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FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ACCESS ANYTIME BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 85-0444597
(State of incorporation (I.R.S. Employer Identification No.)
or organization)
801 PILE
CLOVIS, NEW MEXICO 88102-1569
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
COMMON STOCK, NASDAQ SMALL CAP MARKET
PAR VALUE $.01 PER SHARE
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL
The Certificate of Incorporation of Access Anytime Bancorp, Inc. (the
"Company") authorizes the issuance of capital stock consisting of 6,000,000
shares of common stock, par value $0.01 per share ("Common Stock"), and
4,000,000 shares of preferred stock, par value $0.01 per share ("Preferred
Stock"). There are 1,000 shares of Common Stock currently issued and
outstanding, all of which are owned by First Savings Bank, F.S.B. (the
"Bank"). On the effective date of the merger (the "Merger") of the Bank
with and into New First Savings Bank, F.S.B., a wholly-owned subsidiary of
the Company, which is expected to occur promptly after the approval of the
Merger by the stockholders of the Bank at the special meeting of such
stockholders on October 18, 1996, such shares will be redeemed and retired,
and there will be 732,198 shares of Common Stock outstanding as a result of
the exchange of shares of Common Stock for shares of common stock of the Bank
("Bank Stock"). Because all of the issued and outstanding shares of Common
Stock are owned by the Bank, there is currently no established public trading
market for the Common Stock.
In the future, the authorized but unissued and unreserved shares of Common
Stock and the authorized and unissued shares of Preferred Stock will be
available for issuance for general corporate purposes, including, but not
limited to, possible issuance as stock dividends or stock splits, future
mergers or acquisitions, or future private placements or public offerings.
The Company's Board of Directors may (i) cause the issuance of one or more
series of the authorized shares of Preferred Stock, (ii) fix the number of
shares constituting any such new series and (iii) fix the dividend rate,
terms, conditions, conversion and exchange rights, redemption rights
(including sinking fund provisions), liquidation preferences and voting
rights, if any, of any such new series. Such rights and preferences may be
superior to those of Common Stock. Except as otherwise may be required to
approve a merger or other transaction in which the additional authorized
shares of Common Stock or authorized shares of Preferred Stock would be
issued, no stockholder approval will be required for the issuance of those
shares.
COMMON STOCK
GENERAL. Each share of Common Stock has the same relative rights as, and is
identical in all respects to, each other share of Common Stock. Until such
time as voting Preferred Stock is issued, if ever, the holders of shares of
Common Stock will possess all rights, including exclusive voting rights,
pertaining to the capital stock of Company.
DIVIDEND RIGHTS. The holders of Common Stock will be entitled to dividends
when, as and if declared by Company's Board of Directors out of funds legally
available therefor. The payment of dividends by the Company will depend on
the Company's net income, financial condition, regulatory requirements and
other factors, including the results of the Bank's operations. The Company
has no present intention to pay dividends, but may consider doing so in the
future.
VOTING RIGHTS. Each share of Common Stock will entitle the holder thereof to
one vote on all matters upon which stockholders have the right to vote. In
addition, the Board of Directors of the Company is classified so that
approximately one-third of the directors will be elected each year.
Stockholders of the Company will be entitled to cumulate their votes for the
election of directors. Cumulative voting may allow a minority of the
stockholders to elect directors that would not otherwise be possible.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of the Company, the holders of shares of Common Stock will be entitled to
receive, after payment of all debts and liabilities of the Company and
subject to the prior rights, if any, of holders of shares of Preferred Stock,
all remaining assets of the Company available for distribution in cash or in
kind. In the event of any liquidation, dissolution or winding up of the
Bank, the Company, as the holder of all shares of Bank Stock, upon
consummation of the Merger, would be entitled to receive payment of all
assets of the Bank available for distribution in cash or in kind remaining
after the payment of all debts and liabilities of the Bank (including all
deposits and accrued interest thereon).
PREEMPTIVE RIGHTS; REDEMPTION. Holders of shares of Common Stock will not be
entitled to preemptive rights with respect to any shares that may be issued.
Common Stock is not subject to call or redemption.
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PREFERRED STOCK
No Preferred Stock is being issued in connection with the Merger and the
Board of Directors of the Company has no present plan or intention to issue
any Preferred Stock. The Board of Directors may, without action of the
stockholders of Company, issue shares of Preferred Stock from time to time in
one or more series with chosen designations, preferences, limitations and
other rights.
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (i) the dividend rate, conditions
of payment of dividends, dividend preferences, if any, and whether dividends
would be cumulative and, if so, the date from which dividends on such series
would accumulate; (ii) whether, and upon what terms, such series would be
redeemable and, if so, the redemption price and terms and conditions of
redemption; (iii) the preference, if any, to which such series would be
entitled in the event of voluntary or involuntary liquidation, dissolution or
winding up of Company; (iv) whether or not a sinking fund would be provided
for the redemption of such series and, if so, the terms and conditions
thereof; (v) whether, and upon what terms, such series would be convertible
into or exchangeable for shares of any other class of capital stock or other
series of Preferred Stock; and (vi) whether, and to what extent, the holders
of such series would enjoy voting rights, if any, in addition to those
prescribed by law. With regard to dividends, redemption and liquidation
preference, any particular series of Preferred Stock may rank junior to, on a
parity with or senior to any other series of Preferred Stock.
It is not possible to state the actual effect of the authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board of
Directors determines the specific rights of the holders of a series of
Preferred Stock. However, such effects might include (a) restrictions on
dividends on Common Stock if dividends on Preferred Stock have not been paid;
(b) dilution of the voting power of Common Stock to the extent that Preferred
Stock has voting rights; (c) dilution of the equity interest of Common Stock
to the extent that Preferred Stock is convertible into Common Stock; or (d)
Common Stock not being entitled to share in the Company's assets upon
liquidation until satisfaction of any liquidation preference granted the
holders of Preferred Stock. Issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire
a majority of the outstanding voting stock of the Company. Accordingly, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders of Company.
DIVIDENDS
Holders of Common Stock are entitled to receive dividends paid out of legally
available funds as and when declared by the Company's Board of Directors
based upon the earnings and financial condition of the Company, liquidity and
capital requirements, the general economic and regulatory climate, the
Company's ability to service any equity or debt obligations senior to the
Common Stock and other factors deemed relevant by the Company's Board of
Directors. The Company is also subject to the requirements of Delaware law
regarding the payment of dividends.
For a foreseeable period of time following consummation of the Merger, the
principal source of cash revenues to the Company will be dividends paid by
the Bank with respect to the Bank Stock. There are certain statutory and
regulatory limitations on the payment of such dividends (and other capital
distributions) including Office of Thrift Supervision ("OTS") regulatory
capital requirements. In some cases, the OTS may prohibit a dividend payment
that meets these requirements on the basis that such a distribution would be
an unsafe or unsound practice. Furthermore, the Bank may not pay a dividend
if it will cause the institution to become "undercapitalized."
The Bank is subject to an OTS Supervisory Agreement effective as of June 17,
1996 which requires, among other things, that the Bank increase its capital.
This agreement will inhibit the payment of dividends by the Bank for the
foreseeable future.
The Bank is required to give the OTS thirty days prior notice of the proposed
declaration by its directors of any dividend. Any such dividend declared
within the thirty day period or without giving such notice shall be invalid
and shall confer no rights or benefits on the Company as the sole stockholder
of the Bank.
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Under the Federal Deposit Insurance Act, an insured bank is prohibited from
paying dividends on its capital stock while in default in the payment of any
assessment due to the FDIC except in those cases where the amount of the
assessment is in dispute and the insured bank has deposited satisfactory
security. The Bank is not in default in the payment of any such assessment.
The Bank last paid a stock dividend in 1989 and a cash dividend in 1988. The
Company's Board of Directors does not currently intend to declare any cash
dividends at any time in the foreseeable future.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Delaware General Corporation Law ("DGCL") contains provisions that allow
indemnification of the directors, officers and employees of Company and any
of its direct or indirect subsidiaries. To be entitled to indemnification,
it must be determined that, in general terms, the person acted in good faith
and in a manner believed to be in, or not opposed to, the best interests of
Company and, with respect to a criminal action, had no reasonable cause to
believe his or her conduct was unlawful. Further, the DGCL provides that to
the extent a director, officer or employee is successful on the merits or
otherwise in defense of an action, the Company shall indemnify such person
against expenses actually and reasonably incurred.
Under the Federal Deposit Insurance Act, as amended, both the Bank and the
Company would be prohibited from paying any indemnification with respect to
any liability or legal expense incurred by a director, officer or employee as
result of an action or proceeding by a federal banking agency resulting in a
civil money penalty or certain other remedies against such person.
STATUTORY BUSINESS COMBINATION PROVISION
Section 203 of the DGCL is intended to discourage certain takeover practices
by impeding the ability of a hostile acquiror to engage in certain
transactions with the target company. In general, Section 203 provides that
a "Person" (as defined therein) who owns 15% or more of the outstanding
voting stock of a Delaware corporation (an "Interested Stockholder") may not
consummate a merger or other business combination transaction with such
corporation at any time during the three-year period following the date such
"Person" became an Interested Stockholder. The term "business combination" is
defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries
and the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person
became an Interested Stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder; (ii) any business combination involving a
person who acquired at least 85% of the outstanding voting stock in the
transaction in which he became an Interested Stockholder, with the number of
shares outstanding calculated without regard to those shares owned by the
corporation's directors who are also officers and by certain employee stock
plans; (iii) any business combination with an Interested Stockholder that is
approved by the Board of Directors and by a two-thirds vote of the
outstanding voting stock not owned by the Interested Stockholder; and (iv)
certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not opposed by
a majority of certain continuing members of the Board of Directors. A
corporation may exempt itself from the requirement of the statute by adopting
an amendment to its certificate of incorporation or bylaws electing not to be
governed by Section 203. At the present time, the Board of Directors does
not intend to propose any such amendment.
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ITEM 2. EXHIBITS.
Listed below are the exhibits filed as part of this registration
statement:
99.1* Certificate of Incorporation of the Company.
99.2* By-laws of the Company.
99.3* Form of Certificate representing the Common Stock, par value $.01 per
share, of the Company.
99.4* Form 10-KSB of the Bank for the fiscal year ended December 31, 1995,
with all exhibits thereto, as filed with the OTS.
99.5* Annual Report of the Bank for the fiscal year ended December 31, 1995,
as filed with the OTS.
99.6* Form 10-QSB of the Bank for the quarterly period ended March 31, 1996,
with all exhibits thereto, as filed with the OTS.
99.7* Form 10-QSB of the Bank for the quarterly period ended June 30, 1996,
as filed with the OTS.
99.8* Form 8-K of the Bank dated April 25, 1996, as filed with the OTS.
99.9* Form 8-K of the Bank dated June 27, 1996, as filed with the OTS.
99.10* Form 8-K of the Bank dated July 3, 1996, as filed with the OTS.
99.11* Proxy Statement for the Bank relating to the Annual Meeting of
Stockholders on April 26, 1996.
99.12* Offering Circular and Proxy Statement for the Bank and the Company
relating to the Special Meeting of Stockholders of the Bank to be held
on October 18, 1996.
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*filed herewith
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized.
ACCESS ANYTIME BANCORP, INC.
By: /s/ Kenneth J. Huey, Jr.
-----------------------------------
Name: Kenneth J. Huey, Jr.
Title: President
Date: October 11, 1996
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INDEX TO EXHIBITS
99.1* Certificate of Incorporation of the Company.
99.2* By-laws of the Company.
99.3* Form of Certificate representing the Common Stock, par value $.01 per
share, of the Company.
99.4* Form 10-KSB of the Bank for the fiscal year ended December 31, 1995,
with all exhibits thereto, as filed with the OTS.
99.5* Annual Report of the Bank for the fiscal year ended December 31, 1995,
as filed with the OTS.
99.6* Form 10-QSB of the Bank for the quarterly period ended March 31, 1996,
with all exhibits thereto, as filed with the OTS.
99.7* Form 10-QSB of the Bank for the quarterly period ended June 30, 1996,
as filed with the OTS.
99.8* Form 8-K of the Bank dated April 25, 1996, as filed with the OTS.
99.9* Form 8-K of the Bank dated June 27, 1996, as filed with the OTS.
99.10* Form 8-K of the Bank dated July 3, 1996, as filed with the OTS.
99.11* Proxy Statement for the Bank relating to the Annual Meeting of
Stockholders on April 26, 1996.
99.12* Offering Circular and Proxy Statement for the Bank and the Company
relating to the Special Meeting of Stockholders of the Bank to be
held on October 18, 1996.
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*filed herewith
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CERTIFICATE OF INCORPORATION
OF
ACCESS ANYTIME BANCORP, INC.
FIRST: The name of the Corporation is Access Anytime Bancorp, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of the registered agent at
that address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is ten million (10,000,000)
consisting of:
1. four million (4,000,000) shares of preferred stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. six million (6,000,000) shares of common stock, par value one
cent ($.01) per share (the "Common Stock").
B. Except as provided in this Article Fourth (or in any Preferred Stock
Designation, as hereinafter defined) the holders of the Common Stock shall
exclusively possess all voting power. Each holder of shares of Common
Stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the
full amount of dividends and of sinking fund or retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled, in preference to the Common Stock, then dividends may be paid on
the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available
for the payment of dividends; but only when and as declared by the Board of
Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock (and the holders of any class
or series of stock entitled to participate with the Common Stock in the
distribution of assets) shall be entitled to
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receive, in cash or in kind, the assets of the Corporation available for
distribution remaining after: (i) payment or provision for payment of the
Corporation's debts and liabilities and (ii) distributions or provision for
distributions to holders of any class or series of stock having preference
over the Common Stock in the liquidation, dissolution, or winding up of the
Corporation. Each share of Common Stock shall have the same relative
rights as and be identical in all respects with all the other shares of
Common Stock.
C. The Board of Directors is hereby expressly authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to
time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof.
D. No shares of capital stock (including shares issuable upon conversion,
exchange or exercise of other securities) shall be issued directly or
indirectly, to officers, directors, or controlling persons of the
Corporation other than as part of a general public offering or as
qualifying shares to a director unless the issuance or the plan under which
they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
E. Nothing contained in this Article Fourth (or in any Preferred Stock
Designation) shall entitle the holders of any class of a series of capital
stock to vote as a separate class or series or to more than one vote per
share, except as to the cumulation of votes for the election of directors;
provided, that this restriction on voting separately by class or series
shall not apply:
(i) to any provision which would authorize the holders of Preferred
Stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event
of default in the payment of dividends on any class or series
of Preferred Stock;
(ii) to any provision which would require the holders of Preferred
Stock, voting as a class or series, to approve the merger or
consolidation of the Corporation with another corporation or the
sale, lease or conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of a
corporation other than the Corporation if the Preferred Stock is
exchanged for securities of such other corporation;
(iii) to any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
Article Fourth (or in any Preferred Stock Designation),
including any amendment which would create or enlarge any class
or series ranking prior thereto in rights and
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preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving Corporation in a merger or
consolidation for the Corporation, shall not be considered to be
such an adverse change.
FIFTH: The name and mailing address of the incorporator is:
NAME MAILING ADDRESS
---- ---------------
First Savings Bank, F.S.B. PO Box 1569
Clovis, New Mexico 88102-1569
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation. In furtherance and
not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized:
(1) to make, alter or repeal the Bylaws of the Corporation.
(2) to authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
(3) to set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
(4) by a majority of the whole Board of Directors, to designate one
or more committees, each committee to consist of two or more of the
directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the Bylaws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers
which may require it; provided, however, the Bylaws may provide that in the
absence or disqualification of any member of such committee or committees
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member.
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EIGHTH:
A. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
B. At all elections of directors of the Corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except
for such provision as to cumulative voting) he would be entitled to cast
for the election of directors with respect to his shares of stock
multiplied by the number of directors to be elected by him, and that he may
cast all of such votes for a single director or may distribute them among
the number to be voted for, or for any two or more of them as he may see
fit.
NINTH: The number of directors shall be not less than seven nor more than
fifteen, as stated from time to time in the Bylaws; provided that a greater
number may be approved by the Board.
TENTH: The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH:
A. The Corporation shall have the authority to issue fractional
shares.
B. No stockholder of the Corporation shall have any preemptive or
preferential right of subscription to any shares of any stock of the
Corporation, or to any obligations convertible into stock of the
Corporation, issued or sold, nor any right of subscription to any thereof
other than such, if any, as the Board of Directors of the Corporation in
its discretion from time to time may determine, and the Board of Directors
may issue stock of the Corporation, or obligations convertible into stock,
without offering such issue of stock, either in whole or in part, to the
stockholders of the Corporation. The acceptance of stock in the
Corporation shall be a waiver of any such preemptive or
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preferential right which in the absence of this provision might otherwise
be asserted by stockholders of the Corporation or any of them.
C. The Corporation shall be entitled to treat the person in whose
name any share is registered as the owner thereof, for all purposes, and
shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, save as expressly provided by the
laws of the State of Delaware.
THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, does make, file and record
this Certificate of Incorporation, does certify that the facts herein stated are
true, and, accordingly, has executed this Certificate of Incorporation this 27th
day of August, 1996.
FIRST SAVINGS BANK, F.S.B.
By /s/ Ken Huey, Jr.
---------------------------------------------
Ken Huey, Jr.
President & Chief Executive Officer
Incorporator
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BYLAWS
ACCESS ANYTIME BANCORP, INC.
ARTICLE I - HOME OFFICE
The home office of Access Anytime Bancorp, Inc. (the "Corporation"), a
Delaware corporation, shall be located at 801 Pile Street, in the City of
Clovis, in Curry County, in the State of New Mexico.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place either within or outside the State of New Mexico as the Board of
Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any
other business of the Corporation shall be held annually within 120 days
after the end of the Corporation's fiscal year on the last Friday of April,
if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at 9:00 A.M., or at such other date
and time within such 120-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purposes or purposes may be called at any time by the chairman of the
board, the president, or a majority of the Board of Directors, and shall be
called by the chairman of the board, the president, or the secretary upon the
written request of the holders of not less than one-fifth of all of the
outstanding capital stock of the Corporation entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered to the home office of the Corporation addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedure adopted by the Board of
Directors. The Board of Directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 10 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it
appears on the stock transfer books or records of the Corporation as of the
record date prescribed in Section 6 of this Article II with postage prepaid.
When any shareholders'
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meeting, either annual or special, is adjourned for 30 days or more, notice
of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the time and place
of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the
record date for any such determination of shareholders. Such date in any
case shall be not more than 60 days and, in case of a meeting of
shareholders, not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment.
SECTION 7. VOTING LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than
a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the Board of Directors. No proxy
shall be valid more than eleven months from the date of its execution except
for a proxy coupled with any interest.
2
<PAGE>
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. If
shares or other securities having voting power stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two
or more persons have the same fiduciary relationship respecting the same
shares, unless the secretary of the Corporation is given written notice to
the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect:
(1) If only one votes, his or her act binds all;
(2) If more than one vote, the act of the majority so voting binds all;
(3) If more than one vote, but the vote is evenly split on any particular
matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if
any, may apply to the Delaware Court of Chancery or such other court
as may have jurisdiction to appoint any additional person to act with
the persons so voting the shares, which shall then be voted as
determined by a majority of such persons and the person appointed by
the Court. If the instrument so filed shows that any such tenancy is
held in unequal interests, a majority or even split for the purpose of
this provision shall be a majority or even split in interest.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by an officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of
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election to act at such meeting or any adjournment. The number of inspectors
shall be either one or three. Any such appointment shall not be altered at
the meeting. If inspectors of election are not so appointed, the chairman of
the board or the president may, or on the request of not fewer than 10
percent of the votes represented at the meeting shall, make such appointment
at the meeting. If appointed at the meeting, the majority of the votes
present shall determine whether one or three inspectors are to be appointed.
In case any person appointed as inspector fails to appear or fails or refuses
to act, the vacancy may be filled by appointment by the Board of Directors in
advance of the meeting or at the meeting by the chairman of the board or the
president.
Unless otherwise prescribed by applicable law or by regulations of the
Board, the duties of such inspectors shall include: determining the number of
shares and the voting power of each share, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
SECTION 13. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Corporation. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the Corporation at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Corporation. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
4
<PAGE>
SECTION 2. NUMBER AND TERM. The initial Board of Directors shall consist
of eight (8) members, which number may be increased or decreased by the Board
of Directors within the range permitted by the Corporation's Certificate of
Incorporation, but no decrease shall shorten an incumbent director's term of
office. The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 4. QUALIFICATION. Directors need not be the beneficial owners of
shares of capital stock of the Corporation.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place as the place for holding any special
meeting of the Board of Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 6. NOTICE OF SPECIAL MEETING. Written notice of at least 24 hours
regarding any special meeting of the Board of Directors or of any committee
designated thereby shall be given to each director in accordance with the
Bylaws, although such notice may be waived by the director. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors; but if less than such majority is
present at a meeting, a majority of the directors present
5
<PAGE>
may adjourn the meeting from time to time. Notice of any adjourned meeting
shall be given in the same manner as prescribed in Section 6 of this Article
III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by these Bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president.
SECTION 11. VACANCIES. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such directors' successor shall have been duly elected and qualified.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board of Directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire Board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
6
<PAGE>
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the Certificate of Incorporation or a Preferred Stock Designation,
the provisions of this section shall apply, in respect to the removal of a
director or directors so elected, to the vote of the holders of the outstanding
shares of that class and not to the vote of the outstanding shares as a whole.
SECTION 15. AGE LIMITATION OF DIRECTORS. No person of an age 70 years or
older will be eligible for election, reelection, appointment, or reappointment
to the Board of Directors of the Corporation. No director shall serve as such
beyond the annual meeting of the Corporation immediately following the
attainment of age 70. The Board of Directors may grant an exception to this
requirement for any initial director of the Corporation who has not attained the
age of 75.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate three or more of the directors,
which shall include the chief executive officer if he is a director, to
constitute an executive committee. The designation of any committee pursuant to
this Article IV and the delegation of authority shall not operate to relieve the
Board of Directors, or any director, of any responsibility imposed by law or
regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Corporation, or recommending to the stockholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Corporation; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETING. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The
7
<PAGE>
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Corporation. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Corporation and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may
also designate the chairman of the board and/or vice chairman of the board as
officers. The Board of Directors may designate one or more vice presidents as
executive vice president or senior vice president. The Board of Directors may
also elect or authorize the appointment of such other officers as the business
of the Corporation may require. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
8
<PAGE>
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee,
or agent shall not of itself create contractual rights. The Board of Directors
may authorize the Corporation to enter into an employment contract with any
officer in accordance with resolutions of the Board; but no such contract shall
impair the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors by employment contracts or by
resolution.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by resolutions of the
Board, and except as otherwise prescribed by these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees, or
agents of the Corporation in such manner as shall from time to time be
determined by the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited form time to time to the credit of the Corporation in any
duly authorized depositories as the Board of Directors may elect.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
9
<PAGE>
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board of Directors and approved by the Board. Such certificates shall be
signed by the chief executive officer or by any other officer of the Corporation
authorized by the Board of Directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Corporation itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Corporation as
the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of December of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accounts appointed by and responsible to
the Board of Directors. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject only to applicable law and the terms of the Corporation's charter
and the resolutions of the board, the Board of Directors may, from time to time,
declare, and the Corporation may pay, dividends on its outstanding classes of
capital stock which are eligible for dividends.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide a Corporation seal which shall be two
concentric circles between which shall be the name of the Corporation. The year
of incorporation or an emblem may appear in the center.
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ARTICLE XI - AMENDMENTS
These Bylaws may be amended in a manner consistent with regulations of the
board at any time by a majority vote of the full Board of Directors or by a
majority vote of the votes cast by the stockholders of the Corporation at any
legal meeting.
11
<PAGE>
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ACCESS ANYTIME BANCORP, INC.
TOTAL AUTHORIZED ISSUE
6,000,000 SHARES PAR VALUE $0.01 EACH
SEE REVERSE FOR
CERTAIN DEFINITIONS
COMMON STOCK
SPECIMEN
THIS IS TO CERTIFY THAT_________________________________________IS THE OWNER OF
_________________________________________________________________fully paid and
non-assessable shares of the above Corporation transferable only on the books
of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
SECRETARY CHAIRMAN & CEO
<PAGE>
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF
THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM -- AS TENANTS IN COMMON UNIF GIFT MIN ACT--.....CUSTODIAN.....
(CUST) (MINOR)
TEN ENT -- AS TENANTS BY THE ENTIRETIES UNDER UNIFORM GIFTS TO MINORS
JT TEN -- AS JOINT TENANTS WITH RIGHT ACT..........................
OF SURVIVORSHIP AND NOT AS (STATE)
TENANTS IN COMMON
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE
ABOVE LIST.
FOR VALUE RECEIVED _______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
______________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT _______________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ____________________________ 19_____
IN PRESENCE OF
________________________________
________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20549
FORM 10-KSB
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------------------- ---------------------
Commission file number: OTS docket # 2891
FIRST SAVINGS BANK, F.S.B.
- - --------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
Office of Thrift Supervision 85-0028945
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Pile Street, Clovis, New Mexico 88101
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 762-4417
----------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
-------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to requirements for the past 90 days. YES X . NO .
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year: $9,249,937
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the average of the closing bid and
asked prices of such stock on the Nasdaq Small-Cap Market as of March 27, 1996
was approximately $4.5 million. (The exclusion from such amount of the market
value of the shares owned by any person shall not be deemed an admission by the
Registrant that such person is an affiliate of the Registrant.)
As of March 27, 1996, there were issued and outstanding 695,698 shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of Annual Report to Stockholders for the
fiscal year ended December 31, 1995.
Part III of Form 10-KSB - Portions of Proxy Statement for 1996 Annual Meeting
of Stockholders.
Transitional Small Business Disclosure Format: YES . NO X .
----- -----
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 4
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Lending Activities . . . . . . . . . . . . . . . . . . . . . 4
General. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Loan Portfolio Composition . . . . . . . . . . . . . . . . 7
One-to-Four Family Residential Mortgage Lending. . . . . . 9
Multi-Family and Commercial Real Estate Loans. . . . . . . 10
Commercial Business Loans. . . . . . . . . . . . . . . . . 10
Construction Loans . . . . . . . . . . . . . . . . . . . . 11
Consumer Lending . . . . . . . . . . . . . . . . . . . . . 11
Loan Servicing . . . . . . . . . . . . . . . . . . . . . . 12
Originations, Purchases and Sales of Loans . . . . . . . . . 13
Asset Quality. . . . . . . . . . . . . . . . . . . . . . . . 14
Delinquent Loans . . . . . . . . . . . . . . . . . . . . . 14
Non-Performing Assets. . . . . . . . . . . . . . . . . . . 15
Criticized Assets. . . . . . . . . . . . . . . . . . . . . 16
Allowance for Credit Losses. . . . . . . . . . . . . . . . 17
Investment Activities. . . . . . . . . . . . . . . . . . . . 18
Securities Held-to-Maturity. . . . . . . . . . . . . . . . 18
Assets Available-for-Sale. . . . . . . . . . . . . . . . . 19
Other Investments. . . . . . . . . . . . . . . . . . . . . 19
Sources of Funds . . . . . . . . . . . . . . . . . . . . . . 19
General. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 20
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 22
Subsidiary Activity. . . . . . . . . . . . . . . . . . . . . 23
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 23
General. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Regulation of Savings Associations . . . . . . . . 23
Regulatory Environment for 1996. . . . . . . . . . . . . . 24
Insurance of Accounts and Regulations by the FDIC. . . . . 25
Regulatory Capital Requirements. . . . . . . . . . . . . . 27
Limitations on Dividends and Other Capital Distributions . 30
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . 31
Accounting . . . . . . . . . . . . . . . . . . . . . . . . 31
Qualified Thrift Lender Test . . . . . . . . . . . . . . . 31
Federal Home Loan Bank System. . . . . . . . . . . . . . . 32
(continued)
2
<PAGE>
TABLE OF CONTENTS
(continued) Page
----
Written Agreements with OTS. . . . . . . . . . . . . . . . 33
Federal and State Taxation . . . . . . . . . . . . . . . . . 34
Federal Taxation . . . . . . . . . . . . . . . . . . . . . 34
State Taxation . . . . . . . . . . . . . . . . . . . . . . 36
New Accounting Standards . . . . . . . . . . . . . . . . . . 36
Competition. . . . . . . . . . . . . . . . . . . . . . . . . 36
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . 37
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 37
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 38
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 6. Management's Discussion and Analysis or Plan of Operation. . 39
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . 39
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . 39
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act. . . . . . 39
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 40
Item 11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 40
Item 12. Certain Relationships and Related Transactions . . . . . . . 40
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
First Savings Bank, F.S.B. ("First Savings" or "the Bank") is the third
largest financial institution headquartered in Clovis, New Mexico, with
approximately $117 million in assets. The Bank was originally chartered by the
Federal Home Loan Bank Board (FHLBB) in 1934. On August 8, 1986, the Bank
converted to a stock institution through the sale of 450,000 shares of common
stock at $10.00 per share. Currently, deposits with the Bank are insured to
applicable limits by the Savings Association Insurance Fund (SAIF), which is
under the supervision of the Federal Deposit Insurance Corporation (FDIC). The
Bank is a member of the Federal Home Loan Bank (FHLB) system and is subject to
comprehensive regulation, examination, and supervision of the Office of Thrift
Supervision (OTS). See "Regulation", included in this Form 10-KSB. First
Savings conducts business through three offices located in Clovis and Portales,
New Mexico. The Bank's executive offices are located at 801 Pile Street,
Clovis, New Mexico.
The results of operations of First Savings, in general, are significantly
influenced by general economic conditions, the monetary and fiscal policies of
the federal government, and the policies of financial institution regulatory
authorities. See "Regulation", included in this Form 10-KSB, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", in
the 1995 Annual Report. First Savings since 1991 has been primarily engaged in
the business of attracting deposits from the general public, making loans
secured by first liens on single-family loans (primarily for sale into the
secondary market) and investing in mortgage related securities. The principal
sources of funds for the Bank's lending and investing activities in 1995
included the sale of loans, principal payments and prepayments on loans and
mortgage related securities, and deposits. The Bank's primary sources of income
are income on loans and securities, loan servicing fees, income from deposit
account service charges, and gains on the sale of loans. Its principal expenses
are interest paid on deposits and borrowings and general operating expenses.
The earnings of the Bank depend primarily on the difference between its income
from lending and investment activities and the interest cost of its deposits and
borrowings.
LENDING ACTIVITIES
GENERAL. First Savings has historically originated fixed-rate mortgage
loans. In order to reduce its exposure to changes in interest rates, the Bank,
since the early 1980's, has also emphasized the origination and retention of
adjustable-rate mortgage (ARM) loans. Management's strategy has been to
increase the percentage of assets in its portfolio with more frequent repricing.
In response to customer demand, however, the Bank continues to originate
conventional fixed-rate mortgages generally for sale in the secondary market.
4
<PAGE>
The Bank's primary focus in lending activities is on the origination of
loans secured by first mortgages on owner-occupied, one-to-four family
residences. To a lesser extent, First Savings also originates residential
construction and consumer loans in the Bank's market area. Most residential
mortgage loans originated by the Bank are in conformity with Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and
Government National Mortgage Association (GNMA) loan underwriting standards so
that they may be sold in the secondary market. Mortgage loans made by the Bank
are generally long-term loans, amortized on a monthly basis, with principal and
interest due each month. The initial contractual loan payment period for
residential loans typically ranges from 15 to 30 years. The Bank's experience
indicates, however, that real estate loans remain outstanding for significantly
shorter periods than their contractual terms. Borrowers may refinance or prepay
loans at their option, subject to any prepayment penalty provisions, if included
in the note. Most mortgage loans are underwritten and approved by the Bank's
loan committee.
All of the Bank's lending is subject to its written, underwriting standards
and to loan origination procedures. Decisions on loan applications are made on
the basis of detailed applications and property valuations (consistent with the
Bank's written appraisal policy) by independent appraisers. The loan
applications are designed primarily to determine the borrower's ability to repay
and the more significant items on the application are verified through use of
credit reports, financial statements, tax returns and/or confirmations.
In connection with the loan approval process, the Bank's loan personnel
analyze the loan application and the property involved. All conforming real
estate loans are processed and presented by the officers to the loan committee.
All nonconforming real estate loans are approved by the loan committee, the
Bank's executive committee or the full Board of Directors. Consumer loans are
approved by loan committee and/or individual loan officers, in accordance with
policies established by the Board of Directors.
Loan applicants are promptly notified of the decision of the Bank by a
letter setting forth the terms and conditions of the decision. If approved,
these terms and conditions include the amount of the loan, interest rate,
amortization term, a brief description of the real estate to be mortgaged to the
Bank, and the requirement of fire and casualty insurance coverage to be
maintained to protect the Bank's interest.
It is the policy of the Bank to obtain a title insurance policy insuring
that it has a valid lien on all property securing real estate loans. Hazard
insurance or homeowner's policies must be obtained by the borrower prior to
closing. The Bank also requires flood insurance policies where required by
federal rules and regulations. Upon closing, most borrowers are required to
advance funds to the establishment of a mortgage escrow account. Thereafter,
the borrower makes contributions to this account along with monthly principal
and interest payments. Disbursements are made from this account by the Bank for
items such as real estate taxes, hazard insurance premiums, and private mortgage
insurance premiums.
5
<PAGE>
The Bank receives loan origination fees for originating loans and
servicing fees for servicing loans sold to others. The Bank also receives
commitment fees for making commitments to originate construction,
residential, commercial, and multi-family residential loans, as well as
various fees and charges related to existing loans, which include late
charges and assumption fees.
As part of the loan application, the borrower pays the Bank for its out-of-
pocket costs in reviewing the application, such as the appraisal fee, whether or
not the borrower closes the loan. The interest rate charged is normally the
prevailing rate at the time the loan application is approved. In the case of
larger construction loans, the Bank normally charges a 1% commitment fee, which
may be included in the loan origination charge when the loan is made.
Commitment fees and other terms of commercial and multi-family residential loans
are individually negotiated.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
is limited generally to the greater of 15% of unimpaired capital and surplus or
$500,000. At December 31, 1995, the maximum amount which the Bank could have
lent to any one borrower and the borrower's related entities was approximately
$943,000. One loan in excess of $943,000 is described in "Non-Performing
Assets," Note 2, in this Form 10-KSB. This loan was made prior to the
implementation of the current loan to one borrower limitations.
6
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following tables show the composition of
the Bank's loan portfolio in dollar amounts by type and security (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) as of the dates indicated.
December 31
-------------------------------
1995 1994 1993
------- ------- -------
(Dollars in Thousands)
TYPE OF LOAN
Conventional real estate loans*. . . . . . . . $25,110 $27,873 $29,851
Insured or guaranteed real estate loans. . . . 4,060 4,279 2,262
Consumer and installment loans . . . . . . . . 4,558 2,689 2,889
Consumer timeshare loans . . . . . . . . . . . 560 1,217 2,282
Construction loans . . . . . . . . . . . . . . 1,060 517 159
Other. . . . . . . . . . . . . . . . . . . . . 553 726 1,027
------- ------- -------
Total loans. . . . . . . . . . . . . . . . 35,901 37,301 38,470
Less:
Loans in process . . . . . . . . . . . . . . 863 317 74
Discounts, deferred loans fees, and other. . 278 853 908
Allowance for loan losses. . . . . . . . . . 428 461 508
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . $34,332 $35,670 $36,980
------- ------- -------
------- ------- -------
*Includes construction loans converted to permanent loans and refinanced loans.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
TYPE OF SECURITY (Dollars in Thousands)
Residential mortgage loans:
Single family. . . . . . . . . . . . . . . . . . $22,991 64.04% $22,950 61.53% $20,902 54.33%
2-to-4 family. . . . . . . . . . . . . . . . . . 995 2.77 1,047 2.81 1,151 2.99
Other dwelling units . . . . . . . . . . . . . . 1,114 3.10 1,168 3.13 1,843 4.79
Commercial real estate . . . . . . . . . . . . . . 5,683 15.83 8,230 22.06 9,404 24.45
------- ------- ------- ------- ------- -------
Total real estate loans. . . . . . . . . . . . 30,783 85.74 33,395 89.53 33,300 86.56
------- ------- ------- ------- ------- -------
Savings accounts . . . . . . . . . . . . . . . . . 897 2.50 851 2.28 1,451 3.77
Consumer items . . . . . . . . . . . . . . . . . . 4,221 11.76 3,055 8.19 3,719 9.67
------- ------- ------- ------- ------- -------
Total consumer loans . . . . . . . . . . . . . 5,118 14.26 3,906 10.47 5,170 13.44
------- ------- ------- ------- ------- -------
Total loans. . . . . . . . . . . . . . . . . . 35,901 100.00% 37,301 100.00% 38,470 100.00%
------- ------- -------
------- ------- -------
Less:
Loans in process . . . . . . . . . . . . . . . . 863 317 74
Discounts, deferred loan fees, and other . . . . 278 853 908
Allowance for loan losses. . . . . . . . . . . . 428 461 508
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . $34,332 $35,670 $36,980
------- ------- -------
------- ------- -------
</TABLE>
7
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate categories at the dates indicated.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FIXED-RATE LOANS:
Residential Mortgage Loans:
Single family. . . . . . . . . . . . . . . $10,554 29.40% $ 9,671 25.93% $ 6,553 17.03%
2-to-4 family. . . . . . . . . . . . . . . 562 1.57 578 1.55 649 1.69
Other dwelling units . . . . . . . . . . . 324 0.90 330 0.88 560 1.46
Commercial real estate . . . . . . . . . . . 1,176 3.28 3,485 9.34 3,804 9.89
------- ------- ------- ------- ------- -------
Total real estate loans. . . . . . . . . 12,616 35.15 14,064 37.70 11,566 30.07
------- ------- ------- ------- ------- -------
Savings accounts . . . . . . . . . . . . . . 897 2.50 851 2.28 1,451 3.77
Consumer . . . . . . . . . . . . . . . . . . 1,804 5.02 731 1.96 536 1.39
------- ------- ------- ------- ------- -------
Total consumer loans . . . . . . . . . . 2,701 7.52 1,582 4.24 1,987 5.16
------- ------- ------- ------- ------- -------
TOTAL FIXED-RATE LOANS . . . . . . . . . 15,317 42.67 15,646 41.94 13,553 35.23
------- ------- ------- ------- ------- -------
ADJUSTABLE-RATE LOANS:
Residential Mortgage Loans:
Single family. . . . . . . . . . . . . . . 12,437 34.64 13,279 35.60 14,349 37.30
2-to-4 family. . . . . . . . . . . . . . . 433 1.21 469 1.26 502 1.30
Other dwelling units . . . . . . . . . . . 790 2.20 838 2.25 1,283 3.34
Commercial real estate . . . . . . . . . . . 4,507 12.55 4,745 12.72 5,600 14.56
------- ------- ------- ------- ------- -------
Total real estate loans. . . . . . . . . 18,167 50.60 19,331 51.83 21,734 56.50
Consumer Loans . . . . . . . . . . . . . . . 2,417 6.73 2,324 6.23 3,183 8.27
------- ------- ------- ------- ------- -------
TOTAL ADJUSTABLE-RATE LOANS. . . . . . . 20,584 57.33 21,655 58.06 24,917 64.77
------- ------- ------- ------- ------- -------
TOTAL LOANS. . . . . . . . . . . . . . . $35,901 100.00% $37,301 100.00% $38,470 100.00%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
Set forth below is a table outlining the specific loan types with
contractual maturity dates as of December 31, 1995. This schedule does not
reflect the effects of possible principal prepayments by the borrower.
<TABLE>
<CAPTION>
Real Estate Non-Real Estate
----------------------------------------- -----------------------------------------
Mortgages Construction Consumer Commercial Business Total
--------- ------------ -------- ------------------- -----
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year. . . $ 520 9.23% $1,060 10.25% $1,359 8.99% $ 57 10.33% $ 2,996 9.50%
Two Years. . . . . 363 8.06 -- -- 829 12.85 19 9.00 1,211 11.35
Three Years. . . . 2,296 8.28 -- -- 807 10.96 -- -- 3,103 8.98
4 - 5 Years. . . . 626 9.47 -- -- 1,805 10.22 -- -- 2,431 10.03
6 - 10 Years . . . 3,089 9.23 -- -- 164 12.36 65 11.51 3,318 9.43
11 - 15 Years. . . 7,272 8.93 -- -- 13 12.50 -- -- 7,285 8.94
After 15 Years . . 15,557 7.96 -- -- -- -- -- -- 15,557 7.96
------- ----- ------ ------ ------ ------ ---- ------ ------- ------
$29,723 8.40% $1,060 10.25% $4,977 10.52% $141 10.66% $35,901 8.70%
------- ----- ------ ------ ------ ------ ---- ------ ------- ------
------- ----- ------ ------ ------ ------ ---- ------ ------- ------
</TABLE>
8
<PAGE>
ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE LENDING. The primary lending
activity of the Bank has been the granting of conventional loans to enable
borrowers to purchase new or existing homes. The Bank also originates Veterans
Administration (VA)-guaranteed and Federal Housing Administration (FHA)-insured
loans. Residential loan originations are generated by the Bank's marketing
efforts, its present customers, walk-in customers and referrals from realtors
and builders. The Bank has focused its lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied, single-family
residences in its market area. See "Loan Portfolio Composition" by type of
security in this Form 10-KSB for the amount of one-to-four family residential
mortgages at December 31, 1995.
The Bank's fixed-rate loans conform to secondary market standards (I.E.,
FHLMC and FNMA standards) and, since 1991, have been primarily originated for
sale in the secondary market. A portion of these loans have been originated
pursuant to forward sales commitments. Most of the Bank's fixed-rate
residential loans have contractual terms to maturity of 30 years. As a part of
its asset/liability management strategy and in response to an increase in
refinancing activity, the Bank also originates 15 year fixed-rate, fully
amortizing loans. Interest rates charged on these fixed-rate loans are
competitively priced according to market conditions.
The Bank has offered ARM loans at rates, terms and fees determined in
accordance with market and competitive factors. The programs currently offered
primarily meet the standards and requirements of the secondary market for
residential loans. The Bank's current one-to-four family residential ARMs are
fully amortizing loans with contractual maturities of up to 30 years. The
interest rates on the ARMs originated by First Savings are subject to adjustment
at stated intervals and are subject to annual and lifetime adjustment limits
below and above the initial rate. Most of the Bank's ARMs have interest rates
which adjust annually based on a margin over one of several indices. These
loans' annual and lifetime caps on interest rate increases reduce the extent to
which they can help protect the Bank against interest rate risk. The Bank has
from time to time offered ARMs at below the fully-indexed rate. However,
borrowers of adjustable-rate loans are qualified at the fully-indexed rates.
The Bank retains ARMs in its portfolio consistent with its ongoing
asset/liability objectives. ARM loans decrease the risks associated with
changes in interest rates but involve other risks, primarily because as interest
rates rise, the payment by the borrower rises to the extent permitted by the
terms of the loan, thereby increasing the potential for default. At the same
time, the marketability of the underlying property may be adversely affected by
higher interest rates. The Bank believes that these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in an increasing interest rate
environment. In this regard, the Bank's delinquency experience on its ARMs has
generally been similar to its experience on fixed-rate residential loans.
The Bank evaluates both the borrower's ability to make principal, interest
and escrow payments and the value of the property that will secure the loan.
First Savings originates residential mortgage loans with loan-to-value ratios up
to 95%. On any mortgage loan exceeding an 80% loan-to-value ratio at the time
of origination, First Savings will generally require private mortgage insurance
in an amount intended to reduce the Bank's exposure to 80% or less of the
appraised value of the underlying property, unless otherwise approved by the
Bank's Board of Directors.
9
<PAGE>
The mortgage lending of the Bank is subject to its written,
nondiscriminatory underwriting standards and to loan origination procedures
prescribed by its Board of Directors. Property valuations are required on all
real estate loans and are prepared by independent appraisers approved by the
Bank. Additionally, all appraisals must meet FHLMC and FNMA guidelines.
Detailed loan applications are obtained to analyze the borrower's
creditworthiness and ability to repay the loan. The applications, appraisals,
and other items are then reviewed by loan officers or committees in accordance
with guidelines established by the Board of Directors.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. The Bank's multi-family and
commercial real estate loan portfolio includes loans secured by apartment
buildings, office buildings, retail stores and other properties. Most of the
Bank's multi-family and commercial real estate loan portfolio is seasoned. See
"Loan Portfolio Composition" by type of security in this Form 10-KSB for the
amount of multi-family and commercial real estate loans at December 31, 1995.
The Bank intends to originate multi-family and commercial real estate loans
in the future subject to regulatory restrictions. When originated, multi-family
and commercial real estate loans generally are originated in amounts up to 75%
of the appraised value of the property securing the loan. Commercial and multi-
family loans are made at both fixed and adjustable interest rates for terms of
up to 25 years. The other terms of multi-family and commercial real estate
loans are negotiated on a case-by-case basis.
Appraisals on properties securing multi-family and commercial real estate
loans originated by the Bank are performed by an independent appraiser subject
to regulatory guidelines at the time the loan is made. All appraisals on multi-
family and commercial real estate loans are reviewed by the Bank's management.
In addition, the Bank's underwriting procedures generally require verification
of the borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. Personal
guarantees are generally obtained for the Bank's multi-family and commercial
real estate loans.
Multi-family and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one-to-four family residential lending. Nevertheless, loans secured by
such 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 multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. If the cash flow from the project is reduced (for example, if
leases are not obtained or renewed), the borrower's ability to repay the loan
may be impaired. The Bank has attempted to minimize these risks through its
underwriting standards and by lending primarily on existing income-producing
properties.
COMMERCIAL BUSINESS LOANS. The Bank began offering loans guaranteed by the
Small Business Association (SBA) in 1991. The SBA program provides lenders with
the ability to offer flexible terms and longer maturities on loans to small
businesses and professionals. The program provides the lender a guaranteed
portion (generally 75% - 80%) of principal and interest. Since these
10
<PAGE>
loans are guaranteed they offer very little risk to the Bank. These loans are
made with adjustable and fixed interest rates with maturities to 25 years,
depending on collateral. The loans are approved by the SBA. The Bank intends
to expand its commercial lending by utilizing the SBA program.
First Savings intends to provide short and medium term credit to businesses
in the Bank's primary market area. Commercial loans include revolving credit
lines and term loans, or a combination thereof and are generally secured by
equipment, accounts receivable, inventories, real estate or other business
assets, or a combination thereof. Commercial business loans are made pursuant
to specified loan approval limits set by the Board of Directors. The Bank
usually requires that business borrowers maintain their operating accounts with
the Bank in the form of demand deposits. Loans made to corporations are
personally guaranteed by the principals of the corporation. See "Loan Portfolio
Composition" by type with contractual maturity dates in this Form 10-KSB for the
amount of commercial business loans at December 31, 1995.
CONSTRUCTION LOANS. The Bank originates loans to finance the construction
of single-family residences. Many of these loans are made to individuals who
will ultimately be the owner-occupier of the residence. Such loans are
generally made, although not required, with permanent financing on the
constructed property to be provided by the Bank. Construction loans are
generally made with a six month term on a fixed-rate, interest-only basis.
Residential construction loans to owner-occupants are generally underwritten
using the same criteria as for one-to-four family residential loans. Loan
proceeds are disbursed in increments as construction progresses and inspections
warrant. See "Loan Portfolio Composition" by type of security in this Form 10-
KSB for the amount of construction loans at December 31, 1995.
Construction loans afford the Bank the opportunity to charge loan
origination fees, to increase the frequency of repricing of its loan portfolio
and to earn yields higher than those obtainable on loans secured by existing
one-to-four family residential properties. The higher yields reflect the higher
risks associated with construction lending, which include principally the
difficulty in evaluating accurately the total funds required to complete a
project and the post completion value of the project. As a result, the Bank
places a strong emphasis upon the borrower's ability to repay and the experience
and expertise of the builder who has contracted to construct the property.
CONSUMER LENDING. Management considers consumer lending to be an important
component of its strategic plan. Specifically, consumer loans generally have
shorter terms to maturity (thus reducing First Savings' exposure to changes in
interest rates) and carry higher rates of interest than do one-to-four family
residential mortgage loans. In addition, management believes that the offering
of consumer loan products helps to expand and create stronger ties to its
existing customer base, by increasing the number of customer relationships and
providing cross-marketing opportunities. See "Loan Portfolio Composition" by
type of security in this Form 10-KSB for the amount of consumer loans at
December 31, 1995. Under applicable federal law, the Bank is authorized to
invest up to 35% of its assets in consumer loans.
First Savings offers a variety of secured consumer loans, including home
improvement loans, auto loans, personal lines of credit, equity lines of credit,
loans secured by savings deposits, and unsecured loans. The Bank currently
originates all of its consumer loans in its market area.
11
<PAGE>
Consumer loan terms vary according to the type of collateral, length of contract
and creditworthiness of the borrower.
The Bank currently has two arrangements to originate consumer automobile
loans on an indirect basis (I.E., where loan contracts are purchased from
automobile retailers which have extended credit to their customers). The Bank
applies the underwriting standards mentioned below in the approval process of
purchasing these contracts. These loans have a fixed interest rate and
maturities of 5 years or less. As of December 31, 1995, the Bank has $923,426
in indirect automobile contracts or 2.57% of its loan portfolio before net
items.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's payment history on other debts and an
assessment of the ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured, or secured by
rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal laws, including bankruptcy, may
limit the amount which can be recovered on such loans. Although the level of
delinquencies in the Bank's consumer loan portfolio has generally been low (at
December 31, 1995, $25,410, or approximately 0.51% of the consumer loan
portfolio, was 30 days or more delinquent), there can be no assurance that
delinquencies will not increase in the future.
LOAN SERVICING. In addition to servicing its own loans, the Bank services
mortgage loans for others. It is the practice of First Savings to sell most
fixed rate loans and retain most adjustable rate loans. Most conventional loans
are sold to FNMA and the servicing is retained. VA and FHA loans are sold to
private investors such as New Mexico Mortgage Finance Authority, Norwest Funding
Inc., and the Prudential Home Mortgage Company, Inc. with the servicing
released. The fee for selling servicing released is generally 3/4% to 1-3/4%.
The Bank generally retains the servicing on conventional loans sold to FNMA and
receives a fee payable monthly of approximately 3/8% per annum of the unpaid
balance of each loan. As of December 31, 1995, the Bank was servicing loans for
others in the amount of approximately $48.4 million. These loans are not
reflected in the statement of condition.
Effective July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT
OF SFAS NO. 65. SFAS No. 122 eliminated the accounting distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions. The
effect of adopting this new accounting standard was to increase 1995 net income
by $11,338.
12
<PAGE>
ORIGINATIONS, PURCHASES AND SALES OF LOANS
The Bank originates loans through its marketing efforts, its existing
customer base, walk in customers, and real estate brokers and builders.
Commercial real estate loan originations are obtained by direct solicitation.
The Bank originates both adjustable-rate and fixed-rate loans. Its ability to
originate loans is dependent upon such market conditions as short-term and long-
term interest rates, as well as the expected future level of interest rates.
During fiscal 1995, the Bank repurchased one residential loan for $30,476.
The Bank made no purchases or sales of pooled whole loans in 1995 and had no
commitments to purchase any loans or mortgage-backed securities at December 31,
1995. At the same date, the Bank had loan origination commitments of $970,944
and commitments to sell residential loans of $861,454. The Bank expects to
continue to sell part of its residential mortgage loans in order to enhance
liquidity and to maintain its risk-based capital position. This has generally
been the procedure since 1991. When these loans are sold, the Bank usually
retains the responsibility for servicing the loans.
The following table sets forth the principal amount of the Bank's mortgage
loan origination, purchase and sales activity for the periods indicated.
Year Ended December 31
-------------------------------------
1995 1994 1993
------- ------- -------
(Dollars In Thousands)
ORIGINATIONS BY TYPE
Fixed-Rate:
Construction loans. . . . . . . . $ 766 $ 934 $ 204
Conventional loans. . . . . . . . 6,113 6,470 10,182
Loans refinanced. . . . . . . . . 1,676 6,040 11,079
Adjustable-Rate:
Conventional loans. . . . . . . . 794 1,792 934
Loans refinanced. . . . . . . . . 703 1,565 1,077
------- ------- -------
Total loans originated. . . . . $10,052 $16,801 $23,476
------- ------- -------
------- ------- -------
PURCHASES BY TYPE
Loans purchased. . . . . . . . . . $ -- $ -- $ --
------- ------- -------
------- ------- -------
SALES BY TYPE
Sales of mortgage loans (1). . . . $ 7,504 $14,439 $19,137
------- ------- -------
------- ------- -------
(1) Consists entirely of one-to-four family fixed rate loans.
13
<PAGE>
ASSET QUALITY
DELINQUENT LOANS. When a borrower fails to make a required payment on a
loan, the Bank attempts to cause the delinquency to be cured by contacting the
borrower. In the case of residential loans, a late notice is sent 16 days after
the due date. If the delinquency is not cured by the 30th day, contact with the
borrower is made by phone or a letter is sent. Additional written and verbal
contacts are made with the borrower between 35 and 70 days after the due date.
In the event a real estate loan payment is past due for 45 days or more the
Bank performs an in-depth review of the loan status, the condition of the
property and circumstances of the borrower. Based upon the results of its
review, the Bank may negotiate and accept a repayment program with the borrower,
accept a voluntary deed in lieu of foreclosure or, when deemed necessary,
initiate foreclosure proceedings. If foreclosed on, real property is sold at a
public sale and the Bank may bid on the property to protect its interest. A
decision as to whether and when to initiate foreclosure proceedings is based on
such factors as the amount of the outstanding loan in relation to the original
indebtedness, the extent of delinquency and the borrower's ability and
willingness to cooperate in curing delinquencies.
Delinquent consumer loans are handled in a generally similar manner, except
that initial contacts are made when the payment is 10 days past due and
telephone contact begins when a loan is 30 days past due. If these efforts fail
to bring the loan current, appropriate action may be taken to collect any loan
payment that remains delinquent. The Bank's procedures for repossession and
sale of consumer collateral are subject to various requirements under New Mexico
consumer protection laws. Loans are generally placed on non-accrual status
after 90 days delinquency.
The following table sets forth the Bank's loan delinquencies by type,
amount, and percentage of type at December 31, 1995.
<TABLE>
<CAPTION>
Loans Delinquent for
-------------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------------ ------------------------------- ------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single family. . . . . . . 1 $31 0.14% -- -- -- 1 $31 0.14%
2-to-4 family. . . . . . . -- -- -- -- -- -- -- -- --
Other dwelling units . . . -- -- -- -- -- -- -- -- --
Commercial real estate . . -- -- -- -- -- -- -- -- --
Consumer loans . . . . . . . 2 1 0.02% -- -- -- 2 1 0.02%
-- --- -- -- -- ---
Total loans. . . . . . . . . 3 $32 0.09% -- -- -- 3 $32 0.09%
-- --- -- -- -- ---
-- --- -- -- -- ---
</TABLE>
14
<PAGE>
NON-PERFORMING ASSETS. Non-performing assets consist of loans on which
interest is no longer being accrued, troubled debt restructurings, real estate
acquired by foreclosure or deed-in-lieu of foreclosure and repossessed assets.
The following table sets forth the amounts and categories of non-performing
assets in the Bank's portfolio. Loans are generally placed on non-accrual
status after 90 days delinquency.
December 31
-------------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Non-accrual loans (1). . . . . . . . . . . . . $ -- $ 148 $ 11
Past due 90 days or more and still accruing. . -- 37 99
Renegotiated loans (2) . . . . . . . . . . . . 1,573 3,145 3,111
Real estate owned (3). . . . . . . . . . . . . 114 421 2,967
------ ------ ------
Total non-performing assets. . . . . . . . . . $1,687 $3,751 $6,188
------ ------ ------
------ ------ ------
Ratio of non-performing assets to total assets 1.44% 2.98% 4.54%
------ ------ ------
------ ------ ------
(1) Generally refers to loans that are contractually delinquent (I.E., payments
were due and unpaid for more than 90 days).
(2) The Bank's largest restructured note of approximately $1,573,000 originated
in 1987 for $2,000,000 as a permanent loan on a shopping center of 47,457
square feet, located on 56,943 square feet of land in Santa Fe, New Mexico.
The terms of the note were modified in 1992 and an additional borrower was
added to the loan. The interest rate of 5% in 1995 increases to 6% in 1996
and escalates to 7% in 1997 with interest due monthly and principal
reductions due at the end of each year. Final maturity is December 1997.
The loan was current and performing under the terms of the modified
agreement at December 31, 1995. However, the Bank is monitoring this loan
and it is included in the table "Criticized Assets" listed as special
mention in this Form 10-KSB, due to the nature of the restructure.
(3) Refers to real estate acquired by the Bank through foreclosure or voluntary
deed or in-substance foreclosure.
15
<PAGE>
CRITICIZED ASSETS. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the OTS
to be of lesser quality, as "substandard," "doubtful" or "loss." 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" by management.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognized 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
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. Criticized assets of
the Bank at December 31, 1995 were as follows:
December 31
1995
------------
(In Thousands)
Substandard. . . . . . . . . . $ 526
Doubtful . . . . . . . . . . . --
Loss . . . . . . . . . . . . . 1
------
Total classified assets. . . . $ 527
Special mention assets . . . . 1,846
------
Total criticized assets. . . . $2,373
------
------
16
<PAGE>
ALLOWANCE FOR CREDIT LOSSES. The allowance for credit losses is
established through a provision for loan losses based on management's quarterly
asset classification review and evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan activity. Such
evaluation, which includes a review of all loans of which full collectibility
may not be reasonably assured, considers among other matters, the estimated
value of the underlying collateral, economic conditions, cash flow analyses,
historical loan loss experience, discussions held with delinquent borrowers and
other factors that warrant recognition in providing for an adequate loan
allowance. Although management believes it uses the best information available
to make such determinations, future adjustments to reserves may be necessary,
and net income could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial determinations.
The Bank's quarterly asset classification review determines which loans to
charge-off.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance at beginning of year . . . $461 $509 $535 $878 $982
Provision charged (credited) . . . (15) 4 21 386 424
Charge-offs:
Mortgage loans:
Single family. . . . . . . . . . -- (50) (33) (53) --
2-to-4 family. . . . . . . . . . -- -- -- -- --
Other dwelling units . . . . . . -- -- -- -- --
Commercial real estate . . . . . -- -- -- (649) (333)
Consumer loans . . . . . . . . . . (21) (3) (33) (67) (242)
Recoveries:
Mortgage loans:
Single family. . . . . . . . . . -- -- -- 15 --
2-to-4 family. . . . . . . . . . -- -- -- -- --
Other dwelling units . . . . . . -- -- -- -- --
Commercial real estate . . . . . -- -- -- -- --
Consumer loans . . . . . . . . . . 3 1 19 25 47
---- ---- ---- ---- ----
Balances at end of year. . . . . . $428 $461 $509 $535 $878
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
17
<PAGE>
INVESTMENT ACTIVITIES
First Savings has maintained high levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has maintained
liquid assets at levels above the minimum requirements imposed by the OTS
regulations and at levels believed adequate to meet the requirements of normal
operations, including repayments of maturing debt and potential deposit
outflows. Cash flow projections are regularly reviewed and updated to assure
that adequate liquidity is maintained. For the month ended December 31, 1995,
the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 28.21%.
Federal chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.
SECURITIES HELD-TO-MATURITY. During December 1995, the Bank transferred
$25,478,517 of mortgage-backed securities and $6,728,125 of U.S. government
agency securities from held-to-maturity (HTM) to available-for-sale (AFS)
security designation for asset/liability and liquidity management purposes and
in connection with the "Implementation Guide to SFAS No. 115, Accounting for
Debt and Equity Securities" which was issued by the Financial Accounting
Standards Board (FASB) in November 1995. The remaining portion of HTM
securities are all mortgage-backed securities, primarily fixed-rate maturing by
the year 2001.
The composition of maturities of the HTM investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------------------------
Within 1 to 5 5 to 10 10 to 20 Over 20
One Year Years Years Years Years Total Total
Book Value Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ---------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities:
FNMA participation certificates . . . . . $ -- $ 5,380 $ 845 $ -- $ -- $ 6,225 $ 6,107
FHLMC participation certificates. . . . . 1,144 23,112 3,617 -- -- 27,873 27,648
FHLMC adjustable-rate certificates. . . . -- -- -- -- 2,306 2,306 2,270
--------- --------- --------- --------- --------- --------- ---------
Total securities held-to-maturity. . . $ 1,144 $ 28,492 $ 4,462 $ -- $ 2,306 $ 36,404 $ 36,025
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average yield . . . . . . . . . . 6.81% 5.82% 6.50% 0.00% 5.54% 5.96%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
ASSETS AVAILABLE-FOR-SALE. At December 31, 1995, an unrealized loss of
$204,410 on mortgage-backed securities AFS is shown as a reduction in
stockholders' equity. At December 31, 1994, an unrealized loss of $176,861 on
mortgage-backed securities AFS, and an unrealized loss of $186,542 on mortgage-
backed securities that were transferred from AFS to HTM on April 30, 1994, are
shown as a reduction in stockholders' equity. Due to the uncertainty of the
future utilization of unrealized losses, should they be realized, the income tax
benefit has been offset by a valuation allowance against the resulting deferred
tax asset.
During December 1995, the Bank transferred $32,206,642 of mortgage-backed
securities and U.S. government agency obligations from the Bank's HTM portfolio
into its AFS portfolio.
Loans originated for resale are recorded at the lower of amortized cost or
fair value and are considered part of the Bank's AFS portfolio.
A summary of assets AFS is as follows:
December 31, 1995
----------------------------
Weighted
Amortized Average Fair
cost Yield Value
--------- --------- -------
(Dollars in Thousands)
Mortgage-backed securities:
GNMA adjustable-rate. . . . . . . . . . . $28,296 6.22% $28,096
Obligation of U.S. government
agencies. . . . . . . . . . . . . . . . . 4,999 6.04% 4,994
Loans on one-to-four residential units . . . 861 7.06% 875
------- -------
Total assets available-for-sale. . . . . $34,156 6.21% $33,965
------- -------
------- -------
OTHER INVESTMENTS. At December 31, 1995, the Bank's interest bearing
deposits with banks was $476,425 or 0.4% of total assets. As of such date, the
Bank also had a $1,483,434 investment in FHLB stock, satisfying its requirement
for membership in the FHLB of Dallas. It is the Bank's general policy to
purchase investment securities which are U.S. Government securities and federal
agency obligations and other issues that are rated investment grade or have
credit enhancements.
The Bank's investment securities portfolio at December 31, 1995 contained
neither tax-exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of the Bank's retained earnings, excluding
securities issued by the United States Government, or its agencies.
SOURCES OF FUNDS
GENERAL. The Bank's primary sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities), sales or
maturities of loans, investment securities, mortgage-backed securities and
short-term investments, borrowings and funds provided from operations.
19
<PAGE>
Borrowings, predominantly from the FHLB of Dallas, may be used on a short-
term basis to compensate for seasonal reductions in deposits or deposit inflows
at less than projected levels, and may be used in the future on a longer-term
basis to support lending and investing activities.
DEPOSITS. First Savings offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits consist of statement
savings, negotiable order of withdrawal (NOW) accounts and money market and
certificate accounts (CDs). The Bank relies primarily on advertising,
competitive pricing policies and customer service to attract and retain these
deposits. First Savings solicits deposits from its primary market area only and
does not use brokers to obtain deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. During the fiscal year ended December 31, 1995, total deposits
decreased by approximately $2.1 million. To maintain proper capital ratios
management decided in 1995 to be less aggressive in bidding for public fund
deposits and the decline in deposits is primarily attributed to that strategic
plan.
Management believes that customers continue to place a value on federal
insurance on deposit accounts and that, to the extent the Bank maintains
competitive rates, it will be able to maintain its deposit and liquidity levels.
The Bank manages the pricing of its deposits in keeping with its asset/liability
management and profitability objectives.
Based on its experience, the Bank believes that its statement savings, NOW
and non-interest-bearing checking accounts are relatively stable sources of
deposits. However, the ability of the Bank to attract and maintain certificate
deposits, and the rates paid on these deposits, has been and will continue to be
significantly affected by market conditions.
The following tables set forth the deposits in the various programs offered
by the Bank at the dates indicated:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
DECEMBER % OF INCREASE DECEMBER % OF INCREASE DECEMBER % OF INCREASE
31, 1995 DEPOSITS (DECREASE) 31, 1994 DEPOSITS (DECREASE) 31, 1993 DEPOSITS (DECREASE)
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TRANSACTIONAL
ACCOUNTS . . . . . $ 7,963 7.19% $ 298 $ 7,665 6.80% $ ( 1,882) $ 9,547 7.30% $ 898
JUMBO
CERTIFICATES . . . 12,895 11.66 (64) 12,959 11.49 (3,329) 16,288 12.46 (1,645)
STATEMENT
SAVINGS. . . . . . 9,281 8.39 (1,979) 11,260 9.98 (3,078) 14,338 10.97 (786)
MONEY MARKET
DEPOSIT
ACCOUNTS . . . . . 11,414 10.32 (2,353) 13,767 12.21 (6,855) 20,622 15.78 1,740
IRA
ACCOUNTS . . . . . 10,323 9.33 (4) 10,327 9.16 (737) 11,064 8.47 (408)
OTHER
CERTIFICATES . . . 58,757 53.11 1,962 56,795 50.36 (2,036) 58,831 45.02 (2,748)
--------- -------- --------- --------- -------- ---------- --------- -------- ---------
$ 110,633 100.00% $ (2,140) $ 112,773 100.00% $ (17,917) $130,690 100.00% $ (2,949)
--------- -------- ---------- -------- -------- --------- --------- -------- --------
--------- -------- ---------- -------- -------- --------- --------- -------- --------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------------- ------------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE PERCENTAGE AVERAGE PERCENTAGE AVERAGE PERCENTAGE
MINIMUM INTEREST OF TOTAL INTEREST OF TOTAL INTEREST OF TOTAL
AMOUNT CATEGORY RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS
- - ------ -------- ---- ------- -------- ---- ------- -------- ---- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 100 Transactional
accounts
zero-rate . . . . . . 0.00% $ 576 0.52% 0.00% $ 429 0.38% 0.00% $ 567 0.43%
100 Transactional
accounts. . . . . . . 2.47 7,387 6.68 2.90 7,236 6.42 2.92 8,980 6.87
1,000 Money market . . . . . 3.65 11,414 10.32 3.90 13,767 12.21 3.20 20,622 15.78
100 Statement
savings . . . . . . . 2.75 9,281 8.39 3.20 11,260 9.98 3.04 14,338 10.97
Certificates of Deposit
1,000 30 - 60 day CDs. . . . 4.31 376 0.34 4.18 564 0.50 2.87 278 0.21
1,000 91 day CDs . . . . . . 4.52 1,465 1.32 4.17 2,375 2.11 3.04 2,079 1.59
1,000 6 month CDs. . . . . . 5.05 15,928 14.40 4.08 16,406 14.55 3.16 18,564 14.20
1,000 1 year CDs . . . . . . 5.57 20,422 18.46 4.16 15,788 14.00 3.67 14,997 11.48
1,000 18 month CDs . . . . . 5.56 2,131 1.93 3.91 2,144 1.90 3.79 2,701 2.07
1,000 2 year CDs . . . . . . 5.08 5,819 5.26 4.27 5,732 5.08 4.62 6,304 4.83
1,000 30 month CDs . . . . . 5.62 4,407 3.98 4.99 5,864 5.20 5.16 7,128 5.46
1,000 3 year CDs . . . . . . 8.00 5 0.00 7.15 17 0.02 6.36 19 0.02
1,000 4 year CDs . . . . . . 5.65 3,276 2.96 5.43 2,844 2.52 5.91 2,565 1.96
1,000 5 year CDs . . . . . . 5.90 5,028 4.54 6.18 5,061 4.49 6.45 4,034 3.08
90,000 Jumbo CDs. . . . . . . 5.67 12,795 11.57 4.62 12,959 11.49 3.73 16,288 12.46
1,000 6 year fixed-rate CDs. -- -- -- -- -- -- 7.75 62 0.05
1,000 8 year fixed-rate CDs. -- -- -- -- -- -- 8.00 100 0.08
100 IRA floating rate. . . 5.24 5,169 4.67 5.63 5,351 4.74 3.79 5,846 4.47
100 1 year IRA . . . . . . 5.74 1,932 1.75 3.85 1,932 1.71 4.15 1,970 1.51
100 3 year IRA . . . . . . 5.34 1,875 1.69 4.99 1,841 1.63 6.28 2,058 1.57
100 5 year IRA . . . . . . 6.13 1,347 1.22 6.28 1,203 1.07 7.38 1,190 0.91
------ -------- ------- ----- -------- ------- ----- -------- -------
4.69% $110,633 100.00% 3.65% $112,773 100.00% 3.82% $130,690 100.00%
------ -------- ------- ----- -------- ------- ----- -------- -------
------ -------- ------- ----- -------- ------- ----- -------- -------
</TABLE>
The following table sets forth the savings flows at the Bank during the
periods indicated. Net deposits (withdrawals) refer to the amount of deposits
during a period less the amount of withdrawals during the same period. Deposit
flows at savings institutions may also be influenced by external factors such as
governmental credit policies and, particularly in recent periods, depositors'
perceptions of the adequacy of federal insurance of accounts.
Year Ended December 31
---------------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Net deposits (withdrawals)
before interest credited. . . . . . . . . $(7,452) $(22,309) $(7,892)
Interest credited. . . . . . . . . . . . . 5,312 4,392 4,943
------- -------- -------
Net decrease in savings deposits . . . . $(2,140) $(17,917) $(2,949)
------- -------- -------
------- -------- -------
Percent Decrease . . . . . . . . . . . . . (1.90) (13.71) (2.21)
21
<PAGE>
The following table shows interest rate and maturity information for the
Bank's certificates of deposit as of December 31, 1995.
Within Two Three There- Total
One Year Years Years After 1995
-------- ----- ----- ----- ----
(Dollars in Thousands)
3.01% - 4.00%. . . . . $ 832 $ 166 $ - $ $ 998
4.01% - 5.00%. . . . . 12,825 706 306 267 14,104
5.01% - 6.00%. . . . . 42,706 5,482 3,154 1,254 52,596
6.01% - 7.00%. . . . . 7,209 3,710 381 1,786 13,086
7.01% - 8.00%. . . . . 578 62 65 439 1,144
8.01% - 9.00%. . . . . 47 -- -- -- 47
------- ------- ------ ------ -------
Total. . . . . . . . . $64,197 $10,126 $3,906 $3,746 $81,975
------- ------- ------ ------ -------
------- ------- ------ ------ -------
BORROWINGS. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings when there is a net outflow of
deposits, when advances are a less costly source of funds or when funds from
advances can be invested at a positive spread. In addition, the Bank has relied
upon selected borrowings for short-term liquidity needs.
First Savings may obtain advances from the FHLB of Dallas upon the security
of its capital stock of the FHLB of Dallas and certain of its mortgage loans,
investment securities and mortgage-backed securities. Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. At December 31, 1995, the Bank had no
FHLB borrowings outstanding.
During fiscal 1995, the Bank utilized advances from the FHLB of Dallas to
cover net deposit outflows and, to a lesser extent, partially fund mortgage
loans and a decrease in deposits.
The following table sets forth maximum balance, average balance, and
average rate paid on FHLB advances for the periods indicated.
Year Ended December 31
-------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Maximum amount of borrowings outstanding. . . . . . $7,400 $11,600 $ --
Approximate average borrowings outstanding. . . . . $1,305 $ 5,038 $ --
Approximate weighted average interest rate paid . . 6.15% 4.92% --%
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SUBSIDIARY ACTIVITY
In 1974, First Savings incorporated First Equity Development Corporation
(FEDCO), a New Mexico corporation, as a wholly-owned subsidiary of the Bank.
The Directors and Officers of FEDCO also serve as Officers of the Bank. Prior
to 1991, FEDCO's primary business was real estate acquisition, development and
construction, and investment in the Bank's former service bureau. FEDCO had
$1,697 and $1,722 in cash at December 31, 1995 and December 31, 1994
respectively, and no other assets or liabilities and is currently an inactive
corporation. Thrift institutions are permitted to invest an amount equal to 2%
of their assets, through a subsidiary, with an additional investment of 1% of
assets where such investment serves primarily community, inner-city and
community development purposes.
REGULATION
GENERAL. First Savings is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the full
faith and credit of the United States Government. Accordingly, First Savings is
subject to broad federal regulation and oversight extending to all its
operations. The Bank is a member of the FHLB of Dallas. First Savings is a
member of the SAIF and the deposits of the Bank are insured by the FDIC. As a
result, the FDIC has certain regulatory and examination authority over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, First Savings is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS and FDIC examination of the Bank began on February 5, 1996 and concluded on
March 8, 1996. The report of examination has not been issued as of the date of
this 10-KSB. When these examinations are conducted by the OTS and the FDIC, the
examiners may require the Bank to provide for higher general or specific loan
loss reserves. Financial institutions in various regions of the United States
have been called upon by examiners to write down assets and to establish
increased levels of reserves, primarily as a result of perceived weaknesses in
real estate values and a more restrictive regulatory climate.
The OTS has established a schedule for the assessment of fees upon all
savings associations to fund the operations of the OTS. The general assessment,
to be paid on a semi-annual basis, is computed upon the savings association's
total assets as reported in the association's latest quarterly thrift financial
report. Savings associations that are classified as "troubled", as that term is
defined by the OTS, are required to pay a 50% premium over the standard
assessment.
The OTS also has extensive enforcement authority over all savings
institutions. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound
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practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws and regulations, and it is prohibited from engaging
in any activities not permitted by such laws and regulations. For instance, no
savings institution may invest in non-investment grade corporate debt
securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. First Savings
is in compliance with the noted restrictions.
The OTS, as well as the other federal banking agencies, has issued proposed
safety and soundness standards on matters such as loan underwriting and
documentation, internal controls and audit systems, interest rate risk exposure
and compensation and other employee benefits. The proposal also established the
maximum ratio of classified assets to total capital (which for this purpose
includes loss allowances exceeding the amount includable for regulatory capital
purposes) at 100% and the minimum level of earnings sufficient to absorb losses
without impairing capital. Earnings will be sufficient if the net income or
loss over the last four quarters is assumed to continue over the next four
quarters and the institution would otherwise remain in capital compliance. Any
institution which fails to comply with these standards must submit a compliance
plan. A failure to submit a plan or to comply with an approved plan will
subject the institution to further enforcement action. No assurance can be
given as to the final form of the proposed regulations or of the effect of the
proposed regulations on the Bank.
REGULATORY ENVIRONMENT FOR 1996. It is anticipated that in 1996 the
regulator agendas will continue to focus on three major areas: regulatory
compliance, financial management, and cost control.
The major issues to be reviewed in each of these areas are as follows:
- - - REGULATORY COMPLIANCE. The focus may be on new bank secrecy regulations,
fair lending, changing compliance examination requirements (including the
examination procedures for the Community Reinvestment Act), more flood
insurance and Real Estate Settlement Procedures Act (RESPA) questions, and
Regulation O changes. There also are pending changes to Regulation B
(equal credit), Regulation E (electronic fund transfers), Regulation DD
(truth and savings), Regulation Z (truth in lending), and Regulation M
(consumer leasing).
- - - FINANCIAL MANAGEMENT. Regulations governing investment securities are
scheduled for review by the regulatory agencies. Regulators also may
finalize proposals for measuring interest rate risk for risk-based capital
purposes. FASB is likely to take further action in the area of market
valuation, as well as in the areas of financial statement disclosures, and
accounting for derivatives and hedging activities. Banks' use of simple
gap models for asset/liability management may be reviewed again by
regulators. Falling rates may adversely affect any concentrated
investment by banks in mortgage-backed securities.
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- - - COST CONTROL. Reengineering of retail delivery systems, focus on the
customer, customer and product profitability models, and a new emphasis on
the internal audit function all should get attention during 1996.
In addition, last fall, the Federal Reserve and the Office of
Comptroller of the Currency issued new risk management guidelines, which they
will begin using as part of a new rating system for the banks they examine
starting this year. The FDIC informally has been following a similar approach
of managing bank risk for some time now.
The federal banking agencies new risk management guidelines measure a
bank's control of six different types of risks:
. Credit risk . Operational risk
. Market risk . Legal risk
. Liquidity risk . Reputation risk
According to the new guidelines, effective control of each of these must
include:
- - - Active board and senior management oversight
- - - Adequate policies, procedures, and limits
- - - Adequate risk measurement, monitoring, and management information systems
- - - Comprehensive internal controls
This new approach for examiners incorporates all-inclusive measurement
guidelines of the risks associated with managing a bank, and they represent a
major shift in regulatory risk assessment: from activities (I.E., commercial
loans, investing in mortgage-backed securities, etc.) to risk exposures. This
shift might result in many changes in examination procedures and bank evaluation
standards.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC. First Savings is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the U.S. Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged or is engaging in unsafe or
unsound practices, or is in an unsafe or unsound condition.
Federal law also required the FDIC to implement a risk-based deposit
insurance assessment system. Pursuant to this requirement, the FDIC adopted a
transitional risk-based assessment system, effective January 1, 1993, under
which all insured thrift institutions are placed into one of nine categories and
assessed insurance premiums, ranging from .23% to .31% of deposits, based upon
their
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<PAGE>
level of capital and supervisory evaluation. The permanent system, adopted in
June 1993 and effective January 1, 1994, continues the risk classification
system established under the transitional rule. Under the system, institutions
classified as well capitalized (I.E., a core capital ratio of at least 5%, a
ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based
capital") of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy would pay the lowest premium while institutions that are less
than adequately capitalized (I.E., core and Tier 1 risk-based capital ratios of
less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern would pay the highest premium. Risk
classification of all insured institutions will be made by the FDIC for each
semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semi-annual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. In addition, under the Federal Depository Insurance Corporation
Improvement Act (FDICIA), the FDIC may impose special assessments on SAIF
members to repay amounts borrowed from the United States Treasury for any other
reason deemed necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the Bank Insurance Fund
(BIF) of the FDIC in order to maintain the reserve ratio of the BIF at 1.25% of
BIF insured deposits. The FDIC's premium schedule provides a charge on deposits
so that well-capitalized and healthy banks will pay the lowest premiums.
The FDIC also noted that the SAIF is not expected to attain the designated
reserve ratio until the year 2002. As a result, SAIF insured members will
generally be subject to higher deposit insurance premiums than banks until, all
things being equal, the SAIF attains the required reserve ratio. Currently,
SAIF's reserve ratio stands at 0.40% percent. Congress has included in the 1996
Balanced Budget Act, a one time assessment on all thrift deposits to increase
SAIF's reserve on all deposits held as of a yet to be determined date. Deposits
subject to the assessment are insured by the SAIF. This one time assessment is
intended to recapitalize the SAIF to the required level of 1.25% of insured
deposits. If the assessment is made, the premium could be paid in 1996 and
result in a significant charge to the operations of the Bank. The assessment
may or may not cause the Bank to be unable to meet the capital requirements as
outlined by an OTS directive described in the "Written Agreements with OTS" in
this Form 10-KSB. However, the Bank is expected to maintain minimum tangible,
core and risk-based capital levels established by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and OTS regulations. The one-time
special assessment, if made, will have a negative impact on the earnings of the
Bank in the year it is assessed, but will result in a significant decrease in
future insurance premium assessments by the FDIC. This is expected to have a
positive impact on future earnings of the Bank. Additionally, the proposed
legislation would allow federal thrifts to convert their charters to bank
charters.
The effect of the current aforementioned insurance rates disparity on the
Bank and other SAIF members is uncertain at this time. It may have the effect
of permitting banks to offer loan and deposit products on more attractive terms
than SAIF members due to the cost savings achieved through lower deposit
premiums, thereby placing SAIF members at a competitive disadvantage.
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<PAGE>
There can be no assurance that the proposal will be adopted in final form or
that premiums for either BIF or SAIF members will not be adjusted in the future
by the FDIC.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations,
such as First Savings, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a risk-
based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a case-
by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. Under these regulations certain
subsidiaries are consolidated for capital purposes and other are excluded from
assets and capital. In determining compliance with the capital requirements,
all subsidiaries engaged solely in activities permissible for national banks or
engaged in certain other activities solely as agent for its customers are
"includable" subsidiaries that are consolidated for capital purposes in
proportion to the association's level of ownership, including the assets of
includable subsidiaries in which the association has a minority interest that is
not consolidated for generally accepted accounting principles (GAAP) purposes.
For excludable subsidiaries the debt and equity investments in such subsidiaries
are deducted from assets and capital, with a five-year transition period
beginning on July 1, 1990, for investments made before April 12, 1989. At
December 31, 1995, the Bank had tangible capital of $5,824,787, or 4.98% of
adjusted total assets, which was $4,068,707 above the minimum requirement of
1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including a limited
amount of purchased credit card relationships. As a result of the prompt
corrective action provisions discussed below, however, a savings association
must maintain a core capital ratio of at least 4% to be considered adequately
capitalized unless its supervisory condition is such to allow it to maintain a
3% ratio. At December 31, 1995, the Bank had no intangibles which were subject
to these tests.
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under their rating system will be permitted
to operate at or near the regulatory minimum leverage ratio of 3%. All other
savings associations will be required to maintain a minimum leverage ratio of 4%
to 5%. The OTS will assess each individual savings association through the
supervisory process on a case-by-case
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<PAGE>
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to the Bank.
At December 31, 1995, the Bank had core capital equal to $5,824,787 or
4.98% of adjusted total assets, which was $2,312,628 above the minimum leverage
ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of core capital.
The OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1995, the Bank had
no capital instruments that qualify as supplementary capital. In addition,
general loss reserves at that date were less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investment (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank had no such
exclusions from capital and assets at December 31, 1995.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one-to-four family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
At December 31, 1995, First Savings had risk-based capital of $6,252,676 or
16.66% of risk-weighted assets. This amount was approximately $3,249,000 above
the 8% requirement in effect on that date.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS
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<PAGE>
determines otherwise. The first time savings institutions will be required to
incorporate interest rate risk into their risk-based capital calculations is
undetermined for regulatory reporting purposes. Based upon financial data as of
December 31, 1995, management believes that compliance with the new interest
rate risk measure will not have a material impact on the Bank's risk-based
capital position.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against associations that fail to meet their
capital requirements. The OTS is generally required to take action to restrict
the activities of an "undercapitalized association" (generally defined to be one
with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital
ratio or an 8% risk-based capital ratio). Any such association must submit a
capital restoration plan and until such plan is approved by the OTS may not
increase its assets, acquire another institution, establish a branch or engage
in any new activities, and generally may not make capital distributions. The
OTS is authorized to impose the additional restrictions, discussed below, that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (I.E., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions. These actions and restrictions include requiring the issuance of
additional voting securities; limitations on asset growth; mandated asset
reduction; changes in senior management; divestiture, merger or acquisition of
the association; restrictions on executive compensation; and any other action
the OTS deems appropriate. An association that becomes "critically
undercapitalized" (I.E., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized associations. In addition, the OTS must
appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized.
Any undercapitalized association is also subject to other possible
enforcement actions by the OTS or the FDIC. Such actions could include a
capital directive, a cease-and-desist order, civil money penalties, the
establishment of restrictions on all aspects of the Bank's operations or the
appointment of a receiver or conservator or a forced merger into another
institution.
If the OTS determines that an association is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice it is authorized to
reclassify a well-capitalized association as an adequately capitalized
association and if the association is adequately capitalized, to impose the
restrictions applicable to an undercapitalized association. If the association
is undercapitalized, the OTS is authorized to impose the restrictions applicable
to a significantly undercapitalized association.
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The imposition by the OTS or the FDIC of any of these measures on First
Savings may have a substantial adverse effect on the Bank's operations and
profitability. The Bank's shareholders do not have preemptive rights, and
therefore, if the Bank is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Bank.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS regulations
impose various restrictions and requirements on associations with respect to
their ability to pay dividends or make other distributions of capital. OTS
regulations prohibit an association from declaring or paying any dividends or
from repurchasing any of its stock if, as a result, the regulatory capital of
the association would be reduced below the amount required to be maintained for
the liquidation account established in connection with its mutual to stock
conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital accounts.
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the associations' tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. The Bank meets the
requirements for a Tier 1 association and has not been notified of a need for
more than normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. The Bank will also be required to give the OTS 30 days'
notice prior to declaring any dividend on its stock. The OTS may object to the
distribution during that 30-day period based on safety and soundness concerns.
See "Regulatory Capital Requirements" in this Form 10-KSB.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition and would remain adequately capitalized (as
defined in the OTS
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prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. A savings
association will be considered in troubled condition if it has an OTS rating of
4 or 5, is subject to an enforcement action relating to its safety and soundness
or financial viability or has been informed in writing by the OTS that it is in
troubled condition. As under the current rule, the OTS may object to a capital
distribution if it would constitute an unsafe or unsound practice. No assurance
may be given as to whether or in what form the regulations may be adopted.
LIQUIDITY. All savings associations, including First Savings, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. This liquid asset ratio
minimum requirement may vary from time to time (between 5% and 30%) depending
upon economic conditions and savings flows of all savings associations. At the
present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (I.E., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At December 31, 1995, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 28.21% and a short-term
liquid assets ratio of 4.64%.
ACCOUNTING. An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (I.E., whether held for investment, sale or
trading) with appropriate documentation. First Savings is in compliance with
this policy statement.
The OTS has adopted an amendment to its accounting regulations to require
that transactions be reported in a manner that best reflects their underlying
economic substance and inherent risk and that financial reports must incorporate
any other accounting regulations or orders prescribed by the OTS. Such
regulations may result in reporting transactions in a manner that is more
stringent than may be required by GAAP.
QUALIFIED THRIFT LENDER TEST. All savings associations, including First
Savings, are required to meet a qualified thrift lender (QTL) test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (which consists of
total assets less intangibles, properties used to conduct the savings
association's business and liquid assets not exceeding 20% of total assets) in
qualified thrift investments on a monthly average for nine out
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of every 12 months on a rolling basis. Such assets primarily consist of
residential housing related loans and investments. At December 31, 1995, the
Bank met the test and has always met the test since its inception.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If an association that fails the test has not yet requalified and has
not converted to a national bank, its new investments and activities are limited
to those permissible for both a savings association and a national bank, and it
is limited to national bank branching rights in its home state. In addition,
the association is immediately ineligible to receive any new FHLB borrowings and
is subject to national bank limits for payment of dividends. If such
association has not requalified or converted to a national bank within three
years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in prepayment
penalties. If any association that fails the QTL test is controlled by a
holding company, then within one year after the failure, the holding company
must register as a bank holding company and become subject to all restrictions
on bank holding companies.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of Dallas
which is one of 12 regional FHLBs that administer the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members (I.E., advances) in accordance with policies and
procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas. At December 31, 1995, the Bank had $1,483,434 in FHLB stock,
which was in compliance with this requirement. First Savings has received
dividends on its FHLB stock, which have averaged 4.88% over the past five
calendar years and were 6.48% for calendar year 1995.
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<PAGE>
For the year ended December 31, 1995, stock and cash dividends paid by the
FHLB of Dallas to the Bank totaled $91,935, which constitute a $28,227 increase
over the amount of dividends received in fiscal year 1994. The $23,621 dividend
received for the quarter ended December 1995 reflects an annualized rate of
6.50% or 1.75% above the rate for calendar 1994.
WRITTEN AGREEMENTS WITH OTS. On April 23, 1991, at the request of the OTS,
the Board of Directors agreed to the issuance of a Cease and Desist Order
(Order) which (1) limited the growth of the institution; (2) imposed specific
restrictions involving the Bank's engagement in securities activities; (3)
prohibited lending outside the market area; (4) prescribed various reporting
requirements; (5) required OTS approval before commencing certain activities;
(6) required that the Bank develop a detailed, self-contained three-year capital
and business plan subsequently referred to as a "Capital Restoration Plan"; and
(7) required a special investigation into certain relationships of the Bank's
former president and certain borrowers. The Board agreed to an extension of the
Order on January 16, 1992 and again on October 26, 1992.
Under the Order, the Bank's operations were subject to imposed restrictions
on growth and various other restrictions limiting: investing or transferring
real estate investments; engaging, financing, refinancing, entering, employing,
amending, purchasing, commitments to renew, change, or enter into real estate
(residential, construction, non-residential, and real estate investments)
transactions, securities, loan participations, commercial loans or letter of
credit, consumer or educational loans, leases, contracts, or agreements, joint
ventures, compensation arrangements, by-laws, accounting methods, service
corporations, purchases or repurchases of government securities, and mergers or
consolidation.
In 1992, the Bank was deemed "undercapitalized" by the OTS. The Bank and
the OTS agreed, on July 28, 1993, to the issuance of a Prompt Corrective Action
Directive (PCAD), pursuant to Section 38 of the FDICIA. FDICIA necessitates
that a PCAD be issued when an institution is deemed undercapitalized. The PCAD
terminated, suspended, or modified most of the provisions of the previous Order
issued by the OTS.
On August 2, 1994 an extension of the PCAD was granted under an Amended
Prompt Corrective Action Directive (APCAD) which was agreed to by the Bank and
the OTS. The APCAD revised the date for attaining the 4.0% core capital
requirement to June 30, 1995. The PCAD and APCAD required of the Bank, among
other things:
* Submission of a Capital Restoration Plan
* Required capital levels of 4.0% for Tier One ("Core") and leverage
ratio capital, and 8.0% for total risk-based capital
* Compliance with the Capital Restoration Plan
* Required capital levels to be achieved or adequate progress towards
mandates
* Compliance with mandatory restrictions on dividends, management fees,
asset growth, branching and certain other conditions
* Approval from the Regional Director of the OTS before investing in
certain activities
33
<PAGE>
As of December 31, 1994, the Bank met all requirements of the APCAD,
including all capital requirements. In May 1995, the OTS notified the Bank that
the Order had been terminated. The only significant provision of the APCAD that
remains in effect is the maintenance of certain required capital levels. The
following table represents the Bank's capital ratios and the APCAD requirements
as of December 31, 1995.
APCAD Actual
required December 31, 1995 Excess
-------- ----------------- ------
Core capital . . . . . . . . . . . . 4.0% 4.98% 0.98%
Leverage ratio capital . . . . . . . 4.0 4.98 0.98
Risk-based capital . . . . . . . . . 8.0 16.66 8.66
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Savings institutions are subject to provisions of the
Internal Revenue Code (Code) in the same general manner as other corporations.
However, institutions such as First Savings which meet certain definitional
tests and other conditions prescribed by the Code which benefit the Bank with
favorable provisions regarding their deductions from taxable income for annual
additions to their bad debt reserve. For purposes of the bad debt reserve
deductions, loans are separated into "qualifying real property loans", which
generally are loans secured by certain interests in real property, and "non-
qualifying loans," which are all other loans. The bad debt reserve deduction
with respect to non-qualifying real property loans may be based upon actual loss
experience or a percentage of taxable income before such deduction.
First Savings, which files its federal income tax returns on a calendar
year basis, has elected to use the bad debt deduction method which results in
the greatest deduction for federal income tax purposes.
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans is computed as 8% of taxable income
with certain adjustments. However, due to the decrease in the maximum corporate
tax rate under the 1986 Act (discussed below), the effective tax rate for the
Bank was not changed materially. Under prior law, no deduction based on
percentage of taxable income is allowed if less than 60% of total dollar amount
of the assets of the institution falls within certain categories. As of
December 31, 1995, the Bank's total assets qualified the Bank to take the
maximum allowable bad debt deduction. Furthermore, the deduction under the
percentage of taxable income method is available only to the extent that the
accumulated bad debt reserve for losses on qualifying real property loans does
not exceed 6% of such loans at year-end. This limitation is not expected to
restrict the Bank from making the maximum addition to its bad debt reserve.
The bad debt deduction under the percentage of taxable income method is
limited to the amount which, when added to the bad debt reserve for losses on
non-qualifying loans, equals the amount by which 12% of total deposits or
withdrawable accounts of depositors at year-end exceeds
34
<PAGE>
the sum of the surplus, undivided profits and reserves at the beginning of the
year. It is not expected that this limitation will restrict the Bank from
making the maximum addition to its bad debt reserve. The deduction under the
percentage of taxable income method has also historically been reduced by all or
a portion of the addition to the reserve for losses on non-qualifying loans.
Under the 1986 Act, the deduction under the percentage of taxable income method
has been reduced by all of the additions to the reserve for losses on non-
qualifying loans.
Under the 1986 Act, for taxable years beginning after December 31, 1986,
the existing corporate minimum tax has been replaced by a new corporate
alternative minimum tax which is imposed to the extent it exceeds the
corporation's regular income tax for the year (as specially adjusted). The
alternative minimum tax is imposed at the rate of 20% of a specially computed
tax base. Included in this base are a number of preference items, including the
following (i) 100% of the excess of a thrift institution's bad debt deduction
over the amount that would have been allowable on the basis of actual
experience; (ii) interest on certain tax-exempt bonds issued after August 7,
1986; and (iii) for years beginning 1987, 1988, and 1989, and amount equal to
one-half of the amount by which a corporation's "book income" (as specially
defined) exceeds its taxable income with certain adjustments, including the
addition of preference items (for taxable years commencing after 1989, this
preference item will be replaced with a new item relating to "adjusted current
earnings" as specially computed). In addition, for purposes of the new
alternative minimum tax, the amount of alternative minimum taxable income that
may be offset for net operating losses is limited to 90% of the alternative
minimum taxable income.
In addition to the changes discussed above, the 1986 Act, among other
things, for taxable years beginning after December 31, 1986 (i) required most
corporations, including thrift institutions, to utilize the accrual method of
accounting for tax purposes; and (ii) disallows a thrift institution's interest
expense allocated to certain tax-exempt obligations. The 1986 Act also extends
the carry forward period for a thrift's net operating losses incurred in taxable
years beginning after 1986 and before 1986 from five to eight years and permits
a three-year carry back and a 15-year carry forward for net operating losses
incurred in taxable years beginning after 1986. Effective January 1, 1993, the
Revenue Reconciliation Act of 1993 changes the maximum corporate income tax rate
to 35%.
Earnings appropriated to the Bank's bad debt reserve and claimed as a tax
deduction are not available for the payment of cash dividends or for
distribution to stockholders (including distributions made on dissolution or
liquidation), without payment of federal income taxes on such dividends or
distributions by the Bank at the then current tax rates on the amount deemed
removed from the bad debt reserve. The amount deemed removed from such reserve
and thus treated as income to the Bank would include not only the amount
actually distributed, but is also increased (subject to certain limitations) by
the amount of the tax payable by reason of such distribution.
The Bank's federal income tax returns have not been examined by the
Internal Revenue Service since 1990.
35
<PAGE>
STATE TAXATION. The State of New Mexico has a corporate tax which subjects
the Bank's New Mexico taxable income to tax rates ranging from 4.8% to 7.6%.
New Mexico taxable income is computed by applying certain modifications to
federal taxable income. The principal difference between state and federal
taxable income is that interest earned on U.S. government obligations is not
taxable for state purposes. The Bank's income tax returns have not been audited
by state authorities during the past five years.
Reference is made to Note K of the "Notes to Consolidated Financial
Statements" in the 1995 Annual Report, which is incorporated by reference for
additional information regarding the effect of federal and state income taxes on
the Bank.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The Bank is
required to adopt SFAS No. 121 for the year beginning January 1, 1996. The
adoption of SFAS No. 121 is not expected to have a material impact on the Bank's
financial position or results of operation.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION which was issued in
1995 is not effective until 1996. The Statement defines a fair value based
method of accounting (I.E., using an option pricing model such as Black-Scholes)
for employee stock options or similar equity instrument plans, but also allows
an entity to measure compensation costs for those plans using the intrinsic
value (the amount by which the market price of the underlying stock exceeds the
underlying price of the option) based method accounting as prescribed by
Accounting Principles Board Opinion No. 25. The Bank plans to continue using
the intrinsic value based method.
COMPETITION
The Bank attracts all of its deposits through its branch offices, primarily
from the communities in which those branch offices are located; therefore,
competition for those deposits is principally from other savings institutions
and commercial banks located in the same communities as well as brokerage firms.
The Bank competes for those deposits by offering a variety of deposit accounts
at competitive rates, convenient business hours, and convenient branch locations
with interbranch deposit and withdrawal privileges at each. An automated teller
machine facility is available at each branch and in Texico, New Mexico.
EMPLOYEES
As of December 31, 1995, the Bank had 54 full-time and 13 peak-time
employees. At December 31, 1995 the Bank's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
36
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth information relating to each of the Bank's
current offices. Net book value and total investment figures are for land,
building, furniture and fixtures.
Date Net Book Value Branch
Location Acquired at December 31, 1995 Deposits
-------- -------- ---------------------- --------
(Dollars in Thousands)
MAIN OFFICE:
801 Pile Street 1966 $989 $58,139
Clovis, NM
BRANCH OFFICES:
Prince and Parkland Streets 1978 310 14,856
Clovis, NM
400 West First Street 1982 686 37,638
Portales, NM
The net book value of the Bank's investment in land, premises and
equipment, less accumulated depreciation, totaled $1,984,860 at December 31,
1995. See Note H of "Notes to Consolidated Financial Statements" in the 1995
Annual Report and "Deposits" in this Form 10-KSB.
ITEM 3. LEGAL PROCEEDINGS
In connection with certain claims and allegations asserted by Mr. Armand
Smith, a minority shareholder and former director of the Bank, against some
of the current and former directors of the Bank, including without limitation
those claims asserted in a derivative lawsuit filed by Mr. Smith and another
minority shareholder of the Bank in the State District Court in Clovis, New
Mexico (the Derivative Suit), the Bank formed a Special Litigation Committee
(the SLC) to investigate and analyze the matters related to those claims and
allegations. The SLC was composed of three persons, two directors and one
shareholder (who is not an officer or director) of the Bank, none of whom are
subject to the claims or allegations or are parties to the Derivative Suit.
The Derivative Suit is styled ARMAND L. SMITH, ET AL., ON BEHALF OF FIRST
SAVINGS BANK, F.S.B. VS. FIRST SAVINGS BANK, F.S.B., ET AL., Cause No.
94-CV-32914, in the Ninth Judicial District Court, Curry County, New Mexico,
and was filed on May 19, 1994 and amended on November 2, 1994. In the
Derivative Suit, the plaintiffs alleged a number of intentional acts and
omissions in the management of the Bank which allegedly resulted in damages
and losses suffered by the Bank. Although no affirmative relief was being
sought from the Bank, it was named as a necessary party (Defendant) to the
action.
The SLC completed its investigation and analysis in May 1995 and moved for
dismissal of the Derivative Suit. On February 1, 1996, an Order of Dismissal
was filed by the Court with respect to the Derivative Suit. The Court
dismissed, with prejudice, all claims against all defendants except a former
President, Chief Executive Officer, and Director (Former President) of the Bank.
A
37
<PAGE>
dismissal with prejudice means that the charges cannot be refiled. The Court
also ordered the plaintiffs to pay reasonable expenses, including attorneys'
fees, to one of the Bank's former independent auditors. A notice of appeal was
filed by the plaintiffs on March 1, 1996. The Bank cannot predict the outcome
of the appeal.
If final judgment in their favor is received in the Derivative Suit,
certain of the current and former director defendants may make demand on the
Bank for indemnification of their legal expenses pursuant to OTS regulations.
The disinterested members of the Bank's Board of Directors must approve said
indemnification and give 60 days notice to the OTS of the Bank's intention to
make such indemnification. No such indemnification shall be made if the OTS
advises the Bank in writing, within the 60 day notice period, of its objection
thereto. No demand for indemnification has been made by the remaining
defendants.
With respect to the Former President, the Court dismissed the claims in the
Derivative Suit without prejudice in order to allow the Bank to pursue such
claims in Federal Court. Based upon the SLC's conclusions, in May 1995, the
Bank filed a lawsuit against the Former President in the United States District
Court for the District of New Mexico. The style of the case is FIRST SAVINGS
BANK, F.S.B. V. JAMES F. GIBSON, Cause No. CIV-95-0491. In the lawsuit, the
Bank asserts that the defendant engaged in fraudulent conduct and breached his
duties of loyalty and care to the Bank, all of which resulted in losses and
damages to the Bank. The Bank is seeking recovery of damages from the defendant
in excess of $2.8 million, plus interest and punitive damages. The Bank's
lawsuit against the Former President has not gone to trial and is not expected
to do so until mid-year 1996. On March 26, 1996, counsel for the Former
President served a motion on the Bank, which requests the Court to stay such
proceedings pending the outcome of the appeal of the Derivative Suit discussed
above. The Bank intends to oppose such motion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the section captioned "Market Prices and
Related Stockholder Matters" in the Bank's Annual Report to Stockholders for the
fiscal year ended December 31, 1995 (Annual Report) and "Written Agreements with
OTS" and "Limitations on Dividends and Other Capital Distributions" in this Form
10-KSB are incorporated by reference.
38
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the 1995
Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The information contained in the "Financial Statements" sections in the
1995 Annual Report is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
of financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
Information concerning Directors of the Bank is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 26, 1996, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
EXECUTIVE OFFICERS
Information concerning Executive Officers of the Bank is incorporated
herein by reference from the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on April 26, 1996, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
COMPLIANCE WITH EXCHANGE ACT REQUIREMENT
Information concerning Compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on April 26, 1996, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
39
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 26, 1996, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to held on April 26, 1996, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on April 26, 1996, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
40
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
REFERENCE TO SEQUENTIAL
PRIOR FILING PAGE NUMBER
FOR INCORPORATION WHERE ATTACHED
BY REFERENCE EXHIBITS ARE
OR EXHIBIT LOCATED IN
REGULATION NUMBER THIS
S-B EXHIBIT ATTACHED FORM 10-KSB
NUMBER DOCUMENT HERETO REPORT
- - ----------- ----------------------------- ------------------ --------------
2 Plan of acquisition,
reorganization, arrangement,
liquidation or succession None Not applicable
3.1 Federal Stock Charter 3.1 filed with Not applicable
Form 10-K for
fiscal year ended
December 31, 1994
3.2 By-Laws 3.2 filed with Not applicable
Form 10-K for
fiscal year ended
December 31, 1994
4 Instruments defining the
rights of security holders,
including debentures None Not applicable
9 Voting Trust Agreement None Not applicable
*10.0 1986 Stock Option and
Incentive Plan 10.0 filed with Not applicable
Form 10-K for
fiscal year ended
December 31, 1994
10.1 Profit Sharing and Employee 10.1 filed with Not applicable
Stock Ownership Plan of Form 10-K for
First Savings Bank, F.S.B. fiscal year ended
December 31, 1994
10.1.1 Amendment Number One to 10.1.1 Page _____
Profit Sharing and Employee
Stock Ownership Plan of First
Savings Bank, F.S.B.
(refiled)
10.2 Agreement for Standby Letter 10.2 filed with Not applicable
of Credit Advances/Confirm- Form 10-K for
ation, Collateral Pledge and fiscal year ended
Security Agreement with December 31, 1994
FHLB of Dallas
10.3 Amended Prompt Corrective
Action Directive 10.3 Page _____
*10.4 Employment Agreement with 10.4 Page _____
Kenneth J. Huey, Jr.
10.5 Bisys Document Processing, Inc. 10.5 Page _____
Item Processing Agreement
41
<PAGE>
10.5.1 Bisys Document Processing, 10.5.1 Page _____
Inc. Item Processing
Agreement Extension
10.6 Bisys Data Processing 10.6 Page _____
Acknowledgement and
Assignment
11 Statement re: computation of
per share earnings 11 Page _____
13 Annual Report to Security
Holders 13 Page _____
16 Letter re: change in
certifying accountants None Not applicable
18 Letter re: change in
accounting principles None Not applicable
21 Subsidiaries of Registrant 21 Page _____
22 Published report regarding
matters submitted to vote of
security holders None Not applicable
24 Power of Attorney None Not applicable
28 Information from reports
furnished to state insurance None Not applicable
regulatory authorities
29 Information from reports
furnished to State Insurance None Not applicable
authorities
99 Additional exhibits None Not applicable
- - -----------------
* Designates each management contract or compensatory plan or arrangement
required to be identified pursuant to Item 13 (a) of Form 10-KSB.
(b) REPORTS ON FORM 8-K
No Form 8-K was filed during the quarter ended December 31, 1995.
NOTE TO ANY SECURITY HOLDER REQUESTING A COPY OF ANY EXHIBIT(S): The registrant
will furnish any exhibit upon the payment of registrant's reasonable expenses in
furnishing such exhibit, currently 25 cents per page for photocopying, plus
postage.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST SAVINGS BANK, F.S.B.
Date: March 27, 1996 /s/ Ken Huey, Jr.
--------------------------------------
Ken Huey, Jr., President, Chief
Executive Officer and Director
(DULY AUTHORIZED REPRESENTATIVE)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Ken Huey, Jr. By: /s/ Robert C. Lydick
---------------------------------- -----------------------------------
Ken Huey, Jr. R. Chad Lydick
President, Chief Executive Officer Director
Director
Date: March 27, 1996 Date: March 27, 1996
By: /s/ Roddy Pearce By: /s/ Charles Guthals
---------------------------------- -----------------------------------
Roddy Pearce, Vice President Charles Guthals
Controller and Chief Operating Director
Officer (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: March 27, 1996 Date: March 27, 1996
By: /s/ Carl Deaton By: /s/ Everett L. Frost
---------------------------------- -----------------------------------
Carl Deaton Everett L. Frost
Director Director
Date: March 27, 1996 Date: March 27, 1996
By: /s/ Harry Eastham By: /s/ Thomas W. Martin, III
----------------------------------- -----------------------------------
Harry Eastham Thomas W. Martin, III
Director Director
Date: March 27, 1996 Date: March 27, 1996
43
<PAGE>
EXHIBIT 3.1
FEDERAL STOCK CHARTER
FIRST SAVINGS BANK, F.S.B.
SECTION 1. CORPORATE TITLE. The full corporate title of the bank is
First Savings Bank, F.S.B.
SECTION 2. OFFICE. The home office shall be located in the City of
Clovis, County of Curry, State of New Mexico.
SECTION 3. DURATION. The duration of the bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the bank is to pursue any
or all of the lawful objectives of a Federal savings bank chartered under
Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of
the Federal Home Loan Bank Board ("Board").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the bank has the authority to issue is 10,000,000
shares, of which 6,000,000 shares shall be common stock with a par value of
$1.00 per share and 4,000,000 shares shall be serial preferred stock. The
shares may be issued from time to time as authorized by the board of
directors without the approval of its stockholders except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule or regulation. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the bank. The
consideration for the shares shall be cash, tangible or intangible property,
labor or services actually performed for the bank or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor or services, as determined by the board of directors of
the bank shall be conclusive. Upon payment of such consideration such shares
shall be deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the surplus of the bank which is transferred to stated
capital upon the issuance of shares as a share dividend shall be deemed to be
the consideration for their issuance.
Except for shares issuable in connection with the conversion of the bank
from mutual to stock form of capitalization, no shares of capital stock
(including shares issuable upon conversion, exchange or exercise of other
securities) shall be issued directly or indirectly, to officers, directors,
or controlling persons of the bank other than as part of a general public
offering or as qualifying shares to a director unless the issuance or the plan
under which they would be issued has been approved by a majority of the total
votes eligible to be cast at a legal meeting.
B-1
<PAGE>
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock
to vote as a separate class or series or to more than one vote per share,
except as to the cumulation of votes for the election of directors:
Provided, that this restriction on voting separately by class or series shall
not apply:
(i) to any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event of
default in the payment of dividends or any class or series of
preferred stock;
(ii) to any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the bank with another corporation or the sale,
lease, or conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of a corporation
other than the bank if the preferred stock is exchanged for
securities of such other corporation: Provided, that no
provision may require such approval for transactions undertaken
with the assistance or pursuant to the direction of the Federal
Savings and Loan Insurance Corporation;
(iii) to any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
Section 5 (or in any supplementary sections hereto), including any
amendment which would create or enlarge any class or series
ranking prior thereto in rights and preferences. An amendment
which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving bank in a
merger or consolidation for the bank, shall not be considered to
be such an adverse change.
A description of the different classes and series of the bank's capital
stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of the series of
capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund or retirement fund or
other retirement payments, if any, to which such holders are respectively
entitled, in preference to the common stock, then dividends may be paid
on the common stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally
available for the payment of dividends: but only when and as declared by
the board of directors.
B-2
<PAGE>
In the event of any liquidation, dissolution or winding up of the bank,
the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the
bank available for distribution remaining after: (i) Payment or provision for
payment of the bank's debts and liabilities and (ii) distributions or
provision for distributions to holders of any class or series of stock having
preference over the common stock in the liquidation, dissolution, or winding
up of the bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of
common stock.
B. PREFERRED STOCK. The bank may provide in supplementary sections to its
charter for one or more classes of preferred stock which shall be separately
identified. The shares of any class may be divided into and issued in series,
with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
(a) the distinctive serial designation and the number of shares
constituting such series;
(b) the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends and the
participating or other special rights, if any, with respect to dividends;
(c) the voting powers, full or limited, if any, of shares of such
series;
(d) whether the shares of such series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) the amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the bank;
(f) whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price or prices at which
such shares may be redeemed or purchased through the application of such
funds:
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(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the bank,
and, if so convertible or exchangeable, the conversion price or prices,
or the rate or rates of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) the price or other consideration for which the shares of such
series shall be issued; and
(i) whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
serial preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the
other shares of the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred
stock into series, and, within the limitations set forth in this section,
fix and determine the relative rights and preferences of the shares of
any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
bank shall file with the Secretary to the Board a dated copy of that
supplementary section of this charter establishing and designating the
series and fixing and determining the relative rights and preferences
thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
bank shall not be entitled to preemptive rights with respect to any
shares of the bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Board's Regulations (12 CFR Subchapter D), the bank shall establish and
maintain a liquidation account for the benefit of its savings account
holders a of August 31, 1985 ("eligible savers"). In the event of a
complete liquidation of the bank, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each of
the bank's eligible savers inchoate interest in the liquidation account,
to the extent it is still in existence. PROVIDED, that an eligible
saver's inchoate interest in the liquidation account shall not entitle
such eligible saver to any voting rights at meetings of the bank's
stockholders.
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SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR THREE YEARS.
Notwithstanding anything contained in the Bank's charter or bylaws to
the contrary, for a period of three years from the date of consummation of
the conversion of the Bank from mutual to stock form, the following
provisions shall apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than
ten percent of any class of an equity security of the Bank. This limitation
shall not apply to a transaction in which the Bank forms a holding company
without change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter and
appraisal rights or the purchase of shares by underwriters in connection with
a public offering.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of ten percent shall
be considered "excess shares" and shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert,
a corporation, a partnership, an bank, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other
group formed for the purpose of acquiring, holding or disposing of the equity
securities of the Bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request for invitation
for tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or
not pursuant to an express agreement, or (b) a combination or pooling of
voting or other interests in the securities of an issuer for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangements, whether written or otherwise.
B. CUMULATIVE VOTING LIMITATION. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. CALL FOR SPECIAL MEETINGS. Special meetings of stockholders relating
to changes in control of the Bank or amendments to its charter shall be
called only upon direction of the Board of Directors.
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SECTION 9. DIRECTORS. The bank shall be under the direction of a board
of directors. The number of directors, as stated in the bank's by-laws,
shall not be less than seven nor more than fifteen except when a greater
number is approved by the Board.
SECTION 10. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the bank,
then preliminarily approved by the Board, which preliminary approval may be
granted by the Board pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing
with the Board in accordance with regulatory procedures or on such other date
as the Board may specify in its preliminary approval.
Dated: This _____ day of ___________, 1986.
Attest: By:
----------------------------- -------------------------------------
Secretary President and Chief Executive Officer
First Savings Bank, F.S.B.
Federal Home Loan Bank Board
Attest: By:
----------------------------- -------------------------------------
Secretary to the Board
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EXHIBIT 3.2
BYLAWS
FIRST SAVINGS BANK, F.S.B.
ARTICLE I - HOME OFFICE
The home office of First Savings Bank, F.S.B. ("bank") shall be located at
801 Pile Street, in the City of Clovis, in Curry County, in the State of New
Mexico.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the bank or at such other
place in the State of New Mexico as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the bank for
the election of directors and for the transaction of any other business of
the bank shall be held annually within 120 days after the end of the bank's
fiscal year on the last Friday of April, if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday,
at 2:00 P.M., or at such other date and time within such 120-day period as
the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of
the Federal Home Loan Bank Board ("Board") (which as hereinafter used
includes the Federal Savings and Loan Insurance Corporation), may be called
at any time by the chairman of the board, the president, or a majority of the
board of directors, and shall be called by the chairman of the board, the
president, or the secretary upon the written request of the holders of not
less than one-fifth of all of the outstanding capital stock of the bank
entitled to vote at the meeting. Such written request shall state the purpose
or purposes of the meeting and shall be delivered to the home office of the
bank addressed to the chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedure adopted by the Board of
Directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it
appears on the stock transfer books or records of the bank as of the record
date prescribed in Section 6 of this Article II with postage prepaid. When
any shareholders' meeting, either annual or special, is adjourned for 30 days
or more, notice of the adjourned meeting shall be given
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as in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30 days
or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the
record date for any such determination of shareholders. Such date in any case
shall be not more than 60 days and, in case of a meeting of shareholders, not
fewer than 10 days prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to
any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books
for shares of the bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the bank and shall
be subject to inspection by any shareholder at any time during usual business
hours for a period of 20 days prior to such meeting. Such list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie
evidence of the shareholders entitled to examine such list or transfer books
or to vote at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors
may perform such acts as required by paragraphs (a) and (b) of Rule 14a-7 of
the General Rules and Regulations under the Securities and Exchange Act of
1934, as may be duly requested in writing, with respect to any matter which
may be properly considered at a meeting of shareholders, by any shareholder
who is entitled to vote on such matter and who shall defray the reasonable
expenses to be incurred by the bank in performance of the act or acts
required.
SECTION 8. QUORUM. A majority of the outstanding shares of the bank
entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the
meeting as originally notified. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to constitute less than a quorum.
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SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid more than eleven months from the date of its execution except
for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of
written directions to the bank to the contrary, at any meeting of the
shareholders of the bank, any one or more of such shareholders may cast, in
person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes
to which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian, or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name. Shares standing
in the name of a receiver may be voted by such receiver, and shares held by
or under the control of a receiver may be voted by such receiver without the
transfer into his name if authority to do so is contained in an appropriate
order of the court or other public authority by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the bank nor shares held
by another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the bank, shall
be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Unless otherwise provided in the bank's
charter, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares
owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right to vote, or to
cumulate the votes by giving one candidate as many votes as the number of such
directors to be elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
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SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than
nominees for office as inspectors of election to act at such meeting or any
adjournment. The number of inspectors shall be either one or three. Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may, or on the
request of not fewer than 10 percent of the votes represented at the meeting
shall, make such appointment at the meeting. If appointed at the meeting, the
majority of the votes present shall determine whether one or three inspectors
are to be appointed. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment
by the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by regulations of the Board, the duties of
such inspectors shall include: determining the number of shares and the
voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote;
counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to
all shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the
death or other incapacity of a management nominee, the nominating committee
shall deliver written nominations to the secretary at least 20 days prior to
the date of the annual meeting. Upon delivery, such nominations shall be
posted in a conspicuous place in each office of the bank. No nominations for
directors except those made by the nominating committee shall be voted upon
at the annual meeting unless other nominations by shareholders are made in
writing and delivered to the secretary of the bank at least five days prior
to the date of the annual meeting. Upon delivery, such nominations shall be
posted in a conspicuous place in each office of the bank. Ballots bearing the
names of all persons nominated by the nominating committee and by
shareholders shall be provided for use at the annual meeting. However, if the
nominating committee shall fail or refuse to act at least 20 days prior to
the annual meeting, nominations for directors may be made at the annual
meeting by any shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the bank
at least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed
and considered, but unless stated in writing and filed with the secretary at
least five days before the meeting, such proposal shall be laid over for
action at an adjourned, special, or annual meeting of the shareholders taking
place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports
of officers, directors, and committees; but in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated and
filed as herein provided.
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SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of shareholders, may be taken without a meeting if consent
in writing, setting forth the action so taken, shall be given by all of
the shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the bank shall be
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of nine
(9) members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall
be elected by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and
at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the bank's
normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. QUALIFICATION. Directors need not be the beneficial owners of
shares of capital stock of the bank.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the
president, or one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place, within the
bank's normal lending territory, as the place for holding any special meeting
of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person.
SECTION 6. NOTICE OF SPECIAL MEETING. Written notice of at least 24 hours
regarding any special meeting of the board of directors or of any committee
designated thereby shall be given to each director in accordance with the
bylaws, although such notice may be waived by the director. The attendance of
a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any meeting need be specified in the notice of waiver of
notice of such meeting. The bylaws may provide for telephonic participation at
a meeting.
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SECTION 7. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, unless a greater number is described by regulation of the
Board or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken shall be
signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending
a written notice of such resignation to the home office of the bank addressed
to the chairman of the board or the president. Unless otherwise specified,
such resignation shall take effect upon receipt by the chairman of the board
or the president. More than three consecutive absences from regular meetings
of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 11. VACANCIES. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected to serve until the next election
of directors by the shareholders. Any directorship to be filled by reason of
an increase in the number of directors may be filled by election by the
board of directors for a term of office continuing only until the next
election of directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of
directors. Members of either standing or special committees may be
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the bank who is present
at a meeting of the board of directors at which action on any bank matter is
taken shall be presumed to have assented to the action taken unless his
dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the bank within
five days after the date a copy of the minutes of the meeting is received.
Such right to dissent shall not apply to a director who voted in favor of
such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote
of the holders of a majority of the shares then entitled to vote at an
election of directors. If less than the entire board is to be removed, no one
of the directors may be removed if the votes cast against the removal would
be sufficient to elect a director if then cumulatively voted at an election of
the class of directors of which such director is a part. Whenever the holders
of the shares of any class are entitled to elect one or more directors by the
pro-
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visions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class and not to the vote of the outstanding shares as a whole.
SECTION 15. AGE LIMITATION OF DIRECTORS. No person of an age 75 years or
older will be eligible for election, reelection, appointment, or
reappointment to the board of directors of the bank. No director shall serve
as such beyond the annual meeting of the bank immediately following the
attainment of age 75.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation
of authority shall not operate to relieve the board of directors, or any
director, of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority
of the board of directors except to the extent, if any, that such authority
shall be limited by the resolution appointing the executive committee; and
except also that the executive committee shall not have the authority of the
board of directors with reference to: the declaration of dividends; the
amendment of the charter or bylaws of the bank, or recommending to the
stockholders a plan of merger, consolidation, or conversion; the sale, lease,
or other disposition of all or substantially all of the property and assets
of the bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the bank; a revocation of any of the foregoing; or
the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until
the next regular annual meeting of the board of directors following his or
her designation and until a successor is designated as a member of the
executive committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of
any meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the executive committee
need not state the business proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
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SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATION AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the bank. Unless
otherwise specified, such resignation shall take effect upon its receipt; the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall
not be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information
at the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they
may determine to be necessary or appropriate for the conduct of the business
of the bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the bank shall be a president, one
or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate
the chairman of the board as an officer. The president shall be a director of
the bank. The offices of the secretary and treasurer may be held by the same
person and a vice president may also be either the secretary, or the
treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize
or determine. In the absence of action by the board of directors, the
officers shall have such powers and duties as generally pertain to their
respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the bank shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the stockholders. If the election of officers is not
held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation, or removal
in the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The board
of directors may authorize the bank to enter into an employment contract with
any officer in accordance with regulations of the Board; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
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SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to any
contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the board of directors by employment contracts or
otherwise.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Board, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the bank. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the bank and
no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the bank shall be signed by one or more officers, employees, or
agents of the bank in such manner as shall from time to time be determined
by the board of directors.
SECTION 4. DEPOSITS. All funds of the bank not otherwise employed shall
be deposited from time to time to the credit of the bank in any duly
authorized depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the bank shall be in such form as shall be determined by the
board of directors and approved by the Board. Such certificates shall be
signed by the chief executive officer or by any other officer of the bank
authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles
if the certificate is manually signed on behalf of a transfer agent or a
registrar other than the bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
are issued, with the number of shares and date of issue, shall be entered
on the stock transfer books of the bank. All certificates surrendered to the
bank for transfer shall be cancelled and no new certificate shall be issued
until the former certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the bank as the board of directors may prescribe.
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SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by
his attorney authorized by a duly executed power of attorney and filed with
the bank. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the bank shall be deemed by the bank to be the
owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the bank shall end on the 31st day of December of each
year. The bank shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject only to the terms of the bank's charter and the regulations and
orders of the Board, the board of directors may, from time to time, declare,
and the bank may pay, dividends on its outstanding classes of capital stock
which are eligible for dividends.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide an bank seal which shall be two
concentric circles between which shall be the name of the bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Board at any time by a majority vote of the full board of directors or by a
majority vote of the votes cast by the stockholders of the bank at any legal
meeting.
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EXHIBIT 10
FIRST SAVINGS BANK, F.S.B.
CLOVIS, NEW MEXICO
1986 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN. The Plan shall be known as the First Savings
Bank, F.S.B., 1986 Stock Option and Incentive Plan (the "Plan"). The purpose
of the Plan is to attract and retain the best available personnel as officers
and employees and to provide additional incentive to employees of First Savings
Bank, F.S.B. (the "Bank") or any present or future parent or subsidiary of the
Bank to promote the success of the business. The Plan is intended to provide
for the grant of both "Incentive Stock Options", within the meaning of Section
422A of the Internal Revenue Code of 1954, as amended (the "Code"), and Non-
Incentive Stock Options. Each and every one of the provisions of the Plan
relating to Incentive Stock Options shall be interpreted to conform to the
requirements of Section 422A of the Code.
2. DEFINITIONS. As used herein, the following definitions shall apply.
(a) "Bank" shall mean First Savings Bank, F.S.B.
(b) "Award" means the grant by the Committee or the Board of
Directors of an Incentive Stock Option, a Non-Incentive Stock Option, or a
Stock Appreciation Right, or any combination thereof, as provided in the Plan.
(c) "Board" shall mean the Board of Directors of the Bank.
(d) "Common Stock" shall mean common stock, par value $1.00 per
share, of the Bank.
(e) "Code" shall mean the Internal Revenue Code of 1954, as amended.
(f) "Committee" shall mean the Stock Option Committee appointed by
the Board in accordance with paragraph 4(a) of the Plan.
(g) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment by
the Bank or any present or future Parent or Subsidiary of the Bank.
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Bank or in the
case of transfers between payroll locations of the Bank or between the Bank,
its Parent, its Subsidiaries or a successor.
(h) "Effective Date" shall mean the date specified in Section 15
hereof.
(i) "Employee" shall mean any person employed on a full-time basis
by the Bank or any present or future Parent or Subsidiary of the Bank.
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(j) "Incentive Stock Option" means an option to purchase Shares
granted by the Committee pursuant to Section 7 hereof which is subject to the
limitations and restrictions of Section 7 hereof and is intended to qualify
under Section 422A of the Code.
(k) "Non-Incentive Stock Option" means an option to purchase Shares
granted by the Committee pursuant to Section 8 or by the Board pursuant to
Section 4 hereof, which option is not intended to qualify under Section 422A
of the Code.
(l) "Option" shall mean an Incentive or Non-Incentive Stock Option
granted pursuant to this Plan.
(m) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(n) "Optionee" shall mean any person who receives an Option.
(o) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Subsections 425(e) and (g) of
the Code.
(p) "Participant" means any director, officer or key employee of
the Bank or any Parent or Subsidiary of the Bank or any other person
providing a service to the Bank who is selected by the Committee or the
Board, acting pursuant to Section 4(a)(ii), to receive an Award.
(q) "Plan" shall mean the First Savings Bank, F.S.B. 1986 Stock
Option and Incentive Plan.
(r) "Related" means (i) in the case of a Stock Appreciation Right,
a Stock Appreciation Right which is granted in connection with, and to the
extent exercisable, in whole or in part, in lieu of, an Option and (ii) in
the case of an Option, an Option with respect to which and to the extent a
Stock Appreciation Right is exercisable, in whole or in part, in lieu thereof
has been granted.
(s) "Stock Appreciation Right" means a stock appreciation right
with respect to Shares granted by the Committee pursuant to Section 12 hereof.
(t) "Share" shall mean one share of the Common Stock.
(u) "Subsidiary" shall mean any present or future corporation which
would be a "subsidiary corporation" as defined in Subsections 425(f) and (g)
of the Code.
3. SHARES SUBJECT TO THE PLAN. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 45,500 shares.
Such Shares may either be authorized but unissued or treasury shares.
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Shares which are subject to Stock Appreciation Rights and related
Options shall be counted only once in determining whether the maximum number
of Shares with respect to which Awards may be granted under the Plan has been
exceeded. An Award shall not be considered to have been made under the Plan
with respect to any Option or Stock Appreciation Right which terminates and
new Awards may be granted under the Plan with respect to the number of Shares
as to which such termination has occurred.
4. ADMINISTRATION OF THE PLAN.
(a) (i) Composition of the Committee. Except as indicated in
paragraph 4(a)(ii) below, the Plan shall be administered by the Committee
consisting of three directors of the Bank appointed by the Board. Officers,
directors, key employees and other persons who are designated by the
Committee shall be eligible to receive Awards under the Plan, and all persons
designated as members of the Committee shall be "disinterested persons"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934.
A "disinterested person" is an administrator who at the time he exercises
discretion in administering the Plan is not eligible and has not at any time
within one year prior thereto been eligible for selection as a person to whom
stock options or stock appreciation rights may be granted pursuant to any
Plan of the Bank or any of its affiliates.
(ii) For the purpose of granting Awards to directors, the
selection of any director to whom Awards may be granted, as well as the
number of shares subject to Awards, must be determined by a disinterested
committee, as defined in Rule 16b-3 under the Securities Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the form
and content of Awards to be issued under the Plan and to make other
determinations necessary or advisable for the administration of the Plan, and
shall have and may exercise such other power and authority as may be
delegated to it by the Board from time to time. A majority of the entire
Committee shall constitute a quorum and the action of a majority of the
members present at any meeting at which a quorum is present shall be deemed
the action of the Committee. In no event may the Committee revoke
outstanding Awards without the consent of the Participant.
The President of the Bank and such other officers as shall be designated
by the Committee are hereby authorized to execute instruments evidencing
Awards on behalf of the Bank and to cause them to be delivered to the
Participants.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
5. ELIGIBILITY. Awards my be granted to officers, directors, key
employees and other persons. The Committee shall from time to time determine
the officers, directors, key employees and other persons who shall be granted
Options or Awards under the Plan, the number to be granted to each such
officers, directors, key employees and other persons under the Plan, and
whether Options granted to each such Employee under the Plan shall be
Incentive and/or Non-Incentive Stock Options. In selecting Participants and
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in determining the number of shares of Common Stock to be granted to each
such Participant pursuant to each Award granted under the Plan, the Committee
may consider the nature of the services rendered by each such Participant,
each such Participant's current and potential contribution to the Bank, and
such other factors as the Committee may, in its sole discretion, deem
relevant. Officers, directors, key employees or other persons who have been
granted an Award may, if otherwise eligible, be granted additional Options or
Awards.
The aggregate fair market value (determined as of the date the Option is
granted) of the Shares for which any Employee may be granted Options in any
calendar year (under all Incentive Stock Option plans, as defined in Section
422A of the Code, of the Bank or any present or future Parent or Subsidiary of
the Bank) shall not exceed $100,000, plus any unused limit carryover to such
year, as defined in Section 422A(c) of the Code. Notwithstanding the prior
provisions of this Section 5, the Committee may grant Options in excess of the
foregoing limitations, provided said Options shall be clearly and specifically
designated as not being Incentive Stock Options, as defined in Section 422A of
the Code.
6. TERM OF PLAN. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date, unless sooner terminated pursuant to Section
18. No Option shall be granted under the Plan after ten (10) years from the
Effective Date.
7. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to Participants who are Employees. Each
Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve.
Each and every Incentive Stock Option granted pursuant to the Plan shall
comply with, and be subject to, the following terms and conditions:
(a) Option Price.
(i) The price per share at which each Incentive Stock Option
granted under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the Common
Stock at the time such Incentive Stock Option is granted. For such purposes,
if the Common Stock is traded otherwise than on a national securities
exchange at the time of the granting of an Option, then the price per share
of the Optioned Stock shall be not less than the mean between the bid and
asked price on the date the Incentive Stock Option is granted or, if there be
no bid and asked price on said date, then on the next prior business day on
which there was a bid and asked price. If no such bid and asked price is
available, then the price per share shall be determined by the Committee. If
the Common Stock is listed on a national securities exchange at the time of
the granting an Incentive Stock Option, then the price per share shall be not
less than the average of the highest and lowest selling price on such
exchange on the date such Incentive Stock Option is granted or, if there were
no sales on said date, then the price shall be not less than the mean between
the bid and asked price on such date.
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(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at
the time the Incentive Stock Option is granted, the Incentive Stock Option
price shall not be less than one hundred and ten percent (110%) of the fair
market value of the Common Stock at the time the Incentive Stock Option is
granted.
(b) Payment.
Full payment for each share of Common Stock purchased upon the
exercise of any Incentive Stock Option granted under the Plan shall be made
at the time of exercise of each such Incentive Stock Option and shall be paid
in cash (in United States Dollars), Common Stock or a combination of cash and
Common Stock. Common Stock utilized in full or partial payment of the exercise
price shall be valued at its fair market value at the date of exercise. The
Bank shall accept full or partial payment in Common Stock only to the extent
permitted by applicable law. No shares of Common Stock shall be issued until
full payment therefor has been received by the Bank, and no Optionee shall have
any of the rights of a shareholder of the Bank until shares of Common Stock
are issued to him.
(c) Term of Incentive Stock Option.
The term of each Incentive Stock Option granted pursuant to
the Plan shall be not more ten (10) years from the date each such Incentive
Stock Option is granted, provided that in the case of an Employee who owns
stock representing more than 10% of the Common Stock outstanding at the time
the Incentive Stock Option is granted, the term of the Incentive Stock Option
shall not exceed five (5) years.
(d) Exercise Generally.
Except as otherwise provided in Section 9 hereof, no Incentive
Stock Option may be exercised unless the optionee shall have been in the
employ of the Bank at all times during the period beginning with the date of
grant of any such Incentive Stock Option and ending on the date three (3)
months prior to the date of exercise of any such Incentive Stock Option. The
Committee, may impose additional conditions upon the right of an Optionee to
exercise any Incentive Stock Option granted hereunder which are not
inconsistent with the terms of the Plan or the requirements for qualification
as an Incentive Stock Option under Section 422A of the Code.
(e) Serial Exercise.
No Incentive Stock Option granted pursuant to the Plan shall
be exercised by any Optionee while there is outstanding (as such term is
defined in Section 422A of the Code) any incentive stock option which was
granted prior to the date of grant of such Incentive Stock Option to such
Optionee, whether pursuant to the Plan or any other plan of the Bank. In the
event that any additional Incentive Stock Option is granted at a later date
pursuant to the Plan to any Optionee, the instrument evidencing any such
additional Incentive Stock Option shall include the following provisions:
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"This incentive stock option is not exercisable while
there is outstanding (within the meaning of Section
422A(c)(7) of the Internal Revenue Code of 1954, as
amended) any Incentive Stock Option which was granted
prior to the date of the grant hereof to the holder of
this stock option to purchase shares of common stock of
First Savings Bank, F.S.B. or any of its subsidiaries."
(f) Transferability.
Any Incentive Stock Option granted pursuant to the Plan shall
be exercised during any Optionee's lifetime only by the Optionee to whom it
was granted and shall not be assignable or transferable otherwise than by
will or by the laws of descent and distribution.
8. TERMS AND CONDITIONS OF NON-INCENTIVE STOCK OPTIONS. Each Non-
Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
and every Non-Incentive Stock Option granted pursuant to the Plan shall comply
with and be subject to the following terms and conditions:
(a) Option Price.
The exercise price per share of Common Stock for each
Non-Incentive Stock Option granted pursuant to the Plan shall be such price
as the Committee may determine in its sole discretion.
(b) Payment.
Full payment for each share of Common Stock purchased upon the
exercise of any Non-Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Non-Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or
partial payment of the exercise price shall be valued at its fair market
value at the date of exercise. The Bank shall accept full or partial payment
in Common Stock only to the extent permitted by applicable law. No shares of
Common Stock shall be issued until full payment therefor has been received by
the Bank and no Optionee shall have any of the rights of a shareholder of the
Bank until the shares of Common Stock are issued to him.
(c) Term.
The term of each Non-Incentive Stock Option granted pursuant
to the Plan shall be not more than ten (10) years from the date each such
Non-Incentive Stock Option is granted, provided that, in the case of an Employee
who owns stock representing more than 10% of the Common Stock at the time the
Incentive Stock Option is granted, the term of the Non-Incentive Stock Option
shall not exceed five (5) years.
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(d) Exercise Generally.
The Committee may impose additional conditions upon the right
of any Participant to exercise any Non-Incentive Stock Option granted hereunder
which are not inconsistent with the terms of the Plan.
(e) Transferability.
Any Non-Incentive Stock Option granted pursuant to the Plan
shall be exercised during any Optionee's lifetime only by the Optionee to
whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
9. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH ON INCENTIVE
STOCK OPTIONS.
(a) Termination of Employment.
In the event that any Optionee's employment by the Company
shall terminate for any reason, other than Permanent and Total Disability (as
such term is defined in Section 105(d)(4) of the Code) or death, all of any such
Optionee's Incentive Stock Options, and all of any such Optionee's rights to
purchase or receive shares of Common Stock pursuant thereto, as the case may
be, shall automatically terminate on the date of such termination of employment.
However, no termination of an Optionee's Incentive Stock Options shall occur if,
and to the extent that, the Committee authorizes the Optionee to exercise any
such Incentive Stock Options at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the
expiration of not more than three (3) months after the date of such
termination of employment, but only if, and to the extent that, the Optionee
was entitled to exercise any such Incentive Stock Options at the date of such
termination of employment. In the event that a subsidiary ceases to be a
subsidiary of the Bank, the employment of all of its employees who are not
immediately thereafter employees of the Bank shall be deemed to terminate upon
the date such subsidiary so ceases to be a subsidiary of the Bank.
(b) Disability.
In the event that any Optionee's employment by the Bank shall
terminate as the result of the Permanent and Total disability of such Optionee,
such Optionee may exercise any Incentive Stock Options granted to him pursuant
to the Plan at any time prior to the earlier of (i) the respective expiration
dates of any such Incentive Stock Options or (ii) the date which is one (1) year
after the date of such termination of employment, but only if, and to the extent
that, the Optionee was entitled to exercise any such Incentive Stock Options at
the date of such termination of employment.
(c) Death.
In the event of the death of any Optionee, any Incentive Stock
Options granted to any such Optionee may be exercised by the person or persons
to whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's
estate during the period of administration) at any time prior to the earlier
of (i) the respective expiration dates of any such
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Incentive Stock Options or (ii) the date which is six (6) months after the date
of death of such Optionee (or such later period not exceeding one (1) year to
which the Committee may, in its discretion, extend such period), but only if,
and to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of death. For purposes of this Section 9(c), any
Incentive Stock Option held by an Optionee shall be considered exercisable at
the date of his death if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at the date of death is the
passage of a specified period of time.
(d) Incentive Stock Options Deemed Exercisable.
For purposes of Sections 9(a), 9(b) and 9(c) above, any
Incentive Stock Option held by any Optionee shall be considered exercisable
at the date of the termination of his employment if, but for the requirement
of serial exercise set forth in Section 7(e) hereof, any such Incentive Stock
Option would have been exercisable at such date of termination of employment.
Any exercise of any Incentive Stock Option granted pursuant to the Plan which
is considered exercisable pursuant to this Section 9(d) shall nevertheless be
subject to the provisions and restrictions contained in Section 7(e) hereof.
(e) Termination of Incentive Stock Options.
To the extent that any Incentive Stock Option granted under
the Plan to any Optionee whose employment by the Bank terminates shall not
have been exercised within the applicable period set forth in this Section 9,
any such Incentive Stock Option, and all rights to purchase or receive shares
of Common Stock pursuant thereto, as the case may be, shall terminate on the
last day of the applicable period.
10. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH ON NON-
INCENTIVE STOCK OPTIONS. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment,
disability of an Optionee or his death shall be such terms and conditions as the
Committee shall, in its sole discretion, determine at the time of termination.
11. RIGHT OF REPURCHASE AND RESTRICTIONS ON DISPOSITION. The Committee,
in its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Incentive Stock Option, the right (the "Repurchase Right"), but not the
obligation, to repurchase all or any amount of the Shares acquired by an
Optionee pursuant to the exercise of any such Options. The intent of the
Repurchase Right is to encourage the continued employment of the Optionee. The
Repurchase Right shall provide for, among other things, a specified duration of
the Repurchase Right, a specified price per Share to be paid upon the exercise
of the Repurchase Right and a restriction on the disposition of the Shares by
the Optionee during the period of the Repurchase Right. The Repurchase Right
may permit the Bank to transfer or assign such right to another party. The
Bank may exercise the Repurchase Right only to the extent permitted by
applicable law.
12. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or the fair market value of such Shares on the
date of exercise) shall equal (as
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nearly as possible, it being understood that the Bank shall not issue any
fractional shares) the amount by which the fair market value per Share on the
date of such exercise shall exceed the exercise price of such Stock Appreciation
Right, multiplied by the number of Shares with respect to which such Stock
Appreciation Right shall have been exercised. A Stock Appreciation Right may be
related to an Option or may be granted independently of any Option as the
Committee shall determine whether and to what extent a Related Stock
Appreciation Right shall be granted with respect thereto; provided, however and
notwithstanding any other provision of the Plan, that if the Related Option is
an Incentive Stock Option, the Related Stock Appreciation Right shall satisfy
all the restrictions and limitations of Section 7 hereof as if such Related
Stock Appreciation Right were an Incentive Stock Option. In the case of a
Related Option, such Related Option shall cease to be exercisable to the extent
of the Shares with respect to which the Related Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option, any Related
Stock Appreciation Right shall terminate to the extent to the Shares with
respect to which the Related Option was exercised or terminated.
13. RECAPITALIZATION, MERGER, CONSOLIDATION, CHANGE IN CONTROL AND SIMILAR
TRANSACTIONS.
(a) Adjustment.
Subject to any required action by the shareholders of the
Bank, the aggregate number of shares of Common Stock for which stock options
may be granted hereunder, the number of shares of Common Stock covered by
each outstanding stock option, and the exercise price per share of Common
Stock of each such stock option, shall all be proportionately adjusted for
any increase or decrease in the number of issued and outstanding shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend (but only on the Common Stock) or any other
increase or decrease in the number of such shares of Common Stock effected
without the receipt of consideration by the Bank.
(b) Change in Control.
All outstanding options shall become immediately exercisable
in the event of a change in control or imminent change in control of the Bank,
as determined by the Committee. For purposes of this Section, "change in
control" shall mean: (i) the execution of an agreement for the sale of all,
or a material portion, of the assets of the Bank; (ii) the execution of an
agreement for a merger or recapitalization of the Bank or any merger or
recapitalization whereby the Bank is not the surviving entity; (iii) a change
of control of the Bank, as otherwise defined or determined by the Federal
Home Loan Bank Board or regulations promulgated by it; or (iv) the acquisition,
directly or indirectly, of the beneficial ownership (within the meaning of
that term as it is used in Section 13(d) of the Securities Exchange Act of
1934 and the rules promulgated thereunder) of twenty-five percent (25%) or
more of the outstanding voting securities of the Bank by any person, trust,
entity or group. For purposes of this Section, "imminent change in control"
shall refer to any offer or announcement, oral or written, by any person or
persons acting as a group, to acquire control of the Bank.
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(c) Extraordinary Corporate Action.
Subject to any required action by the shareholders of the Bank, in the
event of any Change in Control, recapitalization, merger, consolidation,
exchange of shares, spin-off, reorganization, tender offer, liquidation or
other extraordinary corporate action or event, the Committee, in its sole
discretion, shall have the power, prior or subsequent to such action or
event to:
(i) appropriately adjust the number of shares of Common Stock subject
to each stock option, the exercise price per share of Common Stock, and the
consideration to be given or received by the Bank upon the exercise of any
outstanding Option;
(ii) cancel any or all previously granted Options, provided that
appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan as the
Committee, in its sole discretion, or the Board, acting pursuant to Section
4(a)(ii), deems necessary, desirable, appropriate or advisable; provided,
however, that no action shall be taken by the Committee which would cause
Incentive Stock Options granted pursuant to the Plan to fail to meet the
requirements of Section 422A of the Code.
Except as expressly provided in Section 13(a) and 13(b) hereof, no
Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 13.
(d) Acceleration.
The Committee shall at all times have the power to accelerate the exercise
date of Options previously granted under the Plan. In no event, however,
will such action permit Participants to exercise Incentive Stock Options in
an order other than provided in Section 7(e).
14. TIME OF GRANTING OPTIONS. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the determination shall be
given to each Employee to whom an Option is so granted within a reasonable time
after the date of such grant.
15. EFFECTIVE DATE. The Plan shall become effective upon the completion
of the Bank's conversion from mutual to stock form. Options may be granted
prior to ratification of the Plan by the stockholders if the exercise of such
Options is subject to such stockholder ratification.
16. APPROVAL BY SHAREHOLDERS. The Plan shall be approved by stockholders
of the Bank within twelve (12) months before or after the date it becomes
effective.
17. MODIFICATION OF OPTIONS. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on him by the grant of a new Option at such
time, or shall not materially decrease the Optionee's benefits under the Option
without the consent of the holder of the Option, except as otherwise permitted
under Section 18 hereof.
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18. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Action by the Board.
The Board may alter, suspend or discontinue the Plan, except that
no action of the Board may increase (other than as provided in Section 13)
the maximum number of shares permitted to be optioned under the Plan,
materially increase the benefits accruing to participants under the Plan or
materially modify the requirements for eligibility for participation in the
Plan unless such action of the Board shall be subject to approval or
ratification by the shareholders of the Bank.
(b) Change in Applicable Law.
Notwithstanding any other provision contained in the Plan, in the
event of a change in any federal or state law, rule or regulation which would
make the exercise of all or part of any previously granted Incentive and/or
Non-Incentive Stock Option unlawful or subject the Bank to any penalty, the
Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or
regulation or to avoid any such penalty.
19. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
The inability of the Bank to obtain from any regulatory body or authority
deemed by the Bank's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder shall relieve the Bank of any liability in respect of the
non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Bank may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
20. RESERVATION OF SHARES. During the term of the Plan, the Bank, will
reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. UNSECURED OBLIGATION. No Participant under the Plan shall have any
interest in any fund or special asset of the Bank by reason of the Plan or the
grant of any Incentive or Non-Incentive Stock Option to him under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-Incentive Stock Option hereunder and there shall be no required
funding of amounts which may become payable to any participant.
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22. WITHHOLDING TAX. The Bank shall have the right to deduct from all
amounts paid in cash with respect to the exercise of a Stock Appreciation Right
under the Plan any taxes required by law to be withheld with respect to such
cash payments. Where a Participant or other person is entitled to receive
Shares pursuant to the exercise of an Option of Stock Appreciation Right
pursuant to the Plan, the Bank shall have the right to require the Participant
or such other person to pay the Bank the amount of any taxes which the Bank is
required to withhold with respect to such Shares, or, in lieu thereof, to
retain, or sell without notice, a number of such Shares sufficient to cover the
amount required to be withheld.
23. GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of New Mexico, except to the extent that
Federal law shall be deemed to apply.
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<PAGE>
FIRST SAVINGS BANK, F.S.B.
1986 STOCK OPTION AND INCENTIVE PLAN DESCRIPTION
Pursuant to the 1986 Stock Option and Incentive Plan ("Plan") of First
Savings Bank, F.S.B., Clovis, New Mexico ("Bank"), an amount of the shares of
the Bank's common stock equal to 10% of the total number of shares to be issued
in the stock conversion will be reserved for the granting of stock options and
awards to the Bank's officers and employees. The purpose of the Plan is to
increase the incentive and encourage the continued employment of full-time
officers and employees by facilitating their purchase of a stock interest in the
Bank.
The principal features of the Plan are summarized below.
GENERAL
The Plan provides for (1) Stock Options (both Incentive and Non-Incentive)
and (2) Stock Appreciation Rights ("SARs"). Each award shall be on such terms
and conditions consistent with the Plan as the Committee administering the Plan
may determine.
Shares subject to options may be either authorized but unissued shares
or reacquired shares held by the Bank in its treasury. Any shares subject to
an award which expires or is terminated unexercised will again be available
for issuance under the Plan. No award or any right or interest therein is
assignable or transferable except by will or the laws of descent and
distribution.
For the purpose of granting options to directors of the Bank a
disinterested committee, as defined in the Plan, will designate the directors to
receive such awards. Otherwise, the Plan will be administered by a Committee
consisting of not less than three persons, none of whom shall be eligible to
receive awards under the Plan.
STOCK OPTIONS
The term of Stock Options will not exceed ten years from the date of grant.
Stock Options will not be exercisable until the Plan has been ratified by
shareholders. The Committee may grant either "Incentive Stock Options" as
defined under Section 422A of the Internal Revenue Code or Non-Incentive Stock
Options not intended to qualify as such.
In general, Stock Options will not be exercisable after the expiration of
their terms. In the event that a participant ceases to serve as an employee of
the Bank for any reason other than death, an exercisable Incentive Stock Option
will continue to be exercisable for three months but in no event after the
expiration date of the Option. In the event of the death of a participant
during such service or within three months following termination, an exercisable
Incentive Stock Option will continue to be exercisable for six months to one
year, as determined by the Committee, to the extent exercisable by the
participant immediately prior to his death. The effect of a participant's
termination on a Non-Incentive Stock Option will be determined by the Committee
within two weeks of termination.
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The exercise price for the purchase of shares subject to an Incentive Stock
Option at the date of grant may not be less than 100 percent of the market value
of the shares covered by the Incentive Stock Option on that date. The exercise
price must be paid for in full in cash or shares of Common Stock, or a
combination of both, as determined by the Committee.
STOCK APPRECIATION RIGHTS (SARs)
The Committee may grant SARs at any time, whether or not the
participant then holds Stock Options, granting the right to receive the excess
of the market value of the shares represented by the SARs on the date exercised
over the exercise price. SARs will be subject to the same terms and conditions
and exercisable to the same extent as Stock Options, as described above. Upon
the exercise of an SAR, the participant will receive the amount due in cash or
shares or a combination of both. SARs may be related to Stock Options, in which
case the exercise of one will reduce the number of shares represented by the
other.
SARs will require an expense accrual by the Bank each year for the
appreciation on the SARs which it is anticipated will be exercised. The amount
of the accrual is dependent upon whether and to what extent the SARs are granted
and the amount, if any, by which the market value of the SARs exceeds the
exercise price.
EFFECT OF MERGER AND OTHER ADJUSTMENTS
Shares as to which awards may be granted under the Plan and shares
then subject to awards will be adjusted by the Committee in the event of any
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split or other change in the corporate structure of the Bank.
In the case of any merger, consolidation or combination of the Bank
with or into another entity, whereby either the Bank is not the continuing
entity or its outstanding shares are converted or exchanged for securities, cash
or property, or any combination thereof, all outstanding options will become
immediately exercisable.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors of the Bank may at any time modify, amend or
terminate the Plan but may not, without the prior approval of the shareholders,
make any amendment which increases the total number of shares which may be
subject to awards, or which may be subject to awards to participants who are not
full-time employees, or which changes the class of persons eligible to
participate in the Plan. Unless previously terminated, the Plan shall continue
in effect for a term of ten years, after which no further awards may be granted
under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal income tax laws, awards under the Plan will have
the following consequences:
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(1) The grant of an award will not by itself result in the
recognition of taxable income to the participant or entitle the Bank to a
deduction at the time of such grant.
(2) The exercise of a Stock Option which is an "Incentive Stock
Option" within the meaning of Section 422A of the Internal Revenue Code
generally will not, by itself, result in the recognition of taxable income to
the participant nor entitle the Bank to a deduction at the time of such
exercise. (However, the difference between the exercise price and the fair
market value of the option shares on the date of exercise is an item of tax
preference which may, in certain situations, trigger the new alternative minimum
tax under the Tax Equity and Fiscal Responsibility Act of 1982. The tax applies
a flat 20% rate to all "minimum taxable income" in excess of $30,000 (single
persons) or $40,000 (married filing jointly). The alternative minimum tax is
incurred only when it exceeds the regular income tax.) The participant will
recognize capital gain or loss upon resale of the shares received upon such
exercise, provided that he or she held such shares for at least one year after
transfer of the shares to him or her or two years after the grant of the Stock
Option, whichever is later. Generally, if the shares are not held for that
period, the participant will recognize ordinary income upon disposition in an
amount equal to the difference between the exercise price and the fair market
value on the date of exercise of the shares acquired pursuant to the Stock
Option.
(3) The exercise of a Non-Incentive Stock Option will result in the
recognition of ordinary income by the participant on the date of exercise in an
amount equal to the difference between the exercise price and the fair market
value on the date of exercise of the shares acquired pursuant to the Stock
Option.
(4) The exercise of an SAR will result in the recognition of ordinary
income by the participant on the date of exercise in an amount equal to the
amount of cash, and/or the fair market value on the date the shares are acquired
pursuant to the exercise.
(5) The Bank will be allowed a deduction equal to the amount of
ordinary income at the time the participant recognizes such ordinary income.
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EXHIBIT 10.1
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
OF FIRST SAVINGS BANK, F.S.B.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 18
2.2 DETERMINATION OF TOP HEAVY STATUS 18
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 23
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 23
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 24
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 24
2.7 RECORDS AND REPORTS 26
2.8 APPOINTMENT OF ADVISERS 26
2.9 INFORMATION FROM EMPLOYER 26
2.10 PAYMENT OF EXPENSES 26
2.11 MAJORITY ACTIONS 27
2.12 CLAIMS PROCEDURE 27
2.13 CLAIMS REVIEW PROCEDURE 27
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 28
3.2 APPLICATION FOR PARTICIPATION 28
<PAGE>
3.3 EFFECTIVE DATE OF PARTICIPATION 28
3.4 DETERMINATION OF ELIGIBILITY 28
3.5 TERMINATION OF ELIGIBILITY 29
3.6 OMISSION OF ELIGIBLE EMPLOYEE 29
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 29
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 30
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 31
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 35
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS 35
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 40
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 43
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS 46
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS 50
4.9 MAXIMUM ANNUAL ADDITIONS 53
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 60
4.11 TRANSFERS FROM QUALIFIED PLANS 61
4.12 VOLUNTARY CONTRIBUTIONS 63
4.13 DIRECTED INVESTMENT ACCOUNT 64
<PAGE>
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY 66
5.2 TRANSACTIONS INVOLVING COMPANY STOCK 67
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND 68
6.2 METHOD OF VALUATION 68
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT 69
7.2 DETERMINATION OF BENEFITS UPON DEATH 69
7.3 DISABILITY RETIREMENT BENEFITS 70
7.4 DETERMINATION OF BENEFITS UPON TERMINATION 71
7.5 DISTRIBUTION OF BENEFITS 75
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED 80
7.7 DISTRIBUTION FOR MINOR BENEFICIARY 81
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 81
7.9 RIGHT OF FIRST REFUSALS 81
7.10 STOCK CERTIFICATE LEGEND 82
7.11 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS 83
<PAGE>
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 83
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 84
8.3 OTHER POWERS OF THE TRUSTEE 84
8.4 VOTING COMPANY STOCK 88
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 89
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 90
8.7 ANNUAL REPORT OF THE TRUSTEE 90
8.8 AUDIT 91
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 92
8.10 TRANSFER OF INTEREST 93
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT 94
9.2 TERMINATION 95
9.3 MERGER OR CONSOLIDATION 95
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS 95
10.2 ALIENATION 96
10.3 CONSTRUCTION OF PLAN 97
<PAGE>
10.4 GENDER AND NUMBER 97
10.5 LEGAL ACTION 97
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS 97
10.7 BONDING 98
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 98
10.9 INSURER'S PROTECTIVE CLAUSE 98
10.10 RECEIPT AND RELEASE FOR PAYMENTS 98
10.11 ACTION BY THE EMPLOYER 99
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 99
10.13 HEADINGS 99
10.14 APPROVAL BY INTERNAL REVENUE SERVICE 100
10.15 UNIFORMITY 100
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL 100
<PAGE>
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
OF FIRST SAVINGS BANK, F.S.B.
THIS AGREEMENT, hereby made and entered into this ____ day of ___________
_______________, 19__, by and between First Savings Bank, F.S.B. (herein
referred to as the "Employer") and George Milburn, Patricia Mason and Jimmie
Shearer (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing Plan
effective January 1, 1978 (hereinafter called the "Effective Date"), known as
Profit Sharing Plan and Trust Agreement of First Federal Savings & Loan
Association of Clovis, New Mexico and which Plan shall hereinafter be known as
Profit Sharing and Employee Stock Ownership Plan of First Savings Bank, F.S.B.
in recognition of the contribution made to its successful operation by its
employees and for the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Profit Sharing Plan, the Employer has the
ability to amend the Profit Sharing Plan, provided the Trustee joins in such
amendment if the provisions of the Profit Sharing Plan affecting the Trustee are
amended; and
WHEREAS, the Employer desires to amend the Profit Sharing Plan to enable
its eligible employees to acquire a proprietary interest in capital stock of the
Employer; and
WHEREAS, contributions to the Plan will be made by the Employer and such
contributions made to the trust will be invested primarily in the capital stock
of the Employer;
NOW, THEREFORE, effective January 1, 1989, except as otherwise provided,
the Employer and the Trustee in accordance with the provisions of the Profit
Sharing Plan pertaining to amendments thereof, hereby modify, amend and restate
the Profit Sharing Plan in its entirety as an Employee Stock Ownership Plan
(ESOP) as defined in Section 4975(e)(7) of the Internal Revenue Code, known as
Profit Sharing and Employee Stock Ownership Plan of First Savings Bank, F.S.B.
(hereinafter referred to as the "Plan"), to provide as follows:
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<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.2 "Administrator" means the person designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means the Employer and any corporation which is
a member of a controlled group of corporations (as defined in Code Section
414(b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section 414(c))
with the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of
Sections 7.2 and 7.5.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of
which the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company Stock" means common stock issued by the
Employer (or by a corporation which is a member of the same controlled group)
having a combination of voting power and dividend rights equal to or in
excess of: (A) that class of common stock of the Employer (or of any other
such corporation) having the greatest voting power, and (B) that class of
stock of the Employer (or of any other such corporation) having the greatest
dividend rights. Noncallable preferred stock shall be deemed to be "Company
Stock" if such stock is convertible at any time into stock which
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<PAGE>
constitutes "Company Stock" hereunder and if such conversion is at a
conversion price which (as of the date of the acquisition by the Trust) is
reasonable. For purposes of the preceding sentence, pursuant to Regulations,
preferred stock shall be treated as noncallable if after the call there will
be a reasonable opportunity for a conversion which meets the requirements of
the preceding sentence.
1.9 "Company Stock Account" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
A separate accounting shall be maintained with respect to that portion of
the Company Stock Account attributable to Elective Contributions and Non-
Elective Contributions.
1.10 "Compensation" with respect to any Participant means total
compensation paid by the Employer for a Plan Year. Amounts contributed by
the Employer under the within Plan, except for an Employee's Compensation
that is deferred pursuant to Section 4.2, and any non-taxable fringe benefits
provided by the Employer shall not be considered as Compensation.
For purposes of this Section, the determination of Compensation shall be
made by including salary reduction contributions made on behalf of an Employee
to a plan maintained under Code Section 125.
Compensation shall be recognized as of an Employee's effective date of
participation pursuant to Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d). In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member aggregation rules
of Code Section 414(q)(6) because such Participant is either a "five percent
owner" of the Employer or one of the ten (10) Highly Compensated Employees
paid the greatest "415 Compensation" during the year, shall be treated as a
single Participant, except that for this purpose Family Members shall include
only the affected Participant's spouse and any lineal descendants who have
not attained age nineteen (19) before the close of the year. If, as a result
of the application of such rules the adjusted $200,000 limitation is
exceeded, then the limitation shall be prorated among the affected Family
Members in proportion to each such Family Member's Compensation prior to the
application of this limitation.
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<PAGE>
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.11 "Contract" or "Policy" means a life insurance policy or annuity
contract (group or individual) issued by the insurer as elected.
1.12 "Deferred Compensation" with respect to any Participant means that
portion of the Participant's total Compensation which has been contributed to
the Plan in accordance with the Participant's deferral election pursuant to
Section 4.2.
1.13 "Early Retirement Date" means the first day of the month (prior to the
Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 60 and has completed at least 6
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
1.14 "Elective Contribution" means the Employer's contributions to the Plan
that are made pursuant to the Participant's deferral election provided in
Section 4.2. In addition, any Employer Qualified Non-Elective Contribution made
pursuant to Section 4.1(c) and Section 4.6 shall be considered an Elective
Contribution for purposes of the Plan. Any such contributions deemed to be
Elective Contributions shall be subject to the requirements of Sections 4.2(b)
and 4.2(c) and shall further be required to satisfy the discrimination
requirements of Regulation 1.401(k)-l(b)(3), the provisions of which are
specifically incorporated herein by reference.
1.15 "Eligible Employee" means any Employee.
1.16 "Employee" means any person who is employed by the Employer, but
excludes any person who is employed as an independent contractor. Employee
shall include leased employees within the meaning of Code Sections 414(n)(2)
and 414(o)(2) unless such leased employees are covered by a plan described in
Code Section 414(n)(5) and such leased employees do not constitute more than
20% of the recipient's non-highly compensated work force.
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<PAGE>
1.17 "Employer" means First Savings Bank, F.S.B. and any successor which
shall maintain this Plan; and any predecessor which has maintained this Plan.
The Employer is a corporation with principal offices in the State of
New Mexico.
1.18 "Excess Aggregate Contributions" means, with respect to any Plan Year,
the excess of the aggregate amount of the Employer matching contributions made
pursuant to Section 4.1(b), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any qualified non-elective
contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the
maximum amount of such contributions permitted under the limitations of Section
4.7(a).
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions made on behalf of Highly Compensated Participants for
the Plan Year over the maximum amount of such contributions permitted under
Section 4.5(a). Excess Contributions, including amounts recharacterized pursuant
to Section 4.6(a)(2), shall be treated as an "annual addition" pursuant to
Section 4.9(c).
1.20 "Excess Deferred Compensation" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an
"annual addition" pursuant to Section 4.9(c).
1.21 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
1.22 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, such Participant's lineal descendants and ascendants and
their spouses, all as described in Code Section 414(q)(6)(B).
1.23 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the
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<PAGE>
Plan or has any authority or responsibility to do so, or (c) has any
discretionary authority or discretionary responsibility in the administration of
the Plan, including, but not limited to, the Trustee, the Employer and its
representative body, and the Administrator.
1.24 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.25 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.26 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.27 "415 Compensation" means compensation as defined in Section 4.9(e).
1.28 "414(s) Compensation" with respect to any Employee means his Deferred
Compensation plus Elective Contributions attributable to Deferred Compensation
recharacterized as voluntary Employee contributions pursuant to Section 4.6(a)
plus "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Employee shall include "414(s) Compensation"
during the entire twelve (12) month period ending on the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1, 1992
or the date that is sixty (60) days after the date final Regulations are issued,
"414(s) Compensation" shall only be recognized as of an Employee's effective
date of participation.
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For purposes of this Section, the determination of "414(s) Compensation"
shall be made by including salary reduction contributions made on behalf of an
Employee to a plan maintained under Code Section 125.
"414(s) Compensation" in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d). However, for Plan Years beginning prior to January 1,
1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not
be adjusted.
1.29 "Highly Compensated Employee" means an Employee who performed services
for the Employer during the "determination year" and is in one or more of the
following groups:
(a) Employees who at any time during the "determination year"
or "look-back year" were "five percent owners" as defined in
Section 1.35(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of
the Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of
(i) 50 employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of officers,
Employees described in Section 1.58(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the purpose
of identifying the particular Employees who are officers. If the
Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
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(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d)
above when these paragraphs are modified to substitute
"determination year" for "look-back year".
The "look-back year" shall be the calendar year ending with or within the
Plan Year for which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the "look-
back year" and ends on the last day of the Plan Year for which testing is being
performed (the "lag period"). If the "lag period" is less than twelve months
long, the dollar threshold amounts specified in (b), (c) and (d) above shall be
prorated based upon the number of months in the "lag period".
For purposes of this Section, the determination of "415 Compensation" shall
be made without regard to Code Sections 125, 402(a)(8), 402(h)(1)(B) and, in the
case of Employer contributions made pursuant to a salary reduction agreement,
without regard to Code Section 403(b). Additionally, the dollar threshold
amounts specified in (b) and (c) above shall be adjusted at such time and in
such manner as is provided in Regulations. In the case of such an adjustment,
the dollar limits which shall be applied are those for the calendar year in
which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
nonresident aliens and who received no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and leased employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such leased employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. Highly Compensated Former Employees
shall be treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year".
1.30 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who
separated from service prior to 1987 will be treated as a Highly
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Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55
(or the last year ending before the Employee's 55th birthday), the Employee
either received "415 Compensation" in excess of $50,000 or was a "five percent
owner". For purposes of this Section, "determination year", "415 Compensation"
and "five percent owner" shall be determined in accordance with Section 1.29.
Highly Compensated Former Employees shall be treated as Highly Compensated
Employees.
1.31 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.32 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
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An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c)
are incorporated herein by reference.
1.33 "Income" means the income allocable to "excess amounts" which shall
equal the sum of the allocable gain or loss for the "applicable computation
period" and the allocable gain or loss for the period between the end of the
"applicable computation period" and the date of distribution ("gap period").
The income allocable to "excess amounts" for the "applicable computation period"
and the "gap period" is calculated separately and is determined by multiplying
the income for the "applicable computation period" or the "gap period" by a
fraction. The numerator of the fraction is the "excess amount" for the
"applicable computation period". The denominator of the fraction is the total
"account balance" attributable to "Employer contributions" as of the end of the
"applicable computation period" or the "gap period", reduced by the gain
allocable to such total amount for the "applicable computation period" or the
"gap period" and increased by the loss allocable to such total amount for the
"applicable computation period" or the "gap period". The provisions of this
Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
(2) "taxable year of the Participant" for "applicable
computation period";
(3) "Deferred Compensation" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance".
(b) For purposes of Section 4.6(a), by substituting:
(1) "Excess Contributions" for "excess amount";
(2) "Plan Year" for "applicable computation period";
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(3) "Elective Contributions" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance".
(c) For purposes of Section 4.8(a), by substituting:
(1) "Excess Aggregate Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant to
Section 4.12 and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c)" for
"Employer contributions"; and
(4) "Participant's Account and Voluntary Contribution Account"
for "account balance".
In lieu of the "fractional method" described above, a "safe harbor method"
may be used to calculate the allocable Income for the "gap period". Under such
"safe harbor method", allocable Income for the "gap period" shall be deemed to
equal ten percent (10%) of the Income allocable to "excess amounts" for the
"applicable computation period" multiplied by the number of calendar months in
the "gap period". For purposes of determining the number of calendar months in
the "gap period", a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
Income allocable to any distribution of Excess Deferred Compensation on or
before the last day of the taxable year of the Participant shall be calculated
from the first day of the taxable year of the Participant to the date on which
the distribution is made pursuant to either the "fractional method" or the "safe
harbor method".
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The Income allocable to Excess Aggregate Contributions resulting from the
recharacterization of Elective Contributions shall be determined and distributed
as if such recharacterized Elective Contributions had been distributed as Excess
Contributions.
Notwithstanding the above, for "applicable computation periods" which began
in 1987, Income during the "gap period" shall not be taken into account.
1.34 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940,
a bank, or an insurance company.
1.35 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c)(1)(A) for the calendar year in
which such Plan Year ends and owning (or considered as owning within
the meaning of Code Section 318) both more than one-half percent
interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person
who owns more than
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five percent (5%) of the capital or profits interest in the Employer.
In determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and
(o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual
"415 Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than one percent (1%)
of the outstanding stock of the Employer or stock possessing more
than one percent (1%) of the total combined voting power of all stock
of the Employer or, in the case of an unincorporated business, any
person who owns more than one percent (1%) of the capital or profits
interest in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers. However, in determining whether an individual has
"415 Compensation" of more than $150,000, "415 Compensation" from each
employer required to be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation" shall
be made without regard to Code Sections 125, 402(a)(8), 402(h)(1)(B) and, in the
case of Employer contributions made pursuant to a salary reduction agreement,
without regard to Code Section 403(b).
1.36 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.37 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income, or for
contributions made by the Employer to this Plan.
1.38 "Non-Elective Contribution" means the Employer's contributions to the
Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
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1.39 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.40 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.41 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age (65th birthday).
A Participant shall become fully Vested in his Account upon attaining his Normal
Retirement Age.
1.42 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning
after December 31, 1984, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for
the computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.43 "Other Investments Account" means the account of a Participant which
is credited with his share of the net gain (or loss) of the Plan, Forfeitures
and Employer contributions in other than Company Stock and which is debited
with payments made to pay for Company Stock.
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A separate accounting shall be maintained with respect to that
portion of the Other Investments Account attributable to Elective
Contributions and Non-Elective Contributions.
1.44 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.45 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan and Trust resulting from the Employer's
Non-Elective Contributions.
A separate accounting shall be maintained with respect to that
portion of the Participant's Account attributable to Employer matching
contributions made pursuant to Section 4.1(b) and Employer discretionary
contributions made pursuant to Section 4.1(d).
1.46 "Participant's Combined Account" means the total aggregate amount
of each Participant's Elective Account and Participant's Account.
1.47 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to
that portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective
Contributions.
1.48 "Plan" means this instrument, including all amendments thereto.
1.49 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.50 "Qualified-Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.1(c) and
Section 4.6. Such contributions shall be considered an Elective Contribution
for the purposes of the Plan and used to satisfy the "Actual Deferral
Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 4.8(g) which are used to satisfy the "Actual Contribution
Percentage" tests shall be
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<PAGE>
considered Qualified Non-Elective Contributions and be subject to the
provisions of Sections 4.2(b) and 4.2(c).
1.51 "Regulation" means the Income Tax Regulations as promulgated by
the Secretary of the Treasury or his delegate, and as amended from time to
time.
1.52 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.53 "Retirement Date" means the date as of which a Participant retires
whether such retirement occurs on a Participant's Normal Retirement Date,
Early or Late Retirement Date (see Section 7.1).
1.54 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.55 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by death or
retirement.
1.56 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.57 "Top Heavy Plan Year" means a Plan Year commencing after December
31, 1983 during which the Plan is a Top Heavy Plan.
1.58 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked
according to the amount of "415 Compensation" (determined for this purpose in
accordance with Section 1.29) received from the Employer during such year.
All Affiliated Employers shall be taken into account as a single employer,
and leased employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such leased employees are
covered by a plan described in Code Section 414(n)(5) and are not covered in
any qualified plan maintained by the Employer. Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, for the purpose of determining the number of active
Employees in any year, the following additional Employees shall also be
excluded; however, such Employees shall still be considered for the purpose
of identifying the particular Employees in the Top Paid Group:
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(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and
the Plan covers only Employees who are not covered under such agreements,
then Employees covered by such agreements shall be excluded from both the
total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
1.59 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
1.60 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
1.61 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
1.62 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan resulting from the Participant's nondeductible
voluntary contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant
to Section 4.6(a) shall remain subject to the limitations of Sections 4.2(b) and
4.2(c). Therefore, a separate accounting shall be maintained with respect to
that portion of the Voluntary Contribution Account attributable to voluntary
Employee contributions made pursuant to Section 4.12.
1.63 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
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For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation
period shall shift to the Plan Year which includes the anniversary of the
date on which the Employee first performed an Hour of Service. An Employee
who is credited with the required Hours of Service in both the initial
computation period (or the computation period beginning after a 1-Year Break
in Service) and the Plan Year which includes the anniversary of the date on
which the Employee first performed an Hour of Service, shall be credited with
two (2) Years of Service for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
year.
For all other purposes, the computation period shall be the Plan
Year.
Years of Service with First Federal Savings and Loan Association
of Clovis, New Mexico during the time a qualified plan was maintained shall
be recognized.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 7.4 of the
Plan and the special minimum allocation requirements of Code Section 416(c)
pursuant to Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year commencing
after December 31, 1983 in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
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If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate Account
balance shall not be taken into account for purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any
Aggregation Group which includes this Plan is a Top Heavy Group). In
addition, for Plan Years beginning after December 31, 1984, if a
Participant or Former Participant has not performed any services for any
Employer maintaining the Plan at any time during the five year period
ending on the Determination Date, any accrued benefit for such Participant
or Former Participant shall not be taken into account for the purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
commencing after December 31, 1983 in which, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all plans of
an Aggregation Group, exceeds ninety percent (90%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on the
Determination Date;
(2) an adjustment for any contributions due as of the Determination
Date. Such adjustment shall be the amount of any contributions
actually made after the valuation date but due on or before the
Determination Date, except for the first Plan Year when such
adjustment shall also reflect the amount of any contributions made
after the Determination Date that are allocated as of a date in that
first Plan Year;
(3) any Plan distributions made within the Plan Year that includes
the Determination Date or within the four (4) preceding Plan Years.
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However, in the case of distributions made after the valuation
date and prior to the Determination Date, such distributions are not
included as distributions for top heavy purposes to the extent that
such distributions are already included in the Participant's
Aggregate Account balance as of the valuation date. Notwithstanding
anything herein to the contrary, all distributions, including
distributions made prior to January 1, 1984, and distributions under
a terminated plan which if it had not been terminated would have been
required to be included in an Aggregation Group, will be counted.
Further, distributions from the Plan (including the cash value of
life insurance policies) of a Participant's account balance because
of death shall be treated as a distribution for the purposes of this
paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified voluntary
employee contributions shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer),
if this Plan provides the rollovers or plan-to-plan transfers, it
shall always consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this Plan is the
plan accepting such rollovers or plan-to-plan transfers, it shall not
consider such rollovers or plan-to-plan transfers accepted after
December 31, 1983 as part of the Participant's Aggregate Account
balance. However, rollovers or plan-to-plan transfers accepted prior
to January 1, 1984 shall be considered as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the rollover
or plan-to-plan transfer, it shall not
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<PAGE>
be counted as a distribution for purposes of this Section. If this
Plan is the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of the date on
which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to be
treated as the same employer in (5) and (6) above, all employers
aggregated under Code Section 414(b), (c), (m) and (o) are treated as
the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or
a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which a Key
Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and each
other plan of the Employer which enables any plan in which a Key
Employee participates to meet the requirements of Code Sections
401(a)(4) or 410, will be required to be aggregated. Such group
shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group
will be considered a Top Heavy Plan if the Required Aggregation Group
is a Top Heavy Group. No plan in the Required Aggregation Group will
be considered a Top Heavy Plan if the Required Aggregation Group is
not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any
other plan not required to be included in the Required Aggregation
Group, provided the resulting group, taken as a whole, would continue
to satisfy the provisions of Code Sections 401(a)(4) and 410. Such
group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is
part of the Required Aggregation Group will be considered a Top Heavy
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Plan if the Permissive Aggregation Group is a Top Heavy Group. No
plan in the Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a Top Heavy
Group.
(3) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated in order
to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years ending
on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding
Plan Year, or (b) in the case of the first Plan Year, the last day of such
Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant other
than a Key Employee, shall be as determined using the single accrual method
used for all plans of the Employer and Affiliated Employers, or if no such
single method exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code Section
411(b)(1)(C).
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all
defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
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2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems necessary for
the proper administration of the Plan to assure that the Plan is being
operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and the
Act.
(b) The Employer shall establish a "funding policy and method",
i.e., it shall determine whether the Plan has a short run need for
liquidity (e.g., to pay benefits) or whether liquidity is a long run goal
and investment growth (and stability of same) is a more current need, or
shall appoint a qualified person to do so. The Employer or its delegate
shall communicate such needs and goals to the Trustee, who shall coordinate
such Plan needs with its investment policy. The communication of such a
"funding policy and method" shall not, however, constitute a directive to
the Trustee as to investment of the Trust Funds. Such "funding policy and
method" shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(c) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or allocated
by it under the provisions of this Plan or pursuant to procedures
established hereunder. This requirement may be satisfied by formal
periodic review by the Employer or by a qualified person specifically
designated by the Employer, through day-to-day conduct and evaluation, or
through other appropriate ways.
(d) The Employer will furnish Plan Fiduciaries and Participants with
notices and information statements when voting rights must be exercised
pursuant to Section 8.4.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal,
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to take effect at a date specified therein, or upon delivery to the
Administrator if no date is specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion
to construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
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(a) the discretion to determine all questions relating to the eligibility
of Employees to participate or remain a Participant hereunder and to receive
benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount
and the kind of benefits to which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish such
rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from
any insurer, and to designate the insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and to the Trustee from time to
time the sums of money necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the Trustee can exercise any
investment discretion in a manner designed to accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligble Employees
that they may elect to have a portion of their Compensation deferred or paid
to them in cash;
(j) to establish and communicate to Participants a procedure, which
includes at least three (3) investment options pursuant to Regulations, for
allowing each Participant to direct the Trustee as to the investment of his
Company Stock Account pursuant to Section 4.13;
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(k) to establish and communicate to Participants a procedure and method to
insure that each Participant will vote Company Stock allocated to such
Participant's Company Stock Account pursuant to Section 8.4;
(l) to enter into a written agreement with regard to the payment of
federal estate tax pursuant to Code Section 2210(b);
(m) to assist any Participant regarding his rights, benefits, or elections
available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses
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shall constitute a liability of the Trust Fund. However, the Employer may
reimburse the Trust Fund for any administration expense incurred. Any
administration expense paid to the Trust Fund as a reimbursement shall not be
considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Administrator on
forms supplied by the Employer. Written notice of the disposition of a claim
shall be furnished to the claimant within 90 days after the application is
filed. In the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be understood by
the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will be
provided. In addition, the claimant shall be furnished with an explanation of
the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a
court reporter to attend the hearing and record the proceedings. In such event,
a complete written transcript of the
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proceedings shall be furnished to both parties by the court reporter. The full
expense of any such court reporter and such transcripts shall be borne by the
party causing the court reporter to attend the hearing. A final decision as to
the allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period). Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and has
attained age 21 shall be eligible to participate hereunder as of the date he
has satisfied such requirements. However, any Employee who was a Participant
in the Plan prior to the effective date of this amendment and restatement
shall continue to participate in the Plan. The Employer shall give each
prospective Eligible Employee written notice of his eligibility to
participate in the Plan prior to the close of the Plan Year in which he first
becomes an Eligible Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee shall
make application to the Employer for participation in the Plan and agree to the
terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the first
day of the Plan Year next following the date on which such Employee met the
eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred).
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer.
Such determination shall
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be conclusive and binding upon all persons, as long as the same is made
pursuant to the Plan and the Act. Such determination shall be subject to review
per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of Service completed while a
noneligible Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally,
his interest in the Plan shall continue to share in the earnings of the Trust
Fund.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution
made with respect to the ineligible person regardless of whether or not a
deduction is allowable with respect to such contribution. In such event, the
amount contributed with respect to the ineligible person shall constitute a
Forfeiture for the Plan Year in which the discovery is made.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be
deemed an Employer's Elective Contribution.
(b) On behalf of each Participant who is eligible to share in
matching contributions for the Plan Year, a discretionary matching
contribution equal to a percentage of each such Participant's Deferred
Compensation, the exact percentage to be determined each year by the
Employer, which amount shall be deemed an Employer's Non-Elective
Contribution.
(c) On behalf of each Non-Highly Compensated Participant and
Non-Key Employee who is eligible to share in the Qualified Non-Elective
Contribution for the Plan Year, a discretionary Qualified Non-Elective
Contribution equal to a percentage of each eligible individual's
Compensation, the exact percentage to be determined each year by the
Employer. The Employer's Qualified Non-Elective Contribution shall be
deemed an Employer's Elective Contribution.
(d) A discretionary amount out of its current or accumulated Net
Profit, which amount shall be deemed an Employer's Non-Elective
Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash,
Company Stock or in such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a contribution even
if it exceeds current or accumulated Net Profit or the amount which is
deductible under Code Section 404.
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4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer a portion of his
Compensation which would have been received in the Plan Year (except for
the deferral election) by up to the maximum amount which will not cause
the Plan to violate the provisions of Sections 4.5(a) and 4.9, or cause
the Plan to exceed the maximum amount allowable as a deduction to the
Employer under Code Section 404. A deferral election or modification of
an earlier election) may not be made with respect to Compensation which
is currently available on or before the date the Participant executed
such election.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective
Account.
(b) The balance in each Participant's Elective Account shall be
fully Vested at all times and shall not be subject to Forfeiture for any
reason.
(c) Amounts held in the Participant's Elective Account may not be
distributable earlier than:
(1) a Participant's termination of employment or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the existence at the time
of Plan termination of another defined contribution plan (other
than an employee stock ownership plan as defined in Code Section
4975(e)(7)) or the establishment of a successor defined
contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)) by the Employer or an
Affiliated Employer within the period ending twelve months after
distribution of all assets from the Plan maintained by the Employer;
(4) the date of disposition by the Employer to an entity that is
not an Affiliated Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) used in a trade or
business of such corporation if such corporation continues to
maintain this Plan after
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the disposition with respect to a Participant who continues
employment with the corporation acquiring such assets; or
(5) the date of disposition by the Employer or an Affiliated
Employer who maintains the Plan of its interest in a subsidiary
(within the meaning of Code Section 409(d)(3)) to an entity which
is not an Affiliated Employer but only with respect to a
Participant who continues employment with such subsidiary.
(d) In any Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all other
plans, contracts or arrangements of the Employer maintaining this Plan
shall not exceed, during any taxable year, the limitation imposed by
Code Section 402(g), as in effect at the beginning of such taxable year.
This dollar limitation shall be adjusted annually pursuant to the method
provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any
other plan maintained by the Employer, then such Participant shall not
be permitted to elect to have Deferred Compensation contributed to the
Plan on his behalf for a period of twelve (12) months following the
receipt of the distribution. Furthermore, the dollar limitation under
Code Section 402(g) shall be reduced, with respect to the Participant's
taxable year following the taxable year in which the hardship
distribution was made, by the amount of such Participant's Deferred
Compensation, if any, pursuant to this Plan (and any other plan
maintained by the Employer) for the taxable year of the hardship
distribution.
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred arrangement (as
defined in Code Section 401(k)), a simplified employee pension (as
defined in Code Section 408(k)), a salary reduction arrangement (within
the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan
under Code Section 457, or a trust described in Code Section 501(c)(18)
cumulatively exceed the limitation imposed
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by Code Section 402(g) (as adjusted annually in accordance with the
method provided in Code Section 415(d) pursuant to Regulations) for such
Participant's taxable year, the Participant may, not later than March 1
following the close of his taxable year, notify the Administrator in
writing of such excess and request that his Deferred Compensation under
this Plan be reduced by an amount specified by the Participant. In
such event, the Administrator may direct the Trustee to distribute such
excess amount (and any Income allocable to such excess amount) to the
Participant not later than the first April 15th following the close of
the Participant's taxable year. Distributions in accordance with this
paragraph may be made for any taxable year of the Participant which
begins after December 31, 1986. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be
treated as a pro rata distribution of Excess Deferred Compensation and
Income. The amount distributed shall not exceed the Participant's
Deferred Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's taxable
year must satisfy each of the following conditions:
(1) the Participant shall designate the distribution as Excess
Deferred Compensation;
(2) the distribution must be made after the date on which the Plan
received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution of
Excess Deferred Compensation.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any
distribution and/or recharacterization of Excess Contributions pursuant
to Section 4.6(a) for the Plan Year beginning with or within the taxable
year of the Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market value
of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
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(i) All amounts allocated to a Participant's Elective Account may
be treated as a Directed Investment Account pursuant to Section 4.13.
(j) Employer Elective Contributions made pursuant to this Section
may be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or
savings and loan association, money market certificate, or other
short-term debt security acceptable to the Trustee until such time as
the allocations pursuant to Section 4.4 have been made.
(k) The Employer and the Administrator shall implement the salary
reduction elections provided for herein in accordance with the following:
(1) A Participant may commence making elective deferrals to the
Plan only after first satisfying the eligibility and participation
requirements specified in Article III. However, the Participant
must make his initial salary deferral election within a reasonable
time, not to exceed thirty (30) days, after entering the Plan
pursuant to Section 3.3. If the Participant fails to make an
initial salary deferral election within such time, then such
Participant may thereafter make an election in accordance with the
rules governing modifications. The Participant shall make such an
election by entering into a written salary reduction agreement with
the Employer and filing such agreement with the Administrator.
Such election shall initially be effective beginning with the pay
period following the acceptance of the salary reduction agreement
by the Administrator, shall not have retroactive effect and shall
remain in force until revoked.
(2) A Participant may modify a prior election at any time during
the Plan Year and concurrently make a new election by filing a
written notice with the Administrator within a reasonable time
before the pay period for which such modification is to be
effective. Any modification shall not have retroactive effect and
shall remain in force until revoked.
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(3) A Participant may elect to prospectively revoke his salary reduction
agreement in its entirety at any time during the Plan Year by providing
the Administrator with thirty (30) days written notice of such revocation
(or upon such shorter notice period as may be acceptable to the
Administrator). Such revocation shall become effective as of the
beginning of the first pay period coincident with or next following the
expiration of the notice period. Furthermore, the termination of the
Participant's employment, or the cessation of participation for any
reason, shall be deemed to revoke any salary reduction agreement then in
effect, effective immediately following the close of the pay period
within which such termination or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer contributions will be paid in cash, Company Stock or other
property as the Employer may from time to time determine. Company Stock and
other property will be valued at their then fair market value. The Employer
shall generally pay to the Trustee its contribution to the Plan for each Plan
Year, within the time prescribed by law, including extensions of time, for
the filing of the Employer's federal income tax return for the Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general
assets, but in any event within ninety (90) days from the date on which such
amounts would otherwise have been payable to the Participant in cash. The
provisions of Department of Labor regulations 2510.3-102 are incorporated
herein by reference. Furthermore, any additional Employer contributions which
are allocable to the Participant's Elective Account for a Plan Year shall be
paid to the Plan no later than the twelve-month period immediately following
the close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of each
Anniversary Date all amounts allocated to each such Participant as set forth
herein.
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(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable period of time after
the date of receipt by the Administrator of such information, the
Administrator shall allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution made pursuant to
Section 4.1(a), to each Participant's Elective Account in an amount equal
to each such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 4.1(b), to each Participant's Account in accordance
with Section 4.1(b).
Only Participants who have completed a Year of Service during the Plan
Year and are actively employed on the last day of the Plan Year shall be
eligible to share in the matching contribution for the year.
(3) With respect to the Employer's Qualified Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's Elective
Account in accordance with Section 4.1(c).
(4) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 4.1(d), to each Participant's Account in the same
proportion that each such Participant's Compensation for the year bears
to the total Compensation of all Participants for such year.
Only Participants who have completed a Year of Service during the Plan
Year and are actively employed on the last day of the Plan Year shall be
eligible to share in the discretionary contribution for the year. However,
with respect to Plan Years beginning after December 31, 1989, in lieu of
the foregoing, only Participants who are actively employed on the last day
of the Plan Year shall be eligible to share in the Employer contribution
for the year.
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(c) The Company Stock Account of each Participant shall be credited as
of each Anniversary Date with Forfeitures of Company Stock and his allocable
share of Company Stock (including fractional shares) purchased and paid for
by the Plan or contributed in kind by the Employer. Stock dividends on
Company Stock held in his Company Stock Account shall be credited to his
Company Stock Account when paid. Cash dividends on Company Stock held in his
Company Stock Account shall be credited to his Other Investments Account when
paid.
(d) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any earnings or losses
(net appreciation or net depreciation) of the Trust Fund shall be allocated
in the same proportion that each Participant's and Former Participant's
nonsegregated accounts (other than each Participant's Company Stock Account)
bear to the total of all Participants' and Former Participants' nonsegregated
accounts (other than Participants' Company Stock Accounts) as of such date.
Cash dividends on Company Stock allocated to each Participant's or Former
Participant's nonsegregated accounts after the first month of the Plan Year
shall not share in any earnings or losses of the Trust Fund for such year.
However, the Administrator may direct that cash dividends on Company Stock
allocated to each Participant's or Former Participant's Company Stock Account
made after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of deposit in
a bank or savings and loan association, money market certificate, or other
short term debt security acceptable to the Trustee until such time as the
allocations pursuant to this Plan have been made, at which time they may
remain segregated or be invested as part of the general Trust Fund, or such
cash dividends be distributed pursuant to Section 7.5(d). Earnings or losses
include the increase (or decrease) in the fair market value of assets of the
Trust Fund (other than Company Stock in the Participants' Company Stock
Accounts) since the preceding Anniversary Date.
Participants' transfers from other qualified plans and voluntary
contributions deposited in the general Trust Fund after a valuation date
shall not
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share in any earnings and losses (net appreciation or net depreciation) of
the Trust Fund for such period. Each segregated account maintained on behalf
of a Participant shall be credited or charged with its separate earnings and
losses.
(e) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any, in
accordance with Section 7.4(f). The remaining Forfeitures, if any, shall be
allocated to Participants' Accounts and used to reduce the contribution of
the Employer hereunder for the Plan Year in which such Forfeitures occur in
the following manner:
(1) Forfeitures attributable to Employer matching contributions made
pursuant to Section 4.1(b) shall be used to reduce the Employer's
contribution for the Plan Year in which such Forfeitures occur.
(2) Forfeitures attributable to Employer discretionary contributions made
pursuant to Section 4.1(d) shall be allocated among the Participants'
Accounts of Participants otherwise eligible to share in the allocation of
discretionary contributions for the year in the same proportion that each
such Participant's Compensation for the year bears to the total
Compensation of all such Participants for the year.
Provided, however, that in the event the allocation of Forfeitures
provided herein shall cause the "annual addition" (as defined in Section 4.9)
to any Participant's Account to exceed the amount allowable by the Code, the
excess shall be reallocated in accordance with Section 4.10.
(f) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible
to share in the allocation of contributions and Forfeitures as provided above,
shall receive the minimum allocation provided for in Section 4.4(h) if eligible
pursuant to the provisions of Section 4.4(j).
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(g) Notwithstanding the foregoing, Participants who are not actively
employed on the last day of the Plan Year due to Retirement (Early, Normal or
Late) or death shall share in the allocation of contributions and Forfeitures
for that Plan Year.
(h) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's
Combined Account of each Non-Key Employee shall be equal to at least three
percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by
contributions and forfeitures, if any, allocated to each Non-Key Employee in
any defined contribution plan included with this plan in a Required
Aggregation Group). However, if (i) the sum of the Employer's contributions
and Forfeitures allocated to the Participant's Combined Account of each Key
Employee for such Top Heavy Plan Year is less than three percent (3%) of each
Key Employee's "415 Compensation" and (ii) this Plan is not required to be
included in an Aggregation Group to enable a defined benefit plan to meet the
requirements of Code Section 401(a)(4) or 410, the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined Account
of each Non-Key Employee shall be equal to the largest percentage allocated
to the Participant's Combined Account of any Key Employee. However, in
determining whether a Non-Key Employee has received the required minimum
allocation, such Non-Key Employee's Deferred Compensation and matching
contributions needed to satisfy the "Actual Contribution Percentage" tests
pursuant to Section 4.7(a) shall not be taken into account.
However, no such minimum allocation shall be required in this Plan for
any Non-Key Employee who participates in another defined contribution plan
subject to Code Section 412 providing such benefits included with this Plan
in a Required Aggregation Group.
(i) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions and Forfeitures allocated on
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<PAGE>
behalf of such Key Employee divided by the "415 Compensation" for such
Key Employee.
(j) For any Top Heavy Plan Year, the minimum allocations set forth
above shall be allocated to the Participant's Combined Account of all
Non-Key Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of Service; (2) declined to make
mandatory contributions (if required) or salary reduction contributions
to the Plan; and (3) been excluded from participation because of their level
of Compensation.
(k) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained as
follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing his status in the Plan attributable to
post-break service.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer Elective
Contributions to a Participant's Elective Account shall satisfy one of the
following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral Percentage"
of the Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral Percentage"
for the Non-Highly Compensated Participant group shall not be more than
two percentage points. Additionally, the "Actual Deferral Percentage"
for the Highly Compensated Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
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<PAGE>
However, for Plan Years beginning after December 31, 1988, in order to
prevent the multiple use of the alternative method described in (2) above
and in Code Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2 and to make
Employee contributions or to receive matching contributions under this
Plan or under any other plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are incorporated herein by
reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group for a Plan Year, the average of the
ratios, calculated separately for each Participant in such group, of the
amount of Employer Elective Contributions allocated to each Participant's
Elective Account for such Plan Year, to such Participant's "414(s)
Compensation" for such Plan Year. The actual deferral ratio for each
Participant and the "Actual Deferral Percentage" for each group shall be
calculated to the nearest one-hundredth of one percent for Plan Years
beginning after December 31, 1988. Employer Elective Contributions allocated
to each Non-Highly Compensated Participant's Elective Account shall be
reduced by Excess Deferred Compensation to the extent such excess amounts are
made under this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Employee who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the following
shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be the
greater of: (i) the ratio determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family Members who
are Highly Compensated Participants
41
<PAGE>
without regard to family aggregation; and (ii) the ratio determined by
aggregating Employer Elective Contributions and "414(s) Compensation" of
all eligible Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s) Compensation", for Plan
Years beginning after December 31, 1988, Family Members shall include only
the affected Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation" of all
Family Members shall be disregarded for purposes of determining the
"Actual Deferral Percentage" of the Non-Highly Compensated Participant
group except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family
group in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to make a deferral election pursuant to Section 4.2,
whether or not such deferral election was made or suspended pursuant to
Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii) as in effect
for Plan Years beginning after December 31, 1988), the cash or deferred
arrangements included in such plans shall be treated as one arrangement. In
addition, two or more cash or deferred arrangements may be considered as a
single arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans and the plans
including such arrangements shall be treated as one arrangement and as one
plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and
401(k).
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<PAGE>
Notwithstanding the above, for Plan Years beginning after December 31,
1988, this Plan may not be combined with any other plan for purposes of
determining whether this Plan or any other plan satisfies this Section
and Code Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred
arrangements of the Employer or an Affiliated Employer, all such cash
or deferred arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual deferral ratio
with respect to such Highly Compensated Participant. However, for Plan
Years beginning after December 31, 1988, no such aggregation of cash or
deferred arrangements is required.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests
set forth in Section 4.5(a) for Plan Years beginning after December 31, 1986,
the Administrator shall adjust Excess Contributions pursuant to the options
set forth below:
(a) on or before the fifteenth day of the third month following the
end of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him and/or at his election recharacterized
as a voluntary Employee contribution pursuant to Section 4.12 until one
of the tests set forth in Section 4.5(a) is satisfied, or until his
actual deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual deferral ratio.
This process shall continue until one of the tests set forth in
Section 4.5(a) is satisfied. For each Highly Compensated Participant,
the amount of Excess Contributions is equal to the Elective Contributions
on behalf of such Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by multiplying
the Highly Compensated Participant's actual deferral ratio (determined
after application of this paragraph) by his "414(s) Compensation".
However, in determining the amount of Excess Contributions to be
distributed and/or recharacterized with respect to an affected Highly
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<PAGE>
Compensated Participant as determined herein, such amount shall be reduced by
any Excess Deferred Compensation previously distributed to such affected
Highly Compensated Participant for his taxable year ending with or within
such Plan Year.
(1) With respect to the distribution of Excess Contributions pursuant to
(a) above, such distribution:
(i) may be postponed but not later than the close of the Plan Year
following the Plan Year to which they are allocable;
(ii) shall be made simultaneously from Deferred Compensation and
matching contributions which relate to such Deferred Compensation
provided, however, that any such matching contributions which are
not Vested shall be forfeited in lieu of distribution;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a distribution of Excess
Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which the last
of those Highly Compensated Participants with Excess Contributions
to be recharacterized is notified of the recharacterization and the
tax consequences of such recharacterization;
(ii) shall not exceed the amount of Deferred Compensation on behalf
of any Highly Compensated Participant for any Plan Year;
(iii) shall be treated as voluntary Employee contributions for
purposes of Code Section 401(a)(4) and Regulation 1.401(k)-1(b).
However, for purposes of sections 2.2 and 4.4(h), recharacterized
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<PAGE>
Excess Contributions continue to be treated as Employer
contributions that are Deferred Compensation. For Plan Years
beginning after December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions shall
continue to be nonforfeitable and subject to the same
distribution rules provided for in Section 4.2(c);
(iv) are not permitted if the amount recharacterized plus
voluntary Employee contributions actually made by such Highly
Compensated Participant, exceed the maximum amount of voluntary
Employee contributions (determined prior to application of
Section 4.7(a)) that such Highly Compensated Participant is
permitted to make under the Plan in the absence of
recharacterization; and
(v) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the
entire amount of Excess Contributions shall be treated as a pro rata
distribution and/or recharacterization of Excess Contributions and Income.
(4) The determination and correction of Excess Contributions of a
Highly Compensated Participant whose actual deferral ratio is determined
under the family aggregation rules shall be accomplished as follows:
(i) If the actual deferral ratio for the Highly Compensated
Participant is determined in accordance with Section
4.5(c)(1)(ii), then the actual deferral ratio shall be reduced
as required herein and the Excess Contributions for the family
unit shall be allocated among the Family Members in proportion
to the Elective Contributions of each Family Member that were
combined to determine the group actual deferral ratio.
(ii) If the actual deferral ratio for the Highly Compensated
Participant is determined under Section 4.5(c)(1)(i), then the
actual
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<PAGE>
deferral ratio shall first be reduced as required herein, but not
below the actual deferral ratio of the group of Family Members
who are not Highly Compensated Participants without regard to
family aggregation. The Excess Contributions resulting from
this initial reduction shall be allocated (in proportion to
Elective Contributions) among the Highly Compensated Participants
whose Elective Contributions were combined to determine the
actual deferral ratio. If further reduction is still required,
then Excess Contributions resulting from this further reduction
shall be determined by taking into account the contributions of
all Family Members and shall be allocated among them in
proportion to their respective Elective Contributions.
(b) Within twelve (12) months after the end of the Plan Year, the
Employer shall make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 4.5(a). Such contribution
shall be allocated to the Participant's Elective Account of each
Non-Highly Compensated Participant in the same proportion that each
Non-Highly Compensated Participant's Compensation for the year bears to
the total Compensation of all Non-Highly Compensated Participants.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for Plan Years beginning
after December 31, 1986 for the Highly Compensated Participant group
shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant group, or such percentage for the Non-Highly
Compensated Participant group plus 2 percentage points. However, for
Plan Years beginning after December 31, 1988, to prevent the multiple
use of the alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated Participant eligible to
make
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<PAGE>
elective deferrals pursuant to Section 4.2 or any other cash or
deferred arrangement maintained by the Employer or an Affiliated
Employer and to make Employee contributions or to receive matching
contributions under this Plan or under any other plan maintained by
the Employer or an Affiliated Employer shall have his actual
contribution ratio reduced pursuant to Regulation 1.401(m)-2. The
provisions of Code Section 401(m) and Regulations 1.401(m)-l(b)
and 1.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately for
each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant to
Section 4.12 and Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) on behalf of each
such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions pursuant
to Section 4.8(d), only Employer matching contributions contributed to
the Plan prior to the end of the succeeding Plan Year shall be considered.
In addition, the Administrator may elect to take into account, with
respect to Employees eligible to have Employer matching contributions
pursuant to Section 4.1(b) or voluntary Employee contributions pursuant
to Section 4.12 allocated to their accounts, elective deferrals (as
defined in Regulation 1.402(g)-l(b)) and qualified non-elective
contributions (as defined in Code Section 401(m)(4)(C)) contributed to
any plan maintained by the Employer. Such elective deferrals and
qualified non-elective contributions shall be treated as Employer matching
contributions subject to Regulation 1.401(m)-1(b)(2) which is incorporated
herein by reference. However, for
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<PAGE>
Plan Years beginning after December 31, 1988, the Plan Year must be the
same as the plan year of the plan to which the elective deferrals and the
qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of
a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating Employer
matching contributions made pursuant to Section 4.1(b), voluntary
Employee contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) and "414(s) Compensation" of all eligible
Family Members who are Highly Compensated Participants without
regard to family aggregation; and (ii) the ratio determined by
aggregating Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of all eligible Family members (including Highly
Compensated Participants). However, in applying the $200,000 limit
to "414(s) Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected Employee's
spouse and any lineal descendants who have not attained age 19
before the close of the Plan Year.
(2) The Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Contribution Percentage" of the
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Non-Highly Compensated Participant group except to the extent taken
into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as
one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than
the average benefits test under Code Section 410(b)(2)(A)(ii) as in
effect for Plan Years beginning after December 31, 1988), such plans
shall be treated as one plan. In addition, two or more plans of the
Employer to which matching contributions, Employee contributions, or
both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401(a)(4),
410(b) and 401(m). In such a case, the aggregated plans must satisfy this
Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such
aggregated plans were single plan.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, this Plan may not be aggregated with any other plan
for purposes of determining whether this Plan or any other plan satisfies
this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two
or more plans which are maintained by the Employer or an Affiliated
Employer to which matching contributions, Employee contributions, or
both, are made, all such contributions on behalf of such Highly
Compensated Participant shall be aggregated for purposes of determining
such Highly Compensated Participant's actual contribution ratio. However,
for Plan Years beginning after December 31, 1988, no such aggregation is
required.
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<PAGE>
(g) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any
Employee eligible to have Employer matching contributions pursuant to
Section 4.1(b) (whether or not a deferral election was made or suspended
pursuant to Section 4.2(e)) or voluntary Employee contributions pursuant
to Section 4.12 (whether or not voluntary Employee contributions are
made) allocated to his account for the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that, for Plan Years beginning after December 31,
1986, the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section 4.7(a), the
Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year, but in no event later than the close
of the following Plan Year) shall direct the Trustee to distribute to the
Highly Compensated Participant having the highest actual contribution
ratio, his Vested portion of Excess Aggregate Contributions (and Income
allocable to such contributions) or, if forfeitable, forfeit such
non-Vested Excess Aggregate Contributions attributable to Employer
matching contributions (and Income allocable to such Forfeitures) until
either one of the tests set forth in Section 4.7(a) is satisfied, or
until his actual contribution ratio equals the actual contribution ratio
of the Highly Compensated Participant having the second highest actual
contribution ratio. This process shall continue until one of the tests
set forth in Section 4.7(a) is satisfied. The distribution and/or
Forfeiture of Excess Aggregate Contributions shall be made in the
following order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 4.6(a)(1);
(2) Voluntary Employee contributions including Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a)(2);
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(3) Remaining Employer matching contributions.
(b) Any distribution and/or Forfeiture of less than the entire
amount of Excess Aggregate Contributions (and Income) shall be treated
as a pro rata distribution and/or Forfeiture of Excess Aggregate
Contributions and Income. Distribution of Excess Aggregate Contributions
shall be designated by the Employer as a distribution of Excess Aggregate
Contributions (and Income). Forfeitures of Excess Aggregate Contributions
shall be treated in accordance with Section 4.4.
(c) Excess Aggregate Contributions attributable to amounts other
than voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes of
Code Sections 404 and 415 even if distributed from the Plan.
(d) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) on behalf of
the Highly Compensated Participant (determined prior to the application
of this paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio (determined after
application of this paragraph) by his "414(s) Compensation". The actual
contribution ratio must be rounded to the nearest one-hundredth of
one percent for Plan Years beginning after December 31, 1988. In no
case shall the amount of Excess Aggregate Contribution with respect to
any Highly Compensated Participant exceed the amount of Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) on behalf of such
Highly Compensated Participant for such Plan Year.
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(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as voluntary
Employee contributions due to recharacterization for the plan year of
any other qualified cash or deferred arrangement (as defined in Code
Section 401(k)) maintained by the Employer that ends with or within the
Plan Year or which are treated as voluntary Employee contributions due to
recharacterization pursuant to Section 4.6(a).
(f) The determination and correction of Excess Aggregate
Contributions of Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules
shall be accomplished as follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance with Section 4.7(d)(1)(ii),
then the actual contribution ratio shall be reduced and the Excess
Aggregate Contributions for the family unit shall be allocated among
the Family Members in proportion to the sum of Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c) of
each Family Member that were combined to determine the group actual
contribution ratio.
(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 4.7(d)(1)(i), then the actual
contribution ratio shall first be reduced, as required herein, but
not below the actual contribution ratio of the group of Family
Members who are not Highly Compensated Participants without
regard to family aggregation. The Excess Aggregate Contributions
resulting from this initial reduction shall be allocated among
the Highly Compensated Participants whose Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made
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<PAGE>
pursuant to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and any
qualified non-elective contributions or elective deferrals taken
into account pursuant to Section 4.7(c) were combined to determine
the actual contribution ratio. If further reduction is still
required, then Excess Aggregate Contributions resulting from this
further reduction shall be determined by taking into account the
contributions of all Family Members and shall be allocated among
them in proportion to their respective Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c).
(g) Notwithstanding the above, within twelve (12) months after
the end of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.7(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated Participant
in the same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants. A separate accounting shall be
maintained for the purpose of excluding such contributions from the
"Actual Deferral Percentage" tests pursuant to Section 4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions"
credited to a Participant's accounts for any "limitation year" shall
equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Code Section 415(b)(1)(A)) or
(2) twenty-five percent (25%) of the Participant's "415 Compensation"
for such "limitation year".
(b) The dollar amount provided for in paragraph (a)(1) above shall
be increased by the lesser of the dollar amount determined under
paragraph (a)(1) above
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or the amount of Company Stock contributed, or purchased with cash
contributed. The dollar amount shall be increased provided no more than
one-third of the Employer's contributions for the year are allocated to
Highly Compensated Participants. In applying this limitation, the family
group of a Highly Compensated Participant who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) shall be determined
pursuant to Regulations.
(c) For purposes of applying the limitations of Code Section 415,
"annual additions" means the sum credited to a Participant's accounts for
any "limitation year" of (1) Employer contributions, (2) Employee
contributions for "limitation years" beginning after December 31, 1986,
(3) forfeitures, (4) amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Code Section 415(l)(2) which
is part of a pension or annuity plan maintained by the Employer and
(5) amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code Section 419A(d)(3)) under a welfare
benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage limitation
referred to in paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is otherwise
treated as an "annual addition", or (2) any amount otherwise treated as
an "annual addition" under Code Section 415(l)(1).
(d) For-purposes of applying the limitations-of Code Section 415,
the transfer of funds from one qualified plan to another is not an
"annual addition". In addition, the following are not Employee
contributions for the purposes of Section 4.9(c)(2): (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant
from the Plan; (3) repayments of distributions received by an
Employee pursuant to Code Section 411(a)(7)(B) (cash-outs);
(4) repayments of distributions received by an Employee pursuant to
Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross
Income under Code Section 408(k)(6).
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(e) For purposes of applying the limitations of Code Section
415, "415 Compensation" shall include the Participant's wages,
salaries, fees for professional service and other amounts for personal
services actually rendered in the course of employment with an
Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and
bonuses and in the case of a Participant who is an Employee within the
meaning of Code Section 401(c)(1) and the regulations thereunder, the
Participant's earned income (as described in Code Section 401(c)(2)
and the regulations thereunder)) paid during the "limitation year".
"415 Compensation" shall exclude (1)(A) contributions made by the
Employer to a plan of deferred compensation to the extent that, before
the application of the Code Section 415 limitations to the Plan, the
contributions are not includable in the gross income of the Employee
for the taxable year in which contributed, (B) contributions made by
the Employer to a plan of deferred compensation to the extent that all
or a portion of such contributions are recharacterized as a voluntary
Employee contribution, (C) Employer contributions made on behalf of an
Employee to a simplified employee pension plan described in Code
Section 408(k) to the extent such contributions are excludable from
the Employee's gross income, (D) any distributions from a plan of
deferred compensation regardless of whether such amounts are
includable in the gross income of the Employee when distributed except
any amounts received by an Employee pursuant to an unfunded
non-qualified plan to the extent such amounts are includable in the
gross income of the Employee; (2) amounts realized from the exercise
of a non-qualified stock option or when restricted stock (or property)
held by an Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture; (3) amounts realized from
the sale, exchange or other disposition of stock acquired under a
qualified stock option; and (4) other amounts which receive special
tax benefits, such as premiums for group term life insurance (but only
to the extent that the premiums are not includable in the gross
income of the Employee), or contributions made by the Employer
(whether or not under a salary reduction agreement) towards the
purchase of any annuity contract described
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in Code Section 403(b) (whether or not the contributions are
excludable from the gross income of the Employee).
(f) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Plan Year.
(g) The dollar limitation under Code Section 415(b)(1)(A) stated
in paragraph (a)(1) above shall be adjusted annually as provided in
Code Section 415(d) pursuant to the Regulations. The adjusted
limitation is effective as of January lst of each calendar year and is
applicable to "limitation years" ending with or within that calendar
year.
(h) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever maintained
by the Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
contribution plan.
(i) For the purpose of this Section, if the Employer is a member
of a controlled group of corporations, trades or businesses under
common control (as defined by Code Section 1563(a) or Code Section
414(b) and (c) as modified by Code Section 415(h)), is a member of an
affiliated service group (as defined by Code Section 414(m)), or is a
member of a group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(j) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain this
Plan will be considered to be a single Employer.
(k)(1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan
shall equal the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited to such Participant's
accounts during the "limitation year".
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(2) If a Participant participates in both a defined contribution plan
subject to Code Section 412 and a defined contribution plan not subject to
Code Section 412 maintained by the Employer which have the same Anniversary
Date, "annual additions" will be credited to the Participant's accounts
under the defined contribution plan subject to Code Section 412 prior to
crediting "annual additions" to the Participant's accounts under the
defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution
plan not subject to Code Section 412 maintained by the Employer which have
the same Anniversary Date, the maximum "annual additions" under this Plan
shall equal the product of (A) the maximum "annual additions" for the
"limitation year" minus any "annual additions" previously credited under
subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the
numerator of which is the "annual additions" which would be credited to
such Participant's accounts under this Plan without regard to the
limitations of Code Section 415 and (ii) the denominator of which is such
"annual additions" for all plans described in this subparagraph.
(1) Subject to the exception in Section 4.9(p) below, if an Employee is
(or has been) a Participant in one or more defined benefit plans and one or more
defined contribution plans maintained by the Employer, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(m)(1) The defined benefit plan fraction for any "limitation year" is a
fraction (A) the numerator of which is the "projected annual benefit" of the
Participant under the Plan (determined as of the close of the "limitation
year"), and (B) the denominator of which is the greater of the product of 1.25
multiplied by the "protected current accrued benefit" or the lesser of: (i) the
product of 1.25 multiplied by the maximum dollar limitation provided under Code
Section 415(b)(1)(A) for such "limitation year", or (ii) the product of 1.4
multiplied by the amount which may be taken into account under Code Section
415(b)(1)(B) for such "limitation year".
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(2) For purposes of applying the limitations of Code Section 415, the
"projected annual benefit" for any Participant is the benefit, payable
annually, under the terms of the Plan determined pursuant to Regulation
1.415-7(b)(3).
(3) For purposes of applying the limitations of Code Section 415,
"protected current accrued benefit" for any Participant in a defined
benefit plan in existence on July 1, 1982, shall be the accrued benefit,
payable annually, provided for under question T-3 of Internal Revenue
Service Notice 83-10.
(n)(1) The defined contribution plan fraction for any "limitation year" is
a fraction (A) the numerator of which is the sum of the "annual additions" to
the Participant's accounts as of the close of the "limitation year" and (B) the
denominator of which is the sum of the lesser of the following amounts
determined for such year and each prior year of service with the Employer: (i)
the product of 1.25 multiplied by the dollar limitation in effect under Code
Section 415(c)(1)(A) for such "limitation year" (determined without regard to
Code Section 415(c)(6)), or (ii) the product of 1.4 multiplied by the amount
which may be taken into account under Code Section 415(c)(1)(B) for such
"limitation year". For "limitation years" beginning prior to January 1, 1987,
the "annual addition" shall not be recomputed to treat all Employee
contributions as an "annual addition".
(2) Notwithstanding the foregoing, the numerator of the defined
contribution plan fraction shall be adjusted pursuant to Regulation 1.415-
7(d)(1) and questions T-6 and T-7 of Internal Revenue Service Notice 83-10.
(3) For defined contribution plans in effect on or before July 1, 1982,
the Administrator may elect, for any "limitation year" ending after
December 31, 1982, that the amount taken into account in the denominator
for every Participant for all "limitation years" ending before January 1,
1983 shall be an amount equal to the product of (A) the denominator for the
"limitation year" ending in 1982 determined under the law in effect for the
"limitation year" ending in 1982 multiplied by (B) the "transition
fraction".
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(4) For purposes of the preceding paragraph, the term "transition
fraction" shall mean a fraction (A) the numerator of which is the
lesser of (i) $51,875 or (ii) 1.4 multiplied by twenty-five percent
(25%) of the Participant's "415 Compensation" for the "limitation
year" ending in 1981, and (B) the denominator of which is the lesser
of (i) $41,500 or (ii) twenty-five percent (25%) of the Participant's
"415 Compensation" for the "limitation year" ending in 1981.
(5) Notwithstanding the foregoing, for any "limitation year" in which the
Plan is a Top Heavy Plan, $41,500 shall be substituted for $51,875 in
determining the "transition fraction" unless the extra minimum allocation
is being provided pursuant to Section 4.4. However, for any "limitation
year" in which this Plan is a Super Top Heavy Plan, $41,500 shall be
substituted for $51,875 in any event.
(o) Notwithstanding the foregoing, for any "limitation year" in which the
Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 in paragraph
4.9(m)(1) and 4.9(n)(1) unless the extra minimum allocation is being provided
pursuant to Section 4.4. However, for any "limitation year" in which the Plan is
a Super Top Heavy Plan, 1.0 shall be substituted for 1.25 in any event.
(p) If (1) the substitution of 1.00 for 1.25 and $41,500 for $51,875 above
or (2) the excess benefit accruals or "annual additions" provided for in
Internal Revenue Service Notice 82-19 cause the 1.0 limitation to be exceeded
for any Participant in any "limitation year", such Participant shall be subject
to the following restrictions for each future "limitation year" until the 1.0
limitation is satisfied: (A) the Participant's accrued benefit under the defined
benefit plan shall not increase (B) no "annual additions" may be credited to a
Participant's accounts and (C) no Employee contributions (voluntary or
mandatory) shall be made under any defined benefit plan or any defined
contribution plan of the Employer.
(q) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in this Section
shall at all times comply with the provisions of Code Section
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415 and the Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation or other
facts and circumstances to which Regulation 1.415-6(b) (6) shall be
applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the
Administrator shall (1) return any voluntary Employee contributions
credited for the "limitation year" to the extent that the return would
reduce the "excess amount" in the Participant's accounts (2) hold any
"excess amount" remaining after the return of any voluntary Employee
contributions in a "Section 415 suspense account" (3) use the "Section
415 suspense account" in the next "limitation year" (and succeeding
"limitation years" if necessary) to reduce Employer contributions for
that Participant if that Participant is covered by the Plan as of the
end of the "limitation year", or if the Participant is not so covered,
allocate and reallocate the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if necessary) to
all Participants in the Plan before any Employer or Employee
contributions which would constitute "annual additions" are made to
the Plan for such "limitation year" (4) reduce Employer contributions
to the Plan for such "limitation year" by the amount of the "Section
415 suspense account" allocated and reallocated during such
"limitation year".
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of Code
Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 4.9.
(c) For purposes of this Section, "Section 415 suspense account"
shall mean an unallocated account equal to the sum of "excess amounts"
for all Participants in the Plan during the "limitation year". The
"Section 415 suspense account" shall not share in any earnings or
losses of the Trust Fund.
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(d) The Plan may not distribute "excess amounts", other than
voluntary Employee contributions, to Participants or Former Participants.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans, provided that the trust from
which such funds are transferred permits the transfer to be made and
the transfer will not jeopardize the tax exempt status of the Plan or
Trust or create adverse tax consequences for the Employer. The
amounts transferred shall be set up in a separate account herein
referred to as a "Participant's Rollover Account". Such account shall
be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by
the Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined
in Regulation 1.401(k)-l(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market value of the Participant's Rollover Account shall be
used to provide additional benefits to the Participant or his
Beneficiary. Any distributions of amounts held in a Participant's
Rollover Account shall be made in a manner which is consistent with
and satisfies the provisions of Section 7.5, including, but not
limited to, all notice and consent requirements of Code Section
411(a)(11) and the Regulations thereunder. Furthermore, such amounts
shall be considered as part of a Participant's benefit in determining
whether an involuntary cash-out of benefits without Participant
consent may be made.
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(e) The Administrator may direct that employee transfers made
after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as
part of the general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The term
"amounts transferred from other qualified plans" shall mean: (i)
amounts transferred to this Plan directly from another qualified plan;
(ii) lump-sum distributions received by an Employee from another
qualified plan which are eligible for tax free rollover to a qualified
plan and which are transferred by the Employee to this Plan within
sixty (60) days following his receipt thereof; (iii) amounts
transferred to this Plan from a conduit individual retirement account
provided that the conduit individual retirement account has no assets
other than assets which (A) were previously distributed to the
Employee by another qualified plan as a lump-sum distribution (B) were
eligible for tax-free rollover to a qualified plan and (C) were
deposited in such conduit individual retirement account within sixty
(60) days of receipt thereof and other than earnings on said assets;
and (iv) amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty (60) days of
his receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that
the amounts to be transferred to this Plan meet the requirements of
this Section and may also require the Employee to provide an opinion
of counsel satisfactory to the Employer that the amounts to be
transferred meet the requirements of this Section.
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(h) This Plan shall not accept any direct or indirect transfers
(as that term is defined and interpreted under Code Section 401(a)(11)
and the Regulations thereunder) from a defined benefit plan, money
purchase plan (including a target benefit plan), stock bonus or profit
sharing plan which would otherwise have provided for a life annuity
form of payment to the Participant.
(i) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction
having the effect of such a transfer) shall only be permitted if it
will not result in the elimination or reduction of any "Section
411(d)(6) protected benefit" as described in Section 9.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) In order to allow Participants the opportunity to increase their
retirement income, each Participant may, at the discretion of the
Administrator, elect to voluntarily contribute a portion of his
compensation earned while a Participant under this Plan. Such
contributions shall be paid to the Trustee within a reasonable period
of time but in no event later than ninety (90) days after the receipt
of the contribution. The balance in each Participant's Voluntary
Contribution Account shall be fully vested at all times and shall not
be subject to Forfeiture for any reason.
(b) A Participant may elect to withdraw his voluntary
contributions from his Voluntary Contribution Account and the actual
earnings thereon in a manner which is consistent with and satisfies
the provisions of Section 7.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder. If the Administrator maintains sub-accounts
with respect to voluntary contributions (and earnings thereon) which
were made on or before a specified date, a Participant shall be
permitted to designate which sub-account shall be the source for his
withdrawal.
In the event such a withdrawal is made, or in the event a
Participant has received a hardship distribution pursuant to
Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained
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by the Employer, then such Participant shall be barred from making
any voluntary contributions to the Trust Fund for a period of
twelve (12) months after receipt of the withdrawal or distribution.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market value of the Voluntary Contribution Account shall
be used to provide additional benefits to the Participant or his
Beneficiary.
(d) The Administrator may direct that voluntary contributions
made after a valuation date be segregated into a separate account for
each Participant in a federally insured savings account, certificate
of deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as
part of the general Trust Fund, to be determined by the Administrator.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) Each "Qualified Participant", for Plan Years beginning after
December 31, 1986, may elect within ninety (90) days after the close
of each Plan Year during the "Qualified Election Period" to direct the
Trustee in writing as to the investment of 25 percent of the total
number of shares of Company Stock acquired by or contributed to the
Plan that have ever been allocated to such "Qualified Participant's"
Company Stock Account (reduced by the number of shares of Company
Stock previously invested pursuant to a prior election). In the case
of the election year in which the Participant can make his last
election, the preceding sentence shall be applied by substituting "50
percent" for "25 percent". If the "Qualified Participant" elects to
direct the Trustee as to the investment of his Company Stock Account,
such direction shall be effective no later than 180 days after the
close of the Plan Year to which such direction applies. In lieu of
directing the Trustee as to the investment of his Company Stock
Account, the "Qualified Participant" may elect a distribution in cash
or Company Stock of the portion of his Company Stock Account covered
by the election within (90) days after the last day of the period
during which the election
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can be made.
Notwithstanding the above, if the fair market value
(determined pursuant to Section 6.1 at the Plan valuation date
immediately preceding the first day on which a "Qualified Participant"
is eligible to make an election) of Company Stock acquired by or
contributed to the Plan and allocated to a "Qualified Participant's"
Company Stock Account is $500 or less, then such Company Stock shall
not be subject to this paragraph. For purposes of determining whether
the fair market value exceeds $500, Company Stock held in accounts of
all employee stock ownership plans (as defined in Code Section
4975(e)(7)) and tax credit employee stock ownership plans (as defined
in Code Section 409(a)) maintained by the Employer or any Affiliated
Employer shall be considered as held by the Plan.
(b) For the purposes of this Section the following definitions
shall apply:
(1) "Qualified Participant" means any Participant or Former
Participant who has completed ten (10) Plan Years of Service
as a Participant and has attained age 55.
(2) "Qualified Election Period" means the six
(6) Plan Year period beginning with the later of
(i) the first Plan Year in which the Participant
first became a "Qualified Participant", or
(ii) the first Plan Year beginning after December 31, 1986).
(c) A separate Directed Investment Account shall be established
for each Participant who has directed an investment. Transfers
between the Participant's regular account and his Directed Investment
Account shall be charged and credited as the case may be to each
account. The Directed Investment Account shall not share in Trust
Fund earnings, but it shall be charged or credited as appropriate with
the net earnings, gains, losses and expenses as well as any
appreciation or depreciation in market value during each Plan Year
attributable to such account.
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ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in other
property described in the Trust or in life insurance policies to the
extent permitted by subparagraph (c) below, or the Trustee may hold
such funds in cash or cash equivalents.
(c) With due regard to subparagraph (a) above, the
Administrator may also direct the Trustee to invest funds under the
Plan in insurance policies on the life of any "keyman" Employee. The
proceeds of a "keyman" insurance policy may not be used for the
repayment of any indebtedness owed by the Plan which is secured by
Company Stock. In the event any "keyman" insurance is purchased by
the Trustee, the premiums paid thereon during any Plan Year, net of
any policy dividends and increases in cash surrender values, shall be
treated as the cost of Plan investment and any death benefit or cash
surrender value received shall be treated as proceeds from an
investment of the Plan.
(d) The Plan may not obligate itself to acquire Company Stock
from a particular holder thereof at an indefinite time determined upon the
happening of an event such as the death of the holder.
(e) The Plan may not obligate itself to acquire Company Stock
under a put option binding upon the Plan. However, at the time a put
option is exercised, the Plan may be given an option to assume the
rights and obligations of the Employer under a put option binding upon
the Employer.
(f) All purchases of Company Stock shall be made at a price
which, in the judgment of the Administrator, does not exceed the fair
market value thereof. All sales of Company Stock shall be made at a
price which, in the judgment of the Administrator, is not less than
the fair market value thereof. The valuation rules set forth in
Article VI shall be applicable.
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5.2 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable
in lieu of) Company Stock acquired by the Plan after October 22, 1986
in a sale to which Code Section 1042 or Code Section 2057 applies may
accrue or be allocated directly or indirectly under any plan
maintained by the Employer meeting the requirements of Code Section
401(a):
(1) during the "Nonallocation Period", for the benefit of
(i) any taxpayer who makes an election under Code
Section 1042(a) with respect to Company Stock or any decedent
if the executor of the estate of the decedent makes a
qualified sale to which Code Section 2057 applies,
(ii) any individual who is related to the taxpayer or the
decedent (within the meaning of Code Section 267(b)), or
(2) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard to
the employee trust exception in Code Section 318(a)(2)(B)(i))
more than 25 percent of
(i) any class of outstanding stock of the Employer or
Affiliated Employer which issued such Company Stock, or
(ii) the total value of any class of outstanding stock of the
Employer or Affiliated Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall
not apply to lineal descendants of the taxpayer, provided that
the aggregate amount allocated to the benefit of all such
lineal descendants during the "Nonallocation Period" does not
exceed more than five (5) percent of the Company Stock (or
amounts allocated in lieu thereof) held by the Plan which are
attributable to a sale to the Plan by any person related to
such descendants (within the meaning of Code Section
267(c)(4)) in a transaction to which Code Section 1042 or Code
Section 2057 is applied.
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(c) A person shall be treated as failing to meet the
stock ownership limitation under paragraph (a)(2) above if
such person fails such limitation:
(1) at any time during the one (1) year period ending on
the date of sale of Company Stock to the Plan, or
(2) on the date as of which Company Stock is allocated
to Participants in the Plan.
(d) For purposes of this Section, "Nonallocation
Period", for Plan Years beginning after December 31, 1986,
means the period beginning on the date of the sale of the
Company Stock and ending on the date which is ten (10) years
after the date of sale.
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date", to determine the net worth of the assets comprising
the Trust Fund as it exists on the "valuation date" prior to taking into
consideration any contribution to be allocated for that Plan Year. In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant factors
for determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be
determined as of the date of the transaction. For all other Plan purposes,
value must be determined as of the most recent "valuation date" under the
Plan. An independent appraisal will not in itself be a good faith
determination of value in the case of a transaction between the Plan and a
disqualified person. However, in other cases, a determination of fair
market value based on at least an annual appraisal independently arrived at
by a person who customarily makes such appraisals and who is independent of
any party to the transaction will be deemed to be a good faith determination
of value. Company Stock not readily tradeable on an established securities
market shall be valued by an independent appraiser meeting requirements
similar to the requirements of the Regulations prescribed under Code Section
170(a)(1).
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ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date or Early Retirement Date,
all amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the
participation of such Participant in the Plan, including the right to receive
allocations pursuant to Section 4.4, shall continue until his Late Retirement
Date. Upon a Participant's Retirement Date, or as soon thereafter as is
practicable, the Trustee shall distribute all amounts credited to such
Participant's Combined Account in accordance with Sections 7.5 and 7.6.
7.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date
or other termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 7.5 and 7.6, to distribute the value of the
deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, in accordance with the provisions of
Sections 7.5 and 7.6, to distribute any remaining amounts credited to
the accounts of a deceased Former Participant to such Former
Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the
value of the account of a deceased Participant or Former Participant
as the Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to
this Section shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
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(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic relations
order" as defined in Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on
a form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a Beneficiary or change his Beneficiary
by filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent
in writing to any change in Beneficiary unless the original consent
acknowledged that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the death
benefit shall be payable to his estate.
(e) Any consent by the Participant's spouse to waive any rights
to the death benefit must be in writing, must acknowledge the effect
of such waiver, and be witnessed by a Plan representative or a notary
public. Further, the spouse's consent must be irrevocable and must
acknowledge the specific nonspouse Beneficiary.
7.3 DISABILITY RETIREMENT BENEFITS
No disability benefits, other than those payable upon termination
of employment, are provided in this Plan.
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7.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death or retirement, the Administrator may direct
the Trustee to segregate the amount of the Vested portion of such
Terminated Participant's Combined Account and invest the aggregate
amount thereof in a separate, federally insured savings account,
certificate of deposit, common or collective trust fund of a bank or a
deferred annuity. In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations pursuant to Section 4.4 until such time as a distribution
is made to the Terminated Participant. The amount of the Terminated
Participant's Combined Account which is not Vested may be credited to
a separate account (which will always share in gains and losses of the
Trust) and at such time as the amount becomes a Forfeiture shall be
applied pursuant to Section 4.4.
If a portion of a Participant's Account is forfeited, Company
Stock allocated to the Participant's Company Stock Account must be
forfeited only after the Participant's Other Investments Account has
been depleted. If interest in more than one class of Company Stock
has been allocated to a Participant's Account, the Participant must be
treated as forfeiting the same proportion of each such class.
Distribution of the funds due to a Terminated Participant shall
be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer upon the Participant's death, Early or Normal
Retirement). If the value of a Terminated Participant's Vested
benefit derived from Employer and Employee contributions does not
exceed $3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause the
entire Vested benefit to be payable in a single lump sum to such
Participant.
Notwithstanding the above, unless the Terminated Participant
otherwise elects in writing a later distribution date, distribution of
Company Stock shall commence not later than one (1) year after the
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close of the Plan Year which is the fifth Plan Year following the Plan
Year in which the Participant otherwise separates from service.
However, if such Terminated Participant is reemployed by the Employer
before distribution is required to be made under this paragraph, such
distribution shall be postponed.
For purposes of this Section 7.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall
be deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of
Service according to the following schedule:
Vesting Schedule
----------------
Years of Service Percentage
---------------- ----------
2 20%
3 40%
4 60%
5 80%
6 100%
(c) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of the later of the effective date or
adoption date of this amendment and restatement.
(d) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the Plan
or upon any full or partial termination of the Plan, all amounts
credited to the account of any affected Participant shall become 100%
Vested and shall not thereafter be subject to Forfeiture.
(e) The computation of a Participant's nonforfeitable percentage
of his interest in the Plan shall not be reduced as the result of any
direct or indirect amendment to this Article. In the event that the
Plan is amended to change or modify any vesting schedule, a
Participant with at least three (3) Years of Service as of the
expiration date of the election period may elect to have his
nonforfeitable percentage
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computed under the Plan without regard to such amendment. If a
Participant fails to make such election, then such Participant shall
be subject to the new vesting schedule. The Participant's election
period shall commence on the adoption date of the amendment and shall
end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(f)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had
not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such Former
Participant had received, or was deemed to have received, a
distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated only if he
repays the full amount distributed to him before the earlier of five
(5) years after the first date on which the Participant is
subsequently reemployed by the Employer or the close of the first
period of five (5) consecutive 1-Year Breaks in Service commencing
after the distribution, or in the event of a deemed distribution, upon
the reemployment of such Former Participant. If a distribution occurs
for any reason other than a separation from service, the time for
repayment may not end earlier than five (5) years after the date of
separation. In the event the Former Participant does repay the full
amount distributed to him, or in the event of a deemed distribution,
the undistributed portion of the Participant's Account must be
restored in full, unadjusted by any gains or losses occurring
subsequent to the Anniversary Date or other valuation date coinciding
with or preceding his termination. The source for such reinstatement
shall first be any Forfeitures
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occurring during the Year. If such source is insufficient, then the
Employer shall contribute an amount which is sufficient to restore
any such forfeited Accounts provided, however, that if a discretionary
contribution is made for such year pursuant to Section 4.1(d), such
contribution shall first be applied to restore any such Accounts and
the remainder shall be allocated in accordance with Section 4.4.
(3) If any Former Participant is reemployed after a 1-Year Break in
Service has occurred, Years of Service shall include Years of Service
prior to his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in Service, his
pre-break and post-break service shall be used for computing Years of
Service for eligibility and for vesting purposes only after he has
been employed for one (1) Year of Service following the date of his
reemployment with the Employer;
(ii) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from
Employer contributions shall lose credits otherwise allowable under
(i) above if his consecutive 1-Year Breaks in Service equal or exceed
the greater of (A) five (5) or (B) the aggregate number of his
pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in Service, a Former
Participant's Vested Account balance attributable to pre-break service
shall not be increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years of Service
before a 1-Year Break in Service disregarded pursuant to (ii) above
completes one (1) Year of Service for eligibility purposes following
his reemployment with the Employer, he shall participate in the Plan
retroactively from his date of reemployment;
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(v) If a Former Participant who has not had his Years of Service
before a 1-Year Break in Service disregarded pursuant to (ii) above
completes one (1) Year of Service for eligibility purposes
following his reemployment with the Employer (a 1-Year Break in
Service previously occurred, but employment had not terminated), he
shall participate in the Plan retroactively from his reemployment
commencement date.
(g) In determining Years of Service for purposes of vesting under
the Plan, Years of Service prior to the Effective Date of the Plan and
prior to the vesting computation period in which an Employee attained
his eighteenth birthday shall be excluded.
7.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the Participant
(or if no election has been made prior to the Participant's death, by
his Beneficiary), shall direct the Trustee to distribute to a Participant
or his Beneficiary any amount to which he is entitled under the Plan in
one or more of the following methods:
(1) One lump-sum payment;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual installments. The period over which such
payment is to be made shall not extend beyond the earlier of the
Participant's life expectancy (or the life expectancy of the
Participant and his designated Beneficiary) or the limited
distribution period provided for in Section 7.5(b).
(b) Unless the Participant elects in writing a longer distribution
period, distribution to a Participant or his Beneficiary of Company
Stock shall be in substantially equal monthly, quarterly, semiannual, or
annual installments over a period not longer than five (5) years. In
the case of a Participant with an account balance in the Plan in excess
of $500,000, the five (5) year period shall be extended one (1)
additional year (but not more than five (5) additional years) for each
$100,000 or fraction thereof by which such balance exceeds $500,000.
The dollar limits shall be adjusted at the same time and in the same
manner as provided in Code Section 415(d).
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(c) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such
distribution commences prior to the later of his Normal Retirement Age
or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer receipt
of the distribution. If a Participant fails to consent, it shall
be deemed an election to defer the commencement of payment of any
benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required
under Section 7.5(f).
(2) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
first day on which all events have occurred which entitle the
Participant to such benefit.
(3) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and must not
be made more than 90 days before the first day on which all events
have occurred which entitle the Participant to such benefit.
(4) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent to
the distribution.
(d) Notwithstanding anything herein to the contrary, cash
dividends on shares of Company Stock allocable to Participants' Company
Stock Accounts may be paid pursuant to Section 4.4(d) to Participants or
their Beneficiaries within 90 days after the close of the Plan Year in
which the dividend is paid.
(e) Any part of a Participant's benefit which is retained in the
Plan after the Anniversary Date on which his participation ends will
continue to be treated as a Company Stock Account or as an Other
Investments Account (subject to Section 7.4(a)) as provided in Article
IV. However, neither account will be credited with any further Employer
contributions or Forfeitures.
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(f) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits made on or after January 1,
1985 shall be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the Regulations
thereunder (including Regulation 1.401(a)(9)-2), the provisions of which
are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not later
than April lst of the calendar year following the later of (i) the
calendar year in which the Participant attains age 70 1/2 or (ii)
the calendar year in which the Participant retires, provided,
however, that this clause (ii) shall not apply in the case of a
Participant who is a "five (5) percent owner" at any time during
the five (5) Plan Year period ending in the calendar year in which
he attains age 70 1/2 or, in the case of a Participant who becomes
a "five (5) percent owner" during any subsequent Plan Year, clause
(ii) shall no longer apply and the required beginning date shall be
the April 1st of the calendar year following the calendar year in
which such subsequent Plan Year ends. Alternatively, distributions
to a Participant must begin no later than the applicable April lst
as determined under the preceding sentence and must be made over a
period certain measured by the life expectancy of the Participant
(or the life expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations. Notwithstanding the
foregoing, clause (ii) above shall not apply to any Participant
unless the Participant had attained age 70 1/2 before January 1,
1988 and was not a "five (5) percent owner" at any time during the
Plan Year ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
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Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method which
provides that the then present value of the payments to be made
over the period of the Participant's life expectancy exceeds fifty
percent (50%) of the then present value of the total payments to be
made to the Participant and his Beneficiaries.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January
1, 1985 shall be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the Regulations
thereunder. If it is determined pursuant to Regulations that the
distribution of a Participant's interest has begun and the Participant
dies before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to Section
7.5 as of his date of death. If a Participant dies before he has begun
to receive any distributions of his interest under the Plan or before
distributions are deemed to have begun pursuant to Regulations, then his
death benefit shall be distributed to his Beneficiaries by December 31st
of the calendar year in which the fifth anniversary of his date of death
occurs.
However, in the event that the Participant's spouse (determined as
of the date of the Participant's death) is his Beneficiary, then in lieu
of the preceding rules, distributions must be made over a period not
extending beyond the life expectancy of the spouse and must commence on
or before the later of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died;
or (2) December 31st of the calendar year in which the Participant would
have attained age 70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution
requirement of this Section shall apply as if the spouse was the
Participant.
(h) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse shall not be redetermined in
accordance with Code Section 401(a)(9)(D). Life expectancy and joint and
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last survivor expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
(i) Except as limited by Sections 7.5 and 7.6, whenever the
Trustee is to make a distribution or to commence a series of payments on
or as of an Anniversary Date, the distribution or series of payments may
be made or begun on such date or as soon thereafter as is practicable,
but in no event later than 180 days after the Anniversary Date.
However, unless a Former Participant elects in writing to defer the
receipt of benefits (such election may not result in a death benefit
that is more than incidental), the payment of benefits shall begin not
later than the 60th day after the close of the Plan Year in which the
latest of the following events occurs:
(1) the date on which the Participant attains the earlier of age
65 or the Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) the date the Participant terminates his service with the
Employer.
(j) The restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to
have his retirement benefit paid in an alternative method acceptable
under Code Section 401(a) as in effect prior to the enactment of the Tax
Equity and Fiscal Responsibility Act of 1982. Any such written
designation made by a Participant shall be binding upon the Plan
Administrator notwithstanding any contrary provision of Section 7.5.
(k) Subject to the spouse's right of consent afforded under the
Plan, the restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to
have his death benefits paid in an alternative method acceptable under
Code Section 401(a) as in effect prior to the enactment of the Tax
Equity and Fiscal Responsibility Act of 1982.
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7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit may be made in cash or
Company Stock or both, provided, however, that if a Participant or
Beneficiary so demands, such benefit (other than Company Stock
reinvested pursuant to Section 4.13(a)) shall be distributed only in the
form of Company Stock. Prior to making a distribution of benefits, the
Administrator shall advise the Participant or his Beneficiary, in
writing, of the right to demand that benefits be distributed solely in
Company Stock.
(b) If a Participant or Beneficiary demands that benefits be
distributed solely in Company Stock, distribution of a Participant's
benefit will be made entirely in whole shares or other units of Company
Stock. Any balance in a Participant's Other Investments Account will be
applied to acquire for distribution the maximum number of whole shares
or other units of Company Stock at the then fair market value. Any
fractional unit value unexpended will be distributed in cash. If
Company Stock is not available for purchase by the Trustee, then the
Trustee shall hold such balance until Company Stock is acquired and then
make such distribution, subject to Sections 7.5(i) and 7.5(f).
(c) The Trustee will make distribution from the Trust only on
instructions from the Administrator.
(d) Notwithstanding anything contained herein to the contrary, if
the Employer's charter or by-laws restrict ownership of substantially
all shares of Company Stock to Employees and the Trust Fund, as
described in Code Section 409(h)(2), the Administrator shall distribute
a Participant's Combined Account entirely in cash without granting the
Participant the right to demand distribution in shares of Company Stock.
(e) Except as otherwise provided herein, Company Stock distributed
by the Trustee may be restricted as to sale or transfer by the by-laws
or articles of incorporation of the Employer, provided restrictions are
applicable to all Company Stock of the same class. If a Participant is
required to offer the sale of his Company Stock to the Employer before
offering to sell his Company Stock to a third party, in no event may the
Employer pay a price less than that offered to the
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distributee by another potential buyer making a bona fide offer and in
no event shall the Trustee pay a price less than the fair market value
of the Company Stock.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal
guardian, or if none, to a parent of such Beneficiary or a responsible adult
with whom the Beneficiary maintains his residence, or to the custodian for
such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act,
if such is permitted by the laws of the state in which said Beneficiary
resides. Such a payment to the legal guardian, custodian or parent of a
minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from
further liability on account thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the expiration of five (5)
years after it shall become payable, remain unpaid solely by reason of the
inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent
effort, to ascertain the whereabouts of such Participant or his Beneficiary,
the amount so distributable shall be treated as a Forfeiture pursuant to the
Plan. In the event a Participant or Beneficiary is located subsequent to his
benefit being reallocated, such benefit shall be restored.
7.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other person to
whom shares of Company Stock are distributed from the Plan (the "Selling
Participant") shall, at any time, desire to sell some or all of such
shares (the "Offered Shares") to a third party (the "Third Party"), the
Selling Participant shall give written notice of such desire to the
Employer and the Administrator, which notice shall contain the number of
shares offered for sale, the proposed terms of the sale and the names
and addresses of both the Selling Participant and Third Party. Both the
Trust Fund and the Employer shall each have the right of first refusal
for a period of fourteen (14) days from the date the Selling Participant
gives such written notice to the Employer and the Administrator (such
fourteen (14) day period to run concurrently against the Trust Fund and
the Employer) to acquire the Offered Shares. As between
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the Trust Fund and the Employer, the Trust Fund shall have priority to
acquire the shares pursuant to the right of first refusal. The selling
price and terms shall be the same as offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their right
of first refusal within the required fourteen (14) day period provided
above, the Selling Participant shall have the right, at any time
following the expiration of such fourteen (14) day period, to dispose of
the Offered Shares to the Third Party; provided, however, that (i) no
disposition shall be made to the Third Party on terms more favorable to
the Third Party than those set forth in the written notice delivered by
the Selling Participant above, and (ii) if such disposition shall not be
made to a third party on the terms offered to the Employer and the Trust
Fund, the offered Shares shall again be subject to the right of first
refusal set forth above.
(c) The closing pursuant to the exercise of the right of first
refusal under Section 7.9(a) above shall take place at such place agreed
upon between the Administrator and the Selling Participant, but not
later than ten (10) days after the Employer or the Trust Fund shall have
notified the Selling Participant of the exercise of the right of first
refusal. At such closing, the Selling Participant shall deliver
certificates representing the Offered Shares duly endorsed in blank for
transfer, or with stock powers attached duly executed in blank with all
requiredtransfer tax stamps attached or provided for, and the Employer
or the Trust Fund shall deliver the purchase price, or an appropriate
portion thereof, to the Selling Participant.
7.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan shall contain
the following legend:
"The shares represented by this certificate are transferable only upon
compliance with the terms of PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
OF FIRST SAVINGS BANK, F.S.B. effective as of January 1, 1989, which grants
to First Savings Bank, F.S.B. a right of first refusal, a copy of said Plan
being on file in the office of the Company."
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7.11 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a it
qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of
this Section, "alternate payee," "qualified domestic relations order" and
"earliest retirement age" shall have the meaning set forth under Code Section
414(p).
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined
by the Employer, to invest, manage, and control the Plan assets subject,
however, to the direction of an Investment Manager if the Trustee should
appoint such manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the event of
their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish
to the Employer and/or Administrator for each Plan Year a written annual
report per Section 8.7; and
(d) If there shall be more than one Trustee, they shall act by a
majority of their number, but may authorize one or more of them to sign
papers on their behalf.
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8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the
Trust Fund invested without distinction between principal and income and
in such securities or property, real or personal, wherever situated, as
the Trustee shall deem advisable, including, but not limited to, stocks,
common or preferred, bonds and other evidences of indebtedness or
ownership, and real estate or any interest therein. The Trustee shall
at all times in making investments of the Trust Fund consider, among
other factors, the short and long-term financial needs of the Plan on
the basis of information furnished by the Employer. In making such
investments, the Trustee shall not be restricted to securities or other
property of the character expressly authorized by the applicable law for
trust investments; however, the Trustee shall give due regard to any
limitations imposed by the Code or the Act so that at all times the Plan
may qualify as an Employee Stock Ownership Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the
terms of its usual and customary bank agency agreement, under which the
duties of such bank or trust company shall be of a custodial, clerical and
record-keeping nature.
(c) In the event the Trustee invests any part of the Trust Fund,
pursuant to the directions of the Administrator, in any shares of stock
issued by the Employer, and the Administrator thereafter directs the
Trustee to dispose of such investment, or any part thereof, under
circumstances which, in the opinion of counsel for the Trustee, require
registration of the securities under the Securities Act of 1933 and/or
qualification of the securities under the Blue Sky laws of any state or
states, then the Employer at its own expense, will take or cause to be
taken any and all such action as may be necessary or appropriate to effect
such registration and/or qualification.
8.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of the Plan,
shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
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(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of
securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other
property held by the Trustee, by private contract or at public
auction. No person dealing with the Trustee shall be bound to
see to the application of the purchase money or to inquire into
the validity, expediency, or propriety of any such sale or other
disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments
incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting
corporate securities, and to delegate discretionary powers, and to
pay any assessments or charges in connection therewith; and generally
to exercise any of the powers of an owner with respect to stocks,
bonds, securities, or other property;
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or more of
the Trustee's nominees, and to hold any investments in bearer form,
but the books and records of the Trustee shall at all times show that
all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as the Trustee shall
deem advisable; and for any sum so borrowed, to issue a promissory
note as Trustee, and to secure the repayment thereof by pledging all,
or any part, of the Trust Fund; and no person lending money to the
Trustee shall be bound to see to the application of the money lent or
to inquire into the validity, expediency, or propriety of any
borrowing;
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(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the
best interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence or
defend suits or legal or administrative proceedings, and to represent
the Plan in all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may
or may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance
companies, to be selected by the Administrator, as an investment of
the Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect, receive,
and settle for the proceeds of all such annuity or other Contracts
as and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
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(n) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(o) To vote Company Stock as provided in Section 8.4;
(p) To consent to or otherwise participate in reorganizations,
recapitalizations, consolidations, mergers and similar transactions
with respect to Company Stock or any other securities and to pay any
assessments or charges in connection therewith;
(q) To deposit such Company Stock (but only if such deposit
does not violate the provisions of Section 8.4 hereof) or other
securities in any voting trust, or with any protective or like
committee, or with a trustee or with depositories designated thereby;
(r) To sell or exercise any options, subscription rights and
conversion privileges and to make any payments incidental thereto;
(s) To exercise any of the powers of an owner, with respect to
such Company Stock and other securities or other property comprising
the Trust Fund. The Administrator, with the Trustee's approval, may
authorize the Trustee to act on any administrative matter or class of
matters with respect to which direction or instruction to the Trustee
by the Administrator is called for hereunder without specific
direction or other instruction from the Administrator;
(t) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange;
(u) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the
Trustee may deem necessary to carry out the purposes of the Plan.
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(v) Directed Investment Account. The powers granted to the
Trustee shall be exercised in the sole fiduciary discretion of the
Trustee. However, pursuant to Section 4.13, each Participant is
authorized and empowered, in his sole and absolute discretion, to
give directions to the Trustee in such form as the Trustee may
require concerning the investment of the Participant's Directed
Investment Account, which directions must be followed by the Trustee.
Neither the Trustee nor any other persons including the
Administrator or otherwise shall be under any duty to question any
such direction of the Participant or to make any suggestions to the
Participant in connection therewith, and the Trustee shall comply as
promptly as practicable with directions given by the Participant
hereunder. Any such direction may be of a continuing nature or
otherwise and may be revoked by the Participant at any time in such
form as the Trustee may require. The Trustee may refuse to comply
with any direction from the Participant in the event the Trustee, in
its sole and absolute discretion, deems such directions improper by
virtue of applicable law. The Trustee shall not be responsible or
liable for any loss or expense which may result from the Trustee's
refusal or failure to comply with any directions from the
Participant. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's
Directed Investment Account.
8.4 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part of the Plan
assets at such time and in such manner as the Administrator shall direct.
Provided, however, that if any agreement entered into by the Trust provides
for voting of any shares of Company Stock pledged as security for any
obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement. If the Administrator fails or refuses to
give the Trustee timely instructions as to how to vote any Company Stock as
to which the Trustee otherwise has the right to vote, the Trustee shall not
exercise its power to vote such Company Stock and shall consider the
Administrator's failure or refusal to give timely instructions as an exercise
of the Administrator's rights and a directive to the Trustee not to vote said
Company Stock. The Trustee shall not vote Company Stock which a Participant
or Beneficiary, pursuant to this Section, fails to exercise.
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Notwithstanding the foregoing, if the Employer has a registration-type
class of securities, each Participant or Beneficiary shall be entitled to
direct the Trustee as to the manner in which the Company Stock which is
entitled to vote and which is allocated to the Company Stock Account of such
Participant or Beneficiary is to be voted. If the Employer does not have a
registration-type class of securities, each Participant or Beneficiary in the
Plan shall be entitled to direct the Trustee as to the manner in which voting
rights on shares of Company Stock which are allocated to the Company Stock
Account of such Participant or Beneficiary are to be exercised with respect
to any corporate matter which involves the voting of such shares with respect
to the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar transaction
as prescribed in Regulations. For purposes of this Section the term
"registration-type class of securities" means: (A) a class of securities
required to be registered under Section 12 of the Securities Exchange Act of
1934; and (B) a class of securities which would be required to be so
registered except for the exemption from registration provided in subsection
(g)(2)(H) of such Section 12.
If the Employer does not have a registration-type class of securities and
the by-laws of the Employer require the Plan to vote an issue in a manner that
reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall
be entitled to cast one vote on an issue and the Trustee shall vote the shares
held by the Plan in proportion to the results of the votes cast on the issue
by the Participants and Beneficiaries;
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the Trust Fund at such
times and in such numbers of shares or other units of Company Stock and
amounts of cash to or for the benefit of the person entitled thereto under
the Plan as the Administrator directs in writing. Any undistributed part of a
Participant's interest in his accounts shall be retained in the Trust Fund
until the Administrator directs its distribution. Where distribution is
directed in Company Stock, the Trustee shall cause an appropriate certificate
to be issued to the person entitled thereto and mailed to the address
furnished it by the Administrator. Any portion of a Participant's Combined
Account to be distributed in cash shall be paid by the Trustee mailing its
check to the same person at the same address. If a dispute
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arises as to who is entitled to or should receive any benefit or
payment, the Trustee may withhold or cause to be withheld such
payment until the dispute has been resolved.
(b) As directed by the Administrator, the Trustee shall make
payments out of the Trust Fund. Such directions or instructions need
not specify the purpose of the payments so directed and the Trustee
shall not be responsible in any way respecting the purpose or
propriety of such payments except as mandated by the Act.
(c) In the event that any distribution or payment directed by
the Administrator shall be mailed by the Trustee to the person
specified in such direction at the latest address of such person filed
with the Administrator, and shall be returned to the Trustee because
such person cannot be located at such address, the Trustee shall
promptly notify the Administrator of such return. Upon the expiration
of sixty (60) days after such notification, such direction shall
become void and unless and until a further direction by the
Administrator is received by the Trustee with respect to such
distribution or payment, the Trustee shall thereafter continue to
administer the Trust as if such direction had not been made by the
Administrator. The Trustee shall not be obligated to search for or
ascertain the whereabouts of any such person.
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from
time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
counsel fees incurred by it as Trustee. Such compensation and expenses shall
be paid from the Trust Fund unless paid or advanced by the Employer. All
taxes of any kind and all kinds whatsoever that may be levied or assessed
under existing or future laws upon, or in respect of, the Trust Fund or the
income thereof, shall be paid from the Trust Fund.
8.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary
Date or receipt of the Employer's contribution for each Plan Year, the
Trustee shall furnish to the Employer and
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Administrator a written statement of account with respect to the Plan Year
for which such contribution was made setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust
Fund upon sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith
upon its receipt of each such statement of account, shall
acknowledge receipt thereof in writing and advise the
Trustee and/or Administrator of its approval or
disapproval thereof. Failure by the Employer to
disapprove any such statement of account within thirty
(30) days after its receipt thereof shall be deemed an
approval thereof. The approval by the Employer of any
statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee
to the same extent as if the account of the Trustee had
been settled by judgment or decree in an action for a
judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer
and all persons having or claiming an interest in the
Plan were parties; provided, however, that nothing
herein contained shall deprive the Trustee of its right
to have its accounts judicially settled if the Trustee so
desires.
8.8 AUDIT
(a) If an audit of the Plan's records shall be
required by the Act and the regulations thereunder for
any Plan Year, the Administrator shall direct the
Trustee to engage on behalf of all Participants an
independent qualified public accountant for that purpose.
Such accountant shall, after an audit of the books and
records of the Plan in accordance with generally accepted
auditing standards, within a reasonable period after the
close of the Plan Year, furnish to the Administrator and
the Trustee a report of his audit setting forth his
opinion as to whether any statements, schedules or lists
that are required by Act Section 103 or the Secretary of
Labor to be filed
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with the Plan's annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently. All
auditing and accounting fees shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to
enable the Administrator to comply with Act Section 103 is
maintained by a bank, insurance company, or similar institution,
regulated and supervised and subject to periodic examination by a
state or federal agency, it shall transmit and certify the
accuracy of that information to the Administrator as provided in
Act Section 103(b) within one hundred twenty (120) days after the end
of the Plan Year or by such other date as may be
prescribed under regulations of the Secretary of Labor.
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date, a written
notice of his resignation.
(b) The Employer may remove the Trustee by mailing by registered
or certified mail, addressed to such Trustee at his last known address,
at least thirty (30) days before its effective date, a written notice
of his removal.
(c) Upon the death, resignation, incapacity, or removal of
any Trustee, a successor may be appointed by the Employer; and such
successor, upon accepting such appointment in writing and delivering
same to the Employer, shall, without further act, become vested with
all the estate, rights, powers, discretions, and duties of his
predecessor with like respect as if he were originally named as a
Trustee herein. Until such a successor is appointed, the remaining
Trustee or Trustees shall have full authority to act under the terms of
the Plan.
(d) The Employer may designate one or more successors prior
to the death, resignation, incapacity, or removal of a Trustee. In the
event a successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested with
all the estate, rights, powers,
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discretions, and duties of his predecessor with the like effect as if he
were originally named as Trustee herein immediately upon the death,
resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he
shall furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as
part of the annual statement of account for the Plan Year required
under Section 8.7 or (ii) set forth in a special statement. Any such
special statement of account should be rendered to the Employer no
later than the due date of the annual statement of account for the
Plan Year. The procedures set forth in Section 8.7 for the approval
by the Employer of annual statements of account shall apply to any
special statement of account rendered hereunder and approval by the
Employer of any such special statement in the manner provided in
Section 8.7 shall have the same effect upon the statement as the
Employer's approval of an annual statement of account. No successor
to the Trustee shall have any duty or responsibility to investigate
the acts or transactions of any predecessor who has rendered all
statements of account required by Section 8.7 and this subparagraph.
8.10 TRANSFER OF INTEREST
The Trustee, on behalf of any Participant, may accept funds transferred
from another trust forming part of a pension, profit sharing, or stock bonus
plan meeting the requirements of Code Section 401(a) or a "conduit" Individual
Retirement Account for the account of a Participant under this Plan, provided
the conditions precedent to such transfer set forth in Section 4.11 are
satisfied. In the event of such a transfer under this Plan, the Trustee shall
maintain a separate, nonforfeitable "Participant's Rollover Account" for the
amount transferred. In addition, any such transfer may only be made if it does
not result in the elimination of any "Section 411(d)(6) protected benefits" as
described in Section 9.1. The Trustee may act upon the direction of the
Administrator without determining the facts concerning a transfer.
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ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) The Employer shall have the right at any time
to amend the Plan, subject to the limitations of this Section.
However, any amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator may only be made
with the Trustee's and Administrator's written consent. Any such
amendment shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute any such
amendment unless the Trust provisions contained herein are a part
of the Plan and the amendment affects the duties of the Trustee
hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to be used
for or diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any reduction in
the amount credited to the account of any Participant; or causes or permits
any portion of the Trust Fund to revert to or become property of the
Employer.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), no Plan amendment or transaction having the effect of a
Plan amendment (such as a merger, plan transfer or similar
transaction) shall be effective if it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies conditions
relating to "Section 411(d)(6) protected benefits" the result of which
is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the
later of the adoption date or effective date of the amendment.
"Section 411(d)(6) protected benefits" are benefits described in Code
Section 411(d)(6)(A), early retirement benefits and retirement-type
subsidies, and optional forms of benefit.
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9.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written notice
of such termination. Upon any full termination, all amounts credited
to the affected Participants' Combined Accounts shall become 100%
Vested as provided in Section 7.4 and shall not thereafter be subject
to forfeiture, and all unallocated amounts shall be allocated to the
accounts of all Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Sections 7.5 and 7.6. Except as permitted by
Regulations, the termination of the Plan shall not result in the
reduction of "Section 411(d)(6) Protected benefits" in accordance with
Section 9.1(c).
9.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event
of a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger
or consolidation, and such transfer, merger or consolidation does not
otherwise result in the elimination or reduction of any "Section 411(d)(6)
protected benefits" in accordance with Section 9.1(c).
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
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10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void;
and no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the
Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a Participant
or Beneficiary is indebted to the Plan, for any reason, under any
provision of the Plan. At the time a distribution is to be made to or
for a Participant's or Beneficiary's benefit, such proportion of the
amount distributed as shall equal such indebtedness shall be paid by
the Trustee to the Trustee or the Administrator, at the direction of
the Administrator, to apply against or discharge such indebtedness.
Prior to making a payment, however, the Participant or Beneficiary
must be given written notice by the Administrator that such
indebtedness is to be so paid in whole or part from his Participant's
Combined Account. If the Participant or Beneficiary does not
agree that the indebtedness is a valid claim against his vested
Participant's Combined Account, he shall be entitled to a review of
the validity of the claim in accordance with procedures provided in
Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order", a former
spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
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10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act
and the laws of the State of New Mexico, other than its laws respecting choice
of law, to the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other
than the exclusive benefit of Participants, Retired Participants, or
their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any
losses attributable thereto must reduce the amount so returned.
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10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
10.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or
to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and
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the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or Employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it,
all as specifically provided in the Plan. Each named Fiduciary warrants that
any directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended
under the Plan that each named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations under the
Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against
investment loss or depreciation in asset value. Any person or group may serve
in more than one Fiduciary capacity.
10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
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10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed by
law for filing the Employer's return for the taxable year in which the
Plan was adopted, or such later date as the Secretary of the Treasury
may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(f), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution
by the Employer under the Code and, to the extent any such deduction
is disallowed the Employer may, within one (1) year following the
disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan
attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount
so returned.
10.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the Securities
and Exchange Commission stating that the transfers of Company Stock
contemplated hereunder do not involve transactions requiring a registration
of such Company Stock under the Securities Act of 1933. In the event that a
favorable interpretative letter is not obtained, the Employer reserves the
right to amend the Plan and Trust retroactively to their Effective Dates in
order to obtain a favorable interpretative letter or to terminate the Plan.
100
<PAGE>
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
First Savings Bank, F.S.B.
By /s/ JAMES F. GIBSON
--------------------------------------
EMPLOYER
ATTEST /s/ DENISE L. GENDREAU
----------------------------------
/s/ JIMMIE SHEARER
------------------------------------------
TRUSTEE
/s/ PATRICIA MASON
------------------------------------------
TRUSTEE
/s/ GEORGE MILBURN
------------------------------------------
TRUSTEE
101
<PAGE>
EXHIBIT 10.1.1
AMENDMENT NUMBER ONE TO
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
OF FIRST SAVINGS BANK, F.S.B.
SUMMARY PLAN DESCRIPTION
MATERIAL MODIFICATIONS
<PAGE>
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
OF FIRST SAVINGS BANK, F.S.B.
SUMMARY PLAN DESCRIPTION
MATERIAL MODIFICATIONS
I
INTRODUCTION
First Savings Bank, F.S.B. has amended your Employee Stock Ownership Plan
as of January 1, 1993.
This is merely a summary of the most important changes to the Plan. If you
have any questions, contact your Plan's Administrator. A copy of the Plan,
including this amendment, is available for your inspection. If there is any
discrepancy between the terms of the Plan or the amendment itself and this
summary of material modifications, the provisions of the Plan, as amended, will
control.
II
GENERAL INFORMATION ABOUT YOUR PLAN
There is certain general information which you may need to know about
Amendment Number ONE to your Plan. This information has been summarized for you
in this section.
1. General Plan Information
The amended provisions of your Plan become effective on January 1, 1993.
2. Employer Information
Your Employer's name, address and identification number are:
First Savings Bank, F.S.B.
801 Pile Street
Clovis, New Mexico 88101
85-0028945
1
<PAGE>
3. Plan Administrator Information
The name, address and business telephone number of your Plan's
Administrator are:
First Savings Bank, F.S.B.
801 Pile Street
Clovis, New Mexico 88101
(505) 762-4417
Your Plan's Administrator keeps the records for the Plan and is responsible
for the administration of the Plan. The Administrator has discretionary
authority to construe the terms of the Plan and make determinations on questions
which may affect your eligibility for benefits. Your Plan's Administrator will
also answer any questions you may have about your Plan.
III
SUMMARY OF CHANGES
1. Compensation
For Plan Years beginning in 1994, the Plan by law, cannot recognize
compensation in excess of $150,000. This amount will be adjusted in future
years for cost of living increases. It will also be applied to certain highly
compensated employees and their family members as if they were a single
participant. If you or a member of your family may be affected by this rule,
ask your Administrator for further details. For any short Plan Year, the
adjusted $150,000 limit will be prorated based upon the number of full months in
the short Plan Year.
2. Treatment of Distributions From Your Plan
Whenever you receive a distribution from your Plan, it will normally be
subject to income taxes. You may, however, reduce, or defer entirely, the tax
due on your distribution through use of one of the following methods:
(a) The rollover of all or a portion of the distribution to an
Individual Retirement Account (IRA) or another qualified employer plan.
This will result in no tax being due until you begin withdrawing funds from
the IRA or other qualified employer plan. The rollover of the
distribution, however, MUST be made within strict time frames (normally,
within 60 days after you receive your distribution). Under certain
circumstances all or a portion of a distribution may not qualify for this
rollover treatment. In addition, most distributions made after December
31, 1992 will be subject to mandatory federal income tax withholding at a
rate of 20%. This will reduce the amount you actually receive. For this
reason, if you wish to rollover all or a portion of your distribution
amount, the
2
<PAGE>
direct transfer option described in paragraph (b) below would be the better
choice.
(b) You may request for most distributions made after December 31,
1992, that a direct transfer of all or a portion of your distribution
amount be made to either an Individual Retirement Account (IRA) or another
qualified employer plan willing to accept the transfer. A direct transfer
will result in no tax being due until you withdraw funds from the IRA or
other qualified employer plan. Like the rollover, under certain
circumstances all or a portion of the amount to be distributed may not
qualify for this direct transfer. If you elect to actually receive the
distribution rather than request a direct transfer, then in most cases 20%
of the distribution amount will be withheld for federal income tax
purposes.
(c) The election of favorable income tax treatment under "10-year
forward averaging", "5-year forward averaging" or, if you qualify, "capital
gains" method of taxation.
WHENEVER YOU RECEIVE A DISTRIBUTION, THE ADMINISTRATOR WILL DELIVER TO YOU
A MORE DETAILED EXPLANATION OF THESE OPTIONS. HOWEVER, THE RULES WHICH
DETERMINE WHETHER YOU QUALIFY FOR FAVORABLE TAX TREATMENT ARE VERY COMPLEX. YOU
SHOULD CONSULT WITH QUALIFIED TAX COUNSEL BEFORE MAKING A CHOICE.
3. Amendment
Any amendment to the Plan will be adopted by formal action of the
Employer's board of directors and executed by an officer authorized to act on
behalf of the Employer.
3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed this 16th day of
December, 1994.
Signed, sealed, and delivered in the presence of:
First Savings Bank, F.S.B.
By /s/ Ken Huey
---------------------------------
EMPLOYER - President and CEO
/s/ Ronald Humphrey
---------------------------------
TRUSTEE
/s/ Roddy Pearce
---------------------------------
TRUSTEE
4
<PAGE>
EXHIBIT 10.2
[LOGO]
FEDERAL HOME LOAN BANK OF DALLAS
NINTH-DISTRICT
AGREEMENT FOR STANDBY LETTER OF CREDIT ADVANCES/CONFIRMATION,
COLLATERAL PLEDGE AND SECURITY AGREEMENT
The undersigned Member institution (hereafter "Member") makes applications
from time to time to the Federal Home Bank of Dallas (hereinafter "Bank") for
Standby Letters of Credit or Confirmations of Standby Letters of Credit
(hereinafter "Letters of Credit/Confirmations") under the Standby Letter of
Credit Advances program of the Bank set forth in the Credit Policy of the
Bank. In consideration of the issuance of such Letters of Credit/Confirmations
by the Bank (at the option of the Bank from time to time following its
approval of an application submitted by Member), Member, by and through the
undersigned authorized officers, agrees to the following terms and conditions
of this Agreement for Standby Letter of Credit Advances, Collateral Pledge
and Security Agreement (hereinafter "Agreement").
1. AGREEMENTS.
Member agrees to maintain with the Bank an advances, collateral pledge and
security agreement (hereinafter an "Advances Agreement") and separate
"Assignments of Collateral" (hereinafter "Assignments"), in such forms as the
Bank may specify, throughout the term of this Agreement and the term of any
Letters of Credit/Confirmations issued and funded pursuant hereto.
2. APPLICATION AND CONFIRMATION.
Member shall submit an "Application for the Issuance of a Standby Letter
of Credit Advance" (hereinafter "Application") to the Bank, in such form as
may be specified by the Bank, for each advance in the form of a Letter of
Credit/Confirmation. Unless the Bank shall otherwise be notified in writing
by Member, the Bank may honor applications made other than in writing by an
individual purporting to be an officer authorized to make such applications,
but in such event Member shall confirm such application by submitting a
written Application within three (3) banking days thereof. Subject to the
terms and conditions hereof and to the Credit Policy of the Bank (which is
expressly incorporated herein by this reference and shall apply to all
matters with respect hereto, except to the extent that any term or condition
of this Agreement is inconsistent therewith), a Letter of Credit/Confirmation
will be issued upon receipt, review, and approval of an Application. Upon
approval of an Application, the Bank shall issue an advance in the form of an
irrevocable Standby Letter of Credit/Confirmation in such form as may be
requested by Member and agreed to by the Bank, and a confirmation thereof
shall be given to Member in such form as the Bank may specify. Member will
be deemed to have accepted the terms and conditions of such confirmation if
Member does not notify the Bank to the contrary within five (5) banking days
of receipt thereof.
3. REIMBURSEMENT.
Member agrees that any amount paid by the Bank upon presentment of a
Draft (defined below) under or purporting to be under any Letter of
Credit/Confirmation shall be reimbursed by Member to the Bank as a "Special
Advance" as defined in the Credit Policy of the Bank. Any reimbursement of
amounts owed to the Bank hereunder, including all interest, charges, fees,
and expenses, not made by Member when owed shall constitute a default of this
Agreement. Member agrees to pay the Bank interest on such amounts in default
at a rate equal to the overdraft rate of interest charged by the Bank from
time to time under its deposit account program.
4. FEES AND CHARGES.
Member agrees to pay an issuance fee to the Bank at the time a Letter of
Credit/Confirmation is issued in such amount as may be established by the
Bank and published in the Credit Policy of the Bank from time to time.
Member further agrees to pay a negotiation fee to the Bank at such time when a
Draft under or purporting to be under any Letter of Credit/Confirmation has
been paid by the Bank. Said negotiation fee shall be in such amount as may
be established by the Bank and published in the Credit Policy of the Bank at
the time when a Draft under or purporting to be under the Letter of
Credit/Confirmation is presented to the Bank for payment. The Bank may
charge and Member agrees to pay such other fees as the Bank may establish
from time to time for Letters of Credit/Confirmations issued and Letter of
Credit Advances. The Bank is hereby authorized at its option and without
prior notice or demand to Member to charge any issuance fee, negotiation fee,
and other fees when incurred to any of the deposit accounts of Member with
the Bank.
CRF 7011 (10/93) Agreement for Standby Letter of Credit Page 1 of 4
<PAGE>
5. TERMS AND CONDITIONS.
(a) Member agrees to use Letters of Credit/Confirmations only for the
following purposes:
(i) To facilitate the purchase of, or commitment to purchase,
mortgage loans where the Letters of Credit/Confirmations function as a
performance bond and are restricted to housing-related purposes;
(ii) To facilitate the collateralization of public unit deposits;
(iii) To secure the obligations of Member pursuant to an
interest rate swap, interest rate exchange, interest exchange, or such
other comparable agreement entered into between Member and a third
party; or
(iv) To encourage or assist the asset/liability management of
Member.
(b) Member agrees not to use any Letter of Credit/Confirmation to
guarantee the refinancing of repurchase agreements, to guarantee commercial
paper, or to collateralize any tax-exempt bonds or notes, except when the
issues are designated to promote housing development.
(c) Letters of Credit/Confirmations shall be for specified and fixed
terms and in amounts as may be requested by Member and agreed to by the Bank.
(d) Letters of Credit/Confirmations may not be transferred or assigned
by designated beneficiary of such Letters of Credit/Confirmations, except
with the express prior written consent of the Bank.
(e) Subject to the terms and conditions of this Agreement, upon actual
presentation of a payment request in the form of a Draft drawn by a
designated beneficiary under a Letter of Credit/Confirmation (herein
"Draft"), the Bank will pay in immediately available funds within three (3)
banking days after sight of the Draft the full amount of the Draft not to
exceed, together with any previously paid Drafts under such Letter of
Credit/Confirmation, the maximum amount of the Letter of Credit/Confirmation.
Payment of such Drafts by the Bank will constitute funding of a Special
Advance to the extent of the amount of the Draft.
(f) Drafts presented for collection shall include the Letter of Credit/
Confirmation number, the name of Member, the complete address of the
principal offices of Member, and a cerfification by the designated
beneficiary that demand has been made by the designated beneficiary to Member
for performance of the obligation owed by Member to designated beneficiary
and said demand has not been satisfied by Member.
(g) Member agrees that the Bank is not required to examine any
documentation supporting the demand of any designated beneficiary for payment
represented by any Draft.
(h) The Bank will honor all properly presented Drafts under or
purporting to be under Letters of Credit/Confirmations. The Bank will not
refuse payment on any such Drafts for any reason other than forgery or other
fraud in the presentment of such Drafts, and only if apparent from the form
or face of the Drafts as brought to the attention of the Bank by Member
pursuant hereto. The Bank will notify Member by telephone, confirmed by
letter or machine-readable electronic transmission, within one (1) banking
day following actual receipt by the Bank of a Draft drawn under or purporting
to be drawn under any Letter of Credit/Confirmation. Member shall be given
two (2) banking days from the date of actual receipt of a Draft by the Bank
within which to inspect the Draft and challenge its facial compliance with
the terms hereof, including giving the Bank notice of any forgery or other
fraud in the presentment of such Draft.
(i) The Bank is expressly authorized to honor properly presented Drafts
drawn under or purporting to be drawn under any Letter of
Credit/Confirmation, notwithstanding any allegation of fraud or
non-performance as to the underlying agreement, obligation, or other
arrangement between Member and the designated beneficiary. The Bank is
expressly authorized to resist any attempt by Member to enjoin payment by the
Bank of a properly drawn and presented Draft under or purporting to be under
any Letter of Credit/Confirmation. Knowledge by the Bank of any attempt by
Member to obtain an injunction or to institute or pursue any other legal
proceedings designed to enjoin payment by the Bank will not constitute
legally sufficient grounds for the Bank to stop processing a properly drawn
and presented Draft under or purporting to be under any Letter of
Credit/Confirmation.
(j) In the event that Member attempts to enjoin payment by the Bank of
a properly drawn and presented Draft under or purporting to be under any
Letter of Credit/Confirmation, Member will provide reasonable and actual
prior written notice to the Bank and to the designated beneficiary of any
hearing on any legal action or suit designed to enjoin such payment by the
Bank.
6. COLLATERAL PLEDGE AND SECURITY AGREEMENT.
As security for all indebtedness of Member under this Agreement and
Letters of Credit/Confirmations issued and funded hereunder, Member hereby
assigns, transfers, and pledges to the Bank and grants to the Bank a security
interest in all collateral pledged and delivered to the Bank, and all of the
proceeds of the foregoing. The terms and conditions of the Advances
Agreement entered into between Member and the Bank applicable to security
interests and collateral also shall be applicable to
CRF 7011 (10/93) Agreement for Standby Letter of Credit Page 2 of 4
<PAGE>
any Letter of Credit/Confirmation issued and Letter of Credit Advances made
whenever so issued or made to the same extent and in the same manner as
though funds have been advanced to Member. All collateral pledged and
delivered to the Bank and the security interest in the collateral created in
favor of the Bank pursuant hereto and the Advances Agreement shall secure the
obligations of Member under this Agreement and Letters of Credit/Confirmations
issued hereunder without further consideration than the promise of the Bank
to pay Drafts presented hereunder. On or before the date each Letter of
Credit/Confirmation is issued hereunder, Member shall deliver collateral in
such form as may be acceptable to the Bank. The market value and amount of
such collateral shall be determined by the Bank, and Member shall deliver
assignments of such collateral in such form as the Bank may specify.
7. INDEMNIFICATION.
Member agrees to indemnify the Bank and hold it harmless from any
losses, liability, costs, and expenses, including without limitation
reasonable attorneys' fees and costs, arising from or under this Agreement,
from or under any Letters of Credit/Confirmations issued and Letter of Credit
Advances made hereunder, and from any honor or dishonor of Drafts presented
for payment hereunder, except such as may arise from the failure of the Bank
or its employees or agents to exercise good faith in honoring or dishonoring
such Drafts as may be presented pursuant to Letters of Credit/Confirmations
issued hereunder.
8. NOTICES.
Any notice to be given hereunder, except as otherwise set forth in this
Agreement, shall be given in writing or by machine readable electronic
transmission and shall be deemed to have been given when actually received, or
four (4) days after posting if given by registered mail, whichever is less.
Notices shall be given to:
FEDERAL HOME LOAN BANK OF DALLAS
CREDIT STRATEGIES DEPARTMENT
5605 NORTH MACARTHUR BOULEVARD
IRVING, TEXAS 75038;
and to:
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
(FULL CORPORATE NAME OF MEMBER)
Roddy Pearce, VP/Controller
- - -------------------------------------------------------------------------------
(ATTN:)
801 Pile, Clovis, NM 88101
- - -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL OFFICES)
Clovis, NM 88101
- - -------------------------------------------------------------------------------
(CITY, STATE, ZIP CODE)
9. ENTIRE AGREEMENT.
This Agreement supersedes all prior discussions, agreements, and
understandings between the parties hereto with respect to the matters
contained herein and incorporated by reference, and this Agreement contains
all of the agreements between the parties hereto with respect to the
transactions contemplated hereby.
10. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective authorized and permitted representatives,
successors, and assigns.
11. ILLEGALITY.
Any provision of this Agreement that is prohibited of unenforceable shall
not be in effect to the extent of such prohibition or unenforcability without
invalidating or affecting the remaining provisions hereof.
12. DEFINED TERMS.
CRF 7011 (10/93) Agreement for Standby Letter of Credit Page 3 of 4
<PAGE>
Terms defined in any part of this Agreement shall have the defined meanings
wherever capitalized. As used in this Agreement, "herein", "hereinafter",
"hereunder", "hereof", and "thereto", shall refer to this Agreement in its
entirety and such terms are not limited to specific paragraphs or sentences.
Wherever appropriate in this Agreement the singular shall be deemed to refer to
the plural and the plural to the singular. Pronouns of a certain gender shall
be deemed to comprehend either or both of the other genders. The term "person"
shall be deemed to refer to any individual person, combination of persons, or
any other legal entity.
13. FURTHER ASSURANCES.
Member and the Bank shall execute such additional documents and take such
other action as may be reasonably requested to effectuate the intent of this
Agreement.
14. GOVERNING LAW.
LETTERS OF CREDIT/CONFIRMATIONS, LETTER OF CREDIT ADVANCES, THIS
AGREEMENT, AND ALL MATTERS INCIDENTAL THERETO SHALL BE GOVERNED BY THE FEDERAL
HOME LOAN BANK ACT, THE RULES, REGULATIONS, GUIDELINES, AND STATEMENTS OF POLICY
OF THE FEDERAL HOUSING FINANCE BOARD AND FEDERAL HOME LOAN BANK SYSTEM AND,
EXCEPT TO THE EXTENT INCONSISTENT THEREWITH, THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF THE CHOICE OF LAWS THEREOF AND,
EXCEPT TO THE EXTENT INCONSISTENT WITH THE FOREGOING, THE UNIFORM COMMERCIAL
CODE, THE USAGES AND CUSTOMERS SET FORTH IN THE UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS (1983 REVISION), AND INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION No. 400 AND ANY REVISIONS THEREOF.
15. JURISDICTION, COSTS, AND FEES.
Member expressly agrees that any action or proceeding with respect to the
performance or nonperformance of any term or condition contained herein shall be
resolved by the United States District Court for the Northern District of Texas
or, if such action or proceeding may not be brought and maintained in said
court, by an appropriate District Court of the State of Texas for the County of
Dallas. Member agrees that if any action or proceeding is brought by Member
seeking to obtain any legal or equitable relief against the Bank under or
arising out of this Agreement or any transaction contemplated hereby and such
relief is not granted by the final decision after any and all appeals of a court
of competent jurisdiction, Member shall pay all reasonable costs and attorneys'
fees incurred by the Bank in connection therewith.
16. EFFECTIVE DATE AND TERMINATION.
This Agreement shall be effective upon the date of its acceptance by the
Bank at its offices in Irving, Texas. This Agreement shall remain in effect
until terminated by either the Bank or Member upon written notice to the other
party. This Agreement also shall terminate upon the voluntary or involuntary
withdrawal of Member from membership in the Bank. No termination shall affect
the liability of any parties on any Letter of Credit/Confirmation that has been
issued and delivered to a designated beneficiary prior to such termination;
however, any termination shall render null and void any unexpired letter of
Credit/Confirmation that has been issued but has not been delivered to and
received by a designated beneficiary. Member agrees that upon termination if
any Letters of Credit/Confirmations and Letter of Credit Advances are then
outstanding hereunder, Member shall maintain with the Bank deposits or other
collateral in such amount and form as the Bank may require to secure such
outstanding Letters of Credit/Confirmations and Letter of Credit Advances.
IN WITNESS WHEREOF, Member, by authority of its Board of Directors or
governing body, has caused this Agreement to be executed and sealed by its duly
authorized undersigned officers on this 15th day of November 1994.
---- -------- --
[ SEAL ] ATTEST:
/s/ KATHY ALLENBERG
---------------------------------
SIGNATURE
First Savings Bank, F.S.B.
---------------------------------
FULL CORPORATE NAME OF MEMBER
/s/ RODDY PEARCE, V.P.
---------------------------------
Roddy Pearce AUTHORIZED OFFICER
VP/Controller
---------------------------------
TITLE
CRF 7011 (10/93) Agreement for Standby Letter of Credit Page 4 of 4
<PAGE>
EXHIBIT 10.3
UNITED STATES OF AMERICA
BEFORE THE
OFFICE OF THRIFT SUPERVISION
- - ------------------------------
)
In The Matter of )
) Re: OTS Resolution No.: DAL-94-33
First Savings Bank, FSB ) -----------
Clovis, New Mexico ) Dated: August 2, 1994
) ------------------------
)
- - ------------------------------
STIPULATION AND CONSENT
1. The Office of Thrift Supervision ("OTS"), has informed First Savings Bank,
FSB, Clovis, New Mexico (the "Association"), based upon information
reported to the OTS, that the grounds exist to issue a Prompt Corrective
Action Directive pursuant to Section 38 of the Federal Deposit Insurance
Act ("FDIA"), 12 U.S.C. Section 1831o, against the Association. The
Association, in the interest of cooperation, to avoid the time and expense
of pursuing further OTS' administrative procedures for the issuance of an
Amended Prompt Corrective Action Directive, and to conform an existing
Prompt Corrective Action Directive ("First Directive"), dated July 28,
1993, to the Association's May 25, 1994 amendment to its capital
restoration plan, stipulates and consents to the following:
2. The Association is a federal savings association subject to the supervision
and regulation by the OTS, making it a "savings association" as that term
is used in the Home Owners' Loan Act ("HOLA"), 12 U.S.C. Section 1461 ET
SEQ. and, as such, is subject to the OTS' authority to issue a directive to
take prompt corrective action pursuant to Section 38 of the FDIA, 12 U.S.C.
Section 1831o(e), and Section 565.7 of the OTS Regulations, 12 C.F.R.
Section 565.7.
<PAGE>
Page 2
3. The Association consents to the issuance by the OTS of the accompanying
Amended Prompt Corrective Action Directive. The Association further agrees
to comply with the terms of the Amended Prompt Corrective Action Directive.
4. The attached Amended Prompt Corrective Action Directive is effective upon
issuance and enforceable under Section 5(d) of the HOLA, 12 U.S.C. Section
1464(d), and Section 8 of the FDIA, 12 U.S.C. Section 1818.
5. The Association hereby (i) waives its rights to pursue the OTS'
administrative process for issuance of the accompanying Amended Prompt
Corrective Action Directive pursuant to 12 C.F.R. Section 565.7; (ii)
waives any and all rights it might otherwise have pursuant to 12 U.S.C.
Section 1831o and 12 C.F.R. 565.7 in connection with issuance of the
Amended Prompt Corrective Action Directive; (iii) waives its right to seek
judicial review of the Amended Prompt Corrective Action Directive,
including any such right provided by Section 8(h) of the FDIA, 12 U.S.C.
Section 1818(h); and (iv) waives its right to challenge or contest in any,
manner the basis, issuance, validity or enforceability of the Amended
Prompt Corrective Action Directive or any provision thereof.
6. The Association hereby agrees that the Amended Prompt Corrective Action
Directive, through its incorporation of the First Directive, incorporates a
modification and incorporation (in such modified form) of the Order to
Cease and Desist issued by the OTS against the Association on April 23,
1991 ("Cease and Desist Order"). Paragraphs 2, 3(c), 3(g), 3(h), 3(j),
3(k), 3(n), 3(o), 3(s), 3(t), 4, 5, 6, 9, 10, 11, 14, 16, and 18 of the
Cease and Desist Order were terminated by execution of the First Directive.
Paragraphs 19 and 20 of the Cease and Desist Order were suspended by
<PAGE>
Page 3
execution of the First Directive (and remain so under the Amended Prompt
Corrective Action Directive) until the Regional Director notifies the
Association in writing that Paragraphs 19 and 20 are again in effect.
Paragraphs 1, 3(a), 3(b), 3(d), 3(e), 3(f), 3(i), 3(l), 3(m), 3(p), 3(q),
3(r), 3(u), 3(v), 7, 8, 12, 13, 15, and 17 of the Cease and Desist Order
were, as a result of the execution of the First Directive (as incorporated
in the Amended Prompt Corrective Action Directive), modified and, in such
modified form, restated in the First Directive at Sections 1.5, 2.2, 2.3,
2.4, 2.5, 2.6, 2.7, and 3.1 (and incorporated by reference to the First
Directive in the Amended Prompt Corrective Action Directive), and shall (in
such modified form) remain in full force and effect in accordance with
their terms and the other provisions of the Cease and Desist Order,
pursuant to Section 8(b) of the FDIA, 12 U.S.C. Section 1818(b), until
specifically terminated by the OTS. Nothing contained in the Amended
Prompt Corrective Action Directive or this Stipulation and Consent shall
affect or limit the OTS's ability to take enforcement action in connection
with any violation of the Cease and Desist Order or the First Directive
that may have occurred on or prior to the date of the Amended Prompt
Corrective Action Directive.
7. Each Director signing this Stipulation attests that s/he voted in favor of
the resolution authorizing the execution of the Stipulation.
<PAGE>
Page 4
FIRST SAVINGS BANK, FSB
CLOVIS, NEW MEXICO
By: By:
By: By:
By: By:
By: By:
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
OFFICE OF THRIFT SUPERVISION
- - ------------------------------
)
In The Matter of )
) Re: OTS Resolution No.: DAL-94-33
First Savings Bank, FSB ) -----------
Clovis, New Mexico ) Dated: August 2, 1994
) ---------------------------
)
- - ------------------------------
AMENDED PROMPT CORRECTIVE ACTION DIRECTIVE
WHEREAS, First Savings Bank, FSB, Clovis, New Mexico (the "Association") is
a federal savings association that is regulated by the Office of Thrift
Supervision ("OTS"); and
WHEREAS, Section 38 of the Federal Deposit Insurance Act ("FDIA"), as added
by Section 131 of the Federal Deposit Insurance Act ("FDIA"), of 1992
("FDICIA"), 12 U.S.C. Section 1831o, and Part 565 of the OTS Regulations
thereunder, 12 C.F.R. Part 565, require institutions that are undercapitalized
to file a capital restoration plan specifying the steps the instruction will
take to become at least adequately capitalized; and
WHEREAS, Section 38 of the FDIA, 12 U.S.C. Section 1831o, requires the OTS
to take prompt corrective action to resolve the problems of insured savings
associations at the least possible long-term loss to the deposit insurance fund;
and
WHEREAS, Section 565.7 of the OTS Regulations, 12 C.F.R. Section 565.7,
provides for the issuance by the OTS of directives to take prompt corrective
action to resolve the problems of insured depository institutions and to restore
their capital; and
<PAGE>
Page 2
WHEREAS, the Association was notified on December 21, 1992, that the
Association was undercapitalized for purposes of the prompt corrective action
provisions of Section 38 of the FDIA, 12 U.S.C. Section 1831o; and
WHEREAS, the Association submitted a capital restoration plan to the OTS on
February 16, 1993, which was amended on April 5, 1993 and further amended on May
25, 1994 (the "Capital Plan");
WHEREAS, the OTS has considered the Association's capital deficiency, the
Capital Plan in accordance with Section 38(e)(2) of the FDIA, 12 U.S.C. Section
1831o(e)(2), and conditionally approves the Capital Plan (as amended) as set
forth in a letter to the Association dated July 7, 1994; and
WHEREAS, a prompt corrective action directive was issued by the OTS on the
Association on July 28, 1993, prior to the May 25, 1994 amendment of the Capital
Plan;
WHEREAS, the Association and the OTS wish to amend the July 28, 1993 prompt
corrective action directive in order, INTER ALIA, to conform it to the Capital
Plan as amended;
WHEREAS, this Amended Prompt Corrective Action Directive ("Directive") is a
condition imposed in writing in connection with the approval of the
Association's Capital Plan; and
WHEREAS, the Association and the Board of Directors thereof ("Board of
Directors"), by execution of the attached Stipulation and Consent (the
"Stipulation") to the issuance of this Directive, the terms of which are
incorporated herein by this reference, have stipulated and consented to the
issuance of the Directive; and
<PAGE>
Page 3
WHEREAS, the OTS has determined to issue this Directive in order to carry
out the purposes of Section 38 to resolve the Association's problems at the
least long-term cost to the deposit insurance fund;
NOW THEREFORE, pursuant to Section 565.7(a)(1) of the OTS Regulations, 12
C.F.R. Section 565.7(a)(1), the Association and its Board of Directors are
directed, effective as of the date hereof, to comply with the terms of the July
28, 1993 prompt corrective action directive, a copy of which is attached hereto
and which is incorporated herein by reference, PROVIDED THAT the July 28, 1993
prompt corrective action directive is hereby amended as follows:
1. Section 1.3 of the July 28, 1993 prompt corrective action directive is
amended to read as follows:
Section 1.3 REQUIRED RECAPITALIZATION
Pursuant to Sections 38(e)(5) and 38(f)(2)(J) of the FDIA, 12 U.S.C.
Sections 1831o(e)(5)(A) and 1831o(f)(2)(J), based upon a determination by
the OTS that the following action is necessary and will better carry out
the purposes of Section 38 of the FDIA, the Association is directed to
achieve the following capital levels by June 30, 1995: 8.0% total risk-
based capital ratio, 4.0% Tier 1 risk-based capital, and 4.0% Tier 1
leverage (core) ratio.
2. Section 3.3 of the July 28, 1993 prompt corrective action directive is
amended to replace "James Boggs" with "Robert Brick".
IT IS SO ORDERED
OFFICE OF THRIFT SUPERVISION
By: /s/ Frederick R. Casteel
-----------------------------------
Frederick R. Casteel
Regional Director
Midwest Region
<PAGE>
EXHIBIT 10.4
FIRST SAVINGS BANK, F.S.B.
CLOVIS, NEW MEXICO
EMPLOYMENT AGREEMENT
AGREEMENT, made this 22nd day of November, 1995, by and between First
Savings Bank, F.S.B. (BANK), a federally chartered stock savings bank and
Kenneth J. Huey, Jr. (Officer).
The Officer is an employee of the BANK and has been duly elected.
The BANK desires to provide for the employment of the Officer in order to
reinforce and encourage his continued attention and dedication to the growth and
success of the BANK as a member of the BANK's management;
The Officer desires to serve the BANK on the terms and conditions contained
in this Agreement;
THEREFORE, in consideration of the premises and respective agreements
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. EMPLOYMENT. The BANK agrees to employ and the Officer agrees to serve
the BANK on the terms and conditions set forth in this Agreement.
2. TERM. The term of this Agreement shall commence on December 1, 1995
and shall continue for a period of two years through December 1, 1997, subject
to the terms and conditions herein set forth. As required by Thrift Regulatory
Bulletin No. 27a (#RB 27a) the Board of Directors of the BANK must review and
approve any renewals or extensions of this contract and if required the Board
must obtain prior regulatory approval for any renewals or extensions hereof.
3. POSITION AND RESPONSIBILITIES. It is intended that at all times
during the term of this Agreement the Officer shall serve as President, Chief
Executive Officer, and Director. Officer's duties shall include, but may not be
limited to, those duties performed in the past by said
1
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KENNETH J. HUEY, JR. - 11/22/95
Officer. The duties the Officer has and will continue to be the day-to-day
management and operation of the BANK. The Officer shall devote time and
attention to the business and affairs of the BANK (excluding periods of
vacation, sickness, and permitted leaves of absence as provided for in the
BANK's personnel policies).
(a) MAJOR DUTIES AND RESPONSIBILITIES. The Officer will provide
leadership and direction, and guide the BANK's activities to ensure the short-
term and long-term profitability of the BANK, equitable treatment and
development of employees, and maintenance of a good bank-community relationship:
(i) Coordinate the efforts of lending activities through guidance and
direction of mortgage loan, commercial loan, and installment loan departments.
Maintain control of the BANK marketing, personnel, operations, and staff
activity under direction of other senior management; and
(ii) Contribute to the effective, profitable operation of the BANK by
participating in asset management, executive, investment, stockholder, Board of
Directors, and marketing activities; and
(iii) Supervise all areas of the BANK; and
(iv) Represent the BANK and provide leadership in key community
activities, including business, charitable, civic, and social organizations to
maintain a proper responsible citizen stature for the BANK; and
(v) Provide direct guidance of personnel activities which affect the key
management team, including salary administration, management incentive, and
departmental performance objectives, to ensure solid team efforts toward the
attainment of departmental and BANK goals; and
(vi) Coordinate BANK's efforts to raise additional capital.
4. COMPENSATION. During the period of the Officer's employment, the BANK
shall provide said Officer with the following compensation and other benefits:
(a) SALARY. The BANK shall pay to the Officer a salary at a rate not less
than $92,400.00 per annum, payable in accordance with the standard payroll
practices of the BANK. This salary may be increased from time to time by the
Board of Directors of the BANK (with regulatory approval when required), taking
into account, among other things, individual performance and general business
conditions.
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<PAGE>
KENNETH J. HUEY, JR. - 11/22/95
(b) INCENTIVE/BONUS COMPENSATION. The Officer shall be eligible to
participate in Board-approved incentive or bonus compensation plans.
(c) EMPLOYEE BENEFITS. The Officer shall be eligible to participate in
all benefit programs of the BANK, including but not limited to profit
sharing/employee stock ownership, 401K plan, group life insurance, group health
insurance, sick leave, salary continuation, disability, vacation, and holidays.
(d) PERQUISITES AND BUSINESS EXPENSES. The Officer shall be entitled to
prompt reimbursement of all reasonable expenses incurred by said Officer in
performing services hereunder and is to be provided additional perquisites
customary for the BANK. The BANK shall provide a late model automobile for use
by the Officer during the term of this Agreement.
(e) STOCK OPTION PLAN. Subject to the approval of this Agreement by the
Office of Thrift Supervision (OTS), the Board of Directors shall cause the BANK
to grant under its stock option plan (First Savings Bank, F.S.B., 1986 Stock
Option and Incentive Plan) 17,000 shares of BANK common stock to the Officer
effective July 18, 1995. The option may be exercisable during this Agreement
and any extension thereof and at the fair market price of the common stock at
the date of the grant, unless an earlier expiration date is indicated by the
stock option plan.
(f) 12 USC 1828(k) COMPLIANCE. Any payments made to the Officer pursuant
to this agreement, or otherwise, are subject to, and conditioned upon, their
compliance with 12 USC 1828(k) and any regulations promulgated thereunder.
5. TERMINATION.
The following events shall constitute grounds for termination:
(a) DISABILITY OR DEATH. If, as a result of the Officer's incapacity due
to physical or mental illness, the Officer shall have been absent from his
duties hereunder on a full-time basis for 150 consecutive days, then the BANK
shall be entitled to deliver written notice of termination to the Officer, and
if, within 30 days after any such written notice of termination is given, the
Officer shall not have returned to the performance of his duties hereunder on a
full-time basis, the BANK may terminate the Officer's employment hereunder.
Upon the death of the Officer, the BANK shall continue to pay the Officer's
estate the Base
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<PAGE>
KENNETH J. HUEY, JR. - 11/22/95
Salary for a period of 180 days following the Officer's death, following which
the obligations of the BANK hereunder shall terminate. Termination hereunder
shall not affect the Officer's entitlement to any vested benefits of the Officer
hereunder or under any plan or arrangement contemplated by Section 4 above.
(b) CAUSE. The BANK may terminate the Officer's employment at any time,
but any termination by the BANK other than termination for cause, shall not
prejudice the Officer's right to receive compensation or other benefits under
this Agreement. The Officer shall have no right to receive compensation or
other benefits for any period after termination for cause. Termination for
cause shall include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and desist order, or material breach of any provision of this
Agreement.
If the Officer is suspended and/or temporarily prohibited from
participation in the conduct of the BANK's affairs by a notice served under
section 8(e)(3) or (g)(1) of [the] Federal Deposit Insurance Act (12 U.S.C.
1818(e)(3) and (g)(1)) the BANK's obligations under this Agreement shall be
suspended as of the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the BANK may, at its discretion, (i)
pay the Officer all or part of the compensation withheld while its Contract
(Agreement) obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations which were suspended.
If the Officer is removed and/or permanently prohibited from participating
in the conduct in the BANK's affairs by an order issued under section 8(e)(4) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the BANK under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
The BANK shall exercise its right to terminate the Officer's employment for
Cause by giving him a prompt written notice of termination specifying in
reasonable detail the circumstances constituting such Cause and specifying such
date of termination as the BANK shall determine.
In the event of a termination for Cause, the BANK shall have no further
liability for payments (other than
4
<PAGE>
KENNETH J. HUEY, JR. - 11/22/95
previously accrued and unpaid compensation) under section 4 of this Agreement.
(c) DEFAULT. If the BANK is in default (as defined in section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations under this Agreement shall
terminate as of the date of default, but this paragraph shall not affect any
vested rights of the contracting parties.
Further, all obligations under this Agreement shall be terminated, except
to the extent determined that continuation of this Agreement is necessary [for]
the continued operation of the BANK[:]
(i) by the Director of the Office of Thrift Supervision or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the BANK under the authority contained in section 13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Director of the Office of Thrift Supervision or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the BANK or when the BANK is
determined by the Director to be in an unsafe or unsound condition.
(d) OTHER. The BANK may terminate the Officer's employment for reasons
other than for Cause. In such circumstances, the BANK shall pay to said Officer
salary and employee benefits for the remainder of the term of the Agreement,
unless otherwise prohibited herein.
(e) TOTAL COMPENSATION. The total compensation to the Officer upon
departure, for any reason, will not exceed three times the Officer's average
annual compensation, based on the five most recent taxable years. In the case
of termination for cause, however, no payments will be made.
6. OTHER MISCELLANEOUS COVENANTS.
(a) TAX WITHHOLDING. The BANK shall have the right to deduct from any
payment required to be made to the Officer or said Officer's estate or
beneficiaries, any federal, state, or local taxes of any kind required by law to
be withheld with respect to such payments.
(b) NOTICES. Any notice hereunder to the BANK shall be addressed to
Chairman of the Board of Directors, P.O. Drawer 1569, Clovis, New Mexico 88102-
1569. Any notice to the Officer shall be directed to said Officer at Officer's
last
5
<PAGE>
KENNETH J. HUEY, JR. - 11/22/95
known address contained in the BANK's files. Either party may designate an
address at any time hereafter in writing.
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire Agreement and
understanding of the parties with respect to the subject matter herein and is
subject to prior approval (no objection) by the Office of Thrift Supervision
(OTS).
(d) SUCCESSORS: ASSIGNS. Except as herein expressly provided, the
respective rights and obligations of the Officer and the BANK under this
Agreement shall not be assigned by either party without the written consent of
the other party but shall inure to the benefit of, and be binding upon, the
parties or its permitted successors or assigns. With respect to the BANK,
successors shall include any other corporation or entity with which the BANK may
be merged or otherwise combined or which may acquire all or substantially all of
the business (ownership) of the BANK. With respect to the Officer, successors
shall include Officer's estate, beneficiaries, or other legal representatives.
Nothing herein expressed or implied is intended to confer on any person other
than the parties hereto any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
(e) AMENDMENT; WAIVER. No provision of this Agreement may be amended or
waived without written authorization of both the Board of Directors and the
Officer.
(f) SEVERABILITY. In the event that any provision of this Agreement shall
be determined to be invalid or unenforceable, the remaining provisions of the
Agreement shall remain in full force and effect.
(g) GOVERNING LAW. This Agreement shall be deemed a Contract under, and
for all purposes shall be construed with, the laws of the State of New Mexico.
(h) ARBITRATION. Any dispute or disagreement arising under this Agreement
shall be settled by arbitration conducted by a member of the American
Arbitration Association in accordance with the rules of said association.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The expense of such arbitration shall be borne by the BANK if the
Officer receives a judgment in said Officer's favor against the BANK.
(i) INVESTMENTS. Nothing contained in this contract shall prevent the
Officer from investing or trading stocks, bonds, securities, real estate, or
other forms of investment for said Officer's own benefit (directly or
indirectly),
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<PAGE>
KENNETH J. HUEY, JR. - 11/22/95
provided such investments do not significantly interfere or conflict with
Officer's services to be rendered hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day, month,
and year first written above.
FIRST SAVINGS BANK, F.S.B.
BY: /s/ Robert C. Lydick
-------------------------------------
Robert "Chad" Lydick, Chairman
Board of Directors
OFFICER
BY: /s/ Kenneth J. Huey, Jr.
-------------------------------------
Kenneth J. Huey, Jr.
7
<PAGE>
EXHIBIT 10.5
BISYS DOCUMENT PROCESSING, INC. ITEM PROCESSING AGREEMENT
11 Greenway Plaza
Houston, Texas 77046-1102
CLIENT First Savings Bank, FSB
-------------------------------------------------------------------------
ADDRESS 801 Pile
------------------------------------------------------------------------
CITY Clovis STATE New Mexico ZIP CODE 88102
----------------------------------- ----------------- -----
1. SCOPE OF AGREEMENT.
BISYS Document Processing, Inc. ("BISYS") agrees to provide Client, in
accordance with the terms and conditions of this Agreement, with the
services which are selected by Client from BISYS' then applicable Item
Processing Services Price List (the "IP Price List") which Client may, from
time to time, during the term of this Agreement, request BISYS to provide
to it. The services listed on the IP Price List are hereinafter referred
to collectively as the "IP Services". The IP Price List in effect as of
the date hereof is attached hereto as Exhibit A and made a part hereof.
The IP Services shall be provided for Client exclusively by BISYS and
Client shall not perform the IP Services itself or procure the IP Services
from any other party during the term of this Agreement.
2. TERM OF AGREEMENT.
(a) The initial term of this Agreement shall be for the period commencing
the date this Agreement is executed by both parties and ending 36
months after the date on which IP Services are operational and
available for Client's use at the BISYS center providing IP Services
to Client (the "Initial Period").
(b) The Agreement shall automatically continue after the Initial Period
for subsequent consecutive terms of three (3) years each unless and
until it is terminated by either party upon written notice to the
other given at least 180 days prior to the end of the Initial Period
or any additional three (3) year period.
3. CHARGES.
(a) The initial charges for the IP Service are specified in the IP Price
List and shall be recorded by the BISYS system or by the other means
used by BISYS of determining Client's usage of such IP Services. The
charges for the IP Services listed on the IP Price List as of the date
hereof will not be changed by BISYS until the expiration of the first
year of the Initial Period during which any of the IP Services
selected by Client from the IP Price List was purchased by Client.
Thereafter during the remaining term of the Initial Period, the
charges for the IP Services listed on the IP Price List may be changed
by BISYS at any time and from time to time upon at least ninety (90)
days prior written notice to Client.
(b) There shall be added to all charges for the IP Services furnished
Client hereunder amounts equal to any applicable taxes levied or
based on such IP Services, exclusive of taxes based on BISYS'
net income.
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<PAGE>
(c) No later than the fifth (5th) day of each calendar month, BISYS shall
invoice Client (the "Monthly Invoice") the amounts determined in
accordance with the terms of this Agreement relating to the prior
month. Client agrees to pay all amounts set forth in the Monthly
Invoice by automatic debit by BISYS on the fifteenth (15th) day of the
billing month from a Client bank account established for this purpose
(the "Payment Account"). Client agrees to execute any and all
required documentation to enable BISYS to perform such automatic
debiting of the Payment Account. If Client fails to pay any amounts,
due under this Agreement, Client shall, upon demand, pay interest at
the rate of one and one-half percent (1-1/2%) per month, but in no
event more than the highest interest rate allowable, on such
delinquent amounts from their due date until the date of payment.
Client agrees to reimburse BISYS for any and all expenses BISYS may
incur, including reasonable attorney fees, in taking action to collect
any amounts due BISYS hereunder. Notwithstanding anything to the
contrary set forth herein, all amounts due must be paid prior to
Client's conversion from the BISYS IP Service to any non-BISYS item
processing provider."
4. POSTAGE DEPOSIT.
Upon execution of this Agreement, Client shall pay BISYS a "Postage
Deposit" (as defined below) to be used by BISYS for the purpose each month
of advancing the monies necessary to cover statement postage and other
postage related expenses incurred on behalf of Client. Each month, as part
of the Monthly Invoice, Client shall be billed for the actual postage
costs. For the purposes hereof, the "Postage Deposit" shall mean an amount
equal to the good faith estimate of the number of pieces per month set
forth on attached Exhibit C times the average cost per piece set forth on
Exhibit C. From time to time during the term of this Agreement, if either
Client's average number of pieces per month exceeds the estimate on Exhibit
C or the average cost per month exceeds the cost per piece set forth on
Exhibit C, BISYS may request that Client increase the amount of the
foregoing Postage Deposit so that the amount of the Postage Deposit will
remain the product of the average number of pieces multiplied by the
average price per piece and Client shall provide BISYS with such additional
deposit monies. Upon the termination of the Agreement, any amount of the
unused Postage Deposit monies still on deposit with BISYS shall be refunded
to Client.
5. USE OF THE IP SERVICES.
(a) Client assumes exclusive responsibility for the consequences of its
own actions, of any instructions it may give to BISYS, for its failure
to properly access the IP Services in the manner prescribed by BISYS,
and for its failure to supply accurate input information.
(b) Client agrees that it will use the IP Services in accordance with such
reasonable rules as may be established by BISYS from time to time as
set forth in any materials furnished by BISYS to Client.
(C) Client agrees that, except as otherwise permitted by BISYS, it will
use the IP Services only for its own internal and proper business
purposes and will not sell or otherwise provide, directly or
indirectly, any of the IP Services or any portion thereof to any
third party.
6. OUT-OF-BALANCE SITUATIONS.
In the event of any out-of-balance conditions among BISYS, Client, the
Federal Reserve or other clearing agency, provided BISYS is informed of
such situation in a timely manner, BISYS will use all
2
<PAGE>
reasonable efforts to compare and reconcile such condition. Client agrees,
at BISYS' request to provide all necessary assistance to and in such
comparison and reconciliation process.
7. WARRANTY.
(a) BISYS represents and warrants that the IP Services will conform
materially to their design specifications.
(b) EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8. LIMITATION OF LIABILITY.
(a) BISYS assumes no liability for any endorsement or any errors of any
previous processor.
(b) BISYS' sole liability to Client or any third party for any claims,
notwithstanding the form of such claims (e.g., contract, negligence or
otherwise) arising out of errors or omissions in the IP Services
provided, or to be provided, by BISYS hereunder and caused by BISYS,
shall be to correct such error or omission provided that Client
supplies BISYS with a written request within two (2) weeks after
Client knew, or should have known of such error or omission. If in
the opinion of BISYS, it is not feasible to make such correction,
BISYS shall refund any payment(s) made by Client for such portion of
the IP Services which are not corrected, and if requested by Client,
shall promptly return any documentation or other materials furnished
by Client under this Agreement in connection with such error or
omission.
(c) BISYS shall not have any liability under this Agreement for any
damages (monetary or otherwise) resulting from claims made by Client
or any third party for errors, omissions, interruptions or delays in
the Services provided or to be provided by BISYS hereunder or for the
unavailability of the BISYS system. BISYS' sole liability under this
Agreement for damages (monetary or otherwise) resulting from claims
made by Client or any third party arising from or related to any and
all causes not covered by Paragraph 8(b) above shall be limited to the
lesser of (i) the amount of actual damages incurred by Client, or (ii)
an amount which will not exceed the amount paid to BISYS by Client for
such portion of the IP Services which are in dispute. The amount of
damages shall be determined by any prior documented allocation of
payment by Client. If no prior allocation was made, the amount of
damages shall be such amount as may be equitably allocated to such
portion of the IP Services. Such damages shall be the full extent of
BISYS' liability under this Agreement regardless of the form in which
any such legal or equitable claim or action may be asserted against
BISYS and shall constitute Client's sole remedy (monetary or
otherwise).
(d) BISYS shall not be liable or deemed to be in default for any delay or
failure to perform under this Agreement or for interruption of the IP
Services resulting, directly or indirectly, from any cause beyond
BISYS' reasonable control.
(e) IN NO EVENT WILL BISYS BE RESPONSIBLE FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH CLIENT MAY INCUR OR
EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT,
EVEN IF BISYS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
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<PAGE>
9. INSURANCE.
BISYS will maintain, during the term of this Agreement, $10,000,000 of
coverage under a Blanket Crime Policy covering fraudulent and dishonest
acts committed by its employees for which it is legally responsible. BISYS
shall maintain, on its own behalf, insurance coverage for loss from fire,
disaster, or other causes contributing to interruption of normal services.
Client, at its own expense, will maintain all insurance and fidelity bonds
deemed necessary by Client in Client's opinion.
10. DEFAULT; REMEDIES UPON DEFAULT.
(a) Any of the following events will constitute an "Event of Default"
under the Agreement: (i) non-payment of any amounts due hereunder to
BISYS by Client; (ii) non-performance of any of Client's or BISYS'
other material obligations hereunder; (iii) if any representation or
warranty of Client or BISYS is materially breached; (iv) if Client or
BISYS files a petition for bankruptcy or becomes the subject of an
involuntary bankruptcy petition which is not vacated within thirty
(30) days of filing, or becomes insolvent; or (v) if any substantial
part of Client's or BISYS' property becomes subject to any levy,
seizure, assignment, application or sale for or by any creditor or
governmental agency.
(b) Upon occurrence of an Event of Default under the Agreement, the non-
defaulting party may, at its option, terminate the Agreement provided
at least sixty (60) days (or longer period as may be required by the
applicable regulatory authorities) prior written notice has been given
to the other and such default has not been cured within such period.
Upon such termination by BISYS, BISYS may declare all amounts due and
to become due hereunder immediately due and payable. The remedies
contained in this Paragraph 10 are cumulative and in addition to all
other rights and remedies available to the parties under this
Agreement or by operation of law or otherwise.
11. GENERAL.
(a) Client acknowledges that it has not been induced to enter into this
Agreement by any representation or warranty not set forth in this
Agreement. This Agreement contains the entire agreement of the
parties with respect to its subject matter and supersedes all existing
agreements and all other oral, written or other communications between
them concerning its subject matter. This Agreement shall not be
modified in any way except by a writing signed by both parties.
(b) The failure by either party hereto to insist upon strict performance
of any of the provisions contained herein shall in no way constitute a
waiver of its rights as set forth herein, at law or equity, or a
waiver by either party of any other provisions or subsequent default
by the other party in the performance of or compliance with any of the
terms and conditions set forth herein.
(c) This Agreement may not be assigned by Client, in whole or in part,
without the prior written consent of BISYS which consent shall not be
unreasonably withheld. This Agreement shall be binding upon and shall
inure to the benefit of BISYS and Client and their respective
successors and permitted assigns.
(d) If any provision of this Agreement (or any portion thereof) shall be
held to be invalid, illegal or unenforceable, the validity, legality
or enforceability of the remainder of this Agreement shall not in any
way be affected or impaired thereby.
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<PAGE>
(e) The headings in this Agreement are intended for convenience of
reference and shall not affect its interpretation.
(f) The individuals executing this Agreement on behalf of BISYS and Client
do each hereby represent and warrant that they are duly authorized by
all necessary action to execute this Agreement on behalf of their
respective principals.
BISYS DOCUMENT PROCESSING, INC. FIRST SAVINGS BANK, FSB
Agreed to: Agreed to: /s/ Ken Huey
------------------------- -----------------------------
(Signature - Authorized Officer) (Signature - Authorized Representative)
Name: Name: Ken Huey Jr.
------------------------------ ----------------------------------
(Print or Type) (Print or Type)
Title: Title: President
----------------------------- ---------------------------------
(Print or Type) (Print or Type)
Date: Date: 10-16-92
------------------------------ ----------------------------------
(Print or Type) (Print or Type)
- - --------------------------------------------------------------------------------
THIS AGREEMENT SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AUTHORIZED
OFFICERS OF BDP AND CLIENT.
BDP'S MARKETING REPRESENTATIVES DO NOT HAVE THE AUTHORITY TO BIND BDP.
- - --------------------------------------------------------------------------------
FirstSavings.NED
5
<PAGE>
EXHIBIT A
---------
ITEM PROCESSING
SCHEDULE OF SERVICES & FEES
HOUSTON, TEXAS
MAY 1ST, 1992
FUNCTION UNIT COST
-------- ---------
- Inclearing Intercept .015/item
- Proof Encode/Capture (POD) .036/item
- Return Item Processing (NSF) 1.50/item
- Bulk File .004/item
- Statement Mail .06/account
- Statement Enclosure/Item .0125/item
- Statement Filming .0018/item
- Exception Item Process $20.00/day
- Qualify Returns .45/item
- Chargebacks (Return Deposit) 1.25/item
- Item Retrieval 1.00/item
- Photo Copies 1.00/item
- Serial Sorting .02/item
- Warehouse No charge
- Postage Prevailing rates
- Facsimile .25/item
- GL Sorting .0075/item
- OTC Integration .0075/item
- Courier (El Paso) 1,000.00/month
<PAGE>
EXHIBIT A - CONTINUED
---------------------
PAGE 1
RETAIL LOCKBOX
--------------
HOUSTON, TEXAS
MAY 1ST, 1992
PRODUCT NAME CHARGE BASIS PRICE
------------ ------------ -----
REMITTANCE DEPOSIT PROCESSING
(open envelopes, capture and balance coupon to check)
- - - Maintenance Per Month 100.00
- - - Item Processing Per Transaction
Up to 5,000 .25
Next 10,000 .20
Next 25,000 .18
Over 40,000 .15
- - - Rejects Per Item .15
SPECIAL HANDLING
- - - Photocopy .50
DEPOSIT REPORTING
(if needed)
- - - Phone
Local Per Month 100.00
Long Distance Per Month 150.00
DATA TRANSMISSION Per Month Included
Per Item Included
CHECK CHARGES
- - - Encoding Per Item See Standard
Pricing
- - - Capture and Sorting Per Item See Standard
Pricing
Postage As Incurred
<PAGE>
EXHIBIT A - CONTINUED
---------------------
PAGE 2
WHOLESALE LOCKBOX
-----------------
HOUSTON, TEXAS
MAY 1ST, 1992
PRODUCT NAME CHARGE BASIS PRICE
- - ------------ ------------ -----
REMITTANCE DEPOSIT PROCESSING
(match, compare and balance check to invoice, key enter customer detail)
- - - Maintenance Per Month 100.00
- - - Item Processing Per Envelope .30
SPECIAL HANDLING
- - - Photocopy Per Item .10
- - - Rough Sort (A, B, C) Per Envelope .05
- - - Fine Sort (AA, AB) Per Envelope .10
DEPOSIT REPORTING
- - - Phone
Local Per Month 100.00
Long Distance Per Month 150.00
- - - Facsimile
Local Per Month 50.00
Long Distance Per Month 75.00
DATA TRANSMISSION Per Month 30.00
Per Item .10
CHECK CHARGES
- - - Encoding Per Item See Standard
Pricing
- - - Capture and Sorting Per Item See Standard
Pricing
POSTAGE Per Month As Incurred
<PAGE>
EXHIBIT B
---------
ITEM PROCESSING
PERFORMANCE, DELIVERY & OTHER TIMING DEADLINES
HOUSTON, TEXAS
MAY 1ST, 1992
- Inclearing
Based upon the timely release of checks from the El Paso Branch of the
Federal Reserve Bank, BISYS will capture, balance and transmit to
clients data processor within 6 hours of said release.
- Cash Letter/Transit N/A
Work must be delivered to the BISYS Document Processing location at
least hours prior to agreed upon clearing deadlines. In the event
that work is not delivered by the specific time, BISYS will use
reasonable efforts to process clients work but will assume no
liability for any missed deadlines.
- Return Item Processing
The Federal Reserve Bank deadline for Return items is 12:00 midnight,
Monday - Friday. Client is responsible for notifying BISYS by
2:00p.m. of the day they wish to return any item(s) to the Federal
Reserve Bank.
- Statement Preparation/Mailing
BISYS will use all reasonable efforts to ensure that clients customer
statements will be mailed within 72 hours of the cycle cut-off date.
<PAGE>
EXHIBIT C
---------
ITEM PROCESSING
POSTAGE DEPOSIT REQUIREMENTS
HOUSTON, TEXAS
MAY 1ST, 1992
4,658 Pieces per month
-------------------
.40 Average cost per piece
-------------------
$1,863.20 Total "Postage Deposit"
-------------------
<PAGE>
EXHIBIT 10.5.1
[Letterhead]
March 14, 1996
Mr. Roddy Pearce
Vice President
First Savings Bank, FSB
801 Pile Street
Clovis, NM 88102-1569
Dear Roddy:
As we discussed earlier, BISYS has agreed to your request to extend the
current Item Processing contract between BISYS and First Savings Bank, FSB for
one year. All terms and conditions of the existing contract remain with the
only exception being one year extension of the current contract termination date
to March 15, 1997.
During this item processing extension, we will continue to work with you
and your organization to discover, plan, and implement new/re-engineered
applications, workflow tools and processes that will accrue to the benefit of
First Savings Bank, FSB.
Sincerely,
/s/ Lawrence E. Doran
Lawrence E. Dolan
Senior Account Executive
LED/ksc
cc: Ken Huey, Jr. - First Savings Bank, FSB
Nanci Moore - BISYS
<PAGE>
EXHIBIT 10.6
ACKNOWLEDGEMENT AND ASSIGNMENT
FIRST SAVINGS BANK, F.S.B. (formerly First Federal Savings and Loan) ("Bank")
and COMAC Joint Venture (predecessor to COMAC Financial Services, A Limited
Partnership) ("COMAC") are parties to a Computer Servicing Agreement dated
January 1, 1985 as amended by Addendums dated April 25, 1986 and September 28,
1990 (collectively, the "Agreement") by which COMAC provides Bank with certain
services ("Services").
Effective the "Conversion Date" (defined in Paragraph 2 of Attachment "A") COMAC
assigns the Agreement to BISYS, Inc. ("BISYS"); and (i) BISYS accepts the
assignment and assumes the rights and obligations thereunder from and after the
Conversion Date; (ii) Bank agrees to the immediate commencement of the
conversion process; (iii) Bank acknowledges and agrees to the assignment; (iv)
Bank and BISYS agree they will continue to be bound by the Agreement as the
Agreement is modified by the provisions set forth on Attachment "A"; and (v)
Bank agrees to allow BISYS to use its data processing system ("TotalPlus
System") for the receipt of the Services and further agrees to extend the
termination date of the Agreement to sixty (60) months after the Conversion
Date.
As consideration, Bank will (a) continue to receive processing discounts from
BISYS and/or COMAC, as applicable per Attachments "A" and "B"; (b) receive free
initial conversion to the TotalPlus System; (c) receive "Like Services" (as
defined in Attachment "A") for charges in accordance with the terms set forth on
Attachment "A"; and (d) receive services other the Like Services at prices on
BISYS' regular price schedule (Attachment "C") or as set forth on Attachment
"A".
Dated as of March 12th, 1993.
BISYS, Inc. FIRST SAVINGS BANK, F.S.B.
By: /s/ Paul Bourke By: /s/ Ronald Humphrey
-------------------------------- --------------------------------
Senior Vice President
COMAC Financial Services, March 11, 1993
A Limited Partnership
By: Computer Terminal Service Corporation,
its General Partner
By: /s/ Hosie Maxwell
---------------------------
Hosie Maxwell, President
<PAGE>
ATTACHMENT "A"
TO FORM OF
ACKNOWLEDGEMENT AND ASSIGNMENT
Bank and BISYS agree to the following:
1. The term "Like Services" means those Services offered by both COMAC and
BISYS, as of this date, which are basically similar in nature, which do
not require significant changes for COMAC customers to receive such from
BISYS on the TotalPlus System, excluding any Bank-site Services and/or
products, including, without limitation, those services described on
Attachment "B".
2. Commencing the date Bank's work is performed by BISYS on the TotalPlus
System ("Conversion Date") (which Conversion Date is currently scheduled
to occur on March 13, 1993):
(a) All Like Services are included in the term "Fixed Charge Services"
(as defined in Paragraph 2(g) below).
(b) All TotalPlus Services, other than TotalPlus Services included in
the term Fixed Charge Services shall be performed by BISYS for the
charges listed on Attachment "C". Attachment "C" prices shall not
be increased for one year following Conversion Date, thereafter
prices may be increased, from time to time, upon 90 days' prior
written notice to Bank.
(c) Any clause(s) dealing with Warranties in the Agreement are deleted.
The following is added to the Agreement:
Warranty - BISYS warrants that the Services on the TotalPlus System
will conform materially to their design specifications. This
warranty shall not apply to any computer programs, databases and/or
BISYS supported files used to provide Services to Bank which have
been altered, changed or modified, without BISYS' prior written
consent in each instance.
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(d) Any clause(s) dealing with the liability of the provider of Services
in the Agreement are deleted. The following is added to the
Agreement:
1
<PAGE>
LIMITATION OF LIABILITY.
A. BISYS' sole liability to Bank or any third party for any
claims, notwithstanding the form of such claims (e.g., contract,
negligence or otherwise), arising out of errors or omissions in the
Services provided or to be provided by BISYS hereunder and caused by
BISYS shall be to furnish the correct report and/or to correct the
applicable Bank files, provided that Bank promptly advises BISYS
thereof.
B. BISYS will make every reasonable effort to have the Services
available during its regularly scheduled hours. However, BISYS
cannot and does not guarantee such availability. Accordingly,
BISYS' sole liability to Bank or any third party for claims,
notwithstanding the form of such claims (e.g., contract, negligence
or otherwise) arising out of (i) the unavailability of the TotalPlus
System; or (ii) the interruption in or delay of the Services
provided or to be provided by BISYS hereunder shall be to use its
best efforts to make the system available and/or resume the Services
as promptly as reasonably practicable.
C. BISYS shall not have any liability under this Agreement for
any damages monetary or otherwise) resulting from claims made by
Bank or any third party for errors, omissions, interruptions or
delays in the Services provided or to be provided by BISYS hereunder
or for the unavailability of the TotalPlus System, BISYS' sole
liability under this Agreement for damages (monetary or otherwise)
resulting from claims made by Bank or any third party arising from
or related to any and all causes not covered by (A) or (B) above
shall be limited to the lesser of (i) the amount of actual damages
incurred by Bank; or (ii) an amount which will not exceed one
month's average total monthly charges paid by Bank for the Services
during the twelve months preceding the month in which the damage or
injury is alleged to have occurred, or such lesser number of months
if Bank has not received twelve months of Service. Such damages
shall be the full extent of BISYS' liability under this Agreement
regardless of the form in which any such legal or equitable claim or
action may be asserted against BISYS and shall constitute Bank's sole
remedy (monetary or otherwise).
D. BISYS shall not be liable or deemed to be in default for any
delay or failure to perform under this Agreement or for interruption
of the Services resulting, directly or indirectly, from any cause
beyond BISYS' reasonable control.
E. IN NO EVENT WILL BISYS BE RESPONSIBLE FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH BANK MAY INCUR OR
EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT,
EVEN IF BISYS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
2
<PAGE>
(e) BISYS shall not perform, or be liable or responsible for, any
courier services to Bank under any circumstances.
(f) BISYS shall not perform, or be liable or responsible for, any
Automated Teller Machine ("ATM") Services under any circumstances.
(g) The term "Fixed Charge Services" shall mean those TotalPlus Services
set forth on Attachment "C" which are not "shaded". The parties
agree that TotalPlus Services set forth on Attachment "C" which are
"shaded" are not included in the term Fixed Charge Services and
further, neither features, nor TotalPlus Services made available to
BISYS' clients (including Bank) after October 1, 1992 are to be
deemed part of Fixed Charge Services.
(h) For Bank usage of any or all Fixed Charge Services during the sixty
(60) months following Conversion Date ("Initial Period"), Bank shall
pay BISYS a fixed monthly charge (the "Fixed Monthly Charge") in
accordance with the following:
(i) For the first two (2) years of the Initial Period commencing
Conversion Date, the Fixed Monthly charge shall be $12,250.00
except as such charge may be increased for the second year
pursuant to Paragraph 2(h)(iii) below.
(ii) Commencing the third year following Conversion Date and
continuing through the end of the Initial Period, upon at
least 90 days prior written notice, BISYS may increase the
Fixed Monthly charge of $12,250.00 by a percentage of not more
than 3% per year. As the Fixed Monthly Charge of $12,250.00 is
increased pursuant to this Paragraph 2(h)(ii) this increased
Fixed Monthly Charge shall be the "base" Fixed Monthly
Charge to which any annual adjustments pursuant to
Paragraph 2(h)(iii) below are added.
(iii) Upon completion of the first full calendar month of services
following Conversion Date, BISYS will compute the total number
of active Savings, Certificate, Retirement, Demand Deposit,
Mortgage Loan, Consumer Loan and Commercial Loan accounts and
this total number of accounts is hereafter referred to as the
"Initial Accounts". Each year, on the anniversary of the
Conversion Date, BISYS shall perform a similar account
calculation to determine that year end's "Year End Accounts".
If a Year End Accounts is not more than 10% greater than the
Initial Accounts, the Fixed Monthly Charge for the next one
year period shall be the Fixed Monthly Charge set forth in
Paragraph 2(h)(i) or Paragraph 2(h)(ii) above as applicable.
If a year end's calculation indicates that the Year End
Accounts is more than 10% greater than Initial Accounts, the
Fixed Monthly Charge for the next one year period shall be the
Fixed
3
<PAGE>
Monthly Charge in effect pursuant to either Paragraph 2(h)(i)
or 2(h)(ii) above, as applicable, plus an amount equal to $.70
times each account in excess of 110% of the Initial Accounts.
FOR EXAMPLE, if at the end of the first year, the Year End
Accounts was 1,150 and the Initial Accounts was 1,000, the
Fixed Monthly Charge would be $12,285.00 ($12,250.00
(Paragraph 2(h)(i) would be applicable here) + ($.70 x 50
accounts)).
(i) During the Initial Period Bank shall pay BISYS $1,050.00 per month
as the total charges associated with its use of the
telecommunications network to the extent of the network as
configured as of the Conversion Date ("Initial Configuration"). If
after the Conversion Date any additions are made to the Bank's
telecommunications network, Bank shall pay BISYS for such additions
in accordance with BISYS' normal policies regarding
telecommunications pass-through charges plus applicable BISYS
administration charges. Further, if after the Conversion Date any
tariffs affecting the Initial Configuration are changed, the charge
of $1,050.00.00 shall be adjusted (upwards or downwards as
applicable) to reflect the change.
(h) As part of Bank's initial conversion to the TotalPlus Services,
BISYS agrees that it shall be responsible for any one-time
installation charges necessary to enable Bank's existing
configuration for telecommunications to communicate with BISYS' data
processing center in Houston, Texas. The foregoing obligation of
BISYS does not include any local area network ("LAN") installation
charges.
(k) ISC TERMINAL EQUIPMENT
HARDWARE EQUIPMENT. The Bank will not incur costs related to
hardware conversion performed by COMAC or Computer Terminal Service
Corporation of the Bank's existing ISC terminal equipment.
ISC TELLER PROGRAM LICENSE FEE. The Bank will not incur costs for
the initial ISC licensing fees for the Teller Program installed by
COMAC or Computer Terminal Service Corporation. The Bank's
subsequent years annual licensing fees will be $200 per branch
location.
(l) BISYS shall provide annually to the appropriate regulatory
authorities any Third Party Review Reports prepared by independent
public accountants with respect to the Services performed by BISYS
at the Data Center and copies of BISYS' audited financial
statements. By entering into this Agreement, BISYS agrees that it
extends to the Office of Thrift Supervision ("OTS") the same
authority and responsibility (as applicable to Client) provided to
the other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867(C) relating to services performed by
contract or otherwise.
4
<PAGE>
(m) BISYS has a written Disaster Recovery Plan establishing emergency
procedures, including off-premises back-up facility. In connection
therewith, BISYS has prepared a Disaster Recovery Manual. The
Disaster Recovery Plan and Disaster Recovery Manual are available at
the Data Center for examination by bank auditors and examiners and,
as they may be modified from time to time, will remain in existence
during the term of this Agreement. BISYS shall provide Client, upon
written request, with information necessary for Client to develop a
disaster contingency plan which will work in concert with BISYS'
Disaster Recovery Plan.
3. Paragraph 4-3-1, 4-3-1-1 and 4-3-1-2 of the Agreement are hereby deleted
and replaced in their entirety as follows:
"4-3-1 If Bank fails to pay BISYS all billed charges for services
within 30 days after notice to Bank of failure to pay or if Bank
otherwise defaults in its obligations hereunder to BISYS and such
failure continues for thirty days after notice to Bank of the
default, then Bank shall be in default hereunder and BISYS may then
immediately terminate this Agreement by notice to Bank following
such thirtieth day. In addition to terminating this Agreement Bank
agrees to pay, as liquidated damage (and not as penalty) promptly
upon written demand from BISYS:
(a) all amounts for services through the effective date of
termination;
(b) all amounts for pass-through charges through the effective
date of termination; and
(c) an amount equal to the remaining number of months from
effective date of termination until 60 months after Conversion
Date times 80% of the then current Fixed Monthly Charge (as
defined in, and pursuant to the provisions of, Paragraph 2(h)
of Attachment A to the Acknowledgement and Assignment).
This provision shall apply notwithstanding the acquisition of Bank
by, or merger of Bank with, any other entity. The remedies
contained in this Paragraph are cumulative and in addition to all
other rights and remedies available to BISYS under this Agreement or
by operation of law or otherwise."
5
<PAGE>
EXHIBIT 11
First Savings Bank, F.S.B.
Statement re computation of per share earnings
Year Ended
December 31, 1995
-----------------
PRIMARY EARNINGS PER SHARE
Net income $ 413,622
------------
------------
Shares:
Weighted average number of shares outstanding 695,698
Add-Dilutive effect of outstanding options (as
determined by the application of the treasury
stock method) 2,164
------------
Weighted average number of shares outstanding,
as adjusted 697,862
------------
Net income per shares: Primary $ 0.592699(a)
------------
------------
ASSUMING FULL DILUTION
Net income $ 413,622
------------
------------
Shares:
Weighted average number of shares outstanding 695,698
Add-Dilutive effect of outstanding options (as
determined by the application of the treasury
stock method) 4,140
------------
Weighted average number of shares outstanding,
as adjusted 699,838
------------
------------
Net income per share: Assuming full dilution $ 0.591025(a)
------------
------------
(a) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
EXHIBIT 13
ANNUAL REPORT 1995
[LOGO]
<PAGE>
TABLE OF CONTENTS
- - ---------------------------------------------------------------------------
Bank Profile.............................................Inside Front Cover
Letter From The Chairman and Chief Executive Officer................... 2
Selected Consolidated Financial Highlights............................. 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations:
General........................................................... 5
Regulatory Matters................................................ 5
Results of Operations............................................. 6
Asset/Liability Management and Interest Rate Sensitivity.......... 9
Liquidity and Capital Resources................................... 12
Asset Quality..................................................... 13
Off-Balance Sheet Financial Instruments........................... 15
Impact of Inflation and Changing Prices........................... 15
Impact of New Accounting Standard................................. 15
Market Prices and Related Stockholder Matters..................... 15
Financial Statements:
Consolidated Statements of Financial Condition.................... 16
Consolidated Statements of Operations............................. 17
Consolidated Statements of Stockholders' Equity................... 18
Consolidated Statements of Cash Flows............................. 19
Notes to Consolidated Financial Statements........................ 20
Report of Independent Accountants...................................... 37
Corporate Information.....................................Inside Back Cover
BANK PROFILE
- - ---------------------------------------------------------------------------
First Savings Bank, F.S.B., a Federal Savings Bank (Bank) is a federally
chartered stock savings bank conducting business from three banking locations in
Clovis and Portales, New Mexico. The Bank has a wholly-owned subsidiary, First
Equity Development Corporation, which is currently inactive. The Bank was
founded in 1934 as First Federal Savings and Loan Association and was converted
to a federal stock savings bank in August, 1986.
The Bank has historically been a major lender of mortgage loans in the Eastern
New Mexico area and is dedicated to the promotion of thrift through the
solicitation of savings accounts. The Bank's three offices primarily service
the Curry and Roosevelt counties of New Mexico and the adjoining West Texas
counties. The Bank offers a comprehensive range of credit and depository
services, while conducting business in a manner based on financial stability,
profitability, service, and community involvement.
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
- - ---------------------------------------------------------------------------
Dear Stockholder:
We are pleased to provide you with the annual report of
First Savings Bank, F.S.B. (Bank) for the fiscal year ended
December 31, 1995. For the third year in a row, the Bank
has shown significant improvements. Real estate owned at
December 31, 1995 was $114,000 compared to $421,000 at
December 31, 1994, for a decline of 73%. Non-performing
loans were reduced by 55% to $1,687,000 at December 31,
1995, down from $3,751,000 at December 31, 1994. This
resulted in a non-performing assets to total assets ratio of
1.44%. The Bank's 1995 net profit was $413,622, which was
an increase over the 1994 net profit of $339,553. Finally,
for all of fiscal 1995, the Bank exceeded the 4.0% Core
Capital requirement imposed on the Bank by the Office of
Thrift Supervision, ending the year with a regulatory Core
Capital ratio of 4.98%.
After several years of interest rate declines, rates
dramatically increased in 1994. When interest rates began
their drastic increase, the Bank became exposed to increased
interest rate risk, which had an adverse effect on the
market values of the Bank's investment portfolio. However,
during 1995, interest rates began to decline, which resulted
in an increase in the market value of the Bank's investment
portfolio for fiscal 1995. From December 31, 1994 to
December 31, 1995, the Bank recovered 88.33% of its
unrealized market value losses. These unrealized market
value losses are only paper losses and the Bank has no
intention of selling these investments at this time.
The Bank's Directors and Management are in the process of
formulating a new strategic plan for the Bank. Part of this
strategic plan includes evaluating capital-raising
alternatives available to the Bank to further strengthen the
Bank's capital base and to position the Bank to take
advantage of new opportunities. The future of the Bank is
dependent on developing new products that enhance our
current available products and selling these products to our
customers to enable the Bank to become the preferred
financial services provider in our area.
In closing, we wish to thank our Employees, Officers and
Directors for their efforts during the past year, and our
Customers and Stockholders for their continued support.
Sincerely,
/s/ Robert C. Lydick /s/ Ken Huey, Jr.
- - ----------------------------- ------------------------------
Robert "Chad" Lydick Ken Huey, Jr.
Chairman of the Board President and
Chief Executive Officer
2
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
(Not covered by accountant's report)
- - ------------------------------------------------------------------------------
<TABLE>
For the years ended December 31
------------------------------------------------------
SELECTED CONSOLIDATED OPERATING DATA: 1995 1994 1993 1992 1991
-------- -------- -------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 8,417 $ 7,888 $ 8,538 $ 10,608 $ 13,636
Interest expense 5,423 4,563 4,943 6,821 10,514
-------- -------- -------- --------- ---------
Net interest income before provision for
credit losses 2,994 3,325 3,595 3,787 3,122
Provision for credit losses (15) 4 21 386 425
-------- -------- -------- --------- ---------
Net interest income after provision for
credit losses 3,009 3,321 3,574 3,401 2,697
Net gain (loss) on mortgage loans held-
for-sale 118 (19) 331 254 296
Net gain (loss) on sale of securities -- 5 258 (124) 921
Real estate operations, net (58) (273) (616) (1,196) (311)
Other income, net 716 752 744 950 851
Other expenses (3,371) (3,635) (3,677) (3,417) (3,102)
-------- -------- -------- --------- ---------
Income (loss) before income taxes and
extraordinary items 414 151 614 (132) 1,352
Income tax expense (benefit) -- (189) -- -- 472
Extraordinary items -- -- -- -- 344
-------- -------- -------- --------- ---------
Net income (loss) $ 414 $ 340 $ 614 $ (132) $ 1,224
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
Per share data:
Weighed average shares outstanding 695,698 695,698 695,698 695,698 695,698
-------- -------- -------- --------- ---------
Earnings (loss) per share $ 0.59 $ 0.49 $ 0.88 $ (0.19) $ 1.76
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
</TABLE>
<TABLE>
December 31
------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net $ 34,332 $ 35,670 $ 36,980 $ 45,027 $ 59,970
Loans held-for-sale 862 671 4,861 4,136 4,349
Mortgage-backed securities, net -- -- -- 57,511 49,482
Investment securities -- -- -- 9,384 8,440
Securities held-to-maturity 36,404 77,505 65,909 -- --
Securities available-for-sale 33,090 2,980 10,722 -- 250
Real estate owned, net 114 421 2,967 5,669 7,593
Total assets 116,966 125,709 136,338 139,109 145,104
Deposits 110,633 112,773 130,690 133,639 136,919
Borrowings -- 7,400 -- -- 2,000
Unrealized loss on securities
available-for-sale, net (204) (363) (28) -- --
Stockholders' equity 5,620 5,048 5,043 4,458 4,590
</TABLE>
(Continued)
3
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED)
(Not covered by accountant's report)
- - ------------------------------------------------------------------------------
<TABLE>
For the years ended December 31
------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (ratio of net
income/(loss)to average total assets) 0.34% 0.26% 0.45% (0.09)% 0.79%
Interest rate spread information:
Average during period 2.45 2.62 2.89 3.07 2.36
End of period 2.13 2.42 2.88 3.56 2.58
Net interest margin (1) 2.54 2.64 2.83 2.88 2.14
Ratio of operating expense to average
total assets 2.83 2.98 3.12 3.25 2.30
Return on equity (ratio of net
income/(loss) to average equity) 7.75 6.73 12.93 (2.92) 30.78
QUALITY RATIOS:
Non-performing assets to total
assets at end of year 1.44% 2.98% 4.54% 6.93% 7.46%
Allowance for credit losses to
non-performing loans 25.36 12.29 8.22 5.55 8.11
Allowance for credit losses to
total loans (2) 1.25 1.29 1.38 1.19 1.46
CAPITAL RATIOS:
Equity to total assets at the end of year 4.81% 4.02% 3.70% 3.20% 3.16%
Average equity to average assets 4.40 3.85 3.45 3.18 2.57
Ratio of average interest-earning assets
to average interest-bearing liabilities 101.99 100.66 98.29 95.96 96.84
</TABLE>
(1) Net interest income divided by average interest earning assets
(2) Excludes mortgage-backed securities
4
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - ---------------------------------------------------------------------------
GENERAL
First Savings Bank, F.S.B., a Federal Savings Bank ("First Savings" or "the
Bank") is a federally chartered stock savings bank conducting business from
three banking locations in Clovis and Portales, New Mexico. The Bank has a
wholly-owned subsidiary, First Equity Development Corporation (FEDCO), which
is currently inactive.
The Bank is principally engaged in the business of attracting retail deposits
from the general public and investing those funds in first mortgage loans in
owner occupied, single-family residential loans and mortgage-backed
securities. To a lesser extent, the Bank originates residential construction
loans and commercial real estate loans. The Bank also originates consumer
loans, including loans for the purchase of automobiles and home improvement
loans, and commercial loans including Small Business Administration loans.
The most significant outside factors influencing the operations of the Bank
and other financial institutions include general economic conditions,
competition in the local market place and the related monetary and fiscal
policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is
influenced by interest rates on competing investments and general market
rates of interest. Lending activities are influenced by the demand for real
estate financing and other types of loans, which in turn is affected by the
interest rates at which such loans may be offered and other factors affecting
loan demand and funds availability.
Beginning in 1994, the nation's economy experienced an increasing interest
rate environment. After several years of declining interest rates, rates
increased drastically during 1994 and the first part of 1995. The Bank
continues to experience rising funding costs while adjustable rate assets
have repriced on a delayed basis. The net interest yield, or net interest
income as a percentage of average earning assets, has therefore narrowed
during this term. However, the Bank reduced its Real Estate Owned (REO)
levels by approximately $2.5 million during 1994 and an additional $307,000
in 1995, allowing the institution to increase its earning assets. Interest
rates which began to decline in 1995 are expected to continue to decline
during 1996. The Office of Thrift Supervision (OTS) requested the Bank to
submit a revised business plan demonstrating the Bank's ability to accumulate
capital and reduce interest rate risk (IRR). The plan was completed and
submitted in 1995. Management intends to position the Bank to be less
sensitive to changes in interest rates through a policy of keeping a
portfolio of adjustable rate assets and through investing of cash flows in
shorter term investments and consumer loans. A primary goal of the Bank in
1995 and continuing in 1996 will be the further reduction of interest rate
sensitivity, stabilization of net interest yield, and increasing equity
capital through enhancing earnings or other means available.
REGULATORY MATTERS
On April 23, 1991, at the request of the OTS, the Board of Directors agreed
to the issuance of a Cease and Desist Order (Order) which (1) limited the
growth of the institution; (2) imposed specific restrictions involving the
Bank's engagement in securities activities; (3) prohibited lending outside
the market area; (4) prescribed various reporting requirements; (5) required
OTS approval before commencing certain activities; (6) required that the Bank
develop a detailed, self-contained three-year capital and business plan
subsequently referred to as a "Capital Restoration Plan"; and (7) required a
special investigation into certain relationships of the Bank's former
president and certain borrowers. The Board agreed to an extension of the
Order on January 16, 1992 and again on October 26, 1992.
Under the Order, the Bank's operations were subject to imposed restrictions
on growth and various other restrictions limiting: investing or transferring
real estate investments; engaging, financing, refinancing, entering,
employing, amending, purchasing, commitments to renew, change, or enter into
real estate (residential, construction, non-residential, and real estate
investments) transactions, securities, loan participations, commercial loans
or letter of credit, consumer or educational loans, leases, contracts, or
agreements, joint ventures, compensation arrangements, by-laws, accounting
methods, service corporations, purchases or repurchases of government
securities, and mergers or consolidation.
In 1992, the Bank was deemed "undercapitalized" by the OTS. The Bank and the
OTS agreed, on July 28, 1993, to the issuance of a Prompt Corrective Action
Directive (PCAD), pursuant to Section 38 of the Federal Depository Insurance
Corporation Improvement Act (FDICIA). FDICIA necessitates that a PCAD be
issued when an institution is deemed undercapitalized. The PCAD terminated,
suspended, or modified most of the provisions of the previous Order issued by
the OTS.
5
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
On August 2, 1994 an extension of the PCAD was granted under an Amended
Prompt Corrective Action Directive (APCAD) which was agreed to by the Bank
and the OTS. The APCAD revised the date for attaining the 4.0% core capital
requirement to June 30, 1995. The PCAD and APCAD required of the Bank, among
other things:
- Submission of a Capital Restoration Plan
- Required capital levels of 4.0% for Tier One ("Core") and leverage
ratio capital, and 8.0% for total risk-based capital
- Compliance with the Capital Restoration Plan
- Required capital levels to be achieved or adequate progress towards
mandates
- Compliance with mandatory restrictions on dividends, management
fees, asset growth, branching and certain other conditions
- Approval from the Regional Director of the OTS before investing in
certain activities
As of December 31, 1994, six months early, the Bank met all requirements of
the APCAD, including all capital requirements. In May 1995, the OTS notified
the Bank that the Order had been terminated. The only significant provision
of the APCAD that remains in effect is the maintenance of certain required
capital levels. The following table represents the Bank's capital ratios and
the APCAD requirements as of December 31, 1995.
APCAD Actual
required December 31, 1995 Excess
-------- ----------------- ------
Core 4.0% 4.98% 0.98%
Leverage 4.0 4.98 0.98
Risk-based 8.0 16.66 8.66
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
The Federal Deposit Insurance Corporation (FDIC) has proposed a one-time
assessment on all deposits held as of a yet to be determined date. Deposits
subject to the assessment are insured by the Savings Association Insurance
Fund (SAIF). This one time assessment is intended to recapitalize the SAIF
to the required level of 1.25% of insured deposits. If the assessment is
made, the premium could be paid in 1996 and result in a significant charge to
the operations of the Bank. The assessment may or may not cause the Bank to
be unable to meet the capital requirements as outlined by the APCAD directive
described above. However, the Bank is expected to maintain minimum tangible,
core and risk-based capital levels established by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and OTS regulations. The
one-time special assessment, if made, will have a negative impact on the
earnings of the Bank in the year it is assessed, but will result in a
significant decrease in future insurance premium assessments by the FDIC.
This will have a positive impact on future earnings of the Bank in subsequent
periods.
RESULTS OF OPERATIONS
Operating results are impacted by many factors. The most important factor
being the interest spread between the yield on loans and investments and the
cost of funds. The following table presents for the periods indicated the
total amount, interest income, interest expense, and net interest income,
changes therein, as well as the resultant yields as a percentage of earning
assets.
<TABLE>
1995 vs 1994 1994 vs 1993
------------------- -------------------
Increase (decrease) Increase (decrease)
----------------- ------------------- -------------------
1995 1994 $ % $ %
------ ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income $8,417 $7,888 $ 529 6.71% $(650) (7.61)%
Interest expense 5,423 4,563 860 18.85 (380) (7.69)
Net interest income 2,994 3,325 (331) (9.95) (270) (7.51)
Net (as a % of earnings assets):
Interest income 7.14% 6.27%
Net interest margin 2.45% 2.62%
</TABLE>
6
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the volatility of interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(i.e., changes in volume multiplied by old rate) and (ii) changes in rate
(i.e., changes in rate multiplied by old volume). For purposes of this
table, changes attributable to both rate and volume, which cannot be
segregated, have been presented separately.
<TABLE>
Year ended December 31
------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
-------------------------------------- ------------------------------------
Increase (decrease) due to Increase (decrease) due to
-------------------------------------- ------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ------ ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loan portfolio $(195) $ 705 $ (43) $ 467 $(442) $ (80) $ 10 $(512)
Investments 114 33 10 157 (158) (47) 13 (192)
Mortgage-backed securities (411) 278 (26) (159) 590 (357) (54) 179
Other interest earning assets 3 60 1 64 (137) 25 (13) (125)
----- ------ ----- ------ ----- ----- ---- -----
Total interest earning assets $(489) $1,076 $ (58) $ 529 $(147) $(459) $(44) $(650)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
Interest Bearing Liabilities:
Savings deposits $(203) $1,288 $ (57) $1,028 $(363) $(285) $ 20 $(628)
Federal Home Loan Bank advances (184) 61 (45) (168) 248 -- -- 248
----- ------ ----- ------ ----- ----- ---- -----
Total interest bearing liabilities $(387) $1,349 $(102) $ 860 $(115) $(285) $ 20 $(380)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
Change in net interest income $(102) $ (273) $ 44 $ (331) $ (32) $(174) $(64) $(270)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net income for the year ended December 31, 1995 was $414,000 or $.59 per
share, compared to $340,000 or $.49 per share for 1994. The increase in net
income resulted from an increase in noninterest income of $95,000 and a
decrease in noninterest expenses of $479,000 which were offset by a decrease
in net interest income after provision for credit losses of $312,000, despite
the early recognition in interest income of $365,000 resulting from the
pay-off of a renegotiated loan. In addition, there was a reduced level of
income tax benefits of $189,000 in 1994 to none in 1995.
NET INTEREST INCOME. Net interest income before provision for credit losses
is the difference between interest earned on interest-earning assets and
interest paid on interest-bearing liabilities. Net interest income before
provision for credit losses decreased $331,000 to $2,994,000 for 1995
compared to $3,325,000 in 1994. The decrease primarily reflects the 28.49%
increase in the cost of average interest-bearing liabilities to 4.69% in 1995
compared to 3.65% for 1994. The decline was offset somewhat by the recording
of $365,000 in interest income in 1995 which stemmed from the pay-off, prior
to maturity, of a renegotiated loan.
PROVISION FOR CREDIT LOSSES. Management determines the amount of the
allowance for credit loss which covers specific loans as well as estimated
losses inherent in the loan portfolio. The level of the allowance is based
on such factors as the amount of non-performing assets, historical loss
experience, regulatory policies, general economic conditions, the estimated
fair value of the underlying collateral and other factors which may affect
the collectibility of the loans. During 1995, the provision for credit
losses was a negative $15,000 which was a reduction of $19,000 from the
provision of $4,000 recorded in 1994. The reduction in 1995 was primarily
reflective of management's estimate of a lower level of allowance for credit
losses necessary as a result of an overall decline in non-performing assets
of $3,751,000 at December 31, 1994 to $1,687,000 at December 31, 1995. In
addition, the net loan portfolio at December 31, 1995 was $34,332,000 which
represented a decline of $1,338,000, or 3.75% from the December 31, 1994
balance of $35,670,000.
7
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
NONINTEREST INCOME. Noninterest income was $833,000 in 1995 compared to
$738,000 in 1994. The increase of 12.8% was caused primarily by improvement
in the results of loans sold during 1995, net gains of $118,000 as compared
to net losses of $19,000 in 1994. The overall improvement was the result of
more favorable pricing obtained from the secondary market on loans sold in
1995 which was attributable to more stable interest rates from that
experienced in 1994. The increase in other income was also the result of an
increase in loan servicing and other fees of $20,000 which was offset by a
decline in other income of $55,000.
NONINTEREST EXPENSE. Noninterest expense decreased $479,000 or 12.26% to
$3,429,000 in 1995 compared to $3,908,000 in 1994. Compensation and employee
benefits decreased $110,000 primarily as the result of a lower average number
of employees maintained throughout 1995. Federal insurance premiums
decreased $45,000 resulting from a reduction of premiums charged by the FDIC
due to lower levels of insured deposits. Real estate operations, net
decreased $215,000 primarily reflecting a decrease in real estate expenses
which was the result of continuing lower levels of real estate owned.
Professional fees increased $58,000 due to activities specifically related to
the regulatory agreement under which the Bank operates as well as activities
related to the certain litigation in which the Bank has been involved with
since 1992. Other expenses also declined $136,000 primarily as the result of
reductions in office supplies and miscellaneous operating expense.
PROVISION FOR INCOME TAXES. There was no net provision for income taxes in
1995 as compared to the recognition of an income tax benefit of $189,000 in
1994. The 1994 benefit stemmed from management's estimate of near-term
future benefits to the Bank from its net operating loss carryforwards. Those
estimates remained unchanged as of the end of 1995 and therefore the
underlying net deferred tax asset remained unchanged.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income for the year ended December 31, 1994 was approximately $340,000 or
$.49 per share, compared to approximately $614,000 or $.88 per share for
1993. The decline in net income resulted from a decline in net interest
income after provision for credit losses of $253,000 and a decrease in
noninterest income of $595,000 which were partially offset by a decrease in
noninterest expenses of $385,000 and an income tax benefit of $189,000.
NET INTEREST INCOME. Net interest income before the provision for credit
losses decreased $270,000 to $3,325,000 for 1994 compared to $3,595,000 for
1993. The decrease primarily reflects the 6.56% reduction in net yield on
average earnings assets to 6.27% in 1994 compared to 6.71% for 1993.
PROVISION FOR CREDIT LOSSES. During 1994, the provision for credit losses
was $4,000 which was a reduction of $17,000 from the provision of $21,000
recorded in 1993. The reduction in 1994 was primarily reflective of
management's estimate of a lower level of allowance for credit losses
necessary as a result of an overall reduction in non-performing assets of
$2,437,000 from $6,188,000 at December 31, 1993. In addition, the net loan
portfolio at December 31, 1994 was $35,670,000 which represented a decline of
$1,310,000, or 3.54% from the December 31, 1993 balance of $36,980,000.
NONINTEREST INCOME. Noninterest income was $738,000 in 1994 compared to
$1,333,000 in 1993. The decrease of $595,000 was caused primarily by a
decline in gains on sales of loans of $350,000. Lower levels of interest
rates in 1993 caused a higher volume of loan originations which were placed
into the secondary market by the Bank. The 1993 interest rate environment
also resulted in more favorable prices obtained from the secondary market.
The sharp increase in interest rates in early 1994 resulted both in reduced
volumes of loan originations as well as less favorable pricing in the
secondary market. Gains on sale of securities of $258,000 were recorded in
1993 compared to only $5,000 in 1994.
NONINTEREST EXPENSE. Noninterest expense decreased $385,000 to $3,908,000 in
1994 compared to $4,293,000 in 1993. The decrease was primarily the result
of costs of real estate operations of $273,000 in 1994 as compared to
$616,000 in 1993. These reductions were directly attributable to the
reduction in REO of $421,000 at December 31, 1994 as compared to $2,967,000
at December 31, 1993. Professional fees and other expenses also declined in
1994. These reductions were partially offset by an increase in Federal
insurance premiums stemming from increased premiums charged by the FDIC.
8
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES. During 1993 the Bank adopted Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
SFAS No. 109 required a change from the deferred method of accounting for
income taxes under Accounting Principles Board Opinion 11, to the asset and
liability method of accounting for income taxes. Under SFAS No. 109,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities, and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The initial implementation of SFAS No.
109 in 1993 had no material effect on the Bank's statement of operations.
However, during 1994 the Bank recognized a deferred income tax benefit of
$189,000 which represented management's estimate of near-term future benefits
to the Bank from its net operating loss carryforwards.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The Bank attempts to maximize net interest income by achieving a positive
interest rate spread that can be sustained during fluctuations in prevailing
interest rates. Management monitors the mix of earning assets on a
continuous basis in order to react to fluctuating interest rate environments.
Risk-based capital guidelines and the corresponding asset risk weighing have
resulted in an incentive to invest in mortgage-backed and U.S. agencies
securities, particularly those issued by government sponsored entities such
as Federal National Mortgage Association (FNMA), Government National Mortgage
Association (GNMA), and Federal Home Loan Mortgage Corporation (FHLMC). In
addition, the favorable risk weighing assigned to residential loans provided
the incentive to invest in these assets. This asset mix has always been the
basis on which the Bank has focused. Based on the Bank's charter, capital
requirements, and regulations, the Bank continues to perform and generate
profits.
The Bank assumes a high level of interest rate risk as a result of its policy
to originate fixed-rate single family home loans. These loans generally have
longer terms than the short term characteristics and liabilities of customer
accounts and borrowed money. During much of 1993 and early 1994, falling
interest rates resulted in record prepayment of high yielding loans in
mortgage-backed securities and the Bank was unable to reinvest the proceeds
in investment instruments with similar yields. The result has been a
contraction of interest rates spreads placing pressure on the Bank's net
interest income. In order to reach the Bank's desired 4.0% core capital
level, management began the reduction of the asset size of the Bank by
reducing deposits and Federal Home Loan Bank (FHLB) borrowings through cash
flows. The Bank was able to payoff FHLB borrowings through cash flows in
1995.
Interest rate sensitivity is the rate at which the Bank's assets and
liabilities are subject to repricing at future time periods. Management seeks
to effectively manage interest rate sensitivity to insure that net-interest
income is maximized while the impact of change on market interest rates is
minimized. It is the objective of the Bank to reduce the sensitivity of its
earnings to fluctuating interest rates by diversifying the sources of funds,
improving its interest rate spread, and improving the ratio of earning assets
to interest bearing liabilities. Also, the Bank needs to maintain a match of
maturities and interest rate sensitivity of its assets and liabilities.
The differences between the volume of assets and liabilities in the Bank's
current portfolio, which are subject to repricing in future time periods,
are known as interest rate sensitivity gaps. Certain estimates and
assumptions are included in the data in the table below which sets forth the
interest rate sensitivity analysis at December 31, 1995.
The following table sets forth the assumed repricing and maturity periods of
the Bank's interest-earning assets and interest-bearing liabilities at
December 31, 1995 and the interest rate sensitivity gap percentages at the
dates indicated. The interest rate sensitivity gap is defined as the amount
by which assets repricing within the respective periods exceed liabilities
repricing within such periods. The effect of these assumptions is to
quantify the dollar amount of items that are interest-rate sensitive and can
be repriced within each of the periods specified. Such repricing can occur
in one of three ways: (1) the rate of interest to be paid on an asset or
liability may adjust periodically on the basis of an index; (2) an asset or
liability such as a mortgage loan may amortize, permitting reinvestment of
cash flows at the then-prevailing interest rates; or (3) an asset or
liability may mature, at which time the proceeds can be reinvested at current
market rates.
9
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
<TABLE>
Maturing or repricing amount
-------------------------------------------------------------------------------
Within Over 1 Over 3 to Over 5 to Over 10 to Over 20
one year to 3 years 5 years 10 years 20 years years Total
-------- ---------- --------- --------- ---------- ------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Rate Sensitive Assets
Mortgages
Adjustable-rate (1) $ 12,838 $ 68 $ -- $ -- $ -- $ --- $ 12,906
Fixed-rate (2) 1,461 2,155 1,431 1,799 876 99 7,821
Construction 197 -- -- -- -- -- 197
Non-residential adjustable (2) 3,658 2,751 -- -- -- -- 6,409
Non-residential fixed 354 648 577 1,194 -- -- 2,773
Home equity/second mortgages (2) 553 -- -- -- -- -- 553
Non-Mortgages
Consumer (2) 3,114 1,285 558 21 -- -- 4,978
Commercial (2) 37 87 16 -- -- -- 140
Investments
Investment securities (3) 6,571 380 -- -- -- -- 6,951
Mortgage-backed (1)(2) 42,404 19,784 1,373 -- -- -- 63,561
Funds sold (3) 5,107 -- -- -- -- -- 5,107
-------- -------- -------- -------- -------- -------- --------
TOTAL $ 76,294 $ 27,158 $ 3,955 $ 3,014 $ 876 $ 99 $111,396
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Rate Sensitive Liabilities
Deposits
Certificates of deposit (3) $ 59,818 $ 13,053 $ 3,755 $ -- $ -- $ -- $ 76,626
Money market (4) 5,476 6,128 2,751 1,938 297 6 16,596
NOW accounts (4) 2,434 2,723 1,222 862 132 2 7,375
Savings accounts (4) 3,062 3,425 1,538 1,083 166 3 9,277
-------- -------- -------- -------- -------- -------- --------
TOTAL $ 70,790 $ 25,329 $ 9,266 $ 3,883 $ 595 $ 11 $109,874
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
December 31, 1995
Cumulative GAP (5) $ 5,504 $ 7,333 $ 2,022 $ 1,154 $ 1,435 $ 1,523
GAP (5) as percent of assets 4.71% 6.27% 1.73% 0.99% 1.23% 1.30%
December 31, 1994
GAP (5) as percent of assets (3.96)% (7.12)% (4.54)% (1.83)% (1.31)% (1.31)%
December 31, 1993
GAP (5) as percent of assets (1.06)% (5.58)% (8.14)% (4.06)% (3.77)% (3.75)%
</TABLE>
(1) MOST ADJUSTABLE RATE ASSETS ARE INCLUDED IN THE UNDER 1 YEAR
CATEGORY, AS THEY ARE SUBJECT TO AN INTEREST RATE ADJUSTMENT EVERY SIX OR
TWELVE MONTHS, DEPENDING UPON LOAN PLAN.
(2) MATURITY/RATE SENSITIVITY IS BASED UPON CONTRACTUAL MATURITY WITH
PROJECTED REPAYMENT OF PRINCIPAL USING ASSUMPTIONS ESTABLISHED BY THE OTS.
(3) BASED ON CONTRACTUAL MATURITY OF THE INVESTMENTS.
(4) SAVINGS ACCOUNT DECAY RATES USED ASSUME THAT THE ACCOUNTS HAVE A MARKET
VALUE SENSITIVITY APPROXIMATING THAT OF A 2 1/2 YEAR TREASURY BOND.
(5) THE DIFFERENCE BETWEEN RATE SENSITIVE ASSETS AND RATE SENSITIVE
LIABILITIES.
During 1993, the Bank sold its remaining long-term fixed-rate securities to
further reduce the Bank's interest rate sensitivity. This asset/liability
mix restructure allowed the Bank to reduce borrowings and change the
investment mix which allowed management the flexibility to manage the Bank's
interest rate sensitivity through periods of stable or rising interest rates.
10
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
During 1995 and 1994 the Bank sold fixed-rate whole loans "held-for-sale"
while retaining adjustable-rate mortgages. In 1994, the Bank increased its
investment portfolio with the purchase of FNMA and FHLMC participation
certificates with three to five year durations and U.S. government agency
securities which step-up annually. These purchases were primarily from cash
flow during 1994, however cash flow was used since the third quarter of 1994
through the first quarter of 1995 to reduce FHLB advances. Throughout the
remainder of 1995, cash flow from operations and investment activities have
been placed in lower interest earning, but highly liquid, cash and cash
equivalents.
Presented below, as of December 31, 1995, is an analysis of the Bank's
interest rate risk provided by OTS as measured by changes in Net Present
Value (NPV) for instantaneous and sustained parallel shifts in the yield
curve, in 100 basis point increments, up and down 400 basis points. As
illustrated in the table, the Bank's NPV is as sensitive to rising rates as
declining rates, despite the Bank's positive gap, as previously discussed.
This occurs principally because, as rates rise, the market value of
fixed-rate loans declines due to both the rate increase and slowing
prepayments (and the NPV focuses on the Bank's entire portfolio, not just
assets that are subject to adjustment or maturity within one year). When
rates decline, the Bank does not experience a significant rise in market
value for these loans because borrowers repay at relatively high rates.
Change in At December 31, 1995
interest rate -----------------------
(basis points) $ Change % Change
-------------- ---------- --------
(000's)
+400 $ (2,694) (39)%
+300 (1,608) (24)
+200 (788) (12)
+100 (258) (4)
0 -- --
(100) 187 3
(200) 209 3
(300) 527 8
(400) 1,087 16
Management reviews these measurements periodically. In addition to
monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure
is used in conjunction with NPV measures to identify excessive interest rate
risk.
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 rates. Additionally, certain assets, such as adjustable rate
mortgage loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
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 debt may decrease in the event
of an interest rate increase.
In addition, the previous tables do not necessarily indicate the impact of
general interest rate movements on the Bank's net interest income because the
repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Bank's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and
at different volumes.
11
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, sales of mortgage loans,
principal and interest payments on loans and mortgage-backed securities,
borrowings, and funds provided by operations. While scheduled loan and
mortgage-backed securities principal repayments are a relatively predictable
source of funds, deposits flows, prepayments of principal on loans and
mortgage-backed securities, and sales of mortgage loans are greatly
influenced by general interest rates, economic conditions, and competition.
Current OTS regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals
and repayment of short-term borrowings. As of December 31, 1995, the Bank's
liquidity ratio was 28.21% which was in excess of the minimum regulatory
requirements.
During the year ended December 31, 1995, total deposits decreased
approximately $2,139,000 as a part of management's overall strategy to
achieve certain regulatory capital ratios.
The Bank uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At December 31, 1995,
the Bank had commitments to originate loans totaling approximately $971,000.
The Bank considers its liquidity and capital resources to be adequate to meet
its foreseeable short and long-term needs. The Bank expects to be able to
fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
In addition, as a part of management's overall strategy, during 1995, the
Bank repaid its borrowings from the FHLB. These funds were borrowed
primarily to fund construction loans, purchase short duration mortgage-backed
securities and disburse escrow funds for borrowers' real estate taxes. It is
anticipated that borrowings will not be necessary to meet near term funding
needs of the Bank.
The Bank's capital for regulatory purposes at December 31, 1995 was
$5,825,000 or 4.98% of total regulatory assets. Regulations require savings
institutions to have a minimum regulatory tangible capital ratio equal to
1.5% of adjustable tangible assets, a minimum 3% core capital ratio, and a
minimum 8% risk-based capital ratio. At December 31, 1995 and 1994, the Bank
was in compliance with all applicable capital standards (see notes L and P to
the Consolidated Financial Statements).
In August 1993, OTS issued a final rule which adds an interest rate component
to the OTS risk-based capital requirement effective January 1, 1994. Under
the final rule, savings institutions will be required to incorporate IRR into
their risk-based capital calculation as of a yet to be determined date.
Under the rule, IRR is measured as the ratio of the greater decline in net
portfolio value resulting from a 200 basis point increase or decrease in
market interest rates to the estimated economic value of assets, as
calculated by an OTS model. A savings institution whose measured IRR exceeds
2% must deduct from total capital an IRR component equal to one-half of the
difference between its measured IRR and 2% multiplied by the estimated
economic value of its total assets. Institutions unable to satisfy the IRR
component would be required to submit a capital plan to the OTS describing
how they will attain compliance in the future. Management believes that
compliance with the new IRR measure will not have a material impact on the
Bank's risk-based capital position.
Pursuant to FDICIA, each federal banking agency establishes the levels at
which an insured institution is well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized and requires such agencies to take certain supervisory
actions as an insured institution's capital level falls. As a result of the
FDICIA, the OTS advised the Bank, as of December 21, 1992, that it was deemed
"undercapitalized" and, among other things, the Bank had to provide a capital
restoration plan which demonstrated the Bank's ability to achieve a 4%
minimum capital level. Management submitted its capital restoration plan
which was subsequently approved by the OTS in conjunction with the issuance
of the PCAD and the APCAD.
12
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The table below presents the Bank's capital position at December 31, 1995
relative to the existing regulatory requirements:
Percent of
Amount assets (1)
-------- -----------
(000's)
Tangible capital $ 5,825 4.98%
Tangible capital requirement 1,756 1.50
-------- -----------
Excess tangible capital $ 4,069 3.48%
-------- -----------
-------- -----------
Core capital $ 5,825 4.98%
Core capital requirement 3,512 3.00
-------- -----------
Excess core capital $ 2,313 1.98%
-------- -----------
-------- -----------
Total capital (i.e., core and supplemental capital) $ 6,253 16.66%
Risk-based capital requirement 3,003 8.00
-------- -----------
Excess total capital $ 3,250 8.66%
-------- -----------
-------- -----------
(1) Based upon adjusted assets for purposes of the tangible capital and core
capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
The OTS Capital Distribution Regulation differentiates savings institutions
primarily by their capital levels and prescribes the amount of capital
distributions that can be made without prior OTS approval.
The Bank has met its liquidity requirements with funds generated from
operations, proceeds from repayment or sale of loans and investment
securities, and short-term borrowings. The Bank believes its requirements
for 1996 will be met from similar sources. If alternative funding is needed,
the Bank can generate additional funds from several other sources.
Currently, the FHLB system functions as a source of credit for the Bank.
ASSET QUALITY
The allowance for loan losses is established through a provision for loan
losses based on management's quarterly asset classification review and
evaluation of the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a
review of all loans of which full collectibility may not be reasonably
assured, considers among other matters, the estimated fair value of the
underlying collateral, economic conditions, cash flow analysis, historical
loan loss experience, discussions held with delinquent borrowers and other
factors that warrant recognition in providing for allowance for loan losses.
During 1995, net loans decreased approximately $1,338,000 or 3.7% from
December 31, 1994 while the allowance for credit losses decreased $33,000 or
7.2%. The negative provision for credit losses and lower levels of
charge-offs during 1995 were primarily due to lower levels of non-performing
loans. With the decrease in non-performing loans and an overall decline in
total loans, management feels the allowance for credit losses is adequate for
future needs.
13
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The following presents an analysis of the allowance for credit losses for
years ended December 31, 1995, 1994 and 1993.
Year ended December 31
----------------------------------------
1995 1994 1993
---------- ---------- ----------
MORTGAGE LOANS AND CONTRACTS:
Balance at beginning of year $ 230,865 $ 280,865 $ 304,135
Provision charged -- -- 10,000
Charge-offs -- (50,000) (33,270)
Recoveries -- -- --
---------- ---------- ----------
BALANCE AT END OF YEAR $ 230,865 $ 230,865 $ 280,865
---------- ---------- ----------
---------- ---------- ----------
CONSUMER AND OTHER:
Balance at beginning of year $ 230,058 $ 227,732 $ 230,577
Provision charged (credited) (15,000) 3,867 11,091
Charge-offs (20,878) (2,917) (33,229)
Recoveries 2,844 1,376 19,293
---------- ---------- ----------
BALANCE AT END OF YEAR $ 197,024 $ 230,058 $ 227,732
---------- ---------- ----------
---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES:
Balance at beginning of year $ 460,923 $ 508,597 $ 534,712
Provision charged (credited) (15,000) 3,867 21,091
Charge-offs (20,878) (52,917) (66,499)
Recoveries 2,844 1,376 19,293
---------- ---------- ----------
BALANCE AT END OF YEAR $ 427,889 $ 460,923 $ 508,597
---------- ---------- ----------
---------- ---------- ----------
Allowance for credit losses as a
percentage of total loans
outstanding 1.23% 1.28% 1.36%
---------- ---------- ----------
---------- ---------- ----------
Total non-performing assets decreased by approximately $2,064,000 during
1995. This decrease resulted primarily from the early pay-off of a
$1,979,416 previously renegotiated loan. The non-performing assets to total
assets ratio is one indicator of the exposure to credit risk. Non-performing
assets of the Bank consist of non-accruing loans, troubled debt
restructurings, and real estate which was acquired as a result of
foreclosure. The composition of the Bank's portfolio of non-performing
assets is shown in the following table:
December 31
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
Non-accruing loans* $ -- $ 148 $ 11
Past due 90 days or more and still -- 37 99
accruing
Renegotiated loans** 1,573 3,145 3,111
Other real estate 114 421 2,967
---------- ---------- ----------
Total non-performing assets $ 1,687 $ 3,751 $ 6,188
---------- ---------- ----------
---------- ---------- ----------
Ratio of non-performing assets
to total assets 1.44% 2.98% 4.54%
---------- ---------- ----------
---------- ---------- ----------
* Primarily loans which are past due for 90 days or more
** Renegotiated loans are those for which the interest rate was reduced
because of the inability of the borrower to service the obligation under
the original terms of the agreement.
Interest lost on non-performing assets amounted to $75,195 in 1995 compared
to $125,981 in 1994.
14
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Bank may be a 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 reduce its own exposure to fluctuation in interest rates. These
financial instruments include commitments to extend credit, standby letters
of credit, and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial position. The
contract or notional amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
At December 31, 1995, financial instruments whose contract amounts represent
credit risk are as follows:
Commitments to extend credit $ 1,264,557
Lines of credit $ 293,613
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Some of the commitments are
expected to expire without being drawn upon. The total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customers.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Currently, letters of credit are not extended beyond one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Bank holds collateral and personal guarantees as deemed necessary. At
December 31, 1995, the Bank had no standby letters of credit outstanding.
At December 31, 1995, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1995 and 1994, the Bank had $1,832,398 and $929,836,
respectively, of commitments to sell newly-originated single family
residential loans.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data have been prepared in
accordance with generally accepted accounting principles. This requires the
measurement of financial and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over
time due to inflation.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effect of general
levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the price of goods and services
since such prices are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of desired performance levels.
IMPACT OF NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. The Bank is required to adopt SFAS No. 121 for the year
beginning January 1, 1996. The adoption of SFAS No. 121 is not expected to
have a material impact on the Bank's financial position or results of
operations.
MARKET PRICES AND RELATED STOCKHOLDER MATTERS
The common stock of First Savings is traded on the National Association of
Securities Dealers' Automated Quotation ("NASDAQ") under the symbol "FSBC".
As of December 31, 1995, the Bank had approximately 500 stockholders of
record and 695,698 shares of issued and outstanding stock.
Fiscal 1995 price range Fiscal 1994 price range
----------------------- -----------------------
High Low High Low
----------- ---------- ----------- ---------
First quarter $ 4.44 $ 4.00 $ 5.00 $ 3.50
Second quarter 5.75 4.25 5.50 4.25
Third quarter 5.75 5.25 7.50 4.75
Fourth quarter 7.00 5.75 7.50 4.50
15
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - -------------------------------------------------------------------------------
DECEMBER 31
---------------------------
ASSETS 1995 1994
------------ ------------
Cash and cash equivalents $ 6,752,606 $ 3,048,974
Certificates of deposit 476,425 388,593
Assets available-for-sale:
Securities (amortized cost of $33,294,495
and $3,156,674) 33,090,085 2,979,813
Loans (aggregate fair value of $874,512
and $679,725) 861,454 670,743
Securities held-to-maturity (aggregate fair
value of $36,025,403 and $72,787,277) 36,404,135 77,505,084
Loans receivable 34,331,988 35,669,608
Interest receivable 692,771 775,366
Real estate owned 113,820 421,013
FHLB stock 1,483,434 1,391,634
Premises and equipment 1,984,860 2,049,581
Servicing rights 359,854 395,637
Other assets 414,867 412,996
------------ ------------
Total assets $116,966,299 $125,709,042
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $110,633,124 $112,772,529
Federal Home Loan Bank advances -- 7,400,000
Accrued interest and other liabilities 401,641 260,918
Advanced payments by borrowers for taxes and
insurance 311,157 227,833
------------ ------------
Total liabilities 111,345,922 120,661,280
------------ ------------
Commitments and contingencies
Stockholders' equity:
Capital stock, $1 par value, authorized
6,000,000 shares, issued 695,698 shares 695,698 695,698
Capital in excess of par value 6,137,701 6,137,701
Accumulated deficit (1,008,612) (1,422,234)
Unrealized loss on securities available-for-
sale, net (204,410) (363,403)
------------ ------------
Total stockholders' equity 5,620,377 5,047,762
------------ ------------
Total liabilities and stockholders' equity $116,966,299 $125,709,042
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
16
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- - -------------------------------------------------------------------------------
<TABLE>
YEARS ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans $3,642,581 $3,176,265 $3,687,789
U.S. government agency and other securities 515,950 358,973 550,726
Mortgage-backed securities 4,060,235 4,219,157 4,040,821
Other interest income 197,783 133,789 258,805
---------- ---------- ----------
Total interest income 8,416,549 7,888,184 8,538,141
---------- ---------- ----------
Interest expense:
Deposits 5,342,347 4,315,565 4,943,182
FHLB advances 80,248 247,969 --
---------- ---------- ----------
Total interest expense 5,422,595 4,563,534 4,943,182
---------- ---------- ----------
Net interest income before provision for
credit losses 2,993,954 3,324,650 3,594,959
Provision for credit losses charged (credited) (15,000) 3,867 21,091
---------- ---------- ----------
Net interest income after provision for
credit losses 3,008,954 3,320,783 3,573,868
---------- ---------- ----------
Non-interest income:
Loan servicing and other fees 371,843 352,449 354,317
Gains on sale of securities -- 4,672 257,972
Gains (losses) on loans held-for-sale 117,840 (18,541) 331,176
Other 343,705 399,362 389,268
---------- ---------- ----------
Total non-interest income 833,388 737,942 1,332,733
---------- ---------- ----------
Non-interest expenses:
Compensation and employee benefit 1,517,416 1,626,802 1,506,992
Occupancy 367,023 368,794 363,645
Federal insurance 403,218 448,217 376,946
Advertising 27,348 57,587 44,469
Real estate operations, net 57,880 272,946 616,333
Professional fees 258,961 200,756 286,749
Other 796,874 932,720 1,097,402
---------- ---------- ----------
Total non-interest expenses 3,428,720 3,907,822 4,292,536
---------- ---------- ----------
Income before income taxes 413,622 150,903 614,065
Provision for income taxes (benefit) -- (188,650) --
---------- ---------- ----------
Net income $ 413,622 $ 339,553 $ 614,065
---------- ---------- ----------
---------- ---------- ----------
Earnings per share $ .59 $ .49 $ .88
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding 695,698 695,698 695,698
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - ------------------------------------------------------------------------------
<TABLE>
UNREALIZED
LOSS ON
CAPITAL IN SECURITIES
NUMBER OF EXCESS OF ACCUMULATED AVAILABLE-FOR-
SHARES AMOUNT PAR VALUE DEFICIT SALE, NET TOTAL
--------- -------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 695,698 $695,698 $6,137,701 $(2,375,852) $ -- $4,457,547
Net income -- -- -- 614,065 -- 614,065
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- (28,408) (28,408)
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1993 695,698 695,698 6,137,701 (1,761,787) (28,408) 5,043,204
Net income -- -- -- 339,553 -- 339,553
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- (334,995) (334,995)
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1994 695,698 695,698 6,137,701 (1,422,234) (363,403) 5,047,762
Net income -- -- -- 413,622 -- 413,622
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- 158,993 158,993
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1995 695,698 $695,698 $6,137,701 $(1,008,612) $(204,410) $5,620,377
------- -------- ---------- ----------- --------- ----------
------- -------- ---------- ----------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------
<TABLE>
YEARS ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 413,622 $ 339,553 $ 614,065
Adjustments to reconcile net income to
cash provided (used) by operations:
Depreciation 132,527 128,914 132,483
Deferred income taxes -- (188,650) --
Provision for credit losses charged
(credited) (15,000) 3,867 21,091
Provision for losses on real estate -- -- 337,225
Provision for losses on loans held-for-
sale transferred to loans receivable -- 88,771 --
Amortization of premiums on investment
securities 207,830 232,387 22,064
Amortization of loan premiums,
discounts and deferred fees, net (575,179) (53,622) (239,671)
Gain on sale of investment securities -- -- (299,621)
Gain on sale of loans (105,321) (70,230) (331,176)
Proceeds from loan sales 7,625,886 15,205,572 19,468,061
Originations of loans held-for-sale (7,698,757) (13,111,011) (20,665,134)
Loss on sale of REO 1,670 59,748 21,928
(Gain) loss on sale of assets (3,095) (1,200) 6,994
(Gain) loss on sale of mutual funds -- (4,672) 41,649
Net (increase) decrease in accrued
income and other assets 82,595 (73,462) 320,279
Net (increase) decrease in trading
securities mutual funds -- 3,183,503 (86,185)
Increase (decrease) in accrued
interest and other liabilities 140,723 (101,522) (150,537)
(Increase) decrease in other assets (70,407) 327,339 181,870
------------ ------------ ------------
Net cash provided (used) by
operating activities 137,094 5,965,285 (604,615)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities and principal
repayments of available-for-sale
securities 2,061,754 1,181,634 --
Purchases of held-to-maturity
securities (750,000) (16,520,005) (34,074,913)
Proceeds from maturities, sales and
principal repayments of held-to-maturity
securities 9,630,086 10,917,250 24,588,300
Net (increase) decrease in certificates
of deposit (87,832) 484,505 1,170,258
Net decrease in loans 2,092,440 3,950,943 8,976,709
Proceeds from sales of real estate 140,882 1,972,322 2,675,998
Net proceeds (purchases) of premises
and equipment and other assets (64,711) 245,541 (153,169)
------------ ------------ ------------
Net cash provided by investing
activities 13,022,619 2,232,190 3,183,183
------------ ------------ ------------
Cash flows from financing activities:
Net decrease in deposits (2,139,405) (17,917,092) (2,949,695)
Net change in FHLB advances (7,400,000) 7,400,000 --
Net increase (decrease) in advance
payments by borrowers for taxes and
insurance 83,324 (15,400) (255,736)
------------ ------------ ------------
Net cash used by financing activities (9,456,081) (10,532,492) (3,205,431)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 3,703,632 (2,335,017) (626,863)
Cash and cash equivalents at beginning
of period 3,048,974 5,383,991 6,010,854
------------ ------------ ------------
Cash and cash equivalents at end of period $ 6,752,606 $ 3,048,974 $ 5,383,991
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 5,312,477 $ 4,392,409 $ 5,015,921
Income taxes -- 9,600 20,500
Supplemental disclosure of non-cash
investing activities
Real estate acquired in settlement
of loans 104,509 251,103 333,096
Loans to facilitate the sale of real
estate owned 269,150 765,000 604,950
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The following is a description of significant accounting and reporting
policies which First Savings Bank, F.S.B. (Bank) follows in preparing and
presenting its consolidated financial statements:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and transactions
of the Bank and its wholly-owned subsidiary, First Equity Development
Corporation (FEDCO). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Bank has historically been a major lender of mortgage loans in the
Eastern New Mexico area and is dedicated to the promotion of thrift through
the solicitation of savings accounts. The Bank's three offices primarily
service the Curry and Roosevelt counties of New Mexico and the adjoining West
Texas counties. The Bank offers a comprehensive range of credit and
depository services, while conducting business in a manner based on financial
stability, profitability, service, and community involvement.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Management determines the appropriate classification of its investment
securities and loans at the time of purchase or origination. At December 31,
1993, the Bank adopted Statement of Financial Accounting Standards (SFAS)
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS
No. 115 required the reporting of certain securities at fair value except for
those securities which the Bank has the positive intent to hold to maturity.
TRADING SECURITIES - Prior to December 31, 1994, the Bank maintained some of
its excess liquidity in a mutual fund. The Bank currently holds no mutual
funds as they were liquidated in 1994. The investment was for interest rate
yield enhancement and held principally for the purpose of selling for
liquidity needs or when better investment opportunities became available.
The mutual fund was recorded at fair value with both unrealized gains and
losses reported in the consolidated statements of operation.
ASSETS AVAILABLE-FOR-SALE - Securities or loans to be held for indefinite
periods of time and not intended to be held-to-maturity are classified as
available-for-sale. Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy
and that may be sold in response to changes in liquidity needs, interest
rates, resultant prepayment risk, and other factors related to interest rate
and resultant prepayment risk changes. Securities available-for-sale are
recorded at fair value. Both unrealized gains and losses on securities
available-for-sale, net of taxes, are included as a separate component of
stockholders' equity in the consolidated statements of financial condition
until these gains or losses are realized. If a security has a decline in
fair value that is other than temporary, the security will be written down to
its fair value by recording a loss in the consolidated statements of
operations. Loans available-for-sale are recorded at the lower of amortized
cost or fair value with only net unrealized losses included in the
consolidated statements of operations.
20
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY - Securities that management has the intent, and
the Bank has the ability, to hold until maturity are classified as securities
held-to-maturity. Securities in this category are carried at amortized cost
adjusted for accretion of discounts and amortization of premiums using the
level yield method over the estimated life of the securities. If a security
has a decline in fair value below its amortized cost that is other than
temporary, the security will be written down to its new cost basis by
recording a loss in the consolidated statements of operations. The Bank has
not experienced a permanent decline on securities that would result in a
charge to operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK - This asset is owned due to regulatory
requirements and is carried at cost. This stock is pledged as collateral to
secure FHLB advances.
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid
principal reduced by unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized as income over terms
which approximate the interest method. Interest on other loans is recognized
using the simple-interest method on the daily balances of the principal
amounts outstanding. The accrual of interest on loans is discontinued when
there is a clear indication that the borrower's cash flow may not be
sufficient to meet payments as they become due. When a loan is placed on
nonaccrual status, all previously accrued and unpaid interest is charged
against income. If the ultimate collectibility of principal, wholly or
partially, is in doubt, any payment received on a loan on which the accrual
of interest has been suspended is applied to reduce principal to the extent
necessary to eliminate such doubt.
LOAN FEES, PREMIUMS AND DISCOUNTS ON LOANS AND MORTGAGE-BACKED SECURITIES
Loan origination fees net of direct origination costs are deferred and
accreted to income using the interest method over the contractual life of the
loans adjusted for actual payments. If the loan is held-for-sale, the net
fees are deferred until the loan is sold.
Premiums and discounts on loans and mortgage-backed securities purchased are
amortized to income using a method which approximates a level yield over the
estimated life of the loan or mortgage-backed security.
SERVICING RIGHTS
The Bank originates loans for resale to increase the servicing portfolio and
to provide funds for additional investment. Under the sale agreement, the
Bank continues to service the loan, and the investor is paid its share of
principal collection. Effective July 1, 1995, the Bank adopted SFAS No. 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT OF SFAS NO. 65. SFAS
No. 122 eliminated the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. The effect of
adopting this new accounting standard was to increase 1995 net income by
$11,338.
ALLOWANCE FOR CREDIT LOSSES
Provision for credit losses is charged to operations based on management's
evaluation of the potential losses in the loan portfolio. The Bank adheres to
an asset review system and allowance for credit loss methodology designed to
provide for the detection of problem amounts and adequate general valuation
allowances to cover credit losses. The provision is based on an analysis of
the loan portfolio, economic conditions, historical loan loss experience,
changes in the nature and volume of the loan portfolio, and management's
assessment of the inherent risk in the portfolio in relation to the level of
the allowance for credit losses. While management uses the best information
available to make these evaluations, future adjustments to the allowances may
be necessary if economic conditions differ from the assumptions used in
preparing the evaluation.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for credit
losses. Such agencies may review the Bank's allowances for credit losses,
and they may require the Bank to recognize additions to the allowances based
on their judgment of information available to them at the time of their
examination.
The Bank adopted SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN, as amended, effective January 1, 1995. This statement requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rates or the fair value of
the underlying collateral, and specifies alternative methods for recognizing
interest income on loans that are impaired or for which there are credit
concerns. For purposes of applying this standard, impaired loans have been
defined as all nonaccrual loans. The Bank's policy for income recognition
was not affected by adoption of the standard. The adoption of SFAS No. 114
did not have any effect on the allowance for credit losses or related
provision.
21
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
UNCOLLECTED INTEREST
The Bank reverses all accrued interest and ceases accruing interest on
certain loans when management believes the loans may be uncollectible and on
loans which are more than 90 days past due with loan-to-value ratios greater
than 80%. Such interest, if ultimately collected, is credited to operations
in the period of recovery.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful life of the assets. Maintenance and repairs are charged to expense as
incurred and improvements are capitalized.
REAL ESTATE OWNED
Real estate owned (REO) acquired through foreclosure or deed in lieu of
foreclosure is initially recorded at fair value. Any excess of the loan
balance and foreclosure costs over the fair value at the date of acquisition
of the property is charged to the allowance for credit losses. Subsequently,
REO is carried at the lower of fair value less estimated expenses of sale or
cost. Any provisions required are recorded in the statement of operations
and are considered a valuation allowance. Subsequent increases in the fair
value of properties with valuation allowances can be credited to operations
up to the amount of the previously established valuation allowance. Costs
related to the improvement of these properties are capitalized. Costs
related to holding the properties are charged to real estate operations.
The amounts the Bank could ultimately recover from disposition of REO could
differ materially from the amounts used in arriving at the net carrying value
of the assets because of future market factors beyond the Bank's control or
changes in the Bank's strategies for recovering its investments. Gains and
losses on disposition of properties are recognized in current operations.
However, the recognition of gains is dependent upon the transaction meeting
certain criteria relating to the nature of the property sold and the terms of
sale. Under certain circumstances, the gain, or a portion thereof, must be
deferred until the criteria is met.
INCOME TAXES
The Bank and its subsidiary file consolidated income tax returns. Effective
January 1, 1993, the Bank and its subsidiary adopted SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 required a change to the asset and liability
method of accounting for income taxes rather than the deferred method which
was previously utilized as permitted by Accounting Principles Board Opinion
11. Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred income taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect (as of January 1, 1993) of adopting this new accounting
standard was not material.
Prior to fiscal 1993, the deferred method of accounting for income taxes was
used. Deferred federal and state income taxes were provided on income and
expense reported in different periods for financial statement and income tax
purposes at the current statutory rate.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of capital stock outstanding during the period. Stock options have not
had a dilutive effect.
CASH FLOW STATEMENT
Cash and cash equivalents include cash, interest-bearing deposits at the
FHLB, deposits at other banks, and all certificates of deposit with original
maturities of three months or less. There are no amounts subject to
withdrawal or usage restrictions.
RECLASSIFICATION
Certain amounts for prior years have been reclassified to conform with the
current year presentation.
NOTE B - ASSETS AVAILABLE-FOR-SALE
At December 31, 1995, an unrealized loss of $204,410 on mortgage-backed
securities available-for-sale is shown as a reduction in stockholders'
equity. At December 31, 1994, an unrealized loss of $176,861 on
mortgage-backed securities available-for-sale, and an unrealized loss of
$186,542 on mortgage-backed securities that were transferred from
available-for-sale to held-to-maturity on April 30, 1994, are shown as a
reduction in stockholders' equity. Due to the uncertainty of the future
utilization of unrealized losses, should they be realized, the income tax
benefit has been offset by a valuation allowance against the resulting
deferred tax asset.
22
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
During December 1995, the Bank transferred $32,206,642 of mortgage-backed
securities and U.S. government agency obligations from the Bank's
held-to-maturity portfolio into its available-for-sale portfolio. This
transfer was made by the Bank for asset/liability and liquidity management
purposes and was made in accordance with an implementation guide for SFAS No.
115 entitled ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
issued by the Financial Accounting Standards Board in November 1995.
Loans available-for-sale are recorded at the lower of amortized cost or fair
value.
A summary of assets available-for-sale is as follows:
<TABLE>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
GNMA ADJUSTABLE RATE $ 28,295,654 $ 28,095,981 $ 30,691 $ 230,364
OBLIGATION OF U.S. GOVERNMENT AGENCIES 4,998,841 4,994,104 10,000 14,737
LOANS ON RESIDENTIAL ONE-TO-FOUR UNITS 861,454 874,512 13,058 --
------------- ------------- --------- ----------
$ 34,155,949 $ 33,964,597 $ 53,749 $ 245,101
------------- ------------- --------- ----------
------------- ------------- --------- ----------
December 31, 1994
------------------------------------------------------
Amortized Fair Gross Unrealized
cost value Gains Losses
------------- ------------- --------- ----------
Mortgage-backed securities:
GNMA adjustable rate $ 3,156,674 $ 2,979,813 $ -- $ 176,861
Loans on residential one-to-four units 670,743 679,725 9,006 24
------------- ------------- --------- ----------
$ 3,827,417 $ 3,659,538 $ 9,006 $ 176,885
------------- ------------- --------- ----------
------------- ------------- --------- ----------
</TABLE>
No available-for-sale securities were pledged at December 31, 1995 and 1994.
NOTE C - SECURITIES HELD-TO-MATURITY
A summary of securities held-to-maturity is as follows:
<TABLE>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
FNMA PARTICIPATION CERTIFICATES $ 6,225,192 $ 6,106,781 $ -- $ 118,411
FHLMC PARTICIPATION CERTIFICATES 27,872,939 27,648,060 43,254 268,133
FHLMC ADJUSTABLE RATE 2,306,004 2,270,562 -- 35,442
------------- ------------- --------- ----------
$ 36,404,135 $ 36,025,403 $ 43,254 $ 421,986
------------- ------------- --------- ----------
------------- ------------- --------- ----------
December 31, 1994
------------------------------------------------------
Amortized Fair Gross Unrealized
cost value Gains Losses
------------- ------------- --------- ----------
Mortgage-backed securities:
FNMA participation certificates $ 7,018,585 $ 6,339,546 $ -- $ 679,039
GNMA adjustable rate 28,781,907 27,646,723 -- 1,135,184
FHLMC participation certificates 32,065,908 29,714,760 -- 2,351,148
FHLMC adjustable rate 2,650,364 2,528,747 -- 121,617
Investment securities:
Obligation of U.S. government agencies 6,988,320 6,557,501 -- 430,819
------------- ------------- --------- ----------
$ 77,505,084 $ 72,787,277 $ -- $4,717,807
------------- ------------- --------- ----------
------------- ------------- --------- ----------
</TABLE>
23
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
During 1994, mortgage-backed securities with amortized costs and fair values
of $6,602,523 and $6,412,122, respectively, were transferred from assets
available-for-sale into the securities held-to-maturity portfolio. The
unrealized loss at the date of transfer was being amortized over the
remaining lives of the securities. At December 31, 1994, amortized cost was
net of $186,542 in unamortized losses on securities transferred from assets
available-for-sale. In December 1995, these same securities and others with
an amortized cost of $32,206,642 were transferred into the Bank's
available-for-sale portfolio. This transfer was made by the Bank for
asset/liability and liquidity management purposes and was made in accordance
with an implementation guide for SFAS No. 115 entitled ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES issued by the Financial Accounting
Standards Board in November 1995.
Held-to-maturity securities of $3,319,414 were pledged to secure public
deposits at December 31, 1995. Held-to-maturity securities of $19,928,719
were pledged to secure public deposits and FHLB advances at December 31, 1994.
There were no held-to-maturity securities sold during 1995 or 1994. The Bank
sold $6,393,199 in U.S. Treasuries during the year ended December 31, 1993 at
a gain of $29,107. The Bank also sold $3,883,578 of mortgage-backed
securities during the year ended December 31, 1993 at a gain of $270,514.
The contractual maturity of investment securities are in excess of ten years
at December 31, 1995 and 1994. Actual maturities will differ from contractual
maturities because borrowers have the right to prepay obligations without
prepayment penalties. At December 31, 1995, the weighted average life of the
available-for-sale securities, exclusive of residential one-to-four units,
was 3.72 years. At December 31, 1995, the weighted average life of the
held-to-maturity securities was 2.56 years.
NOTE D - LOANS
Loans consisted of the following:
December 31
------------------------
1995 1994
----------- -----------
First mortgage loans:
Conventional $25,110,648 $27,873,227
FHA insured and VA guaranteed 4,059,531 4,278,984
Consumer and installment loans 4,558,130 2,689,310
Consumer timeshare loans 560,320 1,217,001
Construction loans 1,059,954 516,750
Other 552,822 725,805
----------- -----------
35,901,405 37,301,077
Less:
Loans in process 862,760 316,599
Deferred loan fees 187,090 248,644
Unearned discounts 23,713 92,027
Allowance for credit losses 427,889 460,923
Deferred income 67,965 13,276
----------- -----------
$34,331,988 $35,669,608
----------- -----------
----------- -----------
The Bank had outstanding commitments to originate loans at December 31, 1995
and 1994 of approximately $971,000 and $551,000, respectively.
Proceeds from sale of loans held-for-sale were $7,625,886, $15,205,572, and
$19,486,061 for the years ended December 31, 1995, 1994 and 1993,
respectively. Gains of $118,026 and losses of $186 were recognized in 1995,
while gains of $136,199 and losses of $65,969 were recognized in 1994, and
gains of $331,176 were recognized in 1993.
During 1994, loans previously classified as available-for-sale were
reclassified to loans. The Bank had recognized a loss resulting from a lower
of amortized cost or fair market adjustment in the amount of $88,771 prior
to this transfer. The recorded amount at the date of transfer was
$2,077,261. At December 31, 1995 and 1994, the remaining unamortized
discount related to this transfer was $76,617 and $86,917, respectively.
24
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
Changes in the allowance for credit losses are as follows:
Years ended December 31
------------------------------
1995 1994 1993
-------- -------- --------
Balance at beginning of year $460,923 $508,597 $534,712
Provision charged (credited) to operations (15,000) 3,867 21,091
Charge-offs (20,878) (52,917) (66,499)
Recoveries 2,844 1,376 19,293
-------- -------- --------
Balance at end of year $427,889 $460,923 $508,597
-------- -------- --------
-------- -------- --------
An analysis of loans to directors and executive officers is as follows:
Years ended December 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Balance at beginning of year $ 348,854 $ 651,361 $557,661
Loans originated 30,882 31,099 117,557
Loan principal payments and other reductions (117,556) (333,606) (23,857)
--------- --------- ---------
Balance at end of year $ 262,180 $ 348,854 $ 651,361
--------- --------- ---------
--------- --------- ---------
A renegotiated loan for which interest had been reduced totaled $1,572,814 at
December 31, 1995. Nonaccrual and renegotiated loans for which interest has
been reduced totaled $3,292,183 and $3,122,136 at December 31, 1994 and 1993,
respectively. Interest income that would have been recorded under the
original terms of such loans and the interest actually recognized prior to
accretion of unearned discount for the years ended December 31 are summarized
below:
Years ended December 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Interest income that would have been recorded $ 336,553 $ 388,885 $351,117
Interest income recognized 261,358 262,904 232,863
--------- --------- ---------
Interest income foregone $ 75,195 $ 125,981 $118,254
--------- --------- ---------
--------- --------- ---------
The Bank is not committed to lend additional funds to borrowers with
non-performing or renegotiated loans.
NOTE E - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid balances of these
loans at December 31 are summarized as follows:
1995 1994 1993
----------- ----------- -----------
Mortgage loans underlying pass through
certificates:
GNMA $ 3,594,512 $ 3,890,825 $ 5,263,175
FHLMC 7,637,528 8,669,839 10,143,187
Mortgage loan portfolios serviced for:
FNMA 35,531,557 37,689,044 39,716,040
Other investors 1,637,020 1,845,001 4,478,069
----------- ----------- -----------
$48,400,617 $52,094,709 $59,600,471
----------- ----------- -----------
----------- ----------- -----------
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $496,680 and $486,557 at December 31, 1995 and 1994,
respectively.
25
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
Following is an analysis of the changes in servicing rights asset balances
for the years 1995, 1994 and 1993.
Balance, January 1, 1993 $ 767,668
Amortization* (309,447)
---------
Balance, January 1, 1994 458,221
Amortization* (62,584)
---------
Balance, January 1, 1995 395,637
Amortization* (48,302)
Originated mortgage servicing rights 12,519
---------
Balance, December 31, 1995 $ 359,854
---------
---------
*Includes valuation adjustments due to changes in prepayment assumptions
NOTE F - REAL ESTATE OWNED
Real estate owned at December 31 consisted of the following:
1995 1994
-------- --------
Real estate acquired in settlement of loans and
through foreclosure $153,820 $209,910
Loans reported as in-substance foreclosure -- 251,103
-------- --------
153,820 461,013
Less allowance for losses 40,000 40,000
-------- --------
$113,820 $421,013
-------- --------
-------- --------
An analysis of the allowance for losses on real estate owned is as follows:
Years ended December 31
-------------------------------
1995 1994 1993
------- ---------- ----------
Balance at beginning of period $40,000 $1,433,722 $1,118,970
Provision charged to expense -- -- 337,225
------- ---------- ----------
40,000 1,433,722 1,456,195
Less charges against the allowance -- 1,393,722 22,473
------- ---------- ----------
Balance at end of period $40,000 $ 40,000 $1,433,722
------- ---------- ----------
------- ---------- ----------
There were no provisions for further losses on real estate owned during 1995
and 1994.
Net losses from real estate operations were as follows:
Years ended December 31
-------------------------------
1995 1994 1993
-------- --------- ---------
Income:
Rental income $ 1,000 $ 2,706 $ 2,300
Gains on sale of real estate 13,105 882 29,573
Expenses:
Real estate expenses (57,209) (215,905) (278,309)
Loss on sale of real estate (14,776) (60,629) (32,672)
Provision for valuation allowances -- -- (337,225)
-------- ---------- ----------
Net losses $(57,880) $(272,946) $(616,333)
-------- ---------- ----------
-------- ---------- ----------
NOTE G - CONCENTRATION OF CREDIT RISK
The Bank invests available funds in mortgage-backed securities and
interest-bearing deposits and maintains funds in other depository
institutions, including the FHLB of Dallas. The Bank currently holds no
mutual funds as they were liquidated during 1994. Generally, the Bank's
investment in U.S. Government securities and mortgage-backed securities are
recorded in book entry form only, and the Bank does not take possession of
the actual investment certificates. The Bank's investment in
interest-bearing deposits, excluding those with the FHLB of Dallas, is
normally limited to amounts covered by applicable Federal Deposit Insurance
Corporation (FDIC) limits.
26
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The Bank grants consumer, commercial business, commercial real estate, and
residential loans to customers in its trade area. Generally, the loans are
secured by real estate; however, the Bank does make consumer loans and
commercial loans. The loans are expected to be repaid from the cash flow of
the borrowers. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon their own economic situation.
The Bank's collateral policy is to secure all real estate loans by mortgages,
place first liens on available assets underlying commercial loans, and
perfect purchase money liens on consumer loan products. The Bank grants
unsecured loans to its customers.
As a primary single-family home lender, the Bank also has a substantial
portion of its loans in Curry and Roosevelt Counties of New Mexico.
NOTE H - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized by major classifications
as follows:
1995 1994
------------ ------------
Land $ 407,593 $ 407,593
Office buildings 2,151,745 2,145,204
Furniture, fixtures and equipment 1,281,138 1,376,796
Automobiles 77,646 71,805
---------- ----------
3,918,122 4,001,398
Less accumulated depreciation 1,933,262 1,951,817
---------- ----------
$1,984,860 $2,049,581
---------- ----------
---------- ----------
NOTE I - DEPOSITS
The composition of deposits and the effective rates of interest at December 31
were as follows:
1995 1994
------------ ------------
Checking accounts - noninterest bearing $ 575,811 $ 429,292
Savings accounts (1995 - 2.75%; 1994 -
3.20%) 9,281,440 11,259,777
Insured Money Market accounts (1995 -
2.30%-3.70%; 1994 - 3.80%-4.10%) 1,414,311 13,767,226
Transaction accounts (1995 - 2.30%-3.30%;
1994 - 2.90%-3.70%) 7,386,076 7,235,582
Certificates of deposit:
2.01% - 3.00% -- 1,023,940
3.01% - 4:00% 997,702 24,049,622
4.01% - 5.00% 14,103,880 30,146,913
5.01% - 6.00% 52,596,029 20,847,544
6.01% - 7.00% 13,086,788 1,950,225
7.01% - 8.00% 1,144,070 1,301,555
8.01% - 9.00% 47,017 760,853
------------ ------------
$110,633,124 $112,772,529
------------ ------------
------------ ------------
At December 31, 1995 and 1994, individual deposit accounts in excess of
$100,000 amounted to $5,272,739 and $5,971,246, respectively.
Certificates of deposit had the following maturities at December 31, 1995:
Amount Percent of total
----------- ----------------
Within one year $64,196,941 78.3%
Between one and three years 14,032,726 17.1
Between three and five years 3,745,819 4.6
----------- -----
$81,975,486 100.0%
----------- -----
----------- -----
27
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
Interest expense on deposits for the years ended December 31 was as follows:
1995 1994 1993
---------- ---------- ----------
Savings accounts $ 294,322 $ 353,869 $ 447,616
Money Market accounts 502,089 486,675 592,975
Transaction accounts 154,712 219,561 231,996
Certificates of Deposit 4,391,224 3,255,460 3,670,595
---------- ---------- ----------
$5,342,347 $4,315,565 $4,943,182
---------- ---------- ----------
---------- ---------- ----------
At December 31, 1995 and 1994, the Bank had accrued interest payable on
certificates of deposit totaling $213,729 and $97,084, respectively. The
weighted average interest rate on deposits was 4.67%, 3.60% and 3.82% for the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE J - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Each FHLB is authorized to make advances to its members, subject to such
regulations and limitations as the FHLB may prescribe. There were no
advances from FHLB at December 31, 1995. At December 31, 1994, advances from
FHLB were collateralized by investment securities totaling $14,829,418. The
Bank is also required to maintain stock ownership in the FHLB of at least a
minimum percentage of its loans. At December 31, 1994, the Bank maintained
an excess investment in stock of the FHLB.
NOTE K - INCOME TAXES
At December 31, 1995, the Bank had remaining net operating loss carryforwards
of approximately $5,555,000 for federal income tax purposes which expire in
varying amounts through 2009. In addition, the alternative minimum tax (AMT)
net operating loss carryforward and AMT credit carryforward were
approximately $5,866,000 and $101,000, respectively, which expire in varying
amounts through 2009. Investments tax credit carryforwards of approximately
$44,000 expire in varying amounts through 2005. At December 31, 1995, the
Bank had remaining net operating loss carryforwards of approximately
$44,583,000 for state income tax purposes which expire in varying amounts
through 2005. These state net operating loss carryforwards are substantially
more than the federal net operating loss carryforwards as a result of the
exclusion of U.S. Investment security and other income for state income tax
purposes.
Under the Internal Revenue Code (the Code), the Bank is allowed a special bad
debt deduction related to additions to tax bad debt reserves established for
the purpose of absorbing losses on mortgage loans. For taxable years
beginning before January 1, 1987, the provision of the Code permitted the
Bank to deduct from taxable income an addition to the tax bad debt reserve
based on a percentage of taxable income (ranging from 32% to 60%). Due to
changes made by the Tax Reform Act of 1986, for tax years beginning after
December 31, 1986, the percentage has been reduced to 8%.
Stockholders' equity at December 31, 1995 includes approximately $2,100,000
for which no provision for Federal income tax has been accrued. These
amounts represent allocation of income to bad debt reserves for tax purposes
only. Reduction of amounts so allocated for purposes other than losses on
loans will create income for tax purposes only, which will be subject to the
then current corporate tax rate.
A reconciliation of the expected income tax expense (benefit) to the
effective tax expense of the year ended December 31 follows:
1995 1994 1993
---------- --------- ---------
Tax expense at statutory rates $ 160,485 $ 58,550 $ 208,782
Effect of net operating loss (160,485) (58,550) (208,782)
Deferred tax asset valuation
allowance adjustment -- (188,650) --
--------- --------- ---------
$ -- $(188,650) $ --
--------- --------- ---------
--------- --------- ---------
28
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The tax effect of significant temporary differences representing deferred tax
assets and liabilities and changes thereon were as follows:
<TABLE>
<CAPTION>
December 31, Net December 31, NET DECEMBER 31,
1993 change 1994 CHANGE 1995
------------ ------ ------------ ------ -------------
<S> <C> <C> <C> <C> <C>
OPERATIONAL ITEMS:
Deferred taxes assets:
Net operating loss carryforward $ 1,637,000 $ 618,000 $ 2,255,000 $(99,000) $ 2,156,000
Bad debt deduction and
deferred loan fees 263,000 (81,000) 182,000 (20,000) 162,000
Investments 104,000 (104,000) -- -- --
Other -- -- -- 7,000 7,000
----------- ---------- ----------- -------- -----------
2,004,000 2,437,000 2,325,000
Valuation allowance (1,588,000) (207,000) (1,795,000) 161,000 (1,634,000)
----------- ---------- ----------- -------- -----------
Deferred tax assets 416,000 226,000 642,000 49,000 691,000
----------- ---------- ----------- -------- -----------
Deferred tax liabilities:
Depreciation (258,000) (13,000) (271,000) (9,000) (280,000)
FHLB stock dividend (158,000) (24,000) (182,000) (36,000) (218,000)
Originated mortgage servicing
rights -- -- -- (4,000) (4,000)
----------- ---------- ----------- -------- -----------
Deferred tax liabilities (416,000) (37,000) (453,000) (49,000) (502,000)
----------- ---------- ----------- -------- -----------
Net tax asset $ -- $ 189,000 $ 189,000 $ -- $ 189,000
----------- ---------- ----------- -------- -----------
----------- ---------- ----------- -------- -----------
EQUITY ITEMS:
Deferred tax assets:
Investments $ 9,000 $ 115,000 $ 124,000 $(54,000) $ 70,000
----------- ----------- -----------
9,000 124,000 70,000
Valuation allowance (9,000) (115,000) (124,000) 54,000 (70,000)
----------- ---------- ----------- -------- -----------
Deferred tax assets -- -- -- -- --
Deferred tax liabilities -- -- -- -- --
----------- ---------- ----------- -------- -----------
Net tax asset $ -- $ -- $ -- $ -- $ --
----------- ---------- ----------- -------- -----------
----------- ---------- ----------- -------- -----------
</TABLE>
29
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE L - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the implementation of Office of Thrift Supervision (OTS)
regulations on December 7, 1989, effective date of the new capital standards,
the Bank must have: (1) core capital equal to 3% of adjusted total assets;
(2) tangible capital equal to 1.5% of adjusted total assets; and (3) total
capital equal to 8.0% of risk-weighted assets, which includes off-balance
sheet items.
On November 28, 1994, the OTS announced its decision to immediately reverse
its August 1993 interim policy requiring institutions to include unrealized
gains and losses, net of income taxes, on available-for-sale debt securities
in regulatory capital. Because this revised policy applies only to
regulatory capital, however, institutions must continue to comply with SFAS
No. 115 for financial reporting purposes.
The following table is a reconciliation of the Bank's capital for regulatory
purposes at December 31, 1995 as reported to the OTS.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Assets capital capital capital
------ ------- ------- -------
<S> <C> <C> <C> <C>
Total assets $116,966,299
Liabilities carried net of assets for
regulatory purposes (98,727)
Unrealized loss on securities
available-for-sale, net 204,410
------------
Adjusted regulatory total assets $117,071,982
------------
------------
Risk-based assets $ 37,540,000
------------
------------
Stockholders' equity $5,620,377 $5,620,377 $5,620,377
Unrealized loss on securities
available-for-sale, net 204,410 204,410 204,410
General valuation allowance -- -- 427,889
---------- ---------- ----------
Regulatory capital 5,824,787 5,824,787 6,252,676
Regulatory capital required 1,756,080 3,512,159 3,003,200
---------- ---------- ----------
Excess regulatory capital $4,068,707 $2,312,628 $3,249,476
---------- ---------- ----------
---------- ---------- ----------
Bank's capital to adjusted regulatory assets 4.98% 4.98%
---------- ----------
---------- ----------
Bank's capital to risk-based assets 16.66%
----------
----------
</TABLE>
At December 31, 1995 and 1994, the Bank met all minimum tangible, core and
risk-based capital levels. However, the Bank has previously been notified by
the OTS that it was considered "undercapitalized" and was required to submit
a capital plan to obtain a minimum 4% capital level. At December 31, 1994,
the Capital Plan had been approved and the Bank had reached all capital
requirements. However, subsequent to December 31, 1994, the OTS requested
the Bank to submit a revised three year capital plan which demonstrated the
Bank's ability to accumulate capital and reduce interest rate risk. The Plan
was completed and submitted in 1995. However, there is no assurance that the
Bank will, or will not, be able to achieve its plan or that future events
could not lead to future regulatory actions.
30
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE M - INVESTMENT IN SERVICE CORPORATION
FEDCO was formed for the purpose of holding investments in real estate and
the Bank's investment in its former service bureau. A summary of assets,
liabilities, and equity of FEDCO at December 31, 1995 and 1994 was as follows:
1995 1994
--------- ---------
Assets:
Cash $ 1,697 $ 1,722
--------- ---------
--------- ---------
Liabilities $ -- $ --
Stockholders' equity:
Capital stock 400,000 400,000
Accumulated deficit (398,303) (398,278)
--------- ---------
$ 1,697 $ 1,722
--------- ---------
--------- ---------
FEDCO reported losses of $25, $18,884, and $47,222 for the years ending
December 31, 1995, 1994 and 1993, respectively, which included its share of
the operations of the service bureau. FEDCO paid no dividends to the Bank
during 1995. FEDCO paid dividends to the Bank of $278,000 and $44,000 for
the years ended December 31, 1994 and 1993, respectively.
NOTE N - STOCK OPTION PLAN
Under the 1986 Stock Option and Incentive Plan (Plan), as amended, the Bank
may grant Incentive and Non-Incentive Stock Options, as well as Stock
Appreciation Rights (SARs) to Officers, Directors, key employees and other
persons up to a maximum of 68,250 shares of the Bank's common stock. The
Plan is administered by a committee of the Board of Directors. The Plan
terminates in August 1996.
Under the provisions of the Plan, stock options have a term that is
determined by the committee, but not to exceed ten years from the date of
grant. However, in the case of optionees who own in excess of 10% of the
outstanding common stock of the Bank, the term of the stock option may not
exceed five years. The aggregate fair market value of the options for which
any persons may be granted in any calendar year may not exceed $100,000.
SARs, upon their exercise, entitle the SAR grantee to receive cash, common
stock or a combination thereof, as the committee in its sole discretion shall
determine, equal to the excess of the fair market value of the common stock
on the date of exercise over the exercise prices of the SARs. As of
December 31, 1995, no SARs had been granted under the Plan.
The following table summarize certain information relative to stock options:
December 31
-------------------------
1995 1994
----------- --------
Number of shares under non-incentive option 39,000 --
Option price of shares under option
$5.25-$6.00 --
Number of shares exercisable 39,000 --
There were no stock options exercised during the three years in the period
ended December 31, 1995 and, at December 31, 1995, there were 12,809
remaining shares of the Bank's common stock available for the issuance of
additional options under the terms of the Plan.
31
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE O - PROFIT SHARING AND 401(K) PLANS
The Bank has a profit sharing/employee stock ownership plan for which
substantially all employees are eligible. Effective January 1, 1989, the Bank
amended its profit sharing plan to include an employee stock ownership plan
which covers substantially all employees. Contributions, when made, may be
made in the form of cash or in common stock of the Bank. Contribution
amounts are based upon employee's compensation, but may not exceed maximum
deductible limits for federal income tax purposes. No contributions were
made in 1995, 1994 and 1993.
Effective January 1, 1989, this plan was amended to include a 401(k)
before-tax salary deferral feature. Employees may elect to contribute to the
plan and such contribution is matched by the Bank at a minimum of 5% of
employee's contributions. Employer contributions made to the 401(k) plan for
the years ended December 31, 1995, 1994 and 1993 totaled $1,753, $1,821, and
$1,161, respectively. Total contributions per employee, for all parts of the
plan, made by the Bank or the employee, cannot exceed the lesser of $30,000
or 25% of the employee's compensation.
NOTE P - REGULATORY MATTERS
On April 23, 1991, at the request of the OTS, the Board of Directors agreed
to the issuance of a Cease and Desist Order (Order) which (1) limited the
growth of the institution; (2) imposed specific restrictions involving the
Bank's engagement in securities activities; (3) prohibited lending outside
the market area; (4) prescribed various reporting requirements; (5) required
OTS approval before commencing certain activities; (6) required that the Bank
develop a detailed, self-contained three-year capital and business plan
subsequently referred to as a "Capital Restoration Plan"; and (7) required a
special investigation into certain relationships of the Bank's former
president and certain borrowers. The Board agreed to an extension of the
Order on January 16, 1992 and again on October 26, 1992.
Under the Order, the Bank's operations were subject to imposed restrictions
on growth and various other restrictions limiting: investing or transferring
real estate investments; engaging, financing, refinancing, entering,
employing, amending, purchasing, commitments to renew, change, or enter into
real estate (residential, construction, non-residential, and real estate
investments) transactions, securities, loan participations, commercial loans
or letter of credit, consumer or educational loans, leases, contracts, or
agreements, joint ventures, compensation arrangements, by-laws, accounting
methods, service corporations, purchases or repurchases of government
securities, and mergers or consolidation.
In 1992, the Bank was deemed "undercapitalized" by the OTS. The Bank and the
OTS agreed, on July 28, 1993, to the issuance of a Prompt Corrective Action
Directive (PCAD), pursuant to Section 38 of the Federal Depository Insurance
Corporation Improvement Act (FDICIA). FDICIA necessitates that a PCAD be
issued when an institution is deemed undercapitalized. The PCAD terminated,
suspended, or modified most of the provisions of the previous Order issued by
the OTS.
On August 2, 1994 an extension of the PCAD was granted under an Amended
Prompt Corrective Action Directive (APCAD) which was agreed to by the Bank
and the OTS. The APCAD revised the date for attaining the 4.0% core capital
requirement to June 30, 1995. The PCAD and APCAD required of the Bank, among
other things:
- Submission of a Capital Restoration Plan
- Required capital levels of 4.0% for Tier One ("Core") and leverage
ratio capital, and 8.0% for total risk-based capital
- Compliance with the Capital Restoration Plan
- Required capital levels to be achieved or adequate progress towards
mandates
- Compliance with mandatory restrictions on dividends, management fees,
asset growth, branching and certain other conditions
- Approval from the Regional Director of the OTS before investing in
certain activities
32
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
As of December 31, 1994, the Bank met all requirements of the APCAD,
including all capital requirements. In May 1995, the OTS notified the Bank
that the Order had been terminated. The only significant provision of the
APCAD that remains in effect is the maintenance of certain required capital
levels. The following table represents the Bank's capital ratios and the
APCAD requirements as of December 31, 1995.
APCAD Actual
required December 31, 1995 Excess
-------- ----------------- ------
Core capital 4.0% 4.98% 0.98%
Leverage ratio capital 4.0 4.98 0.98
Risk- based capital 8.0 16.66 8.66
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
NOTE Q - OFF-BALANCE SHEET RISK
The Bank may be a 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 reduce its own exposure to fluctuation in interest rates. These
financial instruments include commitments to extend credit, standby letters
of credit, and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial position. The
contract or notional amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
At December 31, 1995, financial instruments whose contract amounts represent
credit risk are as follows:
Commitments to extend credit $1,264,557
Lines of credit $ 293,613
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Some of the commitments are
expected to expire without being drawn upon. The total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customers.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Currently, letters of credit are not extended beyond one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Bank holds collateral and personal guarantees as deemed necessary. At
December 31, 1995, the Bank had no standby letters of credit outstanding.
At December 31, 1995, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1995 and 1994, the Bank had $1,832,398 and $929,836,
respectively, of commitments to sell newly-originated single family
residential loans.
NOTE R - CONTINGENCIES
LITIGATION
In the normal course of business, the Bank is involved in litigation which,
in the Bank's opinion, will not have a material affect on the Bank.
On February 1, 1996, an Order of Dismissal was filed by the Court with
respect to a certain derivative lawsuit (Derivative Lawsuit) filed on May 19,
1994 and amended on November 2, 1994. This Derivative Lawsuit was filed by
two stockholders, one of whom was a former Director of the Bank, alleging a
number of intentional and negligent acts and omissions in the management of
the Bank which allegedly resulted in damages and losses suffered by the Bank.
The Court dismissed, with prejudice, all claims against all defendants,
except a former President, who was also Chief Executive Officer and a
Director (former President) of the Bank. A dismissal with prejudice means
that the charges cannot be refiled. The Court also ordered the Plaintiffs to
pay reasonable expenses, including attorney's fees, to one of the Bank's
former independent auditors. The deadline for appeal of the order dismissing
the action was March 4, 1996. A notice of appeal was filed by the plaintiff.
The Bank cannot currently predict the outcome of the appeal.
33
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
If final judgment in their favor is received in the Derivative Lawsuit,
certain of the current and former director defendants may make demand on the
Bank for indemnification of their legal expenses pursuant to OTS regulations.
The disinterested members of the Bank's Board of Directors must approve said
indemnification and give 60 days notice to the OTS of the Bank's intention to
make such indemnification. No such indemnification shall be made if the OTS
advises the Bank in writing, within the 60 day notice period, of its
objection thereto. No demand for indemnification has been made by any
defendant.
With respect to the former President of the Bank, the Court dismissed the
claims in the Derivative Lawsuit without prejudice in order to allow the Bank
to pursue such claims in Federal Court. In May 1995, the Bank filed a
lawsuit against the former President in the United States District Court for
the District of New Mexico. In the lawsuit, the Bank asserts that the
defendant engaged in fraudulent conduct and breached his duties of loyalty
and care to the Bank, all of which resulted in losses and damages to the
Bank. The Bank is seeking recovery of damages from the defendant in excess
of $2.8 million, plus interest and punitive damages. The Bank's lawsuit
against the former President has not gone to trial and is not expected to do
so until after mid-year 1996.
OTHER
The FDIC has proposed a one-time assessment on all deposits held as of a yet
to be determined date. Deposits subject to the assessment are insured by the
Savings Association Insurance Fund (SAIF). This one time assessment is
intended to recapitalize the SAIF to the required level of 1.25% of insured
deposits. If the assessment is made, the premium could be paid in 1996 and
result in a significant charge to the operations of the Bank. The assessment
may or may not cause the Bank to be unable to meet the capital requirements
as outlined by the APCAD directive. However, the Bank is expected to be able
to maintain minimum tangible core and risk-based capital levels established
by FIRREA and OTS regulations. The one-time special assessment, if made,
will result in a significant decrease in future insurance premium assessments
by the FDIC. This will have a positive impact on future earnings of the Bank.
NOTE S - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or
not recognized on the balance sheet, for which it is practicable to estimate
that value. Quoted market prices, if available, are utilized as an estimate
of the fair value of financial instruments. Because no quoted market prices
exist for a part of the Bank's financial instruments, the fair value of such
instruments has been derived based on management's assumptions with respect
to future economic conditions, the amount and timing of future cash flows and
estimated discount rates. Different assumptions could significantly affect
these estimates. Accordingly, the estimates provided herein do not
necessarily indicate amounts which could be realized in a current exchange.
Further, as it is management's intent to hold a portion of its financial
instruments to maturity, it is not probable that the fair values shown below
will be realized in a current transaction. In addition, fair value estimates
are based solely 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. Examples would include portfolios of loans serviced for others,
investments in real estate, premises and equipment, and deferred tax assets.
Because of the wide range of permissible valuation techniques and the
numerous estimates which must be made, it may be difficult to make reasonable
comparisons of the fair value information to that of other financial
institutions. The aggregate fair value amount should in no way be construed
as representative of the underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate
that value:
CASH AND CASH EQUIVALENTS - The carrying amount for cash and cash equivalents
approximates the assets' fair value because of the short maturity of those
instruments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES - The fair value of long-term
investments such as U.S. Government and agency obligations and
mortgage-backed securities is estimated based on bid quotations received from
securities dealers and the FHLB.
34
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
LOANS - Fair values are estimated for portfolios of loans with similar
financial characteristics. Mortgage loans are segregated by type, including
but not limited to residential, commercial and construction. Consumer loans
are segregated by type, including but not limited to home improvement loans,
automobile loans, loans secured by deposits and secured and unsecured
personal loans. Each loan category may be segmented, as appropriate, into
fixed and adjustable interest rate terms, ranges of interest rates,
performing and non-performing, and repricing frequency.
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair values of other types of loans are estimated by
discounting the future scheduled and unscheduled cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Unscheduled cash flows take
the form of estimated prepayments and may be based upon historical experience
as well as anticipated experience derived from current and prospective
economic and interest rate environments. For certain types of loans,
anticipated prepayment experience exists in published tables from securities
dealers.
The fair value of significant non-performing mortgage loans is based on
estimated value of the collateral. Where appraisals are not available,
estimated cash flows are discounted using a rate commensurate with the credit
risk associated with those cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgementally determined using available
market information and specific borrower information. The fair value of
non-performing consumer loans is based on historical experience with such
loans.
The fair value of loans held-for-sale is estimated based on outstanding
commitments from investors or current market prices for similar loans.
FEDERAL HOME LOAN BANK STOCK - The fair value of stock in the FHLB is
estimated to be equal to its carrying amount given it is not a publicly
traded equity security, it has an adjustable dividend rate, and all
transactions in the stock are executed at the stated par value.
DEPOSITS AND ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE - The fair value
of deposits with no stated maturity, such as interest-bearing or
non-interest-bearing checking accounts, passbook and statement savings
accounts, money market accounts and advances from borrowers for taxes and
insurance is equal to the amount payable upon demand. The fair value of
certificates of deposit is based on the lower of redemption or discounted
value of contractual cash flows. Discount rates for certificates of deposit
are estimated using current market rates.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of commitments to
extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
The fair value of off-balance sheet financial instruments is estimated to
equal the carrying amount at December 31, 1995 and 1994.
NON-FINANCIAL INSTRUMENTS - SFAS No. 107 does not permit financial
institutions to take into account the value of long-term relationships with
depositors, commonly known as core deposit intangibles, when estimating the
fair value of deposit liabilities. These intangibles are considered to be
separate intangible assets that are not financial instruments. Nonetheless,
financial institutions' core deposits have typically traded at premiums to
their book values under both historical and current market conditions.
Likewise, SFAS No. 107 does not permit financial institutions to take into
account the value of the cash flows and income stream derived from its
portfolio of loans serviced for others. See Note E to the consolidated
financial statements for information related to the portfolio of residential
mortgage loans serviced for others.
35
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
The estimated fair values of the Bank's financial instruments are shown below:
December 31, 1995
---------------------------------
Carrying Estimated fair
amount value
--------------- --------------
(in thousands)
Financial assets:
Cash and cash equivalents $ 6,753 $ 6,753
Certificates of deposit 476 477
Securities available-for-sale 33,090 33,090
Loans available-for-sale 861 875
Securities held-to-maturity 36,404 36,025
Loans receivable 34,332 35,919
Accrued interest receivable 693 693
FHLB stock 1,483 1,483
Financial liabilities:
Deposits 110,633 111,710
Accrued interest payable 402 402
Advance payments by borrowers for
taxes and insurance 311 311
The deferred income amounts arising from unrecognized financial instruments
are not significant. Also, these financial instruments have contractual
interest rates at or above current market rates. Therefore, no market value
disclosure is provided for these items.
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
First Savings Bank, F.S.B.
Clovis, New Mexico
We have audited the accompanying consolidated statements of financial
condition of First Savings Bank, F.S.B. and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Savings
Bank, F.S.B. and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Bank
changed its method of accounting for loan servicing rights during 1995,
changed its method of accounting for certain investments in debt and equity
securities during 1993 and its method of accounting for income taxes during
1993.
/s/ Robinson Burdette Martin & Cowan, L.L.P.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
February 9, 1996, except as to the second
paragraph in Note R, for which the date is
March 1, 1996
37
<PAGE>
CORPORATION INFORMATION
- - ----------------------------------------------------------------------------
BOARD OF DIRECTORS
Chad Lydick Chairman
President, Lydick Engineers & Surveyors, Inc. (Land
Surveying Co.)
Carl Deaton Vice Chairman
Retired Owner, Clovis Body Shop, Inc. and C.B.S. Auto
Recyclers, Inc.
Harry Eastham Retired Office Engineer, A.T.&.S.F. Railway company
Dr. Everett L. Frost President, Eastern New Mexico University
Charles Guthals President, Guthals Company, Inc. (Landscaping company)
Ken Huey, Jr. President and Chief Executive Officer of First Savings
Bank, F.S.B.
Thomas W. Martin III President of Tucumcari Springwater & Seed Co.,
DBA Taco Box
MANAGEMENT
Ken Huey, Jr. President and Chief Executive Officer
Paul B. Ellis Executive Vice President and Chief Lending Officer
Roddy Pearce Vice President, Chief Operating Officer and Controller
STOCKHOLDER INFORMATION
ANNUAL REPORT ON FORM 10-KSB
The Bank's annual report on Form 10-KSB, including financial statements and
schedules filed with the Office of Thrift Supervision, will be furnished
without charge. Please request this form in writing from the Corporate
Secretary at First Savings Bank, F.S.B., P.O. Box 1569 (801 Pile), Clovis,
New Mexico 88101-1569.
ANNUAL MEETING
The Annual Meeting of Stockholders of First Savings Bank, F.S.B. will be on
April 26, 1996 at 9:00 a.m., local time, at the Clovis Community College's
Town Hall, 417 Schepps Boulevard, Clovis, New Mexico.
STOCK TRANSFER AGENT AND REGISTRAR
First Savings Bank, F.S.B.
801 Pile Street-P.O. Box 1569
Clovis, New Mexico 88102-1569
ATTORNEYS
Keleher & McLeod, P.A.
414 Silver Avenue SW, Suite 1200
Albuquerque, New Mexico 87102
INDEPENDENT ACCOUNTANTS
Robinson Burdette Martin & Cowan, L.L.P.
1500 Broadway, Suite 1300
Lubbock, Texas 79401-3107
CORPORATE OFFICE
First Savings Bank, F.S.B.
801 Pile Street-P.O. Box 1569
Clovis, New Mexico 88102-1569
BRANCH OFFICES
First Savings Bank, F.S.B. First Savings, Bank, F.S.B.
2501 North Prince Street 400 West First Street
Clovis, New Mexico 88102 Portales, New Mexico 88130
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
- - ------
First Savings Bank, F.S.B.
PERCENTAGE STATE OF
SUBSIDIARY OWNED INCORPORATION
- - ---------- ----- -------------
First Equity Development 100% New Mexico
Corporation (a)
- - ----------------------------------------------
(a) The operations of this subsidiary are included in the consolidated financial
statements contained in the 1995 Annual Report to stockholders incorporated
herein by reference.
<PAGE>
ANNUAL REPORT 1995
[LOGO]
<PAGE>
TABLE OF CONTENTS
- - ---------------------------------------------------------------------------
Bank Profile.............................................Inside Front Cover
Letter From The Chairman and Chief Executive Officer................... 2
Selected Consolidated Financial Highlights............................. 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations:
General........................................................... 5
Regulatory Matters................................................ 5
Results of Operations............................................. 6
Asset/Liability Management and Interest Rate Sensitivity.......... 9
Liquidity and Capital Resources................................... 12
Asset Quality..................................................... 13
Off-Balance Sheet Financial Instruments........................... 15
Impact of Inflation and Changing Prices........................... 15
Impact of New Accounting Standard................................. 15
Market Prices and Related Stockholder Matters..................... 15
Financial Statements:
Consolidated Statements of Financial Condition.................... 16
Consolidated Statements of Operations............................. 17
Consolidated Statements of Stockholders' Equity................... 18
Consolidated Statements of Cash Flows............................. 19
Notes to Consolidated Financial Statements........................ 20
Report of Independent Accountants...................................... 37
Corporate Information.....................................Inside Back Cover
BANK PROFILE
- - ---------------------------------------------------------------------------
First Savings Bank, F.S.B., a Federal Savings Bank (Bank) is a federally
chartered stock savings bank conducting business from three banking locations in
Clovis and Portales, New Mexico. The Bank has a wholly-owned subsidiary, First
Equity Development Corporation, which is currently inactive. The Bank was
founded in 1934 as First Federal Savings and Loan Association and was converted
to a federal stock savings bank in August, 1986.
The Bank has historically been a major lender of mortgage loans in the Eastern
New Mexico area and is dedicated to the promotion of thrift through the
solicitation of savings accounts. The Bank's three offices primarily service
the Curry and Roosevelt counties of New Mexico and the adjoining West Texas
counties. The Bank offers a comprehensive range of credit and depository
services, while conducting business in a manner based on financial stability,
profitability, service, and community involvement.
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
- - ---------------------------------------------------------------------------
Dear Stockholder:
We are pleased to provide you with the annual report of
First Savings Bank, F.S.B. (Bank) for the fiscal year ended
December 31, 1995. For the third year in a row, the Bank
has shown significant improvements. Real estate owned at
December 31, 1995 was $114,000 compared to $421,000 at
December 31, 1994, for a decline of 73%. Non-performing
loans were reduced by 55% to $1,687,000 at December 31,
1995, down from $3,751,000 at December 31, 1994. This
resulted in a non-performing assets to total assets ratio of
1.44%. The Bank's 1995 net profit was $413,622, which was
an increase over the 1994 net profit of $339,553. Finally,
for all of fiscal 1995, the Bank exceeded the 4.0% Core
Capital requirement imposed on the Bank by the Office of
Thrift Supervision, ending the year with a regulatory Core
Capital ratio of 4.98%.
After several years of interest rate declines, rates
dramatically increased in 1994. When interest rates began
their drastic increase, the Bank became exposed to increased
interest rate risk, which had an adverse effect on the
market values of the Bank's investment portfolio. However,
during 1995, interest rates began to decline, which resulted
in an increase in the market value of the Bank's investment
portfolio for fiscal 1995. From December 31, 1994 to
December 31, 1995, the Bank recovered 88.33% of its
unrealized market value losses. These unrealized market
value losses are only paper losses and the Bank has no
intention of selling these investments at this time.
The Bank's Directors and Management are in the process of
formulating a new strategic plan for the Bank. Part of this
strategic plan includes evaluating capital-raising
alternatives available to the Bank to further strengthen the
Bank's capital base and to position the Bank to take
advantage of new opportunities. The future of the Bank is
dependent on developing new products that enhance our
current available products and selling these products to our
customers to enable the Bank to become the preferred
financial services provider in our area.
In closing, we wish to thank our Employees, Officers and
Directors for their efforts during the past year, and our
Customers and Stockholders for their continued support.
Sincerely,
/s/ Robert C. Lydick /s/ Ken Huey, Jr.
- - ----------------------------- ------------------------------
Robert "Chad" Lydick Ken Huey, Jr.
Chairman of the Board President and
Chief Executive Officer
2
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
(Not covered by accountant's report)
- - ------------------------------------------------------------------------------
<TABLE>
For the years ended December 31
------------------------------------------------------
SELECTED CONSOLIDATED OPERATING DATA: 1995 1994 1993 1992 1991
-------- -------- -------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 8,417 $ 7,888 $ 8,538 $ 10,608 $ 13,636
Interest expense 5,423 4,563 4,943 6,821 10,514
-------- -------- -------- --------- ---------
Net interest income before provision for
credit losses 2,994 3,325 3,595 3,787 3,122
Provision for credit losses (15) 4 21 386 425
-------- -------- -------- --------- ---------
Net interest income after provision for
credit losses 3,009 3,321 3,574 3,401 2,697
Net gain (loss) on mortgage loans held-
for-sale 118 (19) 331 254 296
Net gain (loss) on sale of securities -- 5 258 (124) 921
Real estate operations, net (58) (273) (616) (1,196) (311)
Other income, net 716 752 744 950 851
Other expenses (3,371) (3,635) (3,677) (3,417) (3,102)
-------- -------- -------- --------- ---------
Income (loss) before income taxes and
extraordinary items 414 151 614 (132) 1,352
Income tax expense (benefit) -- (189) -- -- 472
Extraordinary items -- -- -- -- 344
-------- -------- -------- --------- ---------
Net income (loss) $ 414 $ 340 $ 614 $ (132) $ 1,224
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
Per share data:
Weighed average shares outstanding 695,698 695,698 695,698 695,698 695,698
-------- -------- -------- --------- ---------
Earnings (loss) per share $ 0.59 $ 0.49 $ 0.88 $ (0.19) $ 1.76
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
</TABLE>
<TABLE>
December 31
------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net $ 34,332 $ 35,670 $ 36,980 $ 45,027 $ 59,970
Loans held-for-sale 862 671 4,861 4,136 4,349
Mortgage-backed securities, net -- -- -- 57,511 49,482
Investment securities -- -- -- 9,384 8,440
Securities held-to-maturity 36,404 77,505 65,909 -- --
Securities available-for-sale 33,090 2,980 10,722 -- 250
Real estate owned, net 114 421 2,967 5,669 7,593
Total assets 116,966 125,709 136,338 139,109 145,104
Deposits 110,633 112,773 130,690 133,639 136,919
Borrowings -- 7,400 -- -- 2,000
Unrealized loss on securities
available-for-sale, net (204) (363) (28) -- --
Stockholders' equity 5,620 5,048 5,043 4,458 4,590
</TABLE>
(Continued)
3
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED)
(Not covered by accountant's report)
- - ------------------------------------------------------------------------------
<TABLE>
For the years ended December 31
------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (ratio of net
income/(loss)to average total assets) 0.34% 0.26% 0.45% (0.09)% 0.79%
Interest rate spread information:
Average during period 2.45 2.62 2.89 3.07 2.36
End of period 2.13 2.42 2.88 3.56 2.58
Net interest margin (1) 2.54 2.64 2.83 2.88 2.14
Ratio of operating expense to average
total assets 2.83 2.98 3.12 3.25 2.30
Return on equity (ratio of net
income/(loss) to average equity) 7.75 6.73 12.93 (2.92) 30.78
QUALITY RATIOS:
Non-performing assets to total
assets at end of year 1.44% 2.98% 4.54% 6.93% 7.46%
Allowance for credit losses to
non-performing loans 25.36 12.29 8.22 5.55 8.11
Allowance for credit losses to
total loans (2) 1.25 1.29 1.38 1.19 1.46
CAPITAL RATIOS:
Equity to total assets at the end of year 4.81% 4.02% 3.70% 3.20% 3.16%
Average equity to average assets 4.40 3.85 3.45 3.18 2.57
Ratio of average interest-earning assets
to average interest-bearing liabilities 101.99 100.66 98.29 95.96 96.84
</TABLE>
(1) Net interest income divided by average interest earning assets
(2) Excludes mortgage-backed securities
4
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - ---------------------------------------------------------------------------
GENERAL
First Savings Bank, F.S.B., a Federal Savings Bank ("First Savings" or "the
Bank") is a federally chartered stock savings bank conducting business from
three banking locations in Clovis and Portales, New Mexico. The Bank has a
wholly-owned subsidiary, First Equity Development Corporation (FEDCO), which
is currently inactive.
The Bank is principally engaged in the business of attracting retail deposits
from the general public and investing those funds in first mortgage loans in
owner occupied, single-family residential loans and mortgage-backed
securities. To a lesser extent, the Bank originates residential construction
loans and commercial real estate loans. The Bank also originates consumer
loans, including loans for the purchase of automobiles and home improvement
loans, and commercial loans including Small Business Administration loans.
The most significant outside factors influencing the operations of the Bank
and other financial institutions include general economic conditions,
competition in the local market place and the related monetary and fiscal
policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is
influenced by interest rates on competing investments and general market
rates of interest. Lending activities are influenced by the demand for real
estate financing and other types of loans, which in turn is affected by the
interest rates at which such loans may be offered and other factors affecting
loan demand and funds availability.
Beginning in 1994, the nation's economy experienced an increasing interest
rate environment. After several years of declining interest rates, rates
increased drastically during 1994 and the first part of 1995. The Bank
continues to experience rising funding costs while adjustable rate assets
have repriced on a delayed basis. The net interest yield, or net interest
income as a percentage of average earning assets, has therefore narrowed
during this term. However, the Bank reduced its Real Estate Owned (REO)
levels by approximately $2.5 million during 1994 and an additional $307,000
in 1995, allowing the institution to increase its earning assets. Interest
rates which began to decline in 1995 are expected to continue to decline
during 1996. The Office of Thrift Supervision (OTS) requested the Bank to
submit a revised business plan demonstrating the Bank's ability to accumulate
capital and reduce interest rate risk (IRR). The plan was completed and
submitted in 1995. Management intends to position the Bank to be less
sensitive to changes in interest rates through a policy of keeping a
portfolio of adjustable rate assets and through investing of cash flows in
shorter term investments and consumer loans. A primary goal of the Bank in
1995 and continuing in 1996 will be the further reduction of interest rate
sensitivity, stabilization of net interest yield, and increasing equity
capital through enhancing earnings or other means available.
REGULATORY MATTERS
On April 23, 1991, at the request of the OTS, the Board of Directors agreed
to the issuance of a Cease and Desist Order (Order) which (1) limited the
growth of the institution; (2) imposed specific restrictions involving the
Bank's engagement in securities activities; (3) prohibited lending outside
the market area; (4) prescribed various reporting requirements; (5) required
OTS approval before commencing certain activities; (6) required that the Bank
develop a detailed, self-contained three-year capital and business plan
subsequently referred to as a "Capital Restoration Plan"; and (7) required a
special investigation into certain relationships of the Bank's former
president and certain borrowers. The Board agreed to an extension of the
Order on January 16, 1992 and again on October 26, 1992.
Under the Order, the Bank's operations were subject to imposed restrictions
on growth and various other restrictions limiting: investing or transferring
real estate investments; engaging, financing, refinancing, entering,
employing, amending, purchasing, commitments to renew, change, or enter into
real estate (residential, construction, non-residential, and real estate
investments) transactions, securities, loan participations, commercial loans
or letter of credit, consumer or educational loans, leases, contracts, or
agreements, joint ventures, compensation arrangements, by-laws, accounting
methods, service corporations, purchases or repurchases of government
securities, and mergers or consolidation.
In 1992, the Bank was deemed "undercapitalized" by the OTS. The Bank and the
OTS agreed, on July 28, 1993, to the issuance of a Prompt Corrective Action
Directive (PCAD), pursuant to Section 38 of the Federal Depository Insurance
Corporation Improvement Act (FDICIA). FDICIA necessitates that a PCAD be
issued when an institution is deemed undercapitalized. The PCAD terminated,
suspended, or modified most of the provisions of the previous Order issued by
the OTS.
5
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
On August 2, 1994 an extension of the PCAD was granted under an Amended
Prompt Corrective Action Directive (APCAD) which was agreed to by the Bank
and the OTS. The APCAD revised the date for attaining the 4.0% core capital
requirement to June 30, 1995. The PCAD and APCAD required of the Bank, among
other things:
- Submission of a Capital Restoration Plan
- Required capital levels of 4.0% for Tier One ("Core") and leverage
ratio capital, and 8.0% for total risk-based capital
- Compliance with the Capital Restoration Plan
- Required capital levels to be achieved or adequate progress towards
mandates
- Compliance with mandatory restrictions on dividends, management
fees, asset growth, branching and certain other conditions
- Approval from the Regional Director of the OTS before investing in
certain activities
As of December 31, 1994, six months early, the Bank met all requirements of
the APCAD, including all capital requirements. In May 1995, the OTS notified
the Bank that the Order had been terminated. The only significant provision
of the APCAD that remains in effect is the maintenance of certain required
capital levels. The following table represents the Bank's capital ratios and
the APCAD requirements as of December 31, 1995.
APCAD Actual
required December 31, 1995 Excess
-------- ----------------- ------
Core 4.0% 4.98% 0.98%
Leverage 4.0 4.98 0.98
Risk-based 8.0 16.66 8.66
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
The Federal Deposit Insurance Corporation (FDIC) has proposed a one-time
assessment on all deposits held as of a yet to be determined date. Deposits
subject to the assessment are insured by the Savings Association Insurance
Fund (SAIF). This one time assessment is intended to recapitalize the SAIF
to the required level of 1.25% of insured deposits. If the assessment is
made, the premium could be paid in 1996 and result in a significant charge to
the operations of the Bank. The assessment may or may not cause the Bank to
be unable to meet the capital requirements as outlined by the APCAD directive
described above. However, the Bank is expected to maintain minimum tangible,
core and risk-based capital levels established by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and OTS regulations. The
one-time special assessment, if made, will have a negative impact on the
earnings of the Bank in the year it is assessed, but will result in a
significant decrease in future insurance premium assessments by the FDIC.
This will have a positive impact on future earnings of the Bank in subsequent
periods.
RESULTS OF OPERATIONS
Operating results are impacted by many factors. The most important factor
being the interest spread between the yield on loans and investments and the
cost of funds. The following table presents for the periods indicated the
total amount, interest income, interest expense, and net interest income,
changes therein, as well as the resultant yields as a percentage of earning
assets.
<TABLE>
1995 vs 1994 1994 vs 1993
------------------- -------------------
Increase (decrease) Increase (decrease)
----------------- ------------------- -------------------
1995 1994 $ % $ %
------ ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income $8,417 $7,888 $ 529 6.71% $(650) (7.61)%
Interest expense 5,423 4,563 860 18.85 (380) (7.69)
Net interest income 2,994 3,325 (331) (9.95) (270) (7.51)
Net (as a % of earnings assets):
Interest income 7.14% 6.27%
Net interest margin 2.45% 2.62%
</TABLE>
6
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and the volatility of interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(i.e., changes in volume multiplied by old rate) and (ii) changes in rate
(i.e., changes in rate multiplied by old volume). For purposes of this
table, changes attributable to both rate and volume, which cannot be
segregated, have been presented separately.
<TABLE>
Year ended December 31
------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
-------------------------------------- ------------------------------------
Increase (decrease) due to Increase (decrease) due to
-------------------------------------- ------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ------ ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loan portfolio $(195) $ 705 $ (43) $ 467 $(442) $ (80) $ 10 $(512)
Investments 114 33 10 157 (158) (47) 13 (192)
Mortgage-backed securities (411) 278 (26) (159) 590 (357) (54) 179
Other interest earning assets 3 60 1 64 (137) 25 (13) (125)
----- ------ ----- ------ ----- ----- ---- -----
Total interest earning assets $(489) $1,076 $ (58) $ 529 $(147) $(459) $(44) $(650)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
Interest Bearing Liabilities:
Savings deposits $(203) $1,288 $ (57) $1,028 $(363) $(285) $ 20 $(628)
Federal Home Loan Bank advances (184) 61 (45) (168) 248 -- -- 248
----- ------ ----- ------ ----- ----- ---- -----
Total interest bearing liabilities $(387) $1,349 $(102) $ 860 $(115) $(285) $ 20 $(380)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
Change in net interest income $(102) $ (273) $ 44 $ (331) $ (32) $(174) $(64) $(270)
----- ------ ----- ------ ----- ----- ---- -----
----- ------ ----- ------ ----- ----- ---- -----
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net income for the year ended December 31, 1995 was $414,000 or $.59 per
share, compared to $340,000 or $.49 per share for 1994. The increase in net
income resulted from an increase in noninterest income of $95,000 and a
decrease in noninterest expenses of $479,000 which were offset by a decrease
in net interest income after provision for credit losses of $312,000, despite
the early recognition in interest income of $365,000 resulting from the
pay-off of a renegotiated loan. In addition, there was a reduced level of
income tax benefits of $189,000 in 1994 to none in 1995.
NET INTEREST INCOME. Net interest income before provision for credit losses
is the difference between interest earned on interest-earning assets and
interest paid on interest-bearing liabilities. Net interest income before
provision for credit losses decreased $331,000 to $2,994,000 for 1995
compared to $3,325,000 in 1994. The decrease primarily reflects the 28.49%
increase in the cost of average interest-bearing liabilities to 4.69% in 1995
compared to 3.65% for 1994. The decline was offset somewhat by the recording
of $365,000 in interest income in 1995 which stemmed from the pay-off, prior
to maturity, of a renegotiated loan.
PROVISION FOR CREDIT LOSSES. Management determines the amount of the
allowance for credit loss which covers specific loans as well as estimated
losses inherent in the loan portfolio. The level of the allowance is based
on such factors as the amount of non-performing assets, historical loss
experience, regulatory policies, general economic conditions, the estimated
fair value of the underlying collateral and other factors which may affect
the collectibility of the loans. During 1995, the provision for credit
losses was a negative $15,000 which was a reduction of $19,000 from the
provision of $4,000 recorded in 1994. The reduction in 1995 was primarily
reflective of management's estimate of a lower level of allowance for credit
losses necessary as a result of an overall decline in non-performing assets
of $3,751,000 at December 31, 1994 to $1,687,000 at December 31, 1995. In
addition, the net loan portfolio at December 31, 1995 was $34,332,000 which
represented a decline of $1,338,000, or 3.75% from the December 31, 1994
balance of $35,670,000.
7
<PAGE>
First Savings Bank, F.S.B.
- - ---------------------------------------------------------------------------
NONINTEREST INCOME. Noninterest income was $833,000 in 1995 compared to
$738,000 in 1994. The increase of 12.8% was caused primarily by improvement
in the results of loans sold during 1995, net gains of $118,000 as compared
to net losses of $19,000 in 1994. The overall improvement was the result of
more favorable pricing obtained from the secondary market on loans sold in
1995 which was attributable to more stable interest rates from that
experienced in 1994. The increase in other income was also the result of an
increase in loan servicing and other fees of $20,000 which was offset by a
decline in other income of $55,000.
NONINTEREST EXPENSE. Noninterest expense decreased $479,000 or 12.26% to
$3,429,000 in 1995 compared to $3,908,000 in 1994. Compensation and employee
benefits decreased $110,000 primarily as the result of a lower average number
of employees maintained throughout 1995. Federal insurance premiums
decreased $45,000 resulting from a reduction of premiums charged by the FDIC
due to lower levels of insured deposits. Real estate operations, net
decreased $215,000 primarily reflecting a decrease in real estate expenses
which was the result of continuing lower levels of real estate owned.
Professional fees increased $58,000 due to activities specifically related to
the regulatory agreement under which the Bank operates as well as activities
related to the certain litigation in which the Bank has been involved with
since 1992. Other expenses also declined $136,000 primarily as the result of
reductions in office supplies and miscellaneous operating expense.
PROVISION FOR INCOME TAXES. There was no net provision for income taxes in
1995 as compared to the recognition of an income tax benefit of $189,000 in
1994. The 1994 benefit stemmed from management's estimate of near-term
future benefits to the Bank from its net operating loss carryforwards. Those
estimates remained unchanged as of the end of 1995 and therefore the
underlying net deferred tax asset remained unchanged.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income for the year ended December 31, 1994 was approximately $340,000 or
$.49 per share, compared to approximately $614,000 or $.88 per share for
1993. The decline in net income resulted from a decline in net interest
income after provision for credit losses of $253,000 and a decrease in
noninterest income of $595,000 which were partially offset by a decrease in
noninterest expenses of $385,000 and an income tax benefit of $189,000.
NET INTEREST INCOME. Net interest income before the provision for credit
losses decreased $270,000 to $3,325,000 for 1994 compared to $3,595,000 for
1993. The decrease primarily reflects the 6.56% reduction in net yield on
average earnings assets to 6.27% in 1994 compared to 6.71% for 1993.
PROVISION FOR CREDIT LOSSES. During 1994, the provision for credit losses
was $4,000 which was a reduction of $17,000 from the provision of $21,000
recorded in 1993. The reduction in 1994 was primarily reflective of
management's estimate of a lower level of allowance for credit losses
necessary as a result of an overall reduction in non-performing assets of
$2,437,000 from $6,188,000 at December 31, 1993. In addition, the net loan
portfolio at December 31, 1994 was $35,670,000 which represented a decline of
$1,310,000, or 3.54% from the December 31, 1993 balance of $36,980,000.
NONINTEREST INCOME. Noninterest income was $738,000 in 1994 compared to
$1,333,000 in 1993. The decrease of $595,000 was caused primarily by a
decline in gains on sales of loans of $350,000. Lower levels of interest
rates in 1993 caused a higher volume of loan originations which were placed
into the secondary market by the Bank. The 1993 interest rate environment
also resulted in more favorable prices obtained from the secondary market.
The sharp increase in interest rates in early 1994 resulted both in reduced
volumes of loan originations as well as less favorable pricing in the
secondary market. Gains on sale of securities of $258,000 were recorded in
1993 compared to only $5,000 in 1994.
NONINTEREST EXPENSE. Noninterest expense decreased $385,000 to $3,908,000 in
1994 compared to $4,293,000 in 1993. The decrease was primarily the result
of costs of real estate operations of $273,000 in 1994 as compared to
$616,000 in 1993. These reductions were directly attributable to the
reduction in REO of $421,000 at December 31, 1994 as compared to $2,967,000
at December 31, 1993. Professional fees and other expenses also declined in
1994. These reductions were partially offset by an increase in Federal
insurance premiums stemming from increased premiums charged by the FDIC.
8
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES. During 1993 the Bank adopted Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
SFAS No. 109 required a change from the deferred method of accounting for
income taxes under Accounting Principles Board Opinion 11, to the asset and
liability method of accounting for income taxes. Under SFAS No. 109,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities, and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The initial implementation of SFAS No.
109 in 1993 had no material effect on the Bank's statement of operations.
However, during 1994 the Bank recognized a deferred income tax benefit of
$189,000 which represented management's estimate of near-term future benefits
to the Bank from its net operating loss carryforwards.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The Bank attempts to maximize net interest income by achieving a positive
interest rate spread that can be sustained during fluctuations in prevailing
interest rates. Management monitors the mix of earning assets on a
continuous basis in order to react to fluctuating interest rate environments.
Risk-based capital guidelines and the corresponding asset risk weighing have
resulted in an incentive to invest in mortgage-backed and U.S. agencies
securities, particularly those issued by government sponsored entities such
as Federal National Mortgage Association (FNMA), Government National Mortgage
Association (GNMA), and Federal Home Loan Mortgage Corporation (FHLMC). In
addition, the favorable risk weighing assigned to residential loans provided
the incentive to invest in these assets. This asset mix has always been the
basis on which the Bank has focused. Based on the Bank's charter, capital
requirements, and regulations, the Bank continues to perform and generate
profits.
The Bank assumes a high level of interest rate risk as a result of its policy
to originate fixed-rate single family home loans. These loans generally have
longer terms than the short term characteristics and liabilities of customer
accounts and borrowed money. During much of 1993 and early 1994, falling
interest rates resulted in record prepayment of high yielding loans in
mortgage-backed securities and the Bank was unable to reinvest the proceeds
in investment instruments with similar yields. The result has been a
contraction of interest rates spreads placing pressure on the Bank's net
interest income. In order to reach the Bank's desired 4.0% core capital
level, management began the reduction of the asset size of the Bank by
reducing deposits and Federal Home Loan Bank (FHLB) borrowings through cash
flows. The Bank was able to payoff FHLB borrowings through cash flows in
1995.
Interest rate sensitivity is the rate at which the Bank's assets and
liabilities are subject to repricing at future time periods. Management seeks
to effectively manage interest rate sensitivity to insure that net-interest
income is maximized while the impact of change on market interest rates is
minimized. It is the objective of the Bank to reduce the sensitivity of its
earnings to fluctuating interest rates by diversifying the sources of funds,
improving its interest rate spread, and improving the ratio of earning assets
to interest bearing liabilities. Also, the Bank needs to maintain a match of
maturities and interest rate sensitivity of its assets and liabilities.
The differences between the volume of assets and liabilities in the Bank's
current portfolio, which are subject to repricing in future time periods,
are known as interest rate sensitivity gaps. Certain estimates and
assumptions are included in the data in the table below which sets forth the
interest rate sensitivity analysis at December 31, 1995.
The following table sets forth the assumed repricing and maturity periods of
the Bank's interest-earning assets and interest-bearing liabilities at
December 31, 1995 and the interest rate sensitivity gap percentages at the
dates indicated. The interest rate sensitivity gap is defined as the amount
by which assets repricing within the respective periods exceed liabilities
repricing within such periods. The effect of these assumptions is to
quantify the dollar amount of items that are interest-rate sensitive and can
be repriced within each of the periods specified. Such repricing can occur
in one of three ways: (1) the rate of interest to be paid on an asset or
liability may adjust periodically on the basis of an index; (2) an asset or
liability such as a mortgage loan may amortize, permitting reinvestment of
cash flows at the then-prevailing interest rates; or (3) an asset or
liability may mature, at which time the proceeds can be reinvested at current
market rates.
9
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
<TABLE>
Maturing or repricing amount
-------------------------------------------------------------------------------
Within Over 1 Over 3 to Over 5 to Over 10 to Over 20
one year to 3 years 5 years 10 years 20 years years Total
-------- ---------- --------- --------- ---------- ------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Rate Sensitive Assets
Mortgages
Adjustable-rate (1) $ 12,838 $ 68 $ -- $ -- $ -- $ --- $ 12,906
Fixed-rate (2) 1,461 2,155 1,431 1,799 876 99 7,821
Construction 197 -- -- -- -- -- 197
Non-residential adjustable (2) 3,658 2,751 -- -- -- -- 6,409
Non-residential fixed 354 648 577 1,194 -- -- 2,773
Home equity/second mortgages (2) 553 -- -- -- -- -- 553
Non-Mortgages
Consumer (2) 3,114 1,285 558 21 -- -- 4,978
Commercial (2) 37 87 16 -- -- -- 140
Investments
Investment securities (3) 6,571 380 -- -- -- -- 6,951
Mortgage-backed (1)(2) 42,404 19,784 1,373 -- -- -- 63,561
Funds sold (3) 5,107 -- -- -- -- -- 5,107
-------- -------- -------- -------- -------- -------- --------
TOTAL $ 76,294 $ 27,158 $ 3,955 $ 3,014 $ 876 $ 99 $111,396
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Rate Sensitive Liabilities
Deposits
Certificates of deposit (3) $ 59,818 $ 13,053 $ 3,755 $ -- $ -- $ -- $ 76,626
Money market (4) 5,476 6,128 2,751 1,938 297 6 16,596
NOW accounts (4) 2,434 2,723 1,222 862 132 2 7,375
Savings accounts (4) 3,062 3,425 1,538 1,083 166 3 9,277
-------- -------- -------- -------- -------- -------- --------
TOTAL $ 70,790 $ 25,329 $ 9,266 $ 3,883 $ 595 $ 11 $109,874
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
December 31, 1995
Cumulative GAP (5) $ 5,504 $ 7,333 $ 2,022 $ 1,154 $ 1,435 $ 1,523
GAP (5) as percent of assets 4.71% 6.27% 1.73% 0.99% 1.23% 1.30%
December 31, 1994
GAP (5) as percent of assets (3.96)% (7.12)% (4.54)% (1.83)% (1.31)% (1.31)%
December 31, 1993
GAP (5) as percent of assets (1.06)% (5.58)% (8.14)% (4.06)% (3.77)% (3.75)%
</TABLE>
(1) MOST ADJUSTABLE RATE ASSETS ARE INCLUDED IN THE UNDER 1 YEAR
CATEGORY, AS THEY ARE SUBJECT TO AN INTEREST RATE ADJUSTMENT EVERY SIX OR
TWELVE MONTHS, DEPENDING UPON LOAN PLAN.
(2) MATURITY/RATE SENSITIVITY IS BASED UPON CONTRACTUAL MATURITY WITH
PROJECTED REPAYMENT OF PRINCIPAL USING ASSUMPTIONS ESTABLISHED BY THE OTS.
(3) BASED ON CONTRACTUAL MATURITY OF THE INVESTMENTS.
(4) SAVINGS ACCOUNT DECAY RATES USED ASSUME THAT THE ACCOUNTS HAVE A MARKET
VALUE SENSITIVITY APPROXIMATING THAT OF A 2 1/2 YEAR TREASURY BOND.
(5) THE DIFFERENCE BETWEEN RATE SENSITIVE ASSETS AND RATE SENSITIVE
LIABILITIES.
During 1993, the Bank sold its remaining long-term fixed-rate securities to
further reduce the Bank's interest rate sensitivity. This asset/liability
mix restructure allowed the Bank to reduce borrowings and change the
investment mix which allowed management the flexibility to manage the Bank's
interest rate sensitivity through periods of stable or rising interest rates.
10
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
During 1995 and 1994 the Bank sold fixed-rate whole loans "held-for-sale"
while retaining adjustable-rate mortgages. In 1994, the Bank increased its
investment portfolio with the purchase of FNMA and FHLMC participation
certificates with three to five year durations and U.S. government agency
securities which step-up annually. These purchases were primarily from cash
flow during 1994, however cash flow was used since the third quarter of 1994
through the first quarter of 1995 to reduce FHLB advances. Throughout the
remainder of 1995, cash flow from operations and investment activities have
been placed in lower interest earning, but highly liquid, cash and cash
equivalents.
Presented below, as of December 31, 1995, is an analysis of the Bank's
interest rate risk provided by OTS as measured by changes in Net Present
Value (NPV) for instantaneous and sustained parallel shifts in the yield
curve, in 100 basis point increments, up and down 400 basis points. As
illustrated in the table, the Bank's NPV is as sensitive to rising rates as
declining rates, despite the Bank's positive gap, as previously discussed.
This occurs principally because, as rates rise, the market value of
fixed-rate loans declines due to both the rate increase and slowing
prepayments (and the NPV focuses on the Bank's entire portfolio, not just
assets that are subject to adjustment or maturity within one year). When
rates decline, the Bank does not experience a significant rise in market
value for these loans because borrowers repay at relatively high rates.
Change in At December 31, 1995
interest rate -----------------------
(basis points) $ Change % Change
-------------- ---------- --------
(000's)
+400 $ (2,694) (39)%
+300 (1,608) (24)
+200 (788) (12)
+100 (258) (4)
0 -- --
(100) 187 3
(200) 209 3
(300) 527 8
(400) 1,087 16
Management reviews these measurements periodically. In addition to
monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure
is used in conjunction with NPV measures to identify excessive interest rate
risk.
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 rates. Additionally, certain assets, such as adjustable rate
mortgage loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
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 debt may decrease in the event
of an interest rate increase.
In addition, the previous tables do not necessarily indicate the impact of
general interest rate movements on the Bank's net interest income because the
repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Bank's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and
at different volumes.
11
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, sales of mortgage loans,
principal and interest payments on loans and mortgage-backed securities,
borrowings, and funds provided by operations. While scheduled loan and
mortgage-backed securities principal repayments are a relatively predictable
source of funds, deposits flows, prepayments of principal on loans and
mortgage-backed securities, and sales of mortgage loans are greatly
influenced by general interest rates, economic conditions, and competition.
Current OTS regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of customer accounts and
short-term borrowings to assure its ability to meet demands for withdrawals
and repayment of short-term borrowings. As of December 31, 1995, the Bank's
liquidity ratio was 28.21% which was in excess of the minimum regulatory
requirements.
During the year ended December 31, 1995, total deposits decreased
approximately $2,139,000 as a part of management's overall strategy to
achieve certain regulatory capital ratios.
The Bank uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At December 31, 1995,
the Bank had commitments to originate loans totaling approximately $971,000.
The Bank considers its liquidity and capital resources to be adequate to meet
its foreseeable short and long-term needs. The Bank expects to be able to
fund or refinance, on a timely basis, its material commitments and long-term
liabilities.
In addition, as a part of management's overall strategy, during 1995, the
Bank repaid its borrowings from the FHLB. These funds were borrowed
primarily to fund construction loans, purchase short duration mortgage-backed
securities and disburse escrow funds for borrowers' real estate taxes. It is
anticipated that borrowings will not be necessary to meet near term funding
needs of the Bank.
The Bank's capital for regulatory purposes at December 31, 1995 was
$5,825,000 or 4.98% of total regulatory assets. Regulations require savings
institutions to have a minimum regulatory tangible capital ratio equal to
1.5% of adjustable tangible assets, a minimum 3% core capital ratio, and a
minimum 8% risk-based capital ratio. At December 31, 1995 and 1994, the Bank
was in compliance with all applicable capital standards (see notes L and P to
the Consolidated Financial Statements).
In August 1993, OTS issued a final rule which adds an interest rate component
to the OTS risk-based capital requirement effective January 1, 1994. Under
the final rule, savings institutions will be required to incorporate IRR into
their risk-based capital calculation as of a yet to be determined date.
Under the rule, IRR is measured as the ratio of the greater decline in net
portfolio value resulting from a 200 basis point increase or decrease in
market interest rates to the estimated economic value of assets, as
calculated by an OTS model. A savings institution whose measured IRR exceeds
2% must deduct from total capital an IRR component equal to one-half of the
difference between its measured IRR and 2% multiplied by the estimated
economic value of its total assets. Institutions unable to satisfy the IRR
component would be required to submit a capital plan to the OTS describing
how they will attain compliance in the future. Management believes that
compliance with the new IRR measure will not have a material impact on the
Bank's risk-based capital position.
Pursuant to FDICIA, each federal banking agency establishes the levels at
which an insured institution is well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized and requires such agencies to take certain supervisory
actions as an insured institution's capital level falls. As a result of the
FDICIA, the OTS advised the Bank, as of December 21, 1992, that it was deemed
"undercapitalized" and, among other things, the Bank had to provide a capital
restoration plan which demonstrated the Bank's ability to achieve a 4%
minimum capital level. Management submitted its capital restoration plan
which was subsequently approved by the OTS in conjunction with the issuance
of the PCAD and the APCAD.
12
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The table below presents the Bank's capital position at December 31, 1995
relative to the existing regulatory requirements:
Percent of
Amount assets (1)
-------- -----------
(000's)
Tangible capital $ 5,825 4.98%
Tangible capital requirement 1,756 1.50
-------- -----------
Excess tangible capital $ 4,069 3.48%
-------- -----------
-------- -----------
Core capital $ 5,825 4.98%
Core capital requirement 3,512 3.00
-------- -----------
Excess core capital $ 2,313 1.98%
-------- -----------
-------- -----------
Total capital (i.e., core and supplemental capital) $ 6,253 16.66%
Risk-based capital requirement 3,003 8.00
-------- -----------
Excess total capital $ 3,250 8.66%
-------- -----------
-------- -----------
(1) Based upon adjusted assets for purposes of the tangible capital and core
capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
The OTS Capital Distribution Regulation differentiates savings institutions
primarily by their capital levels and prescribes the amount of capital
distributions that can be made without prior OTS approval.
The Bank has met its liquidity requirements with funds generated from
operations, proceeds from repayment or sale of loans and investment
securities, and short-term borrowings. The Bank believes its requirements
for 1996 will be met from similar sources. If alternative funding is needed,
the Bank can generate additional funds from several other sources.
Currently, the FHLB system functions as a source of credit for the Bank.
ASSET QUALITY
The allowance for loan losses is established through a provision for loan
losses based on management's quarterly asset classification review and
evaluation of the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a
review of all loans of which full collectibility may not be reasonably
assured, considers among other matters, the estimated fair value of the
underlying collateral, economic conditions, cash flow analysis, historical
loan loss experience, discussions held with delinquent borrowers and other
factors that warrant recognition in providing for allowance for loan losses.
During 1995, net loans decreased approximately $1,338,000 or 3.7% from
December 31, 1994 while the allowance for credit losses decreased $33,000 or
7.2%. The negative provision for credit losses and lower levels of
charge-offs during 1995 were primarily due to lower levels of non-performing
loans. With the decrease in non-performing loans and an overall decline in
total loans, management feels the allowance for credit losses is adequate for
future needs.
13
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The following presents an analysis of the allowance for credit losses for
years ended December 31, 1995, 1994 and 1993.
Year ended December 31
----------------------------------------
1995 1994 1993
---------- ---------- ----------
MORTGAGE LOANS AND CONTRACTS:
Balance at beginning of year $ 230,865 $ 280,865 $ 304,135
Provision charged -- -- 10,000
Charge-offs -- (50,000) (33,270)
Recoveries -- -- --
---------- ---------- ----------
BALANCE AT END OF YEAR $ 230,865 $ 230,865 $ 280,865
---------- ---------- ----------
---------- ---------- ----------
CONSUMER AND OTHER:
Balance at beginning of year $ 230,058 $ 227,732 $ 230,577
Provision charged (credited) (15,000) 3,867 11,091
Charge-offs (20,878) (2,917) (33,229)
Recoveries 2,844 1,376 19,293
---------- ---------- ----------
BALANCE AT END OF YEAR $ 197,024 $ 230,058 $ 227,732
---------- ---------- ----------
---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES:
Balance at beginning of year $ 460,923 $ 508,597 $ 534,712
Provision charged (credited) (15,000) 3,867 21,091
Charge-offs (20,878) (52,917) (66,499)
Recoveries 2,844 1,376 19,293
---------- ---------- ----------
BALANCE AT END OF YEAR $ 427,889 $ 460,923 $ 508,597
---------- ---------- ----------
---------- ---------- ----------
Allowance for credit losses as a
percentage of total loans
outstanding 1.23% 1.28% 1.36%
---------- ---------- ----------
---------- ---------- ----------
Total non-performing assets decreased by approximately $2,064,000 during
1995. This decrease resulted primarily from the early pay-off of a
$1,979,416 previously renegotiated loan. The non-performing assets to total
assets ratio is one indicator of the exposure to credit risk. Non-performing
assets of the Bank consist of non-accruing loans, troubled debt
restructurings, and real estate which was acquired as a result of
foreclosure. The composition of the Bank's portfolio of non-performing
assets is shown in the following table:
December 31
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
Non-accruing loans* $ -- $ 148 $ 11
Past due 90 days or more and still -- 37 99
accruing
Renegotiated loans** 1,573 3,145 3,111
Other real estate 114 421 2,967
---------- ---------- ----------
Total non-performing assets $ 1,687 $ 3,751 $ 6,188
---------- ---------- ----------
---------- ---------- ----------
Ratio of non-performing assets
to total assets 1.44% 2.98% 4.54%
---------- ---------- ----------
---------- ---------- ----------
* Primarily loans which are past due for 90 days or more
** Renegotiated loans are those for which the interest rate was reduced
because of the inability of the borrower to service the obligation under
the original terms of the agreement.
Interest lost on non-performing assets amounted to $75,195 in 1995 compared
to $125,981 in 1994.
14
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Bank may be a 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 reduce its own exposure to fluctuation in interest rates. These
financial instruments include commitments to extend credit, standby letters
of credit, and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial position. The
contract or notional amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
At December 31, 1995, financial instruments whose contract amounts represent
credit risk are as follows:
Commitments to extend credit $ 1,264,557
Lines of credit $ 293,613
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Some of the commitments are
expected to expire without being drawn upon. The total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customers.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Currently, letters of credit are not extended beyond one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Bank holds collateral and personal guarantees as deemed necessary. At
December 31, 1995, the Bank had no standby letters of credit outstanding.
At December 31, 1995, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1995 and 1994, the Bank had $1,832,398 and $929,836,
respectively, of commitments to sell newly-originated single family
residential loans.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data have been prepared in
accordance with generally accepted accounting principles. This requires the
measurement of financial and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over
time due to inflation.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effect of general
levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the price of goods and services
since such prices are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of desired performance levels.
IMPACT OF NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. The Bank is required to adopt SFAS No. 121 for the year
beginning January 1, 1996. The adoption of SFAS No. 121 is not expected to
have a material impact on the Bank's financial position or results of
operations.
MARKET PRICES AND RELATED STOCKHOLDER MATTERS
The common stock of First Savings is traded on the National Association of
Securities Dealers' Automated Quotation ("NASDAQ") under the symbol "FSBC".
As of December 31, 1995, the Bank had approximately 500 stockholders of
record and 695,698 shares of issued and outstanding stock.
Fiscal 1995 price range Fiscal 1994 price range
----------------------- -----------------------
High Low High Low
----------- ---------- ----------- ---------
First quarter $ 4.44 $ 4.00 $ 5.00 $ 3.50
Second quarter 5.75 4.25 5.50 4.25
Third quarter 5.75 5.25 7.50 4.75
Fourth quarter 7.00 5.75 7.50 4.50
15
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - -------------------------------------------------------------------------------
DECEMBER 31
---------------------------
ASSETS 1995 1994
------------ ------------
Cash and cash equivalents $ 6,752,606 $ 3,048,974
Certificates of deposit 476,425 388,593
Assets available-for-sale:
Securities (amortized cost of $33,294,495
and $3,156,674) 33,090,085 2,979,813
Loans (aggregate fair value of $874,512
and $679,725) 861,454 670,743
Securities held-to-maturity (aggregate fair
value of $36,025,403 and $72,787,277) 36,404,135 77,505,084
Loans receivable 34,331,988 35,669,608
Interest receivable 692,771 775,366
Real estate owned 113,820 421,013
FHLB stock 1,483,434 1,391,634
Premises and equipment 1,984,860 2,049,581
Servicing rights 359,854 395,637
Other assets 414,867 412,996
------------ ------------
Total assets $116,966,299 $125,709,042
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $110,633,124 $112,772,529
Federal Home Loan Bank advances -- 7,400,000
Accrued interest and other liabilities 401,641 260,918
Advanced payments by borrowers for taxes and
insurance 311,157 227,833
------------ ------------
Total liabilities 111,345,922 120,661,280
------------ ------------
Commitments and contingencies
Stockholders' equity:
Capital stock, $1 par value, authorized
6,000,000 shares, issued 695,698 shares 695,698 695,698
Capital in excess of par value 6,137,701 6,137,701
Accumulated deficit (1,008,612) (1,422,234)
Unrealized loss on securities available-for-
sale, net (204,410) (363,403)
------------ ------------
Total stockholders' equity 5,620,377 5,047,762
------------ ------------
Total liabilities and stockholders' equity $116,966,299 $125,709,042
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
16
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- - -------------------------------------------------------------------------------
<TABLE>
YEARS ENDED DECEMBER 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans $3,642,581 $3,176,265 $3,687,789
U.S. government agency and other securities 515,950 358,973 550,726
Mortgage-backed securities 4,060,235 4,219,157 4,040,821
Other interest income 197,783 133,789 258,805
---------- ---------- ----------
Total interest income 8,416,549 7,888,184 8,538,141
---------- ---------- ----------
Interest expense:
Deposits 5,342,347 4,315,565 4,943,182
FHLB advances 80,248 247,969 --
---------- ---------- ----------
Total interest expense 5,422,595 4,563,534 4,943,182
---------- ---------- ----------
Net interest income before provision for
credit losses 2,993,954 3,324,650 3,594,959
Provision for credit losses charged (credited) (15,000) 3,867 21,091
---------- ---------- ----------
Net interest income after provision for
credit losses 3,008,954 3,320,783 3,573,868
---------- ---------- ----------
Non-interest income:
Loan servicing and other fees 371,843 352,449 354,317
Gains on sale of securities -- 4,672 257,972
Gains (losses) on loans held-for-sale 117,840 (18,541) 331,176
Other 343,705 399,362 389,268
---------- ---------- ----------
Total non-interest income 833,388 737,942 1,332,733
---------- ---------- ----------
Non-interest expenses:
Compensation and employee benefit 1,517,416 1,626,802 1,506,992
Occupancy 367,023 368,794 363,645
Federal insurance 403,218 448,217 376,946
Advertising 27,348 57,587 44,469
Real estate operations, net 57,880 272,946 616,333
Professional fees 258,961 200,756 286,749
Other 796,874 932,720 1,097,402
---------- ---------- ----------
Total non-interest expenses 3,428,720 3,907,822 4,292,536
---------- ---------- ----------
Income before income taxes 413,622 150,903 614,065
Provision for income taxes (benefit) -- (188,650) --
---------- ---------- ----------
Net income $ 413,622 $ 339,553 $ 614,065
---------- ---------- ----------
---------- ---------- ----------
Earnings per share $ .59 $ .49 $ .88
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding 695,698 695,698 695,698
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - ------------------------------------------------------------------------------
<TABLE>
UNREALIZED
LOSS ON
CAPITAL IN SECURITIES
NUMBER OF EXCESS OF ACCUMULATED AVAILABLE-FOR-
SHARES AMOUNT PAR VALUE DEFICIT SALE, NET TOTAL
--------- -------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 695,698 $695,698 $6,137,701 $(2,375,852) $ -- $4,457,547
Net income -- -- -- 614,065 -- 614,065
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- (28,408) (28,408)
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1993 695,698 695,698 6,137,701 (1,761,787) (28,408) 5,043,204
Net income -- -- -- 339,553 -- 339,553
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- (334,995) (334,995)
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1994 695,698 695,698 6,137,701 (1,422,234) (363,403) 5,047,762
Net income -- -- -- 413,622 -- 413,622
Change in unrealized
loss on securities
available-for-sale,
net -- -- -- -- 158,993 158,993
------- -------- ---------- ----------- --------- ----------
Balance at
December 31, 1995 695,698 $695,698 $6,137,701 $(1,008,612) $(204,410) $5,620,377
------- -------- ---------- ----------- --------- ----------
------- -------- ---------- ----------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------
<TABLE>
YEARS ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 413,622 $ 339,553 $ 614,065
Adjustments to reconcile net income to
cash provided (used) by operations:
Depreciation 132,527 128,914 132,483
Deferred income taxes -- (188,650) --
Provision for credit losses charged
(credited) (15,000) 3,867 21,091
Provision for losses on real estate -- -- 337,225
Provision for losses on loans held-for-
sale transferred to loans receivable -- 88,771 --
Amortization of premiums on investment
securities 207,830 232,387 22,064
Amortization of loan premiums,
discounts and deferred fees, net (575,179) (53,622) (239,671)
Gain on sale of investment securities -- -- (299,621)
Gain on sale of loans (105,321) (70,230) (331,176)
Proceeds from loan sales 7,625,886 15,205,572 19,468,061
Originations of loans held-for-sale (7,698,757) (13,111,011) (20,665,134)
Loss on sale of REO 1,670 59,748 21,928
(Gain) loss on sale of assets (3,095) (1,200) 6,994
(Gain) loss on sale of mutual funds -- (4,672) 41,649
Net (increase) decrease in accrued
income and other assets 82,595 (73,462) 320,279
Net (increase) decrease in trading
securities mutual funds -- 3,183,503 (86,185)
Increase (decrease) in accrued
interest and other liabilities 140,723 (101,522) (150,537)
(Increase) decrease in other assets (70,407) 327,339 181,870
------------ ------------ ------------
Net cash provided (used) by
operating activities 137,094 5,965,285 (604,615)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities and principal
repayments of available-for-sale
securities 2,061,754 1,181,634 --
Purchases of held-to-maturity
securities (750,000) (16,520,005) (34,074,913)
Proceeds from maturities, sales and
principal repayments of held-to-maturity
securities 9,630,086 10,917,250 24,588,300
Net (increase) decrease in certificates
of deposit (87,832) 484,505 1,170,258
Net decrease in loans 2,092,440 3,950,943 8,976,709
Proceeds from sales of real estate 140,882 1,972,322 2,675,998
Net proceeds (purchases) of premises
and equipment and other assets (64,711) 245,541 (153,169)
------------ ------------ ------------
Net cash provided by investing
activities 13,022,619 2,232,190 3,183,183
------------ ------------ ------------
Cash flows from financing activities:
Net decrease in deposits (2,139,405) (17,917,092) (2,949,695)
Net change in FHLB advances (7,400,000) 7,400,000 --
Net increase (decrease) in advance
payments by borrowers for taxes and
insurance 83,324 (15,400) (255,736)
------------ ------------ ------------
Net cash used by financing activities (9,456,081) (10,532,492) (3,205,431)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 3,703,632 (2,335,017) (626,863)
Cash and cash equivalents at beginning
of period 3,048,974 5,383,991 6,010,854
------------ ------------ ------------
Cash and cash equivalents at end of period $ 6,752,606 $ 3,048,974 $ 5,383,991
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 5,312,477 $ 4,392,409 $ 5,015,921
Income taxes -- 9,600 20,500
Supplemental disclosure of non-cash
investing activities
Real estate acquired in settlement
of loans 104,509 251,103 333,096
Loans to facilitate the sale of real
estate owned 269,150 765,000 604,950
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The following is a description of significant accounting and reporting
policies which First Savings Bank, F.S.B. (Bank) follows in preparing and
presenting its consolidated financial statements:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and transactions
of the Bank and its wholly-owned subsidiary, First Equity Development
Corporation (FEDCO). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Bank has historically been a major lender of mortgage loans in the
Eastern New Mexico area and is dedicated to the promotion of thrift through
the solicitation of savings accounts. The Bank's three offices primarily
service the Curry and Roosevelt counties of New Mexico and the adjoining West
Texas counties. The Bank offers a comprehensive range of credit and
depository services, while conducting business in a manner based on financial
stability, profitability, service, and community involvement.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Management determines the appropriate classification of its investment
securities and loans at the time of purchase or origination. At December 31,
1993, the Bank adopted Statement of Financial Accounting Standards (SFAS)
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS
No. 115 required the reporting of certain securities at fair value except for
those securities which the Bank has the positive intent to hold to maturity.
TRADING SECURITIES - Prior to December 31, 1994, the Bank maintained some of
its excess liquidity in a mutual fund. The Bank currently holds no mutual
funds as they were liquidated in 1994. The investment was for interest rate
yield enhancement and held principally for the purpose of selling for
liquidity needs or when better investment opportunities became available.
The mutual fund was recorded at fair value with both unrealized gains and
losses reported in the consolidated statements of operation.
ASSETS AVAILABLE-FOR-SALE - Securities or loans to be held for indefinite
periods of time and not intended to be held-to-maturity are classified as
available-for-sale. Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy
and that may be sold in response to changes in liquidity needs, interest
rates, resultant prepayment risk, and other factors related to interest rate
and resultant prepayment risk changes. Securities available-for-sale are
recorded at fair value. Both unrealized gains and losses on securities
available-for-sale, net of taxes, are included as a separate component of
stockholders' equity in the consolidated statements of financial condition
until these gains or losses are realized. If a security has a decline in
fair value that is other than temporary, the security will be written down to
its fair value by recording a loss in the consolidated statements of
operations. Loans available-for-sale are recorded at the lower of amortized
cost or fair value with only net unrealized losses included in the
consolidated statements of operations.
20
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY - Securities that management has the intent, and
the Bank has the ability, to hold until maturity are classified as securities
held-to-maturity. Securities in this category are carried at amortized cost
adjusted for accretion of discounts and amortization of premiums using the
level yield method over the estimated life of the securities. If a security
has a decline in fair value below its amortized cost that is other than
temporary, the security will be written down to its new cost basis by
recording a loss in the consolidated statements of operations. The Bank has
not experienced a permanent decline on securities that would result in a
charge to operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK - This asset is owned due to regulatory
requirements and is carried at cost. This stock is pledged as collateral to
secure FHLB advances.
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid
principal reduced by unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized as income over terms
which approximate the interest method. Interest on other loans is recognized
using the simple-interest method on the daily balances of the principal
amounts outstanding. The accrual of interest on loans is discontinued when
there is a clear indication that the borrower's cash flow may not be
sufficient to meet payments as they become due. When a loan is placed on
nonaccrual status, all previously accrued and unpaid interest is charged
against income. If the ultimate collectibility of principal, wholly or
partially, is in doubt, any payment received on a loan on which the accrual
of interest has been suspended is applied to reduce principal to the extent
necessary to eliminate such doubt.
LOAN FEES, PREMIUMS AND DISCOUNTS ON LOANS AND MORTGAGE-BACKED SECURITIES
Loan origination fees net of direct origination costs are deferred and
accreted to income using the interest method over the contractual life of the
loans adjusted for actual payments. If the loan is held-for-sale, the net
fees are deferred until the loan is sold.
Premiums and discounts on loans and mortgage-backed securities purchased are
amortized to income using a method which approximates a level yield over the
estimated life of the loan or mortgage-backed security.
SERVICING RIGHTS
The Bank originates loans for resale to increase the servicing portfolio and
to provide funds for additional investment. Under the sale agreement, the
Bank continues to service the loan, and the investor is paid its share of
principal collection. Effective July 1, 1995, the Bank adopted SFAS No. 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT OF SFAS NO. 65. SFAS
No. 122 eliminated the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. The effect of
adopting this new accounting standard was to increase 1995 net income by
$11,338.
ALLOWANCE FOR CREDIT LOSSES
Provision for credit losses is charged to operations based on management's
evaluation of the potential losses in the loan portfolio. The Bank adheres to
an asset review system and allowance for credit loss methodology designed to
provide for the detection of problem amounts and adequate general valuation
allowances to cover credit losses. The provision is based on an analysis of
the loan portfolio, economic conditions, historical loan loss experience,
changes in the nature and volume of the loan portfolio, and management's
assessment of the inherent risk in the portfolio in relation to the level of
the allowance for credit losses. While management uses the best information
available to make these evaluations, future adjustments to the allowances may
be necessary if economic conditions differ from the assumptions used in
preparing the evaluation.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for credit
losses. Such agencies may review the Bank's allowances for credit losses,
and they may require the Bank to recognize additions to the allowances based
on their judgment of information available to them at the time of their
examination.
The Bank adopted SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN, as amended, effective January 1, 1995. This statement requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rates or the fair value of
the underlying collateral, and specifies alternative methods for recognizing
interest income on loans that are impaired or for which there are credit
concerns. For purposes of applying this standard, impaired loans have been
defined as all nonaccrual loans. The Bank's policy for income recognition
was not affected by adoption of the standard. The adoption of SFAS No. 114
did not have any effect on the allowance for credit losses or related
provision.
21
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
UNCOLLECTED INTEREST
The Bank reverses all accrued interest and ceases accruing interest on
certain loans when management believes the loans may be uncollectible and on
loans which are more than 90 days past due with loan-to-value ratios greater
than 80%. Such interest, if ultimately collected, is credited to operations
in the period of recovery.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful life of the assets. Maintenance and repairs are charged to expense as
incurred and improvements are capitalized.
REAL ESTATE OWNED
Real estate owned (REO) acquired through foreclosure or deed in lieu of
foreclosure is initially recorded at fair value. Any excess of the loan
balance and foreclosure costs over the fair value at the date of acquisition
of the property is charged to the allowance for credit losses. Subsequently,
REO is carried at the lower of fair value less estimated expenses of sale or
cost. Any provisions required are recorded in the statement of operations
and are considered a valuation allowance. Subsequent increases in the fair
value of properties with valuation allowances can be credited to operations
up to the amount of the previously established valuation allowance. Costs
related to the improvement of these properties are capitalized. Costs
related to holding the properties are charged to real estate operations.
The amounts the Bank could ultimately recover from disposition of REO could
differ materially from the amounts used in arriving at the net carrying value
of the assets because of future market factors beyond the Bank's control or
changes in the Bank's strategies for recovering its investments. Gains and
losses on disposition of properties are recognized in current operations.
However, the recognition of gains is dependent upon the transaction meeting
certain criteria relating to the nature of the property sold and the terms of
sale. Under certain circumstances, the gain, or a portion thereof, must be
deferred until the criteria is met.
INCOME TAXES
The Bank and its subsidiary file consolidated income tax returns. Effective
January 1, 1993, the Bank and its subsidiary adopted SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 required a change to the asset and liability
method of accounting for income taxes rather than the deferred method which
was previously utilized as permitted by Accounting Principles Board Opinion
11. Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred income taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect (as of January 1, 1993) of adopting this new accounting
standard was not material.
Prior to fiscal 1993, the deferred method of accounting for income taxes was
used. Deferred federal and state income taxes were provided on income and
expense reported in different periods for financial statement and income tax
purposes at the current statutory rate.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of capital stock outstanding during the period. Stock options have not
had a dilutive effect.
CASH FLOW STATEMENT
Cash and cash equivalents include cash, interest-bearing deposits at the
FHLB, deposits at other banks, and all certificates of deposit with original
maturities of three months or less. There are no amounts subject to
withdrawal or usage restrictions.
RECLASSIFICATION
Certain amounts for prior years have been reclassified to conform with the
current year presentation.
NOTE B - ASSETS AVAILABLE-FOR-SALE
At December 31, 1995, an unrealized loss of $204,410 on mortgage-backed
securities available-for-sale is shown as a reduction in stockholders'
equity. At December 31, 1994, an unrealized loss of $176,861 on
mortgage-backed securities available-for-sale, and an unrealized loss of
$186,542 on mortgage-backed securities that were transferred from
available-for-sale to held-to-maturity on April 30, 1994, are shown as a
reduction in stockholders' equity. Due to the uncertainty of the future
utilization of unrealized losses, should they be realized, the income tax
benefit has been offset by a valuation allowance against the resulting
deferred tax asset.
22
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
During December 1995, the Bank transferred $32,206,642 of mortgage-backed
securities and U.S. government agency obligations from the Bank's
held-to-maturity portfolio into its available-for-sale portfolio. This
transfer was made by the Bank for asset/liability and liquidity management
purposes and was made in accordance with an implementation guide for SFAS No.
115 entitled ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
issued by the Financial Accounting Standards Board in November 1995.
Loans available-for-sale are recorded at the lower of amortized cost or fair
value.
A summary of assets available-for-sale is as follows:
<TABLE>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
GNMA ADJUSTABLE RATE $ 28,295,654 $ 28,095,981 $ 30,691 $ 230,364
OBLIGATION OF U.S. GOVERNMENT AGENCIES 4,998,841 4,994,104 10,000 14,737
LOANS ON RESIDENTIAL ONE-TO-FOUR UNITS 861,454 874,512 13,058 --
------------- ------------- --------- ----------
$ 34,155,949 $ 33,964,597 $ 53,749 $ 245,101
------------- ------------- --------- ----------
------------- ------------- --------- ----------
December 31, 1994
------------------------------------------------------
Amortized Fair Gross Unrealized
cost value Gains Losses
------------- ------------- --------- ----------
Mortgage-backed securities:
GNMA adjustable rate $ 3,156,674 $ 2,979,813 $ -- $ 176,861
Loans on residential one-to-four units 670,743 679,725 9,006 24
------------- ------------- --------- ----------
$ 3,827,417 $ 3,659,538 $ 9,006 $ 176,885
------------- ------------- --------- ----------
------------- ------------- --------- ----------
</TABLE>
No available-for-sale securities were pledged at December 31, 1995 and 1994.
NOTE C - SECURITIES HELD-TO-MATURITY
A summary of securities held-to-maturity is as follows:
<TABLE>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
FNMA PARTICIPATION CERTIFICATES $ 6,225,192 $ 6,106,781 $ -- $ 118,411
FHLMC PARTICIPATION CERTIFICATES 27,872,939 27,648,060 43,254 268,133
FHLMC ADJUSTABLE RATE 2,306,004 2,270,562 -- 35,442
------------- ------------- --------- ----------
$ 36,404,135 $ 36,025,403 $ 43,254 $ 421,986
------------- ------------- --------- ----------
------------- ------------- --------- ----------
December 31, 1994
------------------------------------------------------
Amortized Fair Gross Unrealized
cost value Gains Losses
------------- ------------- --------- ----------
Mortgage-backed securities:
FNMA participation certificates $ 7,018,585 $ 6,339,546 $ -- $ 679,039
GNMA adjustable rate 28,781,907 27,646,723 -- 1,135,184
FHLMC participation certificates 32,065,908 29,714,760 -- 2,351,148
FHLMC adjustable rate 2,650,364 2,528,747 -- 121,617
Investment securities:
Obligation of U.S. government agencies 6,988,320 6,557,501 -- 430,819
------------- ------------- --------- ----------
$ 77,505,084 $ 72,787,277 $ -- $4,717,807
------------- ------------- --------- ----------
------------- ------------- --------- ----------
</TABLE>
23
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
During 1994, mortgage-backed securities with amortized costs and fair values
of $6,602,523 and $6,412,122, respectively, were transferred from assets
available-for-sale into the securities held-to-maturity portfolio. The
unrealized loss at the date of transfer was being amortized over the
remaining lives of the securities. At December 31, 1994, amortized cost was
net of $186,542 in unamortized losses on securities transferred from assets
available-for-sale. In December 1995, these same securities and others with
an amortized cost of $32,206,642 were transferred into the Bank's
available-for-sale portfolio. This transfer was made by the Bank for
asset/liability and liquidity management purposes and was made in accordance
with an implementation guide for SFAS No. 115 entitled ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES issued by the Financial Accounting
Standards Board in November 1995.
Held-to-maturity securities of $3,319,414 were pledged to secure public
deposits at December 31, 1995. Held-to-maturity securities of $19,928,719
were pledged to secure public deposits and FHLB advances at December 31, 1994.
There were no held-to-maturity securities sold during 1995 or 1994. The Bank
sold $6,393,199 in U.S. Treasuries during the year ended December 31, 1993 at
a gain of $29,107. The Bank also sold $3,883,578 of mortgage-backed
securities during the year ended December 31, 1993 at a gain of $270,514.
The contractual maturity of investment securities are in excess of ten years
at December 31, 1995 and 1994. Actual maturities will differ from contractual
maturities because borrowers have the right to prepay obligations without
prepayment penalties. At December 31, 1995, the weighted average life of the
available-for-sale securities, exclusive of residential one-to-four units,
was 3.72 years. At December 31, 1995, the weighted average life of the
held-to-maturity securities was 2.56 years.
NOTE D - LOANS
Loans consisted of the following:
December 31
------------------------
1995 1994
----------- -----------
First mortgage loans:
Conventional $25,110,648 $27,873,227
FHA insured and VA guaranteed 4,059,531 4,278,984
Consumer and installment loans 4,558,130 2,689,310
Consumer timeshare loans 560,320 1,217,001
Construction loans 1,059,954 516,750
Other 552,822 725,805
----------- -----------
35,901,405 37,301,077
Less:
Loans in process 862,760 316,599
Deferred loan fees 187,090 248,644
Unearned discounts 23,713 92,027
Allowance for credit losses 427,889 460,923
Deferred income 67,965 13,276
----------- -----------
$34,331,988 $35,669,608
----------- -----------
----------- -----------
The Bank had outstanding commitments to originate loans at December 31, 1995
and 1994 of approximately $971,000 and $551,000, respectively.
Proceeds from sale of loans held-for-sale were $7,625,886, $15,205,572, and
$19,486,061 for the years ended December 31, 1995, 1994 and 1993,
respectively. Gains of $118,026 and losses of $186 were recognized in 1995,
while gains of $136,199 and losses of $65,969 were recognized in 1994, and
gains of $331,176 were recognized in 1993.
During 1994, loans previously classified as available-for-sale were
reclassified to loans. The Bank had recognized a loss resulting from a lower
of amortized cost or fair market adjustment in the amount of $88,771 prior
to this transfer. The recorded amount at the date of transfer was
$2,077,261. At December 31, 1995 and 1994, the remaining unamortized
discount related to this transfer was $76,617 and $86,917, respectively.
24
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
Changes in the allowance for credit losses are as follows:
Years ended December 31
------------------------------
1995 1994 1993
-------- -------- --------
Balance at beginning of year $460,923 $508,597 $534,712
Provision charged (credited) to operations (15,000) 3,867 21,091
Charge-offs (20,878) (52,917) (66,499)
Recoveries 2,844 1,376 19,293
-------- -------- --------
Balance at end of year $427,889 $460,923 $508,597
-------- -------- --------
-------- -------- --------
An analysis of loans to directors and executive officers is as follows:
Years ended December 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Balance at beginning of year $ 348,854 $ 651,361 $557,661
Loans originated 30,882 31,099 117,557
Loan principal payments and other reductions (117,556) (333,606) (23,857)
--------- --------- ---------
Balance at end of year $ 262,180 $ 348,854 $ 651,361
--------- --------- ---------
--------- --------- ---------
A renegotiated loan for which interest had been reduced totaled $1,572,814 at
December 31, 1995. Nonaccrual and renegotiated loans for which interest has
been reduced totaled $3,292,183 and $3,122,136 at December 31, 1994 and 1993,
respectively. Interest income that would have been recorded under the
original terms of such loans and the interest actually recognized prior to
accretion of unearned discount for the years ended December 31 are summarized
below:
Years ended December 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Interest income that would have been recorded $ 336,553 $ 388,885 $351,117
Interest income recognized 261,358 262,904 232,863
--------- --------- ---------
Interest income foregone $ 75,195 $ 125,981 $118,254
--------- --------- ---------
--------- --------- ---------
The Bank is not committed to lend additional funds to borrowers with
non-performing or renegotiated loans.
NOTE E - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid balances of these
loans at December 31 are summarized as follows:
1995 1994 1993
----------- ----------- -----------
Mortgage loans underlying pass through
certificates:
GNMA $ 3,594,512 $ 3,890,825 $ 5,263,175
FHLMC 7,637,528 8,669,839 10,143,187
Mortgage loan portfolios serviced for:
FNMA 35,531,557 37,689,044 39,716,040
Other investors 1,637,020 1,845,001 4,478,069
----------- ----------- -----------
$48,400,617 $52,094,709 $59,600,471
----------- ----------- -----------
----------- ----------- -----------
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $496,680 and $486,557 at December 31, 1995 and 1994,
respectively.
25
<PAGE>
First Savings Bank, F.S.B.
- - ------------------------------------------------------------------------------
Following is an analysis of the changes in servicing rights asset balances
for the years 1995, 1994 and 1993.
Balance, January 1, 1993 $ 767,668
Amortization* (309,447)
---------
Balance, January 1, 1994 458,221
Amortization* (62,584)
---------
Balance, January 1, 1995 395,637
Amortization* (48,302)
Originated mortgage servicing rights 12,519
---------
Balance, December 31, 1995 $ 359,854
---------
---------
*Includes valuation adjustments due to changes in prepayment assumptions
NOTE F - REAL ESTATE OWNED
Real estate owned at December 31 consisted of the following:
1995 1994
-------- --------
Real estate acquired in settlement of loans and
through foreclosure $153,820 $209,910
Loans reported as in-substance foreclosure -- 251,103
-------- --------
153,820 461,013
Less allowance for losses 40,000 40,000
-------- --------
$113,820 $421,013
-------- --------
-------- --------
An analysis of the allowance for losses on real estate owned is as follows:
Years ended December 31
-------------------------------
1995 1994 1993
------- ---------- ----------
Balance at beginning of period $40,000 $1,433,722 $1,118,970
Provision charged to expense -- -- 337,225
------- ---------- ----------
40,000 1,433,722 1,456,195
Less charges against the allowance -- 1,393,722 22,473
------- ---------- ----------
Balance at end of period $40,000 $ 40,000 $1,433,722
------- ---------- ----------
------- ---------- ----------
There were no provisions for further losses on real estate owned during 1995
and 1994.
Net losses from real estate operations were as follows:
Years ended December 31
-------------------------------
1995 1994 1993
-------- --------- ---------
Income:
Rental income $ 1,000 $ 2,706 $ 2,300
Gains on sale of real estate 13,105 882 29,573
Expenses:
Real estate expenses (57,209) (215,905) (278,309)
Loss on sale of real estate (14,776) (60,629) (32,672)
Provision for valuation allowances -- -- (337,225)
-------- ---------- ----------
Net losses $(57,880) $(272,946) $(616,333)
-------- ---------- ----------
-------- ---------- ----------
NOTE G - CONCENTRATION OF CREDIT RISK
The Bank invests available funds in mortgage-backed securities and
interest-bearing deposits and maintains funds in other depository
institutions, including the FHLB of Dallas. The Bank currently holds no
mutual funds as they were liquidated during 1994. Generally, the Bank's
investment in U.S. Government securities and mortgage-backed securities are
recorded in book entry form only, and the Bank does not take possession of
the actual investment certificates. The Bank's investment in
interest-bearing deposits, excluding those with the FHLB of Dallas, is
normally limited to amounts covered by applicable Federal Deposit Insurance
Corporation (FDIC) limits.
26
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The Bank grants consumer, commercial business, commercial real estate, and
residential loans to customers in its trade area. Generally, the loans are
secured by real estate; however, the Bank does make consumer loans and
commercial loans. The loans are expected to be repaid from the cash flow of
the borrowers. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon their own economic situation.
The Bank's collateral policy is to secure all real estate loans by mortgages,
place first liens on available assets underlying commercial loans, and
perfect purchase money liens on consumer loan products. The Bank grants
unsecured loans to its customers.
As a primary single-family home lender, the Bank also has a substantial
portion of its loans in Curry and Roosevelt Counties of New Mexico.
NOTE H - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized by major classifications
as follows:
1995 1994
------------ ------------
Land $ 407,593 $ 407,593
Office buildings 2,151,745 2,145,204
Furniture, fixtures and equipment 1,281,138 1,376,796
Automobiles 77,646 71,805
---------- ----------
3,918,122 4,001,398
Less accumulated depreciation 1,933,262 1,951,817
---------- ----------
$1,984,860 $2,049,581
---------- ----------
---------- ----------
NOTE I - DEPOSITS
The composition of deposits and the effective rates of interest at December 31
were as follows:
1995 1994
------------ ------------
Checking accounts - noninterest bearing $ 575,811 $ 429,292
Savings accounts (1995 - 2.75%; 1994 -
3.20%) 9,281,440 11,259,777
Insured Money Market accounts (1995 -
2.30%-3.70%; 1994 - 3.80%-4.10%) 1,414,311 13,767,226
Transaction accounts (1995 - 2.30%-3.30%;
1994 - 2.90%-3.70%) 7,386,076 7,235,582
Certificates of deposit:
2.01% - 3.00% -- 1,023,940
3.01% - 4:00% 997,702 24,049,622
4.01% - 5.00% 14,103,880 30,146,913
5.01% - 6.00% 52,596,029 20,847,544
6.01% - 7.00% 13,086,788 1,950,225
7.01% - 8.00% 1,144,070 1,301,555
8.01% - 9.00% 47,017 760,853
------------ ------------
$110,633,124 $112,772,529
------------ ------------
------------ ------------
At December 31, 1995 and 1994, individual deposit accounts in excess of
$100,000 amounted to $5,272,739 and $5,971,246, respectively.
Certificates of deposit had the following maturities at December 31, 1995:
Amount Percent of total
----------- ----------------
Within one year $64,196,941 78.3%
Between one and three years 14,032,726 17.1
Between three and five years 3,745,819 4.6
----------- -----
$81,975,486 100.0%
----------- -----
----------- -----
27
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
Interest expense on deposits for the years ended December 31 was as follows:
1995 1994 1993
---------- ---------- ----------
Savings accounts $ 294,322 $ 353,869 $ 447,616
Money Market accounts 502,089 486,675 592,975
Transaction accounts 154,712 219,561 231,996
Certificates of Deposit 4,391,224 3,255,460 3,670,595
---------- ---------- ----------
$5,342,347 $4,315,565 $4,943,182
---------- ---------- ----------
---------- ---------- ----------
At December 31, 1995 and 1994, the Bank had accrued interest payable on
certificates of deposit totaling $213,729 and $97,084, respectively. The
weighted average interest rate on deposits was 4.67%, 3.60% and 3.82% for the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE J - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Each FHLB is authorized to make advances to its members, subject to such
regulations and limitations as the FHLB may prescribe. There were no
advances from FHLB at December 31, 1995. At December 31, 1994, advances from
FHLB were collateralized by investment securities totaling $14,829,418. The
Bank is also required to maintain stock ownership in the FHLB of at least a
minimum percentage of its loans. At December 31, 1994, the Bank maintained
an excess investment in stock of the FHLB.
NOTE K - INCOME TAXES
At December 31, 1995, the Bank had remaining net operating loss carryforwards
of approximately $5,555,000 for federal income tax purposes which expire in
varying amounts through 2009. In addition, the alternative minimum tax (AMT)
net operating loss carryforward and AMT credit carryforward were
approximately $5,866,000 and $101,000, respectively, which expire in varying
amounts through 2009. Investments tax credit carryforwards of approximately
$44,000 expire in varying amounts through 2005. At December 31, 1995, the
Bank had remaining net operating loss carryforwards of approximately
$44,583,000 for state income tax purposes which expire in varying amounts
through 2005. These state net operating loss carryforwards are substantially
more than the federal net operating loss carryforwards as a result of the
exclusion of U.S. Investment security and other income for state income tax
purposes.
Under the Internal Revenue Code (the Code), the Bank is allowed a special bad
debt deduction related to additions to tax bad debt reserves established for
the purpose of absorbing losses on mortgage loans. For taxable years
beginning before January 1, 1987, the provision of the Code permitted the
Bank to deduct from taxable income an addition to the tax bad debt reserve
based on a percentage of taxable income (ranging from 32% to 60%). Due to
changes made by the Tax Reform Act of 1986, for tax years beginning after
December 31, 1986, the percentage has been reduced to 8%.
Stockholders' equity at December 31, 1995 includes approximately $2,100,000
for which no provision for Federal income tax has been accrued. These
amounts represent allocation of income to bad debt reserves for tax purposes
only. Reduction of amounts so allocated for purposes other than losses on
loans will create income for tax purposes only, which will be subject to the
then current corporate tax rate.
A reconciliation of the expected income tax expense (benefit) to the
effective tax expense of the year ended December 31 follows:
1995 1994 1993
---------- --------- ---------
Tax expense at statutory rates $ 160,485 $ 58,550 $ 208,782
Effect of net operating loss (160,485) (58,550) (208,782)
Deferred tax asset valuation
allowance adjustment -- (188,650) --
--------- --------- ---------
$ -- $(188,650) $ --
--------- --------- ---------
--------- --------- ---------
28
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
The tax effect of significant temporary differences representing deferred tax
assets and liabilities and changes thereon were as follows:
<TABLE>
<CAPTION>
December 31, Net December 31, NET DECEMBER 31,
1993 change 1994 CHANGE 1995
------------ ------ ------------ ------ -------------
<S> <C> <C> <C> <C> <C>
OPERATIONAL ITEMS:
Deferred taxes assets:
Net operating loss carryforward $ 1,637,000 $ 618,000 $ 2,255,000 $(99,000) $ 2,156,000
Bad debt deduction and
deferred loan fees 263,000 (81,000) 182,000 (20,000) 162,000
Investments 104,000 (104,000) -- -- --
Other -- -- -- 7,000 7,000
----------- ---------- ----------- -------- -----------
2,004,000 2,437,000 2,325,000
Valuation allowance (1,588,000) (207,000) (1,795,000) 161,000 (1,634,000)
----------- ---------- ----------- -------- -----------
Deferred tax assets 416,000 226,000 642,000 49,000 691,000
----------- ---------- ----------- -------- -----------
Deferred tax liabilities:
Depreciation (258,000) (13,000) (271,000) (9,000) (280,000)
FHLB stock dividend (158,000) (24,000) (182,000) (36,000) (218,000)
Originated mortgage servicing
rights -- -- -- (4,000) (4,000)
----------- ---------- ----------- -------- -----------
Deferred tax liabilities (416,000) (37,000) (453,000) (49,000) (502,000)
----------- ---------- ----------- -------- -----------
Net tax asset $ -- $ 189,000 $ 189,000 $ -- $ 189,000
----------- ---------- ----------- -------- -----------
----------- ---------- ----------- -------- -----------
EQUITY ITEMS:
Deferred tax assets:
Investments $ 9,000 $ 115,000 $ 124,000 $(54,000) $ 70,000
----------- ----------- -----------
9,000 124,000 70,000
Valuation allowance (9,000) (115,000) (124,000) 54,000 (70,000)
----------- ---------- ----------- -------- -----------
Deferred tax assets -- -- -- -- --
Deferred tax liabilities -- -- -- -- --
----------- ---------- ----------- -------- -----------
Net tax asset $ -- $ -- $ -- $ -- $ --
----------- ---------- ----------- -------- -----------
----------- ---------- ----------- -------- -----------
</TABLE>
29
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE L - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the implementation of Office of Thrift Supervision (OTS)
regulations on December 7, 1989, effective date of the new capital standards,
the Bank must have: (1) core capital equal to 3% of adjusted total assets;
(2) tangible capital equal to 1.5% of adjusted total assets; and (3) total
capital equal to 8.0% of risk-weighted assets, which includes off-balance
sheet items.
On November 28, 1994, the OTS announced its decision to immediately reverse
its August 1993 interim policy requiring institutions to include unrealized
gains and losses, net of income taxes, on available-for-sale debt securities
in regulatory capital. Because this revised policy applies only to
regulatory capital, however, institutions must continue to comply with SFAS
No. 115 for financial reporting purposes.
The following table is a reconciliation of the Bank's capital for regulatory
purposes at December 31, 1995 as reported to the OTS.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Assets capital capital capital
------ ------- ------- -------
<S> <C> <C> <C> <C>
Total assets $116,966,299
Liabilities carried net of assets for
regulatory purposes (98,727)
Unrealized loss on securities
available-for-sale, net 204,410
------------
Adjusted regulatory total assets $117,071,982
------------
------------
Risk-based assets $ 37,540,000
------------
------------
Stockholders' equity $5,620,377 $5,620,377 $5,620,377
Unrealized loss on securities
available-for-sale, net 204,410 204,410 204,410
General valuation allowance -- -- 427,889
---------- ---------- ----------
Regulatory capital 5,824,787 5,824,787 6,252,676
Regulatory capital required 1,756,080 3,512,159 3,003,200
---------- ---------- ----------
Excess regulatory capital $4,068,707 $2,312,628 $3,249,476
---------- ---------- ----------
---------- ---------- ----------
Bank's capital to adjusted regulatory assets 4.98% 4.98%
---------- ----------
---------- ----------
Bank's capital to risk-based assets 16.66%
----------
----------
</TABLE>
At December 31, 1995 and 1994, the Bank met all minimum tangible, core and
risk-based capital levels. However, the Bank has previously been notified by
the OTS that it was considered "undercapitalized" and was required to submit
a capital plan to obtain a minimum 4% capital level. At December 31, 1994,
the Capital Plan had been approved and the Bank had reached all capital
requirements. However, subsequent to December 31, 1994, the OTS requested
the Bank to submit a revised three year capital plan which demonstrated the
Bank's ability to accumulate capital and reduce interest rate risk. The Plan
was completed and submitted in 1995. However, there is no assurance that the
Bank will, or will not, be able to achieve its plan or that future events
could not lead to future regulatory actions.
30
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE M - INVESTMENT IN SERVICE CORPORATION
FEDCO was formed for the purpose of holding investments in real estate and
the Bank's investment in its former service bureau. A summary of assets,
liabilities, and equity of FEDCO at December 31, 1995 and 1994 was as follows:
1995 1994
--------- ---------
Assets:
Cash $ 1,697 $ 1,722
--------- ---------
--------- ---------
Liabilities $ -- $ --
Stockholders' equity:
Capital stock 400,000 400,000
Accumulated deficit (398,303) (398,278)
--------- ---------
$ 1,697 $ 1,722
--------- ---------
--------- ---------
FEDCO reported losses of $25, $18,884, and $47,222 for the years ending
December 31, 1995, 1994 and 1993, respectively, which included its share of
the operations of the service bureau. FEDCO paid no dividends to the Bank
during 1995. FEDCO paid dividends to the Bank of $278,000 and $44,000 for
the years ended December 31, 1994 and 1993, respectively.
NOTE N - STOCK OPTION PLAN
Under the 1986 Stock Option and Incentive Plan (Plan), as amended, the Bank
may grant Incentive and Non-Incentive Stock Options, as well as Stock
Appreciation Rights (SARs) to Officers, Directors, key employees and other
persons up to a maximum of 68,250 shares of the Bank's common stock. The
Plan is administered by a committee of the Board of Directors. The Plan
terminates in August 1996.
Under the provisions of the Plan, stock options have a term that is
determined by the committee, but not to exceed ten years from the date of
grant. However, in the case of optionees who own in excess of 10% of the
outstanding common stock of the Bank, the term of the stock option may not
exceed five years. The aggregate fair market value of the options for which
any persons may be granted in any calendar year may not exceed $100,000.
SARs, upon their exercise, entitle the SAR grantee to receive cash, common
stock or a combination thereof, as the committee in its sole discretion shall
determine, equal to the excess of the fair market value of the common stock
on the date of exercise over the exercise prices of the SARs. As of
December 31, 1995, no SARs had been granted under the Plan.
The following table summarize certain information relative to stock options:
December 31
-------------------------
1995 1994
----------- --------
Number of shares under non-incentive option 39,000 --
Option price of shares under option
$5.25-$6.00 --
Number of shares exercisable 39,000 --
There were no stock options exercised during the three years in the period
ended December 31, 1995 and, at December 31, 1995, there were 12,809
remaining shares of the Bank's common stock available for the issuance of
additional options under the terms of the Plan.
31
<PAGE>
First Savings Bank, F.S.B.
- - -------------------------------------------------------------------------------
NOTE O - PROFIT SHARING AND 401(K) PLANS
The Bank has a profit sharing/employee stock ownership plan for which
substantially all employees are eligible. Effective January 1, 1989, the Bank
amended its profit sharing plan to include an employee stock ownership plan
which covers substantially all employees. Contributions, when made, may be
made in the form of cash or in common stock of the Bank. Contribution
amounts are based upon employee's compensation, but may not exceed maximum
deductible limits for federal income tax purposes. No contributions were
made in 1995, 1994 and 1993.
Effective January 1, 1989, this plan was amended to include a 401(k)
before-tax salary deferral feature. Employees may elect to contribute to the
plan and such contribution is matched by the Bank at a minimum of 5% of
employee's contributions. Employer contributions made to the 401(k) plan for
the years ended December 31, 1995, 1994 and 1993 totaled $1,753, $1,821, and
$1,161, respectively. Total contributions per employee, for all parts of the
plan, made by the Bank or the employee, cannot exceed the lesser of $30,000
or 25% of the employee's compensation.
NOTE P - REGULATORY MATTERS
On April 23, 1991, at the request of the OTS, the Board of Directors agreed
to the issuance of a Cease and Desist Order (Order) which (1) limited the
growth of the institution; (2) imposed specific restrictions involving the
Bank's engagement in securities activities; (3) prohibited lending outside
the market area; (4) prescribed various reporting requirements; (5) required
OTS approval before commencing certain activities; (6) required that the Bank
develop a detailed, self-contained three-year capital and business plan
subsequently referred to as a "Capital Restoration Plan"; and (7) required a
special investigation into certain relationships of the Bank's former
president and certain borrowers. The Board agreed to an extension of the
Order on January 16, 1992 and again on October 26, 1992.
Under the Order, the Bank's operations were subject to imposed restrictions
on growth and various other restrictions limiting: investing or transferring
real estate investments; engaging, financing, refinancing, entering,
employing, amending, purchasing, commitments to renew, change, or enter into
real estate (residential, construction, non-residential, and real estate
investments) transactions, securities, loan participations, commercial loans
or letter of credit, consumer or educational loans, leases, contracts, or
agreements, joint ventures, compensation arrangements, by-laws, accounting
methods, service corporations, purchases or repurchases of government
securities, and mergers or consolidation.
In 1992, the Bank was deemed "undercapitalized" by the OTS. The Bank and the
OTS agreed, on July 28, 1993, to the issuance of a Prompt Corrective Action
Directive (PCAD), pursuant to Section 38 of the Federal Depository Insurance
Corporation Improvement Act (FDICIA). FDICIA necessitates that a PCAD be
issued when an institution is deemed undercapitalized. The PCAD terminated,
suspended, or modified most of the provisions of the previous Order issued by
the OTS.
On August 2, 1994 an extension of the PCAD was granted under an Amended
Prompt Corrective Action Directive (APCAD) which was agreed to by the Bank
and the OTS. The APCAD revised the date for attaining the 4.0% core capital
requirement to June 30, 1995. The PCAD and APCAD required of the Bank, among
other things:
- Submission of a Capital Restoration Plan
- Required capital levels of 4.0% for Tier One ("Core") and leverage
ratio capital, and 8.0% for total risk-based capital
- Compliance with the Capital Restoration Plan
- Required capital levels to be achieved or adequate progress towards
mandates
- Compliance with mandatory restrictions on dividends, management fees,
asset growth, branching and certain other conditions
- Approval from the Regional Director of the OTS before investing in
certain activities
32
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
As of December 31, 1994, the Bank met all requirements of the APCAD,
including all capital requirements. In May 1995, the OTS notified the Bank
that the Order had been terminated. The only significant provision of the
APCAD that remains in effect is the maintenance of certain required capital
levels. The following table represents the Bank's capital ratios and the
APCAD requirements as of December 31, 1995.
APCAD Actual
required December 31, 1995 Excess
-------- ----------------- ------
Core capital 4.0% 4.98% 0.98%
Leverage ratio capital 4.0 4.98 0.98
Risk- based capital 8.0 16.66 8.66
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
NOTE Q - OFF-BALANCE SHEET RISK
The Bank may be a 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 reduce its own exposure to fluctuation in interest rates. These
financial instruments include commitments to extend credit, standby letters
of credit, and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial position. The
contract or notional amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
At December 31, 1995, financial instruments whose contract amounts represent
credit risk are as follows:
Commitments to extend credit $1,264,557
Lines of credit $ 293,613
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Some of the commitments are
expected to expire without being drawn upon. The total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customers.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Currently, letters of credit are not extended beyond one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Bank holds collateral and personal guarantees as deemed necessary. At
December 31, 1995, the Bank had no standby letters of credit outstanding.
At December 31, 1995, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1995 and 1994, the Bank had $1,832,398 and $929,836,
respectively, of commitments to sell newly-originated single family
residential loans.
NOTE R - CONTINGENCIES
LITIGATION
In the normal course of business, the Bank is involved in litigation which,
in the Bank's opinion, will not have a material affect on the Bank.
On February 1, 1996, an Order of Dismissal was filed by the Court with
respect to a certain derivative lawsuit (Derivative Lawsuit) filed on May 19,
1994 and amended on November 2, 1994. This Derivative Lawsuit was filed by
two stockholders, one of whom was a former Director of the Bank, alleging a
number of intentional and negligent acts and omissions in the management of
the Bank which allegedly resulted in damages and losses suffered by the Bank.
The Court dismissed, with prejudice, all claims against all defendants,
except a former President, who was also Chief Executive Officer and a
Director (former President) of the Bank. A dismissal with prejudice means
that the charges cannot be refiled. The Court also ordered the Plaintiffs to
pay reasonable expenses, including attorney's fees, to one of the Bank's
former independent auditors. The deadline for appeal of the order dismissing
the action was March 4, 1996. A notice of appeal was filed by the plaintiff.
The Bank cannot currently predict the outcome of the appeal.
33
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
If final judgment in their favor is received in the Derivative Lawsuit,
certain of the current and former director defendants may make demand on the
Bank for indemnification of their legal expenses pursuant to OTS regulations.
The disinterested members of the Bank's Board of Directors must approve said
indemnification and give 60 days notice to the OTS of the Bank's intention to
make such indemnification. No such indemnification shall be made if the OTS
advises the Bank in writing, within the 60 day notice period, of its
objection thereto. No demand for indemnification has been made by any
defendant.
With respect to the former President of the Bank, the Court dismissed the
claims in the Derivative Lawsuit without prejudice in order to allow the Bank
to pursue such claims in Federal Court. In May 1995, the Bank filed a
lawsuit against the former President in the United States District Court for
the District of New Mexico. In the lawsuit, the Bank asserts that the
defendant engaged in fraudulent conduct and breached his duties of loyalty
and care to the Bank, all of which resulted in losses and damages to the
Bank. The Bank is seeking recovery of damages from the defendant in excess
of $2.8 million, plus interest and punitive damages. The Bank's lawsuit
against the former President has not gone to trial and is not expected to do
so until after mid-year 1996.
OTHER
The FDIC has proposed a one-time assessment on all deposits held as of a yet
to be determined date. Deposits subject to the assessment are insured by the
Savings Association Insurance Fund (SAIF). This one time assessment is
intended to recapitalize the SAIF to the required level of 1.25% of insured
deposits. If the assessment is made, the premium could be paid in 1996 and
result in a significant charge to the operations of the Bank. The assessment
may or may not cause the Bank to be unable to meet the capital requirements
as outlined by the APCAD directive. However, the Bank is expected to be able
to maintain minimum tangible core and risk-based capital levels established
by FIRREA and OTS regulations. The one-time special assessment, if made,
will result in a significant decrease in future insurance premium assessments
by the FDIC. This will have a positive impact on future earnings of the Bank.
NOTE S - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or
not recognized on the balance sheet, for which it is practicable to estimate
that value. Quoted market prices, if available, are utilized as an estimate
of the fair value of financial instruments. Because no quoted market prices
exist for a part of the Bank's financial instruments, the fair value of such
instruments has been derived based on management's assumptions with respect
to future economic conditions, the amount and timing of future cash flows and
estimated discount rates. Different assumptions could significantly affect
these estimates. Accordingly, the estimates provided herein do not
necessarily indicate amounts which could be realized in a current exchange.
Further, as it is management's intent to hold a portion of its financial
instruments to maturity, it is not probable that the fair values shown below
will be realized in a current transaction. In addition, fair value estimates
are based solely 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. Examples would include portfolios of loans serviced for others,
investments in real estate, premises and equipment, and deferred tax assets.
Because of the wide range of permissible valuation techniques and the
numerous estimates which must be made, it may be difficult to make reasonable
comparisons of the fair value information to that of other financial
institutions. The aggregate fair value amount should in no way be construed
as representative of the underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate
that value:
CASH AND CASH EQUIVALENTS - The carrying amount for cash and cash equivalents
approximates the assets' fair value because of the short maturity of those
instruments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES - The fair value of long-term
investments such as U.S. Government and agency obligations and
mortgage-backed securities is estimated based on bid quotations received from
securities dealers and the FHLB.
34
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
LOANS - Fair values are estimated for portfolios of loans with similar
financial characteristics. Mortgage loans are segregated by type, including
but not limited to residential, commercial and construction. Consumer loans
are segregated by type, including but not limited to home improvement loans,
automobile loans, loans secured by deposits and secured and unsecured
personal loans. Each loan category may be segmented, as appropriate, into
fixed and adjustable interest rate terms, ranges of interest rates,
performing and non-performing, and repricing frequency.
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair values of other types of loans are estimated by
discounting the future scheduled and unscheduled cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Unscheduled cash flows take
the form of estimated prepayments and may be based upon historical experience
as well as anticipated experience derived from current and prospective
economic and interest rate environments. For certain types of loans,
anticipated prepayment experience exists in published tables from securities
dealers.
The fair value of significant non-performing mortgage loans is based on
estimated value of the collateral. Where appraisals are not available,
estimated cash flows are discounted using a rate commensurate with the credit
risk associated with those cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgementally determined using available
market information and specific borrower information. The fair value of
non-performing consumer loans is based on historical experience with such
loans.
The fair value of loans held-for-sale is estimated based on outstanding
commitments from investors or current market prices for similar loans.
FEDERAL HOME LOAN BANK STOCK - The fair value of stock in the FHLB is
estimated to be equal to its carrying amount given it is not a publicly
traded equity security, it has an adjustable dividend rate, and all
transactions in the stock are executed at the stated par value.
DEPOSITS AND ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE - The fair value
of deposits with no stated maturity, such as interest-bearing or
non-interest-bearing checking accounts, passbook and statement savings
accounts, money market accounts and advances from borrowers for taxes and
insurance is equal to the amount payable upon demand. The fair value of
certificates of deposit is based on the lower of redemption or discounted
value of contractual cash flows. Discount rates for certificates of deposit
are estimated using current market rates.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of commitments to
extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
The fair value of off-balance sheet financial instruments is estimated to
equal the carrying amount at December 31, 1995 and 1994.
NON-FINANCIAL INSTRUMENTS - SFAS No. 107 does not permit financial
institutions to take into account the value of long-term relationships with
depositors, commonly known as core deposit intangibles, when estimating the
fair value of deposit liabilities. These intangibles are considered to be
separate intangible assets that are not financial instruments. Nonetheless,
financial institutions' core deposits have typically traded at premiums to
their book values under both historical and current market conditions.
Likewise, SFAS No. 107 does not permit financial institutions to take into
account the value of the cash flows and income stream derived from its
portfolio of loans serviced for others. See Note E to the consolidated
financial statements for information related to the portfolio of residential
mortgage loans serviced for others.
35
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
The estimated fair values of the Bank's financial instruments are shown below:
December 31, 1995
---------------------------------
Carrying Estimated fair
amount value
--------------- --------------
(in thousands)
Financial assets:
Cash and cash equivalents $ 6,753 $ 6,753
Certificates of deposit 476 477
Securities available-for-sale 33,090 33,090
Loans available-for-sale 861 875
Securities held-to-maturity 36,404 36,025
Loans receivable 34,332 35,919
Accrued interest receivable 693 693
FHLB stock 1,483 1,483
Financial liabilities:
Deposits 110,633 111,710
Accrued interest payable 402 402
Advance payments by borrowers for
taxes and insurance 311 311
The deferred income amounts arising from unrecognized financial instruments
are not significant. Also, these financial instruments have contractual
interest rates at or above current market rates. Therefore, no market value
disclosure is provided for these items.
<PAGE>
First Savings Bank, F.S.B.
- - ----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
First Savings Bank, F.S.B.
Clovis, New Mexico
We have audited the accompanying consolidated statements of financial
condition of First Savings Bank, F.S.B. and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Savings
Bank, F.S.B. and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Bank
changed its method of accounting for loan servicing rights during 1995,
changed its method of accounting for certain investments in debt and equity
securities during 1993 and its method of accounting for income taxes during
1993.
/s/ Robinson Burdette Martin & Cowan, L.L.P.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
February 9, 1996, except as to the second
paragraph in Note R, for which the date is
March 1, 1996
37
<PAGE>
CORPORATION INFORMATION
- - ----------------------------------------------------------------------------
BOARD OF DIRECTORS
Chad Lydick Chairman
President, Lydick Engineers & Surveyors, Inc. (Land
Surveying Co.)
Carl Deaton Vice Chairman
Retired Owner, Clovis Body Shop, Inc. and C.B.S. Auto
Recyclers, Inc.
Harry Eastham Retired Office Engineer, A.T.&.S.F. Railway company
Dr. Everett L. Frost President, Eastern New Mexico University
Charles Guthals President, Guthals Company, Inc. (Landscaping company)
Ken Huey, Jr. President and Chief Executive Officer of First Savings
Bank, F.S.B.
Thomas W. Martin III President of Tucumcari Springwater & Seed Co.,
DBA Taco Box
MANAGEMENT
Ken Huey, Jr. President and Chief Executive Officer
Paul B. Ellis Executive Vice President and Chief Lending Officer
Roddy Pearce Vice President, Chief Operating Officer and Controller
STOCKHOLDER INFORMATION
ANNUAL REPORT ON FORM 10-KSB
The Bank's annual report on Form 10-KSB, including financial statements and
schedules filed with the Office of Thrift Supervision, will be furnished
without charge. Please request this form in writing from the Corporate
Secretary at First Savings Bank, F.S.B., P.O. Box 1569 (801 Pile), Clovis,
New Mexico 88101-1569.
ANNUAL MEETING
The Annual Meeting of Stockholders of First Savings Bank, F.S.B. will be on
April 26, 1996 at 9:00 a.m., local time, at the Clovis Community College's
Town Hall, 417 Schepps Boulevard, Clovis, New Mexico.
STOCK TRANSFER AGENT AND REGISTRAR
First Savings Bank, F.S.B.
801 Pile Street-P.O. Box 1569
Clovis, New Mexico 88102-1569
ATTORNEYS
Keleher & McLeod, P.A.
414 Silver Avenue SW, Suite 1200
Albuquerque, New Mexico 87102
INDEPENDENT ACCOUNTANTS
Robinson Burdette Martin & Cowan, L.L.P.
1500 Broadway, Suite 1300
Lubbock, Texas 79401-3107
CORPORATE OFFICE
First Savings Bank, F.S.B.
801 Pile Street-P.O. Box 1569
Clovis, New Mexico 88102-1569
BRANCH OFFICES
First Savings Bank, F.S.B. First Savings, Bank, F.S.B.
2501 North Prince Street 400 West First Street
Clovis, New Mexico 88102 Portales, New Mexico 88130
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: OTS docket #2891
FIRST SAVINGS BANK, F.S.B.
- - ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Office of Thrift Supervision 85-0028945
- - ---------------------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
801 Pile Street, Clovis, New Mexico 88101
- - ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 762-4417
---------------------------
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
------- -------
695,698 Shares of Capital Stock $1.00 par value
Outstanding as of May 14, 1996
<PAGE>
FIRST SAVINGS BANK, F.S.B.
INDEX
PART I - FINANCIAL INFORMATION
Unaudited Consolidated Statements of Financial Condition............. 3
Unaudited Consolidated Statements of Operations...................... 4
Unaudited Consolidated Statements of Changes in Stockholders'
Equity.............................................................. 5
Unaudited Consolidated Statements of Cash Flows...................... 6
Notes to Consolidated Financial Statements (Unaudited)........... 7 - 11
Managements' Discussion and Analysis of Financial Condition
and Results of Operations........................................12 - 15
PART II - OTHER INFORMATION............................................... 16
SIGNATURES................................................................ 17
2
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
Cash and cash equivalents $ 4,463,268 $ 6,752,606
Certificates of deposit 381,211 476,425
Assets available-for-sale:
Securities (aggregate cost of
$28,234,688 and $33,294,495) 27,857,466 33,090,085
Loans (aggregate fair value of
$1,284,286 and $874,512) 1,269,645 861,454
Securities held-to-maturity:
(aggregate fair value of
$39,026,652 and $36,025,403) 39,937,743 36,404,135
Loans receivable 35,482,799 34,331,988
Interest receivable 621,893 692,771
Real estate owned 94,736 113,820
FHLB stock 1,505,334 1,483,434
Premises and equipment 1,964,383 1,984,860
Servicing fees 356,420 359,854
Other assets 1,556,817 414,867
------------ ------------
TOTAL ASSETS $115,491,715 $116,966,299
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $109,420,452 $110,633,124
Accrued interest and other liabilities 307,821 401,641
Advance payments by borrowers for
taxes and insurance 292,422 311,157
------------ ------------
TOTAL LIABILITIES 110,020,695 111,345,922
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized -
6,000,000 shares, issued - 695,698
shares 695,698 695,698
Capital in excess of par value 6,137,701 6,137,701
Accumulated deficit (985,157) (1,008,612)
Unrealized loss on securities
available-for-sale, net (377,222) (204,410)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,471,020 5,620,377
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $115,491,715 $116,966,299
------------ ------------
------------ ------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTH PERIODS ENDED
MARCH 31,
-------------------------
1996 1995
---------- ----------
Interest income:
Loans $ 784,702 $ 818,627
U.S. government agency and other securities 84,017 131,378
Mortgage-backed securities 927,486 1,058,088
Other interest income 104,727 42,453
---------- ----------
Total interest income 1,900,932 2,050,546
---------- ----------
Interest expense:
Deposits 1,277,523 1,272,958
FHLB advances -- 54,350
---------- ----------
Total interest expense 1,277,523 1,327,308
---------- ----------
Net interest income before provision for
credit losses 623,409 723,238
Provision for credit losses (credited) (61,779) --
---------- ----------
Net interest income after provision for
credit losses 685,188 723,238
---------- ----------
Non-interest income:
Loan servicing and other fees 87,549 103,444
Gains on loans held-for-sale 36,247 21,222
Other 75,008 87,297
---------- ----------
Total non-interest income 198,804 211,963
---------- ----------
Non-interest expenses:
Compensation and employee benefit 389,854 405,692
Occupancy 85,284 90,261
Federal insurance 98,728 100,962
Advertising 3,869 7,630
Real estate operations, net 36,099 576
Professional fees 31,759 61,877
Other 214,944 202,894
---------- ----------
Total non-interest expenses 860,537 869,892
---------- ----------
Net income $ 23,455 $ 65,309
---------- ----------
---------- ----------
Earnings per share $ .03 $ .09
---------- ----------
---------- ----------
Weighted average shares outstanding 695,698 695,698
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
UNREALIZED
NUMBER LOSS ON
OF COMMON CAPITAL IN SECURITIES
COMMON STOCK EXCESS OF ACCUMULATED AVAILABLE-FOR-
SHARES AMOUNT PAR VALUE DEFICIT SALE, NET TOTAL
------- -------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 695,698 $695,698 $6,137,701 $(1,008,612) $(204,410) $5,620,377
NET INCOME -- -- -- 23,455 -- 23,455
CHANGE IN UNREALIZED
LOSS ON SECURITIES
AVAILABLE-FOR-SALE,
NET -- -- -- -- (172,812) (172,812)
------- -------- ---------- ---------- --------- ----------
BALANCE AT MARCH
31, 1996 695,698 $695,698 $6,137,701 $ (985,157) $(377,222) $5,471,020
------- -------- ---------- ---------- --------- ----------
------- -------- ---------- ---------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31,
-------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net Income $ 23,455 $ 65,309
Adjustments to reconcile net income to cash
used by operations:
Depreciation 33,021 32,358
Provision for credit losses credited (61,779) --
Amortization of premiums on investment
securities 45,601 43,310
Gain on sale of loans (36,247) (21,222)
Proceeds for loan sales 2,415,926 1,480,565
Originations of loans held-for-sale (2,787,870) (2,850,767)
Gain on sale of REO -- (4,582)
Loss on sale of assets -- 233
Net decrease in accrued income and other assets 70,878 84,543
(Increase) decrease in accrued interest and
other liabilities (93,820) 8,138
Increase in other assets (1,141,332) (148,241)
----------- -----------
Net cash used by operating activities (1,532,167) (1,310,356)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and principal repayments
of available-for-sale securities 5,028,245 51,238
Purchases of held-to-maturity securities (5,000,000) --
Proceeds from maturities and principal repayments
of held-to-maturity securities 1,452,353 1,503,360
Net decrease (increase) in certificates of deposit 95,214 (249)
Net decrease (increase) in loans (1,089,032) 1,695,972
Proceeds from sales of real estate -- 1,696
Net purchases of premises and equipment and
other assets (12,544) (7,676)
----------- -----------
Net cash provided by investing activities 474,236 3,244,341
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits (1,212,672) 3,960,958
Net change in FHLB advances -- (6,200,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (18,735) 165,381
----------- -----------
Net cash used by financing activities (1,231,407) (2,073,661)
----------- -----------
Decrease in cash and cash equivalents (2,289,338) (139,676)
Cash and cash equivalents at beginning of period 6,752,606 3,048,974
----------- -----------
Cash and cash equivalents at end of period $ 4,463,268 $ 2,909,298
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,128,563 $ 1,223,757
Income Taxes 100 --
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
- - ----------------------------------------------------------------------------
NOTE A - BASIS OF CONSOLIDATION AND PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of First Savings Bank, F.S.B. and its wholly-owned subsidiary, First
Equity Development Corporation. Collectively, First Savings Bank and First
Equity Development Corporation are referred to herein as the Bank. The
financial statements have been prepared in accordance with the instructions
to Form 10-QSB and do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Certain
information required by generally accepted accounting principles has been
condensed or omitted pursuant to such regulations. All significant
intercompany transactions and balances have been eliminated.
The unaudited consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) which Management considers
necessary for a fair presentation of results for those interim periods. The
results for the three-month periods ended March 31, 1996 and 1995 are not
necessarily indicative of the results for the entire year.
The unaudited interim financial statements should be read in conjunction with
the audited consolidated financial statements of the Bank for the year ended
December 31, 1995.
Certain reclassifications have been made to the 1995 consolidated financial
statements in order for them to conform with the 1996 presentation.
7
<PAGE>
- - -----------------------------------------------------------------------------
NOTE B - ASSETS AVAILABLE-FOR-SALE
Due to the implementation of Financial Accounting Standards (FASB) 115 at
December 31, 1993, the Bank's securities which are available-for-sale (AFS)
are recorded at fair value. A summary of assets available-for-sale is as
follows:
MARCH 31, 1996
-----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
----------- ----------- ------- ----------
MORTGAGE-BACKED SECURITIES:
GNMA ADJUSTABLE RATE $27,234,688 $26,856,565 $ 800 $378,923
OBLIGATION OF U.S.
GOVERNMENT AGENCIES 1,000,000 1,000,901 901 --
LOANS ON RESIDENTIAL
ONE-TO-FOUR UNITS 1,269,645 1,284,286 14,942 301
----------- ----------- ------- --------
$29,504,333 $29,141,752 $16,643 $379,224
----------- ----------- ------- --------
----------- ----------- ------- --------
DECEMBER 31, 1995
-----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
----------- ----------- ------- ----------
Mortgage-backed securities:
GNMA adjustable rate $28,295,654 $28,095,981 $30,691 $230,364
Obligation of U.S.
government agencies 4,998,841 4,994,104 10,000 14,737
Loans on residential
one-to-four units 861,454 874,512 13,058 0
----------- ----------- ------- --------
$34,155,949 $33,964,597 $53,749 $245,101
----------- ----------- ------- --------
----------- ----------- ------- --------
8
<PAGE>
- - ----------------------------------------------------------------------------
NOTE C - SECURITIES HELD-TO-MATURITY
A summary of securities held-to-maturity is as follows:
MARCH 31, 1996
-----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
----------- ----------- ------- ----------
MORTGAGE-BACKED SECURITIES:
FNMA PARTICIPATION
CERTIFICATES $ 6,041,301 $ 5,817,588 $ -- $223,713
FHLMC PARTICIPATION
CERTIFICATES 26,669,805 26,023,954 7,381 653,232
FHLMC ADJUSTABLE RATE 2,209,359 2,171,736 -- 37,623
INVESTMENT SECURITIES:
OBLIGATION OF U.S. GOVERNMENT 5,017,278 5,013,374 -- 3,904
----------- ----------- ------- --------
$39,937,743 $39,026,652 $7,381 $918,472
----------- ----------- ------- --------
----------- ----------- ------- --------
DECEMBER 31, 1995
-----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
----------- ----------- ------- ----------
Mortgage-backed securities:
FNMA participation
certificates $ 6,225,192 $ 6,106,781 $ -- $118,411
FHLMC participation
certificates 27,872,939 27,648,060 43,254 268,133
FHLMC adjustable-rate 2,306,004 2,270,562 -- 35,442
----------- ----------- ------- --------
$36,404,135 $36,025,403 $43,254 $421,986
----------- ----------- ------- --------
----------- ----------- ------- --------
9
<PAGE>
- - -----------------------------------------------------------------------------
NOTE D - LOANS
Loans consisted of the following:
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
First mortgage loans:
Conventional $24,794,144 $25,110,648
FHA insured and VA guaranteed 4,654,476 4,059,531
Consumer and installment loans 5,400,934 4,558,130
Consumer timeshare loans 435,670 560,320
Construction loans 943,954 1,059,954
Other 494,441 552,822
----------- -----------
36,723,619 35,901,405
Less:
Loans in process 649,868 862,760
Deferred loan fees and unearned discounts 165,702 210,803
Allowance for credit losses 363,675 427,889
Deferred income 61,575 67,965
----------- -----------
$35,482,799 $34,331,988
----------- -----------
----------- -----------
Changes in the allowance for credit losses are as follows:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -----------------
Balance at beginning of year $427,889 $460,923
Provision credited to operations (61,779) (15,000)
Charge-offs (3,228) (20,878)
Recoveries 793 2,844
-------- --------
Balance at end of period $363,675 $427,889
-------- --------
-------- --------
10
<PAGE>
- - ------------------------------------------------------------------------------
NOTE E - NON-PERFORMING ASSETS
The composition of the Bank's portfolio of non-performing assets is shown in
the following table.
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
(IN THOUSANDS)
Non-accruing loans (1) $ -- $ --
Past due 90 days or more and
still accruing -- --
Renegotiated loans (2) 1,573 1,573
Real estate owned (3) 95 114
------ ------
Total $1,668 $1,687
------ ------
------ ------
Ratio of non-performing assets
to total assets 1.44% 1.44%
------ ------
------ ------
(1) Generally refers to loans that are contractually delinquent (i.e.,
payments were due and unpaid for more than 90 days.)
(2) Renegotiated loans are those for which the interest rate or other terms
were renegotiated because of the inability of borrowers to service the
obligation under the original terms of the agreements and loans to
facilitate the sale of real estate.
(3) Refers to real estate acquired by the Bank through foreclosure or voluntary
deed.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MARCH 31, 1996
FINANCIAL CONDITION
Total assets decreased by $1,474,584 or 1.26% during the quarter ended March
31, 1996. Cash and cash equivalents were reduced by $2,289,338 or 33.90%
from December 31, 1995 to March 31, 1996. Assets available-for-sale were
also reduced during the first quarter of 1996, by $4,824,428 or 14.21% due to
repayment of principal of approximately $4 million which was reinvested in
securities held-to-maturity and loans receivable. Securities
held-to-maturity increased by $3,533,608 or 9.71% and loans receivable
increased by $1,150,811 or 3.35% from December 31, 1995 to March 31, 1996.
Other assets increased by $1,141,950 at the end of the quarter ended March
31, 1996, due to a receivable from the maturity of investment securities.
Total liabilities decreased by $1,325,227 of 1.19% from December 31, 1995 to
March 31, 1996. A reduction in deposits of $1,212,672 accounted for the
majority of this decrease. The decease in deposits was primarily due to the
Bank's current pricing policy and a change in strategy for the type of
deposit accounts offered to customers.
Stockholders' equity decreased by $149,357 or 2.66% in the quarter ended
March 31, 1996 due to an increase in unrealized loss on securities
available-for-sale of $172,812 and net income for the first quarter of 1996
of $23,455.
12
<PAGE>
CAPITAL ADEQUACY AND LIQUIDITY
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the regulation of Office of Thrift Supervision (OTS), the Bank
must have: (1) core capital equal to 3% of adjusted total assets; (2)
tangible capital equal to 1.5% of adjusted total assets; and (3) total
capital equal to 8.0% of risk-weighted assets, which includes off-balance
sheet items.
On November 28, 1994, the OTS announced its decision to immediately reverse
its August 1993 interim policy requiring institutions to include unrealized
gains and losses, net of income taxes, on available-for-sale debt securities
in regulatory capital. Because this revised policy applies only to
regulatory capital, however, institutions must continue to comply with SFAF
No. 115 for financial reporting purposes.
The following table is a reconciliation of the Bank's capital for regulatory
purposes at March 31, 1996 as reported to the OTS.
TANGIBLE CORE RISK-BASED
ASSETS CAPITAL CAPITAL CAPITAL
------------ ---------- ---------- -----------
Total assets $115,491,715
Liabilities carried net of
assets for regulatory
purposes (41,935)
Unrealized loss on
securities available-
for-sale, net 377,222
Adjusted regulatory
total assets $115,827,002
------------
------------
Risk based assets $ 38,152,000
------------
------------
Stockholders' equity $5,471,020 $5,471,020 $5,471,020
Unrealized loss on
securities available-
for-sale, net 377,222 377,222 377,222
General valuation allowance -- -- 363,675
---------- ---------- ----------
Regulatory capital 5,848,242 5,848,242 6,211,917
Regulatory capital required 1,737,405 3,474,810 3,052,160
---------- ---------- ----------
Excess regulatory capital $4,110,837 $2,373,432 $3,159,757
---------- ---------- ----------
---------- ---------- ----------
Bank's capital to adjusted
regulatory assets 5.05% 5.05%
---------- ----------
---------- ----------
Bank's capital to risk-based assets 16.28%
----------
----------
At December 31, 1995 and March 31, 1996, the Bank met all minimum tangible,
core and risk-based capital levels.
13
<PAGE>
As previously reported, the last regular OTS examination of the Bank began on
February 5, 1996 and concluded on March 8, 1996. (See "Regulation" under
Item 1, "Description of Business" in part I of the Bank's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.) The Bank is
prohibited by OTS regulation from disclosing the report of the examination or
any portion thereof.
As reported in the Bank's Current Report on Form 8-K dated April 25, 1996, in
connection with the most recent examination, the Board of Directors of the
Bank received a letter dated April 12, 1996 from the OTS requesting a meeting
with the Board of Directors to discuss an enforcement action which will
establish an increased minimum capital requirement. The OTS has deemed the
institution's capital inadequate and will require a new level of capital
necessary and appropriate for the existing risk profile of the Bank.
Further, the OTS stated that upon issuance of an enforcement action,
consideration would be given to the termination of the existing amended
Prompt Corrective Action Directive ("PCAD") dated August 2, 1994, and the
PCAD issued in July 1993.
The Board of Directors met with OTS officials on May 2, 1996 to discuss an
enforcement action which will establish an increased minimum capital
requirement for the Bank. At the conclusion of these discussions, the Board
of Directors adopted a general strategic plan intended to increase the core
capital to meet OTS capital requirements. The additional core capital
amounts or percentages are to be determined later by agreement with the OTS.
The general plan, which is subject to a number of conditions, including
regulatory and shareholder approval, would include formation of a unitary
thrift holding company and implementation of a rights offering to
shareholders at the new holding company level. The Board also authorized
establishment of a loan production office and directed management to revise
the necessary business/capital plans to reflect the aforementioned actions.
The Bank is not able at this time to predict specifically what will be
required by the OTS's pending enforcement action.
14
<PAGE>
RESULTS OF OPERATIONS
THREE-MONTH COMPARATIVE ANALYSIS FOR PERIODS ENDED MARCH 31, 1996 AND 1995
The Bank's net income for the first quarter of 1996 was lower than the first
quarter of 1995 by $41,854 or 64.09%. The reduction in net income was
primarily due to a reduction in net interest income before provision for
credit losses of $99,829 or 13.80% comparing the three months ended March 31,
1996 to the three months ended March 31, 1995. Total interest expense was
lower by $49,785 or 3.75% for the first quarter ended of 1996 compared to the
same period of 1995; however this did not offset the reduction in total
interest income of $149,614 or 7.30%. The Bank is restructuring its deposit
accounts it offers and increasing loans receivable to improve the net
interest income in the future. The Bank also reduced its allowance for credit
losses by a net of $61,779 by a credit to operations in the first quarter of
1996, compared to no provision in the prior year, based on a review of the
adequacy of the allowance and after considering the further reduction in
non-performing assets.
Non-interest income was lower by $13,159 or 6.21% comparing the three months
ended March 31, 1996 and March 31, 1995. The reduction in non-interest
income was primarily due to lower loan servicing fee income of approximately
$15,000.
Non-interest expenses decreased $9,355 or 1.08% in the quarter ended March
31, 1996 compared to the quarter ended March 31, 1995. The decrease in
non-interest expenses was primarily due to a $30,118 reduction in
professional fees and a $15,838 reduction in compensation expenses, but was
partially offset by a non-recurring charge to real estate operations which
increased these expenses by $35,523.
15
<PAGE>
PART II
FIRST SAVINGS BANK, F.S.B.
ITEM 1 - LEGAL PROCEEDING
The information contained in the section captioned "Capital Adequacy and
Liquidity" in this Form 10-QSB is incorporated by reference.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K. The following report on Form 8-K was filed
during the quarter ended March 31, 1996.
(1) Form 8-K dated April 25, 1996 reporting under Item 5, a letter
dated April 12, 1996 from the OTS.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST SAVINGS BANK, F.S.B.
Date: May 14, 1996 /s/ KEN HUEY, JR.
--------------------------------------------
Ken Huey, Jr., President, Chief
Executive Officer and Director
(DULY AUTHORIZED REPRESENTATIVE)
Date: May 14, 1996 /s/ RODDY PEARCE
--------------------------------------------
Roddy Pearce, Vice President
Controller and Chief Operating Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
(DULY AUTHORIZED REPRESENTATIVE)
17
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period
from __________________________ to ________________________
Commission file number: OTS docket # 2891
FIRST SAVINGS BANK, F.S.B.
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Office of Thrift Supervision 85-0028945
- - --------------------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
801 Pile Street, Clovis, New Mexico 88101
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 762-4417
----------------------------
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
--- ---
732,198 Shares of Capital Stock $1.00 par value
Outstanding as of August 13, 1996
<PAGE>
FIRST SAVINGS BANK, F.S.B.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Unaudited Consolidated Statements of Financial Condition ........... 3
Unaudited Consolidated Statements of Operations .................... 4
Unaudited Consolidated Statements of Changes in
Stockholders' Equity ............................................... 5
Unaudited Consolidated Statements of Cash Flows .................... 6
Notes to Consolidated Financial Statements (Unaudited) ........ 7 - 12
Item 2 - Managements' Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 13 - 16
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders ........... 17
Item 6 - Exhibits and Reports on Form 8-K .............................. 17
SIGNATURES .................................................................. 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The following consolidated financial statements include all adjustments which
in the opinion of management are necessary in order to make such financial
statements not misleading.
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, December 31,
1996 1995
-------- ----------
ASSETS
Cash and cash equivalents $ 3,146,024 $ 6,752,606
Certificates of deposit 965,997 476,425
Investment securities available-for-sale
(aggregate cost of $26,899,729 and $33,294,495) 26,577,922 33,090,085
Investment securities held-to-maturity
(aggregate fair value of $37,093,620 and
$36,025,403) 38,331,574 36,404,135
Loans held-for-sale
(aggregate fair value of $637,398 and $874,512) 626,761 861,454
Loans receivable 37,634,018 34,331,988
Interest receivable 730,353 692,771
Real estate owned 70,500 113,820
FHLB stock 1,527,134 1,483,434
Premises and equipment 1,949,123 1,984,860
Servicing rights 354,684 359,854
Other assets 522,005 414,867
------------ ------------
TOTAL ASSETS $112,436,095 $116,966,299
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $106,261,189 $110,633,124
Accrued interest and other liabilities 288,708 401,641
Advance payments by borrowers for taxes and
insurance 335,313 311,157
------------ ------------
TOTAL LIABILITIES 106,885,210 111,345,922
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized -
6,000,000 shares, issued - 695,698 shares 695,698 695,698
Capital in excess of par value 6,137,701 6,137,701
Accumulated deficit (960,707) (1,008,612)
Unrealized loss on securities available-for-sale,
net (321,807) (204,410)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,550,885 5,620,377
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,436,095 $116,966,299
------------ ------------
------------ ------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 823,829 $ 849,823 $ 1,608,531 $ 1,668,450
U.S. government
agency and other
securities 110,050 136,001 194,067 267,379
Mortgage-backed securities 898,876 1,034,616 1,826,362 2,092,704
Other interest income 55,603 34,015 160,330 76,468
---------- ---------- ----------- -----------
Total interest income 1,888,358 2,054,455 3,789,290 4,105,001
---------- ---------- ----------- -----------
Interest expense:
Deposits 1,190,905 1,362,795 2,468,428 2,635,753
FHLB advances -- 19,044 -- 73,394
---------- ---------- ----------- -----------
Total interest expense 1,190,905 1,381,839 2,468,428 2,709,147
---------- ---------- ----------- -----------
Net interest income before
provision for credit losses 697,453 672,616 1,320,862 1,395,854
Provision for credit losses
charged (credited) 26,037 -- ( 35,742) --
---------- ---------- ----------- -----------
Net interest income after
provision for credit
losses 671,416 672,616 1,356,604 1,395,854
---------- ---------- ----------- -----------
Non-interest income:
Loan servicing and other fees 84,098 89,011 171,647 192,455
Gains on loans held-for-sale 27,762 24,513 64,009 45,735
Other 78,226 95,506 153,234 182,803
---------- ---------- ----------- -----------
Total non-interest income 190,086 209,030 388,890 420,993
---------- ---------- ----------- -----------
Non-interest expenses:
Compensation and employee
benefits 397,898 374,447 787,752 780,139
Occupancy 83,952 87,744 169,236 178,005
Federal insurance 96,380 100,961 195,108 201,923
Advertising 5,503 5,679 9,372 13,309
Real estate operations, net 1,557 15,803 37,656 16,379
Professional fees 54,183 98,401 85,942 160,278
Other 197,579 196,340 412,523 399,234
---------- ---------- ----------- -----------
Total non-interest expenses 837,052 879,375 1,697,589 1,749,267
---------- ---------- ----------- -----------
Net income $ 24,450 $ 2,271 $ 47,905 $ 67,580
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per share $ .04 $ .00 $ .07 $ .10
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average shares
outstanding 695,698 695,698 695,698 695,698
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Unrealized
Number Loss on
of Common Capital in Securities
Common Stock Excess of Accumulated Available-for-
Shares Amount Par Value Deficit Sale, Net Total
------ ------ --------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 695,698 $695,698 $6,137,701 $(1,008,612) $(204,410) $5,620,377
NET INCOME -- -- -- 47,905 -- 47,905
CHANGE IN UNREALIZED
LOSS ON SECURITIES
AVAILABLE-FOR-SALE,
NET -- -- -- -- (117,397) (117,397)
------- -------- ---------- ----------- ---------- ----------
BALANCE AT JUNE 30, 1996 695,698 $695,698 $6,137,701 $ (960,707) $(321,807) $5,550,885
------- -------- ---------- ----------- ---------- ----------
------- -------- ---------- ----------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
First Savings Bank, F.S.B.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED
JUNE 30,
-----------------------
1996 1995
------ ------
Cash flows from operating activities:
Net Income $ 47,905 $ 67,580
Adjustments to reconcile net income to
cash used by operations:
Depreciation 66,042 65,038
Provision for credit losses credited (35,742) --
Amortization of premiums on investment
securities 119,233 93,399
Gain on sale of loans (64,009) (45,735)
Proceeds from loan sales 4,288,005 3,054,444
Originations of loans
held-for-sale (5,897,241) (6,851,263)
(Gain) loss on sale of REO 1,469 (13,105)
Gain on sale of assets -- (1,095)
Net (increase) decrease in accrued
income and other assets (37,582) 25,126
(Increase) decrease in accrued interest
and other liabilities (112,933) 58,699
Increase in other assets (128,286) (125,961)
----------- -----------
Net cash used by operating activities (1,753,139) (3,672,873)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and principal
repayments of available-for-sale securities 6,332,160 124,586
Purchases of held-to-maturity securities (5,000,000) --
Proceeds from maturities and principal
repayments of held-to-maturity securities 3,015,934 3,697,533
Net decrease (increase) in certificates of
deposit (489,572) 195,008
Net decrease (increase) in loans (1,358,350) 3,263,407
Proceeds from sales of real estate 24,469 87,474
Net purchases of premises and equipment
and other assets (30,305) (28,593)
----------- -----------
Net cash provided by investing
activities 2,494,336 7,339,415
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits (4,371,935) 2,065,175
Net change in FHLB advances -- (6,400,000)
Net increase in advance payments by
borrowers for taxes and insurance 24,156 205,637
----------- -----------
Net cash used by financing
activities (4,347,779) (4,129,188)
----------- -----------
Decrease in cash and cash equivalents (3,606,582) (462,646)
Cash and cash equivalents at beginning
of period 6,752,606 3,048,974
----------- -----------
Cash and cash equivalents at end of period $ 3,146,024 $ 2,586,328
----------- -----------
----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 2,533,108 $ 2,561,527
Income Taxes 100 --
Supplemental disclosure of non-cash
investing activities
Real estate acquired in settlement
of loans -- 60,685
Loans to facilitate the sale of
real estate owned 21,000 80,150
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
- - -------------------------------------------------------------------------------
NOTE A - BASIS OF CONSOLIDATION AND PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of First Savings Bank, F.S.B. and its wholly-owned subsidiary, First
Equity Development Corporation. Collectively, First Savings Bank and First
Equity Development Corporation are referred to herein as the Bank. The
financial statements have been prepared in accordance with the instructions to
Form 10-QSB and do not include all disclosures required by generally accepted
accounting principles for complete financial statements. Certain information
required by generally accepted accounting principles has been condensed or
omitted pursuant to such regulations. All significant intercompany transactions
and balances have been eliminated.
The unaudited consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) which Management considers
necessary for a fair presentation of results for those interim periods. The
results for the six-month periods ended June 30, 1996 and 1995 are not
necessarily indicative of the results for the entire year.
The unaudited interim financial statements should be read in conjunction with
the audited consolidated financial statements of the Bank for the year ended
December 31, 1995.
Certain reclassifications have been made to the 1995 consolidated financial
statements in order for them to conform with the 1996 presentation.
7
<PAGE>
- - -------------------------------------------------------------------------------
NOTE B - INVESTMENT SECURITIES AVAILABLE-FOR-SALE
A summary of investment securities available-for-sale is as follows:
<TABLE>
JUNE 30, 1996
----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
--------- ----- ----- ------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
GNMA ADJUSTABLE RATE $25,899,729 $25,572,939 $ 189 $326,979
OBLIGATION OF U.S.
GOVERNMENT AGENCIES 1,000,000 1,004,983 4,983 --
----------- ----------- ------- --------
$26,899,729 $26,577,922 $ 5,172 $326,979
----------- ----------- ------- --------
----------- ----------- ------- --------
</TABLE>
<TABLE>
December 31, 1995
-----------------------------------------------
Amortized Fair Gross Unrealized
Cost Value Gains Losses
--------- ----- ----- ------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
GNMA adjustable rate $28,295,654 $28,095,981 $30,691 $230,364
Obligation of U.S.
government agencies 4,998,841 4,994,104 10,000 14,737
----------- ----------- ------- --------
$33,294,495 $33,090,085 $40,691 $245,101
----------- ----------- ------- --------
----------- ----------- ------- --------
</TABLE>
8
<PAGE>
NOTE C - INVESTMENT SECURITIES HELD-TO-MATURITY
A summary of investment securities held-to-maturity is as follows:
<TABLE>
JUNE 30, 1996
----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
--------- ----- ----- ------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES:
FNMA PARTICIPATION CERTIFICATES $ 5,790,593 $ 5,516,266 $ -- $ 274,327
FHLMC PARTICIPATION CERTIFICATES 25,370,776 24,476,585 2,132 896,323
FHLMC ADJUSTABLE RATE 2,163,502 2,095,319 -- 68,183
OBLIGATION OF U.S. GOVERNMENT 5,006,703 5,005,450 -- 1,253
----------- ----------- -------- ---------
$38,331,574 $37,093,620 $ 2,132 $1,240,086
----------- ----------- -------- ---------
----------- ----------- -------- ---------
</TABLE>
<TABLE>
December 31, 1995
----------------------------------------------
Amortized Fair Gross Unrealized
Cost Value Gains Losses
--------- ----- ----- ------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FNMA participation certificates $ 6,225,192 $ 6,106,781 $ -- $ 118,411
FHLMC participation certificates 27,872,939 27,648,060 43,254 268,133
FHLMC adjustable-rate 2,306,004 2,270,562 -- 35,442
----------- ----------- -------- ---------
$36,404,135 $36,025,403 $ 43,254 $ 421,986
----------- ----------- -------- ---------
----------- ----------- -------- ---------
</TABLE>
9
<PAGE>
- - -------------------------------------------------------------------------------
NOTE D - LOANS HELD-FOR-SALE
Loans held-for-sale are identified at the time the loan is originated, and
recorded at the lower of amortized cost or fair value with only net unrealized
losses included in the consolidated statements of operations.
<TABLE>
JUNE 30, 1996
----------------------------------------------
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAINS LOSSES
--------- ----- ----- ------
<S> <C> <C> <C> <C>
LOANS ON RESIDENTIAL ONE TO FOUR UNITS:
CONVENTIONAL REAL ESTATE LOANS $ 90,725 $ 92,323 $ 1,598 $ --
INSURED OR GUARANTEED REAL
ESTATE LOANS 536,036 545,075 9,039 --
-------- --------- -------- -----
$ 626,761 $ 637,398 $ 10,637 $ --
-------- --------- -------- -----
-------- --------- -------- -----
</TABLE>
<TABLE>
December 31, 1995
----------------------------------------------
Amortized Fair Gross Unrealized
Cost Value Gains Losses
--------- ----- ----- ------
<S> <C> <C> <C> <C>
Loans on residential one to four units:
Conventional real estate loans $ 395,250 $ 400,287 $ 5,037 $ --
Insured or guaranteed real
estate loans 466,204 474,225 8,021 --
-------- --------- -------- -----
$ 861,454 $ 874,512 $ 13,058 $ --
-------- --------- -------- -----
-------- --------- -------- -----
</TABLE>
10
<PAGE>
- - -------------------------------------------------------------------------------
NOTE E - LOANS RECEIVABLE
Loans receivable consisted of the following:
JUNE 30, December 31,
-------- ------------
1996 1995
---- ----
First mortgage loans:
Conventional $26,332,313 $25,110,648
FHA insured and VA guaranteed 4,270,232 4,059,531
Consumer and installment loans 6,541,555 4,612,586
Consumer timeshare loans 329,105 560,320
Construction loans 1,741,250 1,059,954
Other 448,475 552,822
----------- -----------
39,662,930 35,955,861
Less:
Loans in process 1,316,925 862,760
Deferred loan fees 194,398 187,090
Unearned discounts 73,655 78,169
Allowance for credit losses 388,749 427,889
Deferred income 55,185 67,965
----------- -----------
$37,634,018 $34,331,988
----------- -----------
----------- -----------
Changes in the allowance for credit losses are as follows:
SIX MONTHS ENDED Year Ended
JUNE 30, 1996 December 31, 1995
---------------- -----------------
Balance at beginning of year $427,889 $460,923
Provision credited to operations (35,742) (15,000)
Charge-offs (6,555) (20,878)
Recoveries 3,157 2,844
--------- ---------
Balance at end of period $388,749 $427,889
--------- ---------
--------- ---------
11
<PAGE>
- - -------------------------------------------------------------------------------
NOTE F - NON-PERFORMING ASSETS
The composition of the Bank's portfolio of non-performing assets is shown in the
following table.
JUNE 30, 1996 December 31, 1995
------------- -----------------
(in thousands)
Non-accrual loans (1) $ 27 $ --
Past due 90 days or more and still
accruing -- --
Renegotiated loans (2) 1,573 1,573
Real estate owned (3) 71 114
------ ------
Total non-performing assets $1,671 $1,687
------ ------
------ ------
Ratio of non-performing assets to
total assets 1.49% 1.44%
------ ------
------ ------
(1) Generally refers to loans that are contractually delinquent (i.e., payments
were due and unpaid for more than 90 days).
(2) Renegotiated loans are those for which the interest rate or other terms
were renegotiated because of the inability of borrowers to service the
obligation under the original terms of the agreements and loans to
facilitate the sale of real estate.
(3) Refers to real estate acquired by the Bank through foreclosure or voluntary
deed.
NOTE G - SUBSEQUENT EVENTS
On July 26, 1996, the Board of Directors granted the remaining 12,809 shares
available under the 1986 Stock Option and Incentive Plan to various members of
management at $5.50 per share exercisable before December 31, 1998. The Bank's
chief executive was granted 5,000 shares of the option grant.
Further, as of August 7, 1996, stock options of 36,500 shares granted in 1995
were exercised. The Bank's chief executive officer exercised his 17,000 share
option at the exercise price granted at $5.25 per share.
In August 1996, the Bank will open its loan production office in Rio Rancho, New
Mexico at 4061 Ridgerock Road Suite C. This location will allow for a
geographic expansion to the state's major metropolitan area with offerings of
mortgage, consumer and small business loans.
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets decreased by $4,530,204 or 3.87% from December 31, 1995 to June 30,
1996 and total liabilities decreased by $4,460,712 or 3.95% during the same six
month period. The reduction in total assets and total liabilities was primarily
due to a decrease in deposits of approximately $4.4 million which was funded by
a reduction in cash and cash equivalents of $3.6 million during the period. The
reduction in deposits is due to an effort by the Bank to change the product mix
of deposits offered to its customers.
Investment securities available-for-sale decreased by $6,512,163 or 19.68% from
December 31, 1995 to June 30, 1996 which was reinvested in securities held-to-
maturity and loans receivable which increased by $1.9 and $3.3 million,
respectively. The 9.62% increase in loans receivable in the first six months of
1996 is part of management's effort change the asset mix by increasing loans
receivable and decreasing the total investment security portfolio.
Stockholders' equity decreased by $69,492 or 1.24% from December 31, 1995 to
June 30, 1996. The decrease in stockholders' equity was due to an increase in
the unrealized loss on securities available-for-sale of $117,397 from December
31, 1995 to June 30, 1996. This reduction was partially offset by net income
for the first six months of $47,905.
13
<PAGE>
CAPITAL ADEQUACY AND LIQUIDITY
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the implementation of Office of Thrift Supervision (OTS)
regulations on December 7, 1989, effective date of the new capital standards,
the Bank must have: (1) core capital equal to 3% of adjusted total assets; (2)
tangible capital equal to 1.5% of adjusted total assets; and (3) total capital
equal to 8.0% of risk-weighted assets, which includes off-balance sheet items.
On November 28, 1994, the OTS announced its decision to immediately reverse its
August 1993 interim policy requiring institutions to include unrealized gains
and losses, net of income taxes, on available-for-sale debt securities in
regulatory capital. Because this revised policy applies only to regulatory
capital, however, institutions must continue to comply with SFAF No. 115 for
financial reporting purposes.
The following table is a reconciliation of the Bank's capital for regulatory
purposes at June 30, 1996 as reported to the OTS.
<TABLE>
Tangible Core Risk-based
Assets capital capital capital
------ -------- ------- ----------
<S> <C> <C> <C> <C>
Total assets $112,436,095
Liabilities carried net
of assets for regulatory
purposes (2,387)
Unrealized loss on securities
available-for-sale, net 321,807
------------
Adjusted regulatory total
assets $112,755,515
------------
------------
Risk-based assets $ 38,152,000
------------
------------
Stockholders' equity $5,550,885 $5,550,885 $5,550,885
Unrealized loss on securities
available-for-sale, net 321,807 321,807 321,807
General valuation allowance -- -- 388,749
---------- ---------- ----------
Regulatory capital 5,872,692 5,872,692 6,261,441
Regulatory capital required 1,691,333 3,382,665 3,053,760
---------- ---------- ----------
Excess regulatory capital $4,181,359 $2,490,027 $3,207,681
---------- ---------- ----------
---------- ---------- ----------
Bank's capital to adjusted
regulatory assets 5.21% 5.21%
---------- ----------
---------- ----------
Bank's capital to risk-based assets 16.40%
----------
----------
</TABLE>
At December 31, 1995 and June 30, 1996, the Bank met the foregoing minimum
tangible, core and risk-based capital levels.
14
<PAGE>
As reported in the Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996, the OTS notified the Bank by letter dated April 12, 1996 that the
Bank's capital was deemed inadequate. The OTS requested a meeting with the
Board of Directors of the Bank to discuss a possible enforcement action. On May
2, 1996, the Board met with the OTS. At the conclusion of such discussions with
the OTS, the Board adopted a general strategic plan intended to increase the
core capital to meet OTS capital requirements.
As reported in the Current Report on Form 8-K dated June 27, 1996, following
further discussion, the Board and the OTS signed a "Supervisory Agreement"
effective June 17, 1996 (the "Agreement") which the OTS indicated was a measure
primarily intended to insure an increase in the capital position of the Bank.
The Agreement requires the Bank to do the following, among other things; (i)
complete and submit a revised business and capital plan no later than June 30,
1996, to achieve compliance with (a) increasing core capital to 6% as of
December 31, 1996, and (b) increasing core capital to 7% as of June 30,1997;
(ii) create an asset/liability and investment committee of the Board no later
than June 30, 1996, to oversee and review pricing activities, investment
selection, interest rate risk and compliance by the Bank with Board policies;
and (iii) report quarterly to the OTS on the Bank's operating results and
explain variances of actual results to budgeted projections. Any or all
provisions of the Agreement may be suspended by the OTS Regional Director. The
Agreement will continue in effect until terminated, modified or suspended in
writing by the OTS.
On May 31, 1996, the Board appointed three outside directors to the Bank's
asset/liability and investment committee. The Bank submitted its revised
business and capital plan to the OTS on June 17, 1996. As part of the Bank's
plan, the Bank filed an application with the OTS on July 1, 1996, requesting
authority to form a unitary thrift holding company, which is subject to approval
by the Bank's shareholders.
On August 12, 1996, the Bank received written notification from the OTS
approving the formation of a unitary thrift holding company.
15
<PAGE>
RESULTS OF OPERATIONS
THREE-MONTH COMPARATIVE ANALYSIS FOR PERIODS ENDED JUNE 30, 1996 AND 1995
Net income increased by $22,179 or 976.62% for the quarter ended June 30, 1996
compared to the quarter ended June 30, 1995. Net interest income before
provision for credit losses during the second quarter of 1996 increased by
$24,837 or 3.69% as compared to the second quarter of 1995. The increase in
net interest income was reduced by a provision for credit losses of $26,037 for
the quarter ended June 30, 1996 compared to $0 for the quarter ended June 30,
1995, which produced a net decrease of $1,200 in net interest income after
provision for credit losses for the quarter as compared to the prior year. The
increase in net interest income for the second quarter of 1996 was due to a
reduction in interest expense of $190,934 or 13.82% compared to the second
quarter of 1995, which was primarily the result of lower levels of deposits and
to a lesser extent due to lower rates paid on existing deposits. The reduction
in interest expense was partially offset by the decrease in interest income of
$166,097 or 8.08% for the three months ended June 30, 1996 compared to three
months ended June 30, 1995, this resulted from lower levels of interest earning
assets which were used to fund the decline in the level of deposits.
Management's current strategy is increasing loans receivable and to reduce both
the level of the Bank's investment in securities as well as rates paid on
interest bearing deposits to increase net interest income.
Non-interest income decreased by $18,944 or 9.06% for the quarter ended June 30,
1996 compared to the quarter ended June 30, 1995, this decrease was a result of
a non-recurring income item of approximately $16,000 received in the second
quarter of 1995. Non-interest expense decreased by $42,323 or 4.81% for the
three months ended June 30, 1996 compared to the three months ended June 30,
1995. The decrease in non-interest expense was primarily due to a decrease in
professional fees of approximately $44,000.
SIX-MONTH COMPARATIVE ANALYSIS FOR PERIODS ENDED JUNE 30, 1996 AND 1995
Net interest income after provision for credit losses decreased by $39,250 for
the six months ended June 30, 1996 compared to the six months ended June 30,
1995. Total interest income decreased by $315,711 or 7.69% for the six months
ended June 30, 1996 compared to the same period in 1995. The Bank reduced the
level of interest bearing assets and interest bearing liabilities which reduced
total interest income. The Bank is restructuring its assets mix while reducing
total assets to enhance future yield and decrease interest rate risk. Net
interest expense decreased by $240,719 or 8.89% for the six months ended June
30, 1996 compared to the prior year, because of the reduction by of the level of
interest bearing liabilities. Provisions for credit losses credited were
reduced by a net of $36,742 compared to $0 for the periods ended June 30, 1996
and June 30, 1995, respectively.
Non-interest income decreased by $32,103 or 7.63% for the six months ended June
30, 1996 compared to the six months ended June 30, 1995, primarily because of
the non-recurring income item of approximately $16,000 received in the second
quarter of 1995, and a decrease in loan servicing fee income. Non-interest
expense decreased by $51,678 or 2.95% for the six months ended June 30, 1996
compared to the same period in 1995. The reduction in non-interest expense was
primarily due to a reduction in professional fees expense of approximately
$74,000.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Bank held an annual meeting of stockholders on April 26, 1996. The
following table sets forth certain information relating to each of the matters
voted upon at the meeting.
Votes
-------------------------------------
Withheld/
Matters Voted Upon For Against Abstain
----- ------- ---------
1. Election of Directors:
Harry Eastham 445,155.7 -- 9,190
Dr. Everett Frost 495,651.7 -- 9,319
Robert Chad Lydick 495,443.7 -- 9,527
2. Ratification of the appointment of
Robinson Burdette Martin & Cowan,
L.L.P. as independent auditors for
fiscal 1996. 484,181.7 3,121 793
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.7 Office of Thrift Supervision supervisory agreement
(b) Reports on Form 8-K. The following reports on Form 8-K have been
filed.
(1) Form 8-K dated June 27, 1996 reporting under Item 5, a
supervisory agreement effective June 17, 1996 between the
Board of Directors of the Bank and the OTS.
(2) Form 8-K dated July 3, 1996 reporting under Item 5, an
application dated July 1, 1996 from the Bank to the OTS
for formation of a holding company.
NOTE TO ANY SECURITY HOLDER REQUESTING A COPY OF ANY EXHIBIT: The registrant
will furnish any exhibit upon the payment of registrant's reasonable expenses
in furnishing such exhibit, currently 50 cents per page for photocopying,
plus postage.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SAVINGS BANK, F.S.B.
Date: August 13, 1996 /s/ Ken Huey, Jr.
-------------------------------------
Ken Huey, Jr., President, Chief
Executive Officer and Director
(DULY AUTHORIZED REPRESENTATIVE)
Date: August 13, 1996 /s/ Roddy Pearce
-------------------------------------
Roddy Pearce, Vice President
Controller and Chief Operating Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
(DULY AUTHORIZED REPRESENTATIVE)
18
<PAGE>
EXHIBIT 10.7
SUPERVISORY AGREEMENT
This Supervisory Agreement ("Agreement") is made and is effective this
17th day of June, 1996 (the "Effective Date"), by and between First Savings
Bank, F.S.B. (the "Association"), a federally chartered stock association,
having its main office located in Clovis, New Mexico, and the Office of
Thrift Supervision ("0TS"), an office within the United States Department of
the Treasury, having its principal executive offices located at 1700 G
Street, N.W., Washington, D.C., acting through its Midwest Regional Director
or his/her designee ("Regional Director").
WHEREAS, the OTS is the primary federal regulator of the Association; and
WHEREAS, based on the Report of Examination for the OTS examination of
the Association commenced on February 5, 1996 ("ROE"), the OTS is of the opinion
that the Association has engaged in acts and practices that are considered to be
unsafe and unsound; and
WHEREAS, the OTS is of the opinion that grounds exist for the initiation
of administrative proceedings against the Association; and
WHEREAS, the OTS is of the view that it is appropriate to take measures
intended to ensure that the Association will engage in safe and sound practices;
and
WHEREAS, the Association, acting through its Board of Directors (the
"Board") without admitting or denying any unsafe and unsound practices, wishes
to cooperate with the OTS and to evidence the intent to engage in safe and sound
practices.
NOW THEREFORE, in consideration of the above premises, the mutual
undertakings set forth herein, the parties hereto agree as follows:
CORRECTIVE PROVISIONS
1. BUSINESS PLAN AND CAPITAL
No later than June 30, 1996, the Association shall submit to the Regional
Director a business plan (the "Plan") , satisfactory to the Regional Director,
to achieve compliance with the requirements of this Paragraph. The Association
shall thereafter comply with such Plan and shall comply without deviation with
the requirements set
FIRST SAVINGS BANK - OTS # 02891 Page 1
<PAGE>
forth in this Paragraph 1 except as otherwise approved in writing by the
Regional Director. The Plan shall not be amended without the written
approval of the Regional Director. In any case in which it becomes
apparent that the Association shall be unable to comply with its Plan due
to factors beyond the control of the Association and its officers and
directors, the Regional Director shall, in good faith, give consideration
to a proposed amendment to the Plan, if requested in writing by the
Association, in order to allow for variations that would adapt to such
factors. The requirements include progressively targeted levels of core
capital calculated pursuant to 12 C.F.R. Part 567. Such requirements are
as follows:
A. CAPITAL REQUIREMENTS
(i) On the Effective Date, and thereafter, the Association shall,
at a minimum, maintain all capital requirements of 12 C.F.R. Part 567, and any
successor provisions as are now in existence or as hereafter amended.
(ii) In addition to complying with those capital requirements set
forth in subparagraph (i) hereof, but subject to subparagraph (iv) hereof, the
Association shall, by December 31, 1996, obtain, and thereafter shall maintain,
such additional care capital as shall be necessary to reach total core capital
of no less than six percent (6%) of the Association's adjusted total assets.
(iii) In addition to complying with those capital requirements set
forth in subparagraphs (i) and (ii) hereof, but subject to subparagraph (iv)
hereof, the Association shall, by June 30, 1997, obtain, and thereafter shall
maintain, such additional core capital as shall be necessary to reach total core
capital of no less than seven percent (7%) of the Association's adjusted total
assets.
(iv) The Association shall not be deemed to be in violation of
either subparagraph (ii) or subparagraph (iii) hereof for failing to satisfy the
core capital requirements set forth therein at a given point in time, PROVIDED,
however, that within thirty days of such date of such failure to satisfy such
core capital requirement, the Association does satisfy all requirements of
Subparagraphs (ii) and (iii) that are otherwise applicable Nothing herein shall
be deemed to authorize any failure to satisfy the requirements of Subparagraph
(i) hereof, including, but not limited to, the core capital requirements.
B. ADDITIONAL BUSINESS PLAN REQUIREMENTS.
(i) The Plan shall, at a minimum:
(a) describe the manner in which the Association will increase
its capital to achieve compliance with its capital requirements;
FIRST SAVINGS BANK - OTS # 02891 PAGE 2
<PAGE>
(b) specify the types and levels of activities in which the
Association will engage;
(c) include a specific and realistic strategy to reduce
interest-rate-risk exposure, ensure compliance with the established exposure
limits, and improve earnings by addressing increasing net interest income and
core income and how operating expenses shall be controlled;
(d) contain the certifications required by 12 C.F.R. Section
567.10(a)(3);
(e) be consistent with all supervisor guidance including, but
not limited to, Office of Thrift Supervision Thrift Bulletin No. 36a of March 8,
1990, and any successor guidelines;
(f) contain all other required information specified by the
Regional Director; and
(g) address the requirements contained in this Agreement.
(ii) If the capital requirements contained in Part 567 of the OTS
regulations (12 C.F.R. Part 567) should be revised upward, the Association shall
submit a revised capital plan that demonstrates how the Association will comply
with such revised capital requirements.
2. ASSET/LIABILITY AND INVESTMENT COMMITTEE
By no later than June 30, 1996, the Board of Directors of the Association
(the "Board") shall establish an effective asset/liability and investment
committee, which shall be charged with regular oversight of pricing activities,
investment selections, implications of interest rate risk, and compliance by the
Association with policies set by the Board.
3. QUARTERLY COMPLIANCE REPORTS
Within 45 days of the end of each calendar quarter, the Association shall
submit to the Regional Director a written report, providing a review of actual
operating results versus budgeted projections, as contained in the plan, and
include reasons for material variances. Additionally, the written report shall
include a detailed analysis of the Association's exposure to interest-rate risk
as of the end of such quarter and the reasons for material variances, if any,
during such quarter from the interest rate risk strategy contained in the Plan.
4. APPOINTMENT OF DIRECTORS OR HIRING OF SENIOR EXECUTIVE OFFICERS
Pursuant to Section 32 of the Federal Deposit Insurance Act, 12
U.S.C. Section 1831i, and any regulations promulgated thereunder, the Board
shall notify the Regional Director or the proposed addition, or
FIRST SAVINGS BANK - OTS # 02891 Page 3
<PAGE>
employment, of any director or senior executive officer or a lateral change or a
change in responsibilities of a senior executive officer, before such addition,
employment or change becomes effective. The Association and the Board may not
add or change the responsibilities of, or employ any director or senior
executive officer if the Regional Director issues a notice of disapproval before
the end of 30 days from the date on which the notice was deemed complete by the
Regional Director.
MISCELLANEOUS
5. DIRECTOR RESPONSIBILITY
Notwithstanding the requirements of this Agreement that the Board submit
various matters to the Regional Director for the purpose of receiving his
approval, non-objection or notice of acceptability, such regulatory oversight
does not derogate or supplant each individual member's continuing fiduciary
duty. The Board shall have the ultimate responsibility for overseeing the safe
and sound operation of the Association at all times, including compliance with
the determinations of the Regional Director as required by this Agreement.
6. COMPLIANCE WITH AGREEMENT
A. The Board and officers of the Association shall take immediate action
to cause the Association to comply with the terms of this Agreement and shall
take all actions necessary or appropriate thereafter to cause the Association to
continue to carry out the provisions of this Agreement.
B. The Board, on a monthly basis, shall adopt a board resolution (the
"Compliance Resolution") formally resolving that, following a diligent inquiry
of relevant information (including reports of management), to the best of its
knowledge and belief, during the immediately preceding calendar month, the
Association has complied with each provision of this Agreement currently in
effect, except as otherwise stated. The Compliance Resolution shall: (i)
specify in detail how, if at all, full compliance was found not to exist, and
(ii) identify all notices of exemption or non-objection issued by the Regional
Director that were outstanding as of the date of its adoption.
C. The minutes of the meeting of the Board shall set forth the following
information with respect to the adoption of each Compliance Resolution: (i) the
identity of each director voting in favor of its adoption; and (ii) the identity
of each director voting in opposition to its adoption or abstaining from voting
thereon, setting forth each such director's reasoning for opposing or
abstaining.
D. No later than the 45th calendar day following the end of a calendar
quarter, beginning with the end of the first calendar
FIRST SAVINGS BANK - OTS # 02891 Page 4
<PAGE>
quarter following the Effective Date, the Association shall provide to the
Regional Director a certified true copy of the Compliance Resolutions adopted at
the Board meeting of each month in such calendar quarter. The Board, by virtue
of the Association's submission of a certified true copy of each such Compliance
Resolution to the Regional Director, shall be deemed to have certified to the
accuracy of the statements set forth in each Compliance Resolution, except as
provided below. In the event that one or more director of the Board do not
agree with the representations set forth in a Compliance Resolution, such
disagreement shall be noted in the minutes of the Association.
7. DEFINITIONS
All technical words or terms used in this Agreement for which meanings are
not specified or otherwise provided by the provisions of this Agreement shall,
insofar as applicable, have meanings as defined in Chapter V of Title 12 of the
CODE OF FEDERAL REGULATIONS, Home Owners' Loan Act ("HOLA"), Federal Deposit
Insurance Act ("FDIA") or OTS Memoranda. Any such technical words or terms used
in this Directive and undefined in said CODE OF FEDERAL REGULATIONS, HOLA, FDIA,
or OTS Memoranda shall have meanings that are in accordance with the best custom
and usage in the savings and loan industry.
8. SUCCESSOR STATUTES, REGULATIONS, GUIDANCE, AMENDMENTS
Reference in this Agreement to provisions of statutes, regulations, and OTS
Memoranda shall be deemed to include references to all amendments to such
provisions as have been made as of the Effective Date and references to
successor provisions as they become applicable.
9. DURATION, TERMINATION OR SUSPENSION OF AGREEMENT
A. This Agreement shall: (i) become effective upon its execution by the
OTS, through its authorized representative whose signature appears below and
(ii) remain in effect until terminated, modified or suspended in writing by the
OTS, acting through its Director or the Regional Director (including any
authorized designee thereof).
B. The Regional Director, in his or her sole discretion, may, by written
notice, suspend any or all provisions of this Agreement.
10. TIME LIMITS
Time limitations for compliance with the terms of this Agreement run from
the Effective Date, unless otherwise noted.
11. EFFECT OF HEADINGS
The Section headings herein are for convenience only and shall not affect
the construction hereof.
FIRST SAVINGS BANK - OTS # 02891 Page 5
<PAGE>
12. SEPARABILITY CLAUSE
In case any provision in this Agreement is ruled to be invalid, illegal or
unenforceable by the decision of any Court of competent jurisdiction, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby, unless the Regional Director in
his/her sole discretion determines otherwise.
13. NO VIOLATIONS OF LAW, RULE, REGULATION OR POLICY STATEMENT AUTHORIZED; OTS
NOT RESTRICTED
Nothing in this Agreement shall be construed as: (i) allowing the
Association to violate any law, rule, regulation, or policy statement to which
it is subject or (ii) restricting the OTS from taking such action(s) that are
appropriate in fulfilling the responsibilities placed upon it by law, including,
without limitation, any type of supervisory, enforcement or resolution action
that the OTS determines to be appropriate.
14. SUCCESSORS IN INTEREST/BENEFIT
The terms and provisions of this Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their successors in interest. Nothing
in this Agreement, express or implied, shall give to any person or entity, other
than the parties hereto, and the Federal Deposit Insurance Corporation and their
successors hereunder, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
15. SIGNATURE OF DIRECTORS
Each director of the Board signing the Agreement attests, by such act, that
she or he, as the case may be, voted in favor of the resolution, in the form
attached to this Agreement, authorizing the execution of this Agreement by the
Association.
16. INTEGRATION CLAUSE
A. This Agreement represents the final written agreement of the parties
with respect to the subject matter hereof and constitutes the sole agreement of
the parties, as of the Effective Date, with respect to such subject matter.
B. Nothing herein shall be construed as affecting the status of the
Prompt Corrective Action Directive ("PCA Directive") issued by the OTS against
the Association of July 28, 1993, and amended on August 2, 1994, PROVIDED,
however that in the case of any conflict between the language of this Agreement
and the PCA Directive, as so amended, the language of this Agreement shall
prevail.
17. ENFORCEABILITY OF AGREEMENT
FIRST SAVINGS BANK - OTS # 02891 Page 6
<PAGE>
The Association represents and warrants that this Agreement has been duly
authorized, executed, and delivered, and constitutes, in accordance with its
terms, a valid and binding obligation of the Association. The Association
acknowledges that this Agreement is a "written agreement" entered into with the
OTS within the meaning of Section 8 of the FDIA, 12 U.S.C. Section 1818.
IN WITNESS WHEREOF, the OTS, acting by and through the Regional Director
and the Association, in accordance with a duly adopted resolution of its Board
(copy attached hereto), hereby execute this Agreement as of the Effective Date.
OFFICE OF THRIFT SUPERVISION THE ASSOCIATION
By: /s/ David E Bradley By: /s/ Ken Huey, Jr.
-------------------------------- --------------------------------
Name: David E. Bradley Name: Ken Huey, Jr.
Title: Regional Deputy Director Title: Chief Executive Officer
DIRECTORS OF THE ASSOCIATION
/s/ Robert "Chad" Lydick /s/ Harry Eastham
- - ------------------------------ ------------------------------
Robert "Chad" Lydick Harry Eastham
Director Director
/s/ Carl Deaton /s/ Ken Huey, Jr.
- - ------------------------------ ------------------------------
Carl Deaton Ken Huey, Jr.
Director Director
/s/ Charles Guthals /s/ Everett L. Frost
- - ------------------------------ ------------------------------
Charles Guthals Everett L. Frost
Director Director
/s/ Thomas W. Martin, III
- - ------------------------------
Thomas W. Martin, III
Director
FIRST SAVINGS BANK - OTS # 02891 Page 7
<PAGE>
CERTIFIED COPY OF
RESOLUTION OF BOARD OF DIRECTORS
I, the undersigned, being the duly appointed and qualified Secretary of
First Savings Bank, F.S.B., Clovis, New Mexico (the "Association"), hereby
certify as follows:
1. A duly called meeting of the Board of Directors of the Association was
held on May 31, 1996;
2. At said meeting a quorum was present and voting throughout;
3. The following is a true copy of resolutions duly adopted by the
Association's Board of Directors, which resolutions have not been
rescinded or modified and are now in full force and effect:
WHEREAS, the Board of Directors of the Association wishes to cooperate with
the OTS and to demonstrate that said Board and the Association have the intent
to: (1) comply with all applicable laws and regulations and (2) engage in safe
and sound practices; and
WHEREAS the Directors of the Association have read and considered the
proposed Supervisory Agreement ("Agreement") which shall be attached to the
minutes of this meeting; and
WHEREAS after due consideration, the Directors of the Association have
determined to cause the Association to enter into the proposed Agreement which
is in the best interest of the Association;
NOW THEREFORE, BE IT RESOLVED, that the Association be and it hereby is
authorized to enter into the Agreement in the form attached to the minutes of
the meeting,
FURTHER RESOLVED, that the execution and delivery of, and performance of
all of the provisions of the Agreement be, and they hereby are, authorized and
approved,
FURTHER RESOLVED, that the Directors and Officers of the Association be,
and they hereby are, authorized and directed to execute and deliver the
Agreement and to take all steps necessary or appropriate to implement the terms
of the Agreement and to cause the Association to comply in all respects with the
terms of the Agreement.
FIRST SAVINGS BANK - OTS # 02891 Page 8
<PAGE>
4. All members of the Board of Directors were present and voted at the
meeting (except ) and all members of the Board of
Directors (except ) voted in favor of the resolution;
IN WITNESS WHEREOF, I have hereto subscribed my name and affixed the seal
of the Association of this 31st day of May, 1996.
/s/ Kathy Allenberg
---------------------------------
Name: Kathy Allenberg
Title: Secretary
(SEAL)
FIRST SAVINGS BANK - OTS # 02891 Page 9
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
FORM 8-K
CURRENT REPORT
PURSUANT OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
April 25, 1996 (April 12, 1996)
- - -----------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
FIRST SAVINGS BANK, F.S.B.
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UNITED STATES
(OFFICE OF THRIFT SUPERVISION) OTS DOCKET #2891 85-0028945
- - -----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
801 PILE STREET
CLOVIS, NEW MEXICO 88101
- - -----------------------------------------------------------------------------
(Address of principal executive offices)
(505) 762-4417
- - -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
AS PREVIOUSLY REPORTED, THE LAST REGULAR OFFICE OF THRIFT SUPERVISION
("OTS") EXAMINATION OF FIRST SAVINGS BANK, F.S.B. (THE "BANK") BEGAN ON
FEBRUARY 5, 1996 AND CONCLUDED ON MARCH 8, 1996. (SEE "REGULATION" UNDER
ITEM 1, "DESCRIPTION OF BUSINESS" IN PART I OF THE BANK'S ANNUAL REPORT ON
FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.) THE BANK IS
PROHIBITED BY OTS REGULATION FROM DISCLOSING THE REPORT OF THE EXAMINATION OR
ANY PORTION THEREOF.
IN CONNECTION WITH THE MOST RECENT EXAMINATION, THE BOARD OF DIRECTORS
OF THE BANK HAS RECEIVED A LETTER DATED APRIL 12, 1996 FROM THE OTS
REQUESTING A MEETING WITH THE BOARD OF DIRECTORS TO DISCUSS AN ENFORCEMENT
ACTION WHICH WILL ESTABLISH AN INCREASED MINIMUM CAPITAL REQUIREMENT. THE
OTS HAS DEEMED THE INSTITUTION'S CAPITAL INADEQUATE AND WILL REQUIRE A NEW
LEVEL OF CAPITAL NECESSARY AND APPROPRIATE FOR THE EXISTING RISK PROFILE OF
THE BANK. FURTHER, THE OTS STATES THAT UPON ISSUANCE OF AN ENFORCEMENT
ACTION, CONSIDERATION WILL BE GIVEN TO THE TERMINATION OF THE EXISTING
AMENDED PROMPT CORRECTIVE ACTION DIRECTIVE ("PCAD") DATED AUGUST 2, 1994, AND
THE PCAD ISSUED IN JULY 1993. THE BANK IS NOT ABLE AT THIS TIME TO PREDICT
SPECIFICALLY WHAT WILL BE REQUIRED IN THE OTS'S PENDING ENFORCEMENT ACTION.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
FIRST SAVINGS BANK, F.S.B.
DATE: APRIL 25, 1996
BY: /s/ KEN HUEY, JR.
--------------------------------
KEN HUEY, JR. - PRESIDENT
CHIEF EXECUTIVE OFFICER
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
FORM 8-K
CURRENT REPORT
PURSUANT OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
June 27, 1996
- - -----------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
FIRST SAVINGS BANK, F.S.B.
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UNITED STATES
(OFFICE OF THRIFT SUPERVISION) OTS DOCKET #2891 85-0028594
- - -----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No)
801 PILE STREET
CLOVIS, NEW MEXICO 88101
- - -----------------------------------------------------------------------------
(Address of principal Executive offices)
(505) 762-4417
- - -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
As reported in the Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996, the Office of Thrift Supervision (the "OTS") notified First
Savings Bank, F.S.B. (the "Bank") by letter dated April 12, 1996 that the
Bank's capital was deemed inadequate. The OTS requested a meeting with the
Board of Directors of the Bank to discuss a possible enforcement action. On
May 2, 1996, the Board met with the OTS. At the conclusion of such
discussions with the OTS, the Board adopted a general strategic plan intended
to increase the core capital to meet OTS capital requirements.
Following further discussion, the Board and the OTS have now signed a
"Supervisory Agreement" effective June 17, 1996 (the "Agreement") which the
OTS indicated was a measure primarily intended to insure an increase in the
capital position of the bank. The Agreement requires the Bank to do the
following, among other things; (i) complete and submit a revised business
and capital plan no later than June 30, 1996, to achieve compliance with (a)
increasing core capital to 6% as of December 31, 1996, and (b) increasing
core capital to 7% as of June 30, 1997; (ii) create an asset/liability and
investment committee of the Board no later than June 30, 1996, to oversee and
review pricing activities, investment selection, interest rate risk and
compliance by the Bank with Board policies; and (iii) report quarterly to the
OTS on the Bank's operating results and explain variances of actual results
to budgeted projections.
Any or all provisions of the Agreement may be suspended by the OTS
Regional Director. The Agreement will continue in effect until terminated,
modified or suspended in writing by the OTS.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST SAVINGS BANK, F.S.B.
DATE: June 27, 1996
By: /s/ KEN HUEY, JR.
------------------------------------
Ken Huey, Jr. President and
Chief Executive Officer
<PAGE>
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
FORM 8-K
CURRENT REPORT
PURSUANT OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
July 3, 1996
- - -----------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
FIRST SAVINGS BANK, F.S.B.
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UNITED STATES
(OFFICE OF THRIFT SUPERVISION) OTS DOCKET #2891 85-0028945
- - -----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No)
801 PILE STREET
CLOVIS, NEW MEXICO 88101
- - -----------------------------------------------------------------------------
(Address of principal Executive offices)
(505) 762-4417
- - -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On July 1, 1996, First Savings Bank, F.S.B., Clovis, New Mexico (the
"Company"), submitted an application to the Office of Thrift Supervision ("OTS")
seeking approval of the following proposed actions: (1) formation of Access
Anytime Bancorp, Inc., a Delaware Corporation, to become a unitary thrift
holding company through the acquisition of the Bank (the "Company"); (2)
formation of New First Savings Bank, F.S.B. a federally chartered, non-
resulting, interim thrift that will be wholly-owned by Company (the "New Bank");
and (3) the merger of New Bank with and into the Bank accomplished through a
share exchange of all of the issues and outstanding common stock of the Bank for
an equivalent number of shares of common stock of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST SAVINGS BANK, F.S.B.
DATE: July 3, 1996
By: /s/ KEN HUEY, JR.
---------------------------------
Ken Huey, Jr. President and
Chief Executive Officer
<PAGE>
PROXY STATEMENT
FOR
FIRST SAVINGS BANK, F.S.B.
801 PILE STREET
CLOVIS, NEW MEXICO 88101
(505) 762-4417
ANNUAL MEETING OF STOCKHOLDERS
April 26, 1996
This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of First Savings Bank, F.S.B. (hereinafter called FSB
or the Bank) to be used at the Annual Meeting of Stockholders of FSB
(hereinafter called the MEETING) which will be held at Clovis Community
College's Town Hall, 417 Schepps Boulevard, Clovis, New Mexico, on Friday, April
26, 1996 at 9:00 a.m., local time. The accompanying Notice of Annual Meeting
and this Proxy Statement are being first mailed to Stockholders on or about
March 15, 1996.
REVOCATION OF PROXIES
Stockholders who execute Proxies retain the right to revoke them at any time.
Unless so revoked, the shares represented by such Proxies will be voted at the
Meeting and all adjournments thereof. Proxies may be revoked by written notice
to the Corporate Secretary of FSB or the filing of a later Proxy prior to a
vote being taken on a particular proposal at the Meeting. A written notice of
revocation of a Proxy should be sent to the Corporate Secretary, First Savings
Bank, F.S.B., P.O. Box 1569, 801 Pile Street, Clovis, New Mexico 88101, and will
be effective if received by the Corporate Secretary prior to the Meeting. A
previously submitted Proxy will also be revoked if a Stockholder attends the
Meeting and votes in person. Proxies solicited by the Board of Directors of FSB
will be voted as directed by the Stockholder or, in the absence of such
direction, Proxies will be voted "FOR" the nominees for Directors set forth
herein, "FOR" the approval of the appointment of Robinson Burdette Martin &
Cowan, L.L.P. as External Auditors and, as determined by a majority of the
Board of Directors with respect to any other matter(s) coming before the
Meeting. Proxies will not be voted with respect to the two vacant Director
positions for which no nominee is named herein.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Stockholders of record as of the close of business on March 1, 1996, are
entitled to one vote for each share then held. As of March 1, 1996, FSB had
695,698 shares of common stock issued and outstanding. With respect to the
election of Directors, a Stockholder may, by properly completing the enclosed
Proxy, vote in favor of all nominees or withhold his or her votes as to all
nominees or as to specific nominees. Directors will be elected by the
affirmative vote of a majority of the shares represented at the Meeting in
person or by Proxy and entitled to vote in an election of Directors.
Cumulative voting is permitted in the election of Directors, and allows a
Stockholder to cumulate the total number of votes he or she may cast in the
election of Directors and cast any number of those votes for one or more of
the nominees. If a Stockholder desires to exercise such cumulative voting
rights, the Stockholder must clearly state on his or her Proxy the intent to
exercise those rights and vote accordingly. The persons voting the Proxies
will have sole discretion in determining whether a Stockholder has clearly
marked his or her Proxy with respect to cumulative or other voting, and if a
Proxy is not clearly marked, the Stockholder will be contacted for
clarification. Ratification of the Board of Directors hiring of Robinson
Burdette Martin & Cowan, L.L.P. as the Bank's External
1
<PAGE>
Auditors for the 1996 fiscal year will be by the affirmative vote of a majority
of the shares represented at the Meeting in person or by Proxy and
entitled to vote on the ratification of the External Auditors. All other
matters properly coming before the Meeting will be decided by the affirmative
vote of a majority of the shares represented at the Meeting in person or by
Proxy and entitled to vote of such matters, except as otherwise required by law
or by FSB's Charter or Bylaws. The votes will be counted by the inspectors
appointed by the Board of Directors, who will determine, among other things,
the number of votes necessary for the Stockholders to take action in accordance
with the foregoing requirements and the votes withheld or cast for or against
each matter. All properly executed Proxies and Ballots, regardless of the
nature of the vote or absence of the vote indication thereon (but not including
broker non-votes), will be counted in determining the number of shares
represented at the Meeting. Abstentions clearly stated on a Proxy and broker
non-votes will not be counted as affirmative votes, but the failure to give
clear voting instructions on a Proxy (as opposed to clearly stating an intent to
abstain from voting) will result in the Proxy being voted "FOR" the nominees for
Directors identified herein and in favor of each of the other proposals set
forth herein. A majority of the shares of the Bank entitled to vote,
represented in person or by Proxy, shall constitute a quorum under the Bank's
Bylaws.
Persons and groups owning in excess of 5% of FSB's common stock are required to
file certain reports regarding such ownership pursuant to the Securities
Exchange Act of 1934, as amended. Based upon such reports and upon FSB's
stock ownership records and available information concerning non-objecting
beneficial owners, management knows of the following persons who owned more
than 5% of FSB's outstanding shares of common stock as of March 1, 1996.
Ownership is direct unless otherwise specified. Shown below are the shares of
common stock beneficially owned by all Executive Officers and Directors of FSB
as a group as of March 1, 1996. Individual beneficial ownership of shares by
FSB's Directors is set forth under "Proposal I - Election of Directors".
Amount and Nature Percent of Shares
Name and Address of of Beneficial of Capital
Beneficial Owners Ownership (1) Stock Outstanding(1)
- - ------------------- ----------------- --------------------
Drs. Moss, Boese & Abshere 50,000 (2) 7.1870%
P.O. Box 1508
Clovis, NM 88101
Financial Focus, L.P. 48,805 (4) 7.0152%
% T. Westray Battle, Jr.
250 Royal Palm Way, Suite 200
Palm Beach, Florida 33480
James F. Gibson 49,923 (2) (3) 7.1759%
P.O. Box 84215
Vancouver, WA 98684
All Executive Officers 78,586 (2) 10.9498%
and Directors as a
Group (9 persons)
(1) Shares of common stock subject to option currently exercisable, or
exercisable within sixty (60) days, are deemed outstanding for computing
the percentage of ownership of the person holding the options, but not
deemed outstanding for computing the percentage of ownership of any
other person.
(2) Includes shares owned by spouses of the named beneficial owners or as
custodian or trustee for minor children, as to which shares the named
individuals effectively exercise shared voting and investment power.
2
<PAGE>
(3) Includes 4,123 shares beneficially held in the Bank's employee stock
ownership plan which are allocated to Mr. Gibson. Such shares are voted by
the Plan's trustee.
(4) Sole voting and sole dispositive power, as reported on Form 13D filed with
the Office of Thrift Supervision by Financial Focus, L.P. FSB makes no
representation as to the accuracy and completeness of such information.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors urges you to vote "FOR" the nominees for the Board of
Directors described below. Proxies will be so voted unless Stockholders specify
otherwise in their Proxies. Directors will be elected by an affirmative vote of
a majority of the shares represented at the Meeting in person or by proxy and
entitled to vote in the election of Directors.
At the Meeting, there will be five Director positions available to vote on.
The Nominating Committee of the Board of Directors has nominated three
incumbent Directors, Harry Eastham, Dr. Everett Frost, and Robert Chad Lydick
to stand for re-election to fill three of the available positions with terms
expiring in 1999. There are two additional positions open with terms
expiring in 1997. The Nominating Committee of the Board of Directors was
unable to locate qualified persons willing to stand for election to fill
these two vacant positions at this time. Any persons nominated and elected,
except the three current Directors, to fill any Director position will be
subject to the approval of the Office of Thrift Supervision (OTS). In the
event any Director is not approved by the OTS, the Board will attempt to fill
the position with a qualified candidate.
Pursuant to the Bank's Bylaws (Article II, Section 14), nominations may be made
by Stockholders to be voted upon at the Meeting if they are made in writing
and delivered to the Corporate Secretary of the Bank at least five days prior to
the date of the Meeting. Upon delivery, such nominations shall be posted in
a conspicuous place in each office of the Bank. Ballots bearing the names of
all persons nominated by the Nominating Committee (being the three current
Directors listed above) and by Stockholders shall be provided for use at the
Meeting. A Stockholder wishing to vote for a person nominated for Director by a
Stockholder must attend the Annual Meeting and vote in person. Under Federal
Securities regulations, as administered by the OTS, no Proxy shall confer
authority to vote for the election of any person to any office for which a bona
fide nominee is not named in the Proxy Statement.
Each of the current Directors standing for re-election has consented to being
named in the Proxy Statement and to serve if elected. If any nominee is unable
to serve, the shares represented by all valid Proxies will be voted for the
election of such substitute as the Board of Directors may recommend. At this
time, the Board knows of no reason why any named nominee might be unavailable to
serve.
The following table sets forth for each nominee, for each Director continuing in
office, and for each executive officer identified in the summary compensation
table herein, such person's name, age, principal occupation(s) during the past
five years, the year he/she first became a Director and the number of shares of
FSB's Common Stock beneficially owned as of March 1, 1996. (Ownership is direct
unless otherwise specified.)
3
<PAGE>
<TABLE>
UP FOR ELECTION
YEAR AMOUNT
FIRST AND PER
ELECTED OR NATURE OF CENT
PRINCIPAL APPOINTED TERM TO BENEFICIAL OF
NAME AGE OCCUPATION DIRECTOR EXPIRE OWNERSHIP CLASS
(1) (2) (4) (3)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harry 58 Retired Supervisor of Maintenance 1985 1999 1,500 .2156%
Eastham for the A.T.& S.F. Railway Company
Dr. Everett 54 President of Eastern New Mexico University, 1992 1999 300 .0431%
Frost Portales, New Mexico since July 1991, and has
been associated with the University as an
administrator and/or professor since 1970
Robert 46 President of Lydick Engineers and Surveyors, 1987 1999 29,289 4.2100%
Chad Inc., Clovis, New Mexico (7)
Lydick
CONTINUING IN OFFICE
YEAR AMOUNT
FIRST AND PER
ELECTED OR NATURE OF CENT
PRINCIPAL APPOINTED TERM TO BENEFICIAL OF
NAME AGE OCCUPATION DIRECTOR EXPIRE OWNERSHIP CLASS
(1) (2) (3)
- - ------------------------------------------------------------------------------------------------------------------------------
Ken 51 President and Chief Executive Officer of First 1991 1998 18,350 2.5747%
Huey, Jr. Savings Bank since October, 1991 and Vice (9)
President, Commercial Loan Officer and
Compliance Officer of the First National Bank
of Clovis from 1986 to 1991
Carl 71 Retired manager and majority stockholder of 1979 1998 14,541 2.0901%
Deaton C.B.S. Auto Recyclers and former owner of (5)
Clovis Body Shop, Inc., located in Clovis, NM
Thomas W. 48 President of Tucumcari Springwater & 1994 1998 6,234 .8960%
Martin, III Seed Co., Inc., since 1969 - DBA Taco Box (8)
of Clovis and Portales, NM
Charles 59 President and majority stockholder 1985 1997 3,025 .4348%
Guthals of Guthals Co. Inc., a Clovis, New (6)
Mexico nursery and landscaping
company.
</TABLE>
(1) As of December 31, 1995.
(2) Nominees and Directors have held these vocations or positions for
at least five years, unless otherwise noted.
4
<PAGE>
(3) Unless otherwise noted, all shares are owned directly by the
named individuals or by their spouses and minor children, over
which shares the named individuals effectively exercise sole or
shared voting and/or investment power.
(4) Assuming election or reelection at the Annual Meeting.
(5) Mr. Deaton has 10,536 shares held in the Deaton Family Trust, as
to which Mr. Deaton shares voting and investment power with his
spouse and four children. This also includes shared voting and
investment power that Mr. Deaton may have over 4,005 shares owned
by his brother, sister, first son and daughter-in-law, daughter,
granddaughter and son-in-law and daughter and granddaughter.
(6) Includes 3,000 shares owned directly by Mr. Guthals and 25 shares
which he owns indirectly as trustee for his daughter, over which
he exercises joint voting and investment power.
(7) Mr. Lydick has shared voting and dispositive powers over all of
these shares with his spouse and/or his father.
(8) Includes 4,234 shares owned by Tucumcari Springwater & Seed Co.
Inc., which is controlled by Mr. Martin.
(9) Shares of common stock subject to option currently exercisable,
or exercisable within sixty (60) days, are deemed outstanding for
computing the percentage of ownership of the person holding the
options, but not deemed outstanding for computing the percentage
of ownership of any other person. The number of shares shown for
Mr. Huey includes 17,000 shares under an option grant.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the Board and
through its committees. During the year ending December 31, 1995, the Board of
Directors held twelve regular monthly meetings and five special called Board
meetings. All Directors attended more than 75% of the total number of these
monthly and special Board meetings and committee meetings of the Board on which
they served, except Dr. Everett Frost.
FSB's Executive Committee is currently composed of Directors Ken Huey, Jr.,
Charles Guthals, Carl Deaton, Thomas W. Martin, III, and Robert Chad Lydick.
This committee has regularly scheduled meetings and is also empowered to
exercise the authority of the Board of Directors when the Board is not in
session. During the year ending December 31, 1995, the Executive Committee held
seventeen meetings.
FSB's Audit Committee, presently composed of Directors Carl Deaton, Harry
Eastham, and Charles Guthals, is responsible for the review and evaluation of
FSB's internal controls and accounting procedures and reviews FSB's audit
reports with FSB's external independent auditors. During the year ending
December 31, 1995, the Audit Committee met two times.
Ballots bearing the names of all persons nominated by the Nominating Committee
and by Stockholders shall be provided for use at the Annual Meeting. FSB's
Bylaws provide that the full Board of Directors is to act as a Nominating
Committee for the annual selection of its nominees for election as Directors.
The Board of Directors met twice in its capacity as the Nominating Committee
during the year ending December 31, 1995. The Nominating Committee does not
consider nominees recommended by Stockholders. Article II - Section 14 of FSB's
Bylaws provides procedures for nomination of Directors by the Stockholders.
This article states that no nomination for Directors, except those made by the
Nominating Committee, shall be voted upon at an Annual Meeting of Stockholders
unless other nominations by Stockholders are made in writing and delivered to
the Corporate Secretary of FSB at least five days prior to the date of the
Annual Meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of FSB. However, if the Nominating Committee
shall fail or refuse to act at least 20 days prior to an Annual Meeting,
nominations for Directors may be made at the Annual
5
<PAGE>
Meeting by any Stockholder entitled to vote and shall be voted upon. The
election of any Director other than those now serving will require the approval
of the OTS.
FSB's Compensation Committee is composed of Directors Robert Chad Lydick, Harry
Eastham, Dr. Everett Frost, and Ken Huey, Jr. This committee is responsible for
reviewing salary administration. Actions taken or recommended by the committee
are subsequently ratified by the Board of Directors. During the year ending
December 31, 1995, the Compensation Committee held two meetings.
DIRECTORS' COMPENSATION
FSB pays Director's compensation of $300 per month to each Director, except Ken
Huey, Jr., with an additional $250 paid to each Director, except Ken Huey, Jr.,
for attendance at a regular monthly Board Meeting. Aggregate payments, for all
Directors, made pursuant to this policy in 1995 totaled $40,682. Ken Huey, Jr.
is the only Director employed by the Bank, and has not received any Director's
fees since becoming a Director in 1991. Currently, Directors employed by the
Bank do not receive Directors' fees.
EXECUTIVE OFFICERS
KEN HUEY, JR., 51, has been employed by FSB since October 1991 as President and
Chief Executive Officer. He also serves on the Bank's Board of Directors. From
1986 until 1991, he was a Vice President for First National Bank in Clovis,
working primarily in Commercial Loans and Regulatory Compliance. From 1976 to
1986, he served as a Vice President and Loan/Compliance Officer for Western Bank
of Clovis, New Mexico.
PAUL ELLIS, 52, has been employed by FSB since October 1991 as Executive Vice
President and Chief Lending Officer. From 1987 until 1991, he was Vice
President and Branch Manager for Western Commerce Bank in Hobbs, New Mexico.
From 1978 to 1987, he worked as a Vice President and Senior Lending Officer for
Western Commerce Bank in Carlsbad, New Mexico.
RODDY PEARCE, 45, has been employed by FSB since March 1989 as Vice President
and Controller. In 1995 he also assumed duties of the Chief Operating Officer.
From 1977 until 1989, he was Assistant Controller at Allsup's Convenience Stores
where he had worked for eleven years.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid by FSB to
the Bank's Chief Executive Officer for services rendered during the three fiscal
years ending December 31, 1995. No Executive Officer of FSB received salary and
bonus compensation in excess of $100,000 during the fiscal year ended December
31, 1995.
<TABLE>
- - -----------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- - -----------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------------
Awards
- - -----------------------------------------------------------------------------------
SAR's
Restricted Securities
Other Annual Stock Underlying
Name and Principal Salary Bonus Compensation Award(s) Options
Position Year ($) ($)(2) ($)(1) ($) (#)
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ken Huey, Jr. 1995 91,694 6,000 1,397 -0- 17,000
President and Chief 1994 84,000 3,000 9,773 (3) -0- -0-
Executive Officer 1993 80,000 -0- 1,140 -0- -0-
- - ----------------------------------------------------------------------------------
</TABLE>
(1) FSB provides Mr. Huey with an automobile for both business and personal
use, and Mr. Huey's allowance for the personal use of that automobile
during 1995 was $897. and similar allowances were provided in 1994 and
1993. However, the aggregate amount of all perquisites and other personal
benefits, including personal use of the automobile, is less than either
$50,000 or 10% of Mr. Huey's total salary, and bonus as specified above.
(2) Bonus based on Bank's year-end 1994 and 1993 profits and performance,
respectively.
(3) Includes $9,384 reimbursement for expenses paid by Mr. Huey in connection
with the Stockholder Derivative Lawsuit described in the "Litigation"
section of this Proxy Statement, in which Mr. Huey has received a Summary,
Judgment in his favor releasing him from the lawsuit, pursuant to
indemnification requirements.
The following table provides information regarding stock options granted to
FSB's Chief Executive Officer during fiscal 1995. No Stock Appreciation Rights
(SARs) were granted during FISCAL 1995.
- - --------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
- - --------------------------------------------------------------------------------
Individual Grants
- - --------------------------------------------------------------------------------
Number of Securities
Underlying Options % of Total Options Exercise or
Granted Granted to Employees Base Price Expiration
Name (#) in Fiscal Year ($/Sh) Date
- - --------------------------------------------------------------------------------
Ken Huey, Jr. 17,000 43.60 5.25 08-07-96
- - --------------------------------------------------------------------------------
7
<PAGE>
The following table provides information as to stock options exercised (if any)
by FSB's Chief Executive Officer during fiscal year ended December 31,
1995 and the value of the options held by the Chief Executive Officer on
December 31, 1995.
<TABLE>
- - -------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
- - -------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at FY-End (#) FY-End ($) (1)
-----------------------------------------------------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ken Huey, Jr. -0- -0- 17,000 -0- 27,625 -0-
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the aggregate market value (market price of the common stock
less the exercise price) of the options granted based upon the exercise
price of the options ($5.25 per share with respect to 17,000 shares) and
the average of the closing bid and asked prices of $6.875 per share of the
common stock as reported on the NASDAQ System on December 29. 1995.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective December 1, 1995, Kenneth J. Huey, Jr. entered into a two-year
employment agreement to continue as President and Chief Executive Officer of the
Bank. FSB may terminate the agreement at any time with or without cause. In
the event the Officer is terminated without cause, the agreement provides that
the terminated Officer receive compensation equal to said Officer's salary and
employee benefits for the remainder of the term of the agreement. The total
compensation upon departure, for any reason, will not exceed three times the
Officer's average annual compensation, based on the five most recent taxable
years. However, in the case of termination for cause, the Bank will only pay
accrued salary and other vested benefits due said Officer as of the date of
termination. The agreement provided for the granting of stock options, which
are included in the "Executive Compensation" section of this Proxy Statement.
EMPLOYEE BENEFIT PLANS
FSB makes available to all employees who have reached the age of 21 and have
been employed by FSB for one year a non-contributory profit sharing/employee
stock ownership plan, which includes a contributory 401(k) plan qualified
under Section 401 of the Internal Revenue Code of 1986.
PROFIT SHARING Plan. The Bank has a profit sharing/employee stock ownership
plan for which substantially all employees are eligible. Effective January 1,
1989, the Bank amended its profit sharing plan to include an employee stock
ownership plan (ESOP) and a 401(k) before-tax salary deferral feature which
covers substantially all employees. Contributions, when made by the Bank may be
made in the form of cash or in common stock of the Bank. Contribution amounts
are based upon employee's compensation, but may not exceed maximum deductible
limits for federal income tax purposes. No contributions were made in 1995.
Employees are permitted (optional) to contribute under the 401(k) plan.
Employees are 100% vested to the extent of employee contributions as soon as
such contributions are made. The 401(k) plan before-tax salary deferred feature
is matched by a FSB contribution at a minimum of 5% of employees' contributions.
The maximum amount each employee could have contributed during 1995 was $9,240.
FSB contributed 5% of employees' contributions for the 401(k) plan for the
year ending December 31, 1995 for a total of $1,753. Executive Officers, as a
group, received a total allocation of $234 of the amount contributed by FSB.
8
<PAGE>
STOCK OPTION PLAN. Under the 1986 Stock Option and Incentive Plan (Plan) as
amended, the Bank may grant Incentive and Non-Incentive Stock Options, as well
as Stock Appreciation Rights (SARs) to Officers, Directors, key employees and
other persons up to a maximum of 68,250 shares of the Bank's common stock. The
Plan is administered by a committee of the Board of Directors. The Plan
terminates in August 1996.
Under the provisions of the Plan, stock options have a term that is determined
by the committee, but not to exceed ten years from the date of grant.
However, in the case of optionees who own in excess of 10% of the outstanding
common stock of the Bank, the term of the stock option may not exceed five
years. The aggregate fair market value of the Incentive Stock Options that any
one person may be granted in any calendar year may not exceed $100,000. SARs,
upon their exercise, entitle the SAR grantee to receive cash, common stock or a
combination thereof, as the committee in its sole discretion shall determine,
equal to the excess of the fair market value of the common stock on the date
of exercise over the exercise prices of the SARs. As of December 31, 1995, no
SARs had been granted under the Plan.
There were no stock options exercised during the three years in the period ended
December 31, 1995. The committee has 12,809 shares of common stock available
for future options.
TRANSACTIONS WITH FSB
There have been no transactions in excess of $60,000 between FSB and its
Executive Officers, Directors, nominees for Director, and 5% stockholders and
their respective immediate family members, which originated during the last
two years. FSB has loans outstanding to certain of its Executive Officers,
Directors, nominees for Director and 5% Stockholders which were originated more
than two years ago, all of which have terms in accordance with applicable
regulations and FSB's normal lending policies and none of which are in default.
All loans made by FSB to Directors, Officers, Employees, and related parties of
FSB and its subsidiaries are made in accordance with Regulation "O" promulgated
by the Federal Reserve Bank and FSB's normal lending policies.
In addition to the foregoing, FSB services certain loans involving various of
its Executive Officers, Directors, nominee for Directors, and 5% Stockholders,
and their respective immediate family members, for which FSB receives a
servicing fee. However, FSB is not a party to such loans, but is merely the
servicing agent for the holder of the loans.
LITIGATION
On February 1, 1996, an Order of Dismissal was filed by the Court with respect
to a certain derivative lawsuit (Derivative Lawsuit) filed on May 19, 1994 and
amended on November 2, 1994. This derivative lawsuit was filed by two
Stockholders, one of whom was a former Director of the Bank, alleging a
number of intentional and negligent acts and omissions in the management of the
Bank which allegedly resulted in damages and losses suffered by the Bank. The
Court dismissed, with prejudice, all claims against all defendants (including
Messrs. Eastham and Lydick, who are standing for re-election), except a
former President, Chief Executive Officer, and Director (former President) of
the Bank. A dismissal with prejudice means that the charges cannot be refiled.
The Court also ordered the Plaintiffs to pay reasonable expenses, including
attorneys' fees, to one of the Bank's former independent auditors. A notice of
appeal was filed by the plaintiffs on March 1, 1996. The Bank cannot predict
the outcome of the appeal.
If final judgment in their favor is received in the Derivative Lawsuit, certain
of the current and former
9
<PAGE>
director defendants may make demand on FSB for indemnification of their legal
expenses pursuant to OTS regulations. The disinterested members of the Bank's
Board of Directors must approve said indemnification and give 60 days notice to
the OTS of the Bank's intention to make such indemnification. No such
indemnification shall be made if the OTS advises the Bank in writing, within
the 60 day notice period, of its objection thereto. No demand for
indemnification has been made by the remaining defendants.
With respect to the former President of the Bank, the Court dismissed the
claims in the Derivative Lawsuit without prejudice in order to allow the Bank
to pursue such claims in Federal Court. In May 1995, the Bank filed a lawsuit
against the former President in the United States District Court for the
District of New Mexico. In the lawsuit, the Bank asserts that the defendant
engaged in fraudulent conduct and breached his duties of loyalty and care to the
Bank, all of which resulted in losses and damages to the Bank. The Bank is
seeking recovery of damages from the defendant in excess of $2.8 million, plus
interest and punitive damages. The Bank's lawsuit against the former
President has not gone to trial and is not expected to do so until mid-year
1996.
PROPOSAL II - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has heretofore hired Robinson Burdette Martin & Cowan,
L.L.P., Independent Public Accountants, to be its External Auditors for the 1996
fiscal year, subject to ratification by FSB's Stockholders. A representative of
Robinson Burdette Martin & Cowan, L.L.P., is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he desires to
do so, and will be available to respond to appropriate questions.
During the 1995 fiscal year, Robinson Burdette Martin & Cowan, L.L.P. provided
services to FSB in connection with its annual External Audit function. which
included an examination of FSB's consolidated financial statements, assistance
in preparation of reports filed on behalf of FSB with the OTS and meeting with
FSB's Audit Committee relative to the Audit.
The Board of Directors recommends that Stockholders vote "FOR" the approval of
the appointment of External Auditors.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that Proxies in the accompanying form will be voted in respect
thereof in accordance with the judgment of the persons voting the Proxies.
COMPLIANCE WITH EXCHANGE ACT REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Bank's Directors and Executive Officers, and persons who own more than 10% of a
registered class of the Bank's equity securities to file with the OTS initial
reports of ownership and reports of changes in ownership of equity securities of
the Bank. Officers, Directors, and greater than 1O% Shareholders are required
to furnish the Bank with copies of all Section 16(a) forms they file.
To the Bank's knowledge, based solely on review of the copies of such reports
furnished to the Bank with respect to the fiscal year ended December 31, 1995,
all Section 16(a) requirements applicable to Officers, Directors, and greater
than 10% Shareholders were complied with, except as described in this paragraph.
10
<PAGE>
Ken Huey, Jr. filed one report that contained an error in the number of shares
of common stock he owns and one report twenty days late that reported options
granted to him by the Bank. Paul Ellis, Executive Vice President of the Bank,
filed one report twenty days late that reported options granted to him by the
Bank.
MISCELLANEOUS
The cost of solicitation of Proxies will be borne by FSB. In addition to
solicitation by mail, Directors, Officers, and Employees of FSB may solicit
Proxies personally or by telegraph or telephone without additional compensation.
All Stockholders of record as of the close of business on March 1, 1996 have
been mailed FSB's Annual Report. Any Stockholder who has not received a copy of
such Annual Report may obtain a copy by writing to FSB. Such Annual Report is
not to be treated as a part of the Proxy solicitation material nor as having
been incorporated herein by reference.
STOCKHOLDER PROPOSALS
In order to be eligiable for inclusion in FSB's Proxy materials for next
year's Annual Meeting of Stockholders, any Stockholder proposal to take action
at such meeting must be received by FSB's Main Office at 801 Pile Street, P.O.
Box 1569, Clovis, New Mexico, 88101 no later than November 15, 1996. Any such
proposals shall be subject to the requirements of the Proxy rules adopted under
the Securities Exchange Act of 1934, as amended.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kathy Allenberg
----------------------------------
Kathy Allenberg
Corporate Secretary
Clovis, New Mexico
March 15, 1996
FORM 10-KSB
A COPY OF FIRST SAVINGS BANK'S FORM 10-KSB FOR THE FISCAL YEAR ENDING DECEMBER
31, 1995, AS FILED WITH THE OFFICE OF THRIFT SUPERVISION WILL BE FURNISHED
WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO
KATHY ALLENBERG, CORPORATE SECRETARY, FIRST SAVINGS BANK, F.S.B., P.O. BOX 1569,
801 PILE STREET, CLOVIS, NEW MEXICO 88101.
11
<PAGE>
FIRST SAVINGS BANK, F.S.B.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
OCTOBER 18, 1996
TO THE STOCKHOLDERS OF
FIRST SAVINGS BANK, F.S.B.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of First Savings Bank, F.S.B. (the "Bank") will be held at Clovis
Community College's Town Hall, 417 Schepps Boulevard, Clovis, New Mexico 88101,
on October 18, 1996 at 9:00 a.m., local time, to consider and act upon the
following matters which are described in more detail in the accompanying
Offering Circular and Proxy Statement:
1. a proposal to approve the Agreement and Plan of Reorganization dated
August 28, 1996, by and between the Bank and Access Anytime Bancorp, Inc., a
newly-formed Delaware corporation organized at the direction of the Bank as a
wholly-owned subsidiary of the Bank (the "Company"), and the related Plan of
Merger by and among the Bank, the Company and New First Savings Bank, F.S.B., an
interim thrift and upon formation, a wholly-owned subsidiary of the Company
("New Bank"), pursuant to which New Bank will be merged with and into the Bank,
resulting in the Company becoming a unitary thrift holding company for the Bank
under the Home Owners Loan Act, as amended; and
2. to transact any and all other business as may properly come before the
Meeting or any adjournment(s) thereof.
The Bank has fixed the close of business on September 3, 1996, as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting and any adjournment(s) thereof. A complete list of the
stockholders entitled to vote at the Meeting or any adjournment(s) thereof will
be maintained at the Bank's principal executive offices, will be open to
examination by any stockholder for any purpose germane to the Meeting during
ordinary business hours for a period of twenty days prior to the Meeting, and
will be produced at the time and place of the Meeting during the whole time
thereof.
Any stockholder of the Bank giving a proxy has the unconditional right to revoke
his proxy at any time prior to the voting thereof (i) by attendance at the
Meeting and voting in person, (ii) by delivering a duly executed proxy bearing a
later date, or (iii) by giving written notice of revocation to the Bank
addressed to Mr. Kenneth J. Huey, Jr., President, First Savings Bank, F.S.B.,
801 Pile Street, Clovis, New Mexico 88101; no such revocation shall be
effective, however, until such notice of revocation has been received by the
Bank at or prior to the Meeting. If a stockholder does not specify a choice on
his or her proxy, the proxy will be voted in favor of the above proposals.
Further information regarding the Meeting is set forth in the attached Offering
Circular and Proxy Statement. The Bank's Annual Report for the year ended
December 31, 1995, and the Bank's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1996, accompany this Notice.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN, VOTE AND RETURN
THE ACCOMPANYING PROXY WITHOUT DELAY IN THE ENCLOSED POSTPAID ENVELOPE. THE
PROXY IS REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AND PREFER TO VOTE IN
PERSON.
By Order of the Board of Directors
/s/ Kenneth J. Huey, Jr.
---------------------------------------
Kenneth J. Huey, Jr.
President
Clovis, New Mexico: September 19, 1996
<PAGE>
OFFERING CIRCULAR PROXY STATEMENT
ACCESS ANYTIME BANCORP, INC. FIRST SAVINGS BANK, F.S.B.
801 PILE STREET 801 PILE STREET
CLOVIS, NEW MEXICO 88101 CLOVIS, NEW MEXICO 88101
COMMON STOCK, SPECIAL MEETING OF
PAR VALUE $0.01 PER SHARE STOCKHOLDERS TO BE
HELD ON OCTOBER 18, 1996
-------------------------
THIS DOCUMENT SERVES AS AN OFFERING CIRCULAR FOR THE OFFERING OF SHARES OF
COMMON STOCK OF ACCESS ANYTIME BANCORP, INC. AND ALSO AS A PROXY STATEMENT FOR
THE SPECIAL MEETING OF THE STOCKHOLDERS OF FIRST SAVINGS BANK, F.S.B. TO BE HELD
ON OCTOBER 18, 1996.
-------------------------
This Offering Circular and Proxy Statement ("Circular/Proxy Statement") serves
as a Proxy Statement for a Special Meeting of the Stockholders (the "Meeting")
of First Savings Bank, F.S.B., a federal savings bank (the "Bank"). The
accompanying Proxy is solicited on behalf of the Board of Directors of the Bank
to be voted at the Meeting to be held on October 18, 1996, at the time and place
and for the purposes set forth in the accompanying Notice of Special Meeting and
at any adjournment(s) thereof.
The principal executive offices of the Bank are located at 801 Pile Street,
Clovis, New Mexico 88101. This Circular/Proxy Statement and accompanying form
of Proxy are being mailed on or about September 19, 1996.
At the Meeting, the stockholders of the Bank will consider and act upon the
following matters: (1) a proposal to approve the Agreement and Plan of
Reorganization dated August 28, 1996 (the "Agreement"), by and between the Bank
and Access Anytime Bancorp, Inc., a newly-formed Delaware corporation organized
at the direction of the Bank as a wholly-owned subsidiary of the Bank (the
"Company"), and the related Plan of Merger (the "Plan") by and among the Bank,
the Company and New First Savings Bank, F.S.B., an interim thrift and upon
formation, a wholly-owned subsidiary of the Company ("New Bank"), pursuant to
which New Bank will be merged with and into the Bank (the "Merger"), resulting
in the Company becoming a unitary thrift holding company for the Bank under the
Home Owners Loan Act, as amended ("HOLA"); and (2) to transact any and all other
business as may properly come before the Meeting or any adjournment(s) thereof.
This Circular/Proxy Statement also serves as an Offering Circular in connection
with the issuance by the Company of 732,198 shares of its common stock, par
value $0.01 per share ("Company Stock"), pursuant to the Agreement and the Plan.
Upon the effective date of the merger of the Bank and New Bank, all outstanding
shares of common stock of the Bank, par value $1.00 per share ("Bank Stock"),
shall be converted into and exchanged for an equal number of shares of Company
Stock, on a one-for-one basis.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
A DECISION TO VOTE WITH RESPECT TO THE PROPOSALS SET FORTH IN THIS
CIRCULAR/PROXY STATEMENT, SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE THE AGREEMENT AND THE PLAN.
THE DATE OF THIS CIRCULAR/PROXY STATEMENT IS SEPTEMBER 19, 1996.
<PAGE>
Under the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), the solicitation of the Bank's stockholders to approve the
Agreement and the Plan constitutes an offering of Company Stock. The Company
Stock is not a security subject to registration under the Securities Act
pursuant to Section 3(a)(12) thereof and therefore, no registration statement
with respect to the issuance of the Company Stock shall be filed with the
Commission or the Office of Thrift Supervision (the "OTS") other than a
Registration Statement on Form 8-A to register the class of common stock of the
Company pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
No person has been authorized to give any information or to make any
representations other than those contained in this Circular/Proxy Statement,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Bank.
-------------------------
THIS CIRCULAR/PROXY STATEMENT SHALL NOT CONSTITUTE AN OFFER BY THE COMPANY TO
SELL, OR THE SOLICITATION OF AN OFFER BY THE COMPANY TO BUY, ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH THIS CIRCULAR/PROXY STATEMENT RELATES NOR
SECURITIES IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS CIRCULAR/PROXY STATEMENT NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION SET FORTH OR INCORPORATED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
IN MAKING AN INVESTMENT DECISION, STOCKHOLDERS OF THE BANK MUST RELY ON THEIR
OWN EXAMINATION OF THE BANK, THE COMPANY AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THE COMPANY STOCK HAS NOT BEEN
REGISTERED WITH, RECOMMENDED BY, APPROVED BY OR DISAPPROVED BY THE COMMISSION,
THE OTS OR ANY OTHER FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY, NOR HAS ANY SUCH COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS CIRCULAR/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OF THE COMPANY OFFERED HEREBY ARE NOT OBLIGATIONS OF A BANK, ARE
NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
-ii-
<PAGE>
TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parties to the Agreement and the Plan . . . . . . . . . . . . . . . . . . 1
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Selected Historical Financial and Operating Data. . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Purpose of the Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Votes Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Proxies and Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . 9
Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Security Ownership of Certain Beneficial Owners and Management. . . . . . 9
PROPOSALS TO BE VOTED ON AT THE MEETING. . . . . . . . . . . . . . . . . . . .11
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND THE PLAN . . . . . . . . . . . . . . .11
OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
PARTIES TO THE AGREEMENT AND THE PLAN. . . . . . . . . . . . . . . .11
TERMS OF THE AGREEMENT AND THE PLAN. . . . . . . . . . . . . . . . .12
Description of the Merger . . . . . . . . . . . . . . . . . . .12
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . .12
Conditions to Consummation of the Merger. . . . . . . . . . . .13
Termination and Amendment . . . . . . . . . . . . . . . . . . .13
Exchange of Stock Certificates. . . . . . . . . . . . . . . . .13
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . .14
Effect of the Merger on Employee Benefit Plans. . . . . . . . .14
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . .14
MANAGEMENT OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . .15
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Executive Officers. . . . . . . . . . . . . . . . . . . . . . .15
Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .15
DESCRIPTION OF COMPANY CAPITAL STOCK . . . . . . . . . . . . . . . .15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Company Stock . . . . . . . . . . . . . . . . . . . . . . . . .16
Company Preferred Stock . . . . . . . . . . . . . . . . . . . .16
DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
COMPARATIVE RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . .18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Federal Securities Laws . . . . . . . . . . . . . . . . . . . .18
State Securities Laws . . . . . . . . . . . . . . . . . . . . .18
Rights of Issuer to Repurchase Stock. . . . . . . . . . . . . .18
Indemnification of Directors, Officers and Employees. . . . . .19
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . .19
Certain Anti-Takeover Provisions. . . . . . . . . . . . . . . .19
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . .20
NATURE OF THE TRADING MARKET AND MARKET PRICES . . . . . . . . . . .21
-iii-
<PAGE>
REGULATION AND SUPERVISION . . . . . . . . . . . . . . . . . . . . .21
General . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Regulation of the Company . . . . . . . . . . . . . . . . . . .22
RECOMMENDATION OF PROPOSAL . . . . . . . . . . . . . . . . . . . . .22
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . .23
INCORPORATION OF DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . . . . . .23
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . .24
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
EXHIBIT A -- The Agreement and The Plan
EXHIBIT B -- Certificate of Incorporation
EXHIBIT C -- Bylaws
-iv-
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS INCLUDED ELSEWHERE OR INCORPORATED BY
REFERENCE INTO THIS CIRCULAR/PROXY STATEMENT.
THE MEETING
SOLICITATION OF PROXIES. The accompanying Proxy to this Circular/Proxy Statement
is solicited on behalf of the Board of Directors of the Bank to be voted at the
Meeting.
TIME AND PLACE OF THE MEETING. The Meeting will be held on October 18, 1996 at
9:00 a.m., local time, at Clovis Community College's Town Hall, 417 Schepps
Boulevard, Clovis, New Mexico 88101.
PURPOSE OF THE MEETING. At the Meeting, the stockholders of the Bank will
consider and act upon the following matters (1) a proposal to approve the
Agreement, by and between the Bank and the Company, and the related Plan by and
among the Bank, the Company and New Bank, pursuant to which New Bank will be
merged with and into the Bank, resulting in the Company becoming a unitary
thrift holding company for the Bank under HOLA; and (2) to transact any and all
other business as may properly come before the Meeting or any adjournment(s)
thereof.
RECORD DATE, PERSONS ENTITLED TO VOTE AND VOTING RIGHTS. The Board of Directors
of the Bank fixed the close of business on September 3, 1996, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Meeting (the "Record Date"). On the Record Date, there were 732,198 shares of
Bank Stock issued and outstanding, of which 82,611 shares, or approximately
11.28%, were owned by the executive officers and directors of the Bank. See
"General Information--Security Ownership of Certain Beneficial Owners and
Management." Each holder of shares of Bank Stock will be entitled to one vote
for each share of Bank Stock owned of record as of the Record Date on all
matters. Approval by the holders of a majority of the Bank Stock is required in
connection with the Merger.
PROXIES. Proxies in the form accompanying this Circular/Proxy Statement which
are properly executed and delivered to the Bank by the stockholders of the Bank
entitled to vote and not subsequently revoked will be voted at the Meeting.
Proxies will be voted in accordance with the directions specified thereon. If a
stockholder does not specify a choice on his or her proxy, the proxy will be
voted in favor of the proposals specified herein.
PARTIES TO THE AGREEMENT AND THE PLAN
FIRST SAVINGS BANK, F.S.B. The Bank is a federal savings bank that conducts
full service banking operations from its main office located at 801 Pile Street,
Clovis, New Mexico 88101. The Bank also conducts banking operations at two
branch locations in Clovis and Portales, New Mexico, and has a loan production
office in Rio Rancho, New Mexico. The Bank will be the resulting entity after
the Merger and will continue its banking operations as presently conducted
subsequent to the Merger, although as a wholly-owned subsidiary of the Company.
ACCESS ANYTIME BANCORP, INC. The Company is a Delaware corporation which was
organized to become a unitary thrift holding company for the Bank. Following
consummation of the Merger, the Company will directly own 100% of the Bank
Stock, and the Company will become a registered unitary thrift holding company
under HOLA. See "Proposal 1 Approval of the Agreement and the Plan--Business of
the Company."
NEW FIRST SAVINGS BANK. New Bank is a federally chartered non-resulting interim
thrift association to be organized as a wholly-owned subsidiary of the Company
solely to facilitate the Company's acquisition of the Bank. New Bank will not
engage in any operations prior or subsequent to the Merger and will have no
independent existence thereafter.
THE MERGER
THE TRANSACTION. Subject to the receipt of all regulatory approvals, the
approval of the holders of at least a majority of the issued and outstanding
Bank Stock, the approval of the holder of the capital stock of New Bank and
compliance with all of the terms and conditions of the Agreement and the Plan,
New Bank will be merged with and into the Bank with the Bank being the surviving
entity. As a result of the Merger, the Bank Stock will be converted into and
exchanged for Company Stock or cash, as set forth below. See "Proposal 1
Approval of the Agreement and the Plan--Terms of the Agreement and the Plan."
Immediately following consummation of the Merger, the Bank will be
<PAGE>
a wholly-owned subsidiary of the Company and New Bank shall cease to exist as
a separate entity. The Agreement and Plan are incorporated herein by
reference and attached hereto as EXHIBIT A.
MANAGEMENT. The Board of Directors of the Company is composed of members of the
Board of Directors of the Bank with the addition of Mr. Norman R. Corzine. The
Company's management group will be drawn from the current management of the
Bank. Management of the Bank will remain unchanged as a result of the Merger.
See "Proposal 1 Approval of the Agreement and the Plan--Management of the
Company."
REASONS FOR THE MERGER. The Board of Directors of the Bank has approved the
Agreement and the Plan in the belief that the formation of a holding company is
in the best interests of the Bank and its stockholders. The Board of Directors
of the Bank believes that the Merger will afford to the Bank and its
stockholders the advantages of having a related holding company while preserving
the identity of the Bank. As a Delaware corporation and savings and loan
holding company, the Company will have greater business and investment
flexibility than the Bank. See "Proposal 1 Approval of the Agreement and the
Plan--Terms of the Agreement and Plan" and "--Business of the Company."
CONDITIONS TO CONSUMMATION OF THE MERGER. The Agreement provides that the
consummation of the Merger is subject to the following conditions, among others:
(i) receipt of all necessary approvals of governmental agencies, including the
OTS; (ii) approval of the Agreement and Plan by the holders of at least a
majority of the outstanding shares of Bank Stock and by the holder of at least a
majority of the outstanding shares of capital stock of New Bank; (iii)
organization and capitalization of the New Bank; (iv) the holders of not more
than five percent (5%) of the issued and outstanding shares of Bank Stock are
residents of a state or states that require registration of the Company Stock to
be issued in connection with the Merger; and (v) there being no legal or
regulatory restrictions on the Bank's ability to pay dividends with respect to
the Bank Stock in an amount sufficient to allow the Company to pay
organizational expenses and purchase shares of Bank Stock from stockholders
entitled to receive cash in connection with the Merger. Certain of the above
conditions are waivable at the option of the Company. The individual
obligations of the Bank and the Company are each also subject to compliance by
the other with their respective covenants, confirmation of their respective
representations and warranties and certain legal matters as set forth in the
Agreement. In addition, if the Merger is not consummated by December 31, 1996,
the Bank or the Company may terminate the Agreement without liability. For a
more detailed description of the conditions to the Merger, see the Agreement and
the Plan attached to this Circular/Proxy Statement as EXHIBIT A.
ACCOUNTING TREATMENT OF THE TRANSACTION. It is expected that the transactions
contemplated by the Agreement and the Plan will be characterized and treated
similar to a "pooling of interests" for financial reporting and related
purposes.
BASIS FOR CONVERSION OF BANK STOCK OWNED BY ELIGIBLE STOCKHOLDERS. Upon
consummation of the Merger and except as set forth below, each share and any
fractional shares of Bank Stock held of record by stockholders will be converted
into and exchanged for the right to receive one (1) share and a like number of
fractional shares of Company Stock.
BASIS OF CONVERSION OF BANK STOCK OWNED BY CERTAIN STOCKHOLDERS. Each
stockholder who resides in a state (i) that requires registration of the
securities to be issued in connection with the Merger and (ii) where the Board
of Directors of the Company deems the cost of such registration to be
unjustified, will have each of his shares of Bank Stock converted into and
exchanged for an amount in cash equal to the closing price of the Bank Stock on
the date immediately prior to the date of consummation of the Merger as quoted
on The National Association of Securities Dealers' Automated Quotation Stock
Market ("NASDAQ") Small Cap Market. As of the Record Date, none of the states
in which the Bank believes record holders of Bank Stock are resident requires
registration of the shares of Company Stock to be issued in connection with the
Merger. It is anticipated that all stockholders of the Bank will be eligible to
receive shares of Company Stock pursuant to the Merger.
FEDERAL INCOME TAX CONSEQUENCES. The Company believes that no gain or loss will
be recognized by the stockholders of the Bank as a result of the exchange of
shares of Bank Stock for shares of Company Stock pursuant to the Merger. The
receipt of cash may have certain income tax effects on stockholders. See
"Proposal 1 Approval of the Agreement and the Plan--Federal Income Tax
Consequences." Each stockholder is encouraged to seek independent counsel
regarding the possible federal tax consequences of the Merger with respect to
his or her individual circumstances.
-2-
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL. Under the OTS regulations, a stockholder of a
federally chartered savings bank which engages in a merger, consolidation or
sale of all or substantially all of its assets, has the right to demand from
such savings bank payment for the fair or appraised value of his or her stock in
the savings bank, subject to specific procedural requirements. This regulation
also provides, however, that the stockholders of a federal savings bank with
stock that is listed on a national securities exchange or quoted on NASDAQ are
not entitled to appraisal rights if the stockholder is required to accept only
"qualified consideration" for his or her stock, which is defined to include
cash, shares of stock of any association or corporation which at the effective
date of the merger will be listed on a national securities exchange or quoted on
the NASDAQ or any combination of such shares of stock and cash.
The Bank Stock is currently quoted on the NASDAQ Small Cap Market. The Company
plans to list the shares of Company Stock on the NASDAQ Small Cap Market so that
such shares will be quoted on the effective date of the Merger. Accordingly,
stockholders will not be entitled to appraisal rights in connection with the
Merger.
NASDAQ LISTING AND MARKET FOR COMPANY STOCK. The Bank Stock is currently traded
on the NASDAQ Small Cap Market under the symbol "FSBC." Following the Merger,
it is expected that the Company Stock will likewise be quoted on the NASDAQ
Small Cap Market under the symbol "AABC." See "Proposal 1 Approval of the
Agreement and the Plan--Nature of the Trading Market and Market Prices."
COMPARISON OF STOCKHOLDER RIGHTS. While the Certificate of Incorporation of the
Company, attached hereto as EXHIBIT B (the "Certificate of Incorporation"), and
the Bylaws of the Company, attached hereto as EXHIBIT C, are similar in many
respects to the current federal stock charter and bylaws of the Bank, certain
differences will exist following the Merger between the rights of stockholders
of the Company and those of the Bank, such as the provisions of Delaware law
concerning certain takeover practices. See "Proposal 1 Approval of the
Agreement and the Plan--Comparative Rights of Stockholders."
REGULATION AND SUPERVISION. After the effective date of the Merger, the Company
will be subject to regulation by the OTS as a savings and loan holding company
under HOLA. The Bank will continue to be subject to regulation by the OTS and
the Federal Deposit Insurance Corporation ("FDIC"). See "Proposal 1 Approval of
the Agreement and the Plan--Regulation and Supervision."
FINANCIAL INFORMATION OF THE COMPANY AND NEW BANK. Neither the Company nor New
Bank have material assets at present. Financial information concerning the
Company and New Bank and proforma financial information for the Company after
the Merger would not be meaningful. Following consummation of the Merger, the
Company's consolidated balance sheet and income statement will not be materially
different from the Bank's statement of financial condition and statement of
operations.
-3-
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial and operating data
for the Bank as of and for each of the five fiscal years ended December 31,
1995, and as of and for the six months ended June 30, 1995 and 1996. The
following summary of financial information is qualified in its entirety by and
should be read in conjunction with the detailed information and financial
statements of the Bank, including the notes thereto, which accompany this
Circular/Proxy Statement and are incorporated herein by reference. The
financial information for the interim periods presented is not necessarily
indicative of the results of operations which may be expected as of and for any
other interim period or year as a whole.
<TABLE>
For the
For the years ended December 31 six months ended June 30
-------------------------------------------------------- ------------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
OPERATING DATA:
INCOME STATEMENT DATA:
Interest income $ 8,417 $ 7,888 $ 8,538 $ 10,608 $ 13,636 $ 3,789 $ 4,105
Interest expense 5,423 4,563 4,943 6,821 10,514 2,468 2,709
--------- --------- --------- --------- --------- --------- ---------
Net interest income before
provision for credit losses 2,994 3,325 3,595 3,787 3,122 1,321 1,396
Provision for credit loses (15) 4 21 386 425 (36) --
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for credit losses 3,009 3,321 3,574 3,401 2,697 1,357 1,396
Net gain (loss) on mortgage
loans held-for-sale 118 (19) 331 254 296 64 46
Net gain (loss) on sale of
securities -- 5 258 (124) 921 -- --
Real estate operations, net (58) (273) (616) (1,196) (311) (38) (16)
Other income, net 716 752 744 950 851 325 375
Other expenses (3,371) (3,635) (3,677) (3,417) (3,102) (1,660) (1,733)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary items 414 151 614 (132) 1,352 48 68
Income tax expenses (benefit) -- (189) -- -- 472 -- --
Extraordinary Items -- -- -- -- 344 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 414 $ 340 $ 614 $ (132) $ 1,224 $ 48 $ 68
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER-SHARE DATA:
Weighted average shares
outstanding 695,698 695,698 695,698 695,698 695,698 695,698 695,698
Earnings (loss) per share $ 0.59 $ 0.49 $ 0.88 $ (0.19) $ 1.76 $ 0.07 $ 0.10
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
-4-
<PAGE>
<TABLE>
December 31 June 30
--------------------------------------------------------- --------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- -------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
FINANCIAL CONDITION DATA:
Loans receivable, net $ 34,332 $ 35,670 $ 36,980 $ 45,027 $ 59,970 $ 37,634 $ 35,896
Loans held-for-sale 862 671 4,861 4,136 4,349 627 1,024
Mortgage-backed securities, net -- -- -- 57,511 49,482 -- --
Investment securities -- -- -- 9,384 8,440 -- --
Securities held-to-maturity 36,404 77,505 65,909 -- -- 38,332 73,720
Securities available-for-sale 33,090 2,980 10,722 -- 250 26,578 3,005
Real estate owned, net 114 421 2,967 5,669 7,593 71 347
Total assets 116,966 125,709 136,338 139,109 145,104 112,436 121,862
Deposits 110,633 112,773 130,690 133,639 136,919 106,261 114,838
Borrowings -- 7,400 -- -- 2,000 0 1,000
Unrealized loss on securities
available-for-sale, net (204) (363) (28) -- -- (322) (207)
Stockholders' equity 5,620 5,048 5,043 4,458 4,590 5,551 5,271
Book value per share of
Bank stock $8.08 $7.26 $7.25 $6.41 $6.60 $7.98 $7.58
</TABLE>
<TABLE>
For the years ended For the
December 31 six months ended June 30
--------------------------------------------------------- ------------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA:
PERFORMANCE RATIOS:
Return on assets (ratio of
net income/(loss) to
average total assets) 0.34% 0.26% 0.45% (0.09)% 0.79% 0.04% 0.05%
Interest rate spread
information:
Average during period 2.45 2.62 2.89 3.07 2.36 2.21 2.45
End of period 2.13 2.42 2.88 3.56 2.58 2.54 2.13
Net interest margin (1) 2.54 2.64 2.83 2.88 2.14 1.19 1.16
Ratio of operating expense to
average total assets 2.83 2.98 3.12 3.25 2.30 1.48 1.41
Return on equity (ratio of
net income/(loss) to average
equity) 7.75 6.73 12.93 (2.92) 30.78 0.86 1.31
QUALITY RATIOS:
Non-performing assets to
total assets at end of period 1.44% 2.98% 4.54% 6.93% 7.46% 1.49% 2.98%
Allowance for credit losses
to non-performing loans 25.36 12.29 8.22 5.55 8.11 23.26 12.65
Allowance for credit losses
to total loans (2) 1.25 1.29 1.38 1.19 1.46 1.03 1.28
CAPITAL RATIOS:
Equity to total assets at the
end of period 4.81% 4.02% 3.70% 3.20% 3.16% 4.94% 4.33%
Average equity to average
assets 4.40 3.85 3.45 3.18 2.57 4.87 4.17
Ratio of average interest-
earning assets to average
interest-bearing liabilities 101.99 100.66 98.29 95.96 96.84 102.35 101.81
</TABLE>
(1) Net interest income divided by average interest earning assets
(2) Excludes mortgage-backed securities
-5-
<PAGE>
RISK FACTORS
With respect to the shares of Company Stock to be issued if the Merger is
consummated as described in this Circular/Proxy Statement, stockholders of the
Bank should carefully consider the following risk factors:
1. DIVIDEND HISTORY AND DIVIDEND RESTRICTIONS. The Company cannot predict if
or when it will pay dividends on the Company Stock in the future. In addition,
if the Company were to issue any capital stock having a preference as to
dividends over the Company Stock, which the Certificate of Incorporation allows,
the Company Stock may be subordinated as to the payment of dividends to such
other capital stock. The Bank last paid a stock dividend in 1989 and a cash
dividend in 1988. The Company's Board of Directors does not currently intend to
declare any cash dividends at any time in the foreseeable future. The Company's
ability to pay dividends to its stockholders depends primarily upon the Bank's
ability to pay dividends on the Bank Stock to the Company. Dividends paid by
the Bank and the Company are subject to restrictions imposed by certain federal
laws. In addition, the Bank has entered into a Supervisory Agreement with the
OTS effective as of June 17, 1996, which agreement requires, among other things,
that the Bank increase its capital. As a result, the Bank is unlikely to pay a
dividend for the foreseeable future. See "Proposal 1 Approval of the Agreement
and the Plan--Dividends," "Proposal 1 Approval of the Agreement and the Plan--
Regulation and Supervision" and "Proposal 1 Approval of the Agreement and the
Plan--Description of Company Capital Stock."
2. MARKETABILITY OF COMPANY STOCK. It is expected that the Company Stock will
be listed on the NASDAQ Small Cap Market in the same manner as the Bank Stock is
currently listed. The Company Stock will also be registered under the
provisions of the Exchange Act as the Bank Stock presently is registered. See
"Proposal 1 Approval of the Agreement and the Plan--Nature of the Trading Market
and Market Prices." As a newly formed company, the Company has never issued
capital stock and consequently there is no established market for the Company
Stock. It is expected that Company Stock will be at least as liquid as the Bank
Stock since the number of outstanding shares of Company Stock following the
Merger will match the number of shares of Bank Stock prior to the Merger.
However, there can be no assurance that an active and liquid trading market for
the Company Stock will develop, or if developed, will be maintained.
3. REGULATION AND SUPERVISION. Unitary thrift holding companies and savings
banks operate in a highly regulated environment and are subject to extensive
supervision and examination by several federal and state regulatory agencies.
After the Merger, the Company will be subject to HOLA and to regulation and
supervision by the OTS. As a federal savings bank, the Bank is subject to
regulation and supervision by the OTS and, as a result of the insurance of its
deposits, by the FDIC. In this regard, the OTS issued a Prompt Corrective
Action Directive to the Bank in 1993, which was amended in 1994, and the Bank
and OTS entered into a Supervisory Agreement effective as of June 17, 1996.
Although the various laws and regulations which apply to the Company and the
Bank are intended to ensure safe and sound banking practices, they are primarily
intended to benefit depositors and the federal deposit insurance fund, and not
the stockholders of the Company. The Company and the Bank are subject to
changes in federal and state law, as well as changes in regulations and
governmental policies, income tax laws and accounting principles. The effects
of any potential changes cannot be predicted but could adversely affect the
business and operations of the Company and its subsidiaries in the future. See
"Proposal 1 Approval of the Agreement and the Plan--Regulation and Supervision."
4. NO PREEMPTIVE RIGHTS; POSSIBLE DILUTION OF STOCKHOLDERS OF THE COMPANY. As
with the federal charter of the Bank, the Certificate of Incorporation does not
provide holders of Company Stock with a preemptive right to subscribe for
additional shares of the securities of the Company upon additional issuance
thereof. Thus, upon the issuance by the Company of any additional shares of
Company Stock or any securities of the Company with conversion or voting rights
after consummation of the Merger, the holders of Company Stock may be unable to
maintain their pro rata ownership interest or voting power in the Company. See
"Proposal 1 Approval of the Agreement and the Plan--Description of Company
Capital Stock."
5. COMPETITION. The banking business is highly competitive and the
profitability of the Company will depend principally upon the Bank's ability to
compete in its market area. The Bank competes with other commercial and savings
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking firms, asset-based
non-bank lenders and certain other non-financial institutions, including retail
stores which may maintain their own credit programs and certain governmental
organizations which
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may offer more favorable financing than the Bank. Some of these competitors
may have greater financial and other resources than the Company. No
assurances may be given concerning the Bank's competitive position in the
future. Various legislative acts in recent years have led to increased
competition among financial institutions. There can be no assurance that the
United States Congress will not enact legislation that may further increase
competitive pressures on the Bank. The Bank competes with other financial
institutions on the basis of service, convenience and price. Due in part to
both regulatory changes and consumer demands, banks have experienced
increased competition from other financial and non-financial entities
offering similar products which is expected to continue.
6. ECONOMIC CONDITIONS. General economic conditions have a significant impact
on the banking industry. The credit quality of the Company's loan portfolio
necessarily reflects, among other things, the general economic conditions in the
areas in which it conducts its business. The financial success of the Company
and the Bank depends somewhat on factors that are beyond the Company's control,
including national and local economic conditions, the supply and demand for
investable funds, interest rates, regulatory policies and federal, state and
local laws affecting these matters. Any substantial deterioration in any of the
foregoing conditions could have a material adverse effect on the Company's
financial condition and results of operations, which in all likelihood, would
adversely affect the market price of Company Stock. See "Proposal 1 Approval of
the Agreement and the Plan--Nature of the Trading Market and Market Prices."
7. MONETARY POLICY. The operating income and net income of the Company will
depend to a substantial extent on "rate differentials", I.E., the differences
between the income the Company receives from loans, securities and other earning
assets, and the interest expense it pays to obtain deposits and other
liabilities. These rates are highly sensitive to many factors which are beyond
the control of the Company, including general economic conditions and the
policies of various governmental and regulatory authorities. For example, in an
expanding economy, loan demand usually increases and the interest rates charged
on loans increase. Increases in the discount rate by the Federal Reserve Board
usually lead to rising interest rates, which affect the Company's interest
income, interest expense and investment portfolio. Also, governmental policies
such as the creation of a tax deduction for individual retirement accounts can
increase savings and affect the cost of funds.
8. ANTI-TAKEOVER PROVISIONS. The Company has been incorporated under Delaware
law. The Certificate of Incorporation is intended to parallel the Bank's
charter to the extent practicable. The Certificate of Incorporation, as well as
certain Delaware and federal laws and regulations, could assist the Company in
maintaining its status as an independent corporation. The Certificate of
Incorporation (like the Bank's charter) provides for cumulative voting for
directors and authorizes the Board of Directors of the Company to issue shares
of preferred stock of the Company ("Company Preferred Stock") without
stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of Company Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Company Preferred
Stock that may be issued in the future. The issuance of Company Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions, financings and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a controlling interest in the Company. The Company
has no present plans to issue any shares of Company Preferred Stock. See
"Proposal 1 Approval of the Agreement and the Plan--Description of Company
Capital Stock--Company Preferred Stock." These provisions in the Certificate of
Incorporation may discourage potential proxy contests and other takeover
attempts, particularly those which have not been negotiated with the Board of
Directors of the Company. Accordingly, holders of Bank Stock who will receive
shares of Company Stock in connection with the Merger may be deprived of an
opportunity to sell their shares of Company Stock at a premium over the market
price of such shares. In addition, federal law also requires the approval of
the OTS prior to the acquisition of "control" of a thrift holding company. See
"Proposal 1 Approval of the Agreement and the Plan--Comparative Rights of
Stockholders--Certain Anti-Takeover Provisions" and "Proposal 1 Approval of the
Agreement and the Plan--Regulation and Supervision."
9. SHARES OF COMPANY STOCK ARE NOT DEPOSITS. The shares of Company Stock are
not deposits and, accordingly, are not insured against loss by the FDIC.
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GENERAL INFORMATION
OVERVIEW
This Circular/Proxy Statement serves as a Proxy Statement for the Meeting of the
Bank. The accompanying Proxy is solicited on behalf of the Board of Directors
of the Bank to be voted at the Meeting to be held on October 18, 1996, at the
time and place and for the purposes set forth in the accompanying Notice of
Special Meeting and at any adjournment or adjournments thereof.
This Circular/Proxy Statement also serves as an Offering Circular in connection
with the issuance by the Company of 732,198 shares of Company Stock pursuant to
the Agreement and the Plan. Upon the effective date of the Merger, all
outstanding shares of Bank Stock shall be converted into and exchanged for an
equal number of shares of Company Stock, on a one-for-one basis.
PURPOSE OF THE MEETING
At the Meeting, the stockholders of the Bank will consider and act upon the
following matters: (1) a proposal to approve the Agreement by and between the
Bank and the Company and the related Plan by and among the Bank, the Company and
New Bank, pursuant to which New Bank will be merged with and into the Bank,
resulting in the Company becoming a unitary thrift holding company for the Bank
under HOLA; and (2) to transact any and all other business as may properly come
before the Meeting or any adjournment(s) thereof.
RECORD DATE
The Bank has fixed the close of business on September 3, 1996, as the Record
Date for the determination of stockholders entitled to notice of and to vote at
the Meeting and any adjournment(s) thereof. A complete list of the stockholders
entitled to vote at the Meeting or any adjournment(s) thereof will be maintained
at the Bank's principal executive offices, will be open to examination by any
stockholder for any purpose germane to the Meeting during ordinary business
hours for a period of ten days prior to the Meeting, and will be produced at the
time and place of the Meeting during the whole time thereof.
VOTES REQUIRED
On the Record Date, there were 732,198 shares of Bank Stock issued and
outstanding, of which 82,611 shares, or approximately 11.28% were beneficially
owned by the executive officers and directors of the Bank. See "General
Information--Security Ownership of Certain Beneficial Owners and Management."
Each holder of shares of Bank Stock will be entitled to one vote for each share
of Bank Stock owned of record as of the Record Date on all matters. Neither the
Bank's charter nor Bylaws provides for cumulative voting rights with respect to
any of the proposals to come before the Meeting.
The presence at the Meeting, in person or by proxy, of the holders of a majority
of the aggregate of the issued and outstanding shares of Bank Stock is necessary
to constitute a quorum to transact business. Shares of Bank Stock represented
by a properly signed and returned proxy will be counted as present at the
Meeting for purposes of determining a quorum, without regard to whether the
proxy is marked as casting a vote or abstaining. Shares of Company Stock held
by nominees which are voted on at least one matter coming before the Meeting
will also be counted as present for purposes of determining a quorum, even if
the beneficial owner's discretion has been withheld for voting on some or all
other matters. By voting for a matter at the Meeting, a stockholder may be
precluded from the ability to initiate future litigation regarding that matter.
Assuming the presence of a quorum, the affirmative vote of the holders of a
majority of the aggregate outstanding shares of Bank Stock is required for the
approval of each of the proposals specified in this Circular/Proxy Statement.
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PROXIES AND SOLICITATION
Properly signed and returned proxies will be voted in accordance with the
stockholder's specifications thereon. In the absence of such specification on
any matter, the Proxy will be voted "FOR" all proposals without specification.
Abstentions will have the same effect as votes against the proposals. Broker
non-votes (I.E. shares for which brokers have not received instructions as to
how to vote), however, will be deemed shares not entitled to vote on such
matters, and therefore, will not count as votes for or against the proposals,
and will not be included in calculating the number of votes necessary for
approval of such matters. Votes at the Meeting will be tabulated by Inspectors
of Elections appointed by the Board of Directors of the Bank.
It is not intended that any business other than the proposal described in this
Circular/Proxy Statement will be presented at the Meeting. With respect,
however, to any other matters or proposals that may properly come before the
Meeting, it is the intention of the persons named as proxies in any proxy
solicited hereunder to vote such proxy in accordance with their best judgment.
In addition to the solicitation of proxies by use of the mail, officers and
regular employees of the Bank may solicit the return of proxies, either by mail,
telephone, telegraph, or through personal contact. Such officers and employees
will not be additionally compensated but will be reimbursed for out-of-pocket
expenses. Brokerage houses and other custodians, nominees, and fiduciaries will
be requested to forward solicitation material to the beneficial owners of the
shares of Bank Stock. The cost of preparing, printing, assembling, and mailing
the Notice of Special Meeting, this Circular/Proxy Statement, and the enclosed
Proxy, as well as the cost of forwarding solicitation materials to the
beneficial owners of shares and other costs of solicitation, are to be borne by
the Bank.
REVOCABILITY OF PROXIES
Any stockholder of the Bank giving a proxy has the unconditional right to revoke
his proxy at any time prior to the voting thereof (i) by attendance at the
Meeting and voting in person, (ii) by delivering a duly executed proxy bearing a
later date, or (iii) by giving written notice of revocation to the Bank
addressed to Mr. Kenneth J. Huey, Jr., President, First Savings Bank, F.S.B.,
801 Pile Street, Clovis, New Mexico 88101; no such revocation shall be
effective, however, until such notice of revocation has been received by the
Bank at or prior to the Meeting. If a stockholder does not specify a choice on
his or her proxy, the proxy will be voted in favor of the above proposals.
DISSENTERS' RIGHTS
Under the OTS regulations, a stockholder of a federally chartered savings bank
which engages in a merger, consolidation or sale of all or substantially all of
its assets, has the right to demand from such savings bank payment for the fair
or appraised value of his or her stock in the savings bank, subject to specific
procedural requirements. This regulation also provides, however, that the
stockholders of a federal savings bank with stock which is listed on a national
securities exchange or quoted on the NASDAQ are not entitled to appraisal rights
if the stockholder is required to accept only "qualified consideration" for his
or her stock, which is defined to include cash, shares of stock of any
association or corporation which at the effective date of the merger will be
listed on a national securities exchange or quoted on the NASDAQ or any
combination of such shares of stock and cash.
The Bank Stock is currently quoted on the NASDAQ Small Cap Market. The Company
plans to list the shares of Company Stock on the NASDAQ Small Cap Market so that
such shares will be quoted on the effective date of the Merger. Accordingly,
stockholders will not be entitled to appraisal rights in connection with the
Merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of the Record Date, certain information known
by the Bank with respect to the ownership of shares of Bank Stock as to (i) all
persons who are the beneficial owners of 5% or more of the outstanding shares of
Bank Stock, (ii) each director, (iii) each named executive officer (as defined
in Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act), and
(iv) all officers and directors of the Bank as a group. Unless otherwise
indicated, each of the following persons may be deemed to have sole voting and
dispositive power with respect to such shares. Information set forth in the
table with respect to beneficial ownership of the Bank's equity securities has
been
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obtained from filings made by the named beneficial owners with the OTS or, in
the case of officers and directors of the Bank, has been provided to the Bank
by such individuals.
AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF BENEFICIAL SHARES OF CAPITAL
BENEFICIAL OWNERS OWNERSHIP STOCK OUTSTANDING
- - ------------------- -------------------- -----------------
Drs. Moss, Boese & Abshere 50,000(2) 7.1870%
P.O. Box 1508
Clovis, NM 88101
Financial Focus, L.P. 48,805(4) 7.0152%
c/o T. Westray Battle, Jr.
250 Royal Palm Way, Suite 200
Palm Beach, Florida 33480
James F. Gibson 49,923(2)(3) 7.1759%
P.O. Box 84215
Vancouver, WA 98684
AMOUNT AND PERCENT OF
DIRECTORS AND NATURE OF BENEFICIAL SHARES OF CAPITAL
EXECUTIVE OFFICERS OWNERSHIP(1)(2) STOCK OUTSTANDING(1)
- - ------------------- -------------------- --------------------
Carl Deaton 14,541(5) 2.0901%
Harry Eastham 1,500 *
Dr. Everett Frost 300 *
Charles Guthals 3,025(6) *
Ken Huey, Jr. 23,350(7) 3.1890%
Robert Chad Lydick 29,289(8) 4.2100%
Thomas W. Martin, III 6,234(9) *
All Executive Officers and 82,611 11.2826%
Directors as a Group (9 persons)
______________________
* less than 1%
(1) Shares of common stock subject to option currently exercisable, or
exercisable within sixty (60) days, are deemed outstanding for computing
the percentage of ownership of the person holding the options, but not
deemed outstanding for computing the percentage of ownership of any other
person.
(2) Includes shares owned by spouses of the named beneficial owners or as
custodian or trustee for minor children, as to which shares the named
individuals effectively exercise shared voting and investment power.
(3) Includes 4,123 shares beneficially held in the Bank's employee stock
ownership plan which are allocated to Mr. Gibson. Such shares are voted by
the Plan's trustee.
(4) Sole voting and sole dispositive power, as reported on Form 13D filed with
the OTS by Financial Focus, L.P. The Bank makes no representation as to the
accuracy and completeness of such information.
(5) Mr. Deaton has 10,536 shares held in the Deaton Family Trust, as to which
Mr. Deaton shares voting and investment power with his spouse and four
children. This also includes shared voting and investment power that
Mr. Deaton may have over 4,005 shares owned by his brother, sister, first
son and daughter-in-law, daughter, granddaughter and son-in-law and
daughter and granddaughter.
(6) Includes 3,000 shares owned directly by Mr. Guthals and 25 shares which he
owns indirectly as trustee for his daughter, over which he exercises joint
voting and investment power.
(7) The number of shares shown for Mr. Huey includes 5,000 shares under an
option grant.
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(8) Mr. Lydick has shared voting and dispositive powers over all of these
shares with his spouse and/or his father.
(9) Includes 4,234 shares owned by Tucumcari Springwater & Seed Co. Inc. which
is controlled by Mr. Martin.
PROPOSALS TO BE VOTED ON AT THE MEETING
____________
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND THE PLAN
____________
OVERVIEW
The directors of the Bank have unanimously adopted (i) the Agreement between the
Bank and the Company, and (ii) the Plan among the Bank, New Bank and the
Company, pursuant to which New Bank will be merged with and into the Bank with
the Bank being the surviving entity. Upon consummation of the Merger, all
outstanding shares of Bank Stock will be converted into and exchanged for
Company Stock or cash, as set forth below. A copy of the Agreement and the Plan
is attached to this Circular/Proxy Statement as EXHIBIT A and incorporated
herein by reference. The discussion below is qualified in its entirety by such
reference.
The Company is a newly-formed Delaware corporation organized by the Bank for the
purpose of creating a unitary thrift holding company for the Bank under HOLA.
As part of the Merger, New Bank is being organized as a wholly-owned subsidiary
of the Company. Upon consummation of the Merger, the shares of capital stock of
New Bank will be converted into shares of Bank Stock, resulting in the Bank
becoming a wholly-owned subsidiary of the Company. The shares of Company Stock
held by the Bank prior to the Merger shall be redeemed by the Company
simultaneously with the effectiveness of the Merger. See "--Terms of the
Agreement and the Plan."
After the effective date of the Merger, the Bank will continue its existing
business and operations as a wholly-owned subsidiary of the Company. The
consolidated assets, liabilities, stockholders' equity and income of the Company
after the Merger are expected to be the same as those of the Bank immediately
prior to the Merger. It is anticipated that, after consummation of the Merger,
the business of the Bank will be conducted by the present officers of the Bank.
See "--Management of the Company."
PARTIES TO THE AGREEMENT AND THE PLAN
The Bank is a federal savings bank that conducts full service banking operations
from its main office located at 801 Pile Street, Clovis, New Mexico 88101. The
Bank also conducts banking operations at two branch locations in Clovis and
Portales, New Mexico, and has a loan production office in Rio Rancho, New
Mexico. The Bank will be the resulting entity after the Merger and will
continue its banking operations as presently conducted subsequent to the Merger,
although as a wholly-owned subsidiary of the Company.
The Company is a Delaware corporation which was organized to become a unitary
thrift holding company for the Bank. Following consummation of the Merger, the
Company will directly own 100% of the Bank Stock, and the Company will become a
registered unitary thrift holding company under HOLA. See "--Business of the
Company."
New Bank is a federally chartered non-resulting interim thrift association to be
organized as a wholly-owned subsidiary of the Company solely to facilitate the
Company's acquisition of the Bank. New Bank will not engage in any operations
prior or subsequent to the Merger and will have no independent existence
thereafter.
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TERMS OF THE AGREEMENT AND THE PLAN
DESCRIPTION OF THE MERGER
Subject to the receipt of all regulatory approvals, the approval of the
holders of at least a majority of the issued and outstanding Bank Stock and
compliance with all of the terms and conditions of the Agreement and the
Plan, New Bank will be merged with and into the Bank with the Bank being the
surviving entity. As a result of the Merger, the Bank Stock will be converted
into and exchanged for Company Stock or cash, as set forth below.
Immediately following consummation of the Merger, the Bank will be a
wholly-owned subsidiary of the Company and New Bank shall cease to exist as a
separate entity.
Upon consummation of the Merger, (i) each share and any fractional shares of
Bank Stock held of record by stockholders of the Bank will be converted into
and exchanged for the right to receive one (1) share and a like number of
fractional shares of Common Stock, (ii) each share of capital stock of New
Bank shall be converted into one share of Bank Stock resulting in the Bank
becoming a wholly-owned subsidiary of the Company, and (iii) the shares of
Company Stock held by the Bank prior to the Merger will be redeemed by the
Company and retired. The result of the these conversions and redemption as
of the effective date of the Merger will be that the Bank shall be a
wholly-owned subsidiary of the Company, the existence of New Bank as a
separate entity shall cease, and the former stockholders of the Bank shall be
the stockholders of the Company with the same proportionate holdings as
existed for the Bank prior to the Merger.
Each stockholder who resides in a state (i) that requires registration of the
securities to be issued in connection with the Merger and (ii) where the
Board of Directors of the Company deems the cost of such registration to be
unjustified, will have each of his or her shares of Bank Stock converted into
and exchanged for an amount equivalent to the closing price of the Bank Stock
on the date immediately prior to the date of consummation of the Merger as
quoted on NASDAQ Small Cap Market. As of the Record Date, none of the states
in which the Bank believes record holders of Bank Stock reside requires
registration of the shares of Company Stock to be issued in connection with
the Merger. It is anticipated that all stockholders of the Bank will be
eligible to receive shares of Company Stock pursuant to the Merger.
The terms of the Merger were established by the management of the Company and
the Bank, which are essentially the same and approved by their respective
Boards of Directors. Since the Company and New Bank were organized by the
Bank and the outstanding capital stock of the Company after the Merger shall
be identical to that of the Bank prior to the Merger, no report, opinion or
appraisal from an outside party or unaffiliated representative relating to
the fairness of the terms of the Merger was obtained by the Bank.
REASONS FOR THE MERGER
The Board of Directors of the Bank has approved the Agreement and the Plan in
the belief that the formation of a holding company is in the best interests
of the Bank and its stockholders. The Board of Directors of the Bank
believes that the Merger will afford to the Bank and its stockholders the
advantages of having a related holding company while preserving the identity
of the Bank. As a Delaware corporation and savings and loan holding company,
the Company will not be subject to the same regulatory restrictions as the
Bank, will be able to engage in a broader range of activities than the Bank
and will have greater flexibility in the management of its corporate affairs.
While the Company has no present plans to conduct any activities not
presently engaged in by the Bank, this enhanced flexibility is intended to
make the Company and the Bank better able to meet future competitive and
financial needs of the institution. See "--Comparative Rights of
Stockholders" and "--Regulation and Supervision."
Following the Merger, the Company plans to raise additional capital. Because
management believes that operation through a holding company offers
additional benefits not available to the Bank on a stand alone basis, the
Company is being formed prior thereto. The Board of Directors of the Company
intends to provide stockholders of the Company a right, for a limited period
of time, to acquire a pro rata portion of the new shares, prior to seeking to
raise capital from outside investors. The specific timing and terms to be
offered in connection with raising such additional capital have yet to be
determined, and there can be no assurance that the Company will be successful
in raising such additional capital.
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CONDITIONS TO CONSUMMATION OF THE MERGER
The Agreement provides that the consummation of the Merger is subject to the
following conditions, among others: (i) receipt of all necessary approvals
of governmental agencies, including the OTS; (ii) approval of the Agreement
and Plan by the holders of at least a majority of the outstanding shares of
Bank Stock and by the holder of at least a majority of the outstanding shares
of capital stock of New Bank; (iii) organization and capitalization of the
New Bank; (iv) the holders of not more than five percent (5%) of the issued
and outstanding shares of Bank Stock are residents of a state or states that
require registration of the Company Stock to be issued in connection with the
Merger; and (v) there being no legal or regulatory restrictions on the Bank's
ability to pay dividends with respect to the Bank Stock in an amount
sufficient to allow the Company to pay organizational expenses and purchase
shares of Bank Stock from stockholders entitled to receive cash in connection
with the Merger. Certain of the above conditions are waivable at the option
of the Company. The individual obligations of the Bank and the Company are
each also subject to compliance by the other with their respective covenants,
confirmation of their respective representations and warranties and certain
legal matters as set forth in the Agreement.
TERMINATION AND AMENDMENT
The Agreement and the Plan may be terminated by the Board of Directors of
either the Bank or the Company at any time prior to the effective date of the
Merger if: (i) there shall be any actual or threatened action or proceeding
by or before any court or any other governmental body which shall seek to
restrain, prohibit or invalidate the transactions contemplated by the
Agreement and Plan and which, in the judgment of such Board makes it
inadvisable to proceed with the Merger; (ii) any of the transactions
contemplated by the Agreement or by the Plan are disapproved by any
regulatory authority whose approval is required to consummate any of such
transactions, or if, in the judgment of such Board there is a substantial
likelihood that any such approval will not be obtained or will be obtained
only upon a condition or conditions which would be unduly burdensome and that
therefore it is inadvisable to proceed with the Merger; or (iii) the Merger
shall not have become effective prior to December 31, 1996, or such later
date as shall have been approved by the Board of Directors of each of the
Company and the Bank. In addition, the Agreement and the Plan may be
terminated at any time prior to the effective date of the Merger with the
mutual consent of the Bank and the Company upon the approval of such action
by their respective Boards of Directors.
The Agreement may be amended only in writing by the Bank and the Company at
any time prior to the consummation of the Merger, except that the provisions
regarding the number of shares of Company Stock to be received by and the
amount of cash to be paid to stockholders of the Bank pursuant to this
Agreement and the Plan shall not be changed subsequent to the approval of the
transactions provided for by this Agreement and the Plan by such stockholders.
EXCHANGE OF STOCK CERTIFICATES
If the Merger is effected, transmittal forms will be sent to each former
stockholder of the Bank for use in forwarding certificates representing
shares of Bank Stock to the Company for exchange. Upon surrender of such
certificates, each holder of shares of Bank Stock will receive a certificate
or certificates representing the number of shares of Company Stock to which
such stockholder is entitled or, in certain cases, as described above, cash
into which the shares of Bank Stock so surrendered were converted. On the
effective date of the Merger, certificates representing shares of Bank Stock
will be converted as a matter of law into the consideration to which the
respective holders are entitled and shall represent only the right to receive
such consideration. Until certificates representing Bank Stock are
surrendered to the Company, however, the Company will set aside but will not
pay dividends accrued, if any, with respect to any shares of the Company
Stock which a stockholder is entitled to receive upon the conversion of his
shares of Bank Stock. Upon surrender of such certificates, the Company will
pay any amount of dividends set aside with respect to any such Company Stock,
without interest. See "--Dividends."
EXPENSES
The expenses incurred in connection with the Merger will be paid by the
Company and the Bank, depending on the nature of the expense incurred.
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ACCOUNTING TREATMENT
It is expected that the transactions contemplated by the Agreement and the
Plan will be characterized and treated in a manner similar to that of a
pooling-of-interests as that method is described in Accounting Principles
Board Opinion No. 16, BUSINESS COMBINATIONS, whereby the historical basis of
the then existing assets and liabilities of the Bank will be the same after
the Merger as they were prior thereto and, accordingly, there would be no
goodwill recorded as a result of the Merger. The Company's basis in the Bank
Stock would, at the effective date of the Merger, equal the net assets of the
Bank at that date.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT PLANS
On the effective date of the Merger, stock options to purchase shares of Bank
Stock granted under the Bank's 1986 Stock Option and Incentive Plan (the
"Option Plan") and outstanding prior to the Merger will become options to
purchase the same number of shares of Company Stock under identical terms and
conditions and for an identical price. The Merger will not affect options
granted under the Option Plan and outstanding prior to the Merger, pursuant
to the terms thereof. Shares of Bank Stock held by the Bank's Profit Sharing
and Employee Stock Ownership Plan will be converted into and exchanged for
shares of Company Stock. The Bank's 401(k) plan will be unaffected by the
Merger.
BUSINESS OF THE COMPANY
The Company was incorporated as a business corporation under the laws of the
State of Delaware on August 27, 1996, for the purpose of serving as a unitary
thrift holding company for the Bank under HOLA after consummation of the
Merger. The Company's name, Access Anytime Bancorp, Inc., was chosen to
reflect the perceived banking environment going forward. At present, the
Company has neither business operations nor any material assets or
liabilities. On the effective date of the Merger, the Company will own 100%
of the outstanding capital stock of the Bank and each stockholder of the Bank
will become a stockholder of the Company.
The Company's principal executive offices, and its only office prior to the
consummation of the Merger, is located at the administrative offices of the
Bank at 801 Pile Street, Clovis, New Mexico 88101. The Company's telephone
number is (505) 762-4417.
The Company filed an application to acquire 100% of the Bank Stock with the
OTS as required by HOLA on July 1, 1996. The OTS application was approved by
the OTS on August 12, 1996.
The Company has no present plans to engage in any activity other than the
ownership and operation of the Bank. If favorable business opportunities
arise in the future, the Company may become an operating company and engage
in activities permitted for a savings and loan holding company, which may
include operations other than those related to the banking industry. Some or
all of the foregoing will be subject to compliance with certain regulatory
and other restrictions. See "--Comparative Rights of Stockholders" and
"--Regulation and Supervision." Since for the near term the principal
business of the Company will be the current ongoing business of the Bank, the
competitive conditions to be encountered by the Company will be the same or
similar to those faced by the Bank.
Because the Company is a newly-formed corporation with no operating history,
historical information with respect to legal proceedings, financial data or
accountants, management's discussion of operations, dividends and other
matters is not available. As previously noted, it is expected that the
Company Stock will be quoted on the NASDAQ Small Cap Market in a manner
similar to that of the Bank Stock. The Company does not have any record of
paying dividends. See "--Dividends."
At the present time, the Company does not intend to employ any persons other
than its management. See "-- Management of the Company." The Company may
utilize the administrative staff of the Bank from time to time without
compensation therefor. If the Company acquires other financial institutions
or pursues other lines of business, it may at such time hire additional
employees or management officials.
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MANAGEMENT OF THE COMPANY
DIRECTORS
The Board of Directors of the Company currently consists of eight persons,
the seven individuals who serve as directors of the Bank plus Mr. Norman R.
Corzine. Mr. Corzine is currently the Bank's Vice President and Strategic
Planning Officer and is responsible for investments. The Directors of the
Company believe that Mr. Corzine's 25 years of banking and investment
management experience will add depth to the management team and will benefit
the Company in its future capital raising efforts. In addition, he has
served on four other bank boards and two other holding company boards.
The directors of the Company are divided into three classes, with one class
to be elected each year at the annual meeting of stockholders of the Company.
Directors elected at each annual meeting will serve for a term of three years
and until their successors are duly elected and qualified.
The names of the directors of the Company and their terms are set forth
below. There are no arrangements or understandings between the Company and
any person pursuant to which such person was elected as a director.
TERM POSITION CURRENTLY HELD
NAME EXPIRES WITH THE COMPANY
- - ---- ------- -----------------------
Harry Eastham 1997 None
Dr. Everett Frost 1997 None
Charles Guthals 1997 None
Ken Huey, Jr. 1998 President
Carl Deaton 1998 None
Thomas W. Martin, III 1998 None
Robert Chad Lydick 1999 None
Norman R. Corzine 1999 Chairman of the Board and
Chief Executive Officer
EXECUTIVE OFFICERS
The executive officers of the Company are set forth in the table below.
NAME POSITION
- - ---- --------
Norman R. Corzine Chairman of the Board and Chief Executive Officer
Ken Huey, Jr. President
COMPENSATION
It is expected that until such time as the officers and directors of the Bank
devote significant time to the separate management of the Company's affairs,
which is not expected to occur until the Company becomes actively involved in
additional businesses, no separate compensation will be paid for their
services to the Company. However, the Company may determine that such
compensation is appropriate in the future and may at such time enter into
employment contracts with certain key executive officers.
DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The Certificate of Incorporation authorizes the issuance of capital stock
consisting of 6,000,000 shares of Company Stock and 4,000,000 shares of
Company Preferred Stock, par value $0.01 per share. There are 1,000 shares
of Company
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Stock currently issued and outstanding, all of which are owned by the Bank.
On the effective date of the Merger, such shares will be redeemed and
retired, and there will be 732,198 shares of Company Stock outstanding as a
result of the exchange of shares of Company Stock for shares of Bank Stock.
Because all of the issued and outstanding shares of Company Stock are owned
by the Bank, there is currently no established public trading market for
Company Stock.
In the future, the authorized but unissued and unreserved shares of Company
Stock and the authorized and unissued shares of Company Preferred Stock will
be available for issuance for general corporate purposes, including, but not
limited to, possible issuance as stock dividends or stock splits, future
mergers or acquisitions, or future private placements or public offerings.
The Company's Board of Directors may (i) cause the issuance of one or more
series of the authorized shares of Company Preferred Stock, (ii) fix the
number of shares constituting any such new series and (iii) fix the dividend
rate, terms, conditions, conversion and exchange rights, redemption rights
(including sinking fund provisions), liquidation preferences and voting
rights, if any, of any such new series. Such rights and preferences may be
superior to those of Company Stock. Except as otherwise may be required to
approve a merger or other transaction in which the additional authorized
shares of Company Stock or authorized shares of Company Preferred Stock would
be issued, no stockholder approval will be required for the issuance of those
shares. See "--Comparative Rights of Stockholders" for a discussion of the
rights of the holders of Company Stock as compared to the holders of the Bank
Stock. A more detailed description of the capital stock of the Company, by
which the following summary is qualified in its entirety, may be found in the
Certificate of Incorporation, a copy of which is attached hereto as EXHIBIT B.
COMPANY STOCK
GENERAL. Each share of Company Stock has the same relative rights as, and is
identical in all respects to, each other share of Company Stock. Until such
time as voting Company Preferred Stock is issued, if ever, the holders of
shares of Company Stock will possess all rights, including exclusive voting
rights, pertaining to the capital stock of Company.
DIVIDEND RIGHTS. The holders of Company Stock will be entitled to dividends
when, as and if declared by Company's Board of Directors out of funds legally
available therefor. The payment of dividends by the Company will depend on
the Company's net income, financial condition, regulatory requirements and
other factors, including the results of the Bank's operations. See
"--Dividends" for restrictions on the payment of dividends on Company Stock.
The Company has no present intention to pay dividends, but may consider
doing so in the future.
VOTING RIGHTS. Each share of Company Stock will entitle the holder thereof
to one vote on all matters upon which stockholders have the right to vote.
In addition, the Board of Directors of the Company is classified so that
approximately one-third of the directors will be elected each year.
Stockholders of the Company will be entitled to cumulate their votes for the
election of directors. Cumulative voting may allow a minority of the
stockholders to elect directors that would not otherwise be possible.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of the Company, the holders of shares of Company Stock will be entitled to
receive, after payment of all debts and liabilities of the Company and
subject to the prior rights, if any, of holders of shares of Company
Preferred Stock, all remaining assets of the Company available for
distribution in cash or in kind. In the event of any liquidation,
dissolution or winding up of the Bank, the Company, as the holder of all
shares of Bank Stock, upon consummation of the Merger, would be entitled to
receive payment of all assets of the Bank available for distribution in cash
or in kind remaining after the payment of all debts and liabilities of the
Bank (including all deposits and accrued interest thereon).
PREEMPTIVE RIGHTS; REDEMPTION. Holders of shares of Company Stock will not
be entitled to preemptive rights with respect to any shares that may be
issued. Company Stock is not subject to call or redemption.
COMPANY PREFERRED STOCK
No Company Preferred Stock is being issued in connection with the Merger and
the Board of Directors of the Company has no present plan or intention to
issue any Company Preferred Stock. The Board of Directors may, without
action of the stockholders of Company, issue shares of Company Preferred
Stock from time to time in one or more series with chosen designations,
preferences, limitations and other rights.
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<PAGE>
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (i) the dividend rate, conditions
of payment of dividends, dividend preferences, if any, and whether dividends
would be cumulative and, if so, the date from which dividends on such series
would accumulate; (ii) whether, and upon what terms, such series would be
redeemable and, if so, the redemption price and terms and conditions of
redemption; (iii) the preference, if any, to which such series would be
entitled in the event of voluntary or involuntary liquidation, dissolution or
winding up of Company; (iv) whether or not a sinking fund would be provided
for the redemption of such series and, if so, the terms and conditions
thereof; (v) whether, and upon what terms, such series would be convertible
into or exchangeable for shares of any other class of capital stock or other
series of Company Preferred Stock; and (vi) whether, and to what extent, the
holders of such series would enjoy voting rights, if any, in addition to
those prescribed by law. With regard to dividends, redemption and liquidation
preference, any particular series of Company Preferred Stock may rank junior
to, on a parity with or senior to any other series of Company Preferred Stock.
It is not possible to state the actual effect of the authorization of Company
Preferred Stock upon the rights of holders of Company Stock until the Board
of Directors determines the specific rights of the holders of a series of
Company Preferred Stock. However, such effects might include (a)
restrictions on dividends on Company Stock if dividends on Company Preferred
Stock have not been paid; (b) dilution of the voting power of Company Stock
to the extent that Company Preferred Stock has voting rights; (c) dilution of
the equity interest of Company Stock to the extent that Company Preferred
Stock is convertible into Company Stock; or (d) Company Stock not being
entitled to share in the Company's assets upon liquidation until satisfaction
of any liquidation preference granted the holders of Company Preferred Stock.
Issuance of Company Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Accordingly, the issuance of
Company Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders of Company. See
"--Comparative Rights of Stockholders."
DIVIDENDS
Holders of Company Stock are entitled to receive dividends paid out of
legally available funds as and when declared by the Company's Board of
Directors based upon the earnings and financial condition of the Company,
liquidity and capital requirements, the general economic and regulatory
climate, the Company's ability to service any equity or debt obligations
senior to the Company Stock and other factors deemed relevant by the
Company's Board of Directors. The Company is also subject to the
requirements of Delaware law regarding the payment of dividends. See
"--Regulation and Supervision" and "--Description of Company Capital Stock."
For a foreseeable period of time following consummation of the Merger, the
principal source of cash revenues to the Company will be dividends paid by
the Bank with respect to the Bank Stock. There are certain statutory and
regulatory limitations on the payment of such dividends (and other capital
distributions) including OTS regulatory capital requirements. In some cases,
the OTS may prohibit a dividend payment that meets these requirements on the
basis that such a distribution would be an unsafe or unsound practice.
Furthermore, the Bank may not pay a dividend if it will cause the institution
to become "undercapitalized."
The Bank is subject to an OTS Supervisory Agreement effective as of June 17,
1996 which requires, among other things, that the Bank increase its capital.
This agreement will inhibit the payment of dividends by the Bank for the
foreseeable future.
The Bank is required to give the OTS thirty days prior notice of the proposed
declaration by its directors of any dividend. Any such dividend declared
within the thirty day period or without giving such notice shall be invalid
and shall confer no rights or benefits on the Company as the sole stockholder
of the Bank.
Under the Federal Deposit Insurance Act, an insured bank is prohibited from
paying dividends on its capital stock while in default in the payment of any
assessment due to the FDIC except in those cases where the amount of the
assessment is in dispute and the insured bank has deposited satisfactory
security. The Bank is not in default in the payment of any such assessment.
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<PAGE>
The Bank last paid a stock dividend in 1989 and a cash dividend in 1988. The
Company's Board of Directors does not currently intend to declare any cash
dividends at any time in the foreseeable future.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
The holders of Bank Stock and the holders of Company Stock will have similar
rights in several regards. The principal similarities are as follows: (i)
each holder of shares of Company Stock is entitled to one vote for each share
held of record on matters submitted for a stockholder vote except to the
extent stockholders are entitled to cumulate their votes on the election of
directors; (ii) each stockholder is entitled to such dividends as the Board
of Directors may declare from legally available funds (see "--Dividends");
(iii) each stockholder is, upon liquidation, entitled to receive his pro rata
portion of any assets distributed to stockholders after preferential
distributions have been made to holders of senior securities and provision is
made for the payment of debts; (iv) the Company's Board of Directors is
classified into three classes; (v) the Company's Board of Directors may,
without stockholder approval, issue additional shares of Company Stock or
authorize and issue one or more classes of Company Preferred Stock; and (vi)
the holders of Company Stock do not have a preemptive right to subscribe for
or purchase shares of capital stock of the Company, which may be issued from
time to time.
The rights of the holders of Bank Stock are currently governed by federal
law, OTS regulations and the Bank's charter and bylaws adopted thereunder.
The rights of the holders of Company Stock will be governed by the Delaware
General Corporation Law ("DGCL"), the Certificate of Incorporation and the
Bylaws adopted thereunder, by federal law and by the applicable regulations
of the Commission. Certain differences in stockholder rights arise from this
change of governing law. The following discussion summarizes the material
differences as reflected in Certificate of Incorporation and bylaws and is
not intended to be a complete statement of all differences affecting the
rights of stockholders. This discussion is qualified in its entirety by
reference to Certificate of Incorporation, a copy of which is attached hereto
as EXHIBIT B, and the Bylaws of the Company, a copy of which is attached
hereto as EXHIBIT C. For a description of Company Stock, see "--Description
of Company Capital Stock--Common Stock."
FEDERAL SECURITIES LAWS
Shares of Bank Stock are exempt from the registration requirements of the
Securities Act pursuant to Section 3(a)(2) of the Securities Act, while
shares of Company Stock are not exempt from such requirements. In reliance
on Section 3(a)(12) of the Securities Act, which provides an exemption from
the registration requirements under the Securities Act for securities issued
in connection with certain bank and thrift holding company formations, shares
of Company Stock to be issued pursuant to the Merger have not been registered
under the Securities Act.
Shares received by an affiliate of the Company will be subject to the resale
restrictions of Rule 144 of the Securities Act. Upon registration of the
Company Stock pursuant to Section 12(g) of the Exchange Act, the proxy rules,
annual and periodic reporting and other requirements of the Exchange Act will
become applicable to the Company. The Bank is currently subject to such
regulation under the jurisdiction of the OTS.
STATE SECURITIES LAWS
Shares of Bank Stock are exempt from the registration requirements and
trading restrictions of some state securities laws, while the trading of
shares of Company Stock may not be exempt. Shares of Company Stock may be
subject to certain restrictions on resale under the securities laws of the
states.
RIGHTS OF ISSUER TO REPURCHASE STOCK
Under the OTS Regulations, the Bank may repurchase its stock under certain
specific conditions, but only with the prior notice to and/or approval of the
OTS. Under the DGCL, no prior approval is required and, therefore, the
Company will be allowed to purchase its own stock in the open market subject
to applicable law and the availability of funds therefor. See "--Dividends"
and "--Regulation and Supervision."
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<PAGE>
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The DGCL contains provisions that allow indemnification of the directors,
officers and employees of Company and any of its direct or indirect
subsidiaries. To be entitled to indemnification, it must be determined that,
in general terms, the person acted in good faith and in a manner believed to
be in, or not opposed to, the best interests of Company and, with respect to
a criminal action, had no reasonable cause to believe his or her conduct was
unlawful. Further, the DGCL provides that to the extent a director, officer
or employee is successful on the merits or otherwise in defense of an action,
the Company shall indemnify such person against expenses actually and
reasonably incurred.
Under present OTS regulations, the Bank must indemnify its directors,
officers and employees for any judgments and costs incurred in connection
with any litigation involving any such person's activities as a director,
officer or employee if such person obtains a final judgment on the merits in
his or her favor. In addition, indemnification is permitted in the case of a
settlement, a final judgment against such person or a final judgment in such
person's favor, other than on the merits, if a majority of disinterested
directors determine that such person was acting in good faith within the
scope of his or her employment or authority as he or she could reasonably
have perceived it under the circumstances and for a purpose he or she could
reasonably have believed was in the best interest of the Bank or its
stockholders. The Bank also is permitted to pay ongoing expenses incurred by
a director, officer or employee if a majority of disinterested directors
concludes that such person may ultimately be entitled to indemnification.
Indemnification by the Bank may be paid only after prior notice to, and no
objection by, the OTS, but the Company would not be subject to such
procedure. Under the Federal Deposit Insurance Act, as amended, both the Bank
and the Company would be prohibited from paying any indemnification with
respect to any liability or legal expense incurred by a director, officer or
employee as result of an action or proceeding by a federal banking agency
resulting in a civil money penalty or certain other remedies against such
person.
APPRAISAL RIGHTS
Under the OTS Regulations, a stockholder of a federally chartered savings
bank which engages in a merger, consolidation or sale of all or substantially
all of its assets has the right to demand from such savings bank payment of
the fair or appraised value of his or her stock in the savings bank, subject
to specified procedural requirements. This regulation also provides, however,
that the stockholders of a federally chartered savings bank with stock that
is listed on a national securities exchange or quoted on the NASDAQ are not
entitled to appraisal rights if the stockholder is required to accept only
"qualified consideration" for his or her stock, which is defined to include
cash, shares of stock of any association or corporation which at the
effective date of the merger will be listed on a national securities exchange
or quoted on the NASDAQ or any combination of such shares of stock and cash.
After the Merger, the rights of appraisal of dissenting stockholders will be
governed by the DGCL. The DGCL provides that dissenting stockholders have
appraisal rights in certain instances. However, the DGCL generally does not
confer appraisal rights if a corporation's stock is held of record by more
than 2,000 stockholders, or if it is listed on a national securities exchange
or listed on the NASDAQ, provided that stockholders receive only certain
forms of consideration in exchange for their shares of stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Section 203 of the DGCL is intended to discourage certain takeover practices
by impeding the ability of a hostile acquiror to engage in certain
transactions with the target company. In general, Section 203 provides that
a "Person" (as defined therein) who owns 15% or more of the outstanding
voting stock of a Delaware corporation (an "Interested Stockholder") may not
consummate a merger or other business combination transaction with such
corporation at any time during the three-year period following the date such
"Person" became an Interested Stockholder. The term "business combination" is
defined broadly to cover a wide range of corporate transactions including
mergers, sales of assets, issuances of stock, transactions with subsidiaries
and the receipt of disproportionate financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person
became an Interested Stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder; (ii) any business
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<PAGE>
combination involving a person who acquired at least 85% of the outstanding
voting stock in the transaction in which he became an Interested Stockholder,
with the number of shares outstanding calculated without regard to those
shares owned by the corporation's directors who are also officers and by
certain employee stock plans; (iii) any business combination with an
Interested Stockholder that is approved by the Board of Directors and by a
two-thirds vote of the outstanding voting stock not owned by the Interested
Stockholder; and (iv) certain business combinations that are proposed after
the corporation had received other acquisition proposals and which are
approved or not opposed by a majority of certain continuing members of the
Board of Directors. A corporation may exempt itself from the requirement of
the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain anticipated federal
income tax consequences with respect to the Merger. This discussion does not
purport to be a complete analysis of all the potential tax effects that may
be relevant to the Bank, the Company or to a particular stockholder of the
Bank. In addition, this discussion does not address the federal income tax
consequences relevant to particular categories of stockholders subject to
special treatment under federal income tax laws, such as dealers in
securities, insurance companies, tax-exempt entities, and foreign individuals
and entities. This discussion also does not describe any tax consequences
arising out of the laws of any state, locality or foreign jurisdiction.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings,
and judicial decisions now in effect, all of which are subject to change at
any time by legislative, judicial or administrative action, and any such
changes may be retroactively applied in a manner that could adversely affect
the Bank, the Company, or a particular stockholder. However, based on the
authorities noted above, the managements of the Bank and the Company believe
that the probable tax consequences of the Merger can be summarized as follows:
(i) The Merger will be classified as a tax-free reorganization pursuant
to Section 368(a)(2)(D) of the Code and no gain or loss will be recognized by
stockholders of the Bank as a result of the exchange of shares of Bank Stock
for shares of Company Stock pursuant to the Merger.
(ii) The tax basis of the shares of Company Stock received by each
stockholder will equal the tax basis of such stockholder's Bank Stock
exchanged in the Merger.
(iii) The holding period for the shares of Company Stock received by
each stockholder will include the holding period for the shares of the Bank
Stock of such stockholder exchanged in the Merger.
(iv) Any cash received by a stockholder for Bank Stock will be treated as
received in exchange for such shares, and not as a dividend, and any gain or
loss recognized as a result of receipt of such cash will be a capital gain or
loss equal to the difference between the cash received and the stockholder's
basis in the Bank Stock. Such gain (or loss, as the case may be) will
constitute long-term capital gain (or loss), provided that such stockholder held
the Bank Stock exchanged as a capital asset on the effective date of the Merger
for the requisite holding period.
(v) Neither the Company nor the Bank will recognize gain or loss as a
result of the Merger.
While the management of the Bank believes that the foregoing are the probable
tax consequences of the Merger, the Bank has not sought a ruling from the IRS
with respect to any of the federal income tax aspects of the Merger.
ACCORDINGLY, EACH STOCKHOLDER SHOULD SEEK INDEPENDENT COUNSEL REGARDING THE
POSSIBLE FEDERAL TAX CONSEQUENCES OF THE TRANSACTION WITH RESPECT TO HIS OR
HER INDIVIDUAL CIRCUMSTANCES.
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NATURE OF THE TRADING MARKET AND MARKET PRICES
Although there is an established market for the Bank Stock which is currently
quoted on the NASDAQ Small Cap Market under the Bank's current symbol, "FSBC",
the Company, as a newly formed company, has never issued capital stock and
consequently there is no established market for its Company Stock. It is
expected that Company Stock will be at least as liquid as the Bank Stock since
the number of outstanding shares of Company Stock following the Merger will
match the number of shares of Bank Stock prior to the Merger. However, there
can be no assurance that an active and liquid trading market for the Company
Stock will develop, or if developed, will be maintained.
Since there can be no assurance that an active and liquid trading market for the
Company Stock will develop or that, if developed, will continue, investors in
the Company Stock could have difficulty disposing of their shares and should not
view the Company Stock as a short-term investment. The absence of an active and
liquid trading market for the Company Stock could affect the price and liquidity
of the Company Stock. Following the Merger, it is expected that the Company
Stock will be quoted on the NASDAQ Small Cap Market under the symbol "AABC."
On the Record Date, there were 732,198 shares of Bank Stock outstanding which
were held of record by approximately 450 stockholders. On August 26, 1996, the
last day on which trades of Bank Stock occurred prior to approval of the
Agreement and prior to and including the Record Date, both the high and low
sales prices per share of the Bank Stock as reported on the NASDAQ Small Cap
Market were $5-1/2.
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by the
OTS, as its chartering agency, and the FDIC, as its deposit insurer. The Bank's
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund administered by the FDIC, and it is a member of the Federal Home
Loan Bank of Dallas. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approvals prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions. The OTS and the FDIC conduct
periodic examinations to assess the Bank's compliance with various regulatory
requirements. Such regulation and supervision establish a comprehensive
framework of activities in which an institution may engage and are intended
primarily for the protection of the insurance fund and depositors. The Company,
as a unitary thrift holding company, will be required to file certain reports
with, and otherwise comply with, the rules and regulations of the OTS and of the
Commission under the federal securities laws.
The OTS and the FDIC have significant 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
regulation and policies, whether by the OTS, the FDIC or action of the United
States Congress, could have a material adverse impact on the Company, the Bank
and the operations of both.
In 1992, the Bank was deemed to be undercapitalized by the OTS and agreed to the
issuance in July 1993 of a Prompt Corrective Action Directive, which directive
was amended in August 1994. The directive required the Bank to submit a capital
restoration plan to the OTS, prescribed restrictions on dividends, management
fees, asset growth, branching and other matters and established increased
capital levels for the Bank. The Bank is currently in compliance with the
provisions of the directive. As previously noted, the Bank entered into a
Supervisory Agreement with the OTS effective as of June 17, 1996. The
Supervisory Agreement provides for the Bank to increase its core capital
position to 6% by December 31, 1996 and to a level of 7% no later than June 30,
1997. To comply with certain other terms of the Supervisory Agreement, the
Board of Directors of the Bank appointed three (3) outside directors to the
Bank's Asset/Liability and Investment Committee, revised its business and
capital plan and reports quarterly on variances of actual results to budgeted
projections.
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REGULATION OF THE COMPANY
The following discussion is intended to be a brief description of certain
statutes and regulations applicable to a savings and loan holding company. It
does not purport to be a comprehensive description of all such statutes and
regulations and is qualified in its entirety by reference to applicable laws and
regulations.
The Company, as a unitary thrift holding company, will be a savings and loan
holding company within the meaning of HOLA. As such, the Company will be
required to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings association
subsidiaries, if any. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
financial safety, soundness or stability of a subsidiary savings association.
Except under limited circumstances, savings and loan holding companies are
prohibited from acquiring, without prior approval of the OTS, control of any
other savings institution or savings and loan holding company or substantially
all the assets thereof or more than five percent of the voting shares of a
savings institution or holding company thereof which is not a subsidiary. In
evaluating an application by a holding company to acquire a savings association,
the OTS must consider the financial and managerial resources and future
prospects of the company and savings association involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors. Acquisitions which result in a savings and
loan holding company controlling savings associations in more than one state
are generally prohibited except in supervisory transactions involving failing
savings associations or based on specific state authorization to permit such
acquisitions.
Federal law also requires OTS approval prior to any change of control of the
Company or the Bank. Under OTS regulations, "control" is presumed to exist if
an individual or company acquires more than twenty-five percent of any class of
voting stock of a savings association or holding company. Control is also
presumed to exist, subject to being rebutted, if a person acquires more than ten
percent of any class of voting stock (or more than twenty-five percent of any
class of non-voting stock) and is subject to any of several control factors,
including, among other matters, the relative ownership position of a person, the
existence of control agreements and other factors.
As a unitary thrift holding company, the Company generally will not be
restricted under existing laws to the types of business activities in which it
may engage, provided that the Bank continues to satisfy the qualified thrift
lender ("QTL") test. Upon any non-supervisory acquisition by the Company of
another thrift or savings bank that meets the QTL test and is deemed to be a
savings association by the OTS and that will be held as a separate subsidiary,
the Company would become a multiple savings and loan holding company and would
be subject to limitations on the types of business activities in which it could
engage. HOLA generally limits the activities of a multiple savings and loan
holding company and its non-insured association subsidiaries primarily to
activities permissible for bank holding companies under the Bank Holding Company
Act, subject to the prior approval of the OTS, and to other activities
authorized by OTS regulation.
A savings association or a savings and loan holding company is required to give
30 days prior written notice to the OTS of any proposed appointment of a
director or senior executive officer if the institution has been chartered less
than two years, has undergone a change in control within the preceding two
years, or is not in compliance with the minimum capital requirements or
otherwise is in a trouble condition. The OTS then has the opportunity to
disapprove any such appointment.
Transactions between the Bank and the Company and its other subsidiaries will be
subject to various conditions and limitations. The Bank will be required to
give 30 days written notice to the OTS prior to any declaration of the payment
of any dividends or other capital distributions to the Company. See "--
Dividends."
RECOMMENDATION OF PROPOSAL
This proposal must be approved by the favorable vote of a majority of the
aggregate outstanding Bank Stock. THE BOARD OF DIRECTORS OF THE BANK
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE AGREEMENT AND
THE PLAN.
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Circular/Proxy Statement include forward looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Although the Bank and the Company believe that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, they can give no assurance that their expectations will be
achieved. Important factors that could cause actual results to differ
materially from the Bank's and the Company's expectations are disclosed in
conjunction with the forward looking statements included herein ("Cautionary
Disclosures"). Subsequent written and oral forward looking statements
attributable to the Bank, the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.
INCORPORATION OF DOCUMENTS BY REFERENCE
The documents attached as exhibits to this Circular/Proxy Statement (see Table
of Contents) are expressly incorporated by reference herein. Summaries of such
documents in this Circular/Proxy Statement do not purport to be complete;
accordingly, reference should be made to such documents in conjunction with a
review of any such summary.
The Bank hereby incorporates by reference into this Circular/Proxy Statement the
following documents previously filed with the OTS pursuant to the Exchange Act:
-- The Bank's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995;
-- The Bank's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996 and June 30, 1996;
-- The Bank's Current Reports on Form 8-K dated June 27, 1996 and July 3,
1996; and
-- The following sections of the Bank's Annual Report to Stockholders for
the fiscal year ended December 31, 1995 (the "Annual Report"):
Selected Consolidated Financial Highlights, Management's Discussion
and Analysis of Financial Condition and Results of Operations and
Financial Statements. The following portions of the Annual Report are
not incorporated herein by reference and are not a part of this
Circular/Proxy Statement: Bank Profile, Letter from the Chairman and
Chief Executive Officer and Corporate Information.
In addition, all reports and other documents filed by the Bank pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such reports and
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Circular/Proxy Statement to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Circular/Proxy Statement. A copy of any document incorporated by reference
herein (including any exhibit incorporated by reference from any such document)
may be obtained without charge by any person receiving this Proxy Statement,
upon written or oral request, by contacting the Bank at 801 Pile, Clovis, New
Mexico 88101, Attention: Corporate Secretary. Such copy will be sent by first
class mail or other equally prompt means within one business day after receipt
of such request. To ensure timely delivery of the documents prior to the
Meeting, any request should be made prior to October 7, 1996.
AVAILABLE INFORMATION
The Bank is subject to the information reporting requirements of the Exchange
Act, and, in accordance therewith, files periodic reports and other information
with the OTS. Such reports and other information when filed by the Bank can be
inspected and copied at the public reference facilities maintained by the OTS at
1776 G Street, N.W., Washington, D.C. 20552, or at the OTS Regional Office
located at 122 John Carpenter Freeway, Suite 600, Dallas, Texas 75039.
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The Company is not currently subject to the information reporting requirements
of the Exchange Act and, accordingly, has not filed reports, proxy statements or
other information with the Commission. All of the Company Stock is currently
owned by the Bank, and there is, therefore, no public trading market for Company
Stock. If the Merger is consummated, the Company Stock will be registered under
the Exchange Act, and the Company will file periodic reports with the
Commission. In addition, in accordance with the rules and regulations of the
Commission in connection with annual meetings of the stockholders of the
Company, proxy statements accompanied or preceded by annual reports to
stockholders will be furnished to stockholders of the Company. Such reports will
contain financial information that has been examined and reported upon, with an
opinion expressed, by an independent public accounting firm.
The Company will file a registration statement on Form 8-A under the Securities
Act with the Commission with respect to the Company Stock as a class. Upon
filing, such registration statement, including exhibits, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's
regional offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials may also
be inspected on the Internet at http:www.sec.gov.
The Bank has filed with the OTS an application on Form H-(e)1-S under HOLA. The
non-confidential portions of the applications can be inspected at the OTS
Regional Office located at 122 John Carpenter Freeway, Suite 600, Dallas, Texas
75039.
A copy of the Annual Report and the Bank's Quarterly Report on Form 10-QSB for
the fiscal quarter ended June 30, 1996, accompanies this Circular/Proxy
Statement. The Annual Report and the quarterly report contain financial
statements, prepared in conformity with generally accepted accounting
principles, for the fiscal year ended December 31, 1995 and the fiscal quarter
ended June 30, 1996, respectively, and certain other information and should be
read in connection with this Circular/Proxy Statement.
No financial statements are furnished for the Company or New Bank because the
Bank has organized both entities solely for the purpose of engaging in the
transactions contemplated by the Agreement, both entities will not have engaged
in any business, and, until the time of consummation of these transactions, both
entities will not have any assets or liabilities other than cash received in
connection with the initial incorporation and issuance of its capital stock and
obligations evidenced by its outstanding shares of capital stock, all of which
will be owned by the Bank.
STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy materials for the 1997
Annual Meeting of Stockholders of the Company, any stockholder proposal to take
action at such meeting must be received by the Company at its principal
executive offices at 801 Pile Street, P.O. Box 1569, Clovis, New Mexico 88101 no
later than November 15, 1996. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the Exchange Act.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
One or more representatives of Robinson Burdette Martin & Cowan, L.L.P.,
certified public accountants for the Bank, are expected to be present at the
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
OTHER MATTERS
It is not intended that any business other than the proposals described above
will be presented at the Meeting. With respect, however, to any other matters
or proposals that may properly come before the Meeting, it is the intention of
the persons named as proxies in any proxy solicited hereunder to vote such proxy
in accordance with their best judgment.
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Offering Circular and Proxy
Statement of First Savings Bank, F.S.B. of our report dated February 9, 1996, on
our audits of the consolidated financial statements of First Savings Bank,
F.S.B. as of December 31, 1995 and 1994, and for the years ended December 31,
1995, 1994, and 1993, which report is included in First Savings Bank, F.S.B.'s
Annual Report for 1995 which is incorporated by reference in First Savings Bank,
F.S.B.'s 1995 Annual Report on Form 10-KSB.
/s/ ROBINSON BURDETTE MARTIN & COWAN, L.L.P.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
September 17, 1996
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of August 28, 1996
(hereinafter called the "Agreement"), is by and between Access Anytime Bancorp,
Inc., a Delaware corporation (hereinafter called "the Company") and First
Savings Bank, F.S.B., a federal savings bank, incorporated and organized under
the laws of the United States of America (hereinafter called the "Bank").
INTRODUCTION
This Agreement provides for (i) the incorporation and organization of a new
interim federal savings bank ("New Bank") which will, at the time of
consummation of the transactions contemplated herein, be a subsidiary of the
Company, and (ii) the subsequent merger of the Bank with the New Bank (the
"Merger") in connection with which shares of common capital stock of the Bank,
$1.00 par value ("Bank Common Stock"), issued and outstanding on the Effective
Date of the Merger (as hereafter defined), will be exchanged for shares of
Common Stock, $0.01 par value, of the Company ("Common Stock"), all pursuant to
the Plan of Merger by and among the Bank, the New Bank, and the Company, a form
of which is attached hereto as EXHIBIT A and all of the terms of which are
incorporated herein by reference for all purposes (the "Plan of Merger"). All
of the foregoing is for the purpose of allowing the Company to acquire 100% of
the issued and outstanding shares of Bank Common Stock which will occur pursuant
to certain transactions governed by the terms of Section 368 and other
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). In consideration of such promises and the mutual covenants and
agreements herein contained, the parties hereto agree as set forth below.
I.
PROPOSED MERGER AND SUBSEQUENT TRANSACTION
Section 1.1. The Bank and the Company propose that the Bank, the New Bank
and the Company enter into the Plan of Merger with such changes thereto as may
be required by any federal or state regulatory authority as a condition to
approving the Merger and do not, in the opinion of legal counsel to the Bank and
the Company, materially alter the rights of the stockholders of the Bank or of
the New Bank.
Section 1.2. This Agreement sets forth certain representations, warranties
and covenants of the Bank and the Company, upon which the Bank, the Company, and
the New Bank will rely in entering into and consummating the Plan of Merger and
other transactions contemplated by this Agreement.
<PAGE>
II.
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby represents and warrants to the Company as follows:
Section 2.01. ORGANIZATION. The Bank is a federal savings bank duly
organized, validly existing and in good standing under the laws of the United
States of America, and has full corporate power and authority to own its
properties, to engage in the business and activities now conducted by it and to
enter into this Agreement and the Plan of Merger. The Bank has one subsidiary,
First Equity Development Corporation, which is presently a dormant company.
Section 2.02. CAPITALIZATION. The authorized capital stock of the Bank
consists of 10,000,000 shares, 6,000,000 of which are Bank Common Stock, 732,198
of which shares are issued and outstanding, and 4,000,000 of which are serial
preferred stock, none of which are issued and outstanding. All outstanding
shares of Bank Common Stock are validly issued, fully paid, and nonassessable.
There are no existing options, warrants, calls or commitments of any kind
obligating the Bank to issue any of its authorized and unissued capital stock,
other than the options granted pursuant to the 1986 Stock Option and Incentive
Plan (the "1986 Plan").
Section 2.03. APPROVALS. The Board of Directors of the Bank has approved
this Agreement and the transactions contemplated hereby, subject to the approval
thereof by the stockholders of the Bank as required by law. This Agreement has
been duly executed and delivered by the Bank and when executed by the Company
and duly approved by the stockholders of the Bank, it will be a binding
agreement of the Bank enforceable against it in accordance with its terms.
Section 2.04. NO CONFLICT WITH OTHER INSTRUMENTS. Subject to the receipt
of all required regulatory approvals and compliance with all applicable federal
and state securities laws, the execution, delivery and performance of this
Agreement, the Plan of Merger and the transactions contemplated hereby and
thereby will not violate any provision of, or constitute a default under, any
order, writ, injunction or decree of any court or other governmental agency, or
any contract, agreement or instrument to which the Bank is a party or by which
it is bound, or constitute an event which with the lapse of time or action by a
third party could result in any default under any of the foregoing or result in
the creation of any lien, charge or encumbrance upon any of the assets or
properties of the Bank or upon the Bank Common Stock.
Section 2.05. ACCURACY OF INFORMATION. The information contained in the
Offering Circular and Proxy Statement delivered by the Bank to its stockholders
with respect to their consideration of the transactions contemplated hereby
(except insofar as such information is furnished by or based upon information
furnished by the Company or New Bank) as of its date and the date of the Special
Meeting of Stockholders of the Bank to consider the proposal contained
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therein, shall not contain any statement which, at the time and in the light
of the circumstances under which it is made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements made therein not false or
misleading.
III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Bank as follows:
Section 3.01. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power to own its properties, to carry on its business as
now being, and presently contemplated to be, conducted and to enter into this
Agreement and the Plan of Merger. Upon formation of New Bank, the Company will
have no subsidiaries other than New Bank.
Section 3.02. CAPITALIZATION. The authorized capital stock of the Company
is 6,000,000 shares of Common Stock, 1,000 shares of which are validly issued
and outstanding, fully paid and nonassessable, and 4,000,000 shares of preferred
stock, $0.01 par value, none of which are issued and outstanding. Other than as
provided by this Agreement and the Plan of Merger, there are no existing
options, warrants, calls or commitments of any kind obligating the Company to
issue any of its authorized and unissued capital stock.
Section 3.03. THE COMPANY COMMON STOCK. The 1,000 shares of Common Stock
issued to the Bank are validly issued, fully paid and nonassessable. The Common
Stock deliverable pursuant to this Agreement and the Plan of Merger will, upon
delivery, be validly issued, fully paid and nonassessable.
Section 3.04. APPROVALS. The Board of Directors of the Company has
approved this Agreement and the transactions contemplated hereby, and no
approval by the Bank as the sole stockholder of the Company is required by law
in order to consummate the transactions contemplated hereby. The Agreement has
been duly executed by the Company and constitutes a binding agreement of the
Company enforceable against it in accordance with its terms.
Section 3.05. NO CONFLICT WITH OTHER INSTRUMENTS. Subject to the receipt
of all required regulatory approvals and compliance with all applicable federal
and state securities laws, the execution, delivery and performance of this
Agreement, the Plan of Merger and the transactions contemplated hereby and
thereby will not violate any provision of, or constitute a default under any
order, writ, injunction or decree of any court or other governmental agency, or
any contract, agreement or instrument to which the Company is a party or by
which it is bound, or constitute an event which with the lapse of time or action
by a third party could result in any default under any
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of the foregoing or result in the creation of any lien, charge or encumbrance
upon any of the assets or properties of the Company or upon shares of capital
stock of the Company.
Section 3.06. ACCURACY OF INFORMATION. Any information provided by the
Company or New Bank for inclusion in the Offering Circular and Proxy Statement
delivered by the Bank to its stockholders with respect to their consideration of
the transactions contemplated hereby shall not contain any statement which, at
the time and in the light of the circumstances under which it is made, is false
or misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements made therein not false
or misleading.
IV.
COVENANTS OF THE BANK
The Bank hereby covenants to and with the Company as follows:
Section 4.01. STOCKHOLDER APPROVAL AND BEST EFFORTS. The Bank will, as
soon as practicable, present for the approval of its stockholders this
Agreement, the Plan of Merger and the transactions contemplated hereby and
thereby. The Board of Directors of the Bank will use its reasonable best
efforts to secure the approval by the holders of the requisite number of shares
of Bank Common Stock of this Agreement, the Plan of Merger and the transactions
contemplated hereby and thereby (but this provision shall not be interpreted as
requiring such directors in their capacity as stockholders of the Bank to vote
their shares of Bank Common Stock in favor of this Agreement or the Plan of
Merger) and will use its reasonable best efforts to take or cause to be taken
all other actions necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and the Plan of Merger, including such actions as
the Company may consider reasonably necessary, proper or advisable in connection
with filing applications and registration statements with, or obtaining
approvals from all regulatory authorities having jurisdiction over the
transactions contemplated by this Agreement and the Plan of Merger.
Section 4.02. EXISTENCE. From and after the date of this Agreement to the
Effective Date of the Merger, the Bank will maintain its corporate existence and
without the written consent of the Company (i) will not amend its charter or
by-laws; (ii) will not issue any securities; and (iii) will not declare or make
any dividend or other distribution with respect to the capital stock of the
Bank.
Section 4.03. ACCESS TO PROPERTIES AND RECORDS. The Bank will afford to
the officers and authorized representatives of the Company full access to the
properties, books and records of the Bank in order that the Company may have
full opportunity to make such reasonable investigation as they shall desire to
make of the affairs of the Bank, and the officers of the Bank will furnish the
Company with such additional financial and operating data and other information
as to the business and properties of the Bank as the Company shall, from time to
time, reasonably request.
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Section 4.04. INFORMATION FOR APPLICATIONS AND STATEMENTS. The Bank will
furnish the Company with all information concerning the Bank required for
inclusion in any application or statement to be made by the Company to or filed
by the Company with any other governmental body in connection with the
transactions contemplated by this Agreement and the Plan of Merger or in
connection with any unrelated transactions during the pendency of this
Agreement, and the Bank represents and warrants that all information so
furnished for such statements and applications shall be true and correct in all
material respects without omission of any material fact required to be stated
therein to make the information not materially misleading.
Section 4.05. DISSEMINATION OF PROXY STATEMENTS. The Bank will mail to
each of its stockholders a proxy statement which shall cause its management to
solicit proxies pursuant thereto and shall cause the proxies granted in
connection with this Merger to be collected, tabulated and voted in accordance
with the instructions contained in such proxies respecting the Merger.
V.
COVENANTS OF THE COMPANY
The Company hereby covenants to and with the Bank as follows:
Section 5.01. BEST EFFORTS. The Company will use its reasonable best
efforts to incorporate and organize New Bank and to cause New Bank to authorize,
adopt and approve the Plan of Merger and the transactions contemplated thereby,
and the Board of Directors of the Company will use its reasonable best efforts
to take or cause to be taken all other actions necessary, proper or advisable to
consummate this Agreement and the Plan of Merger, including such actions as the
Bank may consider reasonably necessary, proper or advisable in connection with
filing applications and other instruments with, or obtaining approvals of,
governmental bodies to the transactions contemplated by this Agreement and the
Plan of Merger.
Section 5.02. EXISTENCE. From and after the date of this Agreement to the
Effective Date, the Company (i) will maintain its corporate existence; (ii) will
not amend its charter, or by-laws; (iii) will not issue any securities; and (iv)
will not declare or make any dividend or other distribution with respect to the
outstanding shares of Common Stock.
Section 5.03. INFORMATION FOR APPLICATIONS AND STATEMENTS. The Company
will furnish the Bank with all the information concerning the Company and New
Bank required for inclusion in any application or statement to be made by the
Bank to any regulatory authority in connection with the transactions
contemplated by this Agreement, and it represents and warrants that all
information so furnished for such statements and applications shall be true and
correct in all material respects without omission of any material fact required
to be stated therein to make the information furnished not materially
misleading.
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Section 5.04. ACCESS TO RECORDS. The Company will afford to the officers
and authorized representatives of the Bank full access to the books and records
of the Company in order that the Bank may have full opportunity to make such
reasonable investigation as they shall desire to make of the affairs of the
Company, and the officers of the Company will furnish the Bank with such
additional financial data and other information as to the business of the
Company as the Bank shall, from time to time, reasonably request.
Section 5.05. ISSUANCE OF SHARES OF THE COMPANY COMMON STOCK. The Company
will issue and deliver, when and if required by the provisions of the Plan of
Merger, certificates representing the number of duly authorized, issued and
outstanding shares of Common Stock pursuant to this Agreement and the Plan of
Merger.
Section 5.06. THE 1986 PLAN. The Company shall assume all obligations of
the Bank pursuant to the provisions of the 1986 Plan as provided for in the Plan
of Merger and shall provide for the substitution of shares of Common Stock for
and in the stead of the shares of Bank Common Stock held for issuance upon the
exercise of options granted and outstanding under the 1986 Plan.
Notwithstanding the foregoing, any obligations pursuant to Section 5.06 shall be
in complete and full compliance with the Internal Revenue Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Section 5.07. THE BENEFIT PLAN. The Company shall provide for the
substitution of shares of Common Stock for and in the stead of the shares of
Bank Common Stock held by the Bank's Profit Sharing and Employee Stock Ownership
Plan ("Benefit Plan") and, in the future, shall make shares of Common Stock
available for issuance to the Benefit Plan to the same extent that the Bank made
shares of Bank Common Stock available for issuance to the Benefit Plan.
VI.
CLOSING
Section 6.01. CLOSING. On a mutually acceptable date (herein called the
"Closing Date") as soon as practicable within the 60 day period commencing with
the latest of the following dates:
(a) such date as may be prescribed by any federal or state
agency or authority pursuant to any applicable federal or state law, rule,
regulation or order, prior to which consummation of the Merger may not be
effected; or
(b) the date on which the Agreement and Plan of Merger have been
approved by the stockholders of the Bank and New Bank in accordance with
applicable law; or
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(c) if the transactions contemplated by this Agreement are being
contested in any legal proceeding and the Company or the Bank pursuant to
Section 9.01 herein has elected to contest the same, then the date that
such court proceeding has been brought to a conclusion favorable, in the
judgment of the Company and the Bank, to the consummation of the
transactions contemplated herein, or such prior date as the Company and the
Bank shall elect whether or not such court proceeding has been brought to a
conclusion,
a meeting ("Closing") will take place at which the parties to this Agreement
will exchange certificates, letters and other documents in order to determine
whether any condition exists which would permit the parties to this Agreement to
terminate this Agreement. If no such condition then exists or if no party
elects to exercise any right it may have to terminate this Agreement, then and
thereupon the appropriate parties shall execute such documents and instruments
as may be necessary or appropriate in order to effect the transactions
contemplated by this Agreement and the Plan of Merger.
The Closing shall take place at the principal office of the Bank in Clovis,
New Mexico on the Closing Date, or at such other place to which the parties may
agree.
Section 6.02. EFFECTIVE DATE. This Agreement and the Plan of Merger shall
be ratified and confirmed by the affirmative vote of the owners of record of a
majority of the Bank Common Stock and the capital stock of New Bank; and the
Merger shall become effective at the time specified in the approval of the
Merger issued by the Office of Thrift Supervision (the "OTS"). The "Effective
Date" of the Merger as that term is used in this Agreement means the effective
date of the Merger under the Plan of Merger.
Section 6.03. TERMINATION.
(a) This Agreement and the Plan of Merger may be terminated by action
of the Board of Directors of either the Company or the Bank at any time prior to
the Effective Date if:
(i) there shall be any actual or threatened action or proceeding
by or before any court or any other governmental body which shall seek to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement and the Plan of Merger and which, in the judgment of such Board
or Boards of Directors, makes it inadvisable to proceed with the Merger;
(ii) any of the transactions contemplated hereby or by the Plan
of Merger are disapproved by any regulatory authority whose approval is
required to
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consummate any of such transactions, or if, in the judgment of such
Board or Boards of Directors, there is a substantial likelihood that any
such approval will not be obtained or will be obtained only upon a
condition or conditions which would be unduly burdensome and that
therefore it is inadvisable to proceed with the Merger; or
(iii) the Merger shall not have become effective prior to
December 31, 1996, or such later date as shall have been approved by the
Board of Directors of each of the Company and the Bank.
(b) This Agreement and the Plan of Merger may be terminated at any
time prior to the Effective Date with the mutual consent of the Bank and the
Company upon the approval of such action by their respective Boards of
Directors.
VII.
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company under this Agreement are subject to the
satisfaction, at or prior to the Closing Date of the following conditions, which
conditions may be waived by the Company in its sole discretion:
Section 7.01. COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Bank in this Agreement were true when
made and shall be true at the Closing Date with the same force and effect as if
such representations and warranties were made at and as of the Closing Date and
the Bank shall have performed or complied with all covenants and conditions
required by this Agreement to be performed and complied with prior to or at the
Closing.
Section 7.02. ORGANIZATION OF THE NEW BANK. New Bank shall have been
incorporated in accordance with the applicable provisions of the OTS
regulations, and the capitalization of New Bank immediately prior to the Closing
shall be at least the amount indicated in the Plan of Merger.
Section 7.03. MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of the Bank, nor shall any event have occurred which with
the lapse of time may cause or create any material adverse change in the Bank's
financial condition, business or operations.
Section 7.04. REGISTRATION. The holders of not more than five percent
(5%) of the issued and outstanding Bank Common Stock are residents of a state or
states that require registration of the Common Stock to be issued in connection
with the Merger.
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Section 7.05. FEDERAL INCOME TAX CONSEQUENCES. The federal income tax
consequences of any of the transactions contemplated by this Agreement and the
Plan of Merger shall be satisfactory to the Company, in its sole discretion.
Section 7.06. DIVIDEND PAYMENT BY BANK. There shall be no legal or
regulatory restrictions on the Bank's ability to pay an amount of dividends with
respect to the Bank Common Stock immediately following consummation of the
Merger which will be sufficient to allow the Company to pay organizational and
other expenses incurred by the Company in connection with the transactions
contemplated by this Agreement, the Plan of Merger and the transactions
contemplated hereby and thereby.
VIII.
CONDITIONS TO OBLIGATIONS OF THE BANK
The obligations of the Bank under this Agreement are subject to the
satisfaction at or prior to the Closing Date, of the following conditions, which
conditions may be waived by the Bank in its sole discretion:
Section 8.01. COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company in this Agreement were true
when made and shall be true as of the Closing Date with the same force and
effect as if such representations and warranties were made at and as of the
Closing, and the Company shall have performed and complied with all covenants
and conditions required by this Agreement to be performed or complied with by
the Company prior to or at the Closing.
Section 8.02. MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business or operations of the Company nor shall any event have occurred which
with the lapse of time may cause or create any material adverse change in its
financial condition, business or operations.
IX.
CONDITION TO RESPECTIVE OBLIGATIONS OF
THE COMPANY AND THE BANK
The respective obligations of the Company and the Bank under this Agreement
are subject to the satisfaction of the following conditions, which may be waived
by the Bank or the Company in their respective sole discretion:
Section 9.01. GOVERNMENT APPROVALS. The Company, the Bank and New Bank
shall have received the approval of the transactions contemplated by this
Agreement and the Plan of
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<PAGE>
Merger from all necessary governmental agencies and authorities, including
the OTS and such approvals and the transactions contemplated hereby shall not
have been contested by any federal or state governmental authority or any
third party by formal proceeding. It is understood that, if any contest as
aforesaid is brought by formal proceedings, the Company or the Bank may, but
shall not be obligated to, answer and defend such contest or otherwise pursue
the Merger over such objection.
Section 9.02. STOCKHOLDER APPROVALS. The holders of a majority of the
outstanding shares of the Bank Common Stock and the capital stock of New Bank
shall have voted for the authorization and approval of, and given their written
consent to, this Agreement and the Plan of Merger and the transactions
contemplated by this Agreement and the Plan of Merger. If requested by the
Company, the Bank and New Bank each shall have delivered to the Company a
certificate signed by the respective Secretary and/or Cashier of each bank as to
the details of such votes and approvals, which certificate shall have attached
to it as exhibits copies of resolutions adopted by the stockholders of the Bank
and New Bank at a meeting duly called at which a quorum was present or by
unanimous written consent in lieu thereof.
X.
MISCELLANEOUS
Section 10.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Bank and the Company contained in this
Agreement shall not survive the Closing hereunder.
Section 10.02. AMENDMENTS. This Agreement may be amended only by a
writing signed by all parties hereto, at any time prior to the Closing Date with
respect to any of the terms contained herein, except that the provisions
regarding the number of shares of Common Stock to be received by and the amount
of cash, if any, to be paid to stockholders of the Bank pursuant to this
Agreement and the Plan of Merger shall not be changed subsequent to the approval
of the transactions provided for by this Agreement and the Plan of Merger by
such stockholders.
Section 10.03. NOTICES. Any notice given hereunder shall be in writing
and shall be mailed by first class mail, postage prepaid, to the parties at the
following addresses:
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<PAGE>
To the Company:
Access Anytime Bancorp, Inc.
801 Pile
Clovis, New Mexico 88102-1569
Attention: Mr. Norman R. Corzine
Chairman of the Board
To the Bank:
First Savings Bank, F.S.B.
801 Pile
Clovis, New Mexico 88102-1569
Attention: Mr. Ken Huey, Jr.
President
Section 10.04. ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assigned by either party without the prior written
consent of the other party. All understandings and agreements heretofore made
between the parties hereto are merged in this Agreement which shall be the sole
expression of the agreement of the parties respecting the Merger.
Section 10.05. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
be deemed to constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ACCESS ANYTIME BANCORP, INC.
/s/ NORMAN R. CORZINE
----------------------------------------
Norman R. Corzine, Chairman of the Board
ATTEST:
/s/ KATHY ALLENBERG
- - ---------------------------
Kathy Allenberg, Secretary
FIRST SAVINGS BANK, F.S.B.
/s/ KEN HUEY, JR.
----------------------------------------
Ken Huey, Jr., President
ATTEST:
/s/ KATHY ALLENBERG
- - ---------------------------
Kathy Allenberg, Secretary
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<PAGE>
EXHIBIT A
PLAN OF MERGER BY AND AMONG
FIRST SAVINGS BANK, F.S.B.
NEW FIRST SAVINGS BANK, F.S.B. AND
ACCESS ANYTIME BANCORP, INC.
THIS PLAN OF MERGER, dated as of August 28, 1996 (the "Plan"), is by and
among First Savings Bank, F.S.B., a federal savings bank incorporated and
organized under the laws of the United States of America (the "Bank"), New
First Savings Bank, F.S.B., an interim federal savings bank incorporated and
organized under the laws of the United States of America (the "New Bank"),
and Access Anytime Bancorp, Inc., a Delaware corporation ("the Company").
The Bank and the New Bank are hereinafter referred to collectively as the
"Merging Banks."
1. DECLARATIONS. The Bank is a federal savings bank duly organized
and existing under the laws of the United States of America having authorized
6,000,000 shares of common stock, $1.00 par value (the "Bank Common Stock"),
732,198 shares of which are issued and outstanding, and 4,000,000 shares of
preferred stock, none of which are issued and outstanding. Other than the
shares of Bank Common Stock issuable pursuant to options granted under the
1986 Stock Option and Incentive Plan (the "1986 Plan"), there are no existing
options, warrants, calls or commitments of any kind obligating the Bank to
issue any of its authorized and unissued capital stock. New Bank is a
banking corporation duly organized and existing under the laws of the United
States of America having authorized 1000 shares of capital stock, $0.01 par
value ("New Bank Stock"), all of which are issued and outstanding and are
owned by the Company. The Company has authorized 6,000,000 shares of Common
Stock, $0.01 par value (the "Common Stock"), 1,000 shares of which are issued
and outstanding, fully paid and nonassessable and are owned by the Bank, and
4,000,000 shares of preferred stock, $0.01 par value, none of which are
issued and outstanding.
The Bank and the Company have entered into an Agreement and Plan of
Reorganization (the "Agreement"), which contemplates, among other things, the
merger of the Bank with the New Bank (the "Merger") and the conversion of the
Bank Common Stock into Common Stock. The purpose of this Plan is to set
forth certain of the terms and conditions upon which such transactions shall
take place.
2. THE MERGER. On the Effective Date (as hereinafter defined), the
New Bank shall be merged with and into the Bank under the charter of the
Bank. The Bank shall be the surviving entity of the Merger ("Resulting
Bank") and continue to be governed by the laws of the United States
<PAGE>
of America. The Merger shall be effected pursuant to the provisions of and
shall have the effect provided by the Home Owners' Loan Act, as amended (the
"Act").
3. FEDERAL STOCK CHARTER, BYLAWS AND FACILITIES. On and subsequent to
the Effective Date, the Federal Stock Charter and Bylaws of the Bank shall
continue to be the Federal Stock Charter and Bylaws of the Resulting Bank.
The established offices and facilities of the Bank immediately prior to the
Merger shall continue to be the established offices and facilities of the
Resulting Bank. The established offices and facilities of the Resulting Bank
are listed in the attached Schedule 3.
4. EFFECT OF THE MERGER. On the Effective Date, the corporate
existence of the Bank and New Bank shall, as provided in the Act and its
implementing regulations, be merged and continued in the Resulting Bank, and
the Resulting Bank shall be deemed a continuation in entity and identity of
each of the Merging Banks. The Resulting Bank shall be subject to all the
liabilities, obligations and duties of each of the Merging Banks, and shall
without the necessity of any conveyance, assignment or transfer become the
owner of all of the assets of every kind and character formerly belonging to
the Merging Banks. If either of the Merging Banks shall at the Effective Date
be acting as trustee, guardian, executor, administrator or in any other
fiduciary capacity, the Resulting Bank shall, without the necessity of any
judicial action or action by the creator of such trust, continue such office,
trust or fiduciary relationship and shall perform all of the duties and
obligations and exercise all the powers and authority connected with or
incidental to such fiduciary relationship in the same manner as though the
Resulting Bank had been originally named or designated as such fiduciary.
The naming or designating by a testator, or the creator of a living trust, of
either of the Merging Banks to act as trustee, guardian, executor or in any
other fiduciary capacity shall be considered the naming or designating of the
Resulting Bank to act in such capacities.
5. LIABILITIES. On the Effective Date, the Resulting Bank shall be
liable for all liabilities of the Merging Banks and all deposits, debts,
liabilities, obligations and contracts of the Merging Banks, matured or
unmatured, whether accrued, absolute, contingent or otherwise, whether or not
reflected or reserved against on balance sheets, books of account or records
of the Merging Banks, as the case may be, shall be those of the Resulting
Bank and shall not be released or impaired by the Merger; and all rights of
creditors and other obligees and all liens on property of the Merging Banks
shall be preserved unimpaired subsequent to the Merger.
6. CONVERSION OF SHARES. The manner and basis of converting the
shares of the Bank Common Stock and the New Bank Stock into shares of capital
stock of the Resulting Bank and into shares of Common Stock, and other
considerations, respectively, are as follows:
6.1. Except as otherwise set forth below, upon and by reason of
the Merger becoming effective, each share of the Bank Common Stock and any
fractional shares of Bank Common Stock on the Effective Date, and all rights
in respect of such shares of Bank Common Stock, without any action on the
part of the holder thereof, shall be converted into and exchanged for one
share and a like number of fractional shares of Common Stock; provided,
however, that each
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<PAGE>
stockholder who resides in a state (i) that requires registration of the
securities to be issued in connection with the Merger and (ii) where the
Board of Directors of the Company deems the cost of such registration to be
unjustified, will have each of his shares of Bank Common Stock converted into
and exchanged for an amount equivalent to the closing price of the Bank
Common Stock on the date immediately prior to the date of consummation of the
Merger as quoted on NASDAQ Small Cap Market.
6.2. Upon and by reason of the Merger becoming effective, each
share of New Bank Stock will be converted into and remain outstanding as
shares of common stock of the Resulting Bank so that immediately after the
Merger, the Company will own all of the issued and outstanding shares of
common stock of the Resulting Bank.
6.3. On the Effective Date, the one thousand (1,000) shares of
issued and outstanding Common Stock owned by the Bank will be redeemed and
retired upon consummation of the Merger.
6.4. After the Effective Date, each holder of an outstanding
certificate or certificates which prior thereto represented shares of Bank
Common Stock shall surrender the same and such holder shall be entitled, upon
such surrender, to receive in exchange therefor a certificate or certificates
representing the number of shares of Common Stock into and for which the
shares of Bank Common Stock so surrendered shall have been converted and
exchanged as provided above. Until a certificate which represented shares of
Bank Common Stock prior to the Effective Date and which is held by a person
entitled to receive Common Stock is surrendered, such certificate shall
evidence for all purposes the ownership of the shares of Common Stock into
which the shares of Bank Common Stock represented by such certificate prior
to the Effective Date have been converted as provided above. Until
certificates representing Bank Common Stock are surrendered to the Company,
however, the Company will set aside but will not pay dividends accrued, if
any, with respect to any shares of the Common Stock which a stockholder is
entitled to receive upon the conversion of his shares of Bank Common Stock.
Upon surrender of such certificates, the Company will pay any amount of
dividends set aside with respect to any such Common Stock, without interest.
6.5. Each option granted under the 1986 Plan which shall be
outstanding immediately prior to the Effective Date shall become an option
for the purchase of Common Stock and for each share of Bank Common Stock
which could be purchased under such option, there shall be substituted and
purchasable pursuant to such option on and after the Effective Date, one
share of Common Stock. The exercise price for each share of Common Stock
pursuant to such options shall be 100% of the per share exercise price of
such option prior to the Effective Date. Consistent with the provisions of
the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder and the terms and provisions of the 1986 Plan, the
Company shall be substituted for and have all the obligations and liabilities
of the Bank under the options granted under the 1986 Plan. It is the
intention of the parties hereto that while the benefits of such options shall
be preserved for the employees of the Bank, the assumption of such options by
the Company shall not confer any additional benefits on the holders of such
options.
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<PAGE>
6.6. The obligations and liabilities of the Bank pursuant to the
Bank's Profit Sharing and Employee Stock Ownership Plan ("Benefit Plan")
shall be delegated to and assumed by the Resulting Bank on the Effective Date
and the Benefit Plan shall continue in full force and effect thereafter in
accordance with its stated terms and provisions except as provided below.
Each share of Bank Common Stock issued and held by the Benefit Plan will be
converted into a share of Common Stock. The right of a participant in the
Benefit Plan to acquire Bank Common Stock, if any, will be converted into the
right to receive Common Stock and the Company will make Common Stock
available for issuance to the Benefit Plan upon the same terms and conditions
that the Bank made Bank Common Stock available to the Benefit Plan. It is
the intention of the parties hereto that while the benefits of the Benefit
Plan shall be preserved for the employees of the Bank, the assumption of the
Benefit Plan shall not confer any additional benefits on the participants in
the Benefit Plan.
7. INSURANCE. At the Effective Date, the Resulting Bank will continue
all insurance policies maintained by the Bank and New Bank and which are in
effect immediately prior to the effective date of the Merger, including all
group and employee benefit insurance policies.
8. DIRECTORS AND EXECUTIVE OFFICERS. Subject to applicable statutes
and regulatory requirements, the Board of Directors and the executive
officers of the Resulting Bank at the Effective Date shall consist of all the
persons who are directors or executive officers of the Bank immediately prior
to the Effective Date. A listing of the directors of the Resulting Bank is
attached to this Plan as Schedule 8.
9. RATIFICATION BY STOCKHOLDERS. This Plan shall be submitted to the
stockholders of the Bank and New Bank for ratification and confirmation at
meetings to be called and held in accordance with applicable provisions of
law and the respective Federal Stock Charter and Bylaws of the Bank and New
Bank, or by unanimous written consent in lieu thereof. The Bank and New Bank
shall proceed expeditiously and cooperate fully in the procurement of any
other consents and approvals and the taking of any other action, and the
satisfaction of all other requirements prescribed by law or otherwise,
necessary for consummation of the Merger on the terms herein provided,
including, without limitation, the preparation and submission of all
necessary filings and certificates with the Office of Thrift and Supervision
(the "OTS") for approval as required by law.
10. TERMINATION. If:
(a) Any of the events set forth in Section 6.03 of the Agreement
occurs;
(b) Any condition precedent contained in Articles VII, VIII, or
IX of the Agreement has not been fulfilled or waived on or before the
Closing Date set forth in the Agreement; or
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<PAGE>
(c) For any reason the consummation of the Merger is inadvisable
in the joint and mutual opinions of the Boards of Directors of the Bank,
New Bank and the Company;
then this Plan may be terminated at any time before the Effective Date by
written notice by one or more of the Bank, New Bank and the Company to the
others, authorized or approved by resolutions adopted by the Board of
Directors of each party giving such notice. Upon termination by written
notice as provided in this Section 10, this Plan shall be void and of no
further force or effect.
11. NOTICES. Any notice given hereunder shall be in writing and shall
be mailed by first class mail, postage prepaid, to the parties at the
following addresses:
To Bank:
First Savings Bank, F.S.B.
801 Pile
Clovis, New Mexico 88102-1569
Attention: Mr. Ken Huey, Jr.
President
To New Bank:
New First Savings Bank, F.S.B.
801 Pile
Clovis, New Mexico 88102-1569
Attention: Mr. Ken Huey, Jr.
President
To Company:
Access Anytime Bancorp, Inc.
801 Pile
Clovis, New Mexico 88102-1569
Attention: Mr. Norman R. Corzine
Chairman of the Board
12. EFFECTIVE DATE. Subject to the terms and upon satisfaction of all
requirements of law and the conditions specified in this Plan including,
among other conditions, receipt of the approval of the OTS, the Merger shall
become effective, and the Effective Date of the Merger shall
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<PAGE>
occur, at the date and time specified in the certificate approving the Merger
to be issued by the OTS (the "Effective Date").
13. EXPENSES. The expenses incurred in connection with the Merger will
be paid by the Company and the Bank, depending on the nature of the expense
incurred.
IN WITNESS WHEREOF, the Bank, New Bank, and the Company have caused this
Plan to be executed in counterparts by their duly authorized officers as of the
date first above written.
FIRST SAVINGS BANK, F.S.B.
/s/ KEN HUEY, JR.
---------------------------------
Ken Huey, Jr., President
ATTEST:
/s/ KATHY ALLENBERG
- - ---------------------------------
Kathy Allenberg, Secretary
NEW FIRST SAVINGS BANK, F.S.B.
/s/ KEN HUEY, JR.
---------------------------------
Ken Huey, Jr., President
ATTEST:
/s/ KATHY ALLENBERG
- - ---------------------------------
Kathy Allenberg, Secretary
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<PAGE>
ACCESS ANYTIME BANCORP, INC.
/s/ NORMAN R. CORZINE
---------------------------------
Norman R. Corzine, Chairman of the Board
ATTEST:
/s/ KATHY ALLENBERG
- - ---------------------------------
Kathy Allenberg, Secretary
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<PAGE>
SCHEDULE 3
Established offices and facilities of the Resulting Bank:
Home office -- 801 Pile Street
Clovis, New Mexico 88102-1569
Prince Street branch -- 2501 Prince Street
Clovis, New Mexico 88102-1569
Portales branch -- 400 West 1st Street
Portales, New Mexico 88130-0178
Rio Rancho Loan -- 4016 Ridgerock Road
Production Office Suite C
Rio Rancho, New Mexico 87174
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<PAGE>
SCHEDULE 8
A listing of the name, residence address, and the year such directors' term
on the Board of Resulting Bank expires (in parentheses) is as follows:
1. Robert Chad Lydick (1999)
1408 Saint Andrews Drive
Clovis, New Mexico 88101
2. Harry Eastham (1999)
1214B Arcinega Drive
Clovis, New Mexico 88101
3. Dr. Everett Frost (1999)
1600 West Cherry
Portales, New Mexico 88130
4. Ken Huey, Jr. (1998)
108 Sandzen Drive
Clovis, New Mexico 88101
5. Carl Deaton (1998)
3107 Wallace Street
Clovis, New Mexico 88101
6. Thomas W. Martin, III (1998)
129 Tanning Way
Clovis, New Mexico 88101
7. Charles Guthals (1997)
1909 Saint Andrews Drive
Clovis, New Mexico 88101
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<PAGE>
Exhibit B
CERTIFICATE OF INCORPORATION
OF
ACCESS ANYTIME BANCORP, INC.
FIRST: The name of the Corporation is Access Anytime Bancorp, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of the registered agent at
that address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is ten million (10,000,000)
consisting of:
1. four million (4,000,000) shares of preferred stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. six million (6,000,000) shares of common stock, par value one
cent ($.01) per share (the "Common Stock").
B. Except as provided in this Article Fourth (or in any Preferred Stock
Designation, as hereinafter defined) the holders of the Common Stock shall
exclusively possess all voting power. Each holder of shares of Common
Stock shall be entitled to one vote for each share held by such holder,
except as to the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the
full amount of dividends and of sinking fund or retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled, in preference to the Common Stock, then dividends may be paid on
the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available
for the payment of dividends; but only when and as declared by the Board of
Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock (and the holders of any class
or series of stock entitled to participate with the Common Stock in the
distribution of assets) shall be entitled to
<PAGE>
receive, in cash or in kind, the assets of the Corporation available for
distribution remaining after: (i) payment or provision for payment of the
Corporation's debts and liabilities and (ii) distributions or provision for
distributions to holders of any class or series of stock having preference
over the Common Stock in the liquidation, dissolution, or winding up of the
Corporation. Each share of Common Stock shall have the same relative
rights as and be identical in all respects with all the other shares of
Common Stock.
C. The Board of Directors is hereby expressly authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to
time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof.
D. No shares of capital stock (including shares issuable upon conversion,
exchange or exercise of other securities) shall be issued directly or
indirectly, to officers, directors, or controlling persons of the
Corporation other than as part of a general public offering or as
qualifying shares to a director unless the issuance or the plan under which
they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
E. Nothing contained in this Article Fourth (or in any Preferred Stock
Designation) shall entitle the holders of any class of a series of capital
stock to vote as a separate class or series or to more than one vote per
share, except as to the cumulation of votes for the election of directors;
provided, that this restriction on voting separately by class or series
shall not apply:
(i) to any provision which would authorize the holders of Preferred
Stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event
of default in the payment of dividends on any class or series
of Preferred Stock;
(ii) to any provision which would require the holders of Preferred
Stock, voting as a class or series, to approve the merger or
consolidation of the Corporation with another corporation or the
sale, lease or conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of a
corporation other than the Corporation if the Preferred Stock is
exchanged for securities of such other corporation;
(iii) to any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this
Article Fourth (or in any Preferred Stock Designation),
including any amendment which would create or enlarge any class
or series ranking prior thereto in rights and
2
<PAGE>
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving Corporation in a merger or
consolidation for the Corporation, shall not be considered to be
such an adverse change.
FIFTH: The name and mailing address of the incorporator is:
NAME MAILING ADDRESS
---- ---------------
First Savings Bank, F.S.B. PO Box 1569
Clovis, New Mexico 88102-1569
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation. In furtherance and
not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized:
(1) to make, alter or repeal the Bylaws of the Corporation.
(2) to authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
(3) to set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created.
(4) by a majority of the whole Board of Directors, to designate one
or more committees, each committee to consist of two or more of the
directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the Bylaws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers
which may require it; provided, however, the Bylaws may provide that in the
absence or disqualification of any member of such committee or committees
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member.
3
<PAGE>
EIGHTH:
A. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
B. At all elections of directors of the Corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except
for such provision as to cumulative voting) he would be entitled to cast
for the election of directors with respect to his shares of stock
multiplied by the number of directors to be elected by him, and that he may
cast all of such votes for a single director or may distribute them among
the number to be voted for, or for any two or more of them as he may see
fit.
NINTH: The number of directors shall be not less than seven nor more than
fifteen, as stated from time to time in the Bylaws; provided that a greater
number may be approved by the Board.
TENTH: The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH:
A. The Corporation shall have the authority to issue fractional
shares.
B. No stockholder of the Corporation shall have any preemptive or
preferential right of subscription to any shares of any stock of the
Corporation, or to any obligations convertible into stock of the
Corporation, issued or sold, nor any right of subscription to any thereof
other than such, if any, as the Board of Directors of the Corporation in
its discretion from time to time may determine, and the Board of Directors
may issue stock of the Corporation, or obligations convertible into stock,
without offering such issue of stock, either in whole or in part, to the
stockholders of the Corporation. The acceptance of stock in the
Corporation shall be a waiver of any such preemptive or
4
<PAGE>
preferential right which in the absence of this provision might otherwise
be asserted by stockholders of the Corporation or any of them.
C. The Corporation shall be entitled to treat the person in whose
name any share is registered as the owner thereof, for all purposes, and
shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, save as expressly provided by the
laws of the State of Delaware.
THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, does make, file and record
this Certificate of Incorporation, does certify that the facts herein stated are
true, and, accordingly, has executed this Certificate of Incorporation this 27th
day of August, 1996.
FIRST SAVINGS BANK, F.S.B.
By /s/ Ken Huey, Jr.
---------------------------------------------
Ken Huey, Jr.
President & Chief Executive Officer
Incorporator
5
<PAGE>
Exhibit C
BYLAWS
ACCESS ANYTIME BANCORP, INC.
ARTICLE I - HOME OFFICE
The home office of Access Anytime Bancorp, Inc. (the "Corporation"), a
Delaware corporation, shall be located at 801 Pile Street, in the City of
Clovis, in Curry County, in the State of New Mexico.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place either within or outside the State of New Mexico as the Board of
Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any
other business of the Corporation shall be held annually within 120 days
after the end of the Corporation's fiscal year on the last Friday of April,
if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at 9:00 A.M., or at such other date
and time within such 120-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purposes or purposes may be called at any time by the chairman of the
board, the president, or a majority of the Board of Directors, and shall be
called by the chairman of the board, the president, or the secretary upon the
written request of the holders of not less than one-fifth of all of the
outstanding capital stock of the Corporation entitled to vote at the meeting.
Such written request shall state the purpose or purposes of the meeting and
shall be delivered to the home office of the Corporation addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedure adopted by the Board of
Directors. The Board of Directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 10 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, or the secretary, or the directors
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it
appears on the stock transfer books or records of the Corporation as of the
record date prescribed in Section 6 of this Article II with postage prepaid.
When any shareholders'
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meeting, either annual or special, is adjourned for 30 days or more, notice
of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the time and place
of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the
record date for any such determination of shareholders. Such date in any
case shall be not more than 60 days and, in case of a meeting of
shareholders, not fewer than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment.
SECTION 7. VOTING LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than
a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the Board of Directors. No proxy
shall be valid more than eleven months from the date of its execution except
for a proxy coupled with any interest.
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SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. If
shares or other securities having voting power stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two
or more persons have the same fiduciary relationship respecting the same
shares, unless the secretary of the Corporation is given written notice to
the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect:
(1) If only one votes, his or her act binds all;
(2) If more than one vote, the act of the majority so voting binds all;
(3) If more than one vote, but the vote is evenly split on any particular
matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if
any, may apply to the Delaware Court of Chancery or such other court
as may have jurisdiction to appoint any additional person to act with
the persons so voting the shares, which shall then be voted as
determined by a majority of such persons and the person appointed by
the Court. If the instrument so filed shows that any such tenancy is
held in unequal interests, a majority or even split for the purpose of
this provision shall be a majority or even split in interest.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by an officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of
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election to act at such meeting or any adjournment. The number of inspectors
shall be either one or three. Any such appointment shall not be altered at
the meeting. If inspectors of election are not so appointed, the chairman of
the board or the president may, or on the request of not fewer than 10
percent of the votes represented at the meeting shall, make such appointment
at the meeting. If appointed at the meeting, the majority of the votes
present shall determine whether one or three inspectors are to be appointed.
In case any person appointed as inspector fails to appear or fails or refuses
to act, the vacancy may be filled by appointment by the Board of Directors in
advance of the meeting or at the meeting by the chairman of the board or the
president.
Unless otherwise prescribed by applicable law or by regulations of the
Board, the duties of such inspectors shall include: determining the number of
shares and the voting power of each share, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
SECTION 13. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Corporation. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the Corporation at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Corporation. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
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SECTION 2. NUMBER AND TERM. The initial Board of Directors shall consist
of eight (8) members, which number may be increased or decreased by the Board
of Directors within the range permitted by the Corporation's Certificate of
Incorporation, but no decrease shall shorten an incumbent director's term of
office. The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 4. QUALIFICATION. Directors need not be the beneficial owners of
shares of capital stock of the Corporation.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place as the place for holding any special
meeting of the Board of Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 6. NOTICE OF SPECIAL MEETING. Written notice of at least 24 hours
regarding any special meeting of the Board of Directors or of any committee
designated thereby shall be given to each director in accordance with the
Bylaws, although such notice may be waived by the director. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in the notice of waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors; but if less than such majority is
present at a meeting, a majority of the directors present
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may adjourn the meeting from time to time. Notice of any adjourned meeting
shall be given in the same manner as prescribed in Section 6 of this Article
III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by these Bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president.
SECTION 11. VACANCIES. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such directors' successor shall have been duly elected and qualified.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board of Directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire Board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
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sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the Certificate of Incorporation or a Preferred Stock Designation,
the provisions of this section shall apply, in respect to the removal of a
director or directors so elected, to the vote of the holders of the outstanding
shares of that class and not to the vote of the outstanding shares as a whole.
SECTION 15. AGE LIMITATION OF DIRECTORS. No person of an age 70 years or
older will be eligible for election, reelection, appointment, or reappointment
to the Board of Directors of the Corporation. No director shall serve as such
beyond the annual meeting of the Corporation immediately following the
attainment of age 70. The Board of Directors may grant an exception to this
requirement for any initial director of the Corporation who has not attained the
age of 75.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate three or more of the directors,
which shall include the chief executive officer if he is a director, to
constitute an executive committee. The designation of any committee pursuant to
this Article IV and the delegation of authority shall not operate to relieve the
Board of Directors, or any director, of any responsibility imposed by law or
regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Corporation, or recommending to the stockholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Corporation; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETING. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The
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notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Corporation. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Corporation and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may
also designate the chairman of the board and/or vice chairman of the board as
officers. The Board of Directors may designate one or more vice presidents as
executive vice president or senior vice president. The Board of Directors may
also elect or authorize the appointment of such other officers as the business
of the Corporation may require. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
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SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee,
or agent shall not of itself create contractual rights. The Board of Directors
may authorize the Corporation to enter into an employment contract with any
officer in accordance with resolutions of the Board; but no such contract shall
impair the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors by employment contracts or by
resolution.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by resolutions of the
Board, and except as otherwise prescribed by these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees, or
agents of the Corporation in such manner as shall from time to time be
determined by the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited form time to time to the credit of the Corporation in any
duly authorized depositories as the Board of Directors may elect.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
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SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board of Directors and approved by the Board. Such certificates shall be
signed by the chief executive officer or by any other officer of the Corporation
authorized by the Board of Directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Corporation itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Corporation as
the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of December of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accounts appointed by and responsible to
the Board of Directors. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject only to applicable law and the terms of the Corporation's charter
and the resolutions of the board, the Board of Directors may, from time to time,
declare, and the Corporation may pay, dividends on its outstanding classes of
capital stock which are eligible for dividends.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide a Corporation seal which shall be two
concentric circles between which shall be the name of the Corporation. The year
of incorporation or an emblem may appear in the center.
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ARTICLE XI - AMENDMENTS
These Bylaws may be amended in a manner consistent with regulations of the
board at any time by a majority vote of the full Board of Directors or by a
majority vote of the votes cast by the stockholders of the Corporation at any
legal meeting.
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