million, or 0.7% of assets, consisting of U.S. government securities
with a weighted average remaining maturity of 3 months.
At March 31, 1999, the Company had invested $414.1 million, or 29.7% of
assets, in mortgage-backed securities issued by either by the Government
National Mortgage Association ("GNMA"), FNMA, FHLMC or by private mortgage
security issuers. The portfolio consisted of $408.5 million of mortgage-backed
securities classified as available for sale, or 98.6% of total mortgage-backed
securities, and $5.6 million of mortgage-backed securities classified as held
to maturity, or 1.4% of total mortgage-backed securities. Of the $414.1
million in mortgage-backed securities, $334.9 million were adjustable-rate
securities and $79.2 million were fixed-rate securities.
Of the $334.9 million of adjustable-rate securities, $179.5 million were
GNMA one year CMT indexed ARMs with 1% maximum annual rate adjustments and 5%
maximum lifetime rate adjustments, $35.9 million were FNMA and FHLMC one year
CMT indexed ARMs with initial fixed-rate periods of one to five years, and 2%
maximum annual rate adjustments and 6% maximum lifetime rate adjustments,
$33.1 million were FNMA and FHLMC Eleventh District Cost of Funds ("COFI")
indexed monthly resetting ARMs with no annual rate caps, but with lifetime
caps of 9.28% to 13.07%, $57.6 were FNMA and AAA-rated privately issued COFI
indexed collateralized mortgage obligation ("CMO") bonds, $16.9 million were
GNMA and AAA-rated privately issued LIBOR indexed CMO bonds, and $11.9 million
were AAA-rated privately issued CMO bonds with a 5 year initial fixed-rate
period that will then be indexed to monthly floating LIBOR.
Of the $79.2 million of fixed-rate securities, $56.7 million were AAA-rated
privately issued CMO bonds with average lives of approximately 5 years or
less, $21.4 million were FNMA and FHLMC 7 year securities with approximately 5
years until the required repayment, and $1.1 million were GNMA and FHLMC pass-
through securities with an average remaining term of 99 months.
19
<PAGE>
Investments in mortgage-backed securities involve a risk that actual
prepayments will differ from estimated prepayments over the life of the
security. Mortgage-backed securities may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby changing the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in
the event such securities are redeemed by the issuer. In addition, the market
value and/or interest rates of such securities may be adversely affected by
changes in interest rates.
The following table sets forth certain information regarding the amortized
cost and fair value of the Company's short-term investments and investment
securities at the dates indicated:
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments... $14,422 $14,422 $ -- $ -- $39,410 $39,410
======= ======= ======= ======= ======= =======
Investment securities:
Trading:
Limited Partnership.. $ 94 $ 94 $ -- $ -- $ -- $ --
Available for sale:
Marketable equity
securities.......... 5,660 5,575 1,815 3,701 5 888
U.S. Government and
agency obligations.. -- -- 4,001 4,011 -- --
------- ------- ------- ------- ------- -------
Total available for
sale.............. 5,660 5,575 5,816 7,712 5 888
------- ------- ------- ------- ------- -------
Held to maturity:
U.S. Government and
agency obligations.. 9,998 10,030 20,490 20,584 20,991 20,958
Federal Home Loan
Bank note........... -- -- 2,001 2,001 -- --
------- ------- ------- ------- ------- -------
Total held to
maturity.......... 9,998 10,030 22,491 22,585 20,991 20,958
------- ------- ------- ------- ------- -------
Total investment
securities............ $15,752 $15,699 $28,307 $30,297 $20,996 $21,846
======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE>
The following table sets forth certain information regarding the amortized
cost and fair values of the Company's mortgage-backed securities at the dates
indicated:
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- --------------------------
Amortized Percent Fair Amortized Percent Fair Amortized Percent Fair
Cost of Total Value Cost of Total Value Cost of Total Value
--------- -------- -------- --------- -------- -------- --------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities and
collateralized mortgage
obligations:
Available for sale:
Fixed-rate............ $ 78,661 19.0% $ 78,071 $ 39,922 17.6% $ 40,411 $32,059 67.5% $31,732
Adjustable-rate....... 329,822 79.6 330,380 174,283 76.9 174,732 -- -- --
-------- ----- -------- -------- ----- -------- ------- ----- -------
Total available for
sale............... 408,485 98.6 408,451 214,205 94.5 215,143 32,059 67.5 31,732
-------- ----- -------- -------- ----- -------- ------- ----- -------
Held to maturity:
Fixed-rate............ 1,055 .1 1,127 1,502 .7 1,594 1,953 4.1 2,043
Adjustable-rate....... 4,553 .3 4,606 10,993 4.8 11,094 13,482 28.4 13,535
-------- ----- -------- -------- ----- -------- ------- ----- -------
Total held to
maturity........... 5,608 .4 5,733 12,495 5.5 12,688 15,435 32.5 15,578
-------- ----- -------- -------- ----- -------- ------- ----- -------
Total mortgage-backed
securities and
collateralized mortgage
obligations............ $414,093 100.0% $414,184 $226,700 100.0% $227,831 $47,494 100.0% $43,310
======== ===== ======== ======== ===== ======== ======= ===== =======
</TABLE>
The following table sets forth the Company's mortgage-backed securities
activities for the periods indicated.
<TABLE>
<CAPTION>
For the Year
Ended March 31,
----------------------------
1999 1998 1997
--------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance................................ $ 226,700 $ 47,494 $ 7,248
Mortgage-backed securities and collateralized-
mortgage obligations purchased:
Held to maturity............................. -- -- 9,996
Available for sale........................... 346,219 201,533 32,061
Collateralized-mortgage obligations sold....... (3,883) -- --
Collateralized-mortgage obligation maturities.. (19,473) -- --
Principal repayments of securities............. (134,316) (22,366) (1,805)
Net accretion (amortization) of discount
(premium)..................................... (1,154) 39 (6)
--------- -------- -------
Ending balance................................... $ 414,093 $226,700 $47,494
========= ======== =======
</TABLE>
21
<PAGE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the Company's investment
securities and mortgage-backed securities as of March 31, 1999.
<TABLE>
<CAPTION>
At March 31, 1999
---------------------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years Total
----------------- --------------------- --------------------- --------------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- ---------- --------- ---------- --------- ----------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
securities(1):
Held to maturity:
U.S. Government and
agency obligations... $9,998 6.10% $ -- -- % $ -- --% $ -- --% $ 9,998 6.10%
------ ---- ---------- ------- ---------- ------- ----------- -------- -------- ----
Total investment
securities............ $9,998 6.10% $ -- -- % $ -- --% $ -- --% $ 9,998 6.10%
====== ==== ========== ======= ========== ======= =========== ======== ======== ====
Mortgage-backed
securities and
collateralized-
mortgage obligations:
Available for sale:
Fixed rate............ $ -- -- % $ 14 7.71% $ 815 8.45% $ 225 10.00% $ 1,054 8.77%
Adjustable rate....... -- -- -- -- -- -- 4,554 6.52 4,554 6.52
------ ---- ---------- ------- ---------- ------- ----------- -------- -------- ----
Total mortgage-backed
securities held to
maturity............. -- -- 14 7.71 815 8.45 4,779 6.69 5,608 6.96
------ ---- ---------- ------- ---------- ------- ----------- -------- -------- ----
Held to maturity:
Fixed-rate............ -- -- 18,837 6.97 2,570 6.98 -- -- 21,407 6.98
Adjustable-rate....... -- -- -- -- 23,213 5.76 363,831 6.09 387,044 6.07
------ ---- ---------- ------- ---------- ------- ----------- -------- -------- ----
Total mortgage-backed
securities available
for sale............. -- -- 18,837 6.97 25,783 5.88 363,831 6.09 408,451 6.16
------ ---- ---------- ------- ---------- ------- ----------- -------- -------- ----
Total mortgage-backed
securities and
collateralized-
mortgage obligations.. $ -- -- % $ 18,851 6.98% $ 26,598 5.96% $ 368,610 6.10% $414,059 6.17%
====== ==== ========== ======= ========== ======= =========== ======== ======== ====
</TABLE>
- --------
(1) Does not include $5,575 of marketable equity securities available for sale
at fair value at March 31, 1999.
Sources of Funds
General. Deposits, loan and mortgage-backed security repayments and
prepayments, proceeds from sales of loans, cash flows generated from
operations and FHLB advances and other borrowings are the primary sources of
the Company's funds for use in lending, investing and for other general
purposes.
Deposits. The Company offers a variety of deposit accounts with a range of
interest rates and terms. The Company's deposits consist of business checking,
money market, savings, NOW and certificate accounts. For the fiscal year ended
March 31, 1999, core deposits (defined as total deposits less certificate
accounts) represented 34.6% of total average deposits. The flow of deposits is
influenced significantly by general economic conditions, changes in money
market rates, prevailing interest rates and competition. The Company's
deposits are obtained predominantly from the areas in which its banking
offices are located. The Company has historically relied primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Company's ability to attract
and retain deposits. The Company uses traditional means of advertising its
deposit products, including radio and print media and generally does not
solicit deposits from outside its market area. While the Company does not
actively solicit certificate accounts in excess of $100,000 or use brokers to
obtain deposits, the Company may, from time to time, solicit such deposits or
utilize brokered deposits depending upon market conditions. In recent years,
the Company, in connection with its growth strategy, has significantly
22
<PAGE>
increased its deposit base by establishing new banking offices in and around
its primary market area, primarily in Rhode Island, and competitively pricing
its deposit products to attract and retain deposit accounts and build its
market share of deposits. However, a less aggressive deposit pricing strategy
during 1999 caused the Company's average certificate balances to decrease from
$506.4 million, or 71.0% of total average deposits, during the year ended
March 31, 1998 to $441.6 million, or 65.4% of total average deposits, during
the year ended March 31, 1999. The Company's cost of average interest-bearing
deposits decreased from 4.93% for the year ended March 31, 1998 to 4.47% for
the year ended March 31, 1999. At March 31, 1999, the weighted average
remaining maturity of the Company's certificate accounts was 8.6 months.
The following table presents the deposit activity of the Company for the
periods indicated:
<TABLE>
<CAPTION>
For the Year Ended March 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Net deposits................................ $ (61,201) $ (48,513) $ 109,952
Interest credited on deposit accounts....... 27,583 33,025 30,274
--------- --------- ---------
Total increase (decrease) in deposit
accounts................................. $ (33,618) $ (15,488) $ 140,226
========= ========= =========
</TABLE>
At March 31, 1999, the Company had $55.6 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
--------------- ------------ --------------
(Dollars in thousands)
<S> <C> <C>
Three months or less............................ $ 13,713 4.91%
Over 3 through 6 months......................... 14,994 4.88
Over 6 through 12 months........................ 16,366 5.45
Over 12 months.................................. 10,507 5.66
------------ ---------
Total......................................... $ 55,580 5.20%
============ =========
</TABLE>
23
<PAGE>
The following table sets forth the distribution of the Company's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods
presented utilize average month-end balances.
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Percent Percent Percent
of Total of Total of Total
Average Average Average Average Average Average Average Average Average
Balance Deposits Cost Balance Deposits Cost Balance Deposits Cost
-------- -------- ------- -------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business checking
accounts............... $ 58,408 8.6% -- % $ 44,064 6.2% -- % $ 38,428 6.0% -- %
Money market accounts... 31,871 4.7 2.66 30,788 4.3 2.87 28,967 4.5 2.86
Savings accounts........ 93,118 13.8 2.01 86,915 12.2 2.41 82,536 12.9 2.50
NOW accounts............ 50,760 7.5 0.98 45,619 6.4 1.76 38,801 6.0 1.97
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total.................. 234,157 34.6 1.37 207,386 29.1 1.82 188,732 29.4 1.94
-------- ----- ---- -------- ----- ---- -------- ----- ----
Certificate accounts(1):
Less than six
months(2)............. 214,975 31.8 5.38 228,480 32.0 5.59 184,111 28.7 5.60
Over six through
12 months(2).......... 85,409 12.7 5.48 105,989 14.8 5.82 94,439 14.7 5.82
Over 12 through
36 months............. 50,758 7.5 5.84 79,289 11.1 6.14 84,341 13.1 6.20
Over 36 months......... 5,625 0.8 6.12 6,771 1.0 6.20 12,479 1.9 6.68
IRA and KEOGH.......... 84,789 12.6 5.63 85,911 12.0 5.89 78,084 12.2 6.08
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total certificate
accounts.............. 441,556 65.4 5.51 506,440 70.9 5.78 453,454 70.6 5.87
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total average
deposits.............. $675,713 100.0% 4.08% $713,826 100.0% 4.63% $642,186 100.0% 4.71%
======== ===== ==== ======== ===== ==== ======== ===== ====
</TABLE>
- --------
(1) Based on remaining contractual maturity of certificates.
(2) Includes the net effect of interest rate swaps.
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at March 31, 1999.
<TABLE>
<CAPTION>
Period to Maturity from March 31, 1999 At March 31,
----------------------------------------------------- --------------------------
Less than One to Two to Three to Four to
One Year Two Years Three Years Four Years Five Years 1999 1998 1997
--------- --------- ----------- ---------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00%............. $ 2,788 $ 1,397 $ -- $ -- $ -- $ 4,185 $ -- $ 260
4.01 to 5.00%.......... 197,760 27,446 1,168 166 72 226,612 8,783 18,741
5.01 to 6.00%.......... 118,324 27,869 8,209 1,353 1,313 157,068 370,626 396,283
6.01 to 7.00%.......... 12,888 5,831 2,837 6,421 -- 27,977 76,392 82,551
7.01 to 8.00%.......... 7,876 4,267 -- -- -- 12,143 18,732 26,975
Over 8.01%............. 4 -- -- -- -- 4 4 4
-------- ------- ------- ------ ------ -------- -------- --------
Total.................. $339,640 $66,810 $12,214 $7,940 $1,385 $427,989 $474,537 $524,814
======== ======= ======= ====== ====== ======== ======== ========
</TABLE>
Borrowings. The Company utilizes advances from the FHLB and reverse
repurchase agreements with securities dealers as alternatives to retail
deposits to fund its operations as part of its operating strategy. During the
year ended March 31, 1999, the Company used FHLB borrowings to a greater
extent to fund its purchase of mortgage-backed securities. FHLB advances are
collateralized primarily by certain of the Company's mortgage loans and
mortgage-backed securities. FHLB advances are made pursuant to several
different credit programs, each of which has its own interest rate and range
of maturities. The maximum amount that the FHLB will advance to member
institutions, including the Bank, fluctuates from time to time in accordance
with the policies of the Federal Housing Finance Board ("FHFB") and the FHLB.
At March 31, 1999, the Company had $530.7 million in outstanding advances from
the FHLB as compared to $356.6 million at March 31, 1998.
24
<PAGE>
The following table sets forth certain information regarding the Company's
FHLB Advances at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Year
Ended March 31,
----------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding.................... $464,404 $214,278 $131,523
======== ======== ========
Maximum amount outstanding at any month-end
during the period............................. $558,286 $356,615 $177,580
======== ======== ========
Balance outstanding at end of period........... $530,655 $356,615 $111,062
======== ======== ========
Weighted average interest rate during the peri-
od............................................ 5.64% 6.05% 6.25%
======== ======== ========
Weighted average interest rate at end of peri-
od............................................ 5.30% 5.87% 6.13%
======== ======== ========
</TABLE>
The following table sets forth certain information regarding the Company's
reverse repurchase agreements and other borrowings at or for the periods ended
on the dates indicated:
<TABLE>
<CAPTION>
At or For the Year
Ended March 31,
---------------------------
1999 1998 1997
-------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Reverse repurchase agreements and other borrowings:
Average balance outstanding....................... $ 50,103 $ 10,173 $ --
======== ======== =====
Maximum amount outstanding at any month-end during
the period....................................... $ 73,299 $ 47,250 $ --
======== ======== =====
Balance outstanding at end of period.............. $ 55,326 $ 47,250 $ --
======== ======== =====
Weighted average interest rate during the period.. 5.30% 5.63% -- %
======== ======== =====
Weighted average interest rate at end of period... 4.83% 5.58% -- %
======== ======== =====
</TABLE>
Subsidiary Activities
First Federal Savings Bank of America includes its wholly-owned
subsidiaries: FIRSTFED MORTGAGE CORPORATION, a Massachusetts corporation which
is currently inactive; FIRSTFED INVESTMENT CORPORATION, a Massachusetts
security corporation; and CELMAC INVESTMENT CORPORATION, also a Massachusetts
security corporation.
FAB FUNDING CORPORATION ("FAB FUNDING"), a Massachusetts corporation, is a
wholly-owned subsidiary of the Company formed primarily to finance stock
purchases by the Company's Employee Stock Ownership Plan and related trust
("ESOP"). The financing from FAB FUNDING is collateralized by the shares of
stock of the Company purchased by the ESOP, which are released for
distribution to eligible employees of the Company as payments are made on the
loan. Except for the loan to the ESOP, FAB FUNDING has no significant
operations.
FIRSTFED INSURANCE AGENCY, LLC, a Massachusetts corporation, was formed on
January 7, 1999 and is jointly owned by the Company and FAB FUNDING. The
Agency offers a comprehensive insurance product line including auto, home,
life, accident and health insurance to consumers and businesses. The Agency is
licensed to sell insurance in both Massachusetts and Rhode Island and is
subject to regulations of, and periodic examinations by, both of these states.
25
<PAGE>
Personnel
As of March 31, 1999, the Company had 284 authorized full-time employee
positions and 51 authorized part-time employee positions, for a total of
approximately 309.5 full time equivalents. The employees are not represented
by a collective bargaining unit and the Company considers its relationship
with its employees to be good.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal
law to file reports with, and otherwise comply with, the rules and regulations
of the Office of Thrift Supervision ("OTS"). The Bank is subject to extensive
regulation, examination and supervision by the OTS, as its primary federal
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") managed
by the FDIC. The Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution
can engage and is intended primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are referred
to below or elsewhere herein. The description of statutory provisions and
regulations applicable to savings institutions and their holding companies set
forth in this Form 10-K does not purport to be a complete description of such
statutes and regulations and their effects on the Bank and the Company.
Holding Company Regulation
The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender. See "Federal Savings Institution
Regulation--QTL Test." Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the OTS, the Company
would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would generally be limited
to activities permissible for bank holding companies under Section 4(c)(8) of
the Bank Holding Company Act, subject to the prior approval of the OTS, and
certain activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written
approval of the OTS and from acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS considers the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate
26
<PAGE>
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such
restrictions on subsidiary savings institutions as described below. The Bank
must notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries
deemed to pose a threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal
association, e.g., commercial, non-residential real property loans and
consumer loans, are limited to a specified percentage of the institution's
capital or assets.
Capital Requirements. During fiscal 1998, the OTS capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio, a 3% leverage ratio and an 8% risk-based capital
ratio. Effective April 1, 1999, the leverage ratio was changed to require 4%
core capital to adjusted assets (3% for the strongest institutions receiving
the highest rating on the CAMELS financial institution rating system). In
addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard. The OTS regulations also
require that, in meeting the tangible, leverage and risk-based capital
standards, institutions must generally deduct investments in and loans to
subsidiaries engaged in activities as principal that are not permissible for a
national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of at least 4% and
8%, respectively. In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, are multiplied by a risk-
weight factor of 0% to 100%, assigned by the OTS capital regulation based on
the risks believed inherent in the type of asset. Core (Tier 1) capital is
defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles
other than certain mortgage servicing rights and credit card relationships.
The components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to
45% of unrealized gains on available-for-sale equity securities with readily
determinable fair values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. For the present time, the OTS has deferred
implementation of the interest rate risk component. At March 31, 1999, the
Bank met each of its capital requirements.
27
<PAGE>
The following table presents the Bank's capital position at March 31, 1999.
<TABLE>
<CAPTION>
Capital
----------------
Actual Required Excess Actual Required
Capital Capital Amount Percent Percent
-------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible............................. $ 97,544 $27,767 $69,777 7.03% 2.00%
Core (Leverage)...................... 97,544 55,534 42,010 7.03 4.00
Tier 1 Risk-based.................... 97,544 26,125 71,419 14.93 4.00
Risk-based........................... 105,684 52,250 53,434 16.18 8.00
</TABLE>
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of
which depends upon the institution's degree of undercapitalization. Generally,
a savings institution that has a ratio of total capital to risk weighted
assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted
assets of less than 4% or a ratio of core capital to total assets of less than
4% (3% or less for institutions with the highest examination rating) is
considered to be "undercapitalized." A savings institution that has a total
risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3%
or a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the OTS is required to
appoint a receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital restoration
plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Bank are presently insured by
the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1998,
FICO payments for SAIF members approximated 6.10 basis points, while Bank
Insurance Fund ("BIF") members paid 1.22 basis points. By law, there will be
pro rata sharing of FICO payments between SAIF and BIF members on the earlier
of January 1, 2000 or the date the SAIF and BIF are merged.
The Bank's assessment rate for year end 1999 ranged from 5.88 to 9.10 basis
points and the premium paid for this period was $588,000. Payments toward the
FICO bonds amounted to $393,000. The FDIC has authority to increase insurance
assessments. A significant increase in SAIF insurance premiums would likely
have an adverse effect on the operating expenses and results of operations of
the Bank. Management cannot predict what insurance assessment rates will be in
the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
28
<PAGE>
Thrift Rechartering Legislation. Legislation enacted in 1996 provided that
the BIF and SAIF were to have merged on January 1, 1999 if there were no more
savings associations as of that date. Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Bank is unable to predict
whether such legislation will be enacted or the extent to which the
legislation would restrict or disrupt its operations.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if secured by specified readily-marketable
collateral. At March 31, 1999, the Bank's limit on loans to one borrower was
$15.4 million, and the Bank's largest aggregate outstanding balance of loans
to one borrower was $2.8 million.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal
Revenue Code or maintain at least 65% of its "portfolio assets" (total assets
less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles,
including goodwill; and (iii) the value of property used to conduct business)
in certain "qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed securities) in at least
9 months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is subject
to certain operating restrictions and may be required to convert to a bank
charter. As of March 31, 1999, the Bank maintained 84.7% of its portfolio
assets in qualified thrift investments and, therefore, met the qualified
thrift lender test. Recent legislation has expanded the extent to which
education loans, credit card loans and small business loans may be considered
"qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger. The rule in effect during fiscal 1998
established three tiers of institutions based primarily on an institution's
capital level. An institution that exceeded all capital requirements before
and after a proposed capital distribution ("Tier 1 Bank") and had not been
advised by the OTS that it was in need of more than normal supervision, could,
after prior notice but without obtaining approval of the OTS, make capital
distributions during the calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would
reduce by one-half the excess capital over its capital requirements at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions required prior regulatory
approval. At March 31, 1999, the Bank was a Tier 1 Bank. Effective April 1,
1999, the OTS's capital distribution regulation changed. Under the new
regulation, an application to and the prior approval of the OTS is required
prior to any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under OTS regulations
(i.e., generally, examination ratings in the two top categories), the total
capital distributions for the calendar year exceed net income for that year
plus the amount of retained net income for the preceding two years, the
institution would be undercapitalized following the distribution or the
distribution would otherwise be contrary to a statute, regulation or agreement
with OTS. If an application is not required, the institution must still
provide prior notice to OTS of the capital distribution. In the event the
Bank's capital fell below its regulatory requirements or the OTS notified it
that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed
from time to time by the OTS to
29
<PAGE>
any amount within the range of 4% to 10%. Monetary penalties may be imposed
for failure to meet these liquidity requirements. The Bank's liquidity ratio
for March 31, 1999 was 30.4%, which exceeded the applicable requirements. The
Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the OTS
to fund the agency's operations. The general assessments, paid on a semi-
annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest
quarterly thrift financial report. The assessments paid by the Bank for the
fiscal year ended March 31, 1999 totaled $230,000.
Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of
any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
also governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the
individual and aggregate amount of loans the Bank may make to insiders based,
in part, on the Bank's capital position and requires certain board approval
procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution
and all institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate
in wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive
or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases. The
FDIC has the authority to recommend to the Director of the OTS that
enforcement action to be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines,
the OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
30
<PAGE>
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $46.5 million or less (subject to adjustment
by the Federal Reserve Board), the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10% (subject to adjustment by the Federal Reserve Board between
8% and 14%) against that portion of total transaction accounts in excess of
$46.5 million. The first $4.9 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. The Bank complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal year,
consolidated basis and the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company. The Bank has not been audited by the
IRS since 1983, which covered the tax years 1980 to 1981. For its 1999 taxable
year, the Bank is subject to a maximum federal income tax rate of 35%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts for tax years beginning after 1995 and requires savings institutions to
recapture (i.e., take into income) certain portions of their accumulated bad
debt reserves. Thrift institutions eligible to be treated as "small banks"
(assets of $500 million or less) are allowed to use the Experience Method
applicable to such institutions, while thrift institutions that are treated as
large banks (assets exceeding $500 million) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts
is no longer available for any financial institution.
Under the 1996 Act, for its current and future taxable years, the Bank is
not permitted to make additions to its tax bad debt reserves. In addition, the
Bank is required to recapture (i.e., take into income) over a six year period
the excess of the balance of its tax bad debt reserves as of December 31, 1995
other than its supplemental reserve for losses on loans, if any, over the
balance of such reserves as of December 31, 1987. As a result of such
recapture, the Bank will incur an additional tax liability of approximately
$750,000 which is generally expected to be taken into income beginning in 1996
over a six year period.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and
then from the Bank's supplemental reserve for losses on loans, to the extent
thereof, and an amount based on the amount distributed (but not in excess of
the amount of such reserves) will be included in the Bank's income. Non-
dividend distributions include distributions in excess of the Bank's current
and accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not be so included in the Bank's income.
31
<PAGE>
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if the Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount
of such distribution (but not in excess of the amount of such reserves) would
be includable in income for federal income tax purposes, assuming a 35%
federal corporate income tax rate. The Banks does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
SAIF Recapitalization Assessment. The Funds Act levied a 65.7-cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment was reported as an expense for the quarter ended
September 30, 1996. The Funds Act includes a provision which states that the
amount of any special assessment paid to capitalize SAIF under this
legislation is deductible under Section 162 of the Code in the year of
payment.
State and Local Taxation
Commonwealth of Massachusetts Taxation. On July 27, 1995, the Governor of
Massachusetts approved legislation to reduce the tax rate applicable to
financial institutions, including savings banks, from 12.54% on their net
income to 10.50% on their net income apportioned to Massachusetts. The reduced
rate is to be phased-in over a five year period whereby the rate was 12.15%
for 1995, 11.71% for 1996, 11.32% for 1997, 10.91% for 1998, and 10.50% for
1999 and thereafter. Net income for years beginning before January 1, 1999
includes gross income as defined under the provisions of the Code, plus
interest from bonds, notes and evidences of indebtedness of any state,
including Massachusetts, less the deductions, excluding the deductions for
dividends received, state taxes, and net operating losses, as defined under
the provisions of the Code. For taxable years beginning on or after January 1,
1999, the definition of state taxable income is modified to allow a deduction
for 95% of dividends received from stock where the Company owns 15% or more of
the voting stock of the institution paying the dividend and to allow
deductions from certain expenses allocated to federally tax exempt
obligations. Subsidiary corporations of the Company conducting business in
Massachusetts must file separate Massachusetts state tax returns and are taxed
as financial institutions, with certain modifications and grandfathering for
taxable years before 1996. The net worth or tangible property of such
grandfathered subsidiaries is taxed at a rate of 0.26%. Such grandfathered
subsidiaries may file consolidated tax returns on the net earnings portion of
the corporate tax.
Corporations which qualify as "securities corporations," as defined by the
Massachusetts tax code, are taxed at a special rate of 0.33% of their gross
income if they qualify as a "bank-holding company" under the Massachusetts tax
code. The Company qualified for this reduced tax rate through December 31,
1998.
Rhode Island Taxation. Subsidiary corporations of the Company conducting
business in Rhode Island are subject to a Rhode Island excise tax and must
file separate Rhode Island state tax returns. The tax is based upon an
apportioned percentage of net income related to activities conducted within
the State. The apportionment percentage is determined by adding the taxpayer's
receipts factor, property factor, and payroll factor and dividing the sum by
three. For fiscal year 1999, the tax rate was 9%.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
32
<PAGE>
Additional Item.--Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company and the Bank who are not also directors.
<TABLE>
<CAPTION>
Age at
Name March 31, 1999 Position
---- -------------- --------
<S> <C> <C>
Edward A. Hjerpe, III... 40 Executive Vice President, Treasurer, Chief
Operating Officer, and Chief Financial
Officer of the Company and the Bank
Kevin J. McGillicuddy... 59 Senior Vice President of the Company and
the Bank
Frederick R. Sullivan... 57 Senior Vice President of the Company and
the Bank
Terrence M. Tyrrell..... 49 Senior Vice President of the Company and
the Bank
</TABLE>
Item 2. Properties.
The Company currently conducts its business through a centralized
administrative and operations center located in Swansea and 14 full service
banking offices and five loan origination centers, most of which are located
in Southeastern Massachusetts and Rhode Island.
<TABLE>
<CAPTION>
Net Book Value
of Property or
Leasehold
Leased Original Year Date of Improvements
or Leased or Lease at
Location Owned Acquired Expiration March 31, 1999
-------- ------ ------------- ---------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Administrative/Operations/Banking
Office:
ONE FIRSTFED PARK............... Owned 1994 -- $7,688
Swansea, MA 02777
Banking Offices:
27 Park Street.................. Owned 1990 -- 1,653
Attleboro, MA 02703
33 Sullivan Drive............... Owned 1979 -- 1,417
Fall River, MA 02721
1450 Plymouth Avenue............ Owned 1972 -- 324
Fall River, MA 02721
278 Union Street................ Owned 1972 -- 406
New Bedford, MA 02740
254 Rockdale Avenue............. Owned 1983 -- 697
New Bedford, MA 02740
265 Newport Avenue.............. Owned 1996 -- 688
Pawtucket, RI 02860
741 Willett Avenue.............. Owned 1995 -- 671
East Providence, RI 02915
1519 Newman Avenue.............. Owned 1994 -- 522
Seekonk, MA 02771
149 Grand Army Highway.......... Owned 1963 -- 411
Somerset, MA 02725
2 Washington Street............. Owned 1976 -- 665
Taunton, MA 02780
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
of Property or
Leasehold
Leased Original Year Improvements
or Leased or Date of Lease at
Location Owned Acquired Expiration March 31, 1999
-------- ------ ------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
2100 Warwick Avenue..... Owned 1996 -- $ 630
Warwick, RI 02889
975 Ashley
Boulevard(1)........... Leased 1996 -- 669
New Bedford, MA 02745
1215 Park Avenue........ Owned 1998 -- 1,444
Cranston, RI 02910
Loan Origination Centers:
12 White's Path, Unit
7...................... Leased 1992 October 1999(2) --
Yarmouth, MA 02664
62 Auburn Street........ Leased 1990 June 1999(2) --
Auburn, MA 01501
1325 Springfield
Street................. Leased 1992 June 1999(2) --
Agawam, MA 01089
10 Wall Street.......... Leased 1994 January 2000 --
Burlington, MA 01803
333 Main Street......... Leased 1990 September 1999(2) --
East Greenwich, RI 02818
Other Facilities:
1 North Main Street(3).. Owned 1956 -- 601
Fall River, MA 02720
-------
Total................. $18,486
=======
</TABLE>
- --------
(1) In 1996, the Company entered into a lease agreement for the land. The
lease has a commencement date of November 1, 1996 and a term of 20 years
with four five-year renewal options. Subsequent to entering into the lease
agreement, the Company constructed a banking office location which
structure the Company owns.
(2) The Company has options to renew this lease which range from 1 to 3 years.
(3) The Company has leased this property to a third party under a 2 year lease
agreement with three 2 year renewal options. The lease period commenced in
April, 1998.
Item 3. Legal Proceedings.
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary 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 4. Submission of Matters to a Vote of Security Holders.
None.
34
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Shareholder Information" opposite
the inside back cover in the Registrant's 1999 Annual Report to Stockholders
is incorporated herein by reference.
Item 6. Selected Financial Data.
The above-captioned information appears under "Selected Consolidated
Financial and Other Data of the Company" in the Registrant's 1999 Annual
Report to Stockholders on pages 10 and 11 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
1999 Annual Report to Stockholders on pages 13 through 30 and is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This information contained in the Section captioned, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Market Risk and Management of Interest-Rate Risk" on pages 16 through 20 of
the 1999 Annual Report to Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of FIRSTFED AMERICA BANCORP, INC. and
its subsidiaries, together with the report thereon by KPMG LLP appears in the
Registrant's 1999 Annual Report to Stockholders on pages F-1 through F-36 and
are incorporated herein by reference.
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to "Additional Item--Executive
Officers of the Registrant" contained herein and the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 29, 1999,
at pages 5 through 7.
Item 11. Executive Compensation.
The information relating to executive compensation is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on July 29, 1999, at pages 9 through 19 (excluding the
Compensation Committee Report on Executive Compensation and Stock Performance
Graph).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 29, 1999,
at pages 3 through 7.
Item 13. Certain Relationships and Related Transactions.
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on July 29, 1999, at page 19.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated
by reference to the following indicated pages of the 1999 Annual
Report to Stockholders:
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report................................. F-1
Consolidated Balance Sheets as of March 31, 1999 and 1998.... F-2
Consolidated Statements of Operations for the Fiscal Years
Ended March 31, 1999, 1998 and 1997......................... F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Fiscal Years Ended March 31, 1999, 1998 and 1997.... F-4 to F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 31, 1999, 1998 and 1997......................... F-6 to F-7
Notes to Consolidated Financial Statements................... F-8 to F-36
</TABLE>
The remaining information appearing in the 1999 Annual Report to
Stockholders is not deemed to be filed as part of this report, except as
expressly provided herein.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
36
<PAGE>
(3) Exhibits
(a)The following exhibits are filed as part of this report.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of FIRSTFED AMERICA BANCORP, INC.*
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC.*
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP, INC.*
10.1 Form of Employment Agreement between the Bank and Robert F.
Stoico*
10.2 Forms of Employment Agreement between Company and Kevin J.
McGillicuddy and Employment Agreement between the Bank and
Kevin J. McGillicuddy*
10.3 Forms of Employment Agreement between Company and Frederick R.
Sullivan and Employment Agreement between the Bank and
Frederick R. Sullivan*
10.4 Forms of Employment Agreement between Company and Terrence M.
Tyrrell and Employment Agreement between the Bank and Terrence
M. Tyrrell*
10.5 Form of Change in Control Agreement between the Bank and Certain
Executive Officers*
10.6 First Federal Savings Bank of America Employee Severance
Compensation Plan*
10.7 First Federal Savings Bank of America Employee Stock Ownership
Plan and Trust*
10.8 FIRSTFED AMERICA BANCORP, INC. 1997 Stock-Based Incentive Plan
(As amended and restated as of October 29, 1998)****
10.9 First Federal Savings Bank of America 1997 Supplemental
Executive Retirement Plan*
10.10 Form of Employment Agreement between the Bank and
Edward A. Hjerpe, III *****
10.11 FIRSTFED AMERICA BANCORP, INC. 1998 Stock Option Plan ***
10.12 Employment Agreement between Company and Robert F. Stoico (filed
herewith)
10.13 Employment Agreement between Company and Edward A. Hjerpe, III
(filed herewith)
11.0 Computation of earnings per share is incorporated by reference
to the Consolidated Statements of Operations on page F-3 of the
1999 Annual Report to Stockholders.
13.0 Portions of the 1999 Annual Report to Stockholders (filed
herewith)
21.0 Subsidiary information is incorporated herein by reference to
"Part I--Subsidiary Activities" and "Item 1. Business--General"
23.1 Consent of Independent Accountant (filed herewith)
27.0 Financial Data Schedule (filed herewith)
99.0 Proxy Statement for 1999 Annual Meeting (filed herewith)
</TABLE>
- --------
* Incorporated by reference into this document from the Exhibits to Form
S-1, Registration Statement, and any amendments thereto, filed on
September 27, 1996, Registration No. 333-12855
** Incorporated by reference into this document from the Proxy Statement
for the 1997 Annual Meeting of Stockholders dated June 20, 1997.
*** Incorporated by reference into this document from the Proxy Statement
for the 1998 Annual Meeting of Stockholders dated June 15, 1998.
**** Incorporated by reference into this document from the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
***** Incorporated by reference into the Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
(b)Reports on Form 8-K.
None.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Firstfed America Bancorp, Inc.
By: _________________________________
Robert F. Stoico
President and Chief Executive
Officer
DATED: June 29, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief Executive June 29, 1999
______________________________________ Officer and Chairman of
Robert F. Stoico the Board (Principal
Executive Officer)
Executive Vice President, June 29, 1999
______________________________________ Treasurer, Chief
Edward A. Hjerpe, III Operating Officer, and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
Director June 29, 1999
______________________________________
Gilbert C. Oliveira
Director June 29, 1999
______________________________________
Thomas A. Rodgers, Jr.
Director June 29, 1999
______________________________________
Richard W. Cederberg
Director June 29, 1999
______________________________________
John S. Holden, Jr.
Director June 29, 1999
______________________________________
Dr. Paul A. Raymond
Director June 29, 1999
______________________________________
Anthony L. Sylvia
</TABLE>
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Firstfed America Bancorp, Inc.
/s/ Robert F. Stoico
By: _________________________________
Robert F. Stoico
President and Chief Executive
Officer
DATED: June 29, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert F. Stoico President and Chief June 29, 1999
______________________________________ Executive Officer and
Robert F. Stoico Chairman of the Board
(Principal Executive
Officer)
/s/ Edward A. Hjerpe, III Executive Vice President, June 29, 1999
______________________________________ Treasurer, Chief
Edward A. Hjerpe, III Operating Officer, and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
/s/ Gilbert C. Oliveira Director June 29, 1999
______________________________________
Gilbert C. Oliveira
/s/ Thomas A. Rodgers, Jr. Director June 29, 1999
______________________________________
Thomas A. Rodgers, Jr.
/s/ Richard W. Cederberg Director June 29, 1999
______________________________________
Richard W. Cederberg
/s/ John S. Holden, Jr. Director June 29, 1999
______________________________________
John S. Holden, Jr.
/s/ Dr. Paul A. Raymond Director June 29, 1999
______________________________________
Dr. Paul A. Raymond
/s/ Anthony L. Sylvia Director June 29, 1999
______________________________________
Anthony L. Sylvia
</TABLE>
39
<PAGE>
Exhibit 10.12
Employment Agreement between Company and Robert F. Stoico
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement"), originally entered into on January 31,
1997, is amended and restated in its entirety, effective as of April 29, 1999,
by and between FIRSTFED AMERICA BANCORP, INC. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
ONE FIRSTFED PARK, Swansea Mall Drive, Swansea, Massachusetts 02777 and Robert
F. Stoico ("Executive"). Any reference to "Institution" herein shall mean First
Federal Savings Bank of America or any successor thereto.
WHEREAS, the Holding Company wishes continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as Chairman, President and Chief Executive Officer of the Holding
Company. Executive shall render administrative and management services to the
Holding Company such as are customarily performed by persons in a similar
executive capacity. During said period, Executive also agrees to serve, if
appointed or elected, as the case may be, as an officer or director of any
subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of this
Agreement, as amended and restated. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each so
that a constant sixty (60) calendar month term shall remain in effect, until
such time as the Board of Directors of the Holding Company (the "Board") or
Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 8 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the fifth
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and other
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries, including
<PAGE>
the Institution, ("Subsidiaries") and participation in community, professional
and civic organizations; provided, however, that, with the approval of the
Board, as evidenced by a resolution of such Board, from time to time, Executive
may serve, or continue to serve, on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which, in the Board's
judgment, will not present any conflict of interest with the Holding Company or
its Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive, as
compensation, a salary of not less than $370,020 ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
employee benefit plan or deferred compensation arrangement maintained by the
Holding Company or its Subsidiaries. Such Base Salary shall be payable
bi-weekly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually on or about each March 31. Such review shall be
conducted by the Board or a committee designated by the Board. The Board may
increase Executive's Base Salary at any time. Any increase in Base Salary shall
become the new "Base Salary" for purposes of this Agreement. In addition to the
Base Salary provided in this Section 3(a), the Holding Company shall also
provide Executive, with all such other benefits, arrangements and perquisites
described in Exhibit A or otherwise provided uniformly to permanent full-time
employees of the Holding Company or its Subsidiaries.
(b) The Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Holding Company will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plans, medical coverage
or any other employee benefit plan or arrangement made available by the Holding
Company or its Subsidiaries now or in the future to the Holding Company's senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Executive will be entitled to incentive compensation and bonuses
as provided in any plan or arrangement of the Holding Company in which Executive
is eligible to participate. Nothing paid to Executive under any such plan or
- 2 -
<PAGE>
arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive in
performing his obligations under this Agreement, as mutually agreed to by the
board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Holding
Company will provide to Executive for each calendar year during the term of this
Agreement and for the remaining term of this Agreement after a termination of
employment following an Event of Termination as defined in Section 4 of this
Agreement, no later than 90 days after the close of the calendar year to which
such payment pertains ("Benefit Year"), a "Benefit Equity Payment" in addition
to the contributions actually made (or benefits actually accrued) with respect
to such year to any tax-qualified or non-tax-qualified compensation or benefit
plan, arrangement, policy or program funded or sponsored by the Holding Company
or its Subsidiaries, including but not limited to those of the following types:
deferred compensation, retirement, defined benefit pension, defined contribution
pension, supplemental executive retirement, profit sharing, employee stock
ownership, stock option or stock bonus award, life insurance, health, medical,
dental, disability, incentive compensation or bonus plan, perquisites, or other
fringe benefits ("Benefit Plans") made on his behalf or otherwise accrued as
consideration for his services described in Section 1 of this Agreement. The
Benefit Equity Payment shall be an amount calculated by an actuary accountant or
other licensed professional to equal the amount of the contributions (or other
benefits) which would have been made or accrued for Executive for such year
pursuant to all Benefit Plans as consideration for his services described in
Section 1 of this Agreement but were not made or accrued because (i) any of the
Benefit Plans were terminated or not funded, or (ii) Executive was no longer
employed or will not be employed by the Holding Company or its Subsidiaries.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than Retirement, as defined in paragraph (f) of this Section 4, or
Termination For Cause, as defined in Section 7 of this Agreement, or a Change in
Control, as defined in Section 5 of this Agreement; (ii) Executive's resignation
from the Holding Company's employ, upon any (A) notice to Executive by the
Holding Company of a non-renewal of the term of this Agreement; (B) failure to
elect or reelect or to appoint or reappoint Executive as Chairman, President and
Chief Executive Officer of the Holding Company, unless consented to by
Executive, (C) material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1
- 3 -
<PAGE>
of this Agreement (and any such material change shall be deemed a continuing
breach of this Agreement), unless consented to by Executive, (D) relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by
Executive, unless consented to by Executive, (E) material reduction in the
benefits, arrangements and perquisites to Executive as described in Exhibit A,
or as otherwise provided pursuant to Sections 3(a) and 3(b) of this Agreement,
to which Executive does not consent or for which Executive is not or will not be
provided the economic benefit pursuant to Section 3(b) of this Agreement, (F)
liquidation or dissolution of the Holding Company or the Institution, or (G)
breach of this Agreement by the Holding Company. Upon the occurrence of any
event described in clauses (A), (B), (C), (D), (E), (F) or (G), above, Executive
shall have the right to elect to terminate his employment under this Agreement
by resignation upon not less than sixty (60) days prior written notice given
within six full calendar months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be: (i)
the amount of the remaining payments and benefits that Executive would have
earned if he had continued his employment with the Holding Company during the
remaining unexpired term of this Agreement, based on Executive's Base Salary and
benefits provided at the Date of Termination, as set forth in Sections 3(a), (b)
and (d) hereof, as the case may be, and the amount still due Executive under any
paragraph of Section 3 for service through the Date of Termination. At the
election of Executive, which election is to be made within thirty (30) days of
the Date of Termination, such payments shall be made in a lump sum (without
discount for early payment) or paid monthly during the remaining term of the
agreement following Executive's termination. In the event that no election is
made, payment to Executive will be made in a lump sum. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Holding Company
or its Subsidiaries on his behalf pursuant to any retirement, incentive, profit
sharing, employee stock ownership, bonus, performance, disability or other
employee benefit plan maintained by the Holding Company or its Subsidiaries on
Executive's behalf to the extent such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(d) To the extent that the Holding Company or its Subsidiaries continue
to offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans after the Event of Termination, then the Holding Company shall
provide Executive with a payment equal
- 4 -
<PAGE>
to the actuarial value of the provision of such benefit for the period which
runs until the earlier of (i) his death; (ii) his employment by another employer
other than one of which he is the majority owner; or (iii) the end of the
remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant
to Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
(f) Termination of Executive based on "Retirement" shall mean
termination in accordance with the Holding Company's or the Institution's
retirement policy or in accordance with any retirement arrangement established
with Executive's consent with respect to him. Upon termination of Executive upon
Retirement, Executive shall be entitled to all benefits under any retirement
plan of the Holding Company or the its Subsidiaries and other plans to which
Executive is a party or a participant.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control or "Acquisition of Control" of the Institution or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the
Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the
Office of Thrift Supervision (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board 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 Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, 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 Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the
- 5 -
<PAGE>
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement has been distributed soliciting
proxies from stockholders 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
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If any of the events described in Section 5(a) of this Agreement
constituting a Change in Control have occurred, or the Board has determined that
a Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d), (e), (f), and (g) of this Section 5 upon his
termination of employment on or after the date the Change in Control occurs at
any time during the term of this Agreement due to (i) Executive's dismissal,
(ii) Executive's voluntary resignation for any reason on or within the sixty
(60) day period immediately following the date a Change in Control has occurred,
or (iii) Executive's resignation following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or Termination for Cause (as defined in
Section 7 of this Agreement).
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of Executive's
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of: (i) the payments due for the remaining term of the Agreement; or
(ii) five (5) times Executive's average annual compensation for the five (5)
preceding taxable years or, if Executive has been employed by the Holding
Company or any subsidiary for less than five (5) years, the annual average
compensation of Executive for such lesser time period. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, severance payments, retirement benefits, director
or committee fees and fringe benefits paid or to be paid to Executive or paid
for Executive's benefit during any such year, as well as pension, profit sharing
plan, employee stock ownership and other retirement contributions or benefits
(whether or not taxable) made or accrued on behalf of Executive for such year.
At the election of Executive, which election is to be made prior to or within
thirty (30) days of the Date of Termination on or following a Change in Control,
such payment may be made in a lump sum (without discount for early payment) on
or immediately following the Date of Termination (which may be the date a change
in Control occurs) or paid in equal monthly installments during the sixty (60)
months following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the remaining sixty
(60) day term of the Agreement. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
- 6 -
<PAGE>
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, Executive will be entitled to receive benefits due
him under or contributed by the Holding Company or its Subsidiaries on his
behalf pursuant to any retirement, incentive, profit sharing, employee stock
ownership, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's
termination of employment in connection therewith, the Holding Company will
cause to be continued life, medical and disability coverage substantially
identical to the coverage maintained by the Holding Company or its Subsidiaries
for Executive and any of his dependents covered under such plans prior to the
Change in Control. Such coverage and payments shall cease upon the expiration of
sixty (60) full calendar months following the Date of Termination. In the event
Executive's participation in any such plan or program is barred, the Holding
Company shall arrange to provide Executive and his dependents with benefits
substantially similar as those of which Executive and his dependents would
otherwise have been entitled to receive under such plans and programs from which
their continued participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to Executive, Executive will have the option to purchase all rights then held by
the Holding Company or its Subsidiaries to such item for a price equal to the
then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant
to Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable, as
determined for the payment of an excise tax under Section 4999 of the Code (or
any successor provision thereto), with respect to any payment in the nature of
the compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company shall pay to Executive an amount determined under the following formula:
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<PAGE>
An amount equal to: (E x P) + X
WHERE:
X = E x P
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section
4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment,
and other taxes (other than taxes imposed under Section
4999 of the Code) applicable to Executive for the taxable
year in question; and
SLI = the sum of the highest marginal rates of income and
payroll tax applicable to Executive under applicable state
and local laws for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The tax gross-up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the amount determined as "P", above (such greater amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount"), the Holding Company must pay to Executive, in order to put Executive
(or the Holding Company, as the case may be) in the same position as Executive
(or the Holding Company, as the case may be) would have been if the amount
determined as "P" above had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, the independent accountants shall
take into account any and all taxes (including any penalties and interest) paid
by or for Executive or refunded to Executive or
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<PAGE>
for Executive's benefit. As soon as practicable after the Adjustment Amount has
been so determined, the Holding Company shall pay the Adjustment Amount to
Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
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<PAGE>
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date
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<PAGE>
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated, between Executive
and the Institution, such compensation payments and benefits
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<PAGE>
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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<PAGE>
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
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<PAGE>
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, FIRSTFED AMERICA BANCORP, INC. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 29th day of April, 1999.
ATTEST: FIRSTFED AMERICA BANCORP, INC.
/s/ Cecilia R. Viveiros By: /s/ Gilbert C. Oliveira
- ---------------------------- ---------------------------------------
Cecilia R. Viveiros For the Entire Board of Directors
Secretary per the vote on April 29th, 1999
By: /s/ Cecilia R. Viveiros
---------------------------------------
[SEAL]
WITNESS: EXECUTIVE
/s/ Cecilia R. Viveiros By: /s/ Robert F. Stoico
- ---------------------------- ---------------------------------------
Cecilia R. Viveiros Robert F. Stoico
Secretary President and Chief Executive Officer
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<PAGE>
Exhibit 10.13
Employment Agreement between Company and Edward A. Hjerpe, III
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement"), originally entered into on January 31,
1997, is amended and restated in its entirety, effective as of April 29, 1999,
by and between FIRSTFED AMERICA BANCORP, INC. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
ONE FIRSTFED PARK, Swansea Mall Drive, Swansea, Massachusetts 02777 and Edward
A. Hjerpe, III ("Executive"). Any reference to "Institution" herein shall mean
First Federal Savings Bank of America or any successor thereto.
WHEREAS, the Holding Company wishes continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Treasurer of the Holding Company. Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if appointed or elected, as the case may
be, as an officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of this
Agreement, as amended and restated. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each so
that a constant sixty (60) calendar month term shall remain in effect, until
such time as the Board of Directors of the Holding Company (the "Board") or
Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 8 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the fifth
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and other
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries, including
<PAGE>
the Institution, ("Subsidiaries") and participation in community, professional
and civic organizations; provided, however, that, with the approval of the
Board, as evidenced by a resolution of such Board, from time to time, Executive
may serve, or continue to serve, on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which, in the Board's
judgment, will not present any conflict of interest with the Holding Company or
its Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive, as
compensation, a salary of not less than $212,625 ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
employee benefit plan or deferred compensation arrangement maintained by the
Holding Company or its Subsidiaries. Such Base Salary shall be payable
bi-weekly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually on or about each March 31. Such review shall be
conducted by the Board or a committee designated by the Board. The Board may
increase Executive's Base Salary at any time. Any increase in Base Salary shall
become the new "Base Salary" for purposes of this Agreement. In addition to the
Base Salary provided in this Section 3(a), the Holding Company shall also
provide Executive, with all such other benefits, arrangements and perquisites
described in Exhibit A or otherwise provided uniformly to permanent full-time
employees of the Holding Company or its Subsidiaries.
(b) The Holding Company will provide Executive with the opportunity
to participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Holding Company will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plans, medical coverage
or any other employee benefit plan or arrangement made available by the Holding
Company or its Subsidiaries now or in the future to the Holding Company's senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Executive will be entitled to incentive compensation and bonuses
as provided in any plan or arrangement of the Holding Company in which Executive
is eligible to participate. Nothing paid to Executive under any such plan or
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<PAGE>
arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive in
performing his obligations under this Agreement, as mutually agreed to by the
board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Holding
Company will provide to Executive for each calendar year during the term of this
Agreement and for the remaining term of this Agreement after a termination of
employment following an Event of Termination as defined in Section 4 of this
Agreement, no later than 90 days after the close of the calendar year to which
such payment pertains ("Benefit Year"), a "Benefit Equity Payment" in addition
to the contributions actually made (or benefits actually accrued) with respect
to such year to any tax-qualified or non-tax-qualified compensation or benefit
plan, arrangement, policy or program funded or sponsored by the Holding Company
or its Subsidiaries, including but not limited to those of the following types:
deferred compensation, retirement, defined benefit pension, defined contribution
pension, supplemental executive retirement, profit sharing, employee stock
ownership, stock option or stock bonus award, life insurance, health, medical,
dental, disability, incentive compensation or bonus plan, perquisites, or other
fringe benefits ("Benefit Plans") made on his behalf or otherwise accrued as
consideration for his services described in Section 1 of this Agreement. The
Benefit Equity Payment shall be an amount calculated by an actuary accountant or
other licensed professional to equal the amount of the contributions (or other
benefits) which would have been made or accrued for Executive for such year
pursuant to all Benefit Plans as consideration for his services described in
Section 1 of this Agreement but were not made or accrued because (i) any of the
Benefit Plans were terminated or not funded, or (ii) Executive was no longer
employed or will not be employed by the Holding Company or its Subsidiaries.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than Retirement, as defined in paragraph (f) of this Section 4, or
Termination For Cause, as defined in Section 7 of this Agreement, or a Change in
Control, as defined in Section 5 of this Agreement; (ii) Executive's resignation
from the Holding Company's employ, upon any (A) notice to Executive by the
Holding Company of a non-renewal of the term of this Agreement; (B) failure to
elect or reelect or to appoint or reappoint Executive as Executive Vice
President, Chief Operating Officer, Chief Financial Officer and Treasurer of the
Holding Company, unless consented to by Executive, (C) material change in
Executive's function, duties, or responsibilities with the Holding Company or
its Subsidiaries, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position
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<PAGE>
and attributes thereof described in Section 1 of this Agreement (and any such
material change shall be deemed a continuing breach of this Agreement), unless
consented to by Executive, (D) relocation of Executive's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, unless consented to by Executive, unless consented to by Executive,
(E) material reduction in the benefits, arrangements and perquisites to
Executive as described in Exhibit A, or as otherwise provided pursuant to
Sections 3(a) and 3(b) of this Agreement, to which Executive does not consent or
for which Executive is not or will not be provided the economic benefit pursuant
to Section 3(b) of this Agreement, (F) liquidation or dissolution of the Holding
Company or the Institution, or (G) breach of this Agreement by the Holding
Company. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E), (F) or (G), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be: (i)
the amount of the remaining payments and benefits that Executive would have
earned if he had continued his employment with the Holding Company during the
remaining unexpired term of this Agreement, based on Executive's Base Salary and
benefits provided at the Date of Termination, as set forth in Sections 3(a), (b)
and (d) hereof, as the case may be, and the amount still due Executive under any
paragraph of Section 3 for service through the Date of Termination. At the
election of Executive, which election is to be made within thirty (30) days of
the Date of Termination, such payments shall be made in a lump sum (without
discount for early payment) or paid monthly during the remaining term of the
agreement following Executive's termination. In the event that no election is
made, payment to Executive will be made in a lump sum. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Holding Company
or its Subsidiaries on his behalf pursuant to any retirement, incentive, profit
sharing, employee stock ownership, bonus, performance, disability or other
employee benefit plan maintained by the Holding Company or its Subsidiaries on
Executive's behalf to the extent such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(d) To the extent that the Holding Company or its Subsidiaries continue
to offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans after
- 4 -
<PAGE>
the Event of Termination, then the Holding Company shall provide Executive with
a payment equal to the actuarial value of the provision of such benefit for the
period which runs until the earlier of (i) his death; (ii) his employment by
another employer other than one of which he is the majority owner; or (iii) the
end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant
to Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
(f) Termination of Executive based on "Retirement" shall mean
termination in accordance with the Holding Company's or the Institution's
retirement policy or in accordance with any retirement arrangement established
with Executive's consent with respect to him. Upon termination of Executive upon
Retirement, Executive shall be entitled to all benefits under any retirement
plan of the Holding Company or the its Subsidiaries and other plans to which
Executive is a party or a participant.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control or "Acquisition of Control" of the Institution or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the
Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the
Office of Thrift Supervision (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board 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 Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, 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 Institution or the Holding Company or
- 5 -
<PAGE>
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders 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
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If any of the events described in Section 5(a) of this Agreement
constituting a Change in Control have occurred, or the Board has determined that
a Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d), (e), (f), and (g) of this Section 5 upon his
termination of employment on or after the date the Change in Control occurs at
any time during the term of this Agreement due to (i) Executive's dismissal,
(ii) Executive's voluntary resignation for any reason on or within the sixty
(60) day period immediately following the date a Change in Control has occurred,
or (iii) Executive's resignation following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or Termination for Cause (as defined in
Section 7 of this Agreement).
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of Executive's
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of: (i) the payments due for the remaining term of the Agreement; or
(ii) five (5) times Executive's average annual compensation for the five (5)
preceding taxable years or, if Executive has been employed by the Holding
Company or any subsidiary for less than five (5) years, the annual average
compensation of Executive for such lesser time period. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, severance payments, retirement benefits, director
or committee fees and fringe benefits paid or to be paid to Executive or paid
for Executive's benefit during any such year, as well as pension, profit sharing
plan, employee stock ownership and other retirement contributions or benefits
(whether or not taxable) made or accrued on behalf of Executive for such year.
At the election of Executive, which election is to be made prior to or within
thirty (30) days of the Date of Termination on or following a Change in Control,
such payment may be made in a lump sum (without discount for early payment) on
or immediately following the Date of Termination (which may be the date a change
in Control occurs) or paid in equal monthly installments during the sixty (60)
months following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the
- 6 -
<PAGE>
remaining sixty (60) day term of the Agreement. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, Executive will be entitled to receive benefits due
him under or contributed by the Holding Company or its Subsidiaries on his
behalf pursuant to any retirement, incentive, profit sharing, employee stock
ownership, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's
termination of employment in connection therewith, the Holding Company will
cause to be continued life, medical and disability coverage substantially
identical to the coverage maintained by the Holding Company or its Subsidiaries
for Executive and any of his dependents covered under such plans prior to the
Change in Control. Such coverage and payments shall cease upon the expiration of
sixty (60) full calendar months following the Date of Termination. In the event
Executive's participation in any such plan or program is barred, the Holding
Company shall arrange to provide Executive and his dependents with benefits
substantially similar as those of which Executive and his dependents would
otherwise have been entitled to receive under such plans and programs from which
their continued participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to Executive, Executive will have the option to purchase all rights then held by
the Holding Company or its Subsidiaries to such item for a price equal to the
then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant
to Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable, as
determined for the payment of an excise tax under Section 4999 of the Code (or
any successor provision thereto), with respect to any payment in the nature of
the compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company shall pay to Executive an amount determined under the following formula:
- 7 -
<PAGE>
An amount equal to: (E x P) + X
WHERE:
X = E x P
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under
Section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment,
and other taxes (other than taxes imposed under Section
4999 of the Code) applicable to Executive for the taxable
year in question; and
SLI = the sum of the highest marginal rates of income and
payroll tax applicable to Executive under applicable
state and local laws for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The tax gross-up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the amount determined as "P", above (such greater amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount"), the Holding Company must pay to Executive, in order to put Executive
(or the Holding Company, as the case may be) in the same position as Executive
(or the Holding Company, as the case may be) would have been if the amount
determined as "P" above had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, the independent accountants shall
take into account any and all taxes (including any penalties and interest) paid
by or for Executive or refunded to Executive or
- 8 -
<PAGE>
for Executive's benefit. As soon as practicable after the Adjustment Amount has
been so determined, the Holding Company shall pay the Adjustment Amount to
Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
- 9 -
<PAGE>
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date
- 10 -
<PAGE>
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated, between Executive
and the Institution, such compensation payments and benefits
- 11 -
<PAGE>
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
- 12 -
<PAGE>
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
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<PAGE>
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, FIRSTFED AMERICA BANCORP, INC. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 29th day of April, 1999.
ATTEST: FIRSTFED AMERICA BANCORP, INC.
/s/ Cecilia R. Viveiros By: /s/ Robert F. Stoico
- ----------------------------- -------------------------------------
Cecilia R. Viveiros Robert F. Stoico
Secretary For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Cecilia R. Viveiros By: /s/ Edward A. Hjerpe, III
- ----------------------------- -------------------------------------
Cecilia R. Viveiros Edward A. Hjerpe, III
Secretary Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer
- 15 -
<PAGE>
Exhibit 13.0
Portions of the
1999 Annual Report to Stockholders
<PAGE>
Selected Consolidated Financial and Other Data of the Company
The selected consolidated financial and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Annual Report. Prior to January 15, 1997, the Company had no
significant assets, liabilities or operations, and accordingly, the data prior
to such time represents the financial condition and results of operations of the
Bank.
<TABLE>
<CAPTION>
At March 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ------------- ------------- -------------- -----------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $1,393,237 $1,281,832 $979,736 $723,572 $ 560,038
Short-term investments 14,422 -- 39,410 -- --
Investment in trading securities 94 -- -- -- --
Investment securities available for sale (1) 5,575 7,712 888 725 518
Mortgage-backed securities available for sale 408,451 215,143 31,732 -- --
Investment securities held to maturity (1) 9,998 22,491 20,991 23,987 20,988
Mortgage-backed securities held to maturity 5,608 12,495 15,435 7,248 2,721
Mortgage loans held for sale 52,334 84,867 23,331 17,747 6,816
Loans receivable, net (2) 766,687 848,552 796,355 637,592 499,977
Deposits 674,870 708,488 723,976 583,750 440,107
FHLB advances and other borrowings 585,981 403,865 111,062 75,141 66,592
Stockholders' equity 102,961 126,986 122,154 46,418 41,697
<CAPTION>
For the Year Ended March 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- -------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest and dividend income $ 86,777 $ 76,890 $ 62,259 $ 46,044 $ 37,487
Interest expense 56,443 46,529 38,497 26,382 18,337
============= ============= ============= ============== =============
Net interest income before provision
for loan losses 30,334 30,361 23,762 19,662 19,150
Provision for loan losses 1,200 2,350 3,750 2,626 653
------------- ------------- ------------- -------------- -------------
Net interest income after provision
for loan losses 29,134 28,011 20,012 17,036 18,497
Total non-interest income 7,638 6,353 4,414 4,592 2,509
Total non-interest expense (3) 25,333 22,259 27,305 13,672 12,193
============= ============= ============= ============== =============
Income (loss) before income tax expense and
cumulative effect of change in accounting
for income taxes 11,439 12,105 (2,879) 7,956 8,813
Income tax expense (credit) 3,818 5,286 (449) 3,353 3,852
------------- ------------- ------------- -------------- -------------
Net income before cumulative effect of
change in accounting for income taxes 7,621 6,819 (2,430) 4,603 4,961
------------- ------------- ------------- -------------- -------------
Net income (loss) $ 7,621 $ 6,819 ($ 2,430) $ 4,603 $ 4,961
============= ============= ============= ============== =============
</TABLE>
(1) Investment securities at March 31, 1999, 1998, 1997, 1996 and 1995 do not
include $28.7 million, $17.9 million, $9.5 million, $6.6 million and $6.6
million of Federal Home Loan Bank of Boston stock.
(2) The allowance for loan losses at March 31, 1999, 1998, 1997, 1996 and 1995
was $12.0 million, $10.9 million, $8.8 million, $5.6 million and $4.2
million, respectively.
(3) For the year ended March 31, 1997, non-interest expense includes $6.5
million for the establishment of The Foundation, $1.3 million increased
compensation expense from the ESOP and a $2.9 million assessment to
recapitalize the Savings Association Insurance Fund of the FDIC.
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(5) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
10
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
At or For the Year Ended March 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return (loss) on average assets 0.57% 0.63% (0.28%) 0.76% 0.96%
Return (loss) on average stockholders' equity 6.82% 5.40% (3.71%) 10.40% 12.83%
Average stockholders' equity to average assets 8.39% 11.60% 7.58% 7.26% 7.45%
Stockholders' equity to total assets at end of period 7.39% 9.91% 12.47% 6.41% 7.45%
Average interest rate spread (5) 1.92% 2.22% 2.27% 2.79% 3.39%
Net interest margin (6) 2.41% 2.93% 2.87% 3.37% 3.86%
Average interest-earning assets to
average interest-bearing liabilities 111.04% 115.87% 112.67% 112.90% 112.71%
Total non-interest expense to average assets 1.90% 2.04% 3.16% 2.24% 2.35%
Efficiency ratio (3) (7) 66.71% 60.63% 96.91% 56.37% 56.30%
Regulatory Capital Ratios (Bank Only):
Tangible capital 7.03% 8.54% 10.34% 6.36% 7.40%
Core capital 7.03% 8.54% 10.34% 6.36% 7.40%
Risk-based capital 16.18% 18.35% 20.24% 12.48% 14.13%
Asset Quality Ratios:
Non-performing loans as a percent of loans (8) (9) 0.33% 0.35% 0.45% 0.63% 0.60%
Non-performing assets as a percent of total assets (9) 0.21% 0.28% 0.44% 0.65% 0.59%
Allowance for loan losses as a percent of loans (2) (8) 1.54% 1.27% 1.09% 0.87% 0.84%
Allowance for loan losses as a percent
of non-performing loans (2) (9) 471.22% 358.83% 239.98% 138.62% 139.76%
Per Share Data:
Basic earnings per common share $ 1.09 $ 0.84 N/M -- --
Diluted earnings per common share $ 1.09 $ 0.84 N/M -- --
Book value per a common share $16.27 $15.99 $15.08 -- --
Market value per a common share $12.00 $21.13 $13.63 -- --
Number of shares outstanding at end of period (10) 6,329,430 7,941,628 8,100,107 -- --
Number of full-service customer facilities 14 13 13 10 9
Number of loan origination centers 5 5 5 5 5
</TABLE>
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents the ratio of non-interest expenses divided
by the sum of net interest income and non-interest income.
(8) Loans include loans receivable, net excluding the allowance for loan
losses.
(9) Non-performing assets consists of non-performing loans and real estate
owned ("REO"). Non-performing loans consists 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 collectability of interest or
principal. It is the Company's policy to cease accruing interest on all
such loans.
(10) Based upon total shares issued at IPO less unreleased ESOP shares,
unreleased 1997 Stock-based Incentive Plan shares, shares repurchased, and
shares held in other employee benefit plans.
11
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
FIRSTFED AMERICA BANCORP, INC. (the "Company") was incorporated on September
6, 1996 and is the holding company for First Federal Savings Bank of America
(the "Bank"). On January 15, 1997, the Bank completed its conversion (the
"conversion") from a mutual savings bank to a stock form of ownership, and the
Company concurrently issued 8,707,152 shares of common stock, raising $77.6
million of net proceeds. The Company utilized $43.4 million of such net
proceeds to acquire all of the outstanding stock of the Bank.
The Company's current business operations primarily consist of investment
activities, holding substantially all of the stock of FIRSTFED INSURANCE
AGENCY, LLC (the "Agency"), and holding the stock of the Bank. Accordingly,
the majority of the Company's business operations are conducted through the
Bank. As a result, references to the Company in the following discussion
generally refer to the consolidated operations of the Company, the Bank, and
the Agency. The Company operates its administrative office and operations
center in Swansea, Massachusetts. Its main banking office is located in Fall
River, Massachusetts and its thirteen other banking offices are located in the
municipalities of Fall River, Attleboro, Taunton, New Bedford, Somerset,
Seekonk, and Swansea, Massachusetts as well as East Providence, Pawtucket,
Warwick, and Cranston, Rhode Island. The Company also operates five loan
origination centers, four in Massachusetts and one in Rhode Island. The
Company's primary business is attracting retail deposits from the general
public and investing those deposits and other borrowed funds in loans,
mortgage-backed securities, U.S. Government securities and other securities.
The Company originates commercial, consumer, and mortgage loans for
investment, and mortgage loans for sale servicing-retained in the secondary
market. Mortgage loan sales are made from mortgage loans held in the Company's
portfolio designated as being held for sale or originated for sale during the
period. The Company's revenues are derived principally from interest on its
loans, and to a lesser extent, dividends and interest on its investments and
mortgage-backed securities, fees and loan servicing income. The Company's
primary sources of funds are deposits, principal and interest payments on
loans and mortgage-backed securities, proceeds from the sale of loans, Federal
Home Loan Bank of Boston ("FHLB") advances, and other borrowings.
The Company's results of operations are primarily dependent on net interest
income, which is the difference between the income earned on its loan and
investment portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by the
Company's provision for loan losses and non-interest income including loan
sale activities and loan servicing income. The Company's non-interest expense
consists of compensation and employee benefits, office occupancy and equipment
expense, federal deposit insurance premiums, advertising and business
promotion, data processing expense, and other expenses. Results of operations
of the Company are also significantly affected by general economic and
competitive conditions, particularly changes in interest rates, government
policies and the actions of regulatory authorities. The Company had no
material assets, liabilities or operations prior to January 15, 1997, and
accordingly, the results of operations and other data discussed below
occurring prior to that date reflect only those of the Bank and its
subsidiary.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse effect on
the operations of the Company and the subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board,
13
<PAGE>
the quality or composition of the loan or investment portfolios, demand for
loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information on the Company and its business, including additional factors that
could materially affect the Company's financial results, is included in the
Company's filings with the Securities and Exchange Commission.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, proceeds from the sale of
loans, FHLB advances, and other borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are influenced by general interest rates, economic
conditions and competition. The Bank is required to maintain minimum levels of
liquid assets as defined by 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 ("liquidity ratio"). At March 31,
1999 and 1998, the Bank's liquidity ratio was 30.38% and 11.70% respectively.
The OTS required liquidity ratio is 4.0%.
The Company's most liquid assets are cash, short-term investments, mortgage
loans held for sale, investments in trading securities, investment securities
available for sale, and mortgage-backed securities available for sale. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any given period. At March 31, 1999,
cash, short-term investments, mortgage loans held for sale, investments in
trading securities, investment securities available for sale, and mortgage-
backed securities available for sale totaled $505.5 million, or 36.3% of total
assets.
The Company has other sources of liquidity if a need for additional funds
arises, including a $25 million FHLB secured line of credit, FHLB advances,
and other borrowings. At March 31, 1999, the Company had $530.7 million in
advances outstanding from the FHLB, and an additional borrowing capacity from
the FHLB of $175.5 million. During year-end 1999, the Company used FHLB
advances and other borrowings to fund asset growth and a decline in deposits,
and may continue to do so in the future, depending on market conditions, the
pricing of deposit products, and the pricing of FHLB advances and other
borrowings.
At March 31, 1999, the Company had commitments to originate loans and unused
outstanding lines of credit and undistributed balances of construction loans
totaling $109.8 million. The Company anticipates that it will have sufficient
funds available to meet its current loan origination commitments. Certificate
of deposit accounts scheduled to mature in less than one year from March 31,
1999 totaled $339.6 million. The Company expects that it will retain a
majority of maturing certificate accounts.
The Company opened a new banking office in Cranston, Rhode Island in January
1999, bringing total banking offices to fourteen. The Company continues to
consider sites for new banking offices and loan origination centers in or
adjacent to its market area. In addition, the Company may, from time to time,
consider expanding its market share and/or market area through the acquisition
of other banking institutions and may consider acquisitions of other types of
financial services companies.
In January 1999, the Company formed the FIRSTFED INSURANCE AGENCY, LLC. The
Agency offers a comprehensive insurance product line including auto, home,
life, accident and health insurance to consumers and businesses. While no
formal plan is currently in place, the Company's Board of Directors has
authorized management to establish a trust services function to provide future
trust services to its customers. In addition, the Company completed four 5.0%
stock repurchase programs in fiscal year 1999, reducing outstanding shares in
the Company to 7,092,030 from the 8,707,152 shares originally issued. The
Company also paid four $0.05 dividends to stockholders during the fiscal year
1999. The establishment of additional banking offices, loan origination
centers, trust service operations, mergers and acquisitions, and additional
capital management
14
<PAGE>
strategies by the Company would result in additional capital expenditures and
other associated costs which the Company has not yet estimated.
At March 31, 1999, the consolidated capital to total assets ratio of the
Company was 7.39%. As of March 31, 1999, the Bank exceeded all of its
regulatory capital requirements with tangible, core, Tier 1 risk-based, and
risk-based capital ratios of 7.03%, 7.03%, 14.93%, and 16.18%, respectively,
as compared to the minimum regulatory requirements of 2.0%, 4.0%, 4.0%, and
8.0%, respectively.
At the time of conversion, the Bank was required to establish a liquidation
account in an amount equal to its retained earnings as of September 30, 1996,
which provides a liquidation preference to eligible account holders of the
Bank prior to conversion based on such account holder's qualifying deposits.
The liquidation account will be reduced to the extent that such account
holders reduce their qualifying deposits. In the unlikely event of a complete
liquidation of the Bank, each such account holder will be entitled to receive
a distribution from the liquidation account. The Bank is not permitted to
declare or pay dividends on its capital stock, or repurchase any of its
outstanding stock, if the effect thereof would cause its stockholders' equity
to be reduced below the amount required for the liquidation account or
applicable regulatory capital requirements. The balance of the liquidation
account at March 31, 1999 was approximately $21.8 million.
Year 2000 Project
Included in other non-interest expenses are charges incurred in connection
with the modification or replacement of software and hardware to address the
"Year 2000 issue," which will allow for the Company's computer,
communications, and other related non-technology systems to properly recognize
dates beyond December 31, 1999. The Company has developed a plan that is based
upon the Federal Financial Institutions Examination Council ("FFIEC")
recommended phases and time frames for insuring Year 2000 readiness. These
phases include awareness, assessment, renovation, validation and
implementation.
The Company has utilized both internal and external resources to reprogram
or replace and test software and hardware (including non-technology systems)
for Year 2000 modifications. The Company has completed renovation and testing
of all mission critical processing systems. Testing and remediation of non-
critical applications will be completed prior to September 30, 1999.
The Company has worked 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 from all such parties. 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 be negatively impacted.
In the unlikely event the Company experiences problems due to either
internal and/or external systemic failure, a contingency plan has been
developed outlining alternative methods of processing until the affected
systems have been corrected or replaced. The Bank's worst case scenario
relates to a general failure of multiple processing systems supporting
mission-critical loan and deposit platforms. Accordingly, the Bank has
developed a contingency plan outlining alternate processing routines to
protect the integrity of deposit and loan data while maintaining an acceptable
level of customer service during such an outage. Testing of the viability of
alternative processing methods will continue throughout the remainder of 1999.
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
customers entering into a significant relationship with the Company.
15
<PAGE>
The total cost of the Year 2000 project is estimated at $300,000 to $500,000.
A significant portion of the costs are not incremental to the Company, but
rather represent a reprioritization of existing internal systems technology
resources. Through March 31, 1999, the Company has expensed approximately
$140,000 toward Year 2000 remediation efforts. In addition, in preparation for
the Year 2000 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
Year 2000 related modifications are based on 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
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
code, and similar uncertainties.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with Generally Accepted Accounting Principles
("GAAP"), which require the measurement of financial position and operating
results in terms of historical dollar amounts without considering the changes
in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the cost of the Company's operations,
particularly in compensation and benefits and occupation expenses. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Market Risk and Management of Interest-Rate 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. Through such management, the Company seeks to reduce 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 fixed-rate collateralized mortgage obligations
("CMOs"); 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 fund asset growth. In addition, the
Company engaged in two interest rate swap agreements with a total notional
principal amount of $50 million to synthetically lengthen its liability
maturities.
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
16
<PAGE>
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 March 31, 1999, the Company's cumulative 1 year interest rate
gap (which is the difference between the amount of interest-earning assets and
the amount of interest-bearing liabilities maturing or repricing within one
year) as a percentage of total assets was a positive 5.77%. Accordingly,
during a period of falling interest rates, the Company's interest-earning
assets would tend to reprice downward at a faster rate than its interest-
bearing liabilities, which, consequently, may tend to negatively affect the
Company's net interest income. 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, may tend to
positively affect the Company's net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1999, which are
anticipated by the Company, based upon certain assumptions, to reprice or
mature in each of the future time periods shown (the "GAP table"). Except as
stated below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual maturity of the asset or
liability. The table sets forth an approximation of the projected repricing of
assets and liabilities at March 31, 1999, on the basis of contractual
maturities, anticipated prepayments, and scheduled rate adjustments within a
three month period and subsequent selected time intervals.
The loan amounts in the table reflect principal balances expected to be
redeployed and/or repriced as a result of maturities, contractual
amortization, and anticipated prepayments of adjustable-rate loans and fixed-
rate loans, and as a result of contractual rate adjustments on adjustable-rate
loans. Annual market prepayment rates for one- to four-family and multi-family
mortgage loans, and mortgage-backed securities are assumed to range from 21.5%
to 46.5% for adjustable-rates and 9.8% to 42.8% for fixed-rates, respectively.
Eleventh District Cost of Funds indexed ("COFI") floating-rate CMOs and
adjustable-rate MBS are assumed to fully reprice over a two year period: 51.1%
within 3 months, 35.4% between 3 and 6 months, 9.0% between 6 months and 1
year, and 4.5% between 1 and 2 years. These percentages were based on average
projected index changes under probable interest rate scenarios.
Money market deposit accounts and negotiable order of withdrawal ("NOW")
accounts are assumed to reprice evenly over a three year period, while regular
savings accounts are viewed as composed of two equally weighted components - a
longer-term "core" deposit that reprices evenly over a thirty year term, and a
more active secondary tier that reprices evenly over three years. In-the-money
putable FHLB advances (where the Company is short the put option) were
repriced at their put dates while out-of-the-money putable FHLB advances were
repriced at their contractual maturities.
These assumptions may or may not be indicative of actual prepayment and
withdrawals experienced by the Company. The table does not necessarily
indicate the impact of general interest rate movements on the Company's net
interest income because the actual repricing dates of various assets and
liabilities are subject to customer discretion and competitive and other
pressures and, therefore, actual experience may vary from that indicated.
17
<PAGE>
The following table shows the gap position of the Company at March 31, 1999:
<TABLE>
<CAPTION>
3 More than More than More than More than More
Months 3 Months to 6 Months to 1 Year to 3 Years to Than Total
Or Less 6 Months 1 Year 3 Years 5 Years 5 Years Amount
-------- ----------- ----------- --------- ---------- ------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Short-term
investments.......... $ 14,422 $ -- $ -- $ -- $ -- $ -- $ 14,422
Investment
securities........... 5,999 3,999 -- -- -- 5,669 15,667
Loans receivable (1).. 176,343 70,378 117,832 230,356 120,572 103,540 819,021
Mortgage-backed
securities........... 90,641 101,779 89,334 99,611 23,883 8,811 414,059
Stock in FHLB-Boston.. 28,682 -- -- -- -- -- 28,682
-------- -------- -------- -------- ------- ------- ---------
Total interest-
earning assets..... 316,087 176,156 207,166 329,967 144,455 118,020 1,291,851
-------- -------- -------- -------- ------- ------- ---------
Interest-bearing
liabilities:
Money market
accounts............. 2,737 2,737 5,472 21,888 -- -- 32,834
Savings accounts...... 4,400 4,400 10,069 35,203 3,200 40,005 97,277
NOW accounts.......... 4,544 4,544 9,089 36,355 -- -- 54,532
Certificate accounts.. 107,389 80,878 97,907 52,503 5,163 -- 343,840
IRA and KEOGH
accounts............. 10,733 14,912 28,412 25,930 4,162 -- 84,149
FHLB advances and
other borrowings..... 55,234 121,000 104,496 222,678 81,794 779 585,981
-------- -------- -------- -------- ------- ------- ---------
Total interest-
bearing
liabilities........ 185,037 228,471 255,445 394,557 94,319 40,784 1,198,613
-------- -------- -------- -------- ------- ------- ---------
Interest-rate swaps:
Pay fixed............. -- -- -- (25,000) (25,000) -- (50,000)
Receive floating...... 25,000 25,000 -- -- -- -- 50,000
-------- -------- -------- -------- ------- ------- ---------
Interest-rate gap after
swaps.................. $156,050 $(27,314) $(48,279) $(89,591) $25,136 $77,236 $ 93,238
======== ======== ======== ======== ======= ======= =========
Cumulative interest-rate
gap.................... $156,050 $128,736 $ 80,457 $ (9,134) $16,002 $93,238
======== ======== ======== ======== ======= =======
Cumulative interest-rate
gap as a percentage of
total assets at March
31, 1999............... 11.20% 9.24% 5.77% (0.66)% 1.15% 6.69%
Cumulative interest-rate
gap as a percentage of
total interest-earning
assets at March 31,
1999................... 12.08% 9.97% 6.23% (0.71)% 1.24% 7.22%
Cumulative interest-
earning assets as a
percentage of interest-
bearing liabilities at
March 31, 1999......... 170.82% 119.04% 104.55% 96.79% 101.38% 107.78%
- -----------------------------------------------------------------------------------------------------
Cumulative interest-rate
gap as a percentage of
total assets at March
31, 1998............... 7.74% 0.50% (3.19)% (1.60)% 3.64% 13.16%
Cumulative interest-rate
gap as a percentage of
total interest-earning
assets at March 31,
1998................... 8.14% 0.53% (3.35)% (1.69)% 3.83% 13.84%
Cumulative interest-
earning assets as a
percentage of interest-
bearing liabilities at
March 31, 1998......... 135.76% 90.31% 86.17% 92.49% 104.61% 116.06%
</TABLE>
- -------
(1) Includes total loans receivable and mortgage loans held for sale, net of
deferred loan origination costs, undisbursed proceeds of construction
mortgages in process, allowance for loan losses and includes non-
performing loans.
18
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. 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 interest income ("NII") and 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 for the Bank 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. Furthermore, on December 1, 1998, the OTS published
finalized changes to the primary methodology by which it monitors an
institution's interest-rate risk. The main change in this methodology required
the Company to formulate Board limits relative to the level and sensitivity of
its NPV ratio. Previous board limits were set relative to NPV sensitivity and
net interest income sensitivity. The Company has adopted the new measures and
is in full compliance with those limits. The following table sets forth the
Company's estimated NPV and NPV ratios as of March 31, 1999 and 1998, as
calculated by the Company.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
----------------------------------- ----------------------------
Change in Estimated NPV Estimated NPV
Interest Rates Net Sensitivity Net Sensitivity
in Basis Portfolio NPV Board in Basis Portfolio NPV in Basis
Points Value Ratio Limits Points Value Ratio Points
- -------------- --------- ----- ------ ----------- --------- ----- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
+300 $111,090 8.16% 4.00% (131) $143,388 11.37% (131)
+200 122,397 8.84 4.25 (63) 152,660 11.90 (78)
+100 130,686 9.30 5.00 (17) 161,529 12.38 (30)
Unchanged 134,662 9.47 6.00 -- 168,009 12.68 --
-100 127,627 8.93 5.00 (54) 165,405 12.38 (30)
-200 115,072 8.05 4.25 (142) 154,172 11.52 (116)
-300 103,470 7.21 4.00 (226) 144,607 10.79 (189)
</TABLE>
As in the case with the Gap Table, certain shortcomings 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.
The results in the NPV ratio table show a drop in NPV in both rising and
falling interest rate scenarios. This situation is primarily a result of
"negative convexity" in mortgage asset market prices. Negative convexity is
caused by faster mortgage prepayment rates during falling interest rate
scenarios, which in turn shortens the
19
<PAGE>
maturity of the mortgage portfolio and dampens the increase in asset market
value. The Company's liabilities typically do not experience this price
compression, and under these circumstances will rise in value faster than the
assets, leading to a reduction of NPV in down shock scenarios. The opposite
situation occurs in rising rate scenarios. Slowing prepayment rates causes
mortgage maturities to lengthen, which in turn causes mortgage market values
to decrease faster than liability market values, leading to a reduction in
NPV. Other factors that contribute to changes in NPV include, but are not
limited to: (a) transaction and savings accounts are assumed to have
instantaneously resetting rates, thus these accounts have no price sensitivity
in the NPV analysis (as opposed to their treatment in the Gap Table); (b)
short put options embedded in five FHLB of Boston advances totaling $108.8
million, cause these advances to shorten in rising rate scenarios and lengthen
in falling rate scenarios, increasing the "positive convexity" of the
liability curve and thus accentuating the NPV compression; (c) COFI based
adjustable-rate MBS and floating-rate CMOs tend to have market prices more
like fixed-rate securities than typical floating-rate securities due to the
lagging nature of the index, which adds to the asset side negative convexity;
(d) intangible values related to mortgage servicing rights, escrow float, loan
servicing income, and deposits tend to reduce NPV in falling rate scenarios
and increase NPV in rising rate scenarios, and finally; (e) period caps on
annual adjustable-rate mortgages tend to lengthen these loan's duration, also
creating negative convexity. These effects can fully or partially offset one
another.
During fiscal year-end 1999, the Company continued 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.
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 also depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on each.
The following table sets forth certain information relating to the Company
at fiscal year end 1999 and for fiscal years 1999, 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 has caused any material
differences in the information presented. The yields and the costs include
fees, premiums, and discounts which are considered adjustments to yields.
20
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended March 31,
At ------------------------------------------------------------------------------------
March 31, 1999 1999 1998 1997
------------------ ---------------------------- ---------------------------- --------------------------
Average Average Average
Yield/ Average Yield / Average Yield / Average Yield /
Balance Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------- ------ ---------- -------- ------- ---------- -------- ------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning
assets:
Loans receivable,
net and mortgage
loans held for
sale(1)........... $ 819,021 7.48% $ 873,335 $65,352 7.48% $ 881,226 $67,493 7.66% $759,185 $57,941 7.63%
Investment
securities(2)..... 58,771 5.18 64,356 3,634 5.65 44,409 2,789 6.28 53,199 3,360 6.32
Mortgage-backed
securities(3)..... 414,059 5.49 319,068 17,791 5.58 110,484 6,608 5.98 16,085 958 5.96
---------- ---- ---------- ------- ---- ---------- ------- ---- -------- ------- ----
Total interest-
earning assets.. 1,291,851 6.74 1,256,759 86,777 6.90 1,036,119 76,890 7.42 828,469 62,259 7.51
---- ------- ---- ------- ---- ------- ----
Non-interest-
earning assets..... 101,386 75,582 52,964 35,895
---------- ---------- ---------- --------
Total assets.... $1,393,237 $1,332,341 $1,089,083 $864,364
========== ========== ========== ========
Liabilities and
Stockholders'
Equity:
Interest-bearing
liabilities:
Money market
accounts.......... $ 32,834 2.38 $ 31,871 849 2.66 $ 30,788 883 2.87 $ 28,967 828 2.86
Savings
accounts.......... 97,277 1.75 93,118 1,875 2.01 86,915 2,093 2.41 82,536 2,061 2.50
NOW accounts...... 54,532 0.98 50,760 498 0.98 45,619 801 1.76 38,801 763 1.97
Certificate
accounts(4)....... 427,989 5.29 441,556 24,350 5.51 506,440 29,257 5.78 453,454 26,625 5.87
---------- ---- ---------- ------- ---- ---------- ------- ---- -------- ------- ----
Total deposits.. 612,632 4.19 617,305 27,572 4.47 669,762 33,034 4.93 603,758 30,277 5.01
FHLB advances and
other
borrowings........ 585,981 5.25 514,507 28,871 5.61 224,451 13,495 6.01 131,523 8,220 6.25
---------- ---- ---------- ------- ---- ---------- ------- ---- -------- ------- ----
Total interest-
bearing
liabilities..... 1,198,613 4.71 1,131,812 56,443 4.99 894,213 46,529 5.20 735,281 38,497 5.24
---- ------- ---- ------- ---- ------- ----
Non-interest-
bearing
liabilities(5)..... 91,663 88,751 68,508 63,516
---------- ---------- ---------- --------
Total
liabilities..... 1,290,276 1,220,563 962,721 798,797
---------- ---------- ---------- --------
Stockholders'
Equity............. 102,961 111,778 126,362 65,567
---------- ---------- ---------- --------
Total
liabilities and
stockholders'
equity.......... $1,393,237 $1,332,341 $1,089,083 $864,364
========== ========== ========== ========
Net interest rate
spread(6).......... 2.03% $30,334 1.92% $30,361 2.22% $23,762 2.27%
==== ======= ==== ======= ==== ======= ====
Net interest
margin(7).......... 2.41% 2.93% 2.87%
==== ==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities........ 107.78% 111.04% 115.87% 112.67%
========== ========== ========== ========
</TABLE>
- ----
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction mortgages in process, allowance for loan losses and includes
non-performing loans.
(2) Includes short-term investments, investments in trading securities,
investment securities available for sale and held to maturity, and FHLB
stock.
(3) Consists of mortgage-backed securities available for sale and held to
maturity.
(4) Includes the net effect of interest rate swaps.
(5) Consists primarily of business checking accounts.
(6) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(7) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
21
<PAGE>
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1999 March 31, 1998
Compared to Compared to
Year Ended Year Ended
March 31, 1998 March 31, 1997
------------------------------ ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------- --------------------
Volume Rate Net Volume Rate Net
---------- ---------- ------- ---------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net
and mortgage loans
held for sale........ $ (600) $ (1,541) $(2,141) $ 9,346 $ 206 $9,552
Investment
securities........... 1,149 (304) 845 (552) (19) (571)
Mortgage-backed
securities........... 11,659 (476) 11,183 5,646 4 5,650
--------- ---------- ------- --------- --------- ------
Total interest-
earning assets..... 12,208 (2,321) 9,887 14,440 191 14,631
--------- ---------- ------- --------- --------- ------
Interest-bearing
liabilities:
Money market
accounts............. 30 (64) (34) 52 3 55
Savings accounts...... 142 (360) (218) 107 (75) 32
NOW accounts.......... 82 (385) (303) 125 (87) 38
Certificate accounts.. (3,623) (1,284) (4,907) 3,067 (435) 2,632
--------- ---------- ------- --------- --------- ------
Total deposits...... (3,369) (2,093) (5,462) 3,351 (594) 2,757
FHLB advances and
other borrowings..... 16,333 (957) 15,376 5,598 (323) 5,275
--------- ---------- ------- --------- --------- ------
Total interest-
bearing
liabilities........ 12,964 (3,050) 9,914 8,949 (917) 8,032
--------- ---------- ------- --------- --------- ------
Net change in net
interest income........ $ (756) $ 729 $ (27) $ 5,491 $ 1,108 $6,599
========= ========== ======= ========= ========= ======
</TABLE>
22
<PAGE>
Asset Quality
The following table sets forth information regarding non-accrual loans and
real estate owned ("REO"). At March 31, 1999, REO totaled $344,000. It is the
policy of the Company to cease accruing interest on loans 90 days or more past
due and to charge off all accrued interest. For fiscal years ended 1999 and
1998 the amount of additional interest income that would have been recognized
on non-accrual loans if such loans were performing in accordance with their
regular terms and amounts recognized were $37,000 and $63,000, respectively.
<TABLE>
<CAPTION>
At March 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family................. $ 971 $1,073 $1,908 $2,469 $2,501
Multi-family........................ -- 101 268 334 51
Commercial real estate.............. 1,142 1,199 976 -- 85
Construction and land............... 117 169 232 -- --
------ ------ ------ ------ ------
Total mortgage loans.............. 2,230 2,542 3,384 2,803 2,637
------ ------ ------ ------ ------
Commercial loans...................... 280 74 -- 87 --
------ ------ ------ ------ ------
Consumer loans:
Home equity lines................... 36 425 114 956 386
Second mortgages.................... -- -- 95 196 --
Other consumer loans................ 4 7 69 3 10
------ ------ ------ ------ ------
Total consumer loans.............. 40 432 278 1,155 396
------ ------ ------ ------ ------
Total nonaccrual loans............ 2,550 3,048 3,662 4,045 3,033
Real estate owned, net (1)............ 344 595 665 643 296
------ ------ ------ ------ ------
Total non-performing assets....... $2,894 $3,643 $4,327 $4,688 $3,329
====== ====== ====== ====== ======
Allowance for loan losses as a percent
percent of loans (2)................. 1.54% 1.27% 1.09% 0.87% 0.84%
Allowance for loan losses as a percent
of non-performing
loans (3)............................ 471.22% 358.83% 239.98% 138.62% 139.76%
Non-performing loans as a percent of
loans(2)(3).......................... 0.33% 0.35% 0.45% 0.63% 0.60%
Non-performing assets as a percent of
total assets (4)..................... 0.21% 0.28% 0.44% 0.65% 0.59%
</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.
At March 31, 1999 and 1998, total impaired loans were $1.6 million and $1.5
million, respectively. At March 31, 1999 and 1998, impaired loans of $1.6
million and $1.5 million required impairment allowances of $919,000 and
$812,000, respectively. For a description of which loans qualify as impaired
loans under SFAS No. 114, see Note 1 to Consolidated Financial Statements
included elsewhere herein. All impaired loans have been measured using the
fair value of collateral method. During fiscal year-end 1999, the average
recorded value of impaired loans was $1.5 million. For these loans, $122,000
of interest income was recognized while $227,000 of interest income would have
been recognized under the original terms.
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in its loan
portfolio and the general economy. The allowance for loan losses is maintained
at an amount management considers adequate to cover estimated losses in loans
receivable which are deemed probable and estimable based on information
currently known to management. The allowance is based
23
<PAGE>
upon a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, the OTS and FDIC, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the Company to make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of March 31, 1999, the Company's allowance for loan losses
was 1.54% of total loans receivable and 471.2% of total non-performing loans
as compared to 1.27% and 358.8%, respectively, as of March 31, 1998. The
Company had non-accrual loans of $2.6 million and $3.0 million at March 31,
1999 and March 31, 1998, respectively. The allowance for loan losses totaled
$12.0 million at March 31, 1999 as compared to $10.9 million at March 31,
1998. The increase in the allowance of $1.1 million reflects management's
assessment of the loan portfolio and was based upon the composition of the
portfolio. The Company will continue to monitor and modify its allowances for
loan losses as conditions dictate. While management believes the Company's
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurances can be given that the Company's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Company or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses.
The following table sets forth activity in the Company's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
At or For the Year Ended March 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $10,937 $ 8,788 $5,607 $4,239 $3,964
Provision for loan losses............ 1,200 2,350 3,750 2,626 653
Charge-offs:
Mortgage loans:
One to four family................. 12 188 331 218 168
Multi-family....................... -- -- 82 -- --
Commercial real estate............. -- -- -- 967 25
Construction and land.............. -- -- -- -- --
Commercial loans: 74 -- 87 -- 15
Consumer Loans:
Home equity lines.................. 30 -- 116 68 113
Second mortgages................... 9 15 10 -- --
Other consumer..................... 13 9 11 35 79
------- ------- ------ ------ ------
Total............................ 138 212 637 1,288 400
Recoveries........................... 17 11 68 30 22
------- ------- ------ ------ ------
Balance at end of period............. $12,016 $10,937 $8,788 $5,607 $4,239
======= ======= ====== ====== ======
Ratio of net charge-offs during the
period to average loans outstanding
during the period................... 0.01% 0.02% 0.07% 0.23% 0.08%
======= ======= ====== ====== ======
</TABLE>
The Company has developed an internal asset classification system which
classifies assets depending on risk of loss characteristics. At March 31,
1999, 1998, and 1997, the Company classified (excluding REO) $3.9 million,
$3.0 million, and $3.7 million of substandard loans, respectively. In the
opinion of management, the performing substandard loans evidence one or more
weaknesses or potential weaknesses, and depending on the regional economy and
other factors, may become non-performing assets in future periods.
24
<PAGE>
Comparison of Financial Condition and Results of Operations for the years
ended March 31, 1999 and March 31, 1998
Financial Condition
Assets at March 31, 1999 totaled $1.393 billion, an increase of $111.4
million or 8.7%, compared to $1.282 billion at March 31, 1998. Most of the
growth in assets was from a $193.3 million increase in mortgage-backed
securities available for sale, which grew 89.9% from $215.1 million to $408.4
million. Additional growth came from a $32.4 million increase in other assets,
primarily the result of the purchase of $30.0 million of Bank-Owned Life
Insurance, and an increase of $14.4 million in short-term investments. This
growth was partially offset by an $81.9 million, or 9.6% decrease in loans
receivable, net, from $848.6 million to $766.7 million, and a $32.5 million,
or 38.3% decrease in mortgage loans held for sale. The growth in mortgage-
backed securities was the result of the continuation of management's strategy
to increase the Company's leverage, while the decrease in loans receivable,
net, reflected borrower demand for long-term, fixed-rate mortgages which are
not currently held in the Company's portfolio. While adjustable-rate and
short-term fixed-rate mortgage production could not keep up with mortgage
portfolio payoffs, the Company's commercial loan portfolio experienced record
growth of $22.5 million, or 31.1%, to $95.0 million.
Deposits decreased from $708.5 million at March 31, 1998 to $674.9 million
at March 31, 1999, a decrease of 4.7%. The decline in deposit balances was
primarily attributable to a $46.5 million or 9.8% decrease in certificate
accounts, which declined from $474.5 million to $428.0 million, the result of
a less aggressive deposit pricing strategy in effect during the first half of
the fiscal year. This decline, however, was partially offset by a 5.5%
increase in demand and savings deposits of $12.9 million from $234.0 million
at March 31, 1998 to $246.9 million at March 31, 1999. Growth in low cost
demand and savings deposits over the last two fiscal years has improved the
Company's deposit mix to 36.6% demand and savings deposits at March 31, 1999
from 27.5% at March 31, 1997. FHLB advances and other borrowings increased
from $403.9 million at March 31, 1998 to $586.0 million at March 31, 1999, an
increase of $182.1 million, or 45.1%. The increase in FHLB advances was
primarily used to fund mortgage-backed security growth as part of a wholesale
leverage strategy and to offset the decline in deposits.
Total stockholders' equity was $103.0 million at March 31, 1999, down $24.0
million from $127.0 million at March 31, 1998. This decline was primarily due
to four 5.0% stock repurchase programs, the payment of four quarterly
dividends to shareholders, and a decline in the fair value of securities
available for sale, net of tax. Stockholders' equity to assets was 7.39% at
March 31, 1999 down from 9.91% at March 31, 1998, as a result of balance sheet
growth and the reduction in total stockholders' equity. This leveraging of
stockholders' equity has had a favorable impact on return on average
stockholders' equity ("ROE"). During the fiscal year ended 1999, ROE increased
to 6.82% as compared to 5.40% for the fiscal year end 1998.
Non-performing assets decreased to $2.9 million or 0.21% of total assets at
March 31, 1999, compared to $3.6 million or 0.28% of total assets at March 31,
1998. The allowance for loan losses was increased from $10.9 million at March
31, 1998 to $12.0 million at March 31, 1999 due to loan portfolio growth. The
allowances for loan losses amounted to 1.54% of loans at March 31, 1999,
compared to 1.27% of loans at March 31, 1998. See "Asset Quality" included
elsewhere herein.
Results of Operations
General
Net income for the year ended March 31, 1999 was $7.6 million, or $1.09
basic and diluted earnings per share ("EPS"), compared to $6.8 million, or
$0.84 basic and diluted EPS for the year ended March 31, 1998. Pre-tax income
declined $666,000, or 5.5%, to $11.4 million, the net result of a $27,000
decrease in net interest income, a $1.2 million decrease in provision for loan
loss, a $1.3 million increase in non-interest income, and a $3.1 million
increase in non-interest expense. Growth in EPS was caused by the growth in
net income and a
25
<PAGE>
1,615,122 share reduction in outstanding shares of the Company's stock as a
result of four stock repurchase programs since March 31, 1998.
Interest Income
Total interest income for year-end 1999 was $86.8 million, an increase of
$9.9 million or 12.9% from the $76.9 million total interest income for year-
end 1998. Most of the growth in total interest income was due to a $220.6
million increase in the average balance of interest-earning assets, which
averaged $1.257 billion for year-end 1999, compared to an average balance of
$1.036 billion during year-end 1998. Interest income from loans receivable,
decreased $2.1 million or 3.2% to $65.4 million for year-end 1999. This
decrease was the result of a $7.9 million decrease in the average balance of
loans receivable, net, coupled with an 18 basis point decrease in yield.
Additionally, the average balance of mortgage-backed securities increased from
$110.5 million for year-end 1998 to an average balance of $319.1 million for
year-end 1999. The increase in mortgage-backed securities was primarily funded
by FHLB advances and other borrowings during year-end 1999. The yield on
interest-earning assets decreased by 52 basis points to 6.90% in year-end
1999, from 7.42% in year-end 1998, as the relative percentage of lower
yielding, adjustable rate mortgage-backed securities increased.
Interest Expense
Interest expense for year-end 1999 amounted to $56.4 million, an increase of
$9.9 million, or 21.3%, from the year-end 1998 total of $46.5 million. The
primary reason for this increase was due to higher average balances for
interest-bearing liabilities partially offset by a decrease in the average
cost of funds. Interest-bearing liabilities averaged $1.132 billion during
year-end 1999, compared to average balances of $894.2 million during year-end
1998, an increase of $237.6 million, or 26.6%. The increase in average
interest-bearing liabilities was the net effect of a $52.5 million decrease in
average deposits and a $290.1 million increase in average FHLB advances and
other borrowings. The average cost of interest-bearing deposits decreased 46
basis points to 4.47% for year-end 1999 from 4.93% for year-end 1998 as the
cost of new deposits was less than the average cost of existing deposits and
as the deposit mix shifted toward lower cost demand and savings accounts. The
average cost of FHLB advances and other borrowings decreased for year-end 1999
to 5.61% as compared to 6.01% for year-end 1998.
Net Interest Income
Net interest income before provision for loan losses decreased $27,000, or
0.09%, from $30.4 million to $30.3 million for the years ended March 31, 1998
and 1999, respectively. Net interest rate spread decreased 30 basis points to
192 basis points for year-end 1999 compared to 222 basis points for year-end
1998. The drop in spread was offset by a $220.6 million increase in average
interest-earning assets funded by a $237.6 million increase in average
interest-bearing liabilities during the year ended March 31, 1999.
Provision for Loan Losses
The Company's provision for loan losses amounted to $1.2 million for year-
end 1999, as compared to a provision of $2.4 million for year-end 1998. This
decrease was due to management's assessment of the loan loss reserve level,
the existing loan portfolio, current market conditions, and the volume and mix
of new originations. To the extent the Company experiences further increases
in the overall balance of its loan portfolio or increases its concentrations
of loans which bear a higher degree of risk than one- to four-family loans,
the Company anticipates further increases in its allowance for loan losses
through continued provisions for loan losses. While management of the Company
believes that the current level of its allowance for loan losses is sufficient
based on information currently available at this time, no assurances can be
made that future events, conditions or regulatory directives will not result
in increased provisions for loan losses or additions to the Company's
allowance for loan losses which may adversely affect net income.
26
<PAGE>
Non-interest Income
Non-interest income increased $1.3 million, or 20.2%, from $6.4 million for
year-end 1998 to $7.6 million for year-end 1999. Non-interest income consists
of loan servicing income, gains and losses on the sale of mortgages, and other
non-interest income including deposit fees and earnings on Bank-Owned Life
Insurance ("BOLI"). The increase is primarily attributable to $575,000 of
earnings on BOLI, a $553,000 increase in gain on sale of mortgage loans, a
$244,000 increase in service charges, a $206,000 increase in the fair value of
investments held in certain employee benefit plans. The increase in gain on
sale of mortgage loans is due to higher volume and more favorable secondary
market conditions during the first half of fiscal year 1999. Partially
offsetting these increases are a $445,000 decrease in loan servicing income
due to an increase in the valuation allowance for mortgage servicing rights
during the first half of the 1999 fiscal year, and a $154,000 decrease in gain
on sale of investments.
Non-interest Expense
Total non-interest expense increased to $25.3 million for year-end 1999
compared to $22.3 million for year-end 1998, an increase of $3.1 million, or
13.8%. The increase is primarily attributable to a $1.3 million increase in
compensation and benefits related to increased staffing for new banking
offices and a record increase in loan origination volume, an $854,000 increase
in office occupancy and equipment related to increased depreciation on
buildings and equipment for new and recently renovated banking offices and the
new administrative and operations facility, a $328,000 increase in data
processing charges due to the Bank's conversion and upgrade to a new data
processing system at the end of fiscal year 1998, and a $720,000 increase in
other operating expenses. The increase in other operating expenses was the
result of an increase in the fair value of investments held by certain
employee benefit plans (offset by a comparable increase in non-interest income
noted above), additional consulting fees, and additional costs for telephone,
postage, and supplies due to increased loan origination activity. Partially
offsetting these increases is a $227,000 decrease in advertising and business
promotion.
Income Taxes
Income tax expense was $3.8 million for year-end 1999 compared to income tax
expense of $5.3 million for year-end 1998. This decrease in income tax expense
was the result of the Company's implementation of certain tax strategies and
the purchase of Bank-Owned Life Insurance earlier in fiscal year-end 1999.
Overall, the Company's effective tax rate was 33.4% during year-end 1999,
compared to 43.7% for year-end 1998.
Comparison of Financial Condition and Results of Operations for the years
ended March 31, 1998 and March 31, 1997
Financial Condition
Assets at March 31, 1998 totaled $1.282 billion, an increase of $302.1
million or 30.8%, compared to $979.7 million at March 31, 1997. Most of the
growth in assets was in loans receivable and mortgage loans held for sale,
which increased $113.7 million from $819.7 million to $933.4 million, or
13.9%, and mortgage-backed securities available for sale, which increased
$183.4 million from $31.7 million to $215.1 million, or 578%. The increase in
loans receivable was attributable to strong growth in consumer and commercial
loans and the increase in mortgage loans held for sale was caused by heavy
mortgage refinance activity brought about by lower market rates during early
1998. Growth in the mortgage-backed securities available for sale portfolio
was part of a management strategy to increase the Company's leverage. Cash on
hand and due from banks increased from $14.1 million at March 31, 1997 to
$32.0 million at March 31, 1998. Office properties and equipment, net
increased by $10.7 million from $14.2 million at March 31, 1997 to $24.9
million at March 31, 1998. The increase in office properties and equipment,
net, took place over the entire fiscal year ending March 31, 1997 as a result
of the Company's capital outlays for its new administrative offices and
operations center, as well as to remodel existing, older banking offices and
to buy, build, and equip the Company's new additional banking office
locations.
27
<PAGE>
Deposit accounts decreased from $724.0 million at March 31, 1997 to $708.5
million at March 31, 1998, a decrease of 2.1%. The loss of deposits was
primarily attributable to a $50.3 million or 9.6% decrease in certificate
accounts, which declined from $524.8 million to $474.5 million. This decline,
however, was partially offset by a 17.5% increase in other deposits of $34.8
million from $199.2 million at March 31, 1997 to $234.0 million at March 31,
1998. The decrease in certificate accounts was due primarily to the Company's
less aggressive deposit pricing strategy. FHLB advances and other borrowings
increased from $111.1 million at March 31, 1997 to $403.9 million at March 31,
1998, an increase of $292.8 million, or 264%. The increase in FHLB advances
partially offset the decline in deposits but was primarily used to fund
mortgage-backed security growth as part of a wholesale leverage strategy.
Total stockholders' equity at March 31, 1998 was $127.0 million or 9.91% of
assets compared to $122.2 million or 12.47% of assets at March 31, 1997. The
increase in stockholders' equity was a due to a combination of retained net
income, an increase in the unrealized gain on securities available for sale, a
decrease in unallocated Employee Stock Ownership Plan (the "ESOP") shares, and
the purchase of Company stock to fund the Company's stock-based incentive
plan. The decline in the stockholders' equity to assets ratio is a function of
the increased leverage strategy.
Non-performing assets decreased to $3.6 million or .28% of total assets at
March 31, 1998, compared to $4.3 million or .44% of total assets at March 31,
1997. The allowance for loan losses was increased from $8.8 million at March
31, 1997 to $10.9 million at March 31, 1998 due to loan portfolio growth. The
allowances for loan losses amounted to 1.27% of loans at March 31, 1998,
compared to 1.09% of loans at March 31, 1997. See "Asset Quality" included
elsewhere herein.
Results of Operations
General
Net income for the year ended March 31, 1998 was $6.8 million, or $0.84
basic earnings per share and $0.84 diluted earnings per share. For the year
ended March 31, 1997, the Company experienced a $2.4 million net loss which
was primarily due to nonrecurring pre-tax charges of $6.5 million to fund the
formation of The FIRSTFED Charitable Foundation and a $2.9 million assessment
to recapitalize the Savings Association Insurance Fund of the FDIC ( the
"SAIF"). After excluding these items, net income for year-end 1998 was up $3.1
million, or 82.2%, over pro forma year-end 1997 net income of $3.7 million.
The $3.1 million increase in net income was primarily due to balance sheet
growth generated by the proceeds of the Company's initial public offering on
January 15, 1997. Net interest income before provision for loan losses for the
years ended 1998 and 1997 amounted to $30.4 million and $23.8 million,
respectively, an increase of $6.6 million, or 27.8%.
Interest Income
Total interest income for year-end 1998 was $76.9 million. This is an
increase of $14.6 million or 23.5% from the $62.3 million total interest
income for year-end 1997. Most of the increase in total interest income was
due to higher average balances of interest-earning assets, which averaged
$1.036 billion for year-end 1998, compared to the average balance of $828.5
million during year-end 1997. Interest income from loans receivable, increased
$9.6 million or 16.5% to $67.5 million for year-end 1998. This increase
resulted from the net effect of a $122.0 million increase in the average
balance of loans receivable, coupled with a 3 basis point increase in yield.
Additionally, the average balance of mortgage-backed securities increased from
$16.1 million for year-end 1997 to an average balance of $110.5 million year-
end 1998. These increases in interest-earning assets were primarily funded by
FHLB advances and other borrowings during year-end 1998. The yield on
interest-earning assets decreased by 9 basis points to 7.42% in year-end 1998
from 7.51% in year-end 1997 as the relative percentage of lower yielding,
adjustable rate mortgage-backed securities increased. The lower yield on the
adjustable rate mortgage-backed securities is due to a low initial coupon.
28
<PAGE>
Interest Expense
Interest expense for year-end 1998 amounted to $46.5 million, an increase of
$8.0 million, from the year-end 1997 total of $38.5 million, an increase of
20.9%. The primary reason for this increase was due to significantly higher
average balances for interest-bearing liabilities totaling $894.2 million
during year-end 1998, compared to average balances for interest-bearing
liabilities of $735.3 million during year-end 1997, an increase of $158.9
million. The increase in interest-bearing liabilities was the net effect of a
$92.9 million increase in average FHLB advances and other borrowings and a
$66.0 million increase in total deposits. The average cost of interest-bearing
deposits decreased for year-end 1998 to 4.93% from to 5.01% for year-end 1997
as marginal deposit costs were less than the average cost of existing
deposits. A less aggressive deposit pricing strategy, a relative percentage
shift towards lower-cost transaction and savings accounts, and generally lower
market rates contributed to the decline in average deposit rates. The average
cost of FHLB advances and other borrowings decreased for year-end 1998 to
6.01% as compared to 6.25% for year-end 1997, also as a result of lower market
rates.
Net Interest Income
Net interest income before the provision for loan losses increased by $6.6
million, or 27.8%, from $23.8 million to $30.4 million for the years ended
March 31, 1997 and 1998, respectively. A full year's use of proceeds from the
initial public offering helped to offset a decrease in the net interest rate
spread from 2.27% for year-end 1997 to 2.22% for year-end 1997. The decrease
in the net interest rate spread was due to a drop in earning asset yield
brought about by the addition of lower yielding adjustable rate mortgage-
backed securities, as previously discussed. The Company's net interest margin
increased from 2.87% for year-end 1997 to 2.93% for year-end 1998.
Provision for Loan Losses
The Company's provision for loan losses amounted to $2.4 million for year-
end 1998, as compared to a provision of $3.8 million for year-end 1997. The
decrease in the provision for loan losses resulted from management's review
and evaluation of the adequacy of the Company's loan loss reserve relative to
the overall credit quality of its loan portfolio. To the extent the Company
experiences further increases in the overall balance of its loan portfolio or
increases its concentrations of loans which bear a higher degree of risk than
one- to four-family loans, the Company anticipates further increases in its
allowance for loan losses through continued provisions for loan losses. While
management of the Company believes that the current level of its allowance for
loan losses is sufficient based on information currently available at this
time, no assurances can be made that future events, conditions or regulatory
directives will not result in increased provisions for loan losses or
additions to the Company's allowance for loan losses which may adversely
affect net income.
Non-interest Income
Non-interest income increased $2.0 million, or 43.9% from $4.4 million for
year-end 1997 to $6.4 million for year-end 1998. Non-interest income consists
of loan servicing income, gains and losses on the sale of mortgages, and other
non-interest income. A $2.0 million increase in the gain on sale of mortgage
loans was the primary driver of the increase in non-interest income. This
increase was primarily the result of more favorable secondary mortgage market
conditions and an increase in the volume of loans originated and sold. A
$374,000 increase in gain on sale of investments and other income was offset
by a $406,000 decline in loan servicing income, primarily the result of
accelerated amortization of mortgage servicing rights during the fourth
quarter due to faster prepayment rate forecasts and faster than expected
actual prepayments.
Non-interest Expense
Total non-interest expense decreased to $22.3 million for year-end 1998
compared to $27.3 million for year-end 1997. Year-end non-interest expense for
1997 included pre-tax, nonrecurring charges of $2.9 million for the SAIF
special assessment and $6.5 million for funding the Foundation. The absence of
these items in year-end
29
<PAGE>
1998 figures partially offset a $3.4 million increase in compensation and
benefits related to increased staffing and the recognition of the Company's
Stock-based Incentive Plan, and a $922,000 increase in office occupancy and
equipment expense related to the Company's new administrative offices and
operations center and the renovation of the Company's Downtown Fall River main
banking office. After excluding the SAIF assessment, the Company's deposit
insurance declined to $514,000, while data processing expense was virtually
unchanged at $717,000. The Company's advertising and promotion expense
declined $57,000 to $1.0 million for year-end 1998, while other expenses
increased $568,000. The largest sources of this increase were: a $205,000
increase in accounting, legal, and consulting fees; a $162,000 increase in
loan expense for appraisals and other loan origination related expenses that
were increased during the early 1998 refinance surge; a $121,000 increase in
stockholder and corporate communication expenses arising from the Company's
first full year as a public company; and a partial offset of $214,000 caused
by a decrease in REO and foreclosure expense.
Income Taxes
Income tax expense was $5.3 million for year-end 1998 (resulting in an
effective tax rate of 43.7%), compared to an income tax benefit of $449,000
for year-end 1997 (resulting in an effective tax benefit of 15.6%). The
increase in income tax expense was primarily due to increased pre-tax income.
Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Under this statement, an entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption of this
statement is not expected to have a material impact on the Company. On May 20,
1999, the FASB issued an exposure draft to defer the effective date of SFAS
No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FIRSTFED AMERICA BANCORP, INC.:
We have audited the accompanying consolidated balance sheets of FIRSTFED
AMERICA BANCORP, INC. and subsidiaries, (the "Company") as of March 31, 1999
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended March 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FIRSTFED
AMERICA BANCORP, INC. and subsidiaries at March 31, 1999 and 1998, and the
results of their operations and cash flows for each of the years in the three-
year period ended March 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
April 23, 1999
F-1
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
(Dollars in
Thousands)
<S> <C> <C>
Assets
Cash on hand and due from banks......................... $ 24,598 32,021
Short-term investments.................................. 14,422 --
---------- ---------
Total cash and cash equivalents........................ 39,020 32,021
Mortgage loans held for sale............................ 52,334 84,867
Investment in trading securities (note 5)............... 94 --
Investment securities available for sale
(amortized cost of $5,660 and $5,816) (note 5)......... 5,575 7,712
Mortgage-backed securities available for sale
(amortized cost of $408,485 and $214,225) (note 5 and
10).................................................... 408,451 215,143
Investment securities held to maturity
(fair value of $10,030 and $22,585) (note 5 and 10).... 9,998 22,491
Mortgage-backed securities held to maturity
(fair value of $5,733 and $12,688) (note 5)............ 5,608 12,495
Stock in Federal Home Loan Bank of Boston, at cost
(notes 5 and 10)....................................... 28,682 17,945
Loans receivable, net of allowance for loan losses of
$12,016 and $10,937 (notes 6 and 10)................... 766,687 848,552
Accrued interest receivable............................. 6,369 5,992
Mortgage servicing rights (note 7)...................... 6,537 3,230
Office properties and equipment, net (note 8)........... 25,255 24,877
Real estate owned, net.................................. 344 595
Prepaid expenses and other assets....................... 38,283 5,912
---------- ---------
Total assets........................................ $1,393,237 1,281,832
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 9)...................................... $ 674,870 708,488
FHLB advances and other borrowings (note 10)........... 585,981 403,865
Advance payments by borrowers for taxes and insurance.. 5,660 6,224
Accrued interest payable............................... 3,058 2,613
Other liabilities...................................... 20,707 33,656
---------- ---------
Total liabilities................................... 1,290,276 1,154,846
========== =========
Commitments and contingencies (notes 4, 6, 8, 10, 11, 13
and 15)
Stockholders' equity (notes 3 and 4):
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued............................... -- --
Common stock, $.01 par value; 25,000,000 shares
authorized; 8,707,152 shares issued................... 87 87
Additional paid-in capital............................. 85,407 85,016
Retained earnings (notes 2 and 3)...................... 56,892 50,422
Accumulated other comprehensive (loss) income.......... (150) 1,616
Unearned 1997 stock-based incentive plan (note 14)..... (5,869) (4,734)
Unallocated ESOP shares (note 14)...................... (4,647) (5,421)
Treasury stock; at cost (1,649,668 and 0 shares at 1999
and 1998)............................................. (28,759) --
---------- ---------
Total stockholders' equity.......................... 102,961 126,986
---------- ---------
Total liabilities and stockholders' equity.......... $1,393,237 1,281,832
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(Dollars in
Thousands, Except Per
Share Data)
<S> <C> <C> <C>
Interest and dividend income:
Loans................................................. $65,352 67,493 57,941
Investment securities................................. 2,100 2,033 2,805
Mortgage-backed securities............................ 17,791 6,608 958
Federal Home Loan Bank stock.......................... 1,534 756 555
------- ------ ------
Total interest and dividend income.................. 86,777 76,890 62,259
------- ------ ------
Interest expense:
Deposits (note 9)..................................... 27,572 33,034 30,277
Borrowed funds........................................ 28,871 13,495 8,220
------- ------ ------
Total interest expense.............................. 56,443 46,529 38,497
------- ------ ------
Net interest income before provision for loan
losses............................................. 30,334 30,361 23,762
Provision for loan losses (note 6)...................... 1,200 2,350 3,750
------- ------ ------
Net interest income after provision for loan
losses............................................. 29,134 28,011 20,012
------- ------ ------
Non-interest income:
Loan servicing income................................. 1,909 2,354 2,760
Gain (loss) on sale of mortgage loans, net (note 7)... 2,046 1,493 (478)
Gain on sale of investments securities available for
sale................................................. 9 163 51
Other income.......................................... 3,674 2,343 2,081
------- ------ ------
Total non-interest income........................... 7,638 6,353 4,414
------- ------ ------
Non-interest expense:
Compensation and employee benefits (note 14).......... 14,615 13,290 9,933
Office occupancy and equipment........................ 3,781 2,927 2,005
Data processing....................................... 1,045 717 719
Advertising and business promotion.................... 796 1,023 1,080
Federal deposit insurance premiums.................... 588 514 1,014
SAIF special assessment (note 4)...................... -- -- 2,880
Contribution to The FIRSTFED Charitable Foundation
(note 3)............................................. -- -- 6,454
Other................................................. 4,508 3,788 3,220
------- ------ ------
Total non-interest expense.......................... 25,333 22,259 27,305
------- ------ ------
Income (loss) before income tax expense............. 11,439 12,105 (2,879)
Income tax expense (benefit) (note 13).................. 3,818 5,286 (449)
------- ------ ------
Net income (loss)................................... $ 7,621 6,819 (2,430)
======= ====== ======
Basic earnings per share................................ $ 1.09 0.84 NM
======= ====== ======
Diluted earnings per share.............................. $ 1.09 0.84 NM
======= ====== ======
Weighted average shares outstanding--basic.............. 6,980 8,131 NM
======= ====== ======
Weighted average shares outstanding--diluted............ 6,980 8,138 NM
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unearned
1997
Stock-
Accumulated based
Shares of Additional other Unallocated incentive Total
Preferred common Common paid-in Retained comprehensive ESOP plan (SIP) Treasury stockholders'
stock stock stock capital earnings income (loss) shares shares stock equity
--------- --------- ------ ---------- -------- ------------- ----------- ---------- -------- -------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1996.......... -- -- $ -- $ -- $46,033 $ 385 $ -- $ -- $ -- $ 46,418
Stock issued
pursuant to
initial common
stock offering... -- 8,062 81 77,510 -- -- -- -- -- 77,591
Issuance of
645,380 shares of
common stock to
the FIRSTFED
Charitable
Foundation
charged to
expense.......... -- 645 6 6,448 -- -- -- -- -- 6,454
Common stock
acquired by
ESOP............. -- -- -- -- -- -- (6,970) -- -- (6,970)
Earned ESOP
shares charged to
expense.......... -- -- -- 376 -- -- 774 -- -- 1,150
Comprehensive
income (loss):
Net loss......... -- -- -- -- (2,430) -- -- -- -- (2,430)
Other
comprehensive
income:
Unrealized
holding gains
(losses) on
available for
sale
securities...... -- -- -- -- -- (63) -- -- --
Reclassification
adjustments for
losses (gains)
included in net
income.......... -- -- -- -- -- (51) -- -- --
------
Unrealized
(losses) gains.. -- -- -- -- -- (114) -- -- --
Tax effect...... -- -- -- -- -- 55 -- -- --
------
Net-of-tax
effect.......... -- -- -- -- -- (59) -- -- -- (59)
--------
Total
comprehensive
income (loss).... -- -- -- -- -- -- -- -- -- (2,489)
--- ----- ----- ------- ------- ------ ------- ------- ----- --------
Balance at March
31, 1997.......... -- 8,707 87 84,334 43,603 326 (6,196) -- -- 122,154
Common stock
acquired for
SIP.............. -- -- -- -- -- -- -- (4,734) -- (4,734)
Earned ESOP
shares charged to
expense.......... -- -- -- 682 -- -- 775 -- -- 1,457
Comprehensive
income (loss):
Net income....... -- -- -- -- 6,819 -- -- -- -- 6,819
Other
comprehensive
income:
Unrealized
holding gains
(losses) on
available for
sale
securities...... -- -- -- -- -- 2,422 -- -- --
Reclassification
adjustments for
losses (gains)
included in net
income.......... -- -- -- -- -- (163) -- -- --
------
Unrealized
(losses) gains.. -- -- -- -- -- 2,259 -- -- --
Tax effect...... -- -- -- -- -- (969) -- -- --
------
Net-of-tax
effect.......... -- -- -- -- -- 1,290 -- -- -- 1,290
--------
Total
comprehensive
income........... -- -- -- -- -- -- -- -- -- 8,109
--- ----- ----- ------- ------- ------ ------- ------- ----- --------
Balance at March
31, 1998.......... -- 8,707 $ 87 $85,016 $50,422 $1,616 $(5,421) $(4,734) $ -- $126,986
=== ===== ===== ======= ======= ====== ======= ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, CONTINUED
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unearned
1997
Stock-
Accumulated based
Shares of Additional other Unallocated incentive Total
Preferred common Common paid-in Retained comprehensive ESOP plan (SIP) Treasury stockholders'
stock stock stock capital earnings income (loss) shares shares stock equity
--------- --------- ------ ---------- -------- ------------- ----------- ---------- -------- -------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1998.......... -- 8,707 $87 $85,016 $50,422 $ 1,616 $(5,421) $(4,734) $ -- $126,986
Common stock
acquired for
SIP.............. -- -- -- -- -- -- -- (2,502) -- (2,502)
Earned SIP stock
awards........... -- -- -- (150) -- -- -- 1,367 -- 1,217
Earned ESOP
shares charged to
expense.......... -- -- -- 541 -- -- 774 -- -- 1,315
Cash dividends
declared and paid
($0.15 per share).. -- -- -- -- (1,151) -- -- -- -- (1,151)
Common stock
repurchased
(1,615,123 shares
at an average
price of $17.43
per share)....... -- -- -- -- -- -- -- -- (28,152) (28,152)
Common stock
acquired for
certain employee
benefit plans
(34,545 shares at
an average price
of $17.58 per
share)........... -- -- -- -- -- -- -- -- (607) (607)
Comprehensive
income (loss):
Net income....... -- -- -- 7,621 -- -- -- -- 7,621
Other
comprehensive
income, net of
tax
Unrealized
holding gains
(losses) on
available for
sale
securities...... -- -- -- -- -- (2,924) -- -- --
Reclassification
adjustment for
losses (gains)
included in net
income.......... -- -- -- -- -- (9) -- -- --
-------
Net unrealized
(losses) gains.. -- -- -- -- -- (2,933) -- -- --
Tax effect...... -- -- -- -- -- 1,167 -- -- --
-------
Net-of-tax
effect.......... -- -- -- -- -- (1,766) -- -- -- (1,766)
--------
Total
comprehensive
income........... -- -- -- -- -- -- -- -- -- 5,855
--- ----- --- ------- ------- ------- ------- ------- -------- --------
Balance at March
31, 1999.......... -- 8,707 $87 $85,407 $56,892 $ (150) $(4,647) $(5,869) $ 28,759 $102,961
=== ===== === ======= ======= ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 7,621 6,819 (2,430)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Contribution of shares to the Foundation........ -- -- 6,454
Amortization (accretion) of:
Premium (discount) on investment and mortgage-
backed securities held to maturity............ 6 (4) (9)
Premium on investment and mortgage-backed
securities available for sale................. 1,148 43 2
Deferred loan origination fees.................. (50) 322 175
Mortgage servicing rights....................... 1,704 782 150
Provisions for:
Loan losses.................................... 1,200 2,350 3,750
(Gains) losses on sales of:
Office property and equipment.................. -- (18) --
Real estate owned.............................. (104) (93) (59)
Mortgage loans................................. (2,046) (1,493) 478
Investment and mortgage backed-securities
available-for-sale............................ (9) (163) (51)
Net proceeds from sales of mortgage loans....... 629,772 265,221 215,333
Origination of mortgage loans held for sale..... (600,204) (327,642) (223,175)
Unrealized loss on trading securities........... 6 -- --
Real estate owned valuation write-downs......... 38 240 186
Depreciation of office properties and
equipment...................................... 2,251 1,692 967
Appreciation in fair value of ESOP shares....... 541 682 376
Earned SIP shares............................... 1,217 -- --
Increase or decrease in:
Accrued interest receivable.................... (377) (1,270) (1,011)
Prepaid expenses and other assets.............. (31,204) 706 (2,963)
Accrued interest payable....................... 445 1,896 413
Other liabilities.............................. (12,949) 17,409 2,455
-------- -------- --------
Net cash (used in) provided by operating
activities................................... (994) (33,407) 1,041
======== ======== ========
</TABLE>
F-6
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of investment securities available
for sale..................................... $ (3,845) (6,159) --
Purchase of trading securities................ (100) -- --
Purchase of mortgage-backed securities
available for sale........................... (346,219) (201,533) (32,061)
Payments received on mortgage-backed
securities available for sale................ 127,442 19,322 --
Proceeds from sale of investment securities
available for sale........................... -- 511 101
Proceeds from sale of mortgage-backed
securities available for sale................ 3,906 -- --
Purchases of investment securities held to
maturity..................................... -- (11,990) (10,991)
Payments received on mortgage-backed
securities held to maturity.................. 6,874 2,934 1,805
Purchases of mortgage-backed securities held
to maturity.................................. -- -- (9,996)
Purchase of the Federal Home Loan Bank Stock.. (10,737) (8,414) (2,901)
Maturities of investment securities held to
maturity..................................... 12,500 10,500 14,000
Maturities of investment securities available
for sale..................................... 4,000 -- --
Maturities of mortgage-backed securities
available for sale........................... 19,473 -- --
Net (increase) decrease in loans.............. 80,280 (56,282) (163,525)
Proceeds from sale of office equipment........ -- 30 --
Proceeds from sales of real estate owned...... 752 1,336 688
Purchases of office properties and equipment.. (2,629) (12,367) (6,853)
---------- -------- --------
Net cash used in investing activities...... (108,303) (262,112) (209,733)
---------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits........... $ (33,618) (15,488) 140,226
Proceeds FHLB advances and other borrowings... 1,584,786 763,127 543,817
Repayments on FHLB advances and other
borrowings................................... (1,402,670) (470,324) (507,896)
Net change in advance payments by borrowers
for taxes and insurance...................... (564) 644 1,413
Net proceeds from common stock issued pursuant
to initial public offering................... -- -- 77,591
Payments to acquire SIP shares................ (2,502) (4,734) --
Cash dividends paid........................... (1,151) -- --
Common stock repurchased...................... (28,759) -- --
Payments to acquire common stock for ESOP..... -- -- (6,970)
Reduction in unearned ESOP shares............. 774 775 774
---------- -------- --------
Net cash provided by financing activities.. 116,296 274,000 248,955
---------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 6,999 (21,519) 40,263
Cash and cash equivalents at beginning of
year.......................................... 32,021 53,540 13,277
---------- -------- --------
Cash and cash equivalents at end of year....... $ 39,020 32,021 53,540
========== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.................................... $ 55,998 44,633 38,084
========== ======== ========
Income taxes................................ $ 3,933 3,830 3,227
========== ======== ========
Supplemental disclosures of noncash investing
activities:
Property acquired in settlement of loans...... $ 435 1,413 837
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999, 1998 and 1997
(1) Organization
FIRSTFED AMERICA BANCORP, INC. (the "Company") is a holding company for
First Federal Savings Bank of America (the "Bank"), FAB FUNDING CORPORATION
("FAB FUNDING"), and the FIRSTFED INSURANCE AGENCY, LLC (the "Agency"). The
Company owns all of the issued and outstanding shares of common stock of the
Bank and FAB FUNDING. The FIRSTFED INSURANCE AGENCY, LLC is owned jointly by
the Company and FAB FUNDING, with the Company's ownership share being a
substantial majority.
The Bank provides a full range of banking services to individual and
business customers in Massachusetts, Rhode Island, and to a lesser degree in
Connecticut. The Bank is subject to competition from other financial
institutions, mortgage banking companies and other financial service providers
doing business in the area. The Bank and the Company are subject to
regulations of, and periodic examinations by, the Office of Thrift Supervision
("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
FDIC up to $100,000. To provide protection for customers' retirement account
balances in excess of FDIC coverage, the Bank participates in the "Deposit
Collateralization Bailee Program" with the Federal Home Loan Bank of Boston.
To participate, the Company must pledge investment securities and mortgage
loans as collateral with the Federal Home Loan Bank of Boston.
As more fully described in note 3, First Federal Savings Bank of America
(the "Bank") converted from a mutual savings bank to a capital stock savings
bank on January 15, 1997.
The FIRSTFED INSURANCE AGENCY, LLC, was formed on January 7, 1999. The
Agency offers a comprehensive insurance product line including auto, home,
life, accident and health insurance to consumers and businesses. The Agency is
licensed to sell insurance in both Massachusetts and Rhode Island and is
subject to regulations of, and periodic examinations by, both of these states.
FAB FUNDING is a business corporation formed at the direction of the Company
under the laws of the Commonwealth of Massachusetts on October 8, 1996. FAB
FUNDING was established to lend funds to a Company sponsored employee stock
ownership plan and related trust for the purchase of stock in the initial
public offering.
First Federal Savings Bank of America includes its wholly-owned
subsidiaries: FIRSTFED Mortgage Corp. (an inactive company), FIRSTFED
INVESTMENT CORP. (a Massachusetts security corporation), and CELMAC INVESTMENT
CORP. (a Massachusetts security corporation).
(2) Summary of Significant Accounting Policies (Dollars in Thousands)
Principles of Consolidation
In preparing these financial statements, management is required to make
estimates that affect the reported amounts of assets and liabilities as of the
dates of the balance sheets, and income and expense for the periods. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to change relate to the determination of the
allowance for loan losses.
All significant intercompany accounts and transactions have been eliminated
in consolidation. Certain amounts previously reported have been reclassified
to conform to the current year's presentation.
Cash and Due From Banks
The Bank is required to maintain cash and reserve balances with the Federal
Reserve Bank. Such reserve is calculated based upon deposit levels and
amounted to $7,734 at March 31, 1999.
F-8
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments and Mortgage-Backed Securities
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity and reported at amortized cost.
Debt and equity securities that are bought and held principally for the
purpose of being resold in the near term are classified as trading and
reported at fair value, with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either held-to-maturity or
trading are classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity, net of related income taxes.
Premiums and discounts on investment and mortgage-backed securities are
amortized or accreted into income using a method that approximates the
interest method. If a decline in fair value below the amortized cost basis of
an investment or mortgage-backed security is judged to be other than
temporary, the cost basis of the investment is written down to fair value as a
new cost basis and the amount of the write-down is included as a charge
against gain (loss) on sale of investment securities. Gains and losses on the
sale of investment and mortgage-backed securities are recognized at the time
of sale on a specific identification basis.
Loans
Loans are reported at the principal amount outstanding, reduced by net
deferred loan origination fees. Mortgage loans held for sale are carried at
the lower of aggregate cost or market. Considered in the calculation of cost
are unamortized deferred loan origination fees and costs and mortgage
servicing rights. Generally, all longer term (typically mortgage loans with
terms greater than fifteen years) fixed-rate residential single-family
mortgage loans are originated for sale and shorter term fixed rate and
adjustable-rate loans are originated for portfolio.
Loan origination fees are offset with related direct incremental loan
origination costs and the resulting net amount is deferred and amortized over
the contractual life of the related loans using the interest method. When
loans are sold in the secondary market, the remaining balance of the amount
deferred is included in the determination of gain or loss on sale.
Accrual of interest on loans is discontinued when collectibility of
principal or interest is uncertain or payments of principal or interest have
become contractually past due 90 days or more. When a loan is placed on non-
accrual, all income that has been accrued but remains unpaid is reversed
against current period income and all amortization of deferred loan fees is
discontinued. Interest received on non-accrual loans is either recorded as
income or applied against the principal balance depending on management's
evaluation of the collectibility of principal. Loans are removed from non-
accrual status when they have been current as to principal and interest for a
period of time, the borrower has demonstrated an ability to comply with the
repayment terms, and when, in management's opinion, the loans are considered
fully collectible.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Bank will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The definition of
"impaired loans" is not the same as the definition of "nonaccrual loans,"
although the two categories overlap. Nonaccrual loans include impaired loans
and are those on which the accrual of interest is discontinued when
collectibility of principal or interest is uncertain or payments of principal
or interest have been contractually past due 90 days. The Bank may choose to
place a loan on nonaccrual status due to payment delinquency or uncertain
collectibility, while not classifying the loan as impaired, if (i) it is
probable that the Bank will collect all amounts due in accordance with the
contractual terms of the loan or (ii) the loan is not a commercial or a
commercial real estate loan. Factors considered by management in determining
impairment include payment status and collateral value.
F-9
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amount of impairment for these types of impaired loans is determined by
the difference between the present value of the expected cash flows related to
the loan, using the original contractual interest rate, and its recorded
value, or, as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of
the loan. When foreclosure is probable, impairment is measured based on the
fair value of the collateral. Residential mortgage and consumer loans are
measured for impairment collectively. Loans that experience insignificant
payment delays and insignificant shortfalls in payment amounts generally are
not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed.
Allowance for Loan Losses
The allowance for loan losses is available for future credit losses inherent
in the portfolio. The level of the allowance is based on management's ongoing
review of the existing loan portfolio, current market conditions, as well as
the volume and mix of new originations. Loans (or portions thereof) deemed to
be uncollectible are charged against the allowance and recoveries of amounts
previously charged-off are added to the allowance. The provisions for loan
losses charged to earnings are added to the allowance to bring it to the
desired level.
While management believes that the allowance for loan losses is adequate to
absorb probable loan losses, future additions to the allowance may be
necessary based on changes in the above factors. In addition, the OTS and FDIC
periodically review the Bank's allowance for loan losses. Such agencies may
require the recognition of additions to the allowance based on their judgments
about information available to them at the time of their examination.
Gain or Loss on Sale of Mortgage Loans
Gain or loss on sale of mortgage loans is recognized at the time of sale.
Such gain or loss results from the combination of (1) the difference between
the net cash paid by the investor for the loan and the loan's carrying value;
(2) the calculated present value of the difference between the interest rate
paid by the borrower on the loan sold and the interest rate guaranteed to the
investor, adjusted for mortgage servicing fees and considering estimated loan
prepayments; and (3) any origination fees, net of applicable origination
costs, retained by the Bank.
Capitalized mortgage servicing rights are recognized, based on the allocated
fair value of the rights to service mortgage loans for others. Mortgage
servicing rights are amortized to loan servicing fee income using a method
which approximates the level yield method in proportion to, and over the
period of, estimated net servicing income. Mortgage servicing rights are
assessed for impairment based on the fair value of those rights. Prepayment
experience on mortgage servicing rights is reviewed periodically and, when
actual repayments exceed estimated prepayments, the balance of the mortgage
servicing assets is reduced by a charge to earnings through a valuation
allowance. The risk characteristics of the underlying loans used to measure
impairment include loan type, interest rate, loan origination date, and term
to maturity.
Office Properties and Equipment
Land is carried at cost. Office properties and equipment are recorded at
cost less accumulated depreciation. Depreciation of office properties and
equipment is determined on the straight-line basis over the estimated useful
lives of the related assets (3 to 40 years). Expenditures for major additions
and improvements are capitalized while the costs of current maintenance and
repairs are charged to operating expenses.
F-10
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Real Estate Owned
Real estate owned is acquired through foreclosure or by accepting a deed in
lieu of foreclosure. Real estate acquired in settlement of loans is recorded
at the lower of the carrying value of the loan or the fair value, less
disposal costs, of the property constructively or actually received, thereby
establishing a new cost basis. Subsequent write-downs are recorded if the cost
basis exceeds current net fair value. Related operating costs, net of rental
income, are reflected in operations when incurred. Realized gains upon
disposition are recognized in income.
Management believes that the net carrying value of real estate acquired
through foreclosure reflects the lower of its cost basis or estimated net fair
value. Factors similar to those considered in the evaluation of the allowance
for loan losses, including regulatory requirements, are considered in the
evaluation of the net fair value of real estate acquired through foreclosure.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the accounting basis and the
tax basis of the Company's assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
realized or settled. The Company's deferred tax asset is reviewed periodically
and adjustments to such asset are recognized as deferred income tax expense or
benefit based upon management's judgments relating to the realizability of
such asset.
Pension
The Company accounts for pension benefits on the net periodic pension cost
method for financial reporting purposes. This method recognizes the
compensation cost of an employee's benefit over that employee's approximate
service period.
Employee Benefits
The Company continues to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees. However, the Company, provides expanded disclosures of
pro-forma net income and earnings per share and other disclosure information
in Note 14 to the consolidated financial statements as if the fair value
method had been applied.
Interest Rate Risk Management Agreements
The Company uses off-balance sheet financial instruments from time to time
as part of its interest rate risk management strategy. Interest rate swap
agreements are entered into as hedges against future interest rate
fluctuations on specifically identified assets or liabilities. The Company
does not enter into agreements for trading or speculative purposes. Therefore,
these agreements are not marked to market.
The net amounts to be paid or received on outstanding interest rate risk
management agreements are recognized on the accrual basis as an adjustment to
the related interest income or expense over the life of the agreements.
Earnings Per Share
Basic EPS is computed by dividing net income by the weighted average number
of shares of common stock outstanding during the year adjusted for the
weighted average number of unallocated shares held by the
F-11
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Stock Ownership Plan ("ESOP") and the unearned shares relating to the
1997 Stock-Based Incentive Plan ("SIP"). Diluted EPS reflects the effect to
weighted average shares outstanding of the number of additional shares
outstanding if dilutive stock options and dilutive SIP shares were converted
into common stock using the treasury stock method.
A reconciliation of the weighted average shares outstanding for the year
ended March 31, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Basic shares.................................................. 6,980 8,131
Dilutive impact of stock options.............................. -- 6
Dilutive impact of SIP shares................................. -- 1
----- -----
Diluted shares................................................ 6,980 8,138
===== =====
</TABLE>
Earnings per share is not presented for the period of January 15, 1997 (the
date of conversion to a stock savings bank) through March 31, 1997 as the
earnings per share calculation for the seventy-six day period was not
meaningful.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents consist of
cash on hand and due from banks and short-term investments. Short-term
investments have original maturities of 90 days or less.
Recent Accounting Developments
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Under this statement, an entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. On May 20, 1999, the
FASB issued an exposure draft to defer the effective date of SFAS No. 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000.
(3) Conversion to Stock Form of Ownership
The Company is a business corporation formed at the direction of the Bank
under the laws of Delaware on September 6, 1996. On January 15, 1997, (i) the
Bank converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank, (ii) the Bank issued all of its outstanding
capital stock to the Company and (iii) the Company consummated its initial
public offering of common stock, par value $.01 per share (the "Common
Stock"), by selling at a price of $10.00 per share 7,364,762 shares of Common
Stock to certain of the Bank's eligible account holders who had subscribed for
such shares (collectively, the "Conversion"), by selling 697,010 shares to the
Bank's Employee Stock Ownership Plan and related trust ("ESOP") and by
contributing 645,380 shares of Common Stock to The FIRSTFED Charitable
Foundation (the "Foundation"). The Conversion resulted in net proceeds of
$77.6 million, after expenses of $3.0 million. Net proceeds of $43.4 million
were invested in the Bank to increase the Bank's tangible capital to 10% of
the Bank's total adjusted assets. The Company established the FIRSTFED
Charitable Foundation dedicated to the
F-12
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
communities served by the Bank. In connection with the Conversion, the common
stock contributed by the Company to the Foundation at a value of $6.5 million
was charged to expense.
Prior to the initial public offering and as a part of the subscription
offering, in order to grant priority to eligible depositors, the Bank
established a liquidation account at the time of conversion in an amount equal
to the retained earnings of the Bank as of the date of its latest balance
sheet date, September 30, 1996, contained in the final Prospectus used in
connection with the Conversion. In the unlikely event of a complete
liquidation of the Bank (and only in such an event), eligible depositors who
continue to maintain accounts at the Bank shall be entitled to receive a
distribution from the liquidation account. The total amount at the liquidation
account is decreased if the balances of eligible depositors decrease at the
annual determination dates. The liquidation account approximated $21.8 million
(unaudited) at March 31, 1999.
The Company may not declare or pay dividends on its stock if such
declaration and payment would violate statutory or regulatory requirements.
In addition to the 25,000,000 authorized shares of common stock, the Company
authorized 1,000,000 shares of preferred stock with a par value of $0.01 per
share (the "Preferred Stock"). The Board of Directors is authorized, subject
to any limitations by law, to provide for the issuance of the shares of
preferred stock in series, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restriction thereof. As of March 31, 1999,
there were no shares of preferred stock issued.
(4) Stockholders' Equity (Dollars in Thousands)
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of risk-based core and tangible capital (as defined). As of March
31, 1999, the Bank meets all capital adequacy requirements to which it is
subject.
As of October 7, 1998, the most recent notification from the OTS categorized
the Bank as "well capitalized" by regulatory definition. To be categorized as
"well capitalized" the Bank must maintain minimum total risk-based, core,
tangible, and Tier 1 risk-based capital ratios as set forth in the table. As
of March 31, 1999, the Bank is categorized as "well capitalized" based on its
ratios of risk-based, core, tangible, and Tier 1 risk-based capital. There are
no conditions or events since that notification that management believes have
changed the Bank's category.
F-13
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank's actual and required capital amounts and ratios are presented in
the table. No deduction was taken from capital for interest-rate risk.
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provisions
-------------- ------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Risk-based capital......... $105,684 16.18% $52,250 8.0% $ 65,312 10.0%
Core capital............... 97,544 7.03 55,534 4.0 69,417 5.0
Tangible capital........... 97,544 7.03 27,767 2.0 69,417 5.0
Tier 1 risk-based.......... 97,544 14.93 26,125 4.0 39,187 6.0
As of March 31, 1998:
Risk-based capital......... $115,998 18.35% $50,581 8.0% $ 63,226 10.0%
Core capital............... 108,124 8.54 50,659 4.0 63,324 5.0
Tangible capital........... 108,124 8.54 25,330 2.0 63,324 5.0
Tier 1 risk-based.......... 108,124 17.10 25,290 4.0 37,935 6.0
</TABLE>
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") of the FDIC. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 (the "Act"). Among other provisions, the
Act empowers the Board of Directors of the FDIC to impose a special assessment
on "SAIF-assessable deposits" as of March 31, 1995 of depository institutions
to recapitalize the SAIF. The Bank was assessed a rate of 65.7 cents per $100
of SAIF-assessable deposits. The Bank recorded a charge to SAIF special
assessment expense of $2,880 on September 30, 1996.
(5) Investment and Mortgage-Backed Securities (Dollars in Thousands)
Available For Sale
A summary of investment securities available for sale follows:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Investment securities:
Marketable equity securities........ $5,660 1,429 (1,514) 5,575
------ ----- ------ -----
Total investment securities....... $5,660 1,429 (1,514) 5,575
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------------
Weighted Amortized Unrealized Unrealized Fair
average rate cost gains losses value
------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Investment securities:
Marketable equity
securities............... $1,815 1,888 (2) 3,701
Government obligations
due:
Within one year......... 5.7% 4,001 10 -- 4,011
--- ------ ----- --- -----
Total investment
securities........... $5,816 1,898 (2) 7,712
====== ===== === =====
</TABLE>
F-14
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of mortgage-backed and collateralized mortgage obligation securities
available for sale follows:
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------
Weighted Amortized Unrealized Unrealized Fair
average rate cost gains losses value
------------ --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
due:
Less than five years.... 7.0% $ 18,765 73 -- 18,838
Within five years to
ten years............ 7.0 2,557 13 -- 2,570
After ten years....... 6.1 243,526 671 (210) 243,987
--- -------- --- ---- -------
Total mortgage-backed
securities........... 6.2% $264,848 757 (210) 265,395
--- -------- --- ---- -------
Collateralized mortgage
obligations due:
Within five to ten
years.................. 5.7% $ 23,189 24 -- 23,213
After ten years......... 6.2 120,448 83 (688) 119,843
--- -------- --- ---- -------
Total collateralized
mortgage
obligations.......... 6.1% $143,637 107 (688) 143,056
--- -------- --- ---- -------
Total............... 6.2% $408,485 864 (898) 408,451
=== ======== === ==== =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------------
Weighted Amortized Unrealized Unrealized Fair
average rate cost gains losses value
------------ --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
due:
Less than five years.... 6.4% $ 24,085 235 -- 24,320
Within five years to ten
years.................. 7.0 30,551 389 -- 30,940
After ten years......... 5.7 130,220 532 (145) 130,607
--- -------- ----- ---- -------
Total mortgage-backed
securities........... 6.0% $184,856 1,156 (145) 185,867
=== ======== ===== ==== =======
Collateralized mortgage
obligations due:
After ten years......... 6.1% $ 29,369 3 (96) 29,276
--- -------- ----- ---- -------
Total collateralized
mortgage
obligations.......... 6.1% $ 29,369 3 (96) 29,276
--- -------- ----- ---- -------
Total............... 6.0% $214,225 1,159 (241) 215,143
=== ======== ===== ==== =======
</TABLE>
During the years ended March 31, 1999, 1998 and 1997, realized gains on
investment securities available for sale were $9, $163 and $51, respectively.
Proceeds from the sale of investment and mortgage-backed securities available
for sale during 1999, 1998 and 1997 amounted to $3,906, $511 and $101,
respectively.
Adjustable-rate mortgage-backed securities and collateralized mortgage
obligations available for sale had total amortized costs and fair values of
$329,823 and $330,381 respectively, at March 31, 1999 and $183,674 and
$184,203, respectively, at March 31,1998.
F-15
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Held To Maturity
A summary of investment securities held to maturity follows:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------
Weighted
average Amortized Unrealized Unrealized Fair
rate cost gains losses value
-------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
United States Government and
related obligations due:
Within one year.............. 6.1% $9,998 32 -- 10,030
--- ------ --- --- ------
Total investment securities
held to maturity.......... 6.1% $9,998 32 -- 10,030
=== ====== === === ======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------
Weighted
average Amortized Unrealized Unrealized Fair
rate cost gains losses value
-------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
United States Government and
related obligations due:
Within one year............. 6.1% $12,500 29 -- 12,529
After one year but within
five years................. 6.1 9,991 65 -- 10,056
--- ------- --- --- ------
Total investment securities
held to maturity........... 6.1% $22,491 94 -- 22,585
=== ======= === === ======
</TABLE>
A summary of mortgage-backed securities held to maturity follows:
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------
Weighted
average Amortized Unrealized Unrealized Fair
rate cost gains losses value
-------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities due:
Less than five years.......... 7.7% $ 14 -- -- 14
Within five to ten years...... 8.5 815 53 -- 868
After ten years............... 6.7 4,779 72 -- 4,851
--- ------ --- --- -----
Total mortgage-backed
securities held to
maturity................... 7.0% $5,608 125 -- 5,733
=== ====== === === =====
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------
Weighted
average Amortized Unrealized Unrealized Fair
rate cost gains losses value
-------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities due:
Less than five years......... 7.7% $ 29 (2) 27
Within five to ten years..... 8.2 638 27 -- 665
After ten years.............. 6.8 11,828 168 -- 11,996
--- ------- --- --- ------
Total mortgage-backed
securities held to
maturity.................. 6.9% $12,495 195 (2) 12,688
=== ======= === === ======
</TABLE>
Adjustable-rate mortgage-backed securities held to maturity had total
amortized costs and fair values of $4,553 and $4,605, respectively, at March
31, 1999 and $10,993 and $11,094, respectively, at March 31, 1998.
Maturities of mortgage-backed securities are based on contractual maturities
with scheduled amortization. Actual maturities will differ from contractual
maturities due to prepayments.
F-16
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mortgage-backed securities with a book value of approximately $807 and
$1,119 were pledged as collateral for certain deposits in the "Deposit
Collateralization Bailee Program" at the Federal Home Loan Bank of Boston at
March 31, 1999 and 1998, respectively.
As a member of the Federal Home Loan Bank ("FHLB") system, the Company is
required to maintain a minimum investment in FHLB stock. The current
investment exceeds the required level at March 31, 1999. Any excess may be
redeemed by the Company or called by the FHLB at par. At its discretion, the
FHLB may declare dividends on this stock.
Trading Securities
The Company maintains an investment position in a venture-capital limited
partnership, which is classified as a trading security.
(6) Loans Receivable (Dollars in Thousands)
The Company's lending activities are conducted principally in Massachusetts,
Rhode Island, and to a lesser degree in Connecticut. The Company grants single
and multifamily residential loans, commercial real estate loans, commercial
loans and a variety of consumer loans. In addition, the Company grants loans
for the construction of residential homes, multifamily properties and for
commercial real estate properties. The ability and willingness of single and
multifamily residential and consumer borrowers to honor their repayment
commitments is generally dependent on real estate values and the level of
overall economic activity within the borrowers' geographic areas. The ability
and willingness of commercial, commercial real estate and construction loan
borrowers to honor their repayment commitments is generally dependent on the
health of the real estate economic sector in the borrowers' geographic areas
and the general economy.
F-17
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a comparative summary of loans receivable classified by type
at March 31:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Mortgage loans:
Residential 1-4 family.... $583,692 691,675
Multi-family.............. 3,082 3,899
Commercial real estate.... 38,760 45,723
Construction and land..... 31,671 27,145
-------- -------
Total mortgage loans.... 657,205 768,442
-------- -------
Commercial loans............ 56,196 26,689
-------- -------
Consumer loans and other
loans:
Home equity lines......... 25,482 26,252
Second mortgages.......... 40,630 38,862
Other consumer loans...... 7,872 7,828
-------- -------
Total consumer loans.... 73,984 72,942
-------- -------
Total loans receivable.. 787,385 868,073
-------- -------
Less:
Allowance for loan
losses................... (12,016) (10,937)
Undisbursed proceeds of
construction mortgages in
process.................. (7,903) (7,164)
Deferred loan origination
fees, net................ (779) (1,420)
-------- -------
(20,698) (19,521)
-------- -------
Loans receivable, net... $766,687 848,552
======== =======
</TABLE>
Included in residential mortgage loans and construction and land loans at
March 31, 1999 and 1998, respectively were $295,404 and $371,123 of loans at
variable interest rates.
The weighted average interest rate on the mortgage loan portfolio was
approximately 7.13% at March 31, 1999 compared with 7.44% at March 31, 1998.
At March 31, 1999 and 1998, mortgage loans sold to others and serviced by
the Corporation on a fee basis under various agreements amounted to $1,564,000
and $1,280,000, respectively. Loans serviced for others are not included in
the Consolidated Balance Sheets.
Loans placed on nonaccrual status totaled approximately $2,550 and $3,048 at
March 31, 1999 and 1998, respectively.
The following table summarizes information regarding the reduction of
interest income on nonaccrual loans for the years ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income in accordance with original items...................... $231 261 337
Income recognized............................................. 194 198 207
---- --- ---
Foregone interest income during year.......................... $ 37 63 130
==== === ===
</TABLE>
At March 31, 1999, there were no commitments to lend additional funds to
those borrowers whose loans were classified as impaired or nonaccrual.
F-18
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 1999 and 1998, total impaired loans were $1,565 and $1,469,
respectively. At March 31, 1999 and 1998, impaired loans of $1,565 and $1,469
required impairment allowances of $919 and $812, respectively. All impaired
loans have been measured using the fair value of the collateral method. The
average recorded value of impaired loans was $1,498 during 1999 and $1,462 in
1998. The Company follows the same policy for recognition of income on
impaired loans as it does for all other loans. Impaired loans of $1,088 and
$986 were on nonaccrual at March 31, 1999 and 1998, respectively.
The following table summarizes information regarding the reduction of
interest income on impaired loans for the years ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income in accordance with original terms...................... $227 228 232
Income recognized............................................. 122 120 112
---- --- ---
Foregone interest income during the year...................... $105 108 120
==== === ===
</TABLE>
An analysis of the allowance for loan losses for the years ended March 31 is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -----
<S> <C> <C> <C>
Balance at beginning of year......................... $10,937 8,788 5,607
Provision for loan losses.......................... 1,200 2,350 3,750
Charge-offs........................................ (138) (212) (637)
Recoveries......................................... 17 11 68
------- ------ -----
Balance at end of year............................... $12,016 10,937 8,788
======= ====== =====
</TABLE>
In the ordinary course of business, the Company makes loans to its
directors, executive officers, and their related interests, at the same
prevailing terms as those of other borrowers. The following is a summary of
related party loan activity for the years ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year................................. $828 749 778
Originations............................................. 56 271 169
Principal Repayments..................................... (199) (192) (198)
---- ---- ----
Balance, end of year....................................... $685 828 749
==== ==== ====
</TABLE>
Not included in the amounts stated above are unused portions of lines of
credit. These amounted to $188 and $178 at March 31, 1999 and 1998,
respectively.
Loans with a book value of $8,597 were pledged as collateral for the
"Deposit Collateralization Bailee Program" with the Federal Home Loan Bank of
Boston at March 31, 1999.
F-19
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Sale of Mortgage Loans (Dollars in Thousands)
The following summarizes mortgage loan sales and the components of gain or
(loss) on sale of mortgage loans for the years ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Gain (loss) on sale of mortgage loans:
Cash proceeds from sales of loans....... $ 630,044 $ 265,297 $ 215,479
Buy-down fees received, net............. (272) (76) (146)
--------- --------- ---------
Net cash proceeds from sales of
loans................................ 629,772 265,221 215,333
Principal balance of loans sold......... (631,107) (266,767) (217,689)
Deferred origination (costs) fees
recognized at time of sale............. (1,480) 340 425
Change in unrealized loss on mortgage
loans held for sale.................... (150) 318 (327)
Capitalized mortgage servicing rights... 5,011 2,381 1,780
--------- --------- ---------
Gain (loss) on sale of mortgage loans,
net.................................... $ 2,046 $ 1,493 $ (478)
========= ========= =========
</TABLE>
The following is a summary of capitalized mortgage servicing rights for the
years ended March 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Beginning balance......................... $ 3,230 $1,630
Capitalized mortgage servicing rights..... 5,011 2,381
Amortization.............................. (1,704) (781)
--------- ---------
Balance at March 31....................... $ 6,537 $3,230
========= =========
</TABLE>
Capitalized mortgage servicing rights are periodically evaluated for
impairment. As of March 31, 1999 and 1998, the balance of the valuation
allowance amounted to $487 and $203, respectively.
(8) Office Properties and Equipment (Dollars in Thousands)
Office properties and equipment consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Land........................................................ $ 1,939 1,389
Office building and improvements............................ 18,930 16,078
Furniture, fixtures and equipment........................... 12,038 9,630
Construction in progress.................................... 52 3,233
------- ------
32,959 30,330
Less accumulated depreciation............................... (7,704) (5,453)
------- ------
$25,255 24,877
======= ======
</TABLE>
F-20
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases certain office space under various non-cancelable
operating leases. A summary of future minimum rental payments under such leases
at March 31, 1999 follows:
<TABLE>
<CAPTION>
Minimum Rental
Year ending March 31, Expense
--------------------- --------------
<S> <C>
2000.......................................................... $114
2001.......................................................... 60
2002.......................................................... 47
2003.......................................................... 37
2004.......................................................... 28
After 2004.................................................... 352
</TABLE>
Rent expense was $127, $189 and $197 for the years ended March 31, 1999, 1998
and 1997, respectively.
(9) Deposits (Dollars in Thousands)
Deposits at March 31 are as follows:
<TABLE>
<CAPTION>
Weighted 1999 1998
Average -------------- --------------
rates Amount % Amount %
---------- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Money market................... (2.38;2.71) $ 32,834 4.9% $ 32,738 4.6%
Business checking.............. ( -- ; -- ) 62,238 9.2 62,470 8.8
Savings........................ (1.75;2.25) 97,277 14.4 89,818 12.7
NOW............................ (0.98;1.26) 54,532 8.1 48,925 6.9
-------- ----- -------- -----
246,881 36.6 233,951 33.0
-------- ----- -------- -----
Certificates:
Six months to one year....... (4.81;5.43) 204,075 30.2 203,202 28.7
Over one year................ (5.65;6.07) 113,389 16.8 161,379 22.8
Jumbo........................ (4.63;5.54) 8,434 1.2 9,045 1.3
IRA & Keogh.................. (5.40;5.83) 84,149 12.5 86,503 12.2
Business statement........... (4.47;4.80) 500 0.1 618 0.1
7-91 day..................... (4.24;4.91) 17,442 2.6 13,790 1.9
-------- ----- -------- -----
Total certificate
accounts.................. 427,989 63.4 474,537 67.0
-------- ----- -------- -----
$674,870 100.0% $708,488 100.0%
======== ===== ======== =====
Weighted average stated
interest rate of deposits..... (3.70;4.32)
</TABLE>
The remaining contractual maturities of certificate accounts at March 31 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
Amount % Amount %
-------- ----- ------- -----
<S> <C> <C> <C> <C>
Within twelve months.......................... $339,640 79.4% 375,393 79.1%
Thirteen months to thirty-six months.......... 79,024 18.5 86,324 18.2
Beyond thirty-six months...................... 9,325 2.1 12,820 2.7
-------- ----- ------- -----
$427,989 100.0% 474,537 100.0%
======== ===== ======= =====
</TABLE>
Certificates of deposit in denominations of $100 or more totaled
approximately $55,580 and $57,137 at March 31, 1999 and 1998, respectively.
F-21
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the ordinary course of business, the Company accepts deposits from
brokerage companies on behalf of their clients. These monies are invested in
certificates of deposit. Brokered deposits amounted to $1,983 and $1,285 at
March 31, 1999 and 1998, respectively.
Interest expense on deposits consisted of the following for the years ended
March 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Money market........................................... $ 849 883 828
Regular and club....................................... 1,875 2,094 2,061
NOW.................................................... 498 801 763
Certificates........................................... 24,350 29,256 26,625
------- ------ ------
$27,572 33,034 30,277
======= ====== ======
</TABLE>
(10) Federal Home Loan Bank Advances and Other Borrowings (Dollars in
thousands)
At March 31, 1999 and 1998, advances from the Federal Home Loan Bank of
Boston ("FHLB") with a weighted average interest rate of 5.30% and 5.87%,
respectively, mature as follows:
<TABLE>
<CAPTION>
Year ending March 31, 1999 1998
--------------------- -------- -------
<S> <C> <C>
1999........................................................ $ -- 181,483
2000........................................................ 181,838 43,314
2001........................................................ 157,768 35,768
2002........................................................ 44,909 19,909
2003........................................................ 66,795 56,795
After 2003.................................................. 79,345 19,346
-------- -------
$530,655 356,615
======== =======
</TABLE>
At March 31, 1999, the preceding totals include the following putable
advances which are exercisable at the discretion of the FHLB:
<TABLE>
<CAPTION>
Contractual
Advance Maturity Put Exercise Interest
Date Date Date Type Balance Rate
------- ----------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1/8/98........................ 1/8/08 4/9/99 Quarterly $ 8,800 4.99%
11/7/97....................... 11/7/02 11/8/99 One Time 30,000 5.71
12/7/98....................... 12/8/08 12/7/99 One Time 30,000 4.33
9/17/98....................... 9/17/03 9/17/01 One Time 25,000 4.99
1/19/99....................... 1/20/09 1/21/03 One Time 15,000 4.98
-------
108,800 5.01
=======
</TABLE>
Of the $157,768 maturing between April 1, 2000 and March 31, 2001, $22,000
have an adjustable rate that reprices monthly based on the one month London
Inter-Bank Offer Rate ("LIBOR").
In accordance with the Federal Home Loan Bank of Boston's collateral
requirements, a portion of the Bank's first mortgage loans on residential
property and all otherwise unencumbered deposits and securities issued,
insured or guaranteed by the United States government or an agency thereof,
are pledged as collateral to secure such advances.
The Bank has a $25 million secured line of credit available and additional
borrowing capacity of $175.5 million with the FHLB at March 31, 1999.
F-22
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank also had $55.3 million of other borrowings primarily consisting of
reverse repurchase agreements with securities dealers that were collateralized
by U. S. Treasury and mortgage-backed securities. The following table shows
information pertaining to these agreements for the years ended March 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Reverse repurchase agreements............................. $55,092 $47,000
Book value of pledged collateral.......................... 59,074 47,263
Fair value of pledged collateral.......................... 59,226 47,647
Maximum amount outstanding at any month end............... 73,065 47,000
Average amount outstanding during the year................ 49,861 10,154
</TABLE>
The weighted average rate of the agreements at March 31, 1999 was 4.81% and
the average cost for fiscal year 1999 was 5.28%. Of the $55,092 remaining at
March 31, 1999, $10,027 is scheduled to mature in April 1999, $28,065 is
scheduled to mature in February 2000, and $17,000 is scheduled to mature in
October 2000. The collateral for the agreements is under the control of the
Bank.
(11) Litigation
Various legal proceedings are pending against the Company which have arisen
out to the normal course of business. In the opinion of management, the
ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial position, the annual results of
operations, or liquidity of the Company.
(12) Financial Instruments with Off-balance Sheet Risk (in thousands)
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage interest-rate risk exposure. These financial instruments primarily
include commitments to originate and sell loans, unadvanced lines of credit,
and interest rate swap agreements. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheet. The contract amounts of those
instruments reflect the extent of the Company's involvement in these
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and unadvanced
lines of credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Financial instruments whose contractual amount represents
credit risk:
Commitments to originate loans to be sold................ $39,260 60,941
Commitments to originate loans to be held in portfolio... 10,132 19,527
Unadvanced home equity lines of credit................... 36,460 32,480
Unadvanced commercial lines of credit.................... 16,082 9,815
Unadvanced residential construction loans................ 7,903 7,164
Financial instruments whose contractual amount exceeds the
amount of credit risk:
Commitments to sell residential mortgage loans........... 70,969 119,454
Financial instruments whose notional amount exceeds the
amount of credit risk:
Interest rate swap agreements............................ 50,000 50,000
</TABLE>
F-23
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 1999 and 1998, commitments to originate loans to be sold with
maturities ranging from 15 years to 30 years had interest rates ranging from
5.88% to 7.88% and 5.99% to 8.25%, respectively. Commitments to originate
loans, unadvanced commercial lines of credit, unadvanced home equity lines of
credit and unadvanced residential construction loans are agreements to lend to
a customer provided there is no violation of any condition established in the
contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is
based on management's credit evaluation of the borrower.
The Company also enters into contracts to sell mortgage loans in the
secondary market. Risks arise from the possible inability of the Company to
originate loans to fulfill these contracts, in which case the Company would
normally purchase loans or securities in the open market to deliver against
these contracts. All loans are sold without recourse.
In addition, the Company uses interest rate swap agreements as part of its
interest-rate risk management strategy. Swaps are agreements in which the
Company agrees with another party to exchange interest payments (e.g. fixed-
rate for floating-rate payments) computed on a notional amount. The credit
risk associated with swap agreements is the risk of default by the
counterparty. To minimize this risk, the Company enters into swap agreements
only with highly rated counterparties that management believes to be
creditworthy. The notional amounts of these agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
potential loss exposure.
(13) Income Taxes (Dollars in thousands)
Income tax expense for the years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ------
<S> <C> <C> <C>
Current income tax expense:
Federal income tax...................................... $3,107 3,359 1,414
State income tax........................................ 96 1,663 633
------ ----- ------
3,203 5,022 2,047
------ ----- ------
Deferred income tax (benefit) expense:
Federal income tax...................................... 531 317 (2,407)
State income tax........................................ 84 (53) (89)
------ ----- ------
615 264 (2,496)
------ ----- ------
Income tax expense (benefit).............................. $3,818 5,286 (449)
====== ===== ======
</TABLE>
F-24
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reasons for the differences between the effective tax rates and the
statutory federal income tax rate for the years ended March 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate......................... 34.0% 34.0% 34.0%
Items affecting federal income tax rate:
State tax, net of federal benefit....................... 1.1 8.8 (12.4)
Appreciation of stock contributed to ESOP............... 1.6 1.9 (4.4)
Earnings on Bank-Owned Life Insurance................... (1.7) -- --
Other, net.............................................. (1.6) (1.0) (1.6)
---- ---- -----
Effective income tax rate............................. 33.4% 43.7% 15.6%
==== ==== =====
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31
are presented below:
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Deferred tax assets:
Accrued interest income....................................... $ 44 50
Deferred loan fees, net....................................... 73 171
Accrued stock awards.......................................... 1,107 764
Allowance for loan losses..................................... 4,589 3,695
Contribution to the Foundation carryforward................... 1,335 1,701
Other......................................................... 19 12
------ -----
Gross deferred tax asset.................................... 7,167 6,393
====== =====
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................. $ 578 563
Mortgage servicing rights..................................... 2,676 1,328
Other......................................................... 51 25
Unrealized gain on investments available for sale............. 98 1,199
------ -----
Gross deferred tax liability................................ 3,403 3,115
------ -----
Deferred income tax assets, net............................. $3,764 3,278
====== =====
</TABLE>
The net deferred federal income tax asset of $3,234 at March 31, 1999 is
supported by the potential recovery of taxes previously paid by the Company in
the carryback period. Since there is no carryback provision for state
purposes, management believes the existing net deductible temporary
differences which give rise to the net deferred state income tax asset of $530
will reverse during periods in which the Company generates net taxable income.
As a result of the Tax Reform Act of 1996, the special tax bad debt
provisions were amended to eliminate the reserve method. However, the base
year reserve of approximately $7,398 remains subject to recapture in the event
that the Company pays dividends in excess of its earnings and profits or
redeems its stock.
F-25
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) Pension Plan and Other Benefits (Dollars in Thousands, Except Per Share
Data)
Employee Stock Ownership Plan
Effective January 15, 1997 the Company adopted an Employee Stock Ownership
Plan ("ESOP"). The Plan is designed to provide retirement benefits for
eligible employees of the Bank. Because the Plan invests primarily in the
stock of the Company, it will also give eligible employees an opportunity to
acquire an ownership interest in the Company. Employees are eligible to
participate in the Plan after reaching age twenty-one, completing one year of
service and working at least one thousand hours of consecutive service during
the previous year. Contributions are allocated to eligible participants on the
basis of compensation.
During January, 1997, the Company issued a total of 697,010 shares to the
ESOP at a total purchase price of $6,970. The purchase was made from the
proceeds of a $6,970 loan from FAB FUNDING CORPORATION, a wholly-owned
subsidiary of the Company, bearing interest at the prime rate. The loan will
be repaid over a period of approximately nine years, principally with funds
from the Company's future contributions to ESOP, subject to IRS limitations.
The Company recognized a charge to compensation and employee benefits expense
of $1,810 for fiscal year end March 1999.
Shares used as collateral to secure the loan are released and available for
allocation to eligible employees as the principal and interest on the loan is
paid. Employees vest in their ESOP account at a rate of 20% annually
commencing after the completion of one year of credited service or immediately
if service was terminated due to death, retirement, disability, or change in
control. Dividends on released shares are credited to the participants' ESOP
accounts or paid out proportionally or applied towards payment of the loan.
Dividends on unreleased shares will generally be applied towards payment of
the loan.
At March 31, 1999, shares held in suspense to be released annually as the
loan is paid down amounted to 464,675. The fair value of unallocated ESOP
shares was $5,576 at March 31, 1999. Dividends on allocated ESOP shares are
charged to retained earnings, dividends on unallocated ESOP shares are charged
to compensation and employee benefits expense and ESOP shares committed-to-be
released are considered outstanding in determining earnings per share.
1997 Stock-Based Incentive Plan
On August 5, 1997, the Company's stockholders approved the 1997 Stock-Based
Incentive Plan ("SIP"). The objective of the SIP is to enable the Company to
provide officers, key employees and directors with a proprietary interest in
the Company as an incentive to encourage such persons to remain with the
Company. The SIP acquired 348,286 shares in the open market at an average
price of $20.78 per share. This acquisition represents deferred compensation
which is initially recorded as a reduction in stockholders' equity and charged
to compensation expense over the vesting period of the award.
Awards are granted in the form of common stock held by the SIP. A total of
330,007 shares were awarded on August 15, 1997 and an additional 15,190 shares
were awarded on June 29, 1998. During fiscal year 1999, 966 shares were
forfeited and 65,808 were distributed. Awards outstanding vest in five annual
installments commencing one year from the date of the award. Recipients are
entitled to all voting and other stockholder rights. As of March 31, 1999,
4,055 shares remain unallocated under the SIP.
Compensation expense in the amount of the fair value of the stock at the
date of the grant, will be recognized over the applicable service period for
the portion of each award that vests equally over a five-year period. The
Company recognized $2,065 and $1,859 in compensation and benefits expense for
these awards during fiscal years 1999 and 1998, respectively.
F-26
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The SIP also authorizes the granting of options to purchase up to 870,715
shares of the common stock of the Company to officers, key employees and
directors. All options have been issued at not less than fair market value at
the date of the grant and expire in 10 years from the date of the grant. All
stock options granted vest over a five year period from the date of grant. A
total of 13,365 options remain unawarded.
A summary of option activity follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at March 31, 1997.............................. -- $ --
Granted................................................ 783,654 18.50
Forfeited.............................................. -- --
------- ------
Balance at March 31, 1998.............................. 783,654 $18.50
Granted................................................ 75,630 19.25
Forfeited.............................................. (1,934) 18.50
------- ------
Balance at March 31, 1999.............................. 857,350 $18.57
======= ======
</TABLE>
A summary of options outstanding and exercisable by price range as of March 31
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Outstanding Average Average Exercisable Average
As of Remaining Exercise As of Exercise
March 31, 1999 Contractual Life Price March 31, 1999 Price
- -------------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C>
781,720 8.4 years $18.50 156,344 $18.50
55,630 9.3 years 19.25 -- --
20,000 9.6 years 19.25 -- --
- ------- --------- ------ ------- ------
857,350 8.5 years $18.57 156,344 $18.50
======= ========= ====== ======= ======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for stock options and,
accordingly, no compensation expense has been recognized in the financial
statements. Had the Company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net income as reported........................................ $7,621 $6,819
Pro forma net income.......................................... 7,375 5,982
Basic earning per share as reported........................... 1.09 0.84
Diluted earnings per share as reported........................ 1.09 0.84
Pro forma basic earnings per share............................ 1.06 0.74
Pro forma diluted earnings per share.......................... 1.06 0.74
</TABLE>
F-27
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The per share weighted average fair value of stock options granted during
1999 and 1998 was $2.80 and $8.09, respectively. This was determined by using
the binomial option pricing model at March 31, 1999 and the Black-Scholes
option pricing model at March 31, 1998. Both were adjusted for the non-
exercisable vesting window. The following assumptions were inputs to the
model:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Expected dividend yield........................................ 1.25% 0.00%
Risk-free interest rate........................................ 5.46% 5.64%
Expected volatility............................................ 30.72% 20.56%
Expected life in years......................................... 8.5 7.4
</TABLE>
Pension Plan
All eligible officers and employees of the Company, who have reached the age
of twenty-one and completed one year of service, are included in a
noncontributory, defined benefit pension plan (the "Pension Plan") provided by
the Company. The Pension Plan is administered by Pentegra (the "Fund"). The
Fund does not segregate the assets or liabilities of all participating
employers and, accordingly, disclosure of accumulated vested and nonvested
benefits is not possible. Contributions are based on each individual
employer's experience. According to the Fund's administrators, as of June 30,
1998, the date of the latest actuarial valuation, the market value of the
Fund's net assets exceeded the actuarial present value of vested and nonvested
benefits in the aggregate.
The Company's contribution to the pension plan was $7, $79 and $154 for the
years ended March 31, 1999, 1998 and 1997.
Postretirement Benefits
On April 1, 1995, the Company adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other than Pensions. Under SFAS No. 106, the
Company changed its method of accounting for postretirement benefits other
than pensions from the pay-as-you-go method to the method of accruing these
costs over employees' service periods. The effect of adopting SFAS No. 106 can
be charged to expense immediately or spread over no more than the lesser of
twenty years or the average life expectancy of the participants. The Company
currently provides postretirement benefits for a limited number of retirees.
The Company is amortizing the cumulative effect of this change of $72 over the
average life expectancy of the participants, which is 11 years.
Supplemental Retirement Plan
In 1986, the Internal Revenue Service issued regulations that limit the
benefits of certain individuals under qualified retirement plans. During 1993,
the Company adopted a supplemental retirement plan which provides for certain
Company executives to receive benefits upon retirement subject to certain
limitations as set forth in the plan. The Company's expense under this Plan
was $204, $212 and $144 for the years ended March 31, 1999, 1998, and 1997,
respectively. At March 31, 1999, the Company holds restricted assets in an
irrevocable grantor's trust with a cost basis of $1,646 and a market value of
$1,929, of which $607 are common stock of the Company and are classified as
treasury stock, and the remaining $1,322 are included in other assets and
offset by an accrued liability of $1,818. These treasury shares are considered
retired in the computation of earnings per share.
Employee Tax Deferred Thrift Plan
The Company has an employee tax deferred thrift plan (the "401K Plan") under
which employee contributions to the 401K Plan are matched within certain
limitations by the Company. Full-time employees are
F-28
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
eligible to participate in the 401K Plan. The amounts matched by the Company
are included in compensation and benefits expense. The amounts matched for the
years ended March 31, 1999, 1998 and 1997 were $126, $157 and $110,
respectively.
Executive Officer Employment Agreements
The Bank and the Company have entered into Employment Agreements with its
President and Chief Executive Officer, Executive Vice President and its three
Senior Vice Presidents. The agreements generally provide for the continued
payment of specified compensation and benefits for five years for the
President and Chief Executive and Executive Vice President, and for two years
for the Senior Vice Presidents. They also provide payments for the remaining
term of the agreement after the officers are terminated, unless the
termination is for "cause" as defined in the Employment Agreement. In the
event of a change in control, as defined in the agreements, payments will also
be provided to the officer upon voluntary or involuntary termination. In
addition, the Bank entered into change in control agreements with certain
other executives which provide for the payment, under certain circumstances,
to the executive upon the executives termination after a change in control, as
defined in their change in control agreements.
Employee Severance Compensation Plan
The Bank established the First Federal Savings Bank of America Employee
Severance Compensation Plan on January 15, 1997. The Plan provides eligible
employees with severance pay benefits in the event of a change in control of
the Bank or Company. Generally, employees are eligible to participate in the
Plan if they have completed at least one year of service with the Bank and are
not eligible to receive benefits under the executive officer employment
agreements. The Plan provides for the payment, under certain circumstances, of
lump-sum amounts upon termination following a change in control, as defined in
the Plan.
Bank-Owned Life Insurance ("BOLI")
During fiscal year 1999, the Bank obtained life insurance policies on
certain officers, managers, and supervisors, in which the Bank is the
beneficiary. These policies are stated at their cash surrender value as a
component of prepaid expenses and other assets on the balance sheet. Increases
in the cash surrender value are recorded as other non-interest income.
(15) Fair Values of Financial Instruments (Dollars in thousands)
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities
that are not considered financial assets or liabilities include real estate
acquired by foreclosure, the deferred income tax asset, office properties and
equipment, and core deposit and other intangibles. In addition, the tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no actual market exists for some of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, cash flows, current economic
conditions, risk
F-29
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
characteristics and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions and changes in the
loan, debt and interest rate markets could significantly affect the estimates.
Further, the income tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on the fair value
estimates and have not been considered.
The following methods and assumptions were used by the Company in estimating
fair values of its financial instruments:
Cash on Hand and Due from Banks
The fair values for cash on hand and due from banks approximate the carrying
amount as reported in the balance sheet.
Short-term Investments
The fair values for short-term investments approximate the carrying amount
as reported because of the short-term nature of these financial instruments.
Investment and Mortgage-backed Securities
Fair values for investment and mortgage-backed securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Mortgage Loans Held for Sale
Fair values for mortgage loans held for sale are based on quoted market
prices. Commitments to originate loans and forward commitments to sell loans
have been considered in the value of mortgage loans held for sale.
Loans
The fair values of loans are estimated using discounted cash flow analyses
and interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The incremental credit risk for
nonperforming loans has been considered in the determination of the fair value
of loans.
Accrued Interest Receivable
The fair value of accrued interest receivable approximates its carrying
amount as reported in the balance sheet because of the short-term nature of
these financial instruments.
Stock in FHLB of Boston
The fair value for FHLB stock approximates the carrying amount as reported
in the balance sheet. If redeemed, the Company expects to receive an amount
equal to the par value of the stock.
Deposits and Advance Payments by Borrowers for Taxes and Insurance
The fair values of demand deposits (e.g., NOW, business checking, savings
accounts, certain types of money market accounts and advance payments by
borrowers for taxes and insurance) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate
F-30
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
certificates of deposit are estimated using a discounted cash flow technique
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on such time deposits.
FHLB Advances
The fair value of Federal Home Loan Bank overnight advances approximates
their carrying value due to their short term nature. All other advances are
estimated using a discounted cash flow technique that applies interest rates
currently being offered on advances to a schedule of aggregated expected
monthly maturities on FHLB advances.
Other Borrowings
Other borrowings consist primarily of reverse repurchase agreements with
securities dealers. The fair value of other borrowings are estimated using a
discounted cash flow technique that applies interest rates currently being
offered on reverse repurchase agreements to a schedule of aggregated expected
monthly maturities on other borrowings.
Accrued Interest Payable
The fair value of accrued interest payable approximates its carrying amount
as reported in the balance sheet because of the short-term nature of these
financial instruments.
Interest Rate Swap Agreements
The fair value of the off-balance sheet interest rate swap agreements is the
net of the present values of the pay fixed / receive floating payments,
discounted at current swap rates for the appropriate remaining term of the
existing swaps.
Other Off-balance Sheet Instruments
Fair values for the Company's off-balance-sheet instruments are based on
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing.
The difference between the fair value of commitments to originate loans and
their book value is considered to be immaterial based on a comparison to
current offering rates for similar loan products. The contractual value of
commitments to sell loans was considered in determining the fair value of
loans held for sale. The Company's commitments for unused lines and
outstanding standby letters of credit and unadvanced portions of loans are at
floating rates, and therefore, there is no fair value adjustment.
F-31
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The carrying amounts and fair values of the Company's financial instruments at
March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash on hand and due from banks.......... $ 24,598 24,598 $ 32,021 32,021
Short-term investments................... 14,422 14,422 -- --
Mortgage loans held for sale............. 52,334 52,334 84,867 84,867
Investment in trading securities......... 94 94 -- --
Investment securities available for
sale.................................... 5,575 5,575 7,712 7,712
Mortgage-backed securities available for
sale.................................... 408,451 408,451 215,143 215,143
Investment securities held to maturity... 9,998 10,030 22,491 22,585
Mortgage-backed securities held to
maturity................................ 5,608 5,733 12,495 12,688
Stock in FHLB of Boston.................. 28,682 28,682 17,945 17,945
Loans receivable, net.................... 766,687 770,281 848,552 850,214
Accrued interest receivable.............. 6,369 6,369 5,992 5,992
Financial liabilities:
Deposits................................. $674,870 676,276 $708,488 709,874
FHLB advances and other borrowings....... 585,981 584,544 403,865 403,904
Advance payments by borrowers for taxes
and insurance........................... 5,660 5,660 6,224 6,224
Accrued interest payable................. 3,058 3,058 2,613 2,613
Off-balance sheet:
Interest rate swap agreements............ -- (1,064) -- (577)
</TABLE>
F-32
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(16) Parent Company Only Financial Statements (Dollars in Thousands)
The following are the condensed financial statements for FIRSTFED AMERICA
BANCORP, INC. (the "Parent Company") only at March 31:
Balance Sheet
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Assets
Cash and interest bearing deposit in subsidiary bank....... $ 4,729 7,754
-------- -------
Total cash and cash equivalents........................ 4,729 7,754
-------- -------
Investment in trading securities........................... 94 --
Investment securities available for sale (amortized cost of
$5,811)................................................... 4,405 6,390
Mortgage-backed securities available for sale (amortized
cost of $0 and $4,481).................................... -- 4,480
Investment in subsidiaries, at equity...................... 97,525 112,657
Accrued interest receivable................................ 66 107
Office properties and equipment, net....................... 52 --
Prepaid expenses and other assets.......................... 2,138 1,616
-------- -------
Total assets........................................... $109,009 133,004
======== =======
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities..................... $ 6,048 6,018
-------- -------
Total liabilities...................................... 6,048 6,018
-------- -------
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued................................... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 8,707,152 issued and outstanding.............. 87 87
Additional paid-in capital................................. 85,407 85,016
Retained earnings.......................................... 56,892 50,422
Accumulated other comprehensive (loss) income.............. (150) 1,616
Unearned 1997 stock-based incentive plan................... (5,869) (4,734)
Unallocated ESOP shares.................................... (4,647) (5,421)
Treasury stock............................................. (28,759) --
-------- -------
Total stockholders' equity............................. 102,961 126,986
-------- -------
Total liabilities and stockholders' equity............. $109,009 133,004
======== =======
</TABLE>
F-33
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of Operations
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ------
<S> <C> <C> <C>
Interest income........................................... $ 876 1,073 233
------ ----- ------
Total interest income................................. 876 1,073 233
Gain on sale of securities................................ 8 163 --
Other non-interest income................................. 73 -- --
------ ----- ------
Total non-interest income............................. 81 163 --
Contribution to The FIRSTFED Charitable Foundation........ -- -- 6,454
Non-interest expense...................................... 636 584 70
------ ----- ------
Total non-interest expense............................ 636 584 6,524
------ ----- ------
Income (loss) before income taxes..................... 321 652 (6,291)
Income tax expense (benefit).............................. 141 351 (2,125)
------ ----- ------
Income (loss) before equity in net income of
subsidiaries......................................... 180 301 (4,166)
Equity in net income of subsidiaries...................... 7,441 6,518 1,736
------ ----- ------
Net income (loss)......................................... $7,621 6,819 (2,430)
====== ===== ======
</TABLE>
F-34
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss)............................... $ 7,621 6,819 (2,430)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of premiums on investments and
mortgage-backed securities available for
sale.......................................... 18 3 --
(Gain) on sales of investment securities
available for sale............................ -- (163) --
(Gain) on sales of mortgage-backed securities
available for sale............................ (8) -- --
Contribution of shares to Foundation........... -- -- 6,454
Equity in undistributed earnings of
subsidiaries.................................. (7,441) (6,518) (1,736)
Appreciation in fair value of ESOP shares...... 541 682 376
Unrealized loss on trading securities.......... 6 -- --
Decrease (increase) in accrued interest
receivable.................................... 41 (25) (82)
Decrease (increase) decrease in prepaid
expenses and other assets..................... 255 265 (2,145)
Increase in accrued expenses and other
liabilities................................... 30 5,598 420
------- ------- -------
Net cash provided by operating activities..... 1,063 6,661 857
------- ------- -------
Cash flow from investing activities:
Purchase of trading securities.................... $ (100) -- --
Purchase of investment securities available for
sale............................................. (3,845) (6,161) --
Purchase of mortgage backed securities available
for sale......................................... -- (5,013) --
Principal paydowns on mortgage-backed securities
available for sale............................... 583 530 --
Maturities of investment securities available for
sale............................................. 2,500 -- --
Proceeds from sales of investment securities
available for sale............................... 1,500 511 --
Proceeds from sales of mortgage-backed securities
available for sale............................... 3,888 -- --
Purchases of office properties and equipment...... (52) -- --
Change in investment in subsidiaries.............. 21,860 (2,282) (54,785)
------- ------- -------
Net cash provided (used) by investing
activities..................................... 26,334 (12,415) (54,785)
------- ------- -------
Cash flow from financing activities:
Cash dividends paid............................... (1,152) -- --
Net proceeds from common stock issued pursuant to
initial public offering.......................... -- -- 77,591
Payments to acquire ESOP stock.................... -- -- (6,970)
Payments to acquire treasury shares............... (28,759) -- --
Payments to acquire stock-based incentive plan
shares........................................... (2,502) (4,734) --
Reduction in unearned 1997 stock-based incentive
plan shares...................................... 1,217 -- --
Reduction in allocated ESOP shares................ 774 775 774
------- ------- -------
Net cash provided (used) by financing
activities..................................... (30,422) (3,959) 71,395
------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... (3,025) (9,713) 17,467
Cash and cash equivalents at beginning of year...... 7,754 17,467 --
------- ------- -------
Cash and cash equivalents at end of year............ $ 4,729 7,754 17,467
======= ======= =======
Supplemental cash flow information:
Cash paid during the year for:
Income taxes..................................... $ -- 187 1
======= ======= =======
</TABLE>
F-35
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(17) Quarterly Results of Operations (unaudited)
Summaries of consolidated operating results on a quarterly basis for the year
ended March 31 follows:
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
---------------------------- ---------------------------
Fourth Third Second First Fourth Third Second First
------- ------ ------ ------ ------ ------ ------ ------
(Dollars In Thousands, (Dollars In Thousands,
Except Per Share Amounts) Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend
income................. $22,119 21,765 21,671 21,222 20,812 19,411 18,663 18,004
Interest expense........ 14,395 14,235 14,403 13,410 12,948 11,826 11,154 10,601
------- ------ ------ ------ ------ ------ ------ ------
Net interest income..... 7,724 7,530 7,268 7,812 7,864 7,585 7,509 7,403
Provision for loan loss-
es..................... 300 300 300 300 300 300 750 1,000
Non-interest income..... 2,419 2,162 1,317 1,740 1,546 1,928 1,578 1,301
Non-interest expense.... 6,766 6,180 5,849 6,538 6,472 5,859 5,178 4,750
------- ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 3,077 3,212 2,436 2,714 2,638 3,354 3,159 2,954
Income tax expense...... 1,001 1,024 773 1,020 1,180 1,421 1,377 1,308
------- ------ ------ ------ ------ ------ ------ ------
Net income.............. $ 2,076 2,188 1,663 1,694 1,458 1,933 1,782 1,646
======= ====== ====== ====== ====== ====== ====== ======
Basic earnings per
share.................. $ 0.32 0.32 0.23 0.22 0.18 0.24 0.22 0.20
======= ====== ====== ====== ====== ====== ====== ======
Diluted earnings per
share.................. $ 0.32 0.32 0.23 0.22 0.18 0.24 0.22 0.20
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-36
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of stockholders will be held on Thursday, July 29, 1999
at 2:00 p.m. Eastern Time. The meeting will take place at The Westin Hotel, One
West Exchange Street, Providence, RI.
Stock Listing
FIRSTFED AMERICA BANCORP, INC. became a public company on January 15, 1997.
FIRSTFED AMERICA BANCORP, INC. Common Stock is traded on the American Stock
Exchange with the symbol "FAB".
Common Stock Information
As of March 31, 1999, the Company had 7,092,029 shares outstanding and
approximately 1,500 stockholders of record, not including persons or entities
holding stock in nominee or street name through brokers or banks.
Stock Price
<TABLE>
<CAPTION>
FY '99
------------------------------------------------------
By Quarter 1 2 3 4
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
High............. $23.250 $19.750 $15.000 $14.875
Low.............. $18.875 $14.188 $10.750 $12.000
</TABLE>
10-K Report
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge upon written request to
FIRSTFED AMERICA BANCORP, INC., Investor Relations, ONE FIRSTFED PARK, Swansea,
MA 02777.
Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Stockholder Inquiries: 908-272-8511
Regulatory Counsel
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue N.W.
Washington, DC 20016
Independent Auditor
KPMG LLP
99 High Street
Boston, MA 02110
Investor Relations
Philip G. Campbell
Vice President, Director of Marketing,
Corporate Planning and Investor Relations
FIRSTFED AMERICA BANCORP, INC.
ONE FIRSTFED PARK
Swansea, MA 02777
Tel: 508-235-1361
<PAGE>
Exhibit 23.1
------------
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
FIRSTFED AMERICA BANCORP, INC.
We consent to the incorporation by reference in the registration statement on
Form S-8 of FIRSTFED AMERICA BANCORP, INC., relating to First Federal Savings
Bank of America Employees Savings and Profit Sharing Plan and Trust of our
report dated April 23, 1999, relating to the consolidated balance sheets of
FIRSTFED AMERICA BANCORP, INC. and subsidiaries as of March 31, 1999 and 1998,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1999, which report is included in the March 31, 1999 annual report on Form
10-K of FIRSTFED AMERICA BANCORP, INC.
/s/ KPMG LLP
Boston, Massachusetts
June 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF FIRSTFED AMERICA BANCORP, INC. AT AND FOR THE FISCAL YEAR ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 39,020
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 414,026
<INVESTMENTS-CARRYING> 15,606
<INVESTMENTS-MARKET> 15,763
<LOANS> 766,687<F1>
<ALLOWANCE> 12,016
<TOTAL-ASSETS> 1,393,237
<DEPOSITS> 674,870
<SHORT-TERM> 258,730
<LIABILITIES-OTHER> 29,425
<LONG-TERM> 327,251
0
0
<COMMON> 87
<OTHER-SE> 102,874
<TOTAL-LIABILITIES-AND-EQUITY> 1,393,237
<INTEREST-LOAN> 65,352
<INTEREST-INVEST> 19,891
<INTEREST-OTHER> 1,534
<INTEREST-TOTAL> 86,777
<INTEREST-DEPOSIT> 27,572
<INTEREST-EXPENSE> 56,443
<INTEREST-INCOME-NET> 30,334
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 25,333
<INCOME-PRETAX> 11,439
<INCOME-PRE-EXTRAORDINARY> 11,439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,621
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 2.41
<LOANS-NON> 2,550
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,565
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,937
<CHARGE-OFFS> 138
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 12,016
<ALLOWANCE-DOMESTIC> 12,016
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,343
<FN>
<F1>LOANS HELD TO MATURITY
</FN>
</TABLE>
<PAGE>
Exhibit 99.0
Proxy Statement for 1998 Annual Meeting
<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
FIRST FEDERAL AMERICAN
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
FIRST FEDERAL AMERICAN
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
KMKJMD97 Proxy Stmt - Annual Mtg
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
ONE FIRSTFED PARK
Swansea, Massachusetts 02777
(508) 679-8181
June 17, 1999
Fellow Shareholders:
You are cordially invited to attend the 1999 annual meeting of shareholders
(the "Annual Meeting") of FIRSTFED AMERICA BANCORP, INC. (the "Company"), the
holding company for First Federal Savings Bank of America (the "Bank"), Swansea,
Massachusetts, which will be held on July 29, 1999 at 2:00 p.m., Eastern Time,
at The Westin Hotel, One West Exchange Street, Providence, Rhode Island 02903.
The attached Notice of the Annual Meeting and the Proxy Statement describe
the business to be transacted at the Annual Meeting. Directors and officers of
the Company as well as a representative of KPMG LLP, the Company's independent
auditors, will be present at the Annual Meeting to respond to any questions that
our shareholders may have regarding the business to be transacted.
The Board of Directors of the Company has determined that matters to be
considered at the Annual Meeting are in the best interests of the Company and
its shareholders. For the reasons set forth in the Proxy Statement, the Board
of Directors unanimously recommends that you vote "FOR" each of the nominees as
directors specified under Proposal 1 and that you vote "FOR" Proposal 2.
Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business at the
Annual Meeting.
On behalf of the Board of Directors and all of the employees of the Company
and the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ Robert F. Stoico
Robert F. Stoico
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
ONE FIRSTFED PARK
Swansea, Massachusetts 02777
__________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 29, 1999
__________________________________
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of FIRSTFED AMERICA BANCORP, INC. (the "Company"), the holding company
for First Federal Savings Bank of America (the "Bank"), will be held on July 29,
1999 at 2:00 p.m., Eastern Time, at The Westin Hotel, One West Exchange Street,
Providence, Rhode Island 02903.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of three directors to a three-year term of office;
2. The ratification of the appointment of KPMG LLP as independent
auditors of the Company for the fiscal year ending March 31, 2000; and
3. Such other matters as may properly come before the meeting and at any
adjournments thereof, including whether or not to adjourn the meeting.
The Board of Directors has established June 4, 1999, as the record date for
the determination of shareholders entitled to receive notice of and to vote at
the Annual Meeting and at any adjournments thereof. Only record holders of the
common stock of the Company as of the close of business on such record date will
be entitled to vote at the Annual Meeting or any adjournments thereof. In the
event there are not sufficient votes for a quorum or to approve the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies by the Company. A list of
shareholders entitled to vote at the Annual Meeting will be available at
FIRSTFED AMERICA BANCORP, INC., ONE FIRSTFED PARK, Swansea, Massachusetts 02777,
for a period of ten days prior to the Annual Meeting and will also be available
at the Annual Meeting itself.
By Order of the Board of Directors
/s/ Cecilia R. Viveiros
Cecilia R. Viveiros
Corporate Secretary
Swansea, Massachusetts
June 17, 1999
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
_______________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
July 29, 1999
_______________________
Solicitation and Voting of Proxies
This Proxy Statement is being furnished to shareholders of FIRSTFED AMERICA
BANCORP, INC. (the "Company") in connection with the solicitation by the Board
of Directors ("Board of Directors" or "Board") of proxies to be used at the
annual meeting of shareholders (the "Annual Meeting"), to be held on July 29,
1999, at 2:00 p.m., Eastern Time, at The Westin Hotel, One West Exchange
Street, Providence, Rhode Island 02903, and at any adjournments thereof. The
1999 Annual Report to Stockholders, including the consolidated financial
statements of the Company for the fiscal year ended March 31, 1999, accompanies
this Proxy Statement which is first being mailed to record holders on or about
June 17, 1999.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Annual Meeting. Shareholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Shareholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted by the Board of Directors in accordance with the
directions given therein. Where no instructions are indicated, signed proxy
cards will be voted "FOR" the election of the nominees for director named in
this Proxy Statement and "FOR" the ratification of KPMG LLP as independent
auditors of the Company for the fiscal year ending March 31, 2000.
Other than the matters listed on the attached Notice of Annual Meeting of
Shareholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to attend the Annual Meeting
and vote personally at the Annual Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Kissel-
Blake Inc., a proxy solicitation firm, will assist the Company in soliciting
proxies for the Annual Meeting and will be paid a fee of $3,000, plus out-of-
pocket expenses. Proxies may also be solicited personally or by telephone by
directors, officers and other employees of the Company and its subsidiary, First
Federal Savings Bank of America (the "Bank"), without additional compensation
therefor. The Company will also request persons, firms and corporations holding
shares in their names, or in the name of their nominees, which are beneficially
owned by others, to send proxy material to, and obtain proxies from, such
beneficial owners, and will reimburse such holders for their reasonable expenses
in doing so.
<PAGE>
Voting Securities
The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below.
The close of business on June 4, 1999, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 7,092,030 shares.
As provided in the Company's Certificate of Incorporation, for voting
purposes, holders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of Common Stock (the "Limit") are not entitled to any vote in
respect of the shares held in excess of the Limit and are not treated as
outstanding for voting purposes. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as, by persons acting in concert
with, such person or entity. The Company's Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert, and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit to supply information
to the Company to enable the Board of Directors to implement and apply the
Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Annual
Meeting. In the event that there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit the further solicitation of proxies.
As to the election of directors (Proposal 1), the proxy card being provided
by the Board of Directors enables a shareholder to vote "FOR" the election of
the nominees proposed by the Board, or to "WITHHOLD" authority to vote for one
or more of the nominees being proposed. Under Delaware law and the Company's
Bylaws, directors are elected by a plurality of votes cast, without regard to
either (i) broker non-votes or (ii) proxies as to which authority to vote for
one or more of the nominees being proposed is withheld.
As to the ratification of KPMG LLP as independent auditors of the Company
(Proposal 2) and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box, a shareholder may (i) vote "FOR" the
item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on such item.
Under the Company's Bylaws and Delaware law, an affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting on Proposal 2 is
required to constitute shareholder approval of such Proposal. Shares underlying
broker non-votes or in excess of the Limit will not be counted as present and
entitled to vote or as votes cast and will have no effect on the vote.
Proxies solicited hereby are to be returned to the Company's transfer
agent, Registrar and Transfer Company ("RTC"). The Board of Directors has
designated RTC to act as the inspector of election and tabulate
2
<PAGE>
the votes at the Annual Meeting. RTC is not otherwise employed by, or a director
of, the Company or any of its affiliates. After the final adjournment of the
Annual Meeting, the proxies will be returned to the Company.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the SEC, in accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Other than those persons
listed below, the Company is not aware of any person, as such term is defined in
the Exchange Act, that owns more than 5% of the Company's Common Stock as of the
Record Date.
3
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- -------------- ------------------- --------- --------
<S> <C> <C> <C>
Common Stock First Federal Savings 697,010(1) 9.83%
Bank of America
Employee Stock
Ownership Plan ("ESOP")
ONE FIRSTFED PARK
Swansea, Massachusetts 02777
Common Stock The FIRSTFED Charitable Foundation 645,380(2) 9.10%
ONE FIRSTFED PARK
Swansea, Massachusetts 02777
Common Stock Jeffrey L. Gendel 524,800(3) 7.40%
200 Park Avenue, Suite 3900
New York, NY 10166
Common Stock Brandes Investment Partners, LP 500,617(4) 7.06%
12750 High Bluff Drive
San Diego, California 92130
Common Stock Wellington Management Company, LLP 450,700(5) 6.36%
75 State Street
Boston, Massachusetts 02109
</TABLE>
____________________________
(1) Shares of Common Stock were acquired by the ESOP in the Bank's Conversion.
The ESOP Committee administers the ESOP. First Bankers Trust, N.A. has been
appointed as the trustee for the ESOP ("ESOP Trustee"). The ESOP Trustee
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. At June 4, 1999, 232,335 shares had been
allocated under the ESOP and 464,675 shares remain unallocated. Under the
ESOP, unallocated shares and allocated shares as to which voting
instructions are not given by participants are to be voted by the ESOP
Trustee in a manner calculated to most accurately reflect the instructions
received from participants regarding the allocated stock so long as such
vote is in accordance with the fiduciary provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(2) The FIRSTFED Charitable Foundation (the "Foundation") was established and
funded by the Company in connection with the Bank's Conversion with an
amount of the Company's Common Stock equal to 8.0% of the total amount of
Common Stock issued in the Conversion. The Foundation is a Delaware non-
stock corporation and is dedicated to the promotion of charitable purposes
within the communities in which the Bank operates. The Foundation is
governed by a board of directors with 7 members, all of whom are directors
of the Company and the Bank. Pursuant to the terms of the contribution of
Common Stock, as mandated by the Office of Thrift Supervision ("OTS"), all
shares of Common Stock held by the Foundation must be voted in the same
ratio as all other shares of the Company's Common Stock on all proposals
considered by shareholders of the Company.
(3) Based on information in a Schedule 13D filed on July 24, 1998 and a Form 13F
filed in March 1999, Mr. Gendel may be deemed the beneficial owner and/or
have investment discretion of 524,800 shares.
(4) Based on information in a Schedule 13G filed on February 11, 1999, Brandes
Investment Partners, LP may be deemed the beneficial owner of 500,617
shares.
(5) Based on information in an amended Schedule 13G filed on February 9, 1999
and a Form 13F filed in March 1999, Wellington, Management Company, LLP, in
its capacity as an institutional investment manager may be deemed the
beneficial owner and/or have investment discretion of 450,700 shares.
4
<PAGE>
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company consists of seven (7) directors and
is divided into three classes. Each of the seven members of the Board of
Directors also presently serves as a director of the Bank. Directors are elected
for staggered terms of three years each, with the term of office of only one of
the three classes of directors expiring each year. Directors serve until their
successors are elected and qualified.
The three nominees proposed for election at the Annual Meeting are Richard
W. Cederberg, Gilbert C. Oliveira, and Paul A. Raymond, DDS. No person being
nominated as a director is being proposed for election pursuant to any agreement
or understanding between any such person and the Company.
In the event that any such nominee is unable to serve or declines to serve
for any reason, it is intended that proxies will be voted for the election of
the balance of those nominees named and for such other persons as may be
designated by the present Board of Directors. The Board of Directors has no
reason to believe that any of the persons named will be unable or unwilling to
serve. Unless authority to vote for the directors is withheld, it is intended
that the shares represented by the enclosed proxy card will be voted "FOR" the
election of all nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY STATEMENT.
Information with Respect to Nominees, Continuing Directors and Certain Executive
Officers
The following table sets forth, as of the Record Date, the names of
nominees and continuing directors and the Named Executive Officers (as defined
below), their ages, a brief description of their recent business experience,
including present occupations and employment, the year in which each became a
director of the Bank and the year in which their terms (or, in the case of
nominees, their proposed terms) as director of the Company expire. This table
also sets forth the amount of Common Stock and the percent thereof beneficially
owned by each director, each Named Executive Officer and all directors and
executive officers as a group as of the Record Date.
5
<PAGE>
<TABLE>
<CAPTION>
Amount and
Expiration Nature of Ownership
Name and Principal Occupation at Director of Term as Beneficial as a Percent
Present and for Past Five Years Age Since(1) Director Ownership(2) of Class
- -------------------------------- --- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
NOMINEES
Richard W. Cederberg 70 1982 2002 28,897(3)(4) *
Retired, former Chairman of
Larson Tool and Stamping Company
Gilbert C. Oliveira 74 1960 2002 52,897(3)(4) *
Chairman of the Board of the Bank
and President and Treasurer of
Gilbert C. Oliveira Insurance
Agency, Inc.
Paul A. Raymond, DDS 55 1981 2002 26,367(3)(4) *
Dentist in town of Swansea,
Massachusetts
CONTINUING DIRECTORS
Robert F. Stoico 58 1980 2001 247,936(5)(6) 3.5%
Chairman of the Board of the
Company and President and
Chief Executive Officer of the
Company and the Bank
John S. Holden, Jr. 69 1982 2001 26,697(3)(4) *
President and Treasurer of
Automatic Machine Products Co.
Thomas A. Rodgers, Jr. 85 1963 2000 63,897(3)(4) *
Chairman of Globe
Manufacturing Co., Inc.
Anthony L. Sylvia 67 1984 2000 30,897(3)(4) *
President and Treasurer of The
Baker Manufacturing Co., Inc.
NAMED EXECUTIVE OFFICERS
(who are not also directors)
Edward A. Hjerpe, III 40 -- -- 59,705(5)(6) *
Executive Vice President,
Treasurer, Chief Operating
Officer, and Chief Financial
Officer of the Company and the Bank
Kevin J. McGillicuddy 59 -- -- 46,088(5)(6) *
Senior Vice President of the Company
and the Bank
Frederick R. Sullivan 57 -- -- 48,412(5)(6) *
Senior Vice President of the
Company and the Bank
Terrence M. Tyrrell 49 -- -- 52,536(5)(6) *
Senior Vice President of the
Company and the Bank
All directors and executive officers as a -- -- -- 684,329(7) 9.65%
group (11 persons)
</TABLE>
__________________________
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Bank.
6
<PAGE>
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family members) voting or dispositive power as to shares reported.
(3) Includes 10,449 shares awarded to each outside director under the FIRSTFED
AMERICA BANCORP, INC. 1997 Stock-Based Incentive Plan (the "Incentive
Plan"). Such awards commenced vesting at a rate of 20% per year beginning
August 5, 1998 but will vest immediately upon death, disability, retirement
or a change in control.
(4) Includes 10,448 options granted to each outside director under the Incentive
Plan which are currently exercisable or will become exercisable within 60
days and excludes 15,674 shares subject to unexercisable options granted to
each outside director under the Incentive Plan. Shares subject to options
granted under the Incentive Plan vest at a rate of 20% per year commencing
on August 5, 1998 but will vest immediately upon death, disability,
retirement or a change in control.
(5) Includes 87,072, 17,414, 17,414, 17,414, and 17,414 shares awarded to
Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell, respectively,
under the Incentive Plan. Such awards commenced vesting at a rate of 20%
per year beginning August 5, 1998 but will vest immediately upon death,
disability, retirement or a change in control. Each participant presently
has voting power as to the shares awarded. In addition, Mr. Hjerpe
received 8,707 additional shares awarded under the Incentive Plan which
will vest in five equal installments commencing on June 29, 1999, the first
anniversary of the effective date of the award.
(6) Includes 87,072, 26,121, 17,414, 17,414 and 17,414 options granted to
Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell, respectively,
under the Incentive Plan which are currently exercisable or will become
exercisable within 60 days and excludes 130,608, 60,950, 26,121, 26,121,
and 26,121 shares for Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and
Tyrrell, respectively, subject to unexercisable options granted to each of
these named executive officers under the Incentive Plan. Shares subject to
options granted under the Incentive Plan vest at a rate of 20% per year
commencing on August 5, 1998 but will vest immediately upon death,
disability, retirement or a change in control. Included in Mr. Hjerpe's
total are 8,707 additional options which are currently exercisable or will
become exercisable within 60 days, and excludes 34,829 options which are
unexercisable granted under the Incentive Plan which will vest in five
equal installments commencing on June 29, 1999, the first anniversary of
the effective date of the award.
(7) Includes a total of 348,289 shares awarded under the Incentive Plan as to
which voting may be directed. Excludes a total of 870,723 shares subject to
options granted under the Incentive Plan.
7
<PAGE>
Meetings of the Board of Directors and Committees of the Board of Directors
The Board of Directors of the Company and the Board of Directors of the
Bank conduct business through meetings of the Board of Directors and through
activities of their committees. The Board of Directors of the Company generally
meets quarterly while the Bank's Board of Directors generally meet on a monthly
basis and both may have additional meetings as needed. During the fiscal year
ended March 31, 1999, the Board of Directors of the Company held 12 meetings,
including five telephonic meetings. The Board of Directors of the Bank held 12
meetings during fiscal 1999. All of the directors of the Company and Bank
attended at least 75% of the total number of the Company's Board meetings held
and committee meetings on which such directors served during the fiscal year
ended March 31, 1999. The Board of Directors of the Company and Bank maintain
committees, the nature and composition of which are described below:
Audit and Compliance Committee. The Audit and Compliance Committee of the
Company consists of Messrs. Holden, Raymond and Sylvia, who are outside
Directors. The Audit and Compliance Committee of the Bank consists of Messrs.
Holden, Raymond, Sylvia and Gerhard S. Lowenstein, who are outside Directors.
These committees generally meet on a quarterly basis and are responsible for the
review of audit reports and management's actions regarding the implementation of
audit findings and to review compliance with all relevant laws and regulations.
The internal audit function, which is outsourced to The Harcourt Group, Ltd.,
reports to the Audit and Compliance Committees of the Company and Bank. The
Audit and Compliance Committees of the Company and Bank, on occasion, will
conduct their meetings as part of a full board meeting. Including these joint
meetings, the Committees met 4 times in fiscal 1999.
Nominating Committee. The Company's Nominating Committee for the 1999
Annual Meeting consists of Messrs. Stoico, Rodgers and Holden. The committee
considers and recommends the nominees for director to stand for election at the
Company's annual meeting of shareholders. The Company's Certificate of
Incorporation and Bylaws provide for shareholder nominations of directors.
These provisions require such nominations to be made pursuant to timely notice
in writing to the Secretary of the Company. The shareholder's notice of
nomination must contain all information relating to the nominee which is
required to be disclosed by the Company's Bylaws and by the Exchange Act. See
"Additional Information - Notice of Business to be Conducted at a Special or
Annual Meeting." The Nominating Committee met on April 9, 1999.
Compensation Committee. The Compensation Committee of the Company consists
of Messrs. Stoico, Oliveira and Rodgers. The Management and Personnel Committee
of the Bank consists of Messrs. Stoico, Oliveira, Rodgers and Willard E.
Olmsted. Such Committees are responsible for all matters regarding compensation
and fringe benefits for officers and employees of the Company and the Bank and
meet on an as needed basis. See "Executive Compensation - Compensation
Committee Report on Executive Compensation." The Compensation Committee of the
Company and the Management and Personnel Committee of the Bank met jointly 2
times in fiscal 1999.
Directors' Compensation
Directors' Fees. Directors of the Company do not receive compensation for
serving as Directors of the Company or on a Committee. Directors of the Bank
are currently paid an annual retainer of $10,000, except that the Chairman of
the Board of the Bank receives an annual retainer of $25,000. Directors of the
Bank also receive a fee of $650 for each regular and special board meeting which
they attend. Directors of the Company and the Bank are not compensated for
telephonic meetings. In addition, members of the Board's
8
<PAGE>
Executive Committee receive an annual retainer of $5,000 and a fee of $450 for
each Executive Committee meeting which they attend. The Audit and Compliance
Committee and the Management and Personnel Committee receive a fee of $450 for
each meeting which they attend.
Incentive Plan. Under the Incentive Plan maintained by the Company, each
member of the Board of Directors of the Company who is not an officer or
employee of the Company or the Bank received non-statutory stock options to
purchase 26,122 shares of Common Stock at an exercise price of $18.50, the fair
market value of the Common Stock on August 5, 1997, the date the option was
granted (as discussed below), and stock awards for 10,449 shares of common Stock
(collectively "Directors' Awards"). The Directors' Awards initially granted
under the Incentive Plan will vest over a five-year period, at a rate of 20%
each year commencing on August 5, 1998, the first anniversary of the date of the
grant.
Executive Compensation
The report of the Compensation Committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
except as to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Compensation Committee Report on Executive Compensation. Under rules
established by the SEC, the Company is required to provide certain data and
information in regard to the compensation and benefits provided to the Company's
Chief Executive Officer and certain other executive officers of the Company and
the Bank for the fiscal year ended March 31, 1999. The following discussion
addresses compensation information relating to the Chief Executive Officer and
the executive officers of the Bank and Company for fiscal 1999 and sets forth
the joint report of the Compensation Committee of the Company and Management and
Personnel Committee of the Bank (collectively the "Compensation Committee").
The disclosure requirements for the Chief Executive Officer and other executive
officers include the use of tables and a report explaining the rationale and
considerations that led to fundamental compensation decisions affecting those
individuals. In fulfillment of this requirement, the Compensation Committee, at
the direction of the Board of Directors, has prepared the following report for
inclusion in this proxy statement.
General Policy. In the previous fiscal year, the Company and the Bank
engaged the services of a nationally known executive compensation consultant to
design the Executive Compensation Program to reflect the status of the Bank as a
stock institution and the Company as a publicly held entity and to ensure
competitive compensation levels in comparison to similarly situated publicly
held financial institutions. The Executive Compensation Program incorporates
the consolidated financial results of the Company as well as other factors
related to the performance of the Company's stock. For fiscal 1999, the
Executive Compensation Program was fully utilized to determine compensation
levels for base pay as well as incentive (bonus) compensation. The Executive
Compensation Program incorporates base salary and incentive compensation based
on measurable goal attainment and performance.
The Compensation Committee's responsibility is to recommend the amount and
composition of executive compensation paid to the executive officers. The Board
of Directors has the responsibility to review the report of the Compensation
Committee and approve such compensation. It is the policy of the Compensation
Committee to review executive compensation not less than annually and more often
if deemed necessary by the Compensation Committee. The process the Compensation
Committee utilized for fiscal 1999 involved a review of the Company's
compensation consultant's recommendations for a potential range for
9
<PAGE>
changes to base salaries. This range reflected an appropriate change in percent
based on economic, competitive market, peer group analysis, and position
responsibilities. Recommended changes in base pay were made to compensation
levels established in fiscal 1999 by the Committee using peer group analysis and
compensation recommended by the consultant.
In making its compensation determinations, the Compensation Committee also
considers the evaluations of executive officers performed by the Chief Executive
Officer and recommendations made by the Chief Executive Officer, except in the
case of its compensation deliberations regarding the Chief Executive Officer.
The performance of the Chief Executive Officer and other executive officers are
evaluated by the Compensation Committee and a recommendation is made to the
Board. Upon review, the Board sets all executive compensation within the
parameters of compensation policy as defined within the Executive Compensation
Program. The Chief Executive Officer, a member of the Board of Directors,
abstains from voting on matters related to his compensation.
Compensation of the Chief Executive Officer. The Chief Executive Officer
was evaluated on his performance in managing the Company during fiscal 1999,
including the effort related to operating the Company in its second year as a
public company, fiscal performance, and earnings per share. Certain
quantitative and qualitative factors were reviewed to determine the Chief
Executive Officer's compensation. Following a review of the Chief Executive
Officer's performance, it was determined that the total cash compensation for
the Chief Executive Officer would be established according to the compensation
philosophy as recommended by the executive compensation consultant. In reaching
its determination regarding the Chief Executive Officer's base salary, the
Compensation Committee utilized the report of Watson Wyatt and recommended to
the Board of Directors a base salary substantially equivalent to the amount
recommended by Watson Wyatt. The Committee's determination of the Chief
Executive Officer's incentive compensation for fiscal 1999 also was determined
by the Committee following a review of the Chief Executive Officer's
performance. In reaching its determination regarding the recommended level of
the Chief Executive Officer's cash incentive compensation for fiscal 1999, the
Committee utilized the Incentive Compensation Program guidelines, established
the prior year, and recommended to the Board an amount of incentive compensation
within the guidelines of the Incentive Compensation Program for certain goal
attainment.
10
<PAGE>
The Compensation Committee of the Board of Directors
of the Company
Robert F. Stoico Gilbert C. Oliveira
Thomas A. Rodgers, Jr.
The Management and Personnel Committee
of the Board of Directors of the Bank
Robert F. Stoico Gilbert C. Oliveira
Thomas A. Rodgers, Jr. Willard E. Olmsted
11
<PAGE>
Stock Performance Graph. The following graph shows a comparison of total
shareholder return on the Company's Common Stock, based on the market price of
the Common Stock with the cumulative total return of companies on the American
Stock Exchange and the MG Index for Savings and Loans for the period beginning
on January 15, 1997, the day the Company's Common Stock began trading, through
March 31, 1999. The graph was derived from a limited period of time and, as a
result, may not be indicative of possible future performance of the Company's
Common Stock. The data were supplied by Media General Financial Services.
[GRAPH APPEARS HERE]
SUMMARY
<TABLE>
<CAPTION>
1/15/97 3/31/97 6/30/97 3/31/98 6/30/98 3/31/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FIRSTFED AMERICA
BANCORP, INC. 100.00 136.30 177.50 211.30 193.80 120.00
AMERICAN STOCK
EXCHANGE 100.00 97.14 106.69 127.44 123.93 120.33
MG INDEX FOR
SAVINGS AND LOANS 100.00 101.75 121.07 172.30 163.04 141.28
</TABLE>
Notes:
A. The lines represent annual index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 1/15/97.
12
<PAGE>
Summary Compensation Table. The following table shows, for the years
ended March 31, 1999, 1998 and 1997, the cash compensation paid, as well as
certain other compensation paid or accrued for that year to the Chief Executive
Officer and the Named Executive Officers.
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------------------
Annual Compensation(1) Awards Payouts
----------------------------------------------------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal Fiscal Compensation Awards SARs Payouts Compensation
Positions Year Salary($) Bonus($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F. Stoico, Chairman, 1999 $382,128 $180,736 - - - - $269,845
President and Chief 1998 354,579 171,300 - $1,610,832 217,680 - 292,281
Executive Officer 1997 328,941 100,000 - - - - 239,216
Edward A. Hjerpe, III 1999 203,140 78,006 - 167,610 43,536 - 51,761
Executive Vice President, 1998 126,035 50,000 - 322,159 43,536 - 25,012
Treasurer, Chief Operating
Officer and Chief Financial
Officer(7)
Kevin J. McGillicuddy 1999 125,340 38,523 - - - - 42,761
Senior Vice President 1998 117,314 20,000 - 322,159 43,536 - 56,216
1997 105,677 15,000 - - - - 44,310
Frederick R. Sullivan 1999 125,340 38,523 - - - - 42,961
Senior Vice President 1998 117,316 25,000 - 322,159 43,536 - 58,229
1997 105,677 15,000 - - - - 43,518
Terrence M. Tyrrell 1999 105,342 20,000 - - - - 33,117
Senior Vice President 1998 101,201 20,000 - 322,159 43,536 - 47,006
1997 98,446 15,000 - - - - 37,555
</TABLE>
(1) Under Annual Compensation, the column titled "Salary" includes directors'
fees for the named President and Chief Executive Officer.
(2) For fiscal year 1999, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long-term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock.
(3) Includes stock awards of 87,072, 17,414, 17,414, 17,414 and 17,414 shares
granted to Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell,
respectively, under the Incentive Plan. The awards began vesting in five
equal annual installments commencing on August 5, 1998, the first
anniversary of the effective date of the award. Mr. Hjerpe received an
additional 8,707 stock awards under the Incentive Plan which will vest in
five equal installments commencing on June 29, 1999, the first anniversary
of the effective date of the award. When shares become vested and are
distributed, the recipient will also receive an amount equal to accumulated
cash and stock dividends (if any) with respect thereto plus earnings
thereon. All awards vest immediately upon termination of employment due to
death, disability, retirement or following change in control. As of March
31, 1999, the market value of the shares held by Messrs. Stoico, Hjerpe,
McGillicuddy, Sullivan and Tyrrell was $1,044,864, $313,452, $208,968,
$208,968 and $208,968, respectively . The dollar amounts set forth in the
table represent the market value of the shares awarded on the date of grant.
(4) Includes stock options granted to Messrs. Stoico, Hjerpe, McGillicuddy,
Sullivan and Tyrrell, respectively, pursuant to the Incentive Plan for
fiscal 1998. Mr. Hjerpe received 43,536 additional options under the
Incentive Plan which will vest in five equal installments commencing on June
29, 1999, the first anniversary of the effective date of the award. See
"Option Grants in Last Fiscal Year" table for discussion of options granted
under the Incentive Plan.
(5) For fiscal years 1999, 1998 and 1997, there were no payouts or awards under
any long-term incentive plan.
(6) Includes employer contributions of $21,300, $8,300, $18,700, $18,900 and
$12,900 to the Bank's Retirement Plan for Messrs. Stoico, Hjerpe,
McGillicuddy, Sullivan and Tyrrell, respectively, for fiscal year 1999.
Also includes $25,710, $15,065, $20,291, $20,291 and $17,045 representing
the value of shares allocated under the ESOP for the benefit of Messrs.
Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell, respectively, as of
March 31, 1999. Also includes employer contributions of $10,582, $6,084,
$3,770, $3,770, and $3,172 to the Bank's non-qualified Thrift Plan for
Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell, respectively.
Also includes payments of $174,086 and $22,312 in employer contributions to
Messrs. Stoico and Hjerpe pursuant to the Bank's Supplemental Retirement
Plan for fiscal 1999. Also includes $38,167 in employer contributions to a
supplemental non-qualified ESOP for Mr. Stoico for fiscal 1999.
(7) Mr. Hjerpe began employment with the Company on July 31, 1997.
13
<PAGE>
Compensation Arrangements
Employment Agreements. The Bank and the Company have entered into
employment agreements (collectively, the "Employment Agreement(s)" or
"Agreement(s)") with Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan, and Tyrrell
(individually, the "Executive"). The Employment Agreements are intended to
ensure that the Bank and the Company will be able to maintain a stable and
competent management base. The continued success of the Bank and the Company
depends to a significant degree on the skills and competence of Messrs. Stoico,
Hjerpe, McGillicuddy, Sullivan and Tyrrell.
The Bank Employment Agreements provide for a three-year term for Mr. Stoico
and a two-year term for Mr. Hjerpe. The Company Agreements for Mr. Stoico and
Mr. Hjerpe provide for a five year term. The Bank and Company Agreements for
Messrs. McGillicuddy, Sullivan and Tyrrell also provide for a two-year term.
The Bank Employment Agreements provide that, commencing on the first anniversary
date and continuing each anniversary date thereafter, the Board of Directors may
extend the agreement for an additional year so that the remaining term shall be
three years, in the case of Mr. Stoico, and two years, in the cases of Messrs.
Hjerpe, McGillicuddy, Sullivan and Tyrrell, unless written notice of non-renewal
is given by the Board of the Bank after conducting a performance evaluation of
the Executive. The terms of the Company Employment Agreements are extended on a
daily basis to provide constant term for five years for Mr. Stoico and Mr.
Hjerpe and two years for Messrs. McGillicuddy, Sullivan and Tyrrell unless
written notice of non-renewal is given by the Board of the Company or the
Executive. In addition to the base salary, the Agreements provide for, among
other things, participation in employee and executive benefits plans and other
fringe benefits applicable to similarly-situated executive personnel.
The Employment Agreements provide for termination by the Bank or the
Company for cause as described in the Agreements at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for reasons
other than for cause, or in the event of the Executive's resignation from the
Bank and the Company for any reason, within sixty (60) days of the change in
control or at any time during the remaining term of the Agreements, upon: (i)
failure to re-elect the Executive to his current offices; (ii) a material change
in the Executive's functions, duties or responsibilities; (iii) a relocation of
the Executive's principal place of employment by more than 25 miles; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
Agreement by the Bank or the Company or in the case of the Company Agreement for
Mr. Stoico and Mr. Hjerpe, failure by the Company to renew the Employment
Agreement, the Executive or, in the event of death, his beneficiary would be
entitled to receive an amount equal to the remaining base salary payments due to
the Executive and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the Agreement. The Bank and the Company would also continue
and pay for the Executive's life, health and disability coverage for the
remaining term of the Employment Agreement. Upon any termination of the
Executive, the Executive is subject to a covenant not to compete with the
Company or the Bank for one year.
Under the Agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company (as defined in the Employment
Agreements), the Executive or, in the event of the Executive's death, his
beneficiary, would be entitled to a severance payment equal to the greater of:
(i) the payments due for the remaining terms of the Agreements; or (ii) five
times the average of the five preceding taxable years' annual compensation for
Mr. Stoico and Mr. Hjerpe under the Company Agreements, three times for Mr.
Stoico and Mr. Hjerpe under the Bank Agreements, and three times the average of
the five preceding years' taxable compensation for Messrs. McGillicuddy,
Sullivan and Tyrrell under the Bank and Company Agreements. The Bank and the
Company would also continue the Executive's life, health, and disability
coverage for sixty months in the case of Mr. Stoico and Mr. Hjerpe and twenty-
four months in the cases of
14
<PAGE>
Messrs. McGillicuddy, Sullivan and Tyrrell. Notwithstanding that both Agreements
provide for a severance payment in the event of a change in control, the
Executive would only be entitled to receive a severance payment under one
Agreement. In the event of a change in control, based upon the Executive's base
salary and incentive bonus for fiscal year 1999 as reported in the Summary
Compensation Table, Messrs. Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell
would receive approximately $2.7 million, $1.3 million, $412,000, $427,000 and
$364,000, respectively, in severance payments, in addition to other cash and
noncash benefits.
Payments to Executive under the Bank's Agreement will be guaranteed by the
Company in the event that payments or benefits are not paid by the Bank.
Payment under the Company Agreement would be made by the Company. All
reasonable costs and legal fees paid or incurred by the Executive pursuant to
any dispute or question of interpretation relating to the Agreements shall be
paid by the Bank or Company, respectively, if the Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement. The Employment
Agreements also provide that the Bank and Company shall indemnify the Executive
to the fullest extent allowable under federal and Delaware law, respectively.
Change in Control Agreements. The Bank entered into Change in Control
Agreements (the "CIC Agreements") with nine (9) executive officers of the Bank
and the Bank's corporate secretary (individually, the "Executive"). Each CIC
agreement provides for a two-year term. Commencing on the first anniversary
date and continuing on each anniversary thereafter, the CIC Agreements may be
renewed by the Board of the Bank for an additional year. The Bank's CIC
Agreement provides that in the event voluntary or involuntary termination
following a change in control of the Bank or the Company (as defined in the
agreement), the Executive would be entitled to receive a severance payment equal
to two times the Executive's average compensation for the twelve months
preceding termination. The Bank would also continue and pay for the Executive's
life, health and disability coverage for twenty-four (24) full calendar months
following termination. Payments to the Executive under the Bank's CIC Agreements
will be guaranteed by the Company in the event that payments or benefits are not
paid by the Bank. If a change in control occurs, based upon two times fiscal
1999 base salary and incentive bonus and pursuant to the CIC Agreements, the
Executives would receive, in the aggregate, $1.69 million, in addition to other
cash and noncash benefits. With respect to Mr. Stoico and Mr. Hjerpe, in the
event of a change in control, payments under the Company's Employment
Agreements, as well as certain other plans and arrangements in which the
Executives participate, may constitute a "parachute payment" for federal income
tax purposes, resulting in the possible obligation of a federal excise tax for
the Executive. In such case, the Company is obligated to pay the Executive an
amount so as to enable the Executive to retain the payments he would have
retained had he not been subject to the excise tax.
Incentive Plan. The Company maintains the FIRSTFED AMERICA BANCORP, INC.
1997 Stock-Based Incentive Plan ("the Incentive Plan"), which provides
discretionary awards of options to purchase Common Stock, option-related awards
and awards of Common Stock (collectively, "Awards") to officers, directors and
key employees as determined by a committee of the Board of Directors. Awards of
Common Stock to officers, directors and key employees is provided under
"Restricted Stock Awards" in the "Summary Compensation Table." The following
table lists all grants of options under the Incentive Plan to the Named
Executive Officers for fiscal 1999 and contains certain information about
potential value of those options based upon certain assumptions as to the
appreciation of the Company's stock over the life of the option.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Options(1)
- ------------------------------------------------------------------------------------ ---------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise or
Options/ Granted to Base Price
SARs Granted Employees in Per Expiration
Name (#)(2)(3)(4)(5) Fiscal Year(6) Share Date(7) 5% 10%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edward A. Hjerpe, III 43,536 57.6% $19.25 6/29/08 $527,220 $1,335,684
</TABLE>
________________________________
(1) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises and Common Stock holdings are dependent
on the future performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be realized.
(2) Options granted pursuant to the Incentive Plan are exercisable in five
equal annual installments commencing on June 29, 1999, provided, however,
options will be immediately exercisable in the event the optionee
terminates employment due to death or disability, retirement or a change in
control.
(3) The purchase price may be made in whole or in part in cash or Common Stock.
(4) Options include limited rights (SARs) pursuant to which the options may be
exercised in the event of a change in control of the Company. Upon the
exercise of a limited right, the optionee would receive a cash payment
equal to the difference between the exercise price of the related option on
the date of grant and the fair market value of the underlying shares of
Common Stock on the date the limited right is exercised.
(5) All options are intended to be Incentive Stock Options to the extent
permissible under Section 422 of the Code.
(6) Includes options granted to officers, directors and employees.
(7) The option term is ten years.
16
<PAGE>
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of March 31, 1999. As of March 31, 1999 there were no
unexercised options which were "in-the-money."
Fiscal Year-End Option/SAR Value
<TABLE>
<CAPTION> Value of
Number Unexercised
of Securities in-the-money
Underlying Unexercised Options/SARs
Options/SARs at Fiscal Year-
Name at Fiscal Year-End(#)(1) End ($)(2)(3)
- ---- -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert F. Stoico 43,536 174,144 - -
Edward A. Hjerpe, III 8,707 78,365 - -
Kevin J. McGillicuddy 8,707 34,829 - -
Frederick R. Sullivan 8,707 34,829 - -
Terrence M. Tyrrell 8,707 34,829 - -
</TABLE>
____________________________________
(1) The options in this table have an exercise price of $18.50 with the
exception of 43,536 options for Mr. Hjerpe which were awarded on June 29,
1998 and have an exercise price of $19.25.
(2) The price of the Common Stock on March 31, 1999 was $12.00.
(3) Based on the market value of the underlying Common Stock at fiscal year end,
minus the exercise price.
Retirement Plan. The Bank participates in the Financial Institutions
Retirement Fund (the "Retirement Plan") to provide retirement benefits for
eligible employees. Employees become eligible to participate in the Retirement
Plan after the completion of 12 consecutive months of employment with the Bank
and the attainment of age 21. The Retirement Plan excludes hourly paid
employees from participation. Benefits under the Retirement Plan are based on
the participant's years of service and salary. A participant may elect early
retirement as early as age 45. However, such participant's normal retirement
benefits will be reduced by an early retirement factor based on age at early
retirement.
Participants generally have no vested interest in Retirement Plan benefits
prior to the completion of five years of service with the Bank. Following the
completion of five years of vesting service, or in the event of a participant's
attainment of age 65, death or termination of employment due to disability, a
participant becomes 100% vested in his/her accrued benefit under the Retirement
Plan. The table below reflects the pension benefit payable, and any payment due
under the Supplemental Executive Retirement Plan, discussed below, to a
participant assuming various levels of earnings and years of service. The
amounts of benefits paid under the Retirement Plan are not reduced for any
social security benefit payable to participants. As of January 1, 1999, Messrs.
Stoico, Hjerpe, McGillicuddy, Sullivan and Tyrrell had credited years of service
of 25 years 4 months, 10 years 6 months, 2 year 11 months, 9 years 9 months, and
17 years 7 months, respectively. The Retirement Plan provides the participant
portability with another participating member. Mr. Hjerpe's credited years of
service include credited years of service with his former employer, a
participant in the same multiple employer retirement plan.
17
<PAGE>
<TABLE>
<CAPTION>
Years of Benefit Service
--------------------------------------------------
Final Average
Earnings (1) (3) 15 20 25 30 35
- ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 35,000
$ 75,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
$ 100,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 70,000
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
$ 150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $105,000
$200,000(2) $ 60,000 $ 80,000 $100,000 $120,000 $140,000
$250,000(2) $ 75,000 $100,000 $125,000 $150,000 $175,000
$300,000(2) $ 90,000 $120,000 $150,000 $180,000 $210,000
$350,000(2) $105,000 $140,000 $175,000 $210,000 $245,000
$400,000(2) $120,000 $160,000 $200,000 $240,000 $280,000
</TABLE>
_________________________
(1) The compensation utilized for formula purposes includes the salary reported
in the "Summary Compensation Table."
(2) The maximum amount of annual compensation which can be considered in
computing benefits under Section 401(a)(17) of the Internal Revenue Code of
1986, as amended (the "Code"), is $160,000 for plan years beginning on or
after January 1, 1998.
(3) The maximum annual benefit payable at age 65 for plan years beginning on or
after January 1, 1998 is $130,000/year.
The following table sets forth the years of credited service (i.e., benefit
service) as of December 31, 1998 for each Named Executive Officer.
<TABLE>
<CAPTION>
Credited Service
(1)
-------------------
Years Months
------- --------
<S> <C> <C>
Robert F. Stoico 25 4
Edward A. Hjerpe, III 11 6
Kevin J. McGillicuddy 2 11
Frederick R. Sullivan 9 9
Terrence M. Tyrrell 17 7
</TABLE>
___________________________
(1) The Retirement Plan provides the participant portability with another
participating member. Mr. Hjerpe's credited years of service include
credited years of service with his former employer, a participant in the
same multiple employer retirement plan.
18
<PAGE>
Supplemental Executive Retirement Plan. The Bank currently maintains a
Supplemental Executive Retirement Plan under which it annually credits a
specified amount of money to the account of plan participants. Benefits under
the Plan become payable following a participant's termination of employment. The
Bank intends the benefits provided under the Supplemental Executive Retirement
Plan to make participants whole for reductions in benefits payable under the
terms of the Thrift, ESOP and Retirement Plan maintained by the Bank, as a
result of limitations imposed by the Code, and provide additional retirement
benefits for participants.
Participants generally vest in the amounts credited to the Supplemental
Executive Retirement Plan after completing five years of employment with the
Bank (the same time period over which they become vested in benefits under the
corresponding tax-qualified retirement plans). However, participants vest
immediately upon death or disability. In connection with the Conversion, the
Supplemental Executive Retirement Plan was amended to permit participants to
direct that all or a portion of the amounts then existing (and/or future
amounts) credited to their accounts be converted into stock units based on the
value of the Common Stock. The Bank currently maintains an irrevocable grantor's
trust (also known as a "rabbi trust") to hold assets of the Bank for the
exclusive purpose of paying benefits under the Supplemental Executive Retirement
Plan. However, in the event of the insolvency of the Bank, the assets of the
trust are first subject to the claims of the Bank's creditors. The assets of
this trust may be used to acquire shares of Common Stock to satisfy the
obligations of the Bank for the payment of benefits under the Supplemental
Executive Retirement Plan. As of March 31, 1999, only Mr. Stoico and Mr. Hjerpe
participated in the Supplemental Executive Retirement Plan.
Incentive Award and Salary Deferral Plan. Effective January 1, 1998 the
Bank established a compensation plan whereby eligible executives may defer a
percentage of their annual salary into a non-qualified plan. Executives receive
a 50% matching contribution on the first six percent of salary deferral which is
consistent with the Bank's 401(k) Plan. Investment options provided through
the Plan Trustee include Company stock and allow the executive to elect various
investment funds under the plan.
Transactions With Certain Related Persons
The Bank makes all loans to its executive officers, directors and employees
on the same terms and conditions offered to the general public. The Bank's
policy provides that all loans made by the Bank to its executive officers and
directors be made in the ordinary course of business, on substantially the same
terms, including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. All such loans were made
by the Bank in the ordinary course of business, with no favorable terms and such
loans do not involve more than the normal risk of collectibility or present
unfavorable terms.
PROPOSAL 2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended March 31,
1999, were KPMG LLP. The Company's Board of Directors has reappointed KPMG LLP
to continue as independent auditors for the Bank and the Company for the fiscal
year ending March 31, 2000, subject to ratification of such appointment by the
shareholders.
19
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Representatives of KPMG LLP will be present at the Annual Meeting. They
will be given an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from shareholders present
at the Annual Meeting.
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted FOR ratification of the appointment of KPMG LLP as the
independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
ADDITIONAL INFORMATION
Shareholder Proposals
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 1999 Annual Meeting of Shareholders, a shareholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Shareholders not later than February
15, 1999. Any such proposal will be subject to 17 C.F.R. (S) 240.14a-8 of the
Rules and Regulations under the Exchange Act.
Notice of Business to be Conducted at a Special or Annual Meeting
The Bylaws of the Company set forth the procedures by which a shareholder
may properly bring business before a meeting of shareholders. Pursuant to the
Bylaws, only business brought by or at the direction of the Board of Directors
may be conducted at an annual meeting. The Bylaws of the Company provide an
advance notice procedure for a shareholder to properly bring business before an
annual meeting. The shareholder must give written advance notice to the
Secretary of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the event that
less than one hundred (100) days notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth day
following the date on which the Company's notice to shareholders of the annual
meeting date was mailed or such public disclosure was made. In order for the
notice of a stockholder proposal for consideration at the Company's 2000 Annual
Meeting of Stockholders to be timely, the Company would have to receive such
notice no later than April 22, 2000 assuming the 2000 annual meeting is held on
July 21, 2000 and that the Company provides at least 100 days notice or public
disclosure of the date of the meeting. The advance notice by shareholders must
include the shareholder's name and address, as they appear on the Company's
record of shareholders, a brief description of the proposed business, the reason
for conducting such business at the annual meeting, the class and number of
shares of the Company's capital stock that are beneficially owned by such
shareholder and any material interest of such shareholder in the proposed
business. In the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement or the
proxy relating to any Annual Meeting any shareholder proposal which does not
meet all of the requirements for inclusion established by the SEC in effect at
the time such proposal is received.
20
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Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Shareholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting. However, if you are a shareholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.
A COPY OF THE FORM 10-K (WITHOUT EXHIBITS) FOR THE FISCAL YEAR ENDED
MARCH 31, 1999, AS FILED WITH THE SEC, WILL BE FURNISHED WITHOUT CHARGE TO
SHAREHOLDERS OF RECORD UPON WRITTEN REQUEST TO PHILIP G. CAMPBELL, FIRSTFED
AMERICA BANCORP, INC., ONE FIRSTFED PARK, SWANSEA, MASSACHUSETTS 02777.
By Order of the Board of Directors
/s/ Cecilia R. Viveiros
Cecilia R. Viveiros
Corporate Secretary
Swansea , Massachusetts
June 17, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
21
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REVOCABLE PROXY
FIRSTFED AMERICA BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS
July 29, 1999
2:00 p.m. Eastern Time
------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert F. Stoico, Thomas A. Rodgers, Jr.
and John S. Holden, Jr. or any one or more of them acting in the absence of
others each with full power of substitution, to act as proxy for the
undersigned, and to vote all shares of Common Stock of FIRSTFED AMERICA BANCORP,
INC. (the "Company") which the undersigned is entitled to vote only at the
Annual Meeting of Shareholders, to be held on July 29, 1999, at 2:00 p.m.
Eastern Time, at the Westin Hotel, One West Exchange Street, Providence, Rhode
Island 02903, and at any and all adjournments thereof, with all of the powers
the undersigned would possess if personally present at such meeting as follows:
1. The election as directors of all nominees listed (except as marked to
the contrary below).
Richard W. Cederberg
Gilbert C. Oliveira
Paul A. Raymond, DDS
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
[_] [_] [_]
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR
ALL EXCEPT" and write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. The ratification of the appointment of KPMG LLP as independent auditors
of FIRSTFED AMERICA BANCORP, INC. for the fiscal year ending March 31,
2000.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted FOR each of the proposals
listed. If any other business is presented at the Annual Meeting, including
whether or not to adjourn the meeting, this proxy will be voted by the proxies
in their best judgment. At the present time, the Board of Directors knows of no
other business to be presented at the Annual Meeting.
Dated:
--------------------------
---------------------------------
SIGNATURE OF SHAREHOLDER
---------------------------------
SIGNATURE OF CO-HOLDER (IF ANY)
<PAGE>
---------------------------------
SIGNATURE OF SHAREHOLDER
---------------------------------
SIGNATURE OF CO-HOLDER (IF ANY)
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Shareholders and of a
Proxy Statement dated June __, 1999 and of the Annual Report to Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
------------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
