SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
MONTGOMERY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer in its Charter)
Indiana 35-1962246
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
119 East Main Street
Crawfordsville, Indiana 47933
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(765) 362-4710
--------------
(Registrant's telephone number, including area code)
Check here whether the issuer (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 period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
As of January 31, 1998, there were 1,589,681 shares of the Registrant's
common stock issued and outstanding.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Form 10-QSB
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition
As of December 31, 1998 and June 30, 1998
Consolidated Condensed Statement of Income for the Three
And Six Months Ended December 31, 1998 and 1997
Consolidated Condensed Statement of Cash Flows for the
Six Months Ended December 31, 1998 and 1997
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Six Months Ended December 31, 1998
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
December 31, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Assets
Cash ............................................ $ 214,314 $ 326,922
Short-term interest-bearing deposits ............ 8,718,710 10,569,823
------------- -------------
Total cash and cash equivalents .......... 8,933,024 10,896,745
Interest-bearing deposits ....................... 215,000 215,000
Securities available for sale ................... 641,412 311,967
Loans ........................................... 105,539,751 100,395,554
Allowance for loan losses ....................... (211,000) (186,000)
------------- -------------
Net loans .................................. 105,328,751 100,209,554
Real estate owned and held for
development, net ................................ 1,281,777 1,468,199
Premises and equipment .......................... 2,552,096 2,001,544
Federal Home Loan Bank Stock .................... 1,250,700 921,500
Interest receivable ............................. 882,787 843,799
Other assets .................................... 383,915 294,324
------------- -------------
Total assets ............................. $ 121,469,462 $ 117,162,632
============= =============
Liabilities
Deposits
Noninterest bearing ......................... $ 1,841,653 $ 1,864,658
Interest bearing ............................ 78,430,465 82,117,324
------------- -------------
Total deposits ........................... 80,272,119 83,981,982
Federal Home Loan Bank advances ................. 20,013,302 11,260,715
Interest payable ................................ 647,131 538,451
Deferred tax liability .......................... 331,203 371,197
Other liabilities ............................... 515,662 945,136
------------- -------------
Total liabilities ........................ 101,779,417 97,097,481
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Financial Condition
(Unaudited)
(continued)
December 31, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Stockholders' Equity
Preferred stock, $.01 par value
authorized and unissued - 2,000,000 shares
Common stock, $.01 par value - 8,000,000 shares
authorized; 1,589,681 and 1,653,032 issued . 15,897 16,530
Paid-in capital ................................. 13,041,862 13,571,387
Retained earnings - substantially restricted .... 7,935,820 7,782,192
Unearned ESOP shares - 118,630 and 123,080 ..... (1,186,299) (1,230,802)
Unearned compensation .......................... (110,610) (128,507)
Accumulated other comprehensive income (loss) .. (6,625) 54,351
------------- -------------
Total stockholders' equity ............... 19,690,045 20,065,151
------------- -------------
Total liabilities and stockholders' equity $ 121,469,462 $ 117,162,632
============= =============
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest and Dividend Income
Loans ................................. $ 2,171,744 $ 1,940,951 $ 4,271,760 $ 3,795,384
Investment securities ................. 5,751 567 9,248 1,134
Deposits with financial institutions .. 85,360 74,547 195,918 189,292
Dividend Income ....................... 20,933 18,581 39,648 37,744
----------- ----------- ----------- -----------
Total interest and dividend income 2,283,788 2,034,646 4,516,574 4,023,554
----------- ----------- ----------- -----------
Interest Expense
Deposits .............................. 1,063,559 993,303 2,163,142 1,950,066
Federal Home Loan Bank advances
230,489 125,847 396,662 271,008
----------- ----------- ----------- -----------
Total interest expense ............... 1,294,048 1,119,150 2,559,804 2,221,074
----------- ----------- ----------- -----------
Net Interest Income ..................... 989,740 915,496 1,956,770 1,802,480
Provision for losses on loans ......... 10,000 25,000 3,000
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Losses on Loans ......... 979,740 915,496 1,931,770 1,799,480
----------- ----------- ----------- -----------
Other Income
Service charges on deposit accounts ... 13,181 8,713 23,799 15,951
Net appraisal income (expense) ........ (5,940) 111 (4,535) (943)
Other income .......................... 1,638 1,063 3,389 2,381
----------- ----------- ----------- -----------
Total other income ............... 8,879 9,887 22,653 17,389
----------- ----------- ----------- -----------
Other Expenses
Salaries and employee benefits ........ 359,398 317,634 643,313 593,492
Net occupancy expense ................. 25,918 25,188 53,447 51,374
Equipment expense ..................... 45,958 37,486 92,515 72,819
Data processing expense ............... 42,197 29,393 78,050 57,351
Deposit insurance expense ............. 12,695 11,778 25,192 23,206
Real estate operations, net ........... (10,954) (1,719) (16,197) (12,404)
Advertising expense ..................... 12,221 10,270 23,513 18,869
Other expenses .......................... 139,922 136,811 263,798 250,993
----------- ----------- ----------- -----------
Total other expenses ......... 627,355 566,841 1,163,631 1,055,700
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Income
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income Before Income Tax ................ 361,264 358,542 790,792 761,169
Income tax expense .................... 125,390 158,775 299,890 335,825
----------- ----------- ----------- -----------
Net Income .............................. $ 235,874 $ 199,767 $ 490,902 $ 425,344
=========== =========== =========== ===========
Net Income Per Share:
Basic ............................. $ 0.16 $ 0.13 $ 0.33 $ 0.28
Diluted ........................... $ 0.16 $ 0.13 $ 0.32 $ 0.28
Dividends Per Share ..................... $ 0.055 $ 0.055 $ 0.110 $ 0.110
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Six Months Ended
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities
Net income ........................................... $ 490,902 $ 425,344
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ........................ 25,000 3,000
Depreciation ..................................... 125,155 102,214
ESOP stock amortization .......................... 48,762 46,494
Amortization of unearned compensation ............ 4,341
Change In
Interest receivable .......................... (38,988) (80,294)
Interest payable ............................. 108,680 156,955
Other assets ................................. (89,591) (53,275)
Other liabilities ............................ (419,220) 21,678
----------- -----------
Net cash provided by operating activities . 255,041 622,116
----------- -----------
Investing Activities
Proceeds from paydowns of
securities available for sale .................... 10,805 10,087
Purchase of securities available for sale ........... (441,220) (200,000)
Net change in loans .................................. (5,256,388) (6,987,383)
Additions to real estate owned and held for investment (46,308) (75,460)
Proceeds from Real Estate Owned Sales ................ 319,222 52,795
Purchases of premises and equipment .................. (650,008) (178,726)
Purchase of FHLB of Indianapolis stock ............... (329,200)
Net cash used by investing activities ..... (6,393,097) (7,476,687)
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Cash Flows
(Continued)
Six Months Ended
December 31,
1998 1997
------------ ------------
<S> <C> <C>
Financing Activities
Net Change In
Noninterest-bearing, interest-bearing demand and
savings deposits ............................ $ 1,960,057 $ 993,652
Certificates of deposit ......................... (5,669,920) 3,885,823
Proceeds from FHLB advances ......................... 11,000,000 2,000,000
Repayment of FHLB advances .......................... (2,247,413) (5,167,658)
Stock purchase ...................................... (693,924)
Dividends paid ...................................... (174,465) (90,917)
------------ ------------
Net cash provided by financing activities 4,174,335 1,620,900
------------ ------------
Net Change in Cash and Cash Equivalents ............... (1,963,721) (5,230,671)
Cash and Cash Equivalents, Beginning of Period ........ 10,896,745 11,594,772
------------ ------------
Cash and Cash Equivalents, End of Period .............. $ 8,933,024 $ 6,364,101
============ ============
Additional Cash Flow and Supplementary Information
Interest Paid ....................................... $ 2,451,124 $ 2,064,119
Income Tax Paid ..................................... 755,589 174,450
Transfer from Loans to Other Real Estate Owned ..... 112,191 53,154
Cash Dividends Payable ............................. 80,663 90,917
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Consolidated Condensed Statement of Changes in Stockholders' Equity
(Unaudited)
Common Stock
------------------------ Paid-in Comprehensive Retained
Shares Amount Capital Income Earnings
--------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1998 ............ 1,653,032 $ 16,530 $ 13,571,387 $ 7,782,192
Net income for the six months
ended December 31, 1998 ..... $ 490,902 490,902
Other comprehensive income,
net of tax
Unrealized loss on securities (60,976) (60,976)
-----------
Other comprehensive income ...... $ 429,926
===========
Cash dividends ($.055 per share) (164,211)
Stock purchase .................. (63,351) (633) (520,228) (173,063)
ESOP shares earned .............. 4,259
Amortization of unearned
compensation expense ........ (13,556)
--------- --------- ------------ ------------ -----------
Balance December 31, 1998 ....... 1,589,681 $ 15,897 $ 13,041,862 $ 7,935,820
========= ========= ============ ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Unearned Unearned Comprehensive
ESOP Shares Compensation Income Total
----------- --------- -------- -----------
<S> <C> <C> <C> <C>
Balance July 1, 1998 ............ $(1,230,802) $(128,507) $ 54,351 $20,065,151
Net income for the six months
ended December 31, 1998 ..... 490,902
Other comprehensive income,
net of tax
Unrealized loss on securities (60,976)
Other comprehensive income ......
Cash dividends ($.055 per share) (164,211)
Stock purchase .................. (693,924)
ESOP shares earned .............. 44,503 48,762
Amortization of unearned
compensation expense ........ 17,897 4,341
----------- --------- -------- -----------
Balance December 31, 1998 ....... $(1,186,299) $(110,610) $ (6,625) $19,690,045
=========== ========= ======== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statement
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated condensed financial statements include the
accounts of Montgomery Financial Corporation ("Montgomery"), its subsidiary,
Montgomery Savings, A Federal Association (the "Association") and its
subsidiary, MSA SERVICE CORP.
The unaudited interim consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments necessary to
present fairly Montgomery's financial position as of December 31, 1998, results
of operations for the three and six month periods ending December 31, 1998 and
1997, and cash flows for the six month periods ended December 31, 1998 and 1997.
The results of operations for the three and six month periods ended December 31,
1998 are not necessarily indicative of the results of operations which may be
expected for the fiscal year ending June 30, 1999.
Net Income Per Share
Net income per share for the three and six month periods ended December 31, 1998
and 1997 are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period.
<TABLE>
<CAPTION>
For the Three Months Ended December 31, 1998 December 31, 1997
----------------------------------- -----------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income Available
to Common Stockholders ...... $235,874 1,490,103 $ 0.16 $199,767 1,521,209 $ 0.13
-------- --------- ======== -------- --------- =============
Effect of Dilutive Stock Options
and Grants .................. 0 12,897 0 17,746
-------- --------- -------- ---------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $235,874 1,502,999 $ 0.16 $199,767 1,538,955 $ 0.13
======== ========= ======== ======== ========= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
For the Six Months Ended December 31, 1998 December 31, 1997
----------------- -----------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
-------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Net Income Per Share:
Net Income Available
to Common Stockholders ...... $490,902 1,504,986 $ 0.33 $425,344 1,520,636 $ 0.28
======== ========= ======== ======== ========= ========
Effect of Dilutive Stock Options
and Grants .................. 0 13,650 0 16,896
-------- --------- -------- ---------
Diluted Net Income Per Share:
Net Income Available
To Common Stockholders ...... $490,902 1,518,636 $ 0.32 $425,344 1,537,532 $ 0.28
======== ========= ======== ======== ========= ========
</TABLE>
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. When used in this Form 10-Q or future
filings by Montgomery with the Securities and Exchange Commission, in
Montgomery's press releases or other public shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
words or phrases, "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Montgomery wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities, and competitive
and regulatory factors, could affect Montgomery' financial performance and could
cause Montgomery's actual results for future periods to differ materially from
those anticipated or projected. Montgomery does not undertake, and specifically
disclaims any obligation, to revise any forward-looking statements to reflect
the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
Financial Condition. Montgomery's total assets were $121.5 million at
December 31, 1998, an increase of $4.3 million, or 3.7 percent from June 30,
1998. During this six month period interest-earning assets, including Federal
Home Loan Bank advances, increased $4.0 million, or 3.5 percent. Short-term
interest-earning deposits decreased $1.9 million, or 17.5 percent. Loans
increased $5.1 million, or 5.1 percent, which is the approximate increase
budgeted for the current year-to-date. Deposits decreased $3.7 million, or 4.4
percent and borrowings increased $8.8 million, or 77.7 percent, causing a net
increase in interest-bearing liabilities of 5.4 percent. The decrease in
deposits was primarily the result of a decrease in public funds deposits due to
short term bid rates being above the cost of longer term Federal Home Loan Bank
advance rates. The increase in advances was used to replace the decrease in
deposits and to fund loan growth.
Capital and Liquidity. At December 31, 1998, Montgomery's
stockholders' equity was $19,690,000 or 16.2 percent of total assets, compared
with stockholders' equity of $20,065,000, or 17.1 percent, at June 30, 1998.
With the approval of the OTS on September 24,1998, Montgomery began to
repurchase 82,651, or 5.0 percent of its outstanding common stock. As of
December 31, 1998 Montgomery had repurchased 63,351 shares of common stock at a
cost of $694,000, leaving 19,300 shares to be repurchased to complete the 5.0%
authorized. On February 4, 1999 Montgomery completed the repurchase program of
82,651 shares at a total cost of $891,000.00. The Association continues to
exceed all minimum capital requirements. At December 31, 1998, the Association's
tangible and core capital was $16,033,000, or 13.4 percent of tangible assets,
$14,232,000 in excess of the 1.5 percent minimum required tangible capital and
$11,230,000 in excess of the 4.0 percent minimum required core capital.
Risk-based capital equaled $15,327,000, or 20.5 percent of risk-weighted assets,
$9,344,000 more than the minimum 8.0 percent risk based level required. The
director of the OTS is required to set minimum liquidity levels between four and
10 percent of assets. Current regulations require a minimum liquidity level of
five percent. The Association's average liquidity ratio for the six months ended
December 31, 1998, was 8.1 percent.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Asset/Liability Management. The Association, like other financial
institutions, is subject to interest rate risk to the extent that its'
interest-bearing liabilities reprice on a different basis than its'
interest-bearing assets. OTS regulations provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence, this approach
calculates the difference between the present value of liabilities, expected
cash flows from assets and cash flows from off balance sheet contracts. Under
OTS regulations, an institution's "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest rates is
a decrease in the institution's NPV in an amount not exceeding 2 percent of the
present value of its assets. Thrift institutions with greater than "normal"
interest rate exposure must take a deduction from their total capital available
to meet their risk-based capital requirement. The amount of that deduction is
one-half of the difference between (a) the institution's actual calculated
exposure to the 200 basis point interest rate increase or decrease ( whichever
results in the greater pro forma decrease in NPV) or (b) its "normal" level of
exposure which is 2% of the present value of its assets. Regulations do exempt
all institutions under $300 million in assets with risk-based capital above 12
percent from reporting information to calculate exposure and making any
deduction from risk-based capital. At December 31, 1998 the Association's total
assets were $120.5 million and risk based capital was 20.5 percent; therefor the
Association would have been exempt from calculating or making any risk-based
capital reduction. The Association's management believes interest-rate risk is
an important factor and makes all reports necessary to OTS to calculate
interest-rate risk on a voluntary basis. At September 30, 1998, the most recent
date for which information was available from the OTS, 2.0% of the present value
of the Association's assets was approximately $2.42 million, which was less than
$2.82 million, the greatest decrease in NPV resulting from a 200 basis point
change in interest rates. As a result, the Association, for OTS reporting
purposes, would have been required to make a deduction from total capital in
calculating its risk-based capital requirement had this rule been in effect and
had the Association not been exempt from reporting on such date. Based on
September 30, 1998 NPV information, the amount of the Association's deduction
from capital, had it been subject to reporting, would have been approximately
$200,000.
It has been and continues to be a priority of the Association's Board
of Directors and management to manage interest rate risk and thereby limit any
negative effect of changes in interest rates on Montgomery's NPV. The
Association's Interest Rate Risk Policy, established by the Board of Directors,
promulgates acceptable limits on the amount of change in NPV given certain
changes in interest rates. Specific strategies have included shortening the
amortized maturity of fixed-rate loans and increasing the volume of adjustable
rate loans to reduce the average maturity of the Association's interest-earning
assets. FHLB advances are used in an effort to match the effective maturity of
the Association's interest-bearing liabilities to its interest-earning assets.
Presented below, as of September 30, 1998, and September 30, 1997, is
an analysis of the Association's estimated interest rate risk as measured by
changes in NPV for instantaneous and sustained parallel shifts in interest
rates, up and down 300 basis points in 100 point increments, compared to limits
set by the Board. Assumptions used in calculating the amounts in this table are
assumptions utilized by the OTS in assessing the interest risk of the thrifts it
regulates. Based upon these assumptions at September 30, 1998 and September 30,
1997, the NPV of the Association was $18.5 million and $18.6 million
respectively. NPV is calculated by the OTS for the purpose of interest rate risk
assessment and should not be considered as an indicator of value of the
Association.
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
At September 30, 1998 At September 30,1997
Assumed Board
Change in Limit -------------------------- --------------------------
Interest Rates % Change $ Change % Change $ Change % Change
(Basis Points) in NPV in NPV in NPV in NPV in NPV
-------------- ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 -60 -4,882 -26 -5,414 -29
+200 -50 -2,815 -15 -3,313 -18
+100 -30 -1,159 -6 -1,425 -8
0 0 0 0 0 0
-100 -30 +839 +5 +721 +4
-200 -50 +1,840 +10 +979 +5
-300 -60 +4,363 +24 +1,297 +7
</TABLE>
In the event of a 300 basis point change in interest rate based upon
estimates as of September 30, 1998 the Association would experience a 24%
increase, compared to a 7% increase at September 30, 1997, in NPV in a declining
rate environment and a 26% decrease, compared to a 29% decrease at September 30,
1997, in NPV in a rising environment. During periods of rising rates, the value
of monetary assets and liabilities decline. Conversely, during periods of
falling rates, the value of monetary assets and liabilities increase. However,
the amount of change in value of specific assets and liabilities due to changes
in rates is not the same in a rising rate environment as in a falling rate
environment (i.e., the amount of value increase under a specific rate decline
may not equal the amount of value decrease under an identical upward rate
movement). Based upon the NPV methodology, the increased level of interest rate
risk experienced by the Association in recent periods was primarily due to the
interest rate on interest-bearing liabilities increasing more than the interest
rate on interest-earning assets because of the annual and lifetime caps on
interest rate adjustments for adjustable rate loans and because of the lag in
rate adjustments for such loans as compared to interest-bearing liabilities.
Results of Operations. Montgomery's net income for the three months
ended December 31, 1998, was $236,000 compared to $200,000 for the three months
ended December 31, 1997, an increase of $36,000, or 18.1 percent. Net interest
income increased $74,000, or 8.1 percent, primarily due an increase in average
interest-earning assets of $13.3 million, or 13.4 percent. Average
interest-earning assets were $112.7 million for the three months ended December
31, 1998 compared to $99.4 million for the 1997 three-month period. Average
interest-bearing liabilities increased $13.1 million from $81.3 million to $94.4
million during the comparable three-month periods. Interest rate spread
decreased from 2.68 percent for the three months ended December 31, 1997, to
2.62 percent for the three months ended December 31, 1998. Net interest margin
decreased to 3.51 percent for the three months ended December 31, 1998 from 3.68
percent for the three months ended December 31, 1997. Non-interest income was
$9,000 for the 1998 three-month period compared to $10,000 for the 1997 period.
Non-interest expense was $627,000 for the three months ended December 31, 1998
compared to $567,000 for the 1997 three-month period, an increase of $60,000, or
10.7 percent. This increase was primarily due to an increase in employee
benefits due to an increase in the number of employees in preparation of the
opening of a Lafayette, Indiana office.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
For the six months ended December 31, 1998, net income was $491,000
compared to $425,000 for the six months ended December 31, 1997, an increase of
$66,000, or 15.4 percent. This increase was again primarily due to an increase
in net interest income from $1,803,000 for the six months ended December 31,
1997 to $1,957,000 for the six months ended December 31, 1998, an increase of
$154,000, or 8.6 percent. Average interest-earning assets increased $14.1
million from $98.4 million for the six months ended December 31, 1997 to $112.5
million for the 1998 six-month period while average interest-bearing liabilities
increased $13.8 million during the comparable periods. Non-interest expense
increased $108,000, or 10.2 percent. This increase was primarily caused by an
increase in personnel and an increase in operational costs due to growth and
expansion. Income tax expense was $300,000 for the six months ended December 31,
1998, compared to $336,000 for the six months ended December 31, 1997.
Interest Income. Montgomery's total interest income for the three
months ended December 31, 1998, was $2.3 million, an increase of $249,000, or
12.2 percent, compared to interest income for the three months ended December
31, 1997. This increase was primarily caused by an increase in average
interest-earning assets from $99.4 million for the three months ended December
31, 1997, to $112.7 million for the three months ended December 31, 1998, an
increase of $13.3 million, or 13.4 percent principally due to loan growth.
Average loans increased from $93.0 million for the 1997 three-month period to
$105.2 million for the 1998 three month period and average investment securities
increased from $35,000 to $687,000 for the respective periods. The average yield
on interest-earning assets was 8.10 percent for the three months ended December
31, 1998, compared to 8.19 percent for the three months ended December 31, 1997.
Interest income for the six months ended December 31, 1998, was $4.5
million, an increase of $493,000, or 12.3 percent, from interest income for the
same period in 1997. Average interest-earning assets for the six months ended
December 31, 1998, was $112.4 million compared to $98.4 million for the 1997 six
month period, an increase of $14.0 million, or 14.2 percent, principally due to
loan growth. The average yield for the 1998 period was 8.03 percent compared to
8.18 percent for the 1997 period.
Interest Expense. Interest expense for the three months ended December
31, 1998, was $1.3 million, which was an increase of $175,000, or 15.6 percent,
from the three months ended December 31, 1997. Average interest-bearing
liabilities increased $13.1 million, or 16.1 percent, from $81.3 million for the
three months ended December 31, 1997, to $94.4 million for the three months
ended December 31, 1998. The average cost of funds decreased from 5.50 percent
to 5.48 percent for the comparable periods. The average cost of deposits
decreased from 5.43 percent to 5.41 percent for the comparable three-month
periods. The average cost of borrowings decreased from 6.18 percent to 5.85
percent for the comparable periods due.
Interest expense for the six months ended December 31, 1998, was $2.6
million, an increase of $339,000, or 15.3 percent, from the six months ended
December 31, 1997. The average cost of funds for the 1998 period was 5.45
percent compared to 5.55 percent for the 1997 period. Average interest-bearing
liabilities increased from $80.0 million for the six months ended December 31,
1997 to $93.8 million for the 1997 six-month period.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Provision for Losses on Loans. The provision for losses on loans was
$10,000 for the three months ended December 31, 1998 compared to no provision
adjustment for the three months ended December 31, 1997. During the six months
ended December 31, 1998, a $25,000 provision was made compared to a $3,000
provision in the comparable 1997 six-month period. Provision for loan losses are
made based on the Internal Loan and Asset Review Policy. A review is performed
at least quarterly to determine the adequacy of the current balance in the
allowance for losses on loans. Both the $25,000 and $3,000 provisions were made
primarily due to increased loan growth. Loans delinquent ninety days or more
were $852,000 at December 31, 1998, compared to $724,000 at June 30, 1998.
Non-performing loans to total loans at December 31, 1998, were 0.81 percent
compared to 0.72 percent at June 30, 1998. The allowance for losses to
non-performing loans was 24.8 percent at December 31, 1998 compared to 25.7
percent at June 30, 1998. The allowance to total loans was 0.20 percent at
December 31, 1998 and 0.19 percent at June 30, 1998. Montgomery is continually
re-evaluating the level of the allowance for loan losses as the amount of
non-residential mortgage loans and other new loan products are offered.
Non-Interest Income. Montgomery's other income for the three months
ended December 31, 1998, totalled $9,000 compared to $10,000 for the three
months ended December 31, 1997, a decrease of $1,000, or 10.2 percent. This
increase was primarily due to an increase in service charges on deposit accounts
of $4,000 and a decrease in net appraisal income of $6,000.
Other income for the six months ended December 31, 1998, was $23,000, a
decrease of $5,000, or 31.4 percent, from the comparable 1997 six month period.
During the six months ended December 31, 1998, service charges on deposit
accounts increased $8,000 and appraisal income decreased $3,000 from the 1997
six-month period.
Non-Interest Expense. Montgomery's other expenses for the three months
ended December 31, 1998, totalled $627,000, an increase of $60,000, or 10.7
percent, from the three months ended December 31, 1997. Salaries and employee
benefits increased $42,000. The increase was primarily due to an increase in
branch office personnel to accommodate growth to prepare for staffing of a fifth
office in Lafayette, Indiana to be opened during the first calendar quarter of
1999. Equipment expense increased $8,000 and data processing expense increased
$13,000. Included in the data processing expense is $8,100 for Year 2000
testing. This is part of an expected total expense of $40,500 to perform all
necessary testing of our service bureau provider. The increase in equipment
expense and the balance of the data processing expense are generally reflective
of Montgomery's growth. Real estate operations net income for the three months
ended December 31, 1998, was $11,000 compared to $2,000 for the 1997 comparable
period, an decrease of $9,000 due to an increase in net rental income.
Non-interest expense for the six months ended December 31, 1998, was
$1.2 million compared to $1.1 million, an increase of $108,000, or 10.2 percent,
from the six months ended December 31, 1997. Salary and employee benefits
increased $50,000, or 8.4 percent. An increase in personnel due to branch office
growth was the primary factor for the balance of the increase in salary and
employee benefits. Equipment expense increased $20,000 and data processing
expense increased $21,000. With the exception of $14,000 included in data
processing expense for Year 2000 testing, the balance of these increases were
primarily due to Montgomery's growth. Net real estate operations generated a net
income for the six months ended December 31, 1998, of $16,000 compared to a net
income of $12,000 for the 1997 comparable period. This increase was primarily
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
due to an increase in net rental income. Other expenses for the six months ended
December 31, 1998, were $264,000 compared to $251,000 for the six months ended
December 31, 1997, an increase of $13,000, or 5.1 percent. This increase is
generally reflective of Montgomery's growth.
Impact of the Year 2000. Montgomery has conducted a comprehensive review
of its computer systems to identify applications that could be affected by the
"Year 2000" issue, and has developed an implementation plan to address the
issue. The Year 2000 issue is the result of the computer programs being written
using two digits rather than four to define the applicable year. Any of
Montgomery's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations. Montgomery is utilizing both internal and
external resources to identify, correct or reprogram and test the systems for
the Year 2000 compliance. Montgomery's data processing is performed primarily by
an outside vender. Montgomery began the testing phase during the third calendar
quarter of 1998. Core application testing should be completed by March 31, 1999.
Montgomery has already contacted each vendor to request time tables for
year 2000 compliance and expected costs, if any, to be passed along to
Montgomery. To date, Montgomery anticipates that its primary service provider
will complete all reprogramming efforts by March 31, 1999; however, Montgomery
will pursue other options if it appears that any vendors will be unable to
comply. In addition to possible expenses related to Montgomery's systems and
those of its service providers, Montgomery could incur losses if Year 2000
problems affect any of its depositors or borrowers. Such problems could include
delayed loan payments due to Year 2000 problems affecting any of its significant
borrowers or impairing the payroll systems of large employers in its market
area. Because Montgomery's loan portfolio is diversified and its market area
does not depend significantly upon one employer or industry, Montgomery does not
expect any such Year 2000 related difficulties that may affect its depositors or
borrowers to significantly affect its net earnings or cash flows.
The Board of Directors reviews, on at least a quarterly basis, the
progress in addressing Year 2000 issues. Montgomery has estimated a cost and
established a budget of $75,000 for testing and upgrading its systems and
software for Year 2000 compliance. As of December 31, 1998 Montgomery has spent
approximately $35,000 in connection with Year 2000 compliance. Of the $35,000
approximately $20,000 has been capitalized as non-compliant systems were
replaced and upgraded. Management does not expect these costs to have a
significant impact on its financial position or results of operations, however,
there can be no assurance that the vendors systems will be Year 2000 compliant,
consequently Montgomery could incur incremental costs to convert to another
vendor or move data processing in house in future periods.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
Part II. OTHER INFORMATION
Item 1. Legal Proceedings None.
Item 2. Changes in Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Montgomery Financial Corporation
("Montgomery") was held at the principal office of Montgomery, 119 East Main
Street, Crawfordsville, Indiana 47933, on Tuesday, October 20, 1998, at 2:00
p.m., Crawfordsville time for the purpose of electing two Directors, to consider
and approve or disapprove the Company's 1997 Stock Option and Incentive Plan, to
consider and approve or disapprove the Company's 1997 Recognition and Retention
Plan, to ratify the appointment of Geo. S. Olive & Co. LLC, as Montgomery's
independent auditors for the 1999 fiscal year and to transact such other
business as may properly come before the Annual Meeting. Proxy Statements were
furnished to such holders on or about September 14, 1998. A total of 1,653,032
shares of common stock of Montgomery were outstanding on August 31, 1998, and a
total of 1,513,302 shares were represented at the meeting. Of the 1,513,302
shares, 1,478,789 were represented by proxy and 34,513 were represented in
person.
Joseph M. Malott and J. Lee Walden were nominated to hold office until the year
2001 Annual Meeting of Shareholders. Mr. Malott has been a director since 1978
and Mr. Walden since 1995. No other nominations were made at the meeting. Joseph
M. Malott was elected receiving 1,496,217 votes for, with 17,085 votes withheld.
J. Lee Walden was elected receiving 1,496,142 votes for, with 17,160 votes
withheld. With the election of Messrs. Malott and Walden, the terms of the
Directors as of October 20, 1998, expire as follows: 1999 - C. Rex Henthorn and
John E. Woodward; 2000 - Earl F. Elliott, Mark E. Foster and Robert C. Wright;
2001 - Joseph M. Malott and J. Lee Walden.
Geo S. Olive & Co. LLC ("GSO"), served as independent auditors for Montgomery in
fiscal 1998. The Board of Directors approved the appointment of GSO as
independent auditors for fiscal 1999, subject to ratification by the
shareholders. The appointment of the independent auditors is ratified if more
votes are cast in favor of the appointment than against the appointment. The
ratification of GSO was approved by 1,493,534 votes in favor, 5,755 votes
against and 14,013 abstentions.
On July 21, 1998, the Board of Directors adopted, subject to approval of the
shareholders, the 1997 Stock Option and Incentive Plan. Adoption of the Plan
reflects the belief of the Board of Directors that the granting of stock
incentive awards to directors, officers and employees is a means of enhancing
and encouraging the recruitment and retention of those individuals on whom the
continued success of the company most depends. The plan provides for the future
issuance of 118,678 shares. The affirmative vote of a majority of the votes cast
was required to approve adoption of the 1997 Stock Option and Incentive Plan.
Proxies marked to abstain and broker non-votes had no effect on this proposal.
The 1997 Stock Option and Incentive Plan was adopted by affirmative votes of
784,229 and 83,793 votes against.
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
On July 21, 1998, the Board of Directors adopted, subject to approval of the
shareholders, the 1997 Recognition and Retention Plan. Adoption of the Plan
reflects the belief of the Board of Directors that the Plan will provide to
directors, advisory directors, officers and employees a proprietary interest in
the Montgomery in a manner designed to encourage such individuals to remain with
the Montgomery and the Association. The maximum number of shares which may be
awarded under the 1997 RRP will be an amount which, when added to the number of
shares of Common Stock awarded under Montgomery's 1995 plan, will equal 66,121
shares of Common Stock. The affirmative vote of a majority of the votes cast was
required to approve adoption of the 1997 Recognition and Retention Plan. Proxies
marked to abstain and broker non-votes had no effect on this proposal. The 1997
Stock Option and Incentive Plan was adopted by affirmative votes of 760,115 and
97,608 votes against.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Montgomery Financial Corporation's 1997 Stock Option and
Incentive Plan
10.2 Montgomery Financial Corporation's 1997 Recognition and Retention
Plan
(b) Reports on Form 8-K
None
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Montgomery Financial Corporation
Date: February 10, 1999 By: /s/ Earl F. Elliott
---------------------
Earl F. Elliott, President and Chief
Executive Officer
Date: February 10, 1999 By: /s/ J. Lee Walden
-------------------
J. Lee Walden, Vice President and Chief
Financial Officer
<PAGE>
MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
Crawfordsville, Indiana
EXHIBIT INDEX
Executive
Compensation
Plans and
Exhibits Page Arrangements**
- -------- ---- --------------
10.1 Montgomery Financial Corporation 20 X
1997 Stock Option and Incentive Plan
10.2 Montgomery Financial Corporation 27 X
1997 Recognition and Retention Plan
** Indicates exhibits that describe or evidence all management contracts or
compensation plans or arrangements required to be filed as exhibits to this
report.
MONTGOMERY FINANCIAL CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options. Options granted as Incentive Stock Options but
which, for any reason, fail to qualify as such shall automatically become
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Association" - means Montgomery Savings, A Federal Association and any
successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to any Options which at the time of exercise are intended to be
Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Conversion and Reorganization" - means (i) the conversion of
Montgomery Mutual Holding Company from mutual form to a federal interim stock
savings association and its merger into the Association and (ii) the merger
transaction pursuant to which the Association will become a wholly owned
subsidiary of the Corporation.
"Corporation" - means Montgomery Financial Corporation, an Indiana
corporation.
"Employee" - means any person, including an officer or director, ,,who
is employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
"Exercise Price" - means (i) in the case of an Option, the price per
Share at which the Shares subject to such Option may be purchased upon exercise
of such Option and (ii) in the case of a Right, the price per Share (other than
tile Market Value per Share on the date of exercise and the Offer Price per
Share as defined in Section 10 hereof) which, upon grant, the Committee
determines shall be utilized in calculating the aggregate value which a
Participant shall be entitled to receive pursuant to Sections 9, 10 or 12 hereof
upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares -ranted
by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422(b) of the Code. "Limited Stock Appreciation Right" - means a
stock appreciation right with respect to Shares granted by the Committee
pursuant to Sections 6 and 10 hereof
"Market Value" - means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a tax
qualified retirement plan); c) has not been an officer of the Corporation; it)
does not receive remuneration from the Corporation in any capacity other than as
a director; and a) does not possess an interest in any other transactions or is
not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is not intended to
qualify under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, advisory director, director
emeritus, officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award.
"Plan" - means the 1997 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted
in connection with, and to the extent exercisable, in whole or in part, in lieu
of, an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
<PAGE>
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 9
hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more
than ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion, to
(i) select Participants and grant Awards; (ii) deter-mine the number of Shares
to be subject to types of Awards generally, as well as to individual Awards
granted under the Plan; (iii) determine the terms and conditions upon which
Awards shall be granted tinder the Plan; (iv) prescribe the form and terms of
instruments evidencing such grants; and (v) establish from time to time
regulations for the administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from
time to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section I I hereof, the maximum number of Shares with respect to which Awards
may be made un ' der the Plan is 10% of the Shares issued in the Conversion and
Reorganization (excluding Shares issued in exchange for shares of the
Association). The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued shares or issued shares heretofore or
hereafter reacquired and held as treasury shares. Shares which are subject to
Related 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 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.
6. General Terms and Conditions of Options and Rights. The Committee
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant Options and/or Rights and to provide the terms and
conditions (which need not be identical among Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
<PAGE>
Market Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii)
the manner, time and rate (cumulative or otherwise) of exercise of such Option
or Right, and (iv) the restrictions, if any, to be placed upon such Option or
Right or upon Shares which may be issued upon exercise of such Option or Right.
No individual shall be granted Awards in any calendar year with respect to more
than 25% of the total Shares subject to the Plan.
Furthermore, at the time of any Award, the Participant shall enter into
an agreement with the Corporation in a form specified by the Committee, agreeing
to the terms and conditions of the Award and such other matters as the
Committee, in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan
shall be exercisable during the lifetime of the Participant to whom such
Option or Right was granted only by such Participant and, except as
provided in paragraphs (c) and (d) of this Section 7, no such Option or
Right may be exercised unless at the time such Participant exercises such
Option or Right, such Participant has maintained Continuous Service since
the date of grant of such Option or Right.
(b) To exercise an Option or Right under the Plan, the Participant to whom
such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number
of Shares with respect to which such Participant elects to exercise such
Option or Right) together with full payment of the Exercise Price, if any
and to the extent required. The date of exercise shall be the date on
which such notice is received by the Corporation. Payment, if any is
required, shall be made either (i) in cash (including check, bank draft
or money order) or (it) by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable
exercise price, such fair market value to be determined in such
appropriate manner as may be provided by the Committee or as may be
required in order to comply with or to conform to requirements of any
applicable laws or regulations, or (B) a combination of cash and such
Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability
and termination of employment by the Corporation or any Affiliate for
cause), such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no
event after the expiration date of such Option or Right, exercise such
Option or Right to the extent that such Participant was entitled to
exercise such Option or Right at the date of such cessation, provided,
however, that such right of exercise after cessation of Continuous
Service shall not be available to a Participant if the Committee
otherwise determines and so provides in the applicable instrument or
instruments evidencing the grant of such Option or Right. If a
Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service by reason of death or disability then, unless
the Committee shall have otherwise provided in the instrument evidencing
<PAGE>
the grant of an Option or Right, all Options and Rights granted and not
fully exercisable shall become exercisable in full upon the happening of
such event and shall remain so exercisable (i) in the event of death for
the period described in paragraph (d) of this Section 7 and (ii) in the
event of disability for a period of three months following such date. If
the Continuous Service of a Participant to whom an Option or Right was
granted by the Corporation is terminated for cause, all rights under any
Option or Right of such Participant shall expire immediately upon the
effective date of such termination.
(d) In the event of the death of a Participant while in the Continuous
Service of the Corporation or an Affiliate or within the three-month
period refer-red to in paragraph (c) of this Section 7, the person to
whom any Option or Right held by the Participant at the time of his death
is transferred by will or the laws of descent and distribution, or in the
case of an Award other than an Incentive Stock Option, pursuant to a
qualified domestic relations order, as defined in the Code or Title I of
ERISA or the rules thereunder may, but only to the extent such
Participant was entitled to exercise such Option or Right upon his death
as provided in paragraph (c) above, exercise such Option or Right at any
time within a period of one year succeeding the date of death of such
Participant, but in no event later than ten years from the date of grant
of such Option or Right. Following the death of any Participant to whom
an Option was granted under the Plan, irrespective of whether any Related
Right shall have theretofore been granted to the Participant or whether
the person entitled to exercise such Related Right desires to do so, the
Committee may, as an alternative means of settlement of such Option,
elect to pay to the person to whom such Option is transfer-red by will or
by the laws of descent and distribution, or in the case of an Option
other than an Incentive Stock Option, pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder, the amount by which the Market Value per Share on the date of
exercise of such Option shall exceed the Exercise Price of such Option,
multiplied by the number of Shares with respect to which such Option is
properly exercised. Any such settlement of an Option shall be considered
an exercise of such Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least I 10 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $ 100,000.
<PAGE>
9. 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 Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
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 of 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 from time to time in each
case determine. At the time of grant of an Option 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 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. 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 of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Notwithstanding
any other provision of the Plan, a Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first day following the date
of expiration of any "offer" (as such term is hereinafter defined) and ending on
the forty-fifth day following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
<PAGE>
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merge . In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted shall
have the right (subject to the provisions of the Plan and any limitation or
vesting period applicable to such Option or Right), thereafter and during the
term of each such Option or Right, to receive upon exercise of any such Option
or Right an amount equal to the excess of the fair market value on the date of
such exercise of the securities, cash or other property, or combination thereof,
receivable upon such merger, consolidation or combination in respect of a Share
over the Exercise Price of such Right or Option, multiplied by the number of
Shares with respect to which such Option or Right shall have been exercised.
Such amount may be payable fully in cash, fully in one or more of the kind or
kinds of property payable in such merger, consolidation or combination, or
partly in cash and partly in one or more of such kind or kinds of property, all
in the discretion of the Committee.
13. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 13 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation or the Association with respect to which 25%
<PAGE>
or more of the total number of votes for the election of the Board of Directors
of the Corporation or the Association may be cast, (ii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were directors of the Corporation or the Association
shall cease to constitute a majority of the Board of Directors of the
Corporation or the Association, or (iii) the shareholders of the Corporation
shall approve an agreement providing either for a transaction in which the
Corporation will cease to be an independent publicly owned entity or for a sale
or other disposition of all or substantially all the assets of the Corporation
or the Association. If a tender offer or exchange offer for Shares (other than
such an offer by the Corporation) is commenced, or if any of the events
specified in clauses (i) through (iii) above shall occur, unless the Committee
shall have otherwise provided in the instrument evidencing the grant of an
Option or Stock Appreciation Right, all Options and Stock Appreciation Rights
theretofore granted and not fully exercisable shall become exercisable in full
upon the happening of such event; provided, however, that no Option or Stock
Appreciation Right which has previously been exercised or otherwise terminated
shall become exercisable.
14. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
15. Employee Rights Under the Plan. No director, advisory director,
director emeritus, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, advisory directory, director emeritus, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Corporation or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Corporation
or any Affiliate.
16. Delivery and Registration of Stock, The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom Such Shares are to be delivered, in such form as the
Committee shall deter-mine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
listed. and (ii) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable.
17. Withholding Tax. The Corporation shall have the right to deduct
from all amounts paid in cash with respect to the exercise of a 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
<PAGE>
pursuant to the exercise of an Option or Right pursuant to the Plan, the
Corporation shall have the right to require the Participant or such other person
to pay the Corporation the amount of any taxes which the Corporation is required
to withhold with respect to such Shares, and may, in its sole discretion,
withhold sufficient Shares to cover the amount of taxes which the Corporation is
required to withhold.
18. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section I I hereof) no amendment shall be made without
approval of the stockholders of the Corporation which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially change the requirements as to eligibility for
participation in the Plan or (iii) change the class of persons eligible to
participate in the Plan; provided, however, that no such amendment, suspension
or termination shall impair the rights of any Participant, without his consent,
in any Award theretofore made pursuant to the Plan.
19. Effective Date and Term of Plan. The Plan shall become effective
upon its ratification by stockholders of the Corporation. It shall continue in
effect for a term of ten years unless sooner terminated under Section 17 hereof.
MONTGOMERY FINANCIAL CORPORATION
1997 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term,
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award"- means the grant of Restricted Stock by the Committee, as provided in
the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Association" - means Montgomery Savings, A Federal Association, a
savings institution and its successors.
"Beneficiary" - means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 7 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate. Service shall
not be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Corporation or any Affiliate or in the
case of transfers between payroll locations of the Corporation or its Affiliates
or between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion and Reorganization" - means (i) the conversion of
Montgomery Mutual Holding Company from mutual form to a federal interim stock
savings association and its merger into the Association and (ii) the merger
transaction pursuant to which the Association will become a wholly owned
subsidiary of the Corporation.
"Corporation" - means Montgomery Financial Corporation, an Indiana
corporation.
"Disability" - means any physical or mental impairment which qualifies
an employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the
Association or an Affiliate, or, if no such plan applies to such individual,
which renders such employee or director, in the judgment of the Committee,
unable to perform his customary duties and responsibilities.
<PAGE>
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Participant" - means any director, director emeritus, advisory
director, executive officer or employee of the Corporation or any Affiliate who
is selected by the Committee to receive an Award.
"Plan" - means the 1997 Recognition and Retention Plan of the
Corporation.
"Restricted Period" - means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 3 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded
to a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
Awards and, in addition to the terms and conditions contained in paragraphs (a)
through (f) of this Section 3, to provide such other terms and conditions (which
need not be identical among Participants) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.
(a) At the time of an award of Restricted Stock, the Committee shall
establish for each Participant a Restricted Period, during which or at
the expiration of which, as the Committee shall determine and provide in
the agreement referred to in paragraph (d) of this Section 3, the Shares
awarded as Restricted Stock shall vest, and subject to any such other
terms and conditions as the Committee shall provide, shares of Restricted
Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and subject to
paragraphs (c) and (e) of this Section 3 and Section 4 hereof, the
Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to receive all
dividends paid on such shares and the right to vote such shares. The
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to
an Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circumstances occurring
after the commencement of such Restricted Period.
<PAGE>
(b) Except as provided in Section 5 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death, total or
partial disability or retirement at age 65 or later), unless the
Committee shall otherwise determine, all Shares of Restricted Stock
theretofore awarded to such Participant and which at the time of such
termination of Continuous Service are subject to the restrictions imposed
by paragraph (a) of this Section 3 shall upon such termination of
Continuous Service be forfeited and returned to the Corporation. If a
Participant ceases to maintain Continuous Service by reason of death,
total or partial disability or retirement at age 65 or later, Restricted
Stock then still subject to restrictions imposed by paragraph (a) of this
Section 3 will be free of those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under
the Plan shall be registered in the name of the Participant and deposited
by the Participant, together with a stock power endorsed in blank, with
the Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the 1997 Recognition and
Retention Plan of Montgomery Financial Corporation. Copies of such
Plan are on file in the offices of the Secretary of Montgomery
Financial Corporation, 119 East Main Street, Crawfordsville,
Indiana 47933.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the
Committee, in its sole discretion, shall determine (the "Restricted Stock
Agreement").
(e) At the time of an award of shares of Restricted Stock, the Committee may,
in its discretion, determine that the payment to the Participant of
dividends declared or paid on such shares, or specified portions thereof,
by the Corporation shall be deferred until the lapsing of the
restrictions imposed under paragraph (a) of this Section 3 and shall be
held by the Corporation for the account of the Participant until such
time. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account
at the beginning of the year at a rate per annum as the Committee, in its
discretion, may determine In the event of such deferral, upon the
forfeiture of such shares under paragraph (b) of this Section 3, all
deferred dividends and interest thereon shall be forfeited.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall deliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 3 applies in the case
of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 3 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph
(a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
<PAGE>
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 5 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation or the Association with respect to which 25%
or more of the total number of votes may be cast for the election of the Board
of Directors of the Corporation or the Association, (ii) as a result of, or in
connection with, any cash tender offer, merger or other business combination
sale of assets or contested election, or combination of the foregoing, the
persons who were directors of the Corporation or the Association shall cease to
constitute a majority of the Board of Directors of the Corporation or the
Association, or (iii) the shareholders of the Corporation shall approve an
agreement providing either for a transaction in which the Corporation will cease
to be an independent publicly owned entity or for a sale or other disposition of
all or substantially all the assets of the Corporation or the Association. If
the Continuous Service of any Participant is involuntarily terminated for
whatever reason, at any time within twelve months after a change in control,
unless the Committee shall have otherwise provided, any Restricted Period with
respect to Restricted Stock theretofore awarded to such Participant shall lapse
upon such termination and all Shares awarded as Restricted Stock shall become
fully vested in the Participant to whom such Shares were awarded.
6. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent and distribution, or (ii) pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA or the rules thereunder.
7. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion, to
(i) select Participants and grant Awards; (ii) determine the number of Shares to
be subject to types of Awards generally, as well as individual Awards granted
under the Plan; (Ili) determine the terms and conditions upon which Awards shall
be granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all determinations
deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
<PAGE>
8. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan shall be an amount which, when added to the number of
Shares under the 1995 Plan, shall equal 4% of the total Shares outstanding upon
completion of the Conversion and Reorganization. The Shares with respect to
which Awards may be made under the Plan may be either authorized and unissued
Shares or issued Shares heretofore or hereafter reacquired and held as treasury
Shares. An Award shall not be considered to have been made under the Plan with
respect to Restricted Stock which is forfeited and new Awards may be granted
under the Plan with respect to the number of Shares as to which such forfeiture
has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (I) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
9. Employee Rights Under the Plan. No director, director emeritus,
advisory director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any fight to be
retained in the employ of the Corporation, the Association or any Affiliate.
10. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan sufficient Shares or withhold sufficient
cash to cover any applicable withholding and employment taxes. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments. No discretion or choice shall
be conferred upon any Participant with respect to the form, timing or method of
any such tax withholding.
11. Amendment or Termination The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that no such amendment, suspension or termination shall
impair the rights of any Participant, without his consent, in any Award
theretofore made pursuant to the Plan.
12. Term of Plan. The Plan shall become effective upon its ratification
by the stockholders of the Corporation. It shall continue in effect for a term
of ten years unless sooner terminated under Section 11 hereof.
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<PERIOD-END> DEC-31-1998
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0
0
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